Applied Genetic Technologies Corp (AGTC) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Applied Genetic Technologies Corporation Second Quarter 2018 Financial Results. (Operator Instructions) As a reminder, this conference is been recorded. I would now turn the conference over to your host, Ms. Sue Washer, President and Chief Executive Officer, of Applied Genetic Technologies Corporation. Thank you. You may begin.

Good morning, and thank you all for joining us today. Bill Sullivan, our Chief Financial Officer; and Matt Feinsod, our Chief Medical Officer are also with us on the call today.

During our call, Matt will provide a brief overview of our clinical and preclinical programs, and Bill will then review our financial results for the second quarter of fiscal year 2018. The team will then be available to answer any questions you may have.

Our primary focus during the second quarter and moving forward throughout 2018 is on recruiting and enrolling patients in our 4 ongoing clinical trials. During this quarter, we more than doubled the size of our clinical team by hiring staff at all levels of the organization, including a Vice President of Clinical Operations, who will be solely focused on patient enrollment.

We have also increased our patient advocacy efforts, provided additional resources to our clinical sites and engaged a leading global contract research organization to provide additional support. The steps we have taken are already resulting in more patients entering and completing the screening process, which will drive patient enrollment throughout the year.

I will now turn the call over to Matt, who will summarize the status of our 4 ongoing clinical trials as well as provide some additional detail on our preclinical collaboration in optogenetics.

Thank you, Sue. Our most advanced clinical program, the potential achievement for X-linked retinoschisis, or XLRS, is being evaluated in an ongoing Phase I/II clinical trial as part of the company's collaboration with Biogen. XLRS is characterized by abnormal splitting of the layers of the retina, resulting in poor visual function in young boys that can ultimately result in legal blindness in adult men.

To date, the company has completed enrollment of 22 patients. We continue to enroll adult patients in the expansion group at the highest dose level and children between the ages of 6 and 18 at the mid-dose level.

As a result of the activities that Sue mentioned previously to expand the depth and breadth of our clinical operations, we also have a number of patients who are either in the screening process, who have passed screening and are being scheduled for injection. We expect to fully enroll the study by the end of March 2018 and to present data after the last patient enrolled has been followed for 6 months.

The primary endpoint of this clinical trial is safety. And available data to date continued to show that the XLRS product candidate has been generally safe and well tolerated.

Our next most advanced clinical programs target achromatopsia, an inherited retinal disease, in which patients suffer from poor vision, loss of color discrimination and sensitivity to light.

Our parallel Phase I/II studies are enrolling patients with mutations in the two most common achromatopsia genes called CNGA3 and CNGB3, which account for 75% of the total patient population. As previously discussed, in our achromatopsia B3 trial, we completed enrollment of 4 patients in one dose group before electing to adjust the dose downward, and we are currently scheduling patients for enrollment at this lower dose. We are also currently enrolling patients in our A3 trial, and we have now dosed one patient.

Turning to X-linked retinitis pigmentosa, or XLRP, which is our fourth clinical indication and second program in collaboration with Biogen. XLRP is an inherited retinal disease caused by mutations in the RPGR gene. Children affected with XLRP are born with poor visual function that significantly affects daily activities and worsens over time. We are currently screening patients at the 2 sites that are open for enrollment, while the additional sites continue their site initiation activities.

In addition to the above programs, we also continue to work with Bionic Sight on the development of an optogenetic product candidate for patients with advanced retinal disease. This product would introduce genes for light-sensitive proteins into retinal cells in order to control their activity using light signals, and thus potentially allow patients without functional photoreceptors to regain visual function.

We plan to complete the necessary preclinical work over the coming months and expect that Bionic Sight will file an IND for this product candidate in the second half of 2018.

I will now turn the call over to Bill Sullivan, who will briefly review our second quarter fiscal year 2018 financial results.

Thank you, Matt. Our second quarter fiscal year 2018 financials were included in our press release, which was distributed a short while ago.

For the 6 months ended December 31, 2017, the company incurred a net loss of $6.6 million compared to net income of $4.8 million for the comparable period in 2016. The change of $11.4 million was primarily due to a $7.6 million decrease in revenues, a $4.4 million increase in R&D expenses, a $1.5 million increase in G&A expenses and a change of $2 million related to income taxes.

The $7.6 million decrease in revenues was primarily due to a decrease of $9 million related to amortization revenue, partly offset by a $1.5 million increase in development services revenue.

The decrease in amortization revenue is primarily due to reaching the end of the XLRP service period in the first quarter of fiscal year 2018. The increase in development services revenue is primarily due to activities associated with preparing to conduct a Phase I/II clinical trial for XLRP, which are reimbursed by Biogen. So importantly, what this means is that while amortization revenue will be lower in our financials moving forward, which is a noncash item, cash burn under the XLRP program will be lower as Biogen is now reimbursing AGTC for 100% of the cost of the Phase I/II XLRP clinical trial moving forward.

Moving on to R&D expenses. The $4.4 million increase in R&D expenses for the 6 months ended December 31, 2017 is primarily due to increased spending on general research and discovery programs, increased spending on the company's clinical programs and increased employee-related expenses associated with hiring of additional employees to support clinical trial execution and research and development activities.

The $1.5 million increase in G&A expenses is primarily due to increased employee-related and corporate expenses to support our continued expansion.

Income tax benefit for the 6 months ended December 31, 2017 was $0.8 million compared to income tax expense of $1.2 million in the comparable period in 2016. The income tax expense for the 6 months ended December 31, 2016 was due to the recognition of revenue related to the Biogen agreement for tax purposes, which is accelerated compared to GAAP revenue resulting in significantly more taxable income than GAAP net income.

The income tax benefit for the 6 months ended December 31, 2017 was primarily due to certain tax credit carryforwards becoming refundable under the Tax Cuts and Jobs Act of 2017.

Now turning to our balance sheet and financial guidance. We ended fiscal Q2 2018 with a strong balance sheet. Total cash, cash equivalents and investments as of December 31 were $119.7 million. We believe these funds will be sufficient to allow AGTC to generate data from our ongoing clinical trials, to move our preclinical optogenetics program in collaboration with Bionic Sight into the clinic and fund our currently planned research and development programs for at least the next 2 years.

We expect total cash, cash equivalents and investments as of June 30, 2018 to be between $90 million and $100 million. Importantly, any milestone payments for Biogen that are received before June 30, 2018 would increase these projected cash balances. Notably, upon dosing of the first and fourth patient in the XLRP Phase I/II clinical trial, the company would be entitled to receive milestone payments of $2.5 million and $10 million, respectively, less sublicensing fees of approximately 23%.

So with one or both of these milestones collected by June 30, projected cash, cash equivalents and investments as of June 30, 2018 would be higher by the milestone or milestones collected less applicable sublicensing fees.

That concludes the team's remarks today. Operator, you may now open the line for question-and-answer period.

(Operator Instructions) Our first question comes from the line of Matthew Luchini with BMO Capital Markets.

So I wanted to ask first on achromatopsia. It seems like there has been a little bit of a slow down or a lull in the rate of patient -- patients enrolling into in the study. And I wanted to ask -- get a little bit more color on why that is? Is it something along the lines of it is harder to identify for some reason, the site is backed up? You mentioned in the prepared remarks that you're steadily screening. Does that mean that you've got enough identified to rollover into treatment? And then for XLRS. It sounds like we have an end in sight here with the end of March guidance for treatment, which sort of suggests an end of 3Q, early 4Q release. So should we assume that, that will be at a medical meeting, maybe AAO, or are you thinking in press release? How will that information actually be communicated? And then, finally on XLRP. You mentioned 2 sites activated. Could you just give us a sense as to what key steps are remaining in terms of activating the rest of the targeted sites or the next wave of targeted sites at least?

Well, good morning, Matt. And thanks for your question. I'll just give an overview on those 3 items and then turn it to Matt to -- our Matt to answer the question in more detail. Certainly, with XLRS, we are on track to complete that enrollment. We have had -- with all of our efforts, we've had a big uptick in the throughput from that trial. And you're right that it would -- the timing would suggest a third quarter release of data. As we said before, our first priority would always be to try and time it to a medical meeting because we think there is appropriate discussion at that kind of meeting. But also we wouldn't hold up data release if we can't find an appropriate medical meeting in the time frame.

For achromatopsia, we do have a large number of patients identified out of our natural history studies. And so it's not patient identification, but it's more of a screening and scheduling process. We did experience some difficulties trying to convince patients to come in for screening and enrollment and injection during the fall holiday period. And so that was a factor that's now turning around.

And then for XLRP, we have 3 additional sites that we're moving through the initiation process. And it's just that these academic centers have lots of bureaucracy in getting the contracts signed in their IRBs and IBCs and it's just hard to predict that.

Matt, would you like to provide some additional color, especially on the patient enrollment issues?

Sure. Thanks. So -- I mean, Sue provided a pretty good overview there. The only thing I would add is that as Sue mentioned -- just to reinforce what Sue mentioned earlier, which is regarding the support -- the additional support that we provided to the clinical team over the last couple of months in both hiring and clinical site support as well as an increase in patient advocacy efforts that are really increasing the numbers of patients available for screening and to reinforce that, and that we think is really going to make an impact on the overall enrollment pace.

Our next question comes from the line of Jim Birchenough with Wells Fargo Securities.

This is Yanan Zhu dialing in for Jim. So first question for the XLRS trial for the 22 patients enrolled. Could you give us a sense of how many are adult patients and how many are children? And how are they distributed in the 4 cohorts?

So thank you Yanan for calling in and for that question. I'm going to pass that question directly to Matt.

Okay. Thanks, Sue. So right now, we do have 2 patients in the pediatric dose. And that cohort is -- we're looking for a minimum of 3, just like in all dose ascending cohorts. And the remainder of the patients are in the adult cohort.

Got it. And then on the achromatopsia B3 trial and the fact that there wasn't -- no patient enrolled in the past quarter, just want to follow-up a little bit further from the previous question. Is the progress in any way affected by the variability from the previous patients' findings?

So just correction. There was a patient enrolled in the achromatopsia study between now and the last quarter -- over the past quarter, I should say. And we are, again, as you mentioned, continuing to identify patients. And now that first patient has been enrolled, we are expecting additional patients to be enrolled in the coming months.

Thanks for the correction. And lastly, for the XLRP study. In terms of anticipating the speed of enrollment, do you expect any differences due to the nature of the disease such that the patient enrollment might be faster or slower than the XLRP -- XLRS or ACHM trials? And also do you have a rough timeline for when the remaining sites might be opened?

So I think that's a great question. And it is true that the nature of the disease -- of all these diseases is very different. For XLRS and achromatopsia, these are mostly stable diseases, whereas XLRP is a disease where patients are progressively deteriorating. And so as a result, it would not be surprising that patients with XLRP would be more motivated to be interested in a clinical trial. And so how that eventually impacts our enrollment remains to be seen, but we certainly would expect to see patients who are even more motivated than the already motivated patients in the XLRS and achromatopsia studies for whom there have been historically no treatments available at all. And then -- I'm sorry, can you repeat the second part of your question?

Just rough sense of when all the sites will be opened?

When the remaining sites, right, so -- another great question. So I think as Sue mentioned, with the remaining sites, it's difficult to predict exactly. I can tell you that they are actively involved in the initiation process. And often times with academic sites in particular, these processes, the timing, the exact timing is difficult to predict going through IRBs and IBCs and other regulatory approvals at the sites. But we're working very hard and are in close and frequent communication with the sites to try to expedite the site initiations.

(Operator Instructions) Our next question comes from the line of David Nierengarten with Wedbush Securities.

Just a couple quick ones. On the data -- anticipated data flow for XLRP and achromatopsia as you enroll patients, does this -- do you anticipate talking about the data similar -- in a similar fashion to the data reporting planned our XLRS? And then on the optogenetic program, are you focusing on any particular degenerative diseases of the retina? Or is it going to be when you open the IND and kind of an allcomers study? Maybe if you could help us out on how you're thinking about disease focus on that one.

So thanks, Dave. And good morning to you on this Friday. And I'll take the first question and send the second question to Matt. So on the first question, we do have the similar data release plan that we've had with XLRS, in that we wanted to get a number of patients through dose escalation, and then we follow them for a period of time and then release the data. And then, dose the expansion group, follow them for a period of time and release the data. And that's the same plan that we have for XLRP and achromatopsia. And then, Matt, do you want to address our focus for the optogenetics program initially?

Sure. So for optogenetics, of course, the indication is going to be patients who have very advanced disease. What specific diseases lead to those conditions? I think that we are still in the process of thinking through exactly what the protocol is going to look like and who those patients are going to be. So I think advanced retinitis pigmentosa is an example of a disease where patients do progress to a very end-stage. And so certainly, that is part of the equation. But we have not yet determined exactly which diseases would be included.

Maybe a -- sorry, maybe a better question might be, are you planning to exclude any significant diseases from that study?

Again, we haven't determined exactly which diseases we're planning to include or exclude at this point.

Our next question comes from the line of Joe Pantginis with H.C. Wainwright.

I wanted to focus on the underlying support of all your clinical programs. So in your prepared comments, you obviously talked about all your new recent hires and new CRO. So I wanted to focus on another major aspect of supporting these trials, and that's manufacturing. I was wondering if you can discuss sort of where you are right now? If I have my understanding correct, I believe you're already at commercial scale. You've had no holds on any of the manufacturing processes, but sort of where you're at? And how you can support all your studies going forward?

Well, good morning, Joe. And thank you for that question. Manufacturing and material availability is an area where we have a particular strength, and all of the material for all of our trials -- enough material to dose all of the trials and more so is already manufactured and it has been released. The CMC has been reviewed by the FDA, and we've never had any issues with that clinical trial. And you're right, we are already at what we feel to be commercial scale for these indications. And we are now proceeding to qualify and validate our assays as well as to do pilot runs of our pivotal process, so that we're fully ready to move forward upon completion of the Phase I/II trials.

Ladies and gentlemen, that concludes our question-and-answer session. I'd like to turn the floor back to Ms. Washer for any final comments.

Well, thank you. And thank you all for your time today, and your continued interest in our efforts to develop transformational therapies for orphan conditions. We are encouraged by the FDA's recent landmark decision to approve the first gene therapy to treat an inherited retinal disease, and are more committed than ever to advancing the development of our novel gene-based therapies for orphan indications. We're very optimistic about the remainder of 2018 and are confident that we now have the resources in place to accelerate our ongoing and planned clinical trials. AGTC has been fortunate to have tremendous support from our clinical collaborators, advocacy champions and business partners. I would like to once again thank all of our patients and families who have participated in our trials. Their service and dedication has been critical to the goal of developing effective therapies to treat unmet medical needs. Thank you, again, to everyone on the call for participating.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.