NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1.
|
Organization and Operations:
|
Applied Genetic Technologies Corporation (the “Company” or “AGTC”) was incorporated as a Florida corporation on January 19, 1999 and reincorporated as a Delaware corporation on October 24, 2003. The Company is a clinical-stage biotechnology company developing gene therapy products designed to transform the lives of patients with severe diseases, primarily in ophthalmology.
In April 2014, the Company completed its initial public offering (“IPO”) in which it sold 4,166,667 shares of common stock at a price of $12.00 per share. The Company now trades on NASDAQ under the ticker symbol AGTC. In April 2014, the Company sold an additional 625,000 shares of common stock at the offering price of $12.00 per share pursuant to the exercise of the underwriters’ over-allotment option. The aggregate net proceeds received by the Company from the IPO offering, including exercise of the over-allotment option, amounted to $51.6 million, net of underwriting discounts and commissions and other issuance costs incurred by the Company.
In July 2014, the Company completed a follow on public offering in which it sold 2,000,000 shares of common stock at a public offering price of $15.00 per share. In August 2014, the Company sold an additional 300,000 shares of common stock at a public offering price of $15.00 per share pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the follow-on offering. The aggregate net proceeds received by the Company from the follow-on offering, including exercise of the overallotment option, amounted to $32.0 million, net of underwriting discounts and commissions and other offering expenses.
In July 2015, the Company entered into a collaboration agreement (the “Collaboration Agreement”) with Biogen MA, Inc., a wholly owned subsidiary of Biogen Inc. (“Biogen”), pursuant to which the Company and Biogen will collaborate to develop, seek regulatory approval for and commercialize gene therapy products to treat X-linked retinoschisis (“XLRS”), X-linked retinitis pigmentosa (“XLRP”), and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. The Collaboration Agreement became effective in August 2015. The Collaboration Agreement and other transactions with Biogen are discussed further in Note 6 to these financial statements.
The Company has devoted substantially all of its efforts to research and development, including clinical trials. The Company has not completed the development of any products. The Company has generated revenue from collaboration agreements, sponsored research payments and grants, but has not generated product revenue to date and is subject to a number of risks similar to those of other early stage companies in the biotechnology industry, including dependence on key individuals, the difficulties inherent in the development of commercially viable products, the need to obtain additional capital necessary to fund the development of its products, development by the Company or its competitors of technological innovations, risks of failure of clinical studies, protection of proprietary technology, compliance with government regulations and ability to transition to large-scale production of products. As of March 31, 2017, the Company had an accumulated deficit of $85.1
million and recorded net loss of
$0.8 million and net income of $4.9
million
,
respectively, during the three and nine month periods ended March 31, 2017. While the Company expects to continue to generate some revenue from partnering, including under the collaboration with Biogen, the Company expects to incur losses for the foreseeable future. The Company has funded its operations to date primarily through public offerings of its common stock, private placements of its preferred stock, and collaborations. At March 31, 2017, the Company had cash and cash equivalents and investments of $148.7 million.
6
2
.
|
Summary of Significant Accounting Policies:
|
|
(a)
|
Basis of presentation
– The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for each period presented.
|
The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to U.S. Securities and Exchange Commission (“SEC”) rules and regulations for interim reporting.
Certain amounts reported previously have been reclassified to conform to the current period presentation, with no effect on stockholders’ equity or net income (loss) as previously presented.
The Condensed Balance Sheet as of June 30, 2016 was derived from audited financial statements, but does not include all disclosures required by GAAP. These Unaudited Condensed Financial Statements should be read in conjunction with the audited financial statements included in the Company’s 2016 Annual Report on Form 10-K, as amended, (“June 30, 2016 Form 10-K”). Results of operations for the three and nine months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year or any other interim period.
|
(b)
|
Use of estimates
– The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|
|
(c)
|
Cash and cash equivalents
— Cash consists of funds held in bank accounts. Cash equivalents consist of short-term, highly liquid investments with original maturities of 90 days or less at the time of purchase and generally include money market accounts.
|
|
(d)
|
Investments
—The Company’s investments consist of certificates of deposit and debt securities classified as held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest on securities classified as held-to-maturity is included in investment income.
|
The Company uses the specific identification method to determine the cost basis of securities sold.
Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.
7
|
(e)
|
Fair va
lue of financial instruments
—The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The Financial Accounting Standards Boar
d (“FASB”) Accounting Standard Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
, establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability
based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on
the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of financial instruments and is not a measure of the investment credit quality. The three levels
of the fair value hierarchy are described below:
|
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
|
(f)
|
Intangible assets
– Intangible assets primarily include licenses and patents. The Company obtains licenses from third parties and capitalizes the costs related to exclusive licenses that have alternative future use in multiple potential programs. The Company also capitalizes costs related to filing, issuance, and prosecution of patents. The Company reviews its capitalized costs periodically to determine that such costs relate to patent applications that have future value and an alternative future use, and writes off any costs associated with patents that are no longer being actively pursued or that have no future benefit. Amortization expense is computed using the straight-line method over the estimated useful lives of the assets, which are generally eight to twenty years. The Company amortizes in-licensed patents and patent applications from the date of the applicable license and internally developed patents and patent applications from the date of the initial application. Licenses and patents converted to research use only are expensed immediately.
|
|
(g)
|
Revenue recognition
– The Company has generated revenue through collaboration agreements, sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates and revenues from federal research and development grant programs. The Company recognizes revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due is reasonably assured.
|
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s unaudited condensed balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current liabilities. The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and development expenses, as the Company has the risks and rewards as the principal in the research and development activities.
The Company evaluates the terms of sponsored research agreement grants and federal grants to assess the Company’s obligations and if the Company’s obligations are satisfied by the passage of time, revenue is recognized on a straight-line basis. In situations where the performance of the Company’s obligations has been satisfied when the grant is received, revenue is recognized upon receipt of the grant. Certain grants contain refund provisions. The Company reviews those refund provisions to determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, the grant is recognized as revenue. If the probability of repayment is determined to be more than remote, the Company records the grant as a deferred revenue, until such time that the grant requirements have been satisfied.
8
Collaboration revenue
On July 1, 2015, the Company entered into the Collaboration Agreement. This collaboration is discussed further in Note 6 to these financial statements. The terms of this Collaboration Agreement and other potential collaboration or commercialization agreements the Company may enter into generally contain multiple elements, or deliverables, which may include, among others, (i) licenses, or options to obtain licenses, to its technology, and (ii) research and development activities to be performed on behalf of the collaborative partner. Payments made under such arrangements typically include one or more of the following: non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Multiple element arrangements are analyzed to determine whether the deliverables within the agreement can be separated or whether they must be treated as a single unit of accounting. Deliverables under an agreement are required to be treated as separate units of accounting provided that (i) a delivered item has value to the customer on a stand-alone basis; and (ii) if the agreement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. The consideration received is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to each of the separate units.
The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence ("VSOE") of selling price, if available, third-party evidence ("TPE") of selling price if VSOE is not available, or best estimate of selling price ("BESP") if neither VSOE nor TPE are available. Determining the best estimate of selling price for a deliverable requires significant judgment. The Company uses BESP to estimate the selling price related to licenses to its proprietary technology, since it often does not have VSOE or TPE of selling price for these deliverables. In those circumstances where it utilizes BESP to determine the estimated selling price of a license to its proprietary technology, the Company considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well as internally developed models that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating its best estimate of selling price, the Company evaluates whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of arrangement consideration among multiple deliverables.
If the delivered element does not have stand-alone value, the arrangement is then treated as a single unit of accounting and the Company recognizes the consideration received under the arrangement as revenue on a straight-line basis over its estimated period of performance. The Company’s anticipated periods of performance, typically the terms of its research and development obligations, are subject to estimates by management and may change over the course of the collaboration agreement. Such changes could have a material impact on the amount of revenue recorded in future periods.
Milestone revenue
The Company applies the milestone method of accounting to recognize revenue from milestone payments when earned, as evidenced by written acknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved and the payment is non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (i) that can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance; (ii) for which there is substantive uncertainty at the inception of the arrangement that the event will be achieved; and (iii) that would result in additional payments being due to the Company. Events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’s performance are not considered to be milestone events. A milestone event is substantive if all of the following conditions are met: (i) the consideration is commensurate with either the Company’s performance to achieve the milestone, or the enhancement of the value to the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) the consideration relates solely to past performance; and (iii) the consideration is reasonable relative to all the deliverables and payment terms (including other potential milestone consideration) within the arrangement.
The Company assesses whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed substantive and the milestone payment is nonrefundable, the Company recognizes revenue upon the successful accomplishment of that milestone. Where a milestone is deemed non-substantive, we account for that milestone payment in accordance with the multiple element arrangements guidance and recognize revenue consistent with the related units of accounting for the arrangement over the related performance period.
9
Deferred revenue
Amounts received by the Company prior to satisfying the above revenue recognition criteria are recorded as deferred revenue on the unaudited condensed balance sheets. Amounts not expected to be recognized within 12 months of the balance sheet date are classified as non-current deferred revenue on the unaudited condensed balance sheets.
|
(h)
|
Research and development
– Research and development costs include costs incurred in identifying, developing and testing product candidates and generally comprise compensation and related benefits and non-cash share-based compensation to research related employees; laboratory costs; animal and laboratory maintenance and supplies; rent; utilities; clinical and pre-clinical expenses; and payments for sponsored research, scientific and regulatory consulting fees and testing.
|
Research and development costs also include license and sub-license fees and other direct and incremental costs incurred pursuant to the negotiation of and entry into collaborative and other partnership arrangements. Such costs associated with collaborative and other arrangements are expensed as incurred.
As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for services for which the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known to it at that time. The significant estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to academic research centers, contract research organizations, and other vendors in connection with research and development activities for which it has not yet been invoiced.
There may be instances in which the Company’s service providers require advance payments at the inception of a contract or in which payments made to these vendors will exceed the level of services provided, resulting in a prepayment of the research and development expense. Such prepayments are charged to research and development expense as and when the service is provided or when a specific milestone outlined in the contract is reached.
Prepayments related to research and development activities were $2.0 million and $2.0
million at March 31, 2017 and June 30, 2016, respectively, and are included in prepaid and other current assets on the unaudited condensed balance sheets.
|
(i)
|
Share-based compensation
– The Company accounts for share-based awards issued to employees in accordance with Accounting Standards Codification (“ASC”) Topic 718,
Compensation—Stock Compensation
and generally recognizes share-based compensation expense on a straight-line basis over the periods during which the employees are required to provide service in exchange for the award. In addition, the Company issues stock options and restricted shares of common stock to non-employees in exchange for consulting services and accounts for these in accordance with the provisions of ASC Subtopic 505-50,
Equity-Based Payments to Non-employees
(“ASC 505-50”). Under ASC 505-50, share-based awards to non-employees are subject to periodic fair value re-measurement over their vesting terms.
|
For purposes of calculating stock-based compensation, the Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. If factors change and the Company employs different assumptions, stock-based compensation expense may differ significantly from what has been recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors which become known over time, specifically with respect to anticipated forfeitures, the Company may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact the Company’s results of operations in the period such changes are made.
10
|
(j)
|
Income taxes
– The Company uses the asset and liability method for accounting for income taxes. Under this method, defe
rred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax ass
ets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company is subject
to examination of its income tax returns in the
federal and state income tax jurisdictions in which it operates.
|
For the three and nine month periods ended March 31, 2017, the Company recorded an income tax provision of $0.2 million and $0.5 million, respectively, based on the Company’s alternative minimum taxable income (“AMTI”). The Company calculates its AMTI using the alternative minimum tax (“AMT”) system. The Company’s federal income tax liability is the greater of the tax computed using the regular tax system or the tax under the AMT system. Corporations are exempt from AMT for all prior years in which their annual gross receipts for the 3-year period ending before the current tax year did not exceed $7.5 million
.
For the fiscal year ending June 30, 2017, the Company no longer qualifies for the small company exclusion. The AMT system limits the use of net operating losses used by taxpayers to offset taxable income. In 2017, the Company anticipates being subject to alternative minimum income tax and therefore estimated tax payments of approximately $0.5 million have been made as of March 31, 2017. A credit may be earned for the tax paid on an alternative minimum tax basis and this credit can be carried forward indefinitely and used to reduce regular tax, but not below the alternative minimum tax for that future year. There were no income tax provisions during the three and nine month periods ended March 31, 2016, due to the cumulative operating losses for the nine months ended March 31, 2016.
As of March 31,2017 and June 30, 2016, the Company did not have any significant uncertain tax positions.
|
(k)
|
Net (loss) income per share -
Basic net (loss) income per share is based on the weighted-average number of common shares outstanding during the three and nine month periods ended March 31, 2017 and 2016. Diluted net (loss) income per share is based on the weighted-average number of common shares outstanding during the three and nine month periods ended March 31, 2017 and 2016, adjusted for the dilutive effect of employee share-based compensation and other share-based compensation awards.
|
The dilutive impact of options and other share-based compensation awards during the nine months ended March 31, 2017, was 0.3 million shares and 0.4 million shares
during the three months ended March 31, 2016. Due to the net loss in the three months ended March 31, 2017 and the nine months ended March 31, 2016, common stock equivalents of 0.3 and 0.4 million shares, respectively,
were excluded from the computation of diluted loss per share due to their anti-dilutive effect.
|
(l)
|
Comprehensive income or loss
– Comprehensive income or loss consists of net income or loss and changes in equity during a period from transactions and other equity and circumstances generated from non-owner sources. The Company’s net income or loss equals comprehensive income or loss for both periods presented.
|
|
(m)
|
New accounting pronouncements
– In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,
Leases (Topic 842)
in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases under GAAP. The standard requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those periods, using a modified retrospective approach and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this standard on its financial statements.
|
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which amends ASC Topic 718,
Compensation – Stock Compensation
. The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this standard on its financial statements.
11
In May 2014, the FASB issued guidance that requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects
to be entitled in exchange for those goods or services. It also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. Th
e guidance applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. In July 2015, t
he FASB delayed the effective date of this guidance by one year. The guidance is now effective for public companies for annual periods beginning after December 15, 2017 as well as interim periods within those annual periods using either the full retrospect
ive approach or modified retrospective approach. The Company is currently evaluating the impact of the new guidance on its financial statements.
3.
|
Share-based Compensation Plans:
|
The Company uses stock options and awards of restricted stock to provide long-term incentives for its employees, non-employee directors and certain consultants. The Company has two equity compensation plans under which awards are currently authorized for issuance, the 2013 Employee Stock Purchase Plan and the 2013 Equity and Incentive Plan. No awards have been issued to date under the 2013 Employee Stock Purchase Plan and all of the 128,571 shares previously authorized under this plan remain available for issuance. A summary of the stock option activity for the nine months ended March 31, 2017 and 2016 is as follows:
|
|
For the Nine Months Ended March 31,
|
|
|
|
2017
|
|
|
|
|
2016
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at June 30,
|
|
|
2,037
|
|
|
$
|
13.71
|
|
|
|
|
|
1,484
|
|
|
$
|
11.83
|
|
Granted
|
|
|
831
|
|
|
|
11.00
|
|
|
|
|
|
567
|
|
|
|
17.30
|
|
Exercised
|
|
|
(31
|
)
|
|
|
0.90
|
|
|
|
|
|
(44
|
)
|
|
|
5.27
|
|
Forfeited
|
|
|
(93
|
)
|
|
|
13.98
|
|
|
|
|
|
(39
|
)
|
|
|
12.90
|
|
Expired
|
|
|
(29
|
)
|
|
|
17.07
|
|
|
|
|
|
(6
|
)
|
|
|
15.50
|
|
Outstanding at March 31,
|
|
|
2,715
|
|
|
$
|
12.98
|
|
|
|
|
|
1,962
|
|
|
$
|
13.53
|
|
Exercisable at March 31,
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
Weighted average fair value of options granted
during the period
|
|
$
|
7.59
|
|
|
|
|
|
|
|
|
$
|
12.00
|
|
|
|
|
|
For the three and nine months ended March 31, 2017, share-based compensation expense related to stock options awarded
to employees, non-employee directors and consultants amounted to approximately $1.2 million and $4.2
million, respectively, compared to $1.1 million and $3.4 million, respectively, for the three and nine months ended March 31, 2016.
For the three and nine months ended March 31, 2017 share-based compensation expense associated with restricted share awards granted to employees and non-employee consultants was not material. For the three and nine months ended March 31, 2016, share-based compensation expense associated with restricted share awards granted to employees and non-employee consultants amounted to $0 thousand and $166 thousand, respectively.
As of March 31, 2017, there was $12.6 million of unrecognized compensation expense related to non-vested stock options.
12
Cash in excess of immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.
The following table summarizes the Company’s investments by category as of March 31, 2017 and June 30, 2016:
|
|
March 31,
|
|
|
June 30,
|
|
In thousands
|
|
2017
|
|
|
2016
|
|
Investments - Current:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
7,288
|
|
|
$
|
18,093
|
|
Debt securities - held-to-maturity
|
|
|
88,940
|
|
|
|
51,571
|
|
Total
|
|
$
|
96,228
|
|
|
$
|
69,664
|
|
Investments - Noncurrent:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
2,824
|
|
|
$
|
2,544
|
|
Debt securities - held-to-maturity
|
|
|
14,171
|
|
|
|
71,639
|
|
Total
|
|
$
|
16,995
|
|
|
$
|
74,183
|
|
A summary of the Company’s debt securities classified as held-to-maturity is as follows:
|
|
At March 31, 2017
|
|
In thousands
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Investments - Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
obligations
|
|
$
|
86,016
|
|
|
$
|
—
|
|
|
$
|
(136
|
)
|
|
$
|
85,880
|
|
Corporate obligations
|
|
|
2,924
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
2,923
|
|
|
|
$
|
88,940
|
|
|
$
|
—
|
|
|
$
|
(137
|
)
|
|
$
|
88,803
|
|
Investments - Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
obligations
|
|
$
|
12,065
|
|
|
$
|
—
|
|
|
$
|
(65
|
)
|
|
$
|
12,000
|
|
Corporate obligations
|
|
|
2,106
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
2,097
|
|
|
|
$
|
14,171
|
|
|
$
|
—
|
|
|
$
|
(74
|
)
|
|
$
|
14,097
|
|
|
|
At June 30, 2016
|
|
In thousands
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Investments - Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
obligations
|
|
$
|
40,609
|
|
|
$
|
12
|
|
|
$
|
(2
|
)
|
|
$
|
40,619
|
|
Corporate obligations
|
|
|
10,962
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
10,964
|
|
|
|
$
|
51,571
|
|
|
$
|
15
|
|
|
$
|
(3
|
)
|
|
$
|
51,583
|
|
Investments - Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
obligations
|
|
$
|
71,639
|
|
|
$
|
53
|
|
|
$
|
(11
|
)
|
|
$
|
71,681
|
|
|
|
$
|
71,639
|
|
|
$
|
53
|
|
|
$
|
(11
|
)
|
|
$
|
71,681
|
|
13
The amortized cost and fair value of held-to-maturity debt securities as of March 31, 2017, by contractual maturity, were as follows:
In thousands
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
88,940
|
|
|
$
|
88,803
|
|
Due after one year through two years
|
|
|
14,171
|
|
|
|
14,097
|
|
|
|
$
|
103,111
|
|
|
$
|
102,900
|
|
The Company believes that the unrealized losses disclosed above were primarily driven by interest rate changes rather than by unfavorable changes in the credit ratings associated with these securities and as a result, the Company continues to expect to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment. Therefore, the Company believes these losses to be temporary. As of March 31, 2017, the Company did not have the intent to sell any of the securities that were in an unrealized loss position at that date
.
5.
|
Fair Value of Financial Instruments and Investments:
|
Certain assets and liabilities are measured at fair value in the Company’s financial statements or have fair values disclosed in the notes to the financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument included in the table below.
Cash and Cash Equivalents.
The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months.
Certificates of Deposit.
The Company’s certificates of deposit are placed through an account registry service.
The fair value measurement of the Company’s certificates of deposit is considered Level 2 of the fair value hierarchy as the inputs are based on quoted prices for identical assets in markets that are not active.
The carrying amounts of the Company’s certificates of deposit reported in the unaudited condensed balance sheets approximate fair value.
Debt securities – held-to-maturity.
The Company’s investments in debt securities classified as held-to-maturity generally include U.S. Treasury Securities, government agency obligations, and corporate obligations. U.S. Treasury Securities and U.S. government agency obligations are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. Treasury Securities are considered Level 1 of the fair value hierarchy. The fair values of U.S. government agency and corporate obligations are generally determined using recently executed transactions, broker quotes, market price quotations where these are available or
other observable market inputs for the same or similar securities.
As such, the Company classifies its investments in U.S. agency and corporate obligations within Level 2 of the hierarchy.
14
The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis:
In thousands
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
other observable inputs
(Level 2)
|
|
|
Significant unobservable
inputs
(Level 3)
|
|
|
Total Fair
Value
|
|
|
Total
Carrying
Value
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,500
|
|
|
$
|
35,500
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
10,100
|
|
|
|
—
|
|
|
|
10,100
|
|
|
|
10,112
|
|
Held-to-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
—
|
|
|
|
5,022
|
|
|
|
—
|
|
|
|
5,022
|
|
|
|
5,030
|
|
U.S. government and agency obligations
|
|
|
77,512
|
|
|
|
20,366
|
|
|
|
—
|
|
|
|
97,878
|
|
|
|
98,081
|
|
Total assets
|
|
$
|
113,012
|
|
|
$
|
35,488
|
|
|
$
|
—
|
|
|
$
|
148,500
|
|
|
$
|
148,723
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,868
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,868
|
|
|
$
|
28,868
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
20,626
|
|
|
|
—
|
|
|
|
20,626
|
|
|
|
20,637
|
|
Held-to-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
—
|
|
|
|
10,964
|
|
|
|
—
|
|
|
|
10,964
|
|
|
|
10,962
|
|
U.S. government and agency obligations
|
|
|
73,809
|
|
|
|
38,491
|
|
|
|
—
|
|
|
|
112,300
|
|
|
|
112,248
|
|
Total assets
|
|
$
|
102,677
|
|
|
$
|
70,081
|
|
|
$
|
—
|
|
|
$
|
172,758
|
|
|
$
|
172,715
|
|
6.
|
Collaboration Agreement with Biogen
|
On July 1, 2015, the Company entered into a Collaboration Agreement with Biogen, pursuant to which the Company and Biogen will collaborate to develop, seek regulatory approval for and commercialize gene therapy products to treat XLRS, XLRP, and
discovery programs
targeting three indications based on the Company’s
adeno-associated virus
vector technologies. The Collaboration Agreement became effective on August 14, 2015.
Under the Collaboration Agreement, the Company will conduct all development activities through regulatory approval in the United States for the XLRS program, and all development activities through the completion of the first in human clinical trial for the XLRP program. In addition, the Collaboration Agreement provides for discovery programs targeting three indications whereby the Company will conduct discovery, research and development activities for those additional drug candidates through the stage of clinical candidate designation, after which, Biogen may exercise an option to continue to develop, seek regulatory approval for and commercialize the designated clinical candidate. In February 2016, the Company announced Biogen’s selection of adrenoleukodystrophy as the non-ophthalmic indication of the three discovery programs. Under the terms of the Collaboration Agreement, the Company, in part through its participation in joint committees with Biogen, will participate in overseeing the development and commercialization of these specific programs.
The Company has granted to Biogen with respect to the XLRS and XLRP programs, and upon exercise of the option for the applicable discovery program, an exclusive, royalty-bearing license, with the right to grant sublicenses, to use
adeno-associated virus
vector technology and other technology controlled by the Company for the licensed products or discovery programs developed under the Collaboration Agreement. Biogen and the Company have also granted each other worldwide licenses, with the right to grant sublicenses, of their respective interests in other intellectual property developed under the collaboration outside the licensed products or
discovery programs.
Biogen will also receive an exclusive license to use the Company’s proprietary manufacturing technology platform to make Adeno-Associated Virus (“AAV”) vectors for up to six genes, three of which are at the Company’s discretion, in exchange for payment of milestones and royalties.
Activities under the Collaboration Agreement were evaluated under
ASC 605-25,
Revenue Recognition—Multiple Element Arrangements
, as amended by ASU 2009-13,
Revenue Recognition
("ASC 605-25"),
to determine if they represented
a
multiple element revenue arrangement. The Collaboration Agreement includes the following significant deliverables: (1) for each of the XLRS and XLRP programs, exclusive, royalty-bearing licenses, with the right to grant sublicenses, to use
adeno-associated virus
vector technology and other technology controlled by the Company for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the arrangement (the “License Deliverables”); (2) for each of the three discovery programs, exercisable options to obtain exclusive licenses to develop, seek regulatory approval for and commercialize any of the designated clinical candidates under such discovery programs (the “Option Deliverables”); and (3) the performance obligations to conduct research and development activities through (a) regulatory approval in the
15
Uni
ted States, in the case of the XLRS program; (b) completion of the first in human clinical trial, in the case of the XLRP program; and (c) the stage of clinical candidate designation, in the case of each of the three discovery programs (the “R&D Activity D
eliverables”).
The Company determined that all of the License Deliverables and Option Deliverables did not have stand-alone value and did not meet the criteria to be
accounted for
as separate units of accounting under
ASC 605-25.
The factors considered by the Company in making this determination included, among other things, the unique and specialized nature of its proprietary technology and intellectual property, and the development stages of each of the XLRS, XLRP and the
discovery programs targeting three indications.
Accordingly, the License Deliverables under each of the XLRS and XLRP programs and the Option Deliverables under each of the discovery programs have been combined with the R&D Activity Deliverables associated with each related program and as a result, the Company’s separate units of accounting under its collaboration with Biogen, comprise the XLRS program, the XLRP program, and each of the three discovery programs.
Under the Collaboration Agreement, the Company received a non-refundable upfront payment of $94.0 million in August 2015 which
it
recorded as deferred revenue
. This upfront payment of $94.0 million was
allocated among the separate units of accounting
discussed above
using the relative selling price method. In addition to the Collaboration Agreement, on July 1, 2015, the Company also entered into an equity agreement with Biogen.
Under the terms of this equity agreement, Biogen purchased 1,453,957 shares of the Company’s common stock, at a purchase price equal to $20.63 per share, for an aggregate cash purchase price of $30.0 million which the Company also received in August 2015. The shares issued to Biogen represented approximately 8.1% of the Company’s outstanding common stock on a post-issuance basis, calculated on the number of shares that were outstanding at June 30, 2015, and constitute restricted securities that may not be resold by Biogen other than in a transaction registered under, or pursuant to an exemption from the registration requirements of, the Securities Act of 1933, as amended.
Accounting standards for multiple element arrangements contain a presumption that separate contracts negotiated or entered into at or near to the same time with the same entity were likely negotiated as a package and should be evaluated as a single agreement. The Company determined that the price of $20.63 paid by Biogen included a premium of $7.45 per share over the fair value of the company’s stock price, calculated based upon the stock price on the date of close of the agreement and adjusted for lack of marketability due to restrictions. Accordingly, the total premium of $10.8 million was also recorded as deferred revenue and, together with the $94.0 million, allocated to the separate units
of accounting
above using the relative selling price method as discussed in Note 2 to these financial statements. The Company will record revenue based on the revenue recognition criteria applicable to each separate unit of accounting. For amounts received up-front and initially deferred, the Company will recognize
the deferred revenue on a straight-line basis over the estimated service periods in which it is required to perform the research and development activities associated with each unit of accounting, anticipated to be between 2 and 4
years.
T
he Company recognized collaboration revenue of $8.3
million and $11.9 million during the three months ended March 31, 2017 and 2016, respectively, and $31.0 million and $34.7 million during the nine months ended March 31, 2017 and 2016, respectively, from its collaboration with Biogen. Below is a summary of the components of the collaboration revenue:
|
|
For the Three Months Ended March 31,
|
|
|
For the Nine Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
Amortization of non-refundable upfront fees
|
|
$
|
7,907
|
|
|
$
|
11,725
|
|
|
$
|
30,435
|
|
|
$
|
29,442
|
|
Milestone revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
Other
|
|
|
390
|
|
|
|
157
|
|
|
|
524
|
|
|
|
275
|
|
Total collaboration revenue
|
|
$
|
8,297
|
|
|
$
|
11,882
|
|
|
$
|
30,959
|
|
|
$
|
34,717
|
|
During the nine months ended March 31, 2016, the Company recorded
$5.0
million of milestone revenue after having achieved a patient enrollment-based milestone under the Collaboration Agreement. Other revenue is primarily comprised of reimbursable costs for post-funding development activities conducted by the Company.
16
As a r
esult of the upfront payment of $94.0 million made by Biogen and achievement of the $5.0 million milestone as discussed above, the Company became liable to various research partner institutions for sub-license and other payments under existing agreements w
ith such institutions. These agreements obligate the Company to pay to each research partner institution, amounts that range from 5% to 10% of certain proceeds received from collaboration and other arrangements, including any milestone payments received u
nder such arrangements.
As a result
, the Company recorded total collaboration costs of approximately $12.0 million associated with such obligations
during the six months ended December 31,2015. These collaboration costs included $0.6
million
of expense t
hat was settled during
that period
by the issuance of 40,000 shares of the Company’s common stock to a research partner institution, pursuant to the terms of the existing agreement with that institution. The remainder of these sub-license and milestone fe
es were fully paid in cash during the fiscal year ended June 30, 2016.
The Company is also eligible to receive payments of up to $467.5 million based on the successful achievement of future milestones under the two lead programs and
up to $592.5 million based on the exercise of the option for and the successful achievement of future milestones under the three discovery programs.
Biogen will pay revenue-based royalties for each licensed product at tiered rates ranging from high single digit to mid-teen percentages of annual net sales of the XLRS or XLRP products and at rates ranging from mid-single digit to low-teen percentages of annual net sales for the discovery products. Due to the uncertainty surrounding the achievement of the future milestones, such payments were not considered fixed or determinable at the inception of the Collaboration Agreement and accordingly, will not be recognized as revenue unless and until they become earned. The Company is not able to reasonably predict if and when the remaining milestones will be achieved.
7.
|
Agreement with Bionic Sight LLC
|
Collaboration Agreement
On February 2, 2017, the Company entered into a strategic research and development collaboration agreement with Bionic Sight, LLC (“Bionic Sight”), to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding.
Under the agreement, AGTC made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. This initial investment represents an approximate 5 percent equity interest in Bionic Sight. In addition to the initial investment, AGTC will contribute to ongoing research and development support costs through additional payments or other in-kind contributions.
These payments and contributions will be made over time, up to the date that Bionic Sight has received both investigational new drug clearance from the FDA and receipt of written approval from an internal review board to conduct clinical trials from at least one
clinical site for that product (the “IND Trigger”.)
If the IND Trigger is attained, AGTC will receive additional equity, based on the valuation in place at the beginning of the agreement, for its cash and “in kind
” research and development contributions and will be obligated to purchase additional equity in Bionic Sight for $4.0
million, at a pre-determined valuation.
The Company recorded its initial $2.0 million investment in Bionic Sight using the cost method of accounting for investments, which is recorded as
“non-current other assets”
on the Company’s balance sheet. The ongoing research and development costs and contributions will be recorded as a periodic cost until such time when or if the IND Trigger is achieved.
The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire (i) a majority equity interest in Bionic Sight, (ii) the Bionic Sight assets to which the collaboration agreement relates, or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.
17