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AXOVANT SCIENCES LTD. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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02/07/2019 | 05:32pm EST
The following discussion and analysis of our financial condition, results of
operations and cash flows should be read in conjunction with (1) the unaudited
interim condensed consolidated financial statements and the related notes
thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the
audited consolidated financial statements and notes thereto and management's
discussion and analysis of financial condition and results of operations for the
fiscal year ended March 31, 2018, included in our Annual Report on Form 10-K,
filed with the Securities and Exchange Commission (the "SEC") on June 11, 2018.
Unless the context requires otherwise, references in this report to "Axovant",
the "Company," "we," "us," and "our" refer to Axovant Sciences Ltd. and its
subsidiaries.
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements are often identified by the use
of words such as "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "project," "will," "would" or the negative or
plural of these words or similar expressions or variations, although not all
forward-looking statements contain these identifying words. We cannot assure you
that the events and circumstances reflected in the forward-looking statements
will be achieved or occur and actual results could differ materially from those
projected in the forward-looking statements. The forward-looking statements
appearing in a number of places in this Quarterly Report on Form 10-Q include,
but are not limited to, statements regarding our intentions, beliefs,
projections, outlook, analyses or current expectations concerning, among other
things:

• the success and timing of our ongoing development and potential

commercialization of AXO-AAV-GM1, AXO-AAV-GM2, AXO-LENTI-PD and AXO-AAV-OPMD;

• our relationships under our license agreements with the University of

Massachusetts Medical School ("UMMS"), Oxford BioMedica (UK) Ltd. ("Oxford

BioMedica"), and Benitec Biopharma Limited ("Benitec");

• the success of our interactions with the U.S. Food and Drug Administration

("FDA") and international regulatory authorities;

• the anticipated start dates, durations and completion dates of our ongoing

and future nonclinical studies and clinical trials;

• the anticipated designs of our future clinical studies;

• anticipated future regulatory submissions and the timing of, and our ability

to, obtain and maintain regulatory approval for our product candidates;

• the rate and degree of market acceptance and clinical utility of any approved

product candidate;

• our ability to identify and in-license or acquire additional product

candidates;

• our commercialization, marketing and manufacturing capabilities and strategy;

• continued service of our key scientific or management personnel;

• our ability to obtain, maintain and enforce intellectual property rights for

our product candidates;

• our anticipated future cash position;

• our estimates regarding our results of operations, financial condition,

liquidity, capital requirements, prospects, growth and strategies;

• the success of competing drugs or biologics that are or may become

available; and

• our stated objective of becoming the leading gene therapy company focused on

    developing a pipeline of innovative product candidates for debilitating
    neurological and neuromuscular diseases.



We have based these forward-looking statements largely on our current
expectations and projections about future events, including the responses we
expect from the FDA and other regulatory authorities and financial trends that
we believe may affect our financial condition, results of operations, business
strategy, nonclinical studies and clinical trials and financial needs. Such
forward-looking statements are subject to a number of risks, uncertainties,
assumptions and other factors known and unknown that could cause actual results
and the timing of certain events to differ materially from future results
expressed or implied by the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
identified herein, and those discussed in the section titled "Risk Factors" set
forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other
filings with the SEC. These risks are not exhaustive. You should not rely upon
forward-looking statements as predictions of future events. Furthermore, such
forward-looking statements speak only as of the date of this report. New risk
factors emerge from time to time and it is not possible for our management to
predict all risk factors, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. Except as required by law, we undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.




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Overview

We are a clinical-stage company focused on gene therapy for neurological and
neuromuscular diseases. We are developing a pipeline of innovative product
candidates for the treatment of these debilitating diseases, including GM1
gangliosidosis, GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff
disease), Parkinson's disease, oculopharyngeal muscular dystrophy ("OPMD"),
amyotrophic lateral sclerosis ("ALS"), frontotemporal dementia ("FTD") and other
neurological and neuromuscular indications.
We remain committed to identifying, developing and commercializing other novel
gene therapy treatments for debilitating neurological and neuromuscular
diseases. We are continuing to actively explore opportunities to acquire or
in-license additional products, product candidates and technologies to further
build our pipeline.
We were founded in October 2014 and our operations to date have been limited to
organizing and staffing our company, raising capital, acquiring our product
candidates and advancing our product candidates into clinical development. To
date, we have not generated any revenue and we have financed our operations
primarily through the public and private offerings of our equity securities and
our venture debt financing. As of December 31, 2018, we had $84.9 million of
cash and cash equivalents. In July 2018, we received $25.0 million of net
proceeds from the issuance and sale of our common shares in a private placement
to our majority shareholder, Roivant Sciences Ltd. ("RSL"), and in December
2018, we received $31.6 million of aggregate net proceeds, including $10.0
million from RSL, from the issuance and sale of our common shares in a public
offering, after deducting underwriting discounts and commissions and offering
expenses incurred. We recorded net losses of $34.3 million and $57.9 million for
the three months ended December 31, 2018 and 2017, respectively, $120.0 million
and $196.3 million for the nine months ended December 31, 2018 and 2017,
respectively, and $221.6 million for the year ended March 31, 2018. We have
determined that we have one operating and reporting segment.
Our Product Pipeline
The following table summarizes the status of our development programs to which
Axovant Sciences GmbH ("ASG"), our wholly owned subsidiary, holds global
commercial rights:

Gene Therapy Program    Clinical Indication                 Development Stage

AXO-AAV-GM1             GM1 gangliosidosis                  Clinical-ready

AXO-AAV-GM2             GM2 gangliosidosis (including Tay-  Clinical
                        Sachs disease and Sandhoff disease)

AXO-LENTI-PD            Parkinson's disease                 Clinical

AXO-AAV-OPMD            Oculopharyngeal muscular dystrophy  Preclinical

AXO-AAV-ALS             Amyotrophic lateral sclerosis       Research

AXO-AAV-FTD             Frontotemporal dementia             Research

Four additional AXO-AAV Undisclosed                         Research
Collaboration Programs



AXO-AAV Programs
AXO-AAV-GM1 Program
AXO-AAV-GM1 is an investigational gene therapy currently being developed as a
potential one-time disease modifying treatment for GM1 gangliosidosis. The
program utilizes an adeno-associated virus ("AAV") vector to deliver a
functional copy of the galactosidase beta 1 ("GLB1") gene with the goals of
restoring ?-galactosidase ("?-gal") enzyme activity in the central nervous
system ("CNS") and reducing GM1 ganglioside accumulation, to ultimately improve
neurological function and extend survival. The therapy is administered
intravenously and utilizes the AAV9 capsid, which has been shown to cross the
blood-brain barrier. Intravenous administration has the potential to broadly
transduce the CNS and peripheral tissues, as well as treat peripheral
manifestations of the disease. We licensed exclusive worldwide rights for the
development and commercialization of AXO-AAV-GM1 from UMMS in December 2018.

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Preclinical studies in GM1 murine and feline models have supported AXO-AAV-GM1's
ability to improve ?-gal enzyme activity, reduce GM1 ganglioside accumulation,
improve neuromuscular function, and extend survival. Magnetic resonance imaging
of GM1 feline models treated with other GM1 gene therapy demonstrated
substantially normal brain architecture through at least two years of age, as
compared with untreated GM1 feline models.
AXO-AAV-GM1 will be evaluated in an investigator-initiated clinical program,
with the first patient expected to be dosed in the first half of 2019. We expect
initial data from this clinical program in the second half of 2019 and expect
continued enrollment of patients in this clinical program throughout 2019.
AXO-AAV-GM2 Program
AXO-AAV-GM2 is an investigational gene therapy currently being developed as a
potential one-time disease modifying treatment for GM2 gangliosidosis, including
Tay-Sachs disease and Sandhoff disease. The AXO-AAV-GM2 program utilizes AAV
vectors to deliver functional copies of both the hexosaminidase subunit
alpha ("HEXA") gene and the hexosaminidase subunit beta ("HEXB") gene, with the
goal of restoring normal beta-hexosaminidase A ("Hex A") enzyme function in the
CNS. AXO-AAV-GM2 is administered directly to the brain and utilizes the
neurotropic AAVrh.8 capsid. The HEXA and HEXB genes will be delivered in a 1:1
ratio using separate AAvrh.8 vectors. As part of the AXO AAV-GM2 program, we are
also exploring a next-generation gene therapy that would utilize a bicistronic
vector to deliver both the HEXA and HEXB genes in a single vector using the AAV9
capsid for systemic intravenous administration. We licensed exclusive worldwide
rights for the development and commercialization of AXO-AAV-GM2 from UMMS in
December 2018.
Administration of AXO-AAV-GM2 in the Sandhoff mouse model showed increases in
Hex A enzyme, reductions of GM2 ganglioside in the brain, and improvements in
motor coordination. Extension of survival was also observed in the Sandhoff
mouse model, with increases in survival in a dose-dependent manner.
AXO-AAV-GM2 is currently being evaluated with the first patient having been
dosed in November 2018 under an investigator-initiated protocol approved by the
FDA and overseen by UMMS. We expect to obtain initial data from this patient in
the first quarter of 2019 and expect to file a subsequent Investigational New
Drug application ("IND") to allow for patients to be enrolled in a multi-subject
clinical trial in 2019.
GM1 Gangliosidosis, Tay-Sachs and Sandhoff Diseases
GM1 gangliosidosis is a rare, inherited neurodegenerative lysosomal storage
disorder characterized by the accumulation of GM1 ganglioside. This accumulation
occurs due to a defect in the GLB1 gene. The GLB1 gene codes for the ?-gal
enzyme which catalyzes the hydrolysis of GM1 gangliosides. Impaired ?-gal
activity results in the toxic accumulation of GM1 gangliosides, causing the
progressive destruction of nerve cells in the brain and spinal cord and early
death. GM1 gangliosidosis is uniformly fatal, and there are no disease-modifying
treatment options. The estimated incidence for GM1 gangliosidosis is
approximately one in 100,000 live births worldwide.
Tay-Sachs and Sandhoff diseases are a set of rare, inherited neurodegenerative
lysosomal storage disorders characterized by buildup of GM2 ganglioside in
lysosomes. Defects in the HEXA gene (leading to Tay-Sachs disease) and HEXB gene
(leading to Sandhoff disease) cause deficiencies in Hex A enzyme activity. Hex A
enzyme deficiency leads to progressive accumulation of GM2 gangliosides in the
CNS with ensuing neurodegeneration. Both Tay-Sachs disease and Sandhoff disease
are characterized by progressive nervous system dysfunction, resulting in marked
cognitive and physical impairment. Tay-Sachs and Sandhoff diseases result in
approximately 50% mortality by three and a half years of age and 75% mortality
by five years of age. Currently there are no disease-modifying treatment options
for Tay-Sachs disease or Sandhoff disease and management is limited to
symptomatic treatment. The estimated incidence for Tay-Sachs and Sandhoff
diseases is approximately one in 180,000 live births.
We estimate that there are between approximately 600 and 800 patients with GM1
gangliosidosis, Tay-Sachs and Sandhoff diseases in the United States and
European Union combined. These diseases, in the severe form, reduce life
expectancy to two to four years. The estimated incidence for the combination of
GM1 gangliosidosis, Tay-Sachs and Sandhoff diseases is approximately one in
65,000 live births worldwide.
AXO-LENTI-PD
Overview

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AXO-LENTI-PD (also known as OXB-102) is an in vivo lentiviral gene therapy
investigational product candidate currently being developed as a potential
one-time treatment of Parkinson's disease. We licensed the worldwide development
and commercialization rights to AXO-LENTI-PD and its first-generation product
candidate ProSavin® from Oxford BioMedica under an exclusive license agreement
(the "Oxford BioMedica Agreement") entered into in June 2018.
AXO-LENTI-PD delivers a construct of three genes that encode the critical
enzymes required for the biochemical synthesis of dopamine from endogenous
tyrosine. The three enzymes are: Tyrosine Hydroxylase ("TH"), the enzyme that
converts tyrosine to levodopa ("L-dopa"), Cyclohydrolase 1 ("CH1"), the
rate-limiting enzyme for synthesis of Tetrahydrobiopterin ("BH4"), a critical
cofactor for production of L-dopa, and Aromatic L-Amino Acid Decarboxylase
("AADC"), the enzyme that converts L-dopa to dopamine. AXO-LENTI-PD is delivered
by a one-time magnetic resonance imaging-guided stereotactic infusion into the
putamen. We believe that delivery of all three of these genes will enable the
continuous, tonic, endogenous synthesis of dopamine in this region of the brain
that is suffering from loss of dopaminergic innervation. Dopamine deficiency
plays a central role in Parkinson's disease and we believe that restoring the
ability to synthesize dopamine in patients will offer lasting improvement in the
symptoms of Parkinson's disease. Oxford BioMedica previously conducted a
Phase 1/2 clinical study with ProSavin (also known as OXB-101), an earlier
version of this product candidate. In this clinical trial, ProSavin was observed
to have a favorable long-term safety profile and demonstrated effects on motor
function for over six years, supporting proof-of-concept. AXO-LENTI-PD delivers
a re-engineered transgene construct relative to ProSavin and has been
demonstrated to increase dopamine production in nonclinical studies.
Parkinson's Disease Overview
Parkinson's disease is a chronic neurodegenerative disorder that primarily
results in progressive and debilitating motor symptoms. It is estimated that up
to one million people in the United States and 7 million to 10 million people
worldwide suffer from Parkinson's disease. It typically develops between the
ages of 55 and 65 years and affects approximately 1% of people over the age of
60 years. The underlying factors that result in the development of Parkinson's
disease are largely unknown. However, Parkinson's disease is a neurodegenerative
disease that results in reduced levels of the neurotransmitter dopamine in the
striatum, a region in the brain responsible for motor control. Dopamine is
essential for movement, and low levels of dopamine in patients with Parkinson's
disease are believed to result in the typical motor symptoms of the disease,
including hypo- and bradykinesia, rigidity, tremor, and postural instability.
The available treatments for Parkinson's disease are currently limited to
symptomatic treatments, as no therapies have proven effective in altering the
course of the disease or addressing the underlying pathophysiological processes.
The mainstay of treatment typically involves the daily administration of oral
L-dopa, the precursor to dopamine. While L-dopa is effective in controlling
motor symptoms early in the disease, progressive loss of dopaminergic neurons
and chronic L-dopa therapy are believed to contribute to the "wearing off" of
L-dopa's efficacy in the more advanced stages of the disease. Patients become
increasingly less responsive to oral L-dopa therapy and require higher doses to
manage their symptoms. More advanced Parkinson's disease patients often begin to
experience "on-off" motor fluctuations, characterized by unpredictable "OFF
periods" of reduced mobility and increased rigidity and tremor. In addition,
abnormal and involuntary movements known as dyskinesias may occur with
fluctuating L-dopa blood levels. Approximately 10% of patients per year develop
"on-off" motor fluctuations after starting L-dopa therapy.
As Parkinson's disease progresses, other therapies can be used in combination
with L-dopa and include dopamine receptor agonists and inhibitors of enzymes
related to dopamine metabolism, such as monoamine oxidase B ("MAO-B") and
catechol O-methyl transferase ("COMT"). These therapies aim to further improve
overall dopaminergic function. Patient-friendly treatment options for motor
fluctuations in advanced Parkinson's disease are limited. Subcutaneous
injections of the dopamine agonist apomorphine are used for the acute treatment
of OFF episodes. Duopa/Duodopa is an enteral suspension of L-dopa and the
peripheral AADC inhibitor carbidopa that is continuously administered over the
course of the day through a surgically-placed percutaneous endoscopic
gastrostomy with jejunal ("PEG-J") tube to reduce fluctuations in L-dopa blood
levels. Deep-Brain Stimulation ("DBS"), a procedure in which electrodes are
surgically placed in the basal ganglia, either in the subthalamic nucleus or
internal globus pallidus, is another option in advanced Parkinson's disease.
Through an impulse generator, electrical stimuli are delivered to the brain to
modulate neural signals within these target regions. It remains unclear exactly
how DBS improves the symptoms of Parkinson's disease. Both Duopa/Duodopa and DBS
require indwelling hardware - a PEG-J tube or electrodes, leads and impulse
generator, respectively.
First-Generation Product Candidate: ProSavin (OXB-101)
ProSavin, the first-generation gene therapy candidate to AXO-LENTI-PD, delivered
the same three genes (AADC, TH, and CH1) as AXO-LENTI-PD in the same lentiviral
vector, but in a less optimized payload configuration. AXO-LENTI-PD was the
result of multifactorial experimentation to optimize the payload configuration
to improve endogenous dopamine production. The initial Phase 1/2 clinical trial
of ProSavin was completed in 2012 and long-term follow-up is ongoing.

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Nonclinical Studies for ProSavin
In nonclinical studies in non-human primate models of Parkinson's disease,
ProSavin was shown to be well-tolerated, restored striatal dopamine production
to approximately 50% of normal levels and corrected motor deficits without
associated dyskinesias (p-value<0.05). ProSavin was observed to improve
Parkinson's disease symptoms and clinical disease severity in the same non-human
primate model, with a durable response seen up to 12 months (p-value<0.05 at all
time points beyond week 4). One of the ProSavin treated non-human primates was
continued on the study and exhibited a sustained motor improvement until the
study was concluded at 44 months. Also, in non-human primate models, treatment
with ProSavin plus oral levodopa significantly reduced dyskinesias (p<0.05)
compared to an empty vector plus oral levodopa, with effects sustained out to
eight weeks. Nonclinical study data did not reveal adverse reactions nor
findings with potential impact on patient safety and provided pertinent data on
the optimal method of delivery in the clinic. ProSavin was also observed to be
well tolerated when co-administered with L-dopa and apomorphine, indicating that
it can be used in conjunction with these commonly used Parkinson's disease
medications.
In summary, these experiments were determined to demonstrate the long-term
safety of therapeutic doses of ProSavin as well as significant efficacy to
improve measures of movement and reduce dyskinesias in animal models. These
results supported the initiation of clinical trials for ProSavin.
Phase 1/2 Clinical Trial of ProSavin
ProSavin was evaluated for safety and efficacy in a Phase 1/2 study in patients
with advanced Parkinson's disease by Oxford BioMedica. In this study, ProSavin
was observed to be well-tolerated with sustained improvements on motor function
as measured by the Unified Parkinson's Disease Rating Scale ("UPDRS") Part III
(motor) score in the state "OFF" levodopa medication, which we refer to as UPDRS
Part III "OFF." The Phase 1/2 clinical trial was conducted at sites in the
United Kingdom and France on a total of 15 patients with advanced Parkinson's
disease. Three dose levels of ProSavin were assessed in four patient cohorts:
dose level one (1.9 × 107 transducing units ("TU"); cohort 1); dose level two
(4.0 × 107 TU; cohorts 2a and 2b); and dose level three (1.0 × 108 TU; cohort
3). Cohorts 2b and 3 underwent a modified delivery method to increase the rate
of delivery of the viral vector. The primary endpoints were the number and
severity of adverse events as well as the UPDRS Part III "OFF" scores at
6 months after gene therapy administration. No serious adverse events related to
ProSavin or the surgical procedure were reported. Reported adverse events, or
AEs, were generally mild and related to either Parkinson's disease progression
or L-dopa-induced dyskinesias that were ameliorated with reduction of L-dopa
administration. The most common AEs in the first 12 months were dyskinesia (n=11
subjects), "on-off" motor fluctuations (n=9), headache (n=4), and akinesia
(n=3).
Across all patients, mean UPDRS Part III "OFF" scores were significantly
improved at six months (33% reduction, p-value=0.0001) and 12 months (31%
reduction, p-value=0.0001) compared to baseline. In a long term follow up safety
study being performed by Oxford BioMedica for the patients from the phase 1/2
study, ProSavin has been observed to show a favorable long-term safety profile
and demonstrated effects on motor function for over six years. Sustained
improvement was seen through six years of follow-up and the long-term follow-up
study is still ongoing (10 years exposure in the earliest subject). Clinical
data from this study were published in The Lancet in 2014 and long-term
follow-up data from this study were published in Human Gene Therapy Clinical
Development in 2018.
Second-Generation Product Candidate: AXO-LENTI-PD
AXO-LENTI-PD is a re-engineered gene therapy product candidate that was selected
following multifactorial experimentation to optimize the payload configuration
of ProSavin to improve endogenous dopamine production. The modifications
included a different ordering of the genes, the fusion of TH and CH1 with a
flexible linker, and the removal of a genetic control element between TH and
AADC. We believe these changes lead to more balanced stoichiometry of gene
expression and colocalization of enzymatic activity. The targeted net result is
improved dopamine production in transduced cells.
Nonclinical studies for AXO-LENTI-PD
In vitro experiments with AXO-LENTI-PD showed up to 10-fold increases in
dopamine + L-dopa production over ProSavin. In vivo experiments in non-human
primate models showed increased AADC activity in the brain with AXO-LENTI-PD
compared to ProSavin as measured by PET scans. Functionally, in non-human
primate models at approximately 1/5th of the dose, AXO-LENTI-PD demonstrated a
similar level of improvement in spontaneous locomotor activity compared to
ProSavin. We believe these data provide evidence that AXO-LENTI-PD may have
greater potency compared to ProSavin in terms of dopamine production, enzymatic
activity and functional improvement in animal models of Parkinson's disease.
Clinical Study of AXO-LENTI-PD

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The Phase 2 clinical trial of AXO-LENTI-PD, referred to as the SUNRISE-PD study,
was initiated in the U.K. in the fourth quarter of 2018. We expect to announce
data from the first two patients in March 2019. The SUNRISE-PD study is
currently enrolling patients in the United Kingdom, and we plan to file an IND
with the FDA in mid-2019 to support enrollment of patients in the United States.
The design of the SUNRISE-PD study consists of two parts, including a single arm
dose-escalation portion studying multiple potential dose levels and a
sham-controlled portion with patients randomized either to an active group
receiving the optimal dose as determined in the first portion, or a control
group receiving an imitation "sham" surgical procedure.
The SUNRISE-PD study is evaluating the safety and tolerability of AXO-LENTI-PD
as well as assessing efficacy using clinical measures of motor function, patient
diaries and biomarkers. The primary endpoint of the double-blind, randomized,
sham-controlled portion of the SUNRISE-PD study will be assessed at 12 months
using data from Hauser patient diaries, and a key secondary endpoint will
include UPDRS Part III "OFF" scores at 12 months.
Silence-and-Replace Technology Platform
The Silence-and-Replace technology platform is designed to produce a long-term
restoration of normal gene function by combining RNA interference ("RNAi")
(silence) with gene transfer (replace) in a single administration of a single
AAV vector construct. This approach may be applicable to various genetic
diseases, particularly autosomal dominant genetic disorders caused by nucleotide
repeat expansion.
Multiple neurological and muscular diseases are associated with erroneous
expression of a mutated gene. RNAi has shown potential to silence the expression
of disease-associated genes. Commonly-used RNAi approaches, in which small
interfering RNA ("siRNA") is introduced directly into the cell, achieve only
transient gene silencing and are limited by the requirement for repeated
administration and variable concentrations of siRNA over time. To provide
lasting gene silencing, the Silence-and-Replace technology employs DNA-directed
RNA interference ("ddRNAi"), in which viral vectors deliver a DNA construct that
produces short hairpin RNAs ("shRNAs"), which are processed by the cell into
siRNAs, which then silence the mutated genes.
In an autosomal dominant genetic disorder, particularly one caused by nucleotide
repeat expansion, silencing of the mutant gene can also lead to silencing of the
wild type gene, which may be required for normal function. The
Silence-and-Replace strategy is designed to address this potential issue by
delivering a functional copy of the gene that is re-engineered to be resistant
to knockdown. The gene that encodes the functional protein may be contained
within the same viral vector as the ddRNAi construct to overcome challenges with
administration, transduction and simultaneous expression that may be more likely
when the silence and replace genes are contained in separate vectors.
AXO-AAV-OPMD Program
Overview
The AXO-AAV-OPMD program is an investigational gene therapy being developed as a
one-time potentially disease-modifying treatment for OPMD, which we licensed
from Benitec in July 2018. The program utilizes an AAV vector to deliver a
Silence-and-Replace construct to silence the mutant poly-A binding protein
N1 ("PABPN1") gene that causes OPMD and replace it with a functional copy of
the PABPN1 gene. This Silence-and-Replace approach aims to knock down the
expression of both the wild-type and mutant PABPN1 gene through ddRNAi, while at
the same time expressing a re-engineered copy of the PABPN1 gene, which is
resistant to silencing and codes for the functional PABPN1 protein. The gene
therapy will be delivered in a single administration directly into target muscle
tissue involved in swallowing function to provide long-term correction of muscle
pathology and restoration of function.
Oculopharyngeal Muscular Dystrophy Overview
OPMD is a neuromuscular disease that is inherited through a primarily autosomal
dominant pattern. OPMD is estimated to affect approximately 15,000 people in
North America and Europe. The disease generally presents in patients between the
ages of 40 and 70 years old and is characterized primarily by progressive
difficulty swallowing (dysphagia), eyelid drooping (ptosis), and weakness of the
proximal extremities. Swallowing difficulties can have life-threating
consequences, including malnutrition and aspiration pneumonia. As the disease
progresses, the swallowing difficulties become more severe and other muscles may
become involved. There are no products approved for the treatment of OPMD and
therefore, treatment options available to patients are limited. OPMD is caused
by mutations in the gene coding for PABPN1, a ubiquitously expressed protein
that regulates the processing of messenger RNAs. The normal PABPN1 protein
contains ten copies of the amino acid alanine, which forms a polyalanine tract.
In OPMD, the mutated PABPN1 gene has an expansion of alanine-encoding
trinucleotide repeats, resulting in an abnormally long polyalanine tract. The
protein that forms from the mutated gene is prone to aggregating into insoluble
nuclear inclusion bodies which leads to muscle cell pathology and disease
progression.

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Nonclinical studies for AXO-AAV-OPMD
Data from mouse models of OPMD showed gene therapy from the AXO-AAV-OPMD program
provided up to 86% inhibition of PABPN1 gene expression, while restoring
functional PABPN1 transgene expression up to 63% of normal levels. The A17 mouse
model is a well-validated in vivo model that is designed to exhibit many of the
key pathological features of OPMD patients. The levels of gene silencing and
expression achieved in this model coincided with decreased muscle pathology and
a restoration of muscle force and muscle weight to near wild-type levels.
Planned Clinical Study for AXO-AAV-OPMD
The FDA and European Commission have granted orphan designation to the
AXO-AAV-OPMD program for the treatment of OPMD. The AXO-AAV-OPMD clinical
program is expected to begin in the second half of 2019, and the final design
will be informed by discussions with the FDA and other regulators.
Additional Silence-and-Replace Collaboration Programs
Under our license and collaboration agreement with Benitec (the "Benitec
Agreement"), we are able to pursue five additional investigational gene therapy
research plans as part of collaboration programs focused on genetic neurological
or neuromuscular disorders utilizing Benitec's technologies. We currently plan
to initiate a research plan to develop gene therapy products targeting
the C9orf72 gene, which is associated with ALS and FTD. In addition, we plan to
initiate four other research plans focused on undisclosed genetic neurological
disorders.
ALS and FTD are neurological disorders that have been linked to hexanucleotide
repeats in the C9orf72 gene. Thirty to forty percent of familial ALS cases are
associated with C9orf72 gene mutations and these patients have a progressive
muscle weakness resulting from the death of motor neurons in the spinal cord and
brain. Patients with FTD associated with C9orf72 gene mutations have a
progressive brain disorder that affects personality, behavior, language and
movement. While the exact role of C9orf72 gene mutation is unknown, both
expression of the mutated C9orf72 gene and lack of functional C9orf72 gene are
believed to be implicated. We believe Silence-and-Replace gene therapy is a
promising approach for the restoration of normal C9orf72 gene function and has
the potential to deliver lasting benefits for ALS and FTD patients.
Nelotanserin
In October 2015, we acquired from our majority shareholder, RSL, the global
rights to nelotanserin, a selective inverse agonist of the 5-HT2A receptor. We
have been investigating and developing nelotanserin to address visual
hallucinations and REM sleep behavior disorder ("RBD") in patients with Lewy
body dementia ("LBD"). In January 2018, we reported results for a pilot Phase 2
Visual Hallucination study of nelotanserin in patients with LBD. Nelotanserin
was generally well tolerated but did not show any statistical trends of
improvement on prespecified analyses of various scales to assess visual
hallucinations. We announced topline data from our Phase 2 clinical study of
nelotanserin for the treatment of RBD in patients with LBD in December 2018.
These data showed that the primary efficacy endpoint of reduction in frequency
of RBD events as measured by sleep laboratory video assessment was not met.
Signals of efficacy were observed on secondary measures, including trends in
prespecified secondary analyses of study diaries and certain sleep parameters on
polysomnography. These findings were generally consistent with previous clinical
studies of nelotanserin in patients with insomnia. Nelotanserin was generally
well-tolerated in the study.
We do not plan to conduct further clinical studies of nelotanserin.
Our Key Agreements
Oxford BioMedica License Agreement

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On June 5, 2018, we, through our wholly owned subsidiary, ASG, entered into the
Oxford BioMedica Agreement, pursuant to which we received a worldwide,
exclusive, royalty-bearing, sub-licensable license under certain patents and
other intellectual property controlled by Oxford BioMedica to develop and
commercialize AXO-LENTI-PD and related gene therapy products for all diseases
and conditions. In June 2018, as partial consideration for the license, we made
an upfront payment to Oxford BioMedica of $30.0 million, $5.0 million of which
was applied as a credit against the process development work and clinical supply
that Oxford BioMedica is obligated to provide to us over the term of the Oxford
BioMedica Agreement. Under the terms of the Oxford BioMedica Agreement, we could
be obligated to make payments to Oxford BioMedica totaling up to $55.0 million
upon the achievement of specified development milestones and $757.5 million upon
the achievement of specified regulatory and sales milestones. We will also be
obligated to pay Oxford BioMedica a tiered royalty from 7% to 10%, based on
yearly aggregate net sales of the gene therapy products, subject to specified
reductions upon the occurrence of certain events as set forth in the Oxford
BioMedica Agreement. These royalties are required to be paid, on a
product-by-product and country-by-country basis, until the latest to occur of
the expiration of the last to expire valid claim of a licensed patent covering
such product in such country, the expiration of regulatory exclusivity for such
product in such country, or 10 years after the first commercial sale of such
product in such country.
We are solely responsible, at our expense, for all activities related to the
development and commercialization of the gene therapy products. Pursuant to the
Oxford BioMedica Agreement, we are required to use commercially reasonable
efforts to develop, obtain regulatory approval of, and commercialize a gene
therapy product in the United States and at least one major market country in
Europe. In addition, we are required to meet certain diligence milestones and to
include at least one U.S.-based clinical trial site in a pivotal study of a gene
therapy product. If we fail to meet any of these specified development
milestones, we may cure such failure by paying Oxford BioMedica certain fees,
which range from $0.5 million to $1.0 million. Pursuant to the Oxford BioMedica
Agreement, Oxford BioMedica will be our cGMP manufacturer for AXO-LENTI-PD,
subject to a separate clinical and commercial supply agreement to be negotiated
between the parties.
The University of Massachusetts Medical School Exclusive License Agreement
InDecember 2018, we, through our wholly owned subsidiary, ASG, entered into an
exclusive license agreement (the "UMMS Agreement") with UMMS pursuant to which
we received a worldwide, royalty-bearing, sub-licensable license under certain
patent applications and any patents issuing therefrom, biological materials and
know-how controlled by UMMS to develop and commercialize gene therapy product
candidates, including AXO-AAV-GM1 and AXO-AAV-GM2, for the treatment of
GM1 gangliosidosis and GM2 gangliosidosis (including Tay-Sachs disease and
Sandhoff disease). This license is exclusive with respect to patents and
biological materials and non-exclusive with respect to know-how and is subject
to UMMS' retained rights for academic research, teaching and non-commercial
patient care purposes, as well as to certain pre-existing rights of the U.S.
government.
Under the UMMS Agreement, we are solely responsible, at our expense, for the
research, development and commercialization of the licensed product candidates.
We will reimburse UMMS for payments made by UMMS for the manufacture of clinical
trial materials for us, up to a specified amount. We are obligated to use
diligent efforts to develop and commercialize the licensed product candidates
and are required to achieve certain development and commercial milestones in
accordance with the timeline set forth in the agreement.
Under the terms of the UMMS Agreement, we made an upfront payment of $10.0
million. In addition, we could be obligated to make payments to UMMS totaling up
to $24.5 million upon the achievement of specified development and regulatory
milestones and $39.8 million upon the achievement of specified commercial
milestones. We are also obligated to pay UMMS tiered mid-single digit royalties
based on yearly net sales of the licensed products, subject to a specified
annual minimum amount. Additionally, we will pay UMMS a percent of any revenues
we receive from any third-party sublicenses to licensed products at rates
ranging in the mid-single digits to mid-teens.
The UMMS Agreement will expire upon the expiration of our obligations to make
royalty payments to UMMS, which continues until the later of the expiration of
licensed patents and any applicable orphan designation exclusivity and 10 years
after the first commercial sale of the licensed products. Upon such expiration,
the licenses granted to us by UMMS will automatically convert to perpetual,
irrevocable, worldwide royalty-free licenses. We have the right to terminate the
UMMS Agreement at any time upon 90 days' advance written notice to UMMS. Either
party may terminate the UMMS Agreement for the other party's uncured material
breach upon 60 days' advance written notice, including in the event that UMMS
reasonably determines we have not fulfilled our diligence obligations.
Benitec Biopharma License and Collaboration Agreement

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On July 8, 2018, we, through our wholly owned subsidiary, ASG, entered into the
Benitec Agreement, pursuant to which we received a worldwide, exclusive,
royalty-bearing, sub-licensable license under certain patents and other
intellectual property controlled by Benitec to develop and commercialize
investigational gene therapy AXO-AAV-OPMD and related gene therapy products
(collectively, the "AXO-AAV-OPMD Program") for all diseases and conditions.
Under the Benitec Agreement, we will also collaborate with Benitec on five
additional research plans ("Collaboration Programs") for other genetic
neurological or neuromuscular disorders using Benitec technologies. We will
receive a worldwide, exclusive, royalty-bearing, sub-licensable license under
certain patents and other intellectual property controlled by Benitec to develop
and commercialize products arising from each Collaboration Program.
Under the terms of the Benitec Agreement, we made an upfront payment of $10.0
million. In addition, we could be obligated to make payments to Benitec totaling
up to (i) for the AXO-AAV-OPMD Program, $67.5 million upon the achievement of
specified development and regulatory milestones and $120.0 million upon the
achievement of specified sales milestones, and (ii) for each Collaboration
Program, $33.5 million upon the achievement of specified development and
regulatory milestones and $60.0 million upon the achievement of specified sales
milestones. Benitec will receive 30% of net profits of our world-wide sales of
products from the AXO-AAV-OPMD Program, subject to an agreed minimum amount for
such payments. This profit-sharing payment will be made for so long as we or our
affiliates or sublicensees commercialize such products. We will also pay Benitec
a tiered royalty based on yearly aggregate net sales of products arising from
each Collaboration Program, subject to specified reductions upon the occurrence
of certain events as set forth in the Benitec Agreement. These royalties are
required to be paid, on a product-by-product and country-by-country basis, until
the latest to occur of the expiration of the last to expire valid claim of a
licensed patent covering such product in such country, the expiration of
regulatory exclusivity for such product in such country, or ten years after the
first commercial sale of such product in such country.
Under the Benitec Agreement, Benitec will perform certain research activities
for each Collaboration Program and development and manufacturing activities for
the AXO-AAV-OPMD Program, and we will reimburse Benitec for its costs incurred,
in accordance with an agreed-upon research and development plan and budget. We
are solely responsible, at our expense, for all other activities related to the
research, development and commercialization of products from the Collaboration
Programs and the AXO-AAV-OPMD Program.
Services Agreements with Roivant Sciences, Inc. and Roivant Sciences GmbH
In October 2014, we and our wholly owned subsidiary, Axovant Sciences, Inc.
("ASI") entered into a services agreement with Roivant Sciences, Inc. ("RSI"), a
wholly owned subsidiary of RSL, pursuant to which RSI provides us with services
in relation to the identification of potential product candidates and project
management of clinical trials, as well as other services related to our
development, administrative and financial functions. In February 2017, in
connection with the contribution and assignment of all of our intellectual
property rights to ASG, we amended and restated this services agreement
effective as of December 13, 2016, as a result of which ASG was added as a
recipient of services from RSI. In addition, ASG also entered into a separate
services agreement with Roivant Sciences GmbH ("RSG"), a wholly owned subsidiary
of RSL, effective as of December 13, 2016, for the provision of services by RSG
to ASG in relation to the identification of potential product candidates and
project management of clinical trials, as well as other services related to
development, administrative and financial activities. Under the terms of both
services agreements, we are obligated to pay or reimburse RSI and RSG for the
costs they, or third parties acting on their behalf, incur in providing services
to us or ASG, including administrative and support services as well as research
and development services. In addition, we are obligated to pay RSI and RSG for
their services at a predetermined mark-up on the costs incurred directly by RSI
and RSG in connection with any general and administrative and research and
development services provided directly by RSI and RSG.
Under the services agreement in effect as of December 31, 2016, we incurred
expenses of $0.7 million and $1.4 million for the three months ended
December 31, 2018 and 2017, respectively, and $5.0 million and $5.8 million for
the nine months ended December 31, 2018 and 2017, respectively, inclusive of the
mark-up. We have recorded these charges as research and development expense and
general and administrative expense in our condensed consolidated statements of
operations.
Financial Operations Overview
Revenue
We have not generated any revenue from the sale of any products, and we do not
expect to generate any revenue unless and until we obtain regulatory approval of
and begin to commercialize one of our product candidates in development.
Research and Development Expense

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Since our inception, our operations have primarily been focused on organizing
and staffing our company, raising capital, acquiring, and preparing for and
advancing our product candidates into clinical development. Our research and
development expenses include program-specific costs, as well as unallocated
internal costs.
Program-specific costs include:
•   direct third-party costs, which include expenses incurred under agreements

with contract research organizations ("CROs") and contract manufacturing

organizations, the cost of consultants who assist with the development of our

product candidates on a program-specific basis, investigator grants,

sponsored research, manufacturing costs in connection with producing

materials for use in conducting nonclinical and clinical studies, and any

other third-party expenses directly attributable to the development of our

product candidates; and

• upfront payments for the purchase of in-process research and development,

which include costs incurred under the Oxford BioMedica Agreement, the UMMS

Agreement, the Benitec Agreement, and our development, marketing and supply

agreement with Arena Pharmaceuticals, GmbH for nelotanserin.

Unallocated internal costs include: • share-based compensation expense for research and development personnel,

including expense related to RSL common share awards and RSL options issued

by RSL to RSI and RSG employees;

• personnel-related expenses, which include employee-related expenses, such as

salaries, benefits and travel expenses, for research and development

personnel;

• costs allocated to us under our services agreements with RSI and RSG; and

• other expenses, which includes the cost of consultants who assist with our

research and development but are not allocated to a specific program.




Research and development activities will continue to be central to our business
model. We expect our research and development expense to increase as we advance
the AXO-AAV-GM1 program, the AXO-AAV-GM2 program, the AXO-LENTI-PD program, the
AXO-AAV-OPMD program, the Collaboration Programs with Benitec and additional
product candidates we may in-license or acquire as we pursue our updated
business plan. The duration, costs and timing of clinical trials of our products
in development and any other product candidates will depend on a variety of
factors that include, but are not limited to, the following:

• the number of trials required for approval;

• the per patient trial costs;

• the number of patients who participate in the trials;

• the number of sites included in the trials;

• the countries in which the trials are conducted;

• the length of time required to enroll eligible patients;

• the dose that patients receive;

• the drop-out or discontinuation rates of patients;

• the potential additional safety monitoring or other studies requested by

regulatory agencies;

• the duration of patient follow-up;

• the timing and receipt of regulatory approvals; and

• the efficacy and safety profile of the product candidates.




In addition, the probability of success of our products in development and any
other product candidate will depend on numerous factors, including competition,
manufacturing capability and commercial viability. We may never succeed in
achieving regulatory approval of our product candidates for any indication in
any country. As a result of the uncertainties discussed above, we are unable to
determine in advance the duration and completion costs of any clinical trial we
conduct, or when and to what extent we will generate revenue from the
commercialization and sale of our products in development or other product
candidates, if at all.
General and Administrative Expense
General and administrative expenses consist primarily of share-based
compensation, legal and accounting fees, consulting services, services received
under the services agreements with RSI and RSG and employee-related expenses,
such as salaries, benefits and travel expenses, for general and administrative
personnel.

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We anticipate that our general and administrative expenses will decrease,
primarily as the result of a reduction in share-based compensation and other
employee-related expenses for our general and administrative personnel due to
headcount reductions over the past year, as we have changed our focus from small
molecules to gene therapies.


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Results of Operations for the Three and Nine-Months Ended December 31, 2018 and
2017
The following table summarizes our results of operations for the three and
nine-months ended December 31, 2018 and 2017 (in thousands):

                                    Three Months Ended                     Nine Months Ended December
                                       December 31,                                   31,
                                     2018          2017        Change          2018          2017         Change
Operating expenses:
Research and development
expenses
(includes total share-based
compensation expense of $1,910
and $2,453 for the three months
ended December 31, 2018 and 2017
and $3,299 and $14,625 for the
nine months ended December 31,
2018 and 2017, respectively)     $   21,483$ 37,346$ (15,863 )$   80,403$ 119,613$ (39,210 )
General and administrative
expenses
(includes total share-based
compensation expense of $2,648
and $8,186 for the three months
ended December 31, 2018 and 2017
and $9,575 and $26,954 for the
nine months ended December 31,
2018 and 2017, respectively)         10,933       18,032        (7,099 )       33,309        69,662       (36,353 )
Total operating expenses         $   32,416$ 55,378$ (22,962 )$  113,712$ 189,275$ (75,563 )
Interest expense                 $    1,906$  1,950$     (44 )$    5,808$   5,702$     106
Income tax expense               $       52$     24$      28$      224$     953$    (729 )



Research and Development Expenses
Our research and development expenses during the three and nine-months ended
December 31, 2018 and 2017 consisted of the following (in thousands):

                             Three Months Ended December
                                         31,                              

Nine Months Ended December 31,

                                 2018           2017         Change            2018               2017         Change
Program-specific costs:
AXO-LENTI-PD                 $   1,881       $       -     $   1,881$       28,211       $        -     $  28,211
AXO-AAV-GM1 and AXO-AAV-GM2     10,024               -        10,024             10,024                -        10,024
AXO-AAV-OPMD                     1,858               -         1,858             13,605                -        13,605
Intepirdine                       (207 )        23,064       (23,271 )            2,054           70,794       (68,740 )
Nelotanserin                     1,334           5,842        (4,508 )            8,894           12,635        (3,741 )
RVT-103                              -              79           (79 )                2              691          (689 )
RVT-104                              -             582          (582 )              (73 )          1,216        (1,289 )
Unallocated internal costs:
Share-based compensation         1,910           2,453          (543 )            3,299           14,625       (11,326 )
Personnel-related                3,095           4,035          (940 )            7,512           12,631        (5,119 )
Services agreements                  -             186          (186 )            2,352            1,573           779
Other                            1,588           1,105           483              4,523            5,448          (925 )
Total research and
development expenses         $  21,483$  37,346$ (15,863 )$       80,403$  119,613$ (39,210 )



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Research and development expenses were $21.5 million for the three months ended
December 31, 2018, and consisted primarily of $10.0 million related to the
license fee paid to UMMS in December 2018 for AXO-AAV-GM1 and AXO-AAV-GM2,
employee salaries and benefits of $3.1 million, $1.9 million related to
AXO-AAV-OPMD, $1.9 million related to AXO-LENTI-PD, share-based compensation
expense of $1.9 million and $1.3 million related to nelotanserin clinical
studies and related manufacturing.
Research and development expenses were $37.3 million for the three months ended
December 31, 2017 and consisted primarily of program-specific costs of $29.6
million, including $23.1 million related to intepirdine clinical studies and
related wind-down activities and $5.8 million related to nelotanserin,
personnel-related expenses of $4.0 million and share-based compensation expense
of $2.5 million. The share-based compensation expense included $0.2 million
related to the RSL common share awards and RSL options issued by RSL to RSI
employees, net of forfeitures.
Research and development expenses decreased by $15.9 million, to $21.5 million,
in the three months ended December 31, 2018, compared to the three months ended
December 31, 2017, as intepirdine costs decreased by $23.3 million due to the
discontinuation of our intepirdine program, nelotanserin costs decreased by $4.5
million due to the wind-down of our nelotanserin clinical studies,
personnel-related expenses decreased by $0.9 million primarily due to decreased
headcount related to our previously announced reduction in workforce and
share-based compensation expense decreased by $0.5 million, net of forfeitures,
primarily due to decreased headcount related to our previously announced
reduction in workforce, as well as an increase in forfeitures related to RSL
options issued to RSI employees, offset by increases of $10.0 million related to
the license fee paid to UMMS in December 2018 for AXO-AAV-GM1 and AXO-AAV-GM2,
$1.9 million related to AXO-LENTI-PD and $1.9 million related to AXO-AAV-OPMD.
Research and development expenses were $80.4 million for the nine months ended
December 31, 2018, and consisted primarily of $28.2 million related to
AXO-LENTI-PD, $13.6 million related to AXO-AAV-OPMD, $10.0 million related to to
the license fee paid to UMMS in December 2018 for AXO-AAV-GM1 and AXO-AAV-GM2,
$8.9 million related to the nelotanserin clinical study, employee salaries and
benefits of $7.5 million and share-based compensation expense of $3.3 million.
The share-based compensation expense was net of a benefit of $(2.8) million
related to the RSL common share awards and RSL options issued by RSL to RSI
employees, net of forfeitures.
Research and development expenses were $119.6 million for the nine months ended
December 31, 2017 and consisted primarily of program-specific costs of $85.3
million, including $70.8 million related to intepirdine and $12.6 million
related to nelotanserin, share-based compensation expense of $14.6 million, and
employee salaries and benefits of $12.6 million. The share-based compensation
expense included $4.1 million related to the RSL common share awards and RSL
options issued by RSL to RSI employees, net of forfeitures.
Research and development expenses decreased by $39.2 million in the nine months
ended December 31, 2018, compared to the nine months ended December 31, 2017, as
intepirdine costs decreased by $68.7 million due to the discontinuation of our
intepirdine program, share-based compensation expenses decreased by $11.3
million, net of forfeitures, personnel-related expenses decreased by $5.1
million primarily due to reduced headcount and nelotanserin costs decreased by
$3.7 million due to the wind-down of our nelotanserin clinical studies, offset
by increases of $28.2 million related to AXO-LENTI-PD, which includes the $25.0
million license fee paid to Oxford BioMedica in June 2018, $13.6 million related
to AXO-AAV-OPMD, which includes the $10.0 million license fee paid to Benitec in
July 2018, and $10.0 million related to the license fee paid to UMMS in December
2018 for AXO-AAV-GM1 and AXO-AAV-GM2.
General and Administrative Expenses
General and administrative expenses were $10.9 million for the three months
ended December 31, 2018 and consisted primarily of employee salaries and related
benefits of $3.1 million, legal and professional fees of $2.7 million,
share-based compensation expense of $2.6 million and $0.7 million of direct and
indirect costs allocated to us under the services agreements with RSI and RSG.
General and administrative expenses were $18.0 million for the three months
ended December 31, 2017 and consisted primarily of share-based compensation
expense of $8.2 million, employee salaries and related benefits of $4.2 million,
$1.2 million of direct and indirect costs allocated to us under the services
agreement with RSI and RSG, and legal and professional fees of $1.0 million. The
share-based compensation expense for the three months ended December 31, 2017
included $0.2 million for RSL common share awards and RSL options issued to RSI
employees.
General and administrative expenses decreased by $7.1 million, to $10.9 million,
in the three months ended December 31, 2018, compared to the three months ended
December 31, 2017, primarily due to decreases in share-based compensation
expense of $5.6 million and employee salaries and related benefits of $1.1
million due to decreased headcount, offset by an increase in professional fees
of $1.7 million. The remaining decrease of $2.1 million was primarily due to
decreases in direct and indirect costs allocated to us under the services
agreements with RSI and RSG, depreciation expenses and marketing expenses.

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General and administrative expenses were $33.3 million for the nine months ended
December 31, 2018 and consisted primarily of share-based compensation expense of
$9.6 million, legal and professional fees of $7.2 million, employee salaries and
related benefits of $7.2 million and $2.6 million of direct and indirect costs
allocated to us under the services agreements with RSI and RSG. The remaining
expense of $6.7 million was related primarily to facilities, insurance,
depreciation and consulting expenses. The share-based compensation expense for
the nine months ended December 31, 2018 included share-based compensation
expense of $0.1 million for RSL common share awards and RSL options issued to
RSI employees.
General and administrative expenses were $69.7 million for the nine months ended
December 31, 2017 and consisted primarily of share-based compensation of $27.0
million, employee salaries and related benefits of $15.2 million, marketing
expenses of $8.9 million, legal and professional fees of $5.0 million, and $4.2
million of direct and indirect costs allocated to us under the services
agreements with RSI and RSG. The share-based compensation expense for the nine
months ended December 31, 2017 included $0.7 million for RSL common share awards
and RSL options issued to RSI employees.
General and administrative expenses decreased by $36.4 million, to $33.3
million, in the nine months ended December 31, 2018, compared to the nine months
ended December 31, 2017, primarily due to decreases in share-based compensation
of $17.4 million, employee salaries and related benefits of $8.0 million due to
reduced headcount and marketing expenses of $8.0 million due to the
discontinuation of our inteperdine program. The remaining decrease of $3.0
million was primarily due to decreases in direct and indirect costs allocated to
us under the services agreements with RSI and RSG, and expenses related to
meetings and conferences and travel and entertainment.
Interest Expense
Interest expense was $1.9 million and $5.8 million, respectively for the three
and nine-months ended December 31, 2018 and consisted of interest paid and the
amortization of debt discount related to the Loan Agreement with Hercules
Capital, Inc. ("Hercules"). See "Liquidity and Capital Resources-Loan and
Security Agreement with Hercules Capital, Inc."
Interest expense for the three and nine-months ended December 31, 2017, was $2.0
million and $5.7 million, respectively, and consisted of interest paid and the
amortization of debt discount related to the Loan Agreement with Hercules.
Income Tax Expense
Income tax expense was $0.1 million and $0.2 million for the three and
nine-months ended December 31, 2018, respectively. Income tax expense was $24
thousand and $1.0 million for the three and nine-months ended December 31, 2017,
respectively. The higher income tax expense for the nine months ended December
31, 2017 was due to a valuation allowance recorded to offset our net deferred
tax assets, which did not recur during the three and nine-months ended
December 31, 2018.
Liquidity and Capital Resources
Overview
In April 2017, we raised net proceeds of approximately $134.5 million, after
deducting underwriting discounts and commissions and offering expenses paid by
us, from the sale of 7,753,505 common shares in a follow-on public offering.
On June 22, 2018, we entered into a sales agreement with Cowen and Company, LLC
("Cowen") to sell our common shares having an aggregate offering price of up to
$75.0 million from time to time through an at-the-market equity offering program
under which Cowen is acting as our agent. Cowen is entitled to compensation for
its services in an amount up to 3% of the gross proceeds of any of our common
shares sold under the sales agreement. As of December 31, 2018, approximately
$74.9 million of our common shares remained available for sale under the sales
agreement.
On July 9, 2018, we received $25.0 million of net proceeds from RSL in exchange
for the issuance and sale of 14,285,714 of our common shares to RSL at a
purchase price of $1.75 per share, which was the closing price per share of our
common shares on the Nasdaq Global Select Market on June 5, 2018, the date of
the share purchase agreement.
On December 18, 2018, we issued and sold 33,160,923 common shares in a follow-on
public offering, including 3,160,923 common shares sold pursuant to the exercise
of the underwriters' option to purchase additional shares, at an offering price
of $1.00 per common share for gross proceeds of $33.2 million, including
10,000,000 shares issued and sold to RSL. The aggregate net proceeds to us were
approximately $31.6 million, after deducting underwriting discounts and
commissions and offering expenses incurred.

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For the nine months ended December 31, 2018, we used $121.5 million of cash in
our operating activities. We have incurred and expect to continue to incur
significant and increasing operating losses at least for the next several
years. We do not expect to generate revenue unless and until after we
successfully complete development and obtain regulatory approval for one of our
products in development. Our cash utilization may fluctuate significantly from
quarter-to-quarter and year-to-year, depending on the timing of our planned
clinical trials and our expenditures on other research and development
activities and activities related to potential commercialization. We anticipate
that we will continue to incur significant expenses as we:
•   continue development of AXO-AAV-GM1, AXO-AAV-GM2, AXO-LENTI-PD, and

AXO-AAV-OPMD;

• initiate our research program for five targets with Benitec, including our

research program on C9orf72;

• seek to identify, acquire, develop and commercialize additional product

candidates;

• integrate acquired technologies into a comprehensive regulatory and product

development strategy;

• achieve milestones under our agreements with third parties that will require

us to make substantial payments to those parties;

• maintain, expand and protect our intellectual property portfolio;

• hire and retain scientific, clinical, regulatory, manufacturing, quality

control, commercial and administrative personnel;

• add operational, financial and management information systems and personnel,

including personnel to support our drug development efforts;

• seek regulatory approvals for any product candidates that successfully

complete clinical trials;

• scale up external manufacturing capabilities to commercialize our product

candidates;

• establish a sales, marketing and distribution infrastructure for product

candidates for which we may obtain regulatory approval; and

• operate as a public company.



As of December 31, 2018, we had cash and cash equivalents totaling $84.9
million. For the fiscal year ended March 31, 2018 and the three and nine-months
ended December 31, 2018, we incurred net losses of $221.6 million, $34.3 million
and $120.0 million, respectively. At December 31, 2018, we had aggregate net
interest-bearing indebtedness of $48.8 million, of which $20.6 million was due
within one year. We also had $24.6 million of other non-interest-bearing current
liabilities due within one year. The Loan Agreement with Hercules requires that
we maintain a minimum cash balance, which was previously $35.0 million, but has
been reduced to $30.0 million following the achievement of certain clinical
milestones as set forth in the Loan Agreement. We anticipate that our current
cash and cash equivalent balances will not be sufficient to maintain compliance
with the minimum liquidity financial covenant under the Loan Agreement beyond
the one-year period following the date that the accompanying unaudited condensed
consolidated financial statements were issued if the Loan Agreement is not
amended or additional financing is not completed. Failure to meet this minimum
covenant would be considered an event of default under the Loan Agreement and
could result in the acceleration of our existing indebtedness.
We are currently in the clinical stage of operations, have not yet achieved
profitability, and anticipate that we will continue to incur net losses for
the foreseeable future. Our existing funds will not be sufficient to enable us
to complete all necessary development and to commercially launch any of our
products. Accordingly, we will be required to obtain further funding through
public or private equity offerings, debt financing, collaboration and licensing
arrangements or other sources. Adequate additional funding may not be available
to us on acceptable terms, or at all. If we are unable to raise capital in
sufficient amounts or on terms acceptable to us, we may have to significantly
delay, scale back or discontinue the development or commercialization of one or
more of our product candidates or potentially discontinue operations. Due to
these uncertainties, there is substantial doubt about our ability to continue as
a going concern.
Loan and Security Agreement with Hercules Capital, Inc.
On February 2, 2017, we and our wholly owned subsidiaries, Axovant Holdings Ltd.
("AHL"), ASG and ASI, entered into the Loan Agreement with Hercules. Pursuant to
the Loan Agreement, we, AHL and ASG, as the Borrowers, borrowed an aggregate of
$55.0 million. ASI issued a guaranty of the Borrowers' obligations under the
Loan Agreement, and at the closing, we paid Hercules a facility charge of
$550,000. Subsequently, we added our subsidiary Axovant Sciences America, Inc.
as a Borrower in July 2017 and our subsidiaries Axovant Treasury Holdings, Inc.
and Axovant Treasury, Inc. as Borrowers in April 2018.
The Term Loan bears interest at a variable per annum rate calculated for any day
as the greater of either (i) the prime rate plus 6.80%, and (ii) 10.55%. The
Term Loan has a scheduled maturity date of March 1, 2021. The Borrowers were
obligated to make monthly payments of accrued interest under the Loan Agreement
until September 1, 2018, followed by monthly installments of principal and
interest through March 1, 2021. The Borrowers' obligations under the Loan
Agreement are secured by a first position lien on substantially all of their and
ASI's respective assets, other than intellectual property. If we prepay the loan
prior to March 1, 2021, we will be obligated to pay Hercules a prepayment
charge, based on a percentage of the then-outstanding principal balance, equal
to 2.0% if the prepayment occurs after 18 months but prior to 36 months
following February 2, 2017, and 1.0% if the prepayment occurs thereafter.

                                       36
--------------------------------------------------------------------------------


The Loan Agreement includes customary affirmative and restrictive covenants and
representations and warranties, including a minimum cash balance of the lesser
of at least i) the outstanding amount of debt under the underlying loan
agreement plus certain aged accounts payable (as further defined in the Loan
Agreement), or ii) $35.0 million, provided that this amount may be lowered to
$30.0 million upon the achievement of certain clinical milestones as set forth
in the Loan Agreement, a covenant against the occurrence of a "change in
control," financial reporting obligations, and certain limitations on
indebtedness, liens (including a negative pledge on intellectual property and
other assets), investments, distributions (including dividends), collateral,
transfers, mergers or acquisitions, taxes, corporate changes, and deposit
accounts. The Loan Agreement also includes customary events of default,
including payment defaults, breaches of covenants following any applicable cure
period, the occurrence of certain events that could reasonably be expected to
have a "material adverse effect" as set forth in the Loan Agreement, cross
acceleration to the debt and certain events relating to bankruptcy or
insolvency. Upon the occurrence of an event of default, a default interest rate
of an additional 5.0% may be applied to the outstanding principal balance, and
Hercules may declare all outstanding obligations immediately due and payable and
take such other actions as set forth in the Loan Agreement. In addition, for so
long as the Term Loan remains outstanding, we are required to use commercially
reasonable efforts to afford Hercules the opportunity to participate in future
underwritten equity offerings of our common shares up to a total of $3.0
million.
In connection with the entry into the Loan Agreement, we issued a warrant to
Hercules which was exercisable for an aggregate of 274,086 of our common shares
at an exercise price of $12.04 per share. In August 2017, Hercules exercised the
warrant on a cashless basis and received a net issuance of 129,827 of our common
shares.
Cash Flows
The following table sets forth a summary of our cash flows for the nine months
ended December 31, 2018 and 2017 (in thousands):
                                              Nine Months Ended December 

31,

                                                 2018                 2017

Net cash used in operating activities $ (121,531 )$ (156,148 ) Net cash used in investing activities

                 (74 )              (4,246 )
Net cash provided by financing activities          52,207               

136,072



Operating Activities
Cash flows from operating activities consist of net loss adjusted for non-cash
items, including depreciation and amortization and share-based compensation
expense, as well as the effect of changes in working capital and other
activities.
For the nine months ended December 31, 2018, net cash used in operating
activities was $121.5 million and was primarily attributable to a net loss of
$120.0 million, which includes costs incurred for research and development
activities, including CRO fees, manufacturing, regulatory and other clinical
trial costs and our general and administrative expenses, a decrease of $9.0
million in accrued expenses, an increase of $3.4 million in other non-current
assets, a decrease of $2.9 million in accounts payable and an increase of $2.7
million in prepaid assets and other current assets, which were partially offset
by $12.9 million of non-cash share-based compensation expense, and $2.1 million
of depreciation and amortization and an increase of $0.8 million in amounts due
to RSL, RSI and RSG, which includes $1.1 million from a non-cash capital
contribution. For the nine months ended December 31, 2017, net cash used in
operating activities was $156.1 million and was primarily attributable to a net
loss of $196.3 million, which includes costs incurred for research and
development activities, including CRO fees, manufacturing, regulatory and other
clinical trial costs, and our general and administrative expenses, and a
decrease of $7.5 million in accounts payable, partially offset by $41.6 million
of non-cash share-based compensation expense.
Investing Activities
For the nine months ended December 31, 2018, net cash used in investing
activities was $74 thousand for purchases of computers and software. For the
nine months ended December 31, 2017, net cash used in investing activities was
$4.2 million, consisting of purchases of leasehold improvements, furniture and
equipment.
Financing Activities

                                       37
--------------------------------------------------------------------------------


For the nine months ended December 31, 2018, net cash provided by financing
activities was approximately $52.2 million and consisted of $56.7 million of net
proceeds from the issuance and sale of our common shares in a public offering, a
private placement to RSL, and our share sales agreement with Cowen, as well as
proceeds of $0.3 million from the exercise of stock options, partially offset by
$4.8 million of payments made on long-term debt. For the nine months ended
December 31, 2017, net cash provided by financing activities was $136.1 million,
which consisted of net proceeds of $134.5 million received from the sale of our
common shares in a follow-on public offering and proceeds of $1.6 million from
the exercise of stock options.
Contractual Obligations
Our contractual obligations did not materially change during the nine months
ended December 31, 2018, as compared to those disclosed in our Annual Report on
Form 10-K for the year ended March 31, 2018, except that, in June 2018, we
entered into the Oxford BioMedica Agreement; in July 2018, we entered into the
Benitec Agreement; in August 2018, we extended our lease agreement for
19,554 square feet of office space in New York, New York, which was originally
set to expire in January 2019 and was extended to January 2021; and in December
2018, we entered into the UMMS Agreement. The following table provides
information regarding remaining contractual rent obligations due within each
respective year ending March 31, as of December 31, 2018 (in thousands):
                                      Total      2019      2020      2021

Rent obligations, net of prepayments $ 3,129$ 448$ 1,791$ 890




See "Our Key Agreements" above for additional information regarding the the UMMS
Agreement, the Oxford BioMedica Agreement, and the Benitec Agreement, and our
commitments thereunder.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under the SEC's rules. Accordingly,
our operating results, financial condition and cash flows are not subject to
off-balance sheet risks.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"). The preparation of these financial statements requires us to make
estimates, judgments and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities as of the dates
of the balance sheets and the reported amounts of expenses during the reporting
periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments
on an ongoing basis. Significant estimates include assumptions used in the
determination of some of our costs incurred under the services agreements with
RSI and RSG, which costs are charged to research and development and general and
administrative expense, as well as assumptions used to estimate our ability to
continue as a going concern and estimate the fair value of our common shares. We
base our estimates on historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We define our critical accounting policies as those under U.S. GAAP that require
us to make subjective estimates and judgments about matters that are uncertain
and are likely to have a material impact on our financial condition and results
of operations, as well as the specific manner in which we apply those
principles.
We believe the estimates and judgments involved in our contingent payment
liabilities, research and development accruals, share-based compensation and
income taxes have the greatest potential impact on our unaudited condensed
consolidated financial statements and consider these to be our critical
accounting policies and estimates.
Our significant accounting policies are more fully described in Note 2 to our
unaudited condensed consolidated financial statements in this Quarterly Report
on Form 10-Q and Note 2 to our consolidated financial statements in our Annual
Report. There have been no material changes to our critical accounting policies
and significant judgments and estimates as compared to the critical accounting
policies and significant judgments and estimates described in our Annual Report,
except as follows:
Cash and Cash Equivalents
We consider all highly liquid investments purchased with original maturities of
90 days or less at acquisition to be cash equivalents. Cash and cash equivalents
include cash held in banks and amounts held in money market funds.
Recent Accounting Pronouncements

                                       38
--------------------------------------------------------------------------------


The Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") No. 2016-02, "Leases (Topic 842)" in February 2016, ASU No.
2018-10, "Codification Improvements to Topic 842, Leases" and ASU No. 2018-11,
"Leases (Topic 842): Targeted Improvements" in July 2018, and ASU No. 2018-20,
"Narrow-Scope Improvements for Lessors" in December 2018 (collectively, the
"Lease Standards"), which relate to a comprehensive new lease standard that
amends various aspects of existing accounting guidance for leases. The core
principle of the Lease Standards will require lessees to present the assets and
liabilities that arise from leases on their balance sheets. The Lease Standards
are effective for annual periods beginning after December 15, 2018, and interim
periods within fiscal years beginning after December 15, 2018. Early adoption is
permitted. We expect to adopt the provisions of the Lease Standards for the
fiscal year beginning April 1, 2019. We have implemented a process to identify
our outstanding lease portfolio and are currently evaluating our outstanding
leases to determine the impact the Lease Standards will have on our consolidated
financial statements.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic
805): Clarifying the Definition of a Business" ("ASU No. 2017-01"), which
clarifies the definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. We adopted the provisions
of ASU No. 2017-01 on April 1, 2018, on a prospective basis. The impact on our
consolidated financial statements and disclosures will depend on the facts and
circumstances of any specific future transactions. Refer to Note 3, "License and
Collaboration Agreements," in the accompanying notes to the unaudited condensed
consolidated financial statements for further information regarding the impact
of the adoption of ASU No. 2017-01 on the license agreements executed during the
three and nine-months ended December 31, 2018.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income" ("ASU No. 2018-02"). On December 22,
2017, an Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018 (commonly known as the
"Tax Cuts and Jobs Act") was enacted in the United States, which introduced a
comprehensive set of tax reforms. ASU No. 2018-02 allows companies to reclassify
stranded tax effects resulting from the Tax Cuts and Jobs Act, from accumulated
other comprehensive (loss) income to retained earnings. ASU No. 2018-02 is
effective for interim and annual reporting periods beginning after December 15,
2018, and early adoption is permitted. We expect to adopt the provisions of ASU
No. 2018-02 for the fiscal year beginning April 1, 2019. As we have not yet
completed our final review of the impact of ASU No. 2018-02 but expect to by
March 31, 2019, we have not determined whether the adoption of this guidance
will have a material impact on our consolidated financial statements or
disclosures.
In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,"
("ASU No. 2018-05"). ASU No. 2018-05 amends certain SEC material in Topic 740
for the income tax accounting implications of the Tax Cuts and Jobs Act to
provide guidance for companies that would allow for a measurement period of up
to one year after the enactment date of the Tax Cuts and Jobs Act, and was
effective immediately. The Tax Cuts and Jobs Act did not have a material impact
on our consolidated financial statements since our deferred temporary
differences are fully offset by a valuation allowance and we do not have any
offshore earnings from which to record the mandatory transition tax. As a result
of finalizing our fiscal 2018 operating results, the issuance of new
interpretative guidance, and other analyses performed, we finalized our
accounting related to the impacts of the Tax Cuts and Jobs Act and recorded
immaterial measurement period adjustments in the period ended December 31, 2018.

In June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting," ("ASU No. 2018-07"). ASU No. 2018-07 requires equity-classified
share-based payment awards issued to nonemployees to be measured on the grant
date, rather than remeasuring the awards through the performance completion date
as previously required. Additionally, for nonemployee awards with performance
conditions, compensation cost associated with the award is to be recognized when
achievement of the performance condition is probable, rather than upon
achievement of the performance condition. Further, the requirement to reassess
the liability or equity classification for nonemployee awards upon vesting is
eliminated, except for awards in the form of convertible instruments. ASU No.
2018-07 also clarifies that any share-based payment awards issued to customers
should be evaluated under Accounting Standards Codification 606, Revenue from
Contracts with Customers. ASU No. 2018-07 is effective for fiscal years
beginning after December 15, 2018, including interim periods within that fiscal
year, with early adoption permitted after the adoption of ASU No. 2014-09. We
expect to adopt the provisions of ASU No. 2018-07 for the fiscal year beginning
April 1, 2019. As we have not yet completed our final review of the impact of
ASU No. 2018-07 but expect to by March 31, 2019, we have not determined whether
the adoption of this guidance will have a material impact on our consolidated
financial statements or disclosures.

                                       39

--------------------------------------------------------------------------------



In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement" ("ASU No. 2018-13"). ASU No. 2018-13 removes, modifies, and adds
certain recurring and nonrecurring fair value measurement disclosures, including
removing disclosures around the amount(s) of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, the policy for timing of
transfers between levels, and the valuation processes for Level 3 fair value
measurements, among other things. ASU No. 2018-13 adds disclosure requirements
around changes in unrealized gains and losses included in other comprehensive
income for recurring Level 3 fair value measurements held at the end of the
reporting period, the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements, and a narrative
description of measurement uncertainty. The amendments in ASU No. 2018-13 are
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. The amendments on changes in unrealized gains
and losses, the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements, and the narrative description
of measurement uncertainty are to be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal year of
adoption, with all other amendments applied retrospectively to all periods
presented. Early adoption is permitted. We early adopted the provisions of ASU
No. 2018-13 during the three months ended September 30, 2018, which did not have
a material impact on our consolidated financial statements or disclosures
because we do not currently have any Level 3 fair value measurements on a
recurring or nonrecurring basis, and also have not had transfers between Level 1
and Level 2 of the fair value hierarchy.

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