APPLIED GENETIC TECHNOLOGIES CORPORATION The following discussion and analysis provides an overview of our financial condition as ofDecember 31, 2020 and our results of operations for the three and six months endedDecember 31, 2020 and 2019. This discussion should be read in conjunction with the Unaudited Condensed Financial Statements and related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year endedJune 30, 2020 (the "2020 Form 10-K"). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below under the heading "Risk Factors" in Part II, Item 1A, and elsewhere in this report, as well as those set forth in Part I, Item 1A, "Risk Factors," of the 2020 Form 10-K. Forward -looking statements include information concerning our possible or assumed future results of operations, including results and timing of our clinical trials and planned clinical trials, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "hopes," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
As used herein, except as otherwise indicated by context, references to "we,"
"us," "our," "AGTC" or the "Company" refer to
Overview
We are a clinical-stage biotechnology company that uses a proprietary gene
therapy platform to develop transformational genetic therapies for patients
suffering from rare and debilitating diseases. Our initial focus is in the field
of ophthalmology, where we have active clinical
programs in X-linked retinitis pigmentosa ("XLRP"), achromatopsia ("ACHM"), and
optogenetics as well as preclinical programs in Stargardt
disease and age-related macular degeneration ("AMD"). In addition to
ophthalmology, we have initiated one preclinical program in otology and three
preclinical programs targeting central nervous system disorders ("CNS"),
including adrenoleukodystrophy ("ALD"), frontotemporal dementia ("FTD") and
amyotrophic lateral sclerosis ("ALS"). Our optogenetics program is being
developed in collaboration with Bionic Sight, LLC ("Bionic Sight") and our
otology program is being developed in collaboration with Otonomy, Inc.
("Otonomy"). With a number of important clinical milestones on the horizon, we
believe that we are well positioned to advance multiple programs toward pivotal
studies. In addition to our product pipeline, we have also developed broad
technological and manufacturing capabilities utilizing both our internal
scientific resources and collaborations with others, such as our efforts with
Synpromics Limited , which was acquired by AskBio and provides expertise in
synthetic promoter development and optimization, and the University of Florida ,
which provides us with expertise in vector design and access to novel capsids.
Since our inception, we have devoted substantially all of our resources to
development efforts relating to our proof-of-concept programs in ophthalmology,
otology, CNS, and alpha-1 antitrypsin deficiency,an inherited orphan lung
disease, including manufacturing product in compliance with good manufacturing
practices, preparing to conduct and conducting clinical trials of our product
candidates, providing general and administrative support for these operations
and protecting our intellectual property. We do not have any products approved
for sale and have not generated any revenue from product sales. We have funded
our operations to date primarily through public offering of our common stock,
private placement of preferred stock, collateralized borrowing and
collaborations. We have also been the recipient, either independently or with
our collaborators, of grant funding administered through federal, state, and
local governments and agencies, including the United States Food and Drug
Administration , or the FDA, and by patient advocacy groups such as The
Foundation Fighting Blindness and the Alpha-1 Foundation .
We have incurred losses from operations in each year since inception, except for
fiscal year 2017, wherein we reported net income of $0.4 million due, in part,
to profits from a collaboration agreement that was ultimately terminated in
March 2019 . For the six months ended December 31, 2020 and 2019, we reported net
losses of $30.8 million and $20.2 million , respectively. Substantially all of
our net losses resulted from costs incurred in connection with our research and
development programs and general and administrative expenses associated with our
operations. We expect to continue to incur significant operating expenses for at
least the next several years and anticipate that such expenses will increase
substantially in connection with our ongoing activities as we:
• continue to conduct preclinical studies and clinical trials for our XLRP
and ACHM product candidates and preclinical studies for our other
ophthalmology, otology and CNS product candidates;
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• continue our research and development efforts, including exploration
through early preclinical studies of potential applications of our gene
therapy platform in:
• orphan ophthalmology indications;
• non-orphan ophthalmology indications, including AMD and other retinal
diseases; and
• other inherited diseases, such as otology and CNS indications;
• manufacture clinical trial materials and develop larger-scale
manufacturing capabilities;
• seek regulatory approval for our product candidates;
• further develop our gene therapy platform;
• add personnel to support our scientific, collaboration, product
development and commercialization efforts; and
• continue to operate as a public company.
As of December 31, 2020 , we had cash and cash equivalents and liquid investments
totaling $53.1 million . We do not expect to generate revenue from product sales
unless and until we successfully complete development and obtain regulatory
approval for one or more of our product candidates, which we expect will take a
number of years and which we believe is subject to significant uncertainty. We
believe that our cash and cash equivalents and investments on December 31, 2020 ,
along with net proceeds of approximately $69.2 million that we received in
February 2021 from the underwritten public offering that is described below
under "Recent Developments," will be sufficient to allow us to generate data
from our ongoing and planned clinical programs and fund currently planned
research and discovery programs into calendar year 2023. In order to complete
the XLRP Phase 2/3 trial, obtain regulatory approval for our lead product
candidates and build the sales, marketing and distribution infrastructure that
we believe will be necessary to commercialize our lead product candidates, if
approved, we will require substantial additional funding. Also, our current
operating plan may change as a result of many factors currently unknown to us,
and we may need to seek additional funds sooner than planned, through public or
private equity or debt financings, government or other third-party funding,
marketing and distribution arrangements and other collaborations, strategic
alliances and licensing arrangements, acquisitions or other business development
activities, or a combination of these approaches. However, we may be unable to
raise additional funds or enter into such other arrangements when needed on
favorable terms or at all. Our failure to raise capital or enter into such other
arrangements as and when needed would have a negative impact on our financial
condition and our ability to develop our product candidates and continue our
research and development efforts.
Recent Developments
XLRP
InJuly 2020 , we announced our updated development plans for the XLRP clinical program, including the dosing of additional patients in our current Phase 1/2 trial to collect more functional data, which expansion trial we refer to as Skyline, and a Phase 2/3 trial, which we refer to as our XLRP Vista trial. InNovember 2020 , we announced a modification to the primary endpoint for our XLRP Vista trial based on comments received from the FDA. The design of our XLRP Vista trial is expected to include approximately 60 patients randomized across three arms: a low-dose group (the 1.2E+11 vg/mL Group 2 dose from the ongoing Phase 1/2 trial), a high-dose group (the 1.1E+12 vg/mL Group 5 dose from the ongoing Phase 1/2 trial) and an untreated control group. The primary endpoint will be visual sensitivity defined as having at least a 7 decibel improvement in visual sensitivity in at least 5 pre-specified loci at Month 12. Together with a third-party vendor, we have developed a machine learning algorithm that, on a patient-by-patient basis, predicts the loci most likely to improve through evaluation of baseline visual sensitivity. The algorithm was developed using the microperimetry data available to date from the Phase 1/2 dose escalation study. Secondary endpoints include mean change in visual sensitivity, improvements in visual acuity and improvements in performance on a visual navigation course. We also plan to include a masked interim analysis at Month 6, with that data expected to be released in the third quarter of calendar year 2022, which may provide us with the opportunity to adjust the trial, if necessary, to optimize outcomes. InNovember 2020 , we also provided additional data from our XLRP Phase 1/2 trial that indicated 2 of 8 evaluable centrally dosed patients in Groups 2 and 4 were responders at Month 12. A third patient, who was a responder at Month 6, fell just below the responder criterion. All eight evaluable patients also showed stable or improving visual acuity. In addition, we provided six-month data for the 11 centrally dosed patients in Groups 5 and 6 and reported that 5 of 11 patients were responders at Month 6. Nine of these patients also had stable or improving visual acuity. If we apply the planned XLRP Vista trial inclusion criteria, 3 of the 11 patients in Groups 5 and 6 would be removed from the analysis, and 5 of 8 patients, or 62%, would be considered responders. We do not currently have a complete set of Month 12 data available nor do we have a control arm in the Phase 1/2 trial, both of which will be part of our planned XLRP Vista trial and necessary to evaluate efficacy. We expect to report 12-month data for Groups 5 and 6 in the second quarter of calendar year 2021. 16
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As part of the Skyline trial, we intend to dose a total of 12 additional patients across two dose groups. The Skyline trial is intended to evaluate the correlation of a new mobility navigation course developed for use with retinitis pigmentosa patients, with the primary endpoint of visual sensitivity at pre-specified loci, providing such data within the earliest timeframe. This trial will have the same overall design as the XLRP Vista trial and we expect to review 3-month data from the Skyline trial in the fourth quarter of calendar year 2021, subject to delays related to the COVID-19 pandemic. We anticipate reporting our formal Month 12 analysis of these data in the third quarter of calendar year 2022. ACHM InJanuary 2020 , we provided 3-month ACHM data indicating evidence of biologic activity in the dose escalation portions in both our ACHMB3 and ACHMA3 trials, based on improvements in light discomfort. InNovember 2020 , we provided 12-month data for the original three dose groups (low, medium and high), as well as 6- to 9-month data at two higher dose groups (higher and highest dose groups). The ACHMB3 trial included an additional group of four patients at an intermediate dose with 12-month data. In addition, we provided data for six pediatric subjects (three in each study; 11-17 years old) at the first of three planned dose levels. Across all patients evaluated, the safety profile remained favorable. While some patients showed improvements in at least one measure of visual function, no consistent sustained improvements were observed based on current assessments within the dose groups tested on a groupwise basis. Anecdotal statements, however, and assessments from patient-reported outcome surveys continued to provide us with confidence that patients were subjectively experiencing improved vision. InJanuary 2021 , we reported results based on a patient-by-patient analysis of data from both ACHMB3 and ACHMA3 trials. For ACHMB3, this consisted of 12-month data from 15 patients, 9-month data from five patients, 6-month data from three patients and 3-month data from three patients for a total of 26 patients across all dose groups. These results reflect a further analysis of certain data discussed inNovember 2020 together with new data that became available inJanuary 2021 . Seven of the 16 patients in the three highest dose groups in the ACHMB3 trial showed improvements in visual sensitivity in the treated area, as measured by static perimetry. No consistent results were seen in the other dose groups. In a subset of these patients with evaluable multi-focal electroretinograms ("ERG"), improvements in electrical signaling were measurable in the same treated area. For ACHMA3, the new data analysis consisted of 12-month data from 10 patients, 9-month data from four patients, 6-month data from one patient and 2 or 3-month data from three patients for a total of 18 patients across five dose groups. One additional patient did not have evaluable data. In the 16 patients in the four highest dose groups, three patients showed improvements in visual sensitivity in the treated area, as measured by static perimetry. No consistent results were seen in other dose groups. None of these three patients with improvements in visual sensitivity had evaluable ERGs. We currently plan to focus on completion of enrollment of pediatric patients in the two highest dose groups in our ACHMB3 and ACHMA3 trials. Our progress was previously hampered by the COVID-19 pandemic, but patients are now being identified and scheduled for screening at multiple sites. In addition, we have amended the study protocol for these trials to allow enrollment of patients as young as 4 years of age and to include both functional magnetic resonance imaging ("fMRI") and improved color brightness tests. We are hopeful that these changes, combined with longer follow-up times, will add to the developing body of evidence and support the anecdotal patient-reported outcomes. We expect to report 12-month data from the adult patients in both trials in second quarter of calendar year 2021, and preliminary 3-month data from the pediatric patients in both trials are anticipated in the fourth quarter of calendar year 2021.
Underwritten Public Offering
OnFebruary 1, 2021 , we closed an underwritten public offering of 16,741,573 shares of our common stock, together with accompanying warrants to purchase 8,370,786 shares of our common stock. The combined offering price of each share of common stock and accompanying warrant was$4.45 , generating gross proceeds of$74.5 million , before deducting underwriting discounts, commissions and other offering expenses payable by us, which total approximately$5.3 million . The warrants may only be exercised in integral multiples of two, have an exercise price of$6.00 per share (subject to certain adjustments), are immediately exercisable and expire onFebruary 1, 2026 . We intend to use the net proceeds from the offering, together with other available funds, to fund our ongoing Skyline trial and XLRP Vista trial and our ongoing Phase 1/2 clinical trials in our ACHMB3 and ACHMA3 programs, and for working capital and other general corporate purposes. 17
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Table of Contents Strategic Collaborations Bionic Sight DuringFebruary 2017 , we entered into a strategic research and development collaboration agreement with 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. The collaboration agreement grants to us, 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.
Otonomy
InOctober 2019 , we entered into a strategic collaboration agreement with Otonomy to co-develop and co-commercialize an AAV-based gene therapy to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene (GJB2) - the most common cause of congenital hearing loss. Mutations in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation can have severe-to-profound deafness in both ears that is identified in screening tests routinely performed in newborns. Under the collaboration agreement, the parties began equally sharing the program costs and proceeds inJanuary 2020 and can include additional genetic hearing loss targets in the future.
Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates, judgments and methodologies, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, current conditions, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions. Moreover, we may need to change the assumptions underlying our estimates due to risks and uncertainties related to the COVID-19 pandemic or otherwise and those changes could have a material adverse effect on our statements of operations, financial condition and cash flows.
During the six months ended
New Accounting Pronouncements
Refer to Note 2 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q for further information about recently issued accounting standards.
Financial Operations Review Revenue We primarily generate revenue through: (i) collaboration agreements; (ii) sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates; and (iii) federal research and development grant programs. However, we did not recognize any revenue during the three and six months endedDecember 31, 2020 . In the future, we may generate revenue from product sales (if any products are approved), license fees, milestone payments, development services, research and development grants, or from collaboration and royalty payments for the sales of products developed under licenses of our intellectual property. 18
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We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development programs, manufacturing efforts and reimbursements, collaboration milestone payments, and the sale of our products, to the extent that any are approved and successfully commercialized. We do not expect to generate revenue from product sales for the foreseeable future, if at all. If we or our collaborators fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, our results of operations, financial position and cash flows would be materially adversely affected.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
• employee-related expenses, including salaries, benefits, travel and
share-based compensation expense;
• expenses incurred under agreements with academic research centers,
contract research organizations, or CROs, and investigative sites that
conduct our clinical trials;
• license and sublicense fees and collaboration expenses;
• the cost of acquiring, developing and manufacturing clinical trial
materials; and
• facilities, depreciation and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance and
other supplies.
Research and development costs are expensed as incurred. Costs for certain
development activities are recognized based on an evaluation of the progress
toward completion of specific tasks, using information and data provided to us
by our vendors and our clinical sites.
We cannot determine with certainty the duration and completion costs of the
current or future clinical trials of our product candidates or if, when, or to
what extent we will generate revenue from the commercialization and sale of any
of our product candidates that obtain regulatory approval. We may never succeed
in achieving regulatory approval for any of our product candidates. The
duration, costs and timing of clinical trials and development of our product
candidates will depend on a variety of factors, including:
• the scope, rate of progress and expense of our ongoing clinical trials,
as well as any additional clinical trials that we are required to, ordecide to, initiate and other research and development activities;
• the timing and level of activity as determined by us or jointly with our
partners;
• the level of funding, if any, received from our partners;
• whether or not we elect to cost share with our collaborators;
• the countries in which trials are conducted;
• future clinical trial results;
• uncertainties in clinical trial enrollment rates or drop-out or
discontinuation rates of patients;
• potential additional safety monitoring or other studies requested by
regulatory agencies or elected as best practice by us;
• increased cost and delay associated with manufacturing or testing issues,
including ongoing quality assurance, qualifying new vendors and
developing in-house capabilities;
• significant and changing government regulation; and
• the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the
development of a product candidate could mean a significant change in the costs
and timing associated with the development of that product candidate. For
example, if the FDA, or another regulatory authority were to require us to
conduct clinical trials beyond those that we currently anticipate will be
required for the completion of clinical development of a product candidate or if
we experience significant delays in enrollment in or execution of any of our
clinical trials, which could be adversely impacted by the COVID-19 pandemic, we
could be required to expend significant additional financial resources and time
on the completion of clinical development.
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From our inception and throughDecember 31, 2020 , we have incurred approximately$261.6 million in research and development expenses. We expect our research and development expenses to increase for the foreseeable future as we continue the development of our product candidates and explore potential applications of our gene therapy platform in other indications.
General and administrative expenses
General and administrative expenses primarily consist of salaries and related costs for personnel, including share-based compensation and travel expenses for our employees in executive, operational, legal, business development, finance and human resource functions. Other general and administrative expenses include costs to support employee training and development, board of directors' costs, depreciation, insurance, facility-related costs not otherwise included in research and development expenses, professional fees for legal services, including patent-related expenses, and accounting, investor relations, corporate communications and information technology services. We anticipate that our general and administrative expenses will continue to increase in the future as we hire additional employees to support our continued research and development efforts, collaboration arrangements, and the potential commercialization of our product candidates. Additionally, if and when we believe that regulatory approval of our first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates. Investment income, net Investment income, net consists of interest earned on cash and cash equivalents and held-to-maturity investments in debt securities. During the three and six months endedDecember 31, 2020 , investment income, net declined by$0.3 million and$0.7 million , respectively, when compared to the comparable periods in the prior year. The reduction in investment income, net during 2020 was primarily due to lower interest rates in the marketplace and a smaller average year-over-year balance of investments in debt securities.
Interest expense
Interest expense during the three and six months endedDecember 31, 2020 was primarily attributable to the loan agreement that we entered into onJune 30, 2020 . Provision for income taxes Income tax expense for the three and six months endedDecember 31, 2020 was$20,000 and$41,000 , respectively, compared to$21,000 and$42,000 for the three and six months endedDecember 31, 2019 , respectively. During those periods, income tax expense was primarily due to estimated interest and penalties on our uncertain tax positions. Results of Operations
Comparison of the three months ended
Revenue
During the three months endedDecember 31, 2019 , we recognized total revenue of$2.5 million . We did not recognize any revenue during the three months endedDecember 31, 2020 . InDecember 2019 , Bionic Sight met a milestone related to clearance of filing of an Investigational New Drug application under its collaboration agreement with us and, as a result, we recognized$2.2 million of non-cash collaboration revenue during the three months endedDecember 31, 2019 in connection with in-kind contributions made since inception of the Bionic Sight collaboration agreement. Additional information regarding the Bionic Sight collaborative agreement can be found in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. During the three months endedDecember 31, 2019 , we also recorded$0.2 million and$0.1 million of grant revenue and other milestone revenue, respectively. 20
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Research and development expenses
The table below summarizes our research and development expenses by product candidate or program for the periods indicated.
Three Months
Ended December 31, Increase % Increase
In thousands 2020 2019 (Decrease) (Decrease)
External research and development
expenses:
XLRP $ 4,869 $ 799 $ 4,070 >100 %
ACHM 1,212 2,142 (930 ) (43 )%
XLRS 59 221 (162 ) (73 )%
Research and discovery programs 516 483 33 7 %
Total external research and development
expenses 6,656 3,645 3,011 83 %
Internal research and development
expenses:
Employee-related costs 3,193 2,830 363 13 %
Share-based compensation 269 312 (43 ) (14 )%
Other 1,693 1,588 105 7 %
Total internal research and development
expenses 5,155 4,730 425 9 %
Total research and development expenses
3,436 41 %
External research and development expenses consist of collaboration, licensing,
manufacturing, testing and other miscellaneous costs that are directly
attributable to our most advanced product candidates and discovery programs. We
do not allocate personnel-related costs, including share-based compensation,
costs associated with broad technology platform improvements or other indirect
costs, to specific programs, as they are deployed across multiple projects under
development and, as such, are separately classified as internal research and
development expenses in the table above.
Research and development expenses for the three months ended
• $4.1 million of increased external spending for our XLRP trials due toour planned manufacturing, clinical site preparation and other activities
related to our Skyline trial and XLRP Vista trial; and
•
due to a slightly higher 2020 research and development headcount when
compared to the prior year, annual salary increases and certain employee
incentive costs.
Such increases were partially offset by a $0.9 million decrease in external
spending for our ACHM trials and a $0.2 million decrease in expenses in
connection with the wind-down of our X-linked retinoschisis, or XLRS, program.
The decrease in ACHM expenses was primarily due to reduced patient enrollment,
patient visits and new site activations during the 2020 period when compared to
the prior year, all of which reduce our overall clinical programs costs,
partially offset by incremental expenses for our mobile vision center.
General and administrative expenses
The table below summarizes our general and administrative and other expenses for
the periods indicated.
Three Months
Ended December 31, Increase % Increase
In thousands 2020 2019 (Decrease) (Decrease)
Employee-related costs $ 1,195 $ 1,342 $ (147 ) (11 )%
Share-based compensation 355 376 (21 ) (6 )%
Legal and professional fees 365 73 292 >100 %
Other 1,389 1,217 172 14 %
Total general and administrative and
other expenses $ 3,304 $ 3,008 $ 296 10 %
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General and administrative and other expenses for the three months endedDecember 31, 2020 and 2019 were$3.3 million and$3.0 million , respectively, an increase of$0.3 million , or 10%. Such increase was primarily due to higher legal fees during the 2020 period resulting from expanded use of outside legal counsel following certain personnel changes, partially offset by a reduction in employee-related costs of$0.1 million that resulted from a slightly lower 2020 headcount when compared to the prior year.
Comparison of the six months ended
Revenue
See above under "Results of Operations - Comparison of the three months endedDecember 31, 2020 and 2019 - Revenue," for a discussion of our revenue during the six-month periods, which was the same as the corresponding three-month periods.
Research and development expenses
The table below summarizes our research and development expenses by product candidate or program for the periods indicated.
Six Months
Ended December 31, Increase % Increase
In thousands 2020 2019 (Decrease) (Decrease)
External research and development
expenses:
XLRP $ 8,729 $ 1,571 $ 7,158 >100 %
ACHM 2,850 3,406 (556 ) (16 )%
XLRS 152 440 (288 ) (65 )%
Research and discovery programs 1,017 1,114 (97 ) (9 )%
Total external research and development
expenses 12,748 6,531 6,217 95 %
Internal research and development
expenses:
Employee-related costs 6,415 6,294 121 2 %
Share-based compensation 586 675 (89 ) (13 )%
Other 3,688 3,517 171 5 %
Total internal research and development
expenses 10,689 10,486 203 2 %
Total research and development expenses
6,420 38 %
Research and development expenses for the six months ended December 31, 2020 and
2019 were $23.4 million and $17.0 million , respectively, an increase of
$6.4 million , or 38%. Such increase was primarily attributable to $7.2 million
of increased external spending for our XLRP trials due to our planned
manufacturing, clinical site preparation and other activities related to our
Skyline trial and XLRP Vista trial. Such increase was partially offset by a
$0.6 million decrease in external spending for our ACHM trials and a
$0.3 million decrease in expenses in connection with the wind-down of our XLRS
program. The decrease in ACHM expenses was primarily due to reduced patient
enrollment, patient visits and new site activations during the 2020 period when
compared to the prior year, all of which reduce our overall clinical programs
costs, partially offset by incremental expenses for our mobile vision center.
General and administrative expenses
The table below summarizes our general and administrative and other expenses for
the periods indicated.
Six Months
Ended December 31, Increase % Increase
In thousands 2020 2019 (Decrease) (Decrease)
Employee-related costs $ 2,434 $ 2,737 $ (303 ) (11 )%
Share-based compensation 684 824 (140 ) (17 )%
Legal and professional fees 909 233 676 >100 %
Other 2,713 2,562 151 6 %
Total general and administrative and
other expenses $ 6,740 $ 6,356 $ 384 6 %
General and administrative and other expenses for the six months ended
December 31, 2020 and 2019 were $6.7 million and $6.4 million , respectively, an
increase of $0.4 million , or 6%. Such increase was primarily due to higher legal
fees during the 2020 period resulting from expanded use of outside legal counsel
following certain personnel changes, partially offset by a reduction in
employee-related costs of $0.3 million that resulted from a slightly lower 2020
headcount when compared to the prior year.
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Liquidity and Capital Resources
We have incurred cumulative losses and negative cash flows from operations since our inception and, as ofDecember 31, 2020 , we had an accumulated deficit of$212.3 million . It will be several years, if ever, before we have a product candidate ready for commercialization. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we anticipate that we will require additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Most recently, the Company received: (i)$34.8 million of proceeds from the issuance of its common stock, net of issuance costs, inFebruary 2020 ; (ii)$9.9 million of loan proceeds, net of debt discounts, inJune 2020 ; and (iii) net proceeds of approximately$69.2 million inFebruary 2021 from the underwritten public offering that is described above under "Recent Developments."
We are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may negatively impact our projected cash position and access to capital. We will continue to assess our cash position and, if circumstances warrant, make appropriate adjustments to our operating plan.
Cash in excess of immediate requirements is invested in accordance with our investment policy, which primarily seeks to maintain adequate liquidity and preserve capital by generally limiting investments to certificates of deposit and investment-grade debt securities that mature within twelve months. As ofDecember 31, 2020 , our cash and cash equivalents were held in bank accounts and money market funds, while our investments consisted ofU.S. Treasury securities, none of which mature more than twelve months after the balance sheet date, consistent with our investment policy that seeks to maintain adequate liquidity and preserve capital. Cash flows The table below sets forth the primary sources and uses of cash for the periods indicated. Six Months % Ended December 31, Increase Increase In thousands 2020 2019 (Decrease) (Decrease) Net cash provided by (used in): Operating activities$ (26,308 ) $ (19,036 ) $ (7,272 ) (38 )% Investing activities 7,027 10,400 (3,373 ) (32 )% Financing activities (74 ) 9 (83 ) >(100 )%
Net decrease in cash and cash equivalents
Operating activities. For both the six months endedDecember 31, 2020 and 2019, cash used in operating activities was primarily the result of research and development and general and administrative expenses incurred in conducting normal business operations. Specifically, the cash used in operating activities of$26.3 million during the six months endedDecember 31, 2020 was due to a net loss of$30.8 million , partially offset by non-cash items in our statement of operations of$2.4 million and favorable changes in our operating assets and liabilities of$2.1 million . The cash used in operating activities of$19.0 million during the six months endedDecember 31, 2019 was due to a net loss of$20.2 million and non-cash items in our statement of operations of$0.2 million , partially offset by favorable changes in our operating assets and liabilities of$1.3 million . Investing activities. Cash provided by investing activities of$7.0 million during the six months endedDecember 31, 2020 consisted primarily of cash proceeds of$27.0 million from maturities of investments, net of investment purchases of$19.0 million , partially offset by purchases of property and equipment of$0.8 million and intellectual property costs of$0.2 million . Cash provided by investing activities of$10.4 million during the six months endedDecember 31, 2019 consisted primarily of cash proceeds of$40.5 million from maturities of investments, net of investment purchases of$29.4 million , partially offset by purchases of property and equipment of$0.4 million and intellectual property costs of$0.3 million . Financing activities. Cash used in financing activities of$0.1 million during the six months endedDecember 31, 2020 consisted of (i) payments for deferred financing fees and taxes related to equity awards and (ii) principal payments on a finance lease, partially offset by proceeds from exercises of common stock options. The nominal cash provided by financing activities during the six months endedDecember 31, 2019 primarily consisted of proceeds from exercises of common stock options, partially offset by principal payments on a finance lease. 23
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Operating capital requirements
To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks incident in the development of new gene therapy products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We believe that our cash and cash equivalents and investments onDecember 31, 2020 , which totaled$53.1 million , along with the net proceeds that we received inFebruary 2021 from an underwritten public offering, will be sufficient to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs into calendar year 2023. However, we will require substantial additional funding to finish our XLRP Vista trial, complete the process necessary to seek regulatory approval for our lead product candidates and build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved.
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