☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		59-3553710
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Title of class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 par value		AGTC		Nasdaq Global Market

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☐

				Page
		PART I. FINANCIAL INFORMATION		3
ITEM 1.		FINANCIAL STATEMENTS (Unaudited)		3
		Condensed Balance Sheets as of December 31, 2021 and June 30, 2021		3
		Condensed Statements of Operations for the three and six months ended December 31, 2021 and 2020		4
		Condensed Statements of Stockholders’ Equity for the three and six months ended December 31, 2021 and 2020		5
		Condensed Statements of Cash Flows for the six months ended December 31, 2021 and 2020		6
		Notes to Condensed Financial Statements		7
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		15
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4.		CONTROLS AND PROCEDURES		25
		PART II. OTHER INFORMATION		25
ITEM 1.		LEGAL PROCEEDINGS		25
ITEM 1A.		RISK FACTORS		25
ITEM 6.		EXHIBITS		26
		SIGNATURE		27

ITEM 1.

FINANCIAL STATEMENTS

In thousands, except per share data		December 31, 2021				June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	72,771			$	105,052
Investments			—				2,000
Prepaid and other current assets			2,597				2,655
Total current assets			75,368				109,707
Property and equipment, net			4,416				4,658
Intangible assets, net			1,345				1,287
Investment in Bionic Sight, LLC			7,937				8,000
Right-of-use assets—operating leases			3,167				3,167
Right-of-use asset—financing lease			11				34
Other assets			126				113
Total assets		$	92,370			$	126,966
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,674			$	1,879
Accrued and other liabilities			14,486				14,500
Lease liabilities—operating			1,227				1,116
Lease liability—finance			13				38
Current portion of long-term debt			6,714				2,181
Total current liabilities			24,114				19,714
Lease liabilities—operating, net of current portion			3,133				3,418
Long-term debt, net of debt discounts and deferred financing fees			13,538				17,727
Other liabilities			95				299
Total liabilities			40,880				41,158
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 5,000 shares authorized; no shares issued and outstanding			—				—
Common stock, par value $0.001 per share, 150,000 shares authorized; 42,975 and 42,835 shares issued; 42,921 and 42,794 shares outstanding at December 31, 2021 and June 30, 2021, respectively			43				43
Additional paid-in capital			327,235				325,245
Treasury stock at cost; 54 and 41 shares at December 31, 2021 and June 30, 2021, respectively			(256	)			(211	)
Accumulated deficit			(275,532	)			(239,269	)
Total stockholders’ equity			51,490				85,808
Total liabilities and stockholders’ equity		$	92,370			$	126,966

		Three Months Ended December 31,								Six Months Ended December 31,
In thousands, except per share data		2021				2020				2021				2020
Revenue		$	—			$	—			$	—			$	—
Operating expenses:
Research and development			14,454				11,811				26,779				23,437
General and administrative and other			3,989				3,304				8,089				6,740
Total operating expenses			18,443				15,115				34,868				30,177
Loss from operations			(18,443	)			(15,115	)			(34,868	)			(30,177	)
Other income (expense), net:
Investment income, net			6				29				12				93
Interest expense			(675	)			(335	)			(1,344	)			(667	)
Total other income (expense), net			(669	)			(306	)			(1,332	)			(574	)
Loss before provision for income taxes			(19,112	)			(15,421	)			(36,200	)			(30,751	)
Provision for income taxes			—				20				—				41
Loss before equity in net losses of an affiliate			(19,112	)			(15,441	)			(36,200	)			(30,792	)
Equity in net losses of an affiliate			(32	)			(21	)			(63	)			(50	)
Net loss		$	(19,144	)		$	(15,462	)		$	(36,263	)		$	(30,842	)
Weighted average shares outstanding:
Basic			42,886				25,883				42,855				25,850
Diluted			42,886				25,883				42,855				25,850
Net loss per common share:
Basic		$	(0.45	)		$	(0.60	)		$	(0.85	)		$	(1.19	)
Diluted		$	(0.45	)		$	(0.60	)		$	(0.85	)		$	(1.19	)

		Six Months Ended December 31,
In thousands		2021				2020
Operating activities:
Net loss		$	(36,263	)		$	(30,842	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense			1,756				1,270
Depreciation and amortization			751				771
Investment discount accretion, net			—				(2	)
Amortization of debt discounts and deferred financing fees			344				167
Reduction in the carrying amount of operating lease right-of-use assets			243				173
Equity in net losses of an affiliate			63				50
Changes in operating assets and liabilities:
Prepaid and other assets			120				623
Accounts payable			(215	)			420
Operating lease liabilities			(417	)			(338	)
Accrued and other liabilities			125				1,400
Cash used in operating activities			(33,493	)			(26,308	)
Investing activities:
Purchases of property and equipment			(821	)			(768	)
Purchases of and capitalized costs related to intangible assets			(131	)			(213	)
Maturities of investments			2,000				27,000
Purchases of investments			—				(18,992	)
Cash provided by investing activities			1,048				7,027
Financing activities:
Proceeds from the issuance of common stock, net of issuance costs			143				—
Proceeds from exercises of common stock options			91				201
Payments for deferred financing fees			—				(129	)
Taxes paid related to equity awards			(45	)			(123	)
Principal payments on a finance lease			(25	)			(23	)
Cash provided by (used in) financing activities			164				(74	)
Net decrease in cash and cash equivalents			(32,281	)			(19,355	)
Cash and cash equivalents, beginning of the period			105,052				38,463
Cash and cash equivalents, end of the period		$	72,771			$	19,108
Supplemental non-cash information:
Costs for purchases of property and equipment included in accounts payable		$	9			$	—
Costs for intangible assets included in accounts payable/accrued and other liabilities			57				33
Right-of-use assets obtained in exchange for new operating lease liabilities			243				—

1.	Organization and Operations

General

Applied Genetic Technologies Corporation (the “Company” or “AGTC”) was incorporated as a Florida corporation on January 19, 1999 and reincorporated as a Delaware corporation on October 24, 2003. The Company is a clinical-stage biotechnology company that uses a proprietary gene therapy platform to develop transformational genetic therapies for people suffering from rare and debilitating ophthalmic, otologic and central nervous system diseases.

The Company has devoted substantially all of its efforts to research and development activities, including conducting clinical trials for its product candidates, and has not completed the development of any products. The Company has generated revenue from collaboration agreements, licensing of its intellectual property, sponsored research agreements and grants, but has not generated product revenue to date and is subject to a number of risks similar to those of other early stage companies in the biotechnology industry, including dependence on key individuals, the need to obtain additional capital necessary to fund the development of its product candidates, the risk of failure of ongoing or future clinical studies, the difficulties inherent in the development of commercially viable products, the development by the Company or its competitors of technological innovations, the protection of proprietary technology, compliance with government regulations and the ability to transition to large-scale production of products.

Liquidity and Financial Condition

As of December 31, 2021, the Company had (i) an accumulated deficit of $275.5 million and (ii) cash and cash equivalents of $72.8 

million. Management believes that there is presently insufficient funding available to allow the Company to generate data from its ongoing and planned clinical programs and fund currently planned research and discovery programs for a period exceeding one year from the date of this filing with the Securities and Exchange Commission. While the Company expects to generate some revenue from collaborations, sponsored research agreements, grants and licensing of its intellectual property, management believes that the Company will incur losses and generate negative operating cash flows for the foreseeable future. As such, these circumstances collectively raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying Unaudited Condensed Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has funded its operations to date primarily through public offerings of its common stock and warrants to purchase its common stock, private placements of its preferred stock, collateralized borrowing and collaborations.

The ability of an entity to continue as a going concern depends on, among other things, positive cash flows and the availability of suitable financing. Specifically, the Company’s future liquidity needs will be primarily based on: (i) the success and progression of its product candidates; (ii) its repayment obligations under the long-term debt agreement that is described in Note 5 to these Notes to Unaudited Condensed Financial Statements; and (iii) its costs to operate the leased

build-to-suit

manufacturing and quality control facility that is described in Note 8 to these Notes to Unaudited Condensed Financial Statements. To provide the maximum degree of financial flexibility and mitigate the abovementioned going concern risk, management’s near-term plans consider various potential opportunities to fund the Company’s future operations and/or modulate its liquidity needs, such as: (i) raising new capital through equity or debt financings or other sources, including the

“at-the-market

offering” program that is described in Note 7 to these Notes to Unaudited Condensed Financial Statements; (ii) amending the Company’s long-term debt agreement;

(iii) out-licensing the

rights to certain product candidates; (iv) entering into one or more collaborations to offset the costs of the leased manufacturing and quality control facility through third-party cash milestone and other payments; and (v) reducing spending on research and development activities and/or restructuring the Company’s operations. However, management may be unable to successfully execute any of the plans described above, or raise additional funds or enter into such other arrangements when needed on favorable terms, or at all.

2.	Summary of Significant Accounting Policies

Basis of presentation

The accompanying Unaudited Condensed Financial Statements have been prepared assuming that the Company will continue as a going concern and in accordance with (i) U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and (ii) the instructions to Form

10-Q

and Article 8 of Regulation

S-X.

Accordingly, such financial statements do not include all the information and footnotes required by U.S. GAAP for a complete set of financial statements. In the opinion of management, the Unaudited Condensed Financial Statements include all adjustments, consisting of normal recurring accruals and other adjustments, considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows as of and for the periods presented. The accompanying Condensed Balance Sheet as of June 30, 2021 was derived from the Company’s audited financial statements at that date but does not include all of the footnote disclosures required by U.S. GAAP.

The Unaudited Condensed Financial Statements should be read in conjunction with the Company’s audited financial statements and related notes included in its Annual Report on

Form 10-K

for the year ended June 30, 2021 (the “2021

Form 10-K”).

The Company’s significant accounting policies are described in Note 2 to the Notes to Financial Statements in the

2021 Form 10-K

and are updated, as necessary, in subsequent Form

10-Q

filings.

The Company’s fiscal year is the twelve-month period from July 1 to June 30. The results of operations for the three and six months ended December 31, 2021 are not necessarily indicative of the Company’s operating results for the full year ending June 30, 2022 or any subsequent interim period within that year.

Management views the Company’s operations and manages its business as one segment.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP and guidelines from the Securities and Exchange Commission requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during reporting periods. Actual results could differ from those estimates.

Income Taxes

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions

meeting the more-likely-than-not threshold, the

amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Interest and penalties related to uncertain tax positions are reflected in the provision for income taxes.

The Company’s provision for income taxes was $20,000 and $41,000 for the three and six months ended December 31, 2020, respectively, which was entirely attributable to estimated interest and penalties on uncertain tax positions. There was no provision for income taxes during the three and six months ended December 31, 2021 because, among other things, the Company had

no

uncertain tax positions in those reporting periods.

Net income or loss per share

Basic net income or loss per share is calculated by dividing net income or loss by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income or loss per share is calculated by adjusting the weighted average shares outstanding for the dilutive effects of common stock equivalents outstanding during the period, determined using the treasury stock method. For purposes of diluted net income or loss per share calculations, warrants to purchase the Company’s common stock, stock options, restricted stock awards, restricted stock units and performance service awards are considered to be common stock equivalents if they are dilutive. The dilutive impact of common stock equivalents for (i) the three and six months ended December 31, 2021 was approximately 0.1 million shares and 0.2 million shares, respectively, and (ii) the three and six months ended December 31, 2020 was approximately 0.3 million shares and 0.4 million shares, respectively. However, those common stock equivalents were excluded from the calculations of diluted net loss per share for all periods presented herein because their effects were anti-dilutive.

The common stock equivalents for the three and six months ended December 31, 2021 excluded certain warrants to purchase the Company’s common stock, which are described in Note 7 to these Notes to Unaudited Condensed Financial Statements, because the exercise price of such warrants was greater than the average market price of the Company’s common stock during the related periods.

New Accounting Pronouncements

Adopted during the six months ended December 31, 2021

Financial Instruments—Credit Losses

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

No. 2016-13,

 Financial Instruments – Credit Losses (Topic

 326): Measurement of Credit Losses on Financial Instruments

. The new standard requires that financial assets measured at amortized cost be presented at the net amount expected to be collected and separately measure an allowance for credit losses that is deducted from the amortized cost basis of those financial assets. The Company early adopted the new standard on July 1, 2021; however, it did not have a significant impact on the Company’s financial statements.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company when determining fair value is greatest for financial instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Certain assets and liabilities are measured at fair value in the Company’s financial statements or have fair values disclosed in these Notes to Unaudited Condensed Financial Statements. Such assets and liabilities are classified into one of the three levels of the fair value hierarchy. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The methods and assumptions described below were used to estimate fair values and determine the fair value hierarchy classification of each class of financial instrument held by the Company.

Cash and Cash Equivalents.

The carrying value of cash and cash equivalents approximates fair value because the maturities thereof are less than three months.

Debt

securities—held-to-maturity.

The Company’s investments in debt securities classified as

held-to-maturity

have historically consisted of U.S. Treasury securities that were valued using quoted market prices. Valuation adjustments were not applied.

The fair value hierarchy table below provides information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis or disclosed at fair value in these Notes to Unaudited Condensed Financial Statements.

 

In thousands		Level 1				Level 2				Level 3				Total Fair Value
December 31, 2021
Cash and cash equivalents		$	72,771			$	—			$	—			$	72,771
June 30, 2021
Cash and cash equivalents		$	105,052			$	—			$	—			$	105,052
Held-to-maturity investment (U.S. Treasury security)			2,000				—				—				2,000
Total assets		$	107,052			$	—			$	—			$	107,052

The Company’s financial instruments also include its variable-rate borrowing under a debt agreement that is described in Note 5 to these Notes to Unaudited Condensed Financial Statements. Management believes that the carrying amount of such debt (i.e., $20.3 million and $19.9 million at December 31, 2021 and June 30, 2021, respectively) reasonably approximates its fair value on those dates because the rate of interest on such borrowing reflects current market rates of interest for similar instruments with comparable maturities and risk profiles. This assessment primarily uses Level 2 inputs under the fair value hierarchy.

5.

Debt

The following discussion of the Company’s debt should be read in conjunction with Note 8 to the Notes to Financial Statements in the

2021 Form 10-K.

On June 30, 2020, the Company entered into a Loan and Security Agreement (as amended effective May 13, 2021, the “Amended Loan Agreement”) with several banks and other financial institutions or entities from time to time parties to the Amended Loan Agreement (collectively, referred to as the “Lenders”) and Hercules Capital, Inc., in its capacity as administrative agent and collateral agent for itself and the Lenders.

The Amended Loan Agreement provides for a term loan in an aggregate principal amount of up to $25.0 million to be delivered in multiple tranches (the “Term Loan”). The first two tranches under the Amended Loan Agreement consisted of term loan advances of $10.0 million on each of June 30, 2020 and May 13, 2021. Subject to the Lenders’ investment committee’s sole discretion, the Company has the right to request that the Lenders make additional term loan advances in an aggregate principal amount of up to $5.0 million prior to April 1, 2022 or, if certain conditions are satisfied, then prior to January 1, 2023. However, there can be no assurances that any additional term loan advances will be funded by the Lenders in the future.

As of both December 31, 2021 and June 30, 2021, the variable contractual interest rate on the Term Loan was 9.75% per annum and the effective interest rate on the Term Loan was 13.26%. Prior to completing the loan amendment in May 2021, the effective interest rate on the Term Loan was 13.53%.

As of December 31, 2021, the Company was in full compliance with all covenants of the Amended Loan Agreement.    

6.	Collaboration Agreements and Contract Liabilities

Bionic Sight, LLC

On February 2, 2017, the Company entered into a strategic research and development collaboration agreement with Bionic Sight, LLC (“Bionic Sight”) to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire: (i) a majority equity interest in Bionic Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.

Under the agreement, AGTC made an initial $2.0 million payment for an equity interest of approximately 5% in Bionic Sight. During March 2020, the Company’s equity interest in Bionic Sight increased to approximately 15.5% in connection with (i) AGTC’s purchase of additional equity for $4.0 million and (ii) the conversion of certain AGTC-provided research and development support costs

and in-kind contributions,

which aggregated approximately $2.2 million, to an equity interest in Bionic Sight, in each case, consistent with the provisions of the collaboration agreement. AGTC is not obligated to purchase additional equity in Bionic Sight or make any

additional in-kind contributions

under the agreement. The Company recorded its initial investment in Bionic Sight using the equity method of accounting for investments. Upon receipt of additional equity in March 2020, management concluded that equity method accounting remained appropriate.

Otonomy, Inc.

During October 2019, the Company entered into a strategic collaboration agreement with Otonomy, Inc. (“Otonomy”) to

co-develop

and

co-commercialize

an adeno-associated virus-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. People with this mutation can have

severe-to-profound

deafness in both ears that is identified in screening tests routinely performed on newborns. Under the collaboration agreement, the parties began equally sharing the program costs and any proceeds from potential licensing transactions in January 2020 and can include additional genetic hearing loss targets in the future. Effective January 1, 2022, the Otonomy collaboration agreement was amended to increase Otonomy’s responsibility for the overall development and commercialization of the program, which resulted in (i) a reduction in the Company’s share of future product development costs and (ii) the Company’s potential receipt of future payments, and royalties on any product sales in lieu of equal sharing of any potential profits or proceeds related to the program.

The Company concluded that the Otonomy collaboration agreement is within the scope of ASC Topic 808,

 Collaborative Arrangements

 (“Topic 808”), which defines collaborative arrangements and addresses the presentation of transactions between the parties in an entity’s statement of operations and the related disclosures. However, Topic 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company concluded that ASC Topic 730,

 Research and Development,

 should be applied by analogy to payments between the parties during the development activities. As such, payments made to or received from Otonomy for development activities are recorded as research and development expenses. For each of the six months ended December 31, 2021 and 2020, settlement activity between the parties under the Otonomy agreement had an immaterial effect on the Company’s research and development expenses.

As of December 31, 2021 and June 30, 2021, accrued and other liabilities on the Company’s balance sheets included $449,000 and $374,000, respectively, of deferred revenue. The account balance at December 31, 2021 included $75,000 that was billed to a customer but remained uncollected as of such date. The corresponding uncollected account balance at June 30, 2021 was $225,000 (such amount was collected by the Company in July 2021). Management expects that $300,000 of the deferred revenue at December 31, 2021 will be recognized as revenue during the year ending June 30, 2022; however, management is unable to estimate when the Company will satisfy the performance obligations pertaining to its residual deferred revenue at December 31, 2021.​​​​​​​

 

7.	Stockholders’ Equity

Public Offering of AGTC Equity Securities

On February 1, 2021, the Company closed an underwritten public offering of 16,741,573 shares of its common stock, together with accompanying warrants to purchase 8,370,786 shares of its 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 the Company, which totaled $5.2 million.

The warrants have an exercise price of $6.00 per share (subject to certain adjustments), are immediately exercisable and expire on February 1, 2026. The warrants are legally detachable from the common stock that was issued on February 1, 2021 and are separately exercisable by the warrant holders. While the warrants are outstanding (but unexercised), the warrant holders will participate in any dividend or other distribution of the Company’s assets to its common stockholders by way of return of capital or otherwise. As of December 31, 2021, none of the warrants have been exercised.

At-The-Market Offering Program

On April 2, 2021, the Company entered into a Controlled Equity Offering

SM

 Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) as sales agent to sell shares of the Company’s common stock, from time to time,

through an “at-the-market offering” program

with an aggregate offering amount of up to

$50.0 

million. Cantor is entitled to aggregate compensation equal to

3.0%

 

of the gross sales price of the shares sold through it pursuant to the Sales Agreement. During the six months ended December 31, 2021, the Company received net proceeds of

$143,000 from selling 55,580

 

shares of its common stock under the Sales Agreement; however, neither Cantor nor the Company is obligated to sell additional shares under this program in the future.

8.	Commitments and Contingencies

Lease Commitment

As of December 31, 2021, the Company had entered into a long-term real property lease agreement that has not yet commenced and, therefore, is not recorded on its balance sheets. This lease, which is discussed in Note 3 to the Notes to Financial Statements in the

2021 Form 10-K

under the

heading “Build-To-Suit Manufacturing and

Quality Control Facility in Alachua, Florida,”

requires non-cancelable undiscounted

future base rent payments aggregating

$26.8 million over twenty years

 

(assuming that the Company does not elect the early termination option). In connection with the new leased facility, the Company had financial commitments for equipment and shared building fit out costs of approximately $6 million as of December 31, 2021.

COVID-19 Pandemic

On January 30, 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China

(“COVID-19”)

and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the

COVID-19

outbreak as a pandemic based on the rapid increase in exposure globally. National, state and local governments in affected regions have implemented, and are likely to continue to implement, safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter in place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work.

The worldwide

spread of COVID-19 led to

a global slowdown of economic activity and decreased demand for a broad variety of goods and services, while also disrupting sales channels and marketing activities and precipitating many corporate bankruptcy filings. As a result of the

COVID-19

outbreak, the Company has experienced delays in enrollment of its clinical trials and may continue to see delays as the rise in

COVID-19

and/or related variants causes capacity constraints at various clinical trial sites. The Company could also experience delays resulting from critical

follow-up visits required

under clinical trial protocols, which could increase the cost of

those trials and also impact their expected timelines. Management’s ability to fully interpret the trial outcomes and the ability of certain

lab-based employees to

perform their jobs

due to stay-at-home orders or

other restrictions

related to COVID-19 could also

result in delays and increase the Company’s operating expenses. Furthermore, third-party vendors, such as raw material suppliers and contract manufacturing, testing or research organizations, have also been impacted

by COVID-19

and could continue to be impacted, which could result in unavoidable delays and/or increases in the Company’s operating costs.

Notwithstanding the rapid development and rollout of certain vaccines, it is unknown: (i) how long the

COVID-19

outbreak will continue before the virus, including newly identified strains and variants, is adequately contained; (ii) the severity of the virus; and (iii) the effectiveness of actions to prevent transmission and treat those who have contracted

COVID-19.

The extent to which the

COVID-19

outbreak may impact the Company’s financial condition, results of operations or cash flows is uncertain; however, as of the date of these financial statements, management is not aware of any specific event or circumstance that would require the Company to update its estimates or judgments, or adjust the carrying values of its assets or liabilities. Because future events are subject to change, management’s best estimates and judgments may require future modification. Therefore, actual results could differ materially from current estimates. Management is closely monitoring the evolving impact of the pandemic on all aspects of the Company’s business and periodically evaluates its estimates, which are adjusted prospectively based on such evaluations.

General

From time to time, the Company may be involved in claims and legal actions that arise in the normal course of business. Management has no reason to believe that the outcome of any such legal actions would have a significant adverse effect on the Company’s financial position, results of operations or cash flows.

The following discussion and analysis provides an overview of our financial condition as of December 31, 2021 and our results of operations for the three and six months ended December 31, 2021 and 2020. This discussion should be read in conjunction with the Unaudited Condensed Financial Statements and related notes included in this Quarterly Report as well as our Annual Report on for the year ended June 30, 2021 (the “2021 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 2021 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.

We are a clinical-stage biotechnology company that uses our proprietary gene therapy platform technology to develop transformational genetic therapies for people suffering from rare and debilitating diseases. Our initial focus is in the field of ophthalmology, where we have wholly owned clinical-stage (“XLRP”) and achromatopsia (“ACHM”) and an optogenetics program through our collaboration with Bionic Sight, LLC (“Bionic Sight”). Our preclinical pipeline includes a program in dry (“dAMD”), two programs targeting central nervous system (“CNS”) disorders, including frontotemporal dementia (“FTD”) and amyotrophic lateral sclerosis (“ALS”), and a program in otology through our 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 through collaborations with others.

our lead gene therapy development program for the treatment of XLRP, uses an engineered adeno-associated virus (“AAV’) vector to insert a stabilized and functional copy of the Retinitis Pigmentosa GTSase Regulator (“RPGR”) gene into a patient’s photoreceptor cells. is comprised of a stabilized RPGR gene and a promoter that was specifically selected due to its ability to drive efficient gene expression in primate rods and cones, maintain photoreceptor function and delay disease progression in preclinical models of disease. In addition, published primate studies have demonstrated that AGTC’s proprietary AAV capsid has as much as twice the transfection efficiency in photoreceptors when compared to capsids used in competing programs.

We are currently conducting multiple clinical trials of that are intended to support the potential filing of a Biologics License Application (“BLA”). The Skyline trial is a 14 patient multi-site, Phase 2 trial in which patients are randomized to either a high or low dose of with the primary objective of identifying the proportion of treated eyes that demonstrate improvement from baseline in visual sensitivity and visual acuity as well as a patient’s ability to navigate a mobility maze more successfully under varying light and challenge conditions. The Skyline trial has the same overall design as the Vista clinical trial and is the first trial we are conducting that has the potential to demonstrate a correlation between visual sensitivity and visual acuity with a mobility maze, which is a key secondary/functional endpoint in the Vista trial. We completed enrollment in the Skyline trial in the first quarter of calendar year 2022 and plan to report interim results for the Skyline trial in the second quarter of calendar year 2022.

The Vista trial is a multi-site, Phase 2/3 clinical trial expected to include approximately 60 patients randomized across three 1.2E+11 vg/mL Group 2 dose from the ongoing Phase 1/2 and Skyline trials), a high-dose group (the 1.1E+12 vg/mL Group 5 dose from the ongoing Phase 1/2 and Skyline trials) and an untreated control group. The primary endpoint will be improvement in visual sensitivity, defined as having at least a 7 decibel increase in visual sensitivity in at Month 12. Together with a third-party vendor, we have developed a machine learning algorithm based on the available microperimetry data from our Phase 1/2 dose escalation trial that, the loci most likely to improve through evaluation of baseline visual sensitivity. Secondary endpoints in the Vista trial include mean change in visual sensitivity, improvements in visual acuity and performance on the mobility maze as well as structural improvements in retinal health as measured by changes in the ellipsoid zone (the “EZ”), a defined region within the photoreceptor layer of the retina that degenerates over time and is eventually lost in patients with XLRP. We plan to complete a masked interim analysis, with the data expected to be released in the first half of calendar year 2023. The interim analysis, together with data from the Phase 1/2 and Skyline trials, may provide us with the opportunity to discuss with the United States Food and Drug Administration (the “FDA”) potential adjustments to the Vista trial, if necessary, that may accelerate a potential BLA filing or optimize the outcome of the trial.

To date, we have released a significant amount of preclinical and clinical data that we believe demonstrate both the safety and biological activity of Most recently, in September 2021, Dr. Paul Yang, Assistant Professor of Ophthalmology at the Casey Eye Institute, Oregon Health & Science University and one of our study investigators, presented data from the ongoing Phase

Given the activity and safety data generated to date, we believe that is a potential candidate that may provide significant benefits to patients with XLRP. We expect to achieve the following milestones, subject to any continuing impact of the pandemic:

We have two gene therapy product candidates in development to treat ACHM. The product candidates use the same engineered AAV vector to insert a stabilized and functional copy of the Cyclic Nucleotide Gated Channel Subunit Beta 3 (CNGB3) gene in the case of and a stabilized and functional copy of the Cyclic Nucleotide Gated Channel Subunit Alpha 3 (CNGA3) gene in the case of The product candidates use the same proprietary cone-specific promoter that was designed to maximize gene expression into a patient’s photoreceptor cells. We chose the promoter based on data from preclinical studies that demonstrated an ability to drive efficient gene expression in all three types of primate cone photoreceptors and restore cone photoreceptor function in dog, mouse and sheep models of ACHM.

We are currently conducting two Phase 1/2 clinical trials in ACHM patients at multiple clinical sites that specialize in inherited retinal diseases. The primary objective of these trials is to identify a well-tolerated dose that provides clinical benefit to patients. To date, we have enrolled a total of 31 adult and pediatric patients into the ACHMB3 trial and 24 adult and pediatric patients in the ACHMA3 trial and do not currently plan to enroll any additional patients in either trial. We have data from a portion of the patients in these trials up to 24 months after treatment, including our most recent release in February 2022 of data for the two highest dose groups of ACHMB3 and ACHMA3 pediatric patients that also included updated adult safety data. These data are consistent with the data previously released in adult and pediatric ACHMB3 and ACHMA3 patients.

In the Phase 1/2 dose escalation study of in ACHMB3 patients, a total of 21 adults were treated over a dose range in five groups and a total of 10 pediatric patients were treated at the three highest dose groups. Secondary outcome measures evaluating efficacy were assessed by standard visual function tests, such as perimetry. We defined two pediatric patients (17 and 7 years old) in the 1.1E+12 vg/mL dose group as responders based on improvements in visual sensitivity. Therefore, of the three adults and four children (total n=7) in the 1.1E+12 vg/mL dose group, four (>50%) are responders based on improvements in visual sensitivity. These patients also had improvements in quality of life as measured by a patient reported outcome survey developed specifically for patients with ACHM.

Subject to receiving feedback from the FDA at an 2 meeting planned for the first half of calendar year 2022, we intend to advance the clinical development of Our plan is based on the favorable risk benefit profile of the 1.1E+12 vg/mL dose, which had a generally safe and well tolerated safety profile across all patients and signs of biologic response based on improvements in visual sensitivity and other measures of visual function.

We also reported updated interim pediatric results and adult and pediatric safety results for the 24 patients enrolled in a parallel study of targeting CNGA3 mutations in patients with ACHMA3. Data from the five pediatric patients in the two highest dose groups are consistent with previously reported results, indicating no evidence of clinical improvements, and do not

support further clinical development. Most patients with CNGA3 mutations express a mutant protein that is not typically found in patients with CNGB3 mutations, which we believe may have impacted the results seen in patients that received We will continue to follow the ACHMA3 patients for long-term safety observations.

As previously reported, in both the ACHMB3 and ACHMA3 trials, treatment with the highest dose (3.2 E+12vg/ml) of and respectively, led to three cases of severe ocular inflammation in pediatric patients, which were reported as Suspected Unexpected Serious Adverse Reactions, or SUSARs. No new additional SUSARs in any adult or pediatric patients have been reported and the inflammation in all previously reported SUSARs improved with an adjusted steroid regimen. Two SUSARs (one in ACHMA3 and one in ACHMB3) have since fully resolved and one (ACHMA3) continues to resolve, with all three patients’ best corrected visual acuity returning to baseline. Importantly, we did not see any comparable inflammation in any of our XLRP clinical trials.

In May 2021, we signed for square foot cGMP manufacturing and quality control facility adjacent to our existing Florida facility to prepare for late-stage development of our XLRP and ACHM programs. Leasing this cGMP facility is part of our strategy to enable more rapid filing of a BLA and commercial launch of our XLRP candidate upon potential FDA approval. The cGMP facility is also expected to support more rapid advancement of our product pipeline while providing supply chain redundancy, reducing manufacturing risk and enhancing quality controls. We anticipate that the new manufacturing and quality control facility will be completed during the second half of calendar year 2022.

Additional information regarding our new cGMP manufacturing and quality control facility can be found in Note 8 to the Unaudited Condensed Financial Statements included in this Quarterly Report under the heading “Lease Commitment.”

During October 2019, we entered into a strategic collaboration agreement with Otonomy 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 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 any proceeds from potential licensing transactions in January 2020 and can include additional genetic hearing loss targets in the future. Effective January 1, 2022, we amended the Otonomy collaboration agreement to increase Otonomy’s responsibility for the overall development and commercialization of the program, which resulted in (i) a reduction in our share of future product development costs and (ii) our potential receipt of future payments, and royalties on any product sales in lieu of equal sharing of any potential profits or proceeds related to the program.

We and Otonomy announced promising preclinical data at the American Society of Gene and Cell Therapy meeting in May 2021, demonstrating the rescue of hearing loss and cochlear morphology in two independent mouse models. Collectively, we are conducting investigational new drug (“IND”)-enabling activities based feedback from the FDA, with an IND filing anticipated in the first half of calendar year 2023.

Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 6 to the Unaudited Condensed Financial Statements included in this Quarterly Report

We also have three wholly-owned product candidates in preclinical testing, including for the treatment of dAMD, for the treatment of FTD and for the treatment of ALS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on based on our financial statements, which have been prepared assuming that the Company will continue as a going concern and in accordance with (i) U.S. generally accepted accounting principles for interim financial information and (ii) the instructions to Article 8 of 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. 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 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 December 31, 2021, there were no significant changes to our critical accounting policies and estimates. For a description of our accounting policies that, in our opinion, involve the most significant application of judgment or involve complex estimations and which could, if different judgments or estimates were made, materially affect our reported results of operations, financial position and cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the

Refer to Note 2 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form for further information about recently issued accounting standards.

Changes in any of these variables over time 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 pandemic, we could be required to expend significant additional financial resources and time on the completion of clinical trial activities and development of our product candidates.

Investment income, net consists of interest earned on cash and cash debt securities. During the three and six months ended December 31, 2021, investment income, net declined by $23,000 and $81,000, respectively, when compared to the same periods in the prior year, primarily due to a smaller investment portfolio in the current period.

Interest expense during the three and six months ended December 31, 2021 increased by $0.3 million and $0.7 million, respectively, when compared to the same periods in the prior year. These increases were primarily due to higher average outstanding balances under our collateralized term loan agreement during the 2021 periods. Additional information regarding our long-term loan agreement can be found in Note 5 to the Unaudited Condensed Financial Statements included in this Quarterly Report

 

Such increases were partially offset by $1.3 million of lower external spending for our Vista trial, which was primarily due to a year-over-year reduction in manufacturing activities for clinical trial materials. The decrease of $0.1 million in ACHM expenses was primarily due to reduced site activity as our two clinical studies have progressed to a point where they are no longer processing new site activations or enrolling new study participants. Additionally, there was a nominal decrease in research and development expenses in connection with the wind-down program.

The table below summarizes our general and administrative and other expenses for the periods indicated.

 

General and administrative and other expenses for the three months ended December 31, 2021 and 2020 were $4.0 million and $3.3 million, respectively, an increase of $0.7 million, or 21%. Such increase was primarily due to: (i) compensation for new employees; (ii) incremental share-based compensation costs for the 2021 RSUs; and (iii) higher operating and business development costs pertaining to our recurring operations as we execute our strategic plans. Lower legal fees during the three months ended December 31, 2021 were due to reduced use of external legal counsel. Total general and administrative and other expenses for the three months ended December 31, 2021 were consistent with those for the three months ended September 30, 2021.

The table below summarizes our research and development expenses by product candidate or program for the periods indicated.