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Edited Transcript of AGTC earnings conference call or presentation 7-Nov-17 9:30pm GMT

Q1 2018 Applied Genetic Technologies Corp Earnings Call

ALACHUA Nov 14, 2017 (Thomson StreetEvents) -- Edited Transcript of Applied Genetic Technologies Corp earnings conference call or presentation Tuesday, November 7, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew Feinsod

Applied Genetic Technologies Corporation - Interim Chief Medical Officer

* Susan B. Washer

Applied Genetic Technologies Corporation - President, CEO & Director

* William A. Sullivan

Applied Genetic Technologies Corporation - CFO

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Conference Call Participants

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* Mara Goldstein

Cantor Fitzgerald & Co., Research Division - Director of Research, Head of U.S. Healthcare Research & Senior Analyst

* Matthew W. Luchini

BMO Capital Markets Equity Research - Analyst

* Yanan Zhu

Wells Fargo Securities, LLC, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the AGTC Financial Results Conference Call for the First Quarter of Fiscal Year 2018. Today's call is being recorded.

Before we get started, I would like to remind everyone that during this conference call AGTC may make forward-looking statements, including statements about the company's financial results, its future business strategies and operations, and its product development and regulatory process.

Actual results could differ materially from those discussed in the forward-looking statements due to a number of important factors, including uncertainty inherent in the clinical development and regulatory process and other risks described in the Risk Factor section of AGTC's annual report on Form 10-K for the fiscal year ended June 30, 2017.

For introductions and opening remarks, I'd like to turn the call over to Sue Washer, Chief Executive Officer of AGTC. Please go ahead.

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [2]

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Thank you. Good afternoon, and thank you all for joining us today. Bill Sullivan, our Chief Financial Officer; Steven Potter, our Chief Business Officer; and Matt Feinsod, our Interim Chief Medical Officer are also with us on the call.

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

Let me begin by saying that the first quarter was a productive period for AGTC with a high-priority focus on identifying and treating patients, expanding awareness of our trials, adding additional sites for existing trials and preparing for initiation of our XLRP trial with Biogen.

As we just had our fourth quarter conference call a few weeks ago, we do not have significant updates to report at this time, but we'll provide you with the status of our trials and financial results.

I will now turn the call over to Matt, who will summarize the status of our 3 ongoing clinical trials as well as the X-linked retinitis pigmentosa program, which will begin enrolling patients in the coming months and our preclinical program in optogenetic.

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Matthew Feinsod, Applied Genetic Technologies Corporation - Interim Chief Medical Officer [3]

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Thank you, Sue. Our most advanced clinical program, a potential treatment for X-linked retinoschisis or, XLRS, is in ongoing Phase I/II dose-ranging clinical trial, in which we anticipate enrolling up to 27 patients. The XLRS is characterized by abnormal splitting of the layers of the retina, resulting in poor visual function in young boys that can ultimately result in legal blindness in adult men. This program is one of our programs in collaboration with Biogen.

As of today, we've dosed a total of 17 adults and 1 patient under the age of 18 across 3 dose groups, bringing the total number of patients enrolled to 18. Our active trial sites continue to screen new patients for eligibility. And we have expanded the number of sites and regional referral practices to complete enrollment in a timely fashion. Our clinical sites and patient advocacy partners remain committed to supporting and advancing our enrollment goals for this study, keeping us on track to complete full enrollment in the trial by the first quarter of 2018. We will present complete data after the last patient has been followed for 6 months.

Our next most advanced clinical programs are those targeting achromatopsia, an inherited retinal disease, in which 75% of the patient population has visual function loss caused by mutations in either the CNGB3 or CNGA3 gene. Individuals with achromatopsia have markedly reduced visual acuity, extreme light sensitivity and complete loss of color discrimination. As most of you are aware, AGTC is developing 2 distinct product candidates for achromatopsia, one to treat patients with the CNGB3 mutation and another to treat patients with the CNGA3 gene mutation.

Our Phase I/II dose-ranging clinical trial, evaluating our B3 product candidate, has enrolled 4 patients in the first dose group. As we previously announced, after the first 3 patients were treated, we decided to select the single surgeon to treat patients going forward in order to minimize differences in surgical technique. This surgeon treated the third and fourth patient.

While we were reviewing the data from our -- from the first 4 patients in detail, we also analyzed an extensive and growing body of data generated across several different disease animal models. There we found evidence of biological activity at lower vector doses, using subretinal injections than those originally proposed for the CNG -- for the AC -- to the achromatopsia B3 study. We have therefore adjusted the dose downward in this dose-ranging study. This new reduced dose also applies to the A3 study. As it's true in all dose-ranging first-in-man studies, we will continue to evaluate emerging clinical and preclinical data in collaboration with our investigators and scientific advisers to help guide future dosing decisions.

Turning to our other program in collaboration with Biogen, we are also developing a potential treatment for X-linked retinitis pigmentosa, the fourth product candidate in our pipeline. XLRP is an inherited retinal disease caused by mutations in the RPGR gene. Children are born with poor visual function that significantly affects daily activities and worsens over time.

In early August of this year, the FDA granted an orphan drug designation for our XLRP product candidate. The IND for the study has been cleared by the FDA, and we are completing site initiation at 4 clinical sites with plans to begin a Phase I/II clinical trial in the coming months.

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

We plan to complete the necessary preclinical work over the coming months and expect that Bionic Sight will file an IND for this product candidate in 2018. We also continue to make substantive progress in our discovery programs with Biogen as well as our own research programs, both in ophthalmology and otology.

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

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William A. Sullivan, Applied Genetic Technologies Corporation - CFO [4]

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Thank you, Matt. Our first quarter fiscal year 2018 financials were included in our press release, which was distributed a short while ago. For the 3 months ended September 30, 2017, the company incurred a net loss of $1.4 million compared to net income of $3 million for the comparable period in 2016. This $4.4 million change in net income was primarily due to a $3.6 million increase in operating expenses, a $1.5 million decrease in revenues, and a $600,000 decrease in income tax expense.

The $3.6 million increase in operating expenses consisted of a $2.7 million increase in R&D spending and a $900,000 increase in G&A spending. Increase in R&D spending was primarily driven by increase spending on general research and discovery programs, increased spending on our XLRS and XLRP clinical programs, an increase in employee-related expenses associated with hiring additional employees to support clinical trial executions and research and development activities.

The increase in G&A expenses of $900,000 was primarily driven by increased corporate infrastructure and employee-related expenses associated with our continued expansion and hiring of additional employees.

The decrease in revenue of $1.5 million was primarily due to extending the estimated service period in associated amortization of nonrefundable upfront fees recognized as revenue under our collaboration with Biogen.

There was no income tax expense for the 3 months ended September 30, 2017. The income tax expense of $600,000 for the 3 months ended September 30, 2016 was due to the recognition of revenue related to the Biogen agreement for tax purposes, which is accelerated compared to GAAP revenue, resulting in significantly more taxable income in GAAP net income.

Now turning to our balance sheet and financial guidance. We ended fiscal year 2017 with a strong balance sheet. Total cash, cash equivalents and investments amounted to $129.6 million. We believe these funds will be sufficient to allow AGTC to generate data from our ongoing clinical programs to move our preclinical optogenetic program in collaboration with Bionic Sight into the clinic and to fund our currently planned research and discovery programs for at least the next 2 years.

We expect total cash, cash equivalents and investments as of June 30, 2018 to be between $85 million and $100 million. Importantly, any milestone payments from Biogen that exceed before June 30, 2018 will increase these projected cash balances.

Lastly, due to our recently filed -- due to recently filling an IND on the XLRP program and therefore completing our revenue recognition service period on our XLRP unit of accounting, we except noncash amortization of nonrefundable upfront fees under our collaboration with Biogen will decrease $5.8 million on a quarterly basis moving forward compared to our revenue for the 3 months ended September 30, 2017.

Related to this, please note, short-term deferred revenue on our balance sheet as of September 30, 2017 was $14.7 million. This represents noncash amortization revenue under our Biogen collaboration that we expect to recognize into revenue for the 12-month period following September 30, 2017.

In addition to noncash amortization revenue, AGTC will recognize revenue upon the triggering of future cash payments from Biogen. Upon the filing of the XLRP IND in August 2017, Biogen began reimbursing AGTC for 100% of the XLRP development expenses.

In addition, following completion of the ongoing Phase I plus II XLRS clinical trial, Biogen will reimburse AGTC to 100% of XLRS development expenses. Finally, any future cash milestone payments received from Biogen will be recognized as revenue when earned.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Matthew Luchini of BMO Capital Markets.

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Matthew W. Luchini, BMO Capital Markets Equity Research - Analyst [2]

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So just a couple from me. I guess first on XLRS. Obviously, recognizing that the last call wasn't that long ago. It looks like there hasn't been any change in the enrollment since our last update. And I was wondering if you could put some color around the reason for that. Has it been higher-than-expected screen failures? Lack of sites? Something else? And then for achromatopsia, you previously indicated that you expected to treat a fifth patient at, I guess, it would now be -- where it was originally the low-dose. And so I guess, I'm just wondering how we should think about the time lines when that patient will get treated in the new low dose? Should we expect any kind of update out of the dosing cohort, may be once it's complete? And if you could just put additional -- a little bit of additional color around the type of biological activity you saw that gives you confidence that this lower dose is worth pursuing?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [3]

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Thank you, Matt. I'll kind of frame those 2 questions and kind of break them up a little bit. First, was the question about the enrollment. And really, the issue there is only the close timing of the events and the time it takes to complete the screening process. We have multiple patients in that screening process. And it's just with those kind of very short period of time between the last call and this call. And we aren't changing our guidance at all for XLRS in that we still expect to complete enrollment in our first quarter of 2018.

As far as achromatopsia, I'll start that answer and then I'll ask Matt to provide a little bit more detail. But as we were reviewing all the data from the patients, as we do on our regular basis in the clinical group, and also as we've had more and more of the data being analyzed and filing our IND for XLRP and reviewing all of the work that's still ongoing in various disease models, we did note that in these animal models, we were seeing biological activity at a lower dose. And it's always a very good thing when we're doing the dose range finding study to find the lowest dose in which you can see some biological activity. And that's how we made decision to go -- move to a lower dose. And now it's true that the starting dose -- the lower dose that we're using in achromatopsia matches much more closely the low dose that we're going to start with in XLRP. But I'm going to turn it over to Matt to maybe provide a more detail on some of the signs of biologic activity that we saw in these animal models. Matt?

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Matthew Feinsod, Applied Genetic Technologies Corporation - Interim Chief Medical Officer [4]

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Thank you, Sue. As Sue mentioned, we looked at not only the animal data that we had from the achromatopsia preclinical models, but also from other disease models as well. Because there are similarities between the vectors. And what we found, especially looking at other models, where the vector was administered subretinally is that there was -- we did see biological activity vis-à-vis ERG responses, which in many of these models is really the primary indicator of biological activity. So Matt, you ask specifically about what the measure was. And that's what it was. It was on ERG.

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Operator [5]

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(Operator Instructions) The next question is from the line of Mara Goldstein with Cantor Fitzgerald.

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Mara Goldstein, Cantor Fitzgerald & Co., Research Division - Director of Research, Head of U.S. Healthcare Research & Senior Analyst [6]

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Just -- I guess maybe just a little bit of clarification in terms of just the dose reduction, and understanding how that -- you'll start it on the A3 trial, but does that mean that your starting another cohort at a lower dose? So can you just kind of go through that for me?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [7]

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So for the A3 trial, we'll start the trial with a low-dose (inaudible) -- a lower dose, but the study design will then be the same in 3 dose cohorts. And we'll continue to evaluate the data and make decisions about dosing up, dosing down as you would normally do in the dose-ranging study. With B3, it means we're going to dose the next patients at a lower dose. And review that data with the DSMC and then be able to make a decision about dosing in the future.

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Mara Goldstein, Cantor Fitzgerald & Co., Research Division - Director of Research, Head of U.S. Healthcare Research & Senior Analyst [8]

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Can you share with us just the order of magnitude difference between that dose versus the cohort of 4 patients that have already treated?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [9]

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We're not providing guidance on exact dose.

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Operator [10]

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Next question is from the line of Jim Birchenough with Wells Fargo.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [11]

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This is Yanan in for Jim. Just to follow up on the lowered -- lowering of the dose in the ACHM B3 study. I just wanted to ask whether is there any safety issues with the current dose -- the current low dose being studied. Was that part of -- any motivation for lowering of dose at all?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [12]

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So Yanan, thank you for your call and your interest in our programs. What we have told you about the first few patients in the achromatopsia trial is that we were seeing just these inconsistent results. And we moved to a single surgeon because of the inconsistent results. And so I think as we developed data that show that we could get biological activity at a lower dose, we thought that was an additional step to take to align the data across -- align the plan for the trial across all the data that we had.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [13]

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Got it, got it. But lower activity -- the biological activity seen at lower dose, that was from the animal studies, not from any human studies, right?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [14]

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Correct.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [15]

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Got it. And just also curious whether in animal study when you look at higher dose, does that give you any diminished efficacy or higher dose, lower dose looks the same?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [16]

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So that's a very good question, a detailed question. And I think what we see across our different animal models is that we do see changes in magnitude of biological activity across doses. But I think as we've discussed before, Yanan, in these disease models because they're lower mammals, and don't exactly replicate the primate, while we use it to guide our dosing and we were pleased to see activity at a lower dose, it's not an exact science and it's not exactly replicative. And so until we have the human data, we can't make one-to-one comparison.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [17]

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Got it. And then last question is more of a kind of clarification on timing for data readout for XLRS. I think I heard enrollment completion first quarter of '18 and then 6 months follow up. Could you just give a little more color on when do you expect data from the XLRS program?

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [18]

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So what we guided is that we will provide dose, an update on safety and then an update on biological activity and any signs of efficacy 6 months after we dose the last patient in the completed enrollment. So it will be -- the exact date would depend on exactly when in that period we dose that last patient. And we'll be able to provide an update as we move forward.

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Operator [19]

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(Operator Instructions) Thank you. At this time, I will turn the floor back to Sue Washer for closing comments.

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Susan B. Washer, Applied Genetic Technologies Corporation - President, CEO & Director [20]

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Thank you for your time today, and for your continued interest in our effort to advance the care and treatment outcomes for patients living with serious inherited retinal diseases. As we focus on clinical development, we also keep a keen eye trained on building the other resources and assets we need to provide high-quality products to patients over the long term. Our highest priority, however, is successful enrollment of our 4 clinical trial programs, and we continue to expand our investment in patient awareness and outreach to support these trials. As we bring our fourth clinical trial into active enrollment, we have pursued a number of activities to expand our clinical team both internally and externally. We have tremendous support from our growing group of clinical sites and patient advocacy partners, all of whom continued to identify additional ways to connect with patients who could meet the entry criteria for these trials. While everyone at AGTC has a passion for improving the lives of patients with inherited retinal disease, we know that we cannot succeed in this endeavor on our own, and we welcome the support of the many groups and individuals who are equally dedicated to the successful development of treatments for these indications. Once again, I take this opportunity to thank the patients who participate in our trials. Even those who don't qualify for treatment after the screening process, do provide valuable insight into the characteristics of the disease and the potential therapeutic benefits that would be most helpful to patients. Thank you, again, to everyone on the call for participating.

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Operator [21]

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And that concludes today's call. All parties may now disconnect.