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xbrli:pure bold:segment iso4217:USD xbrli:shares iso4217:USD
xbrli:shares
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________________
FORM
10-Q
__________________________________
|
|
|
|
☒
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the
quarterly period ended
September 30, 2019
OR
|
|
|
|
☐
|
Transition
report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the
transition period from
to
.
Commission
File Number: 001-37833
__________________________________
Audentes
Therapeutics, Inc.
(Exact name
of registrant as specified in its charter)
__________________________________
|
|
|
|
|
Delaware
|
|
46-1606174
|
|
(State or
other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
Number)
|
600 California Street, 17th
Floor
San
Francisco,
California
94108
(Address of
principal executive offices and zip code)
(415)
818-1001
(Registrant’s
telephone number, including area code)
|
|
|
|
|
Title of
each class
|
Trading
Symbol
|
Name of
exchange on which registered
|
|
Common
Stock, par value $0.00001 per share
|
BOLD
|
The
Nasdaq Global Market
|
Indicate by check
mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days: Yes x No ¨
Indicate by check
mark whether the Registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrant was
required to submit such
files). Yes x No ¨
Indicate by check
mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.:
|
|
|
|
|
|
|
Large accelerated
filer
|
☒
|
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer
|
☐
|
|
Smaller reporting company
|
☐
|
|
Emerging growth
company
|
☐
|
|
|
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes ☐
No ☒
Securities
registered pursuant to Section 12(b) of the Act:
As of
November 4,
2019,
there were 45,783,265
shares of the
Registrant’s Common Stock, $0.00001 par value per share,
outstanding.
TABLE OF
CONTENTS
PART
I
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUDENTES
THERAPEUTICS, INC.
Condensed
Consolidated Balance Sheets
(in
thousands, except shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Assets
|
(Unaudited)
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash
equivalents
|
$
|
63,590
|
|
|
$
|
144,349
|
|
|
Short-term
investments
|
287,874
|
|
|
269,958
|
|
|
Prepaid expenses and other
current assets
|
4,919
|
|
|
5,465
|
|
|
Total current
assets
|
356,383
|
|
|
419,772
|
|
|
Restricted cash -
long-term
|
3,748
|
|
|
3,748
|
|
|
Property and equipment,
net
|
38,165
|
|
|
32,099
|
|
|
Right-of-use
assets
|
24,859
|
|
|
—
|
|
|
Goodwill
|
3,631
|
|
|
3,631
|
|
|
Intangible assets
|
8,000
|
|
|
8,000
|
|
|
Other assets
|
6,722
|
|
|
5,305
|
|
|
Total
assets
|
$
|
441,508
|
|
|
$
|
472,555
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable
|
$
|
9,905
|
|
|
$
|
8,123
|
|
|
Accrued
liabilities
|
14,550
|
|
|
12,928
|
|
|
Operating lease
liabilities
|
3,399
|
|
|
—
|
|
|
Contingent acquisition
consideration payable
|
—
|
|
|
2,345
|
|
|
Deferred rent
|
—
|
|
|
456
|
|
|
Total current
liabilities
|
27,854
|
|
|
23,852
|
|
|
Deferred rent -
long-term
|
—
|
|
|
4,720
|
|
|
Asset retirement obligation -
long-term
|
231
|
|
|
215
|
|
|
Operating lease liabilities -
long-term
|
26,490
|
|
|
—
|
|
|
Contingent acquisition
consideration payable - long-term
|
2,460
|
|
|
—
|
|
|
Deferred tax liability,
net
|
1,014
|
|
|
1,014
|
|
|
Total
liabilities
|
58,049
|
|
|
29,801
|
|
|
Stockholders'
equity:
|
|
|
|
|
Preferred stock,
$0.00001 par value, 10,000,000 shares authorized as of September
30, 2019 (unaudited) and December 31, 2018; 0 shares issued and
outstanding as of September 30, 2019 (unaudited) and December 31,
2018, respectively
|
—
|
|
|
—
|
|
|
Common stock,
$0.00001 par value, 300,000,000 shares authorized as of September
30, 2019 (unaudited) and December 31, 2018; 45,740,575 and
43,546,786 shares issued and outstanding as of September 30, 2019
(unaudited) and December 31, 2018, respectively
|
—
|
|
|
—
|
|
|
Additional paid-in
capital
|
842,599
|
|
|
762,284
|
|
|
Accumulated
deficit
|
(459,366
|
)
|
|
(319,470
|
)
|
|
Accumulated other
comprehensive income (loss)
|
226
|
|
|
(60
|
)
|
|
Total
stockholders' equity
|
383,459
|
|
|
442,754
|
|
|
Total liabilities
and stockholders' equity
|
$
|
441,508
|
|
|
$
|
472,555
|
|
|
|
|
|
|
See accompanying
notes to unaudited interim condensed consolidated financial
statements.
AUDENTES
THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive
Loss
(in thousands, except shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Operating
expenses:
|
Unaudited
|
|
Research and
development
|
$
|
37,636
|
|
|
$
|
29,918
|
|
|
$
|
114,772
|
|
|
$
|
76,157
|
|
|
General and
administrative
|
10,189
|
|
|
7,817
|
|
|
31,960
|
|
|
20,617
|
|
|
Total operating
expenses
|
47,825
|
|
|
37,735
|
|
|
146,732
|
|
|
96,774
|
|
|
Loss from
operations
|
(47,825
|
)
|
|
(37,735
|
)
|
|
(146,732
|
)
|
|
(96,774
|
)
|
|
Interest income,
net
|
2,112
|
|
|
1,509
|
|
|
6,937
|
|
|
3,662
|
|
|
Other expense,
net
|
(28
|
)
|
|
(65
|
)
|
|
(101
|
)
|
|
(117
|
)
|
|
Net loss
|
(45,741
|
)
|
|
(36,291
|
)
|
|
(139,896
|
)
|
|
(93,229
|
)
|
|
Unrealized (losses) gains on
investments, net
|
—
|
|
|
(4
|
)
|
|
286
|
|
|
33
|
|
|
Comprehensive
loss
|
$
|
(45,741
|
)
|
|
$
|
(36,295
|
)
|
|
$
|
(139,610
|
)
|
|
$
|
(93,196
|
)
|
|
Net loss per share, basic and
diluted
|
$
|
(1.00
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(3.14
|
)
|
|
$
|
(2.57
|
)
|
|
Weighted-average
number of shares used in computing net loss per share, basic and
diluted
|
45,543,354
|
|
|
37,359,877
|
|
|
44,538,676
|
|
|
36,302,803
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited interim condensed consolidated
financial statements.
AUDENTES
THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders'
Equity
(in thousands, except shares and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
Total
Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at
December 31, 2018
|
43,546,786
|
|
|
$
|
—
|
|
|
$
|
762,284
|
|
|
$
|
(319,470
|
)
|
|
$
|
(60
|
)
|
|
$
|
442,754
|
|
|
Issuance of common
stock upon exercise of stock options
|
213,891
|
|
|
—
|
|
|
3,005
|
|
|
—
|
|
|
—
|
|
|
3,005
|
|
|
Stock-based
compensation expense
|
—
|
|
|
—
|
|
|
5,500
|
|
|
—
|
|
|
—
|
|
|
5,500
|
|
|
Net
loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(49,391
|
)
|
|
—
|
|
|
(49,391
|
)
|
|
Unrealized gain on
investments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
127
|
|
|
127
|
|
|
Balance at
March 31, 2019
|
43,760,677
|
|
|
—
|
|
|
770,789
|
|
|
(368,861
|
)
|
|
67
|
|
|
401,995
|
|
|
Issuance of common
stock upon exercise of stock options
|
141,316
|
|
|
—
|
|
|
1,673
|
|
|
—
|
|
|
—
|
|
|
1,673
|
|
|
Issuance of common
stock pursuant to ESPP purchases
|
38,328
|
|
|
—
|
|
|
767
|
|
|
—
|
|
|
—
|
|
|
767
|
|
|
Issuance of common
stock upon vesting of restricted stock units, net of shares
withheld for employee taxes
|
24,439
|
|
|
—
|
|
|
(567
|
)
|
|
—
|
|
|
—
|
|
|
(567
|
)
|
|
Stock-based compensation
expense
|
—
|
|
|
—
|
|
|
6,131
|
|
|
—
|
|
|
—
|
|
|
6,131
|
|
|
Issuance of common
stock, net of $1,695 in issuance costs
|
1,419,351
|
|
|
—
|
|
|
54,308
|
|
|
—
|
|
|
—
|
|
|
54,308
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,764
|
)
|
|
—
|
|
|
(44,764
|
)
|
|
Unrealized gain on
investments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
159
|
|
|
159
|
|
|
Balance at
June 30, 2019
|
45,384,111
|
|
|
—
|
|
|
833,101
|
|
|
(413,625
|
)
|
|
226
|
|
|
419,702
|
|
|
Issuance of common
stock upon exercise of stock options
|
343,583
|
|
|
—
|
|
|
3,950
|
|
|
—
|
|
|
—
|
|
|
3,950
|
|
|
Issuance of common
stock upon vesting of restricted stock units, net of shares
withheld for employee taxes
|
11,081
|
|
|
—
|
|
|
(229
|
)
|
|
—
|
|
|
—
|
|
|
(229
|
)
|
|
Stock-based compensation
expense
|
—
|
|
|
—
|
|
|
5,712
|
|
|
—
|
|
|
—
|
|
|
5,712
|
|
|
Issuance of common
stock, net of $2 in issuance costs
|
1,800
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,741
|
)
|
|
—
|
|
|
(45,741
|
)
|
|
Balance at
September 30, 2019
|
45,740,575
|
|
|
$
|
—
|
|
|
$
|
842,599
|
|
|
$
|
(459,366
|
)
|
|
$
|
226
|
|
|
$
|
383,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
Total
Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at
December 31, 2017
|
29,901,368
|
|
|
$
|
—
|
|
|
$
|
347,327
|
|
|
$
|
(190,649
|
)
|
|
$
|
(80
|
)
|
|
$
|
156,598
|
|
|
Issuance of common
stock upon exercise of stock options
|
183,692
|
|
|
—
|
|
|
807
|
|
|
—
|
|
|
—
|
|
|
807
|
|
|
Stock-based
compensation expense
|
—
|
|
|
—
|
|
|
3,385
|
|
|
—
|
|
|
—
|
|
|
3,385
|
|
|
Issuance of common
stock, net of $14,201 in issuance costs
|
6,612,500
|
|
|
—
|
|
|
217,237
|
|
|
—
|
|
|
—
|
|
|
217,237
|
|
|
Net
loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,571
|
)
|
|
—
|
|
|
(25,571
|
)
|
|
Unrealized loss on
investments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
|
Balance at
March 31, 2018
|
36,697,560
|
|
|
—
|
|
|
568,756
|
|
|
(216,220
|
)
|
|
(94
|
)
|
|
352,442
|
|
|
Issuance of common
stock upon exercise of stock options
|
141,828
|
|
|
—
|
|
|
1,139
|
|
|
—
|
|
|
—
|
|
|
1,139
|
|
|
Issuance of common
stock upon exercise of warrants
|
5,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based
compensation expense
|
—
|
|
|
—
|
|
|
4,097
|
|
|
—
|
|
|
—
|
|
|
4,097
|
|
|
Issuance of common
stock, net of $292 in issuance costs
|
400,024
|
|
|
—
|
|
|
14,602
|
|
|
—
|
|
|
—
|
|
|
14,602
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,367
|
)
|
|
—
|
|
|
(31,367
|
)
|
|
Unrealized gain on
investments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
51
|
|
|
Balance at
June 30, 2018
|
37,245,212
|
|
|
—
|
|
|
588,594
|
|
|
(247,587
|
)
|
|
(43
|
)
|
|
340,964
|
|
|
Issuance of common
stock upon exercise of stock options
|
207,917
|
|
|
—
|
|
|
1,253
|
|
|
—
|
|
|
—
|
|
|
1,253
|
|
|
Stock-based
compensation expense
|
—
|
|
|
—
|
|
|
4,633
|
|
|
—
|
|
|
—
|
|
|
4,633
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,291
|
)
|
|
—
|
|
|
(36,291
|
)
|
|
Unrealized loss on
investments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
Balance at
September 30, 2018
|
37,453,129
|
|
|
$
|
—
|
|
|
$
|
594,480
|
|
|
$
|
(283,878
|
)
|
|
$
|
(47
|
)
|
|
$
|
310,555
|
|
See
accompanying notes to unaudited interim condensed consolidated
financial statements.
AUDENTES
THERAPEUTICS, INC.
Condensed
Consolidated Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
Cash flows from operating
activities:
|
Unaudited
|
|
Net loss
|
$
|
(139,896
|
)
|
|
$
|
(93,229
|
)
|
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
Depreciation and
amortization
|
5,732
|
|
|
3,948
|
|
|
Amortization of right-of-use
assets
|
1,966
|
|
|
—
|
|
|
Stock-based
compensation
|
17,343
|
|
|
12,115
|
|
|
Accretion of discount on
marketable securities
|
(2,878
|
)
|
|
(856
|
)
|
|
Change in fair value of
contingent acquisition consideration payable
|
115
|
|
|
(2,327
|
)
|
|
Other
|
21
|
|
|
83
|
|
|
Changes in operating assets
and liabilities:
|
|
|
|
|
Prepaid expenses and other
current assets
|
591
|
|
|
(1,212
|
)
|
|
Other assets
|
(1,417
|
)
|
|
(3,260
|
)
|
|
Accounts payable
|
70
|
|
|
(724
|
)
|
|
Accrued
liabilities
|
1,548
|
|
|
4,635
|
|
|
Deferred rent
|
—
|
|
|
1,332
|
|
|
Operating lease
liabilities
|
(2,112
|
)
|
|
—
|
|
|
Net cash used in operating
activities
|
(118,917
|
)
|
|
(79,495
|
)
|
|
Cash flows from investing
activities:
|
|
|
|
|
Purchases of property and
equipment
|
(10,017
|
)
|
|
(8,074
|
)
|
|
Proceeds from maturities of
marketable securities
|
381,351
|
|
|
127,880
|
|
|
Purchases of marketable
securities
|
(396,103
|
)
|
|
(209,952
|
)
|
|
Net cash used in investing
activities
|
(24,769
|
)
|
|
(90,146
|
)
|
|
Cash flows from financing
activities:
|
|
|
|
|
Proceeds from exercise of
stock options and ESPP purchases
|
9,350
|
|
|
3,199
|
|
|
Proceeds from issuance of
common stock, net of issuance costs
|
54,373
|
|
|
231,724
|
|
|
Tax paid related to net share
settlement of equity awards
|
(796
|
)
|
|
—
|
|
|
Net cash provided by financing
activities
|
62,927
|
|
|
234,923
|
|
|
Net (decrease) increase in
cash, cash equivalents and restricted cash
|
(80,759
|
)
|
|
65,282
|
|
|
Cash, cash equivalents and
restricted cash at beginning of period
|
148,097
|
|
|
42,661
|
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
67,338
|
|
|
$
|
107,943
|
|
|
|
|
|
|
|
Noncash investing and
financing activities:
|
|
|
|
|
Change in accounts
payable and accrued liabilities related to property and equipment
purchases
|
$
|
1,786
|
|
|
$
|
2,200
|
|
|
Change in prepaid expenses and
other current assets related to equity issuances and option
exercises
|
$
|
45
|
|
|
$
|
—
|
|
|
Right-of-use assets obtained
in exchange for lease obligations
|
$
|
5,155
|
|
|
$
|
—
|
|
See accompanying
notes to unaudited interim condensed consolidated financial
statements.
AUDENTES
THERAPEUTICS, INC.
Notes to
Unaudited Interim Condensed Consolidated Financial
Statements
|
|
|
1.
|
Organization
and
Basis of
Presentation
|
Audentes
Therapeutics, Inc., or the Company, was incorporated in the State
of Delaware on November 13, 2012. The Company is an AAV-based
genetic medicines company focused on developing and commercializing
innovative products for patients living with serious rare
neuromuscular diseases. The Company operates in one
business segment,
with its corporate headquarters located in San Francisco,
California and its manufacturing and research operations located in
South San Francisco, California.
The accompanying
consolidated financial statements include the accounts of Audentes
Therapeutics, Inc., and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.
Need for Additional Capital
The Company has
incurred net losses from operations since inception and as
of September 30,
2019, had
an accumulated deficit of $459.4
million. The
Company expects that its development activities will continue to
generate operating losses over the next several years.
Common Stock Sales Agreement
In March 2018,
the Company filed an automatic universal shelf registration
statement. Pursuant to the registration statement, the Company
entered into an “at-the-market” program and sales agreement, or
ATM, with Cowen and Company, LLC., or Cowen, under which the
Company may, from time to time, offer and sell common stock having
an aggregate offering value of up to $150.0
million. Upon delivery of a
placement notice and subject to the terms and conditions of the
sales agreement, Cowen would use its commercially reasonable
efforts to sell the shares from time to time, based upon the
Company’s instructions. Sales of the Company’s common stock, if
any, would be made at market prices by any method that is deemed to
be an “at the market offering” as defined in Rule 415 under the
Securities Act of 1933, as amended, including sales made directly
on the Nasdaq Stock Market, or Nasdaq, or any other existing
trading market for the common stock, at market prices or as
otherwise agreed with Cowen. Under the sales agreement, Cowen would
be entitled to a commission of up to 3.0%
of the gross
proceeds per share sold. The Company has no obligation to sell any
shares under the sales agreement and may, at any time, suspend
offers under the sales agreement or terminate the sales agreement
by giving written notice as specified in the sales
agreement.
During the
nine months ended
September 30, 2019, the Company sold
1,421,151
shares of common
stock under the ATM for aggregate net proceeds of
$54.4
million. As of September 30, 2019,
there was approximately $78.6
million (excluding commissions)
available for future sales pursuant to the ATM.
Liquidity
As of
September 30,
2019, the
Company had approximately $351.5
million of cash, cash equivalents and
marketable securities, consisting of $63.6
million of cash
and cash equivalents and $287.9
million of marketable securities. The
Company believes that its balance of cash, cash equivalents and
investments as of September 30,
2019 is
sufficient to fund its current operational plan for at least the
next twelve months from the issuance of these financial statements,
though it may pursue additional capital through one or more equity
offerings, debt financings or other third-party funding, including
potential strategic alliances and licensing or collaboration
arrangements. If financing is not available at adequate levels or
on acceptable terms, the Company may need to reevaluate its
operating plans. In addition, if the Company’s anticipated
operating results are not achieved in future periods, planned
expenditures may need to be reduced in order to extend the time
period over which the then-available resources would be able to
fund the Company’s operations.
|
|
|
2.
|
Summary of
Significant Accounting Policies
|
The Company's
significant accounting policies are detailed in Note 2 of the
“Notes to Consolidated Financial Statements” in the Company’s
Annual Report on Form 10-K for the year ended December 31,
2018.
Except as detailed below, there have been no material changes to
the Company’s significant accounting policies during the
nine months ended
September 30, 2019, as compared to the
significant accounting policies disclosed in Note 2 -
Significant
Accounting Policies included in the Company’s
Annual Report on Form 10-K for the year ended December 31,
2018.
Leases
The Company
determines if an arrangement is or contains a lease at inception by
assessing whether the arrangement contains an identified asset and
whether it has the right to control the identified asset.
Right-of-use (ROU) assets represent the Company's right to use an
underlying asset for the lease term and lease liabilities represent
the Company's obligation to make lease payments arising from the
lease. ROU assets and lease liabilities are recognized at the lease
commencement date based on the present value of future lease
payments over the lease term. As the implicit rate in the Company's
leases is unknown, the Company uses its incremental borrowing rate
based on the information available at the lease commencement date
in determining the present value of future lease payments. The
Company gives consideration to its credit risk, term of the lease,
total lease payments and adjust for the impacts of collateral, as
necessary, when calculating its incremental borrowing rates. The
ROU asset is based on the measurement of the lease liability and
also includes any lease payments made prior to or on lease
commencement and excludes lease incentives and initial direct costs
incurred, as applicable. The lease terms may include options to
extend or terminate the lease when it is reasonably certain the
Company will exercise any such options. Rent expense for the
Company's operating leases is recognized on a straight-line basis
over the lease term.
The Company has
lease agreements with lease and non-lease components. The Company
has elected to not separate lease and non-lease components for any
leases within its existing classes of assets and, as a result,
accounts for the lease and non-lease components as a single lease
component. The Company has also elected to not apply the
recognition requirement to any leases within its existing classes
of assets with a term of 12 months or less.
Basis of Preparation
The accompanying
unaudited interim condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP, and
applicable rules and regulations of the Securities and Exchange
Commission, or SEC, regarding interim financial reporting. As
permitted under those rules, certain footnotes or other financial
information that are normally required by U.S. GAAP have been
condensed or omitted, and accordingly the balance sheet as
of December 31, 2018
has been derived
from audited financial statements at that date but does not include
all of the information required by U.S. GAAP for complete financial
statements. These unaudited interim condensed consolidated
financial statements have been prepared on the same basis as the
Company’s annual financial statements and, in the opinion of
management, reflect all adjustments (consisting only of normal
recurring adjustments) that are necessary for a fair presentation
of the Company’s financial information. The results of operations
for the three and nine
months
ended September 30,
2019 are
not necessarily indicative of the results to be expected for the
year ending December 31, 2019
or for any other
interim period or for any other future year.
The accompanying
unaudited interim condensed consolidated financial statements and
related financial information should be read in conjunction with
the audited financial statements and the related notes thereto for
the year ended December 31, 2018
included in the
Company’s audited financial statements filed in its Annual Report
on Form 10-K for the year ended December 31,
2018.
Use of Estimates
The preparation
of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities, as of the date of the financial
statements, and the reported amounts of any expenses during the
reporting period. On an ongoing basis, management evaluates its
estimates, including those related to accrued liabilities,
acquisition contingent consideration, income taxes, and stock-based
compensation. Management bases its estimates on historical
experience, and on various other market-specific relevant
assumptions that management believes to be reasonable, under the
circumstances. Actual results may differ from those
estimates.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and marketable
securities. The Company invests in a variety of financial
instruments and in accordance with its investment policy, limits
the amount of credit exposure with any one issuer, industry or
geographic area for investments other than instruments backed by
the U.S. federal government.
Concentration of Manufacturing and Third-Party Services
Risk
The Company is
subject to certain risks with respect to sources of supply of
manufactured materials and drug product for use in its preclinical
studies and clinical trials. Due to the technical aspects of
manufacturing drug product for gene therapies, there exist few
alternative sources of manufacturing. The Company is reliant upon
its own internal manufacturing capability and a small number of
third-party vendors to produce drug product in sufficient
quantities and quality to conduct its research and development
activities.
Accounting Pronouncements Adopted in 2019
In August 2018,
the Financial Accounting Standards Board, or FASB, issued
ASU 2018-15, Intangibles
- Goodwill and Other-Internal Use Software
(Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That
is a Service Contract. This guidance requires
companies to apply the internal-use software guidance in
ASC 350-40 to implementation costs incurred in a hosting
arrangement that is a service contract to determine whether to
capitalize certain implementation costs or expense them as
incurred. This guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2019. Early adoption was permitted and the Company early adopted
the standard on January 1, 2019. Adoption of the standard did not
have a material impact on the Company's condensed consolidated
financial statements. See Note 5 for further
disclosure.
In June 2018, the
FASB issued ASU 2018-07, Compensation
- Stock Compensation (Topic 718), Improvements to Nonemployee
Share-Based Payment Accounting, which expands the scope of
Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. An entity should apply the
requirements of Topic 718 to nonemployee awards except for specific
guidance on inputs to an option pricing model and the attribution
of cost. The measurement of equity-classified nonemployee awards is
fixed at the grant date, and entities would measure the cost of
awards subject to a performance condition using the outcome that is
probable at the balance sheet date. The Company adopted this
standard on January 1, 2019. As a result of adopting this standard,
the Company no longer remeasures equity-classified nonemployee
awards. The adoption of this new standard did not result in
material impact on the Company's condensed consolidated financial
statements.
In February 2016,
the FASB issued ASU No. 2016-02, Leases
(Topic 842), which establishes a
comprehensive new lease accounting model. Under the new guidance,
at the commencement date, lessees are required to recognize a lease
liability with a corresponding right-of-use (ROU) asset. Effective
January 1, 2019, the Company adopted Topic 842 using the modified
retrospective approach provided by ASU 2018-11. Results for
reporting periods beginning January 1, 2019 are presented under
Topic 842, while prior period amounts were not adjusted and
continue to be presented in accordance with the Company’s
historical accounting under Topic 840, Leases.
The Company elected certain practical expedients permitted under
the transition guidance, including the election to carryforward
historical lease classification. The Company also elected the
short-term lease practical expedient, which allowed the Company to
not recognize leases with a term of less than twelve months on its
consolidated balance sheets. In addition, the Company elected the
lease and non-lease components practical expedient, which allowed
the Company to calculate the present value of the fixed payments
without performing an allocation of lease and non-lease
components.
The impact of the
adoption of Topic 842 on the accompanying Condensed Consolidated
Balance Sheet as of January 1, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
Effect of
Adoption
|
|
January 1,
2019
|
|
|
(in thousands)
|
|
Operating lease right-of-use
assets
|
$
|
—
|
|
|
$
|
21,669
|
|
|
$
|
21,669
|
|
|
Liabilities:
|
|
|
|
|
|
|
Operating leases
|
$
|
—
|
|
|
$
|
2,541
|
|
|
$
|
2,541
|
|
|
Deferred rent
|
$
|
456
|
|
|
$
|
(456
|
)
|
|
$
|
—
|
|
|
Operating lease liabilities -
long-term
|
$
|
—
|
|
|
$
|
24,304
|
|
|
$
|
24,304
|
|
|
Deferred rent and asset
retirement obligation -
long-term
|
$
|
4,935
|
|
|
$
|
(4,720
|
)
|
|
$
|
215
|
|
Adoption of the
new standard resulted in recording operating lease right-of-use
assets and operating lease liabilities of approximately
$24.9
million
and $29.9
million, respectively, on the
Company’s condensed consolidated balance sheet as of
September 30,
2019.
However, the adoption of the new standard did not have an impact on
the Company’s beginning accumulated deficit, statement of
operations or cash flows. For additional information regarding the
Company’s leases, see Note 9 in the notes to the condensed
consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2018,
the FASB issued ASU 2018-13, Fair Value
Measurement (Topic 820), which modifies, removes and
adds certain disclosure requirements on fair value measurements
based on the FASB Concepts Statement, Conceptual Framework for
Financial Reporting—Chapter 8: Notes to Financial Statements. This
guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. The
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
Early adoption is permitted upon issuance of ASU 2018-13. An entity
is permitted to early adopt any removed or modified disclosures
upon issuance of ASU 2018-13 and delay adoption of the additional
disclosures until their effective date. It is the Company’s
expectation that adoption of this pronouncement will not have a
material impact to its condensed consolidated financial
statements.
In January 2017,
the FASB issued ASU 2017-04, Intangibles
- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminates Step 2
from the goodwill impairment test. In addition,
ASU 2017-04 eliminates the requirements for any reporting
unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to
perform Step 2 of the goodwill impairment test.
ASU 2017-04 is effective for fiscal years beginning after
December 15, 2019, with early adoption permitted. The Company
is currently evaluating the impact that the standard will
have on its consolidated financial statements and related
disclosures. It is the Company’s expectation that adoption of
this pronouncement will not have a material impact to its
consolidated financial statements and related
disclosures.
Investments
consist of available-for-sale marketable securities as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
(Unaudited)
|
|
Money market
funds
|
$
|
22,647
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,647
|
|
|
Commercial paper
|
92,750
|
|
|
7
|
|
|
(3
|
)
|
|
92,754
|
|
|
Corporate
securities
|
111,201
|
|
|
178
|
|
|
—
|
|
|
111,379
|
|
|
U.S. treasury
bills
|
10,760
|
|
|
2
|
|
|
—
|
|
|
10,762
|
|
|
U.S. government agency
securities
|
61,367
|
|
|
35
|
|
|
(1
|
)
|
|
61,401
|
|
|
U.S. agency
bonds
|
37,579
|
|
|
8
|
|
|
—
|
|
|
37,587
|
|
|
Total available-for-sale
securities
|
$
|
336,304
|
|
|
$
|
230
|
|
|
$
|
(4
|
)
|
|
$
|
336,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
Money market
funds
|
$
|
33,399
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,399
|
|
|
Commercial paper
|
144,578
|
|
|
—
|
|
|
—
|
|
|
144,578
|
|
|
Corporate
securities
|
82,670
|
|
|
8
|
|
|
(39
|
)
|
|
82,639
|
|
|
U.S. treasury
bills
|
60,573
|
|
|
—
|
|
|
(8
|
)
|
|
60,565
|
|
|
U.S. government agency
securities
|
15,219
|
|
|
—
|
|
|
—
|
|
|
15,219
|
|
|
U.S. agency
bonds
|
51,411
|
|
|
—
|
|
|
(22
|
)
|
|
51,389
|
|
|
U.S. agency discount
securities
|
18,716
|
|
|
—
|
|
|
—
|
|
|
18,716
|
|
|
Total available-for-sale
securities
|
$
|
406,566
|
|
|
$
|
8
|
|
|
$
|
(69
|
)
|
|
$
|
406,505
|
|
|
|
|
|
|
|
|
|
|
The following
table summarizes the classification of the available-for-sale
securities on the Company's condensed consolidated balance sheets
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
Cash and cash
equivalents
|
$
|
48,656
|
|
|
$
|
136,547
|
|
|
Short-term
investments
|
287,874
|
|
|
269,958
|
|
|
Total
|
$
|
336,530
|
|
|
$
|
406,505
|
|
|
|
|
|
|
The Company does
not intend to sell the investments that are in an unrealized loss
position, and it is unlikely that it will be required to sell the
investments before recovery of the investments' amortized cost
basis, which may be maturity. The unrealized losses were the result
of interest rate fluctuations affecting the value of the underlying
instruments and the Company determined that the unrealized losses
at September 30,
2019 were
temporary in nature.
|
|
|
4.
|
Fair Value
Measurements
|
Fair value
accounting is applied for all financial assets and liabilities that
are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Financial
instruments include cash and cash equivalents, restricted cash,
accounts payable and accrued liabilities that approximate fair
value due to their relatively short maturities.
Assets and
liabilities recorded at fair value on a recurring basis in the
balance sheets are categorized based upon the level of judgment
associated with the inputs used to measure their fair values. Fair
value is defined as the exchange price that would be received for
an asset or an exit price that would be paid to transfer a
liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. The authoritative guidance on
fair value measurements establishes a three-tier fair value
hierarchy for disclosure of fair value measurements as
follows:
Level
1 – Inputs
are unadjusted, quoted prices in active markets for identical
assets or liabilities at the measurement date;
Level
2 – Inputs
are observable, unadjusted quoted prices in active markets for
similar assets or liabilities, unadjusted quoted prices for
identical or similar assets or liabilities in markets that are not
active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the
related assets or liabilities; and
Level
3 –
Unobservable inputs that are significant to the measurement of the
fair value of the assets or liabilities that are supported by
little or no market data.
Assets Measured at Fair Value
Financial assets
subject to fair value measurements on a recurring basis and the
level of inputs used in such measurements are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
|
Fair Value
Measurements Using
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
|
(Unaudited)
|
|
Money market
funds
|
$
|
22,647
|
|
|
$
|
22,647
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial paper
|
92,754
|
|
|
—
|
|
|
92,754
|
|
|
—
|
|
|
Corporate
securities
|
111,379
|
|
|
—
|
|
|
111,379
|
|
|
—
|
|
|
U.S. treasury
bills
|
10,762
|
|
|
—
|
|
|
10,762
|
|
|
—
|
|
|
U.S. government agency
securities
|
61,401
|
|
|
—
|
|
|
61,401
|
|
|
—
|
|
|
U.S. agency
bonds
|
37,587
|
|
|
—
|
|
|
37,587
|
|
|
—
|
|
|
Total financial
assets
|
$
|
336,530
|
|
|
$
|
22,647
|
|
|
$
|
313,883
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
Fair Value
Measurements Using
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
|
|
|
Money market
funds
|
$
|
33,399
|
|
|
$
|
33,399
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial paper
|
144,578
|
|
|
—
|
|
|
144,578
|
|
|
—
|
|
|
Corporate
securities
|
82,639
|
|
|
—
|
|
|
82,639
|
|
|
—
|
|
|
U.S. treasury
bills
|
60,565
|
|
|
—
|
|
|
60,565
|
|
|
—
|
|
|
U.S. government agency
securities
|
15,219
|
|
|
—
|
|
|
15,219
|
|
|
—
|
|
|
U.S. agency
bonds
|
51,389
|
|
|
—
|
|
|
51,389
|
|
|
—
|
|
|
U.S. agency discount
securities
|
18,716
|
|
|
—
|
|
|
18,716
|
|
|
—
|
|
|
Total financial
assets
|
$
|
406,505
|
|
|
$
|
33,399
|
|
|
$
|
373,106
|
|
|
$
|
—
|
|
The financial
assets listed above do not include the Company’s operating cash
of $14.9
million and $7.8
million as of September 30,
2019 and December 31,
2018,
respectively.
Liabilities Measured at Fair Value
In August 2015,
the Company acquired Cardiogen Sciences, Inc., or Cardiogen, a
biotechnology company focused on the discovery and development of
AAV gene therapy products for rare, inherited arrhythmogenic
diseases. Pursuant to the terms of the acquisition, upon first
dosing of a patient in a human clinical study involving AT307 for
the treatment of CASQ2-CPVT, the Company is obligated to pay to
former Cardiogen shareholders $4.2
million in common stock plus an
additional $5.8
million in either cash or common
stock, at the Company’s election, for aggregate contingent
consideration of $10.0
million. The Company recorded
a contingent consideration payable that is estimated using a
probability-based income approach utilizing an appropriate discount
rate. Key assumptions used by management to estimate the fair value
of contingent acquisition consideration payable include estimated
probability of occurrence, the estimated timing of when the
milestone may be attained and assumed discount period and discount
rate, which are Level 3 inputs. Changes in the fair value of the
contingent acquisition consideration payable, resulting from
management’s revision of key assumptions, are recorded in research
and development expense in the consolidated statement of operations
and comprehensive loss. The probability-based income approach used
by management to estimate the fair value of the contingent
acquisition consideration is most sensitive to changes in the
estimated probability of occurrence.
The following is
a summary of the contingent acquisition consideration payable
recorded in the accompanying consolidated balance sheets (in
thousands):
|
|
|
|
|
|
|
Amount
|
|
|
(Unaudited)
|
|
Balance, December 31,
2018
|
$
|
2,345
|
|
|
Change in fair value of
contingent acquisition consideration payable
|
115
|
|
|
Balance, September 30,
2019
|
$
|
2,460
|
|
|
|
|
|
|
|
5.
|
Balance
Sheet Components
|
Property and Equipment, Net
Property and
equipment, net, consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
Furniture and office
equipment
|
$
|
2,439
|
|
|
$
|
1,898
|
|
|
Computer
equipment
|
1,391
|
|
|
1,019
|
|
|
Software
|
526
|
|
|
513
|
|
|
Leasehold
improvements
|
23,453
|
|
|
19,607
|
|
|
Laboratory
equipment
|
11,694
|
|
|
9,570
|
|
|
Manufacturing
equipment
|
8,129
|
|
|
6,619
|
|
|
Construction in progress and
deposits on equipment
|
6,640
|
|
|
3,320
|
|
|
Total property and
equipment
|
54,272
|
|
|
42,546
|
|
|
Less accumulated depreciation
and amortization
|
(16,107
|
)
|
|
(10,447
|
)
|
|
Property and equipment,
net
|
$
|
38,165
|
|
|
$
|
32,099
|
|
Property and
equipment depreciation and amortization expense for the three
months ended September 30,
2019 and 2018 was $2.0
million and $1.5
million, respectively. Property and
equipment depreciation and amortization for the nine months
ended September 30,
2019 and 2018 was $5.7
million and $3.9
million, respectively.
Capitalized Implementation Costs of a Hosting
Arrangement
The Company
implemented a new enterprise resource planning, or ERP, system in
July 2019. The ERP system is a cloud-based hosting arrangement that
is a service contract. The Company early and prospectively adopted
ASU 2018-15, Intangibles
- Goodwill and Other-Internal Use Software
(Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That
is a Service Contract in the classification of
costs incurred in connection with the implementation of this hosted
ERP system. Based on the guidance, the Company expensed all costs
(internal and external) that were incurred in the planning and
post-implementation operation stages and capitalized
approximately $2.5
million in costs related to the
application development stage. The capitalized costs are
amortized on a straight-line basis over the non-cancelable contract
term of five
years. As of September 30,
2019, approximately $0.5
million and $1.9
million of the capitalized costs were
classified in current and noncurrent assets, respectively.
The Company began amortizing the capitalized implementation costs
on July 1, 2019, which was the date the ERP system was placed in
production and ready for its intended use. Amortization expense for
the three and nine months ended September 30, 2019 was
$0.1
million.
Accrued Liabilities
Accrued
liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
Accrued payroll and related
expenses
|
$
|
8,310
|
|
|
$
|
8,581
|
|
|
Accrued research and
development expenses
|
4,692
|
|
|
3,317
|
|
|
Accrued construction in
progress
|
74
|
|
|
71
|
|
|
Accrued general and
administrative expenses
|
1,474
|
|
|
959
|
|
|
Total accrued
liabilities
|
$
|
14,550
|
|
|
$
|
12,928
|
|
|
|
|
6.
|
Commitments
and Contingencies
|
In February 2019,
the Company entered into an exclusive license agreement with
Nationwide Children's Hospital related to the Company's AT702
program. Pursuant to the agreement, the Company paid an upfront fee
of $7.0
million and will be obligated to make
certain milestone and royalty payments upon the achievement of
developmental, regulatory and net sales milestones.
As of
September 30,
2019, the
Company is subject to contingent payments upon the achievement of
certain development, regulatory and commercial milestones, totaling
up to approximately $270.9
million across all of its licensing
agreements. Of this amount, $74.0
million relates
to the Company’s Crigler-Najjar
and CASQ2-CPVT programs, for
which the Company previously announced plans to explore
outlicensing opportunities to continue development
activities.
Stock-based Compensation Expense
Stock-based
compensation expense by category was as follows for the
three and
nine months ended
September 30,
2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
Research and
development
|
$
|
3,048
|
|
|
$
|
2,611
|
|
|
$
|
9,465
|
|
|
$
|
6,930
|
|
|
General and
administrative
|
2,664
|
|
|
2,022
|
|
|
7,878
|
|
|
5,185
|
|
|
Total stock-based
compensation expense
|
$
|
5,712
|
|
|
$
|
4,633
|
|
|
$
|
17,343
|
|
|
$
|
12,115
|
|
Stock Options
The following
table summarizes option activity for the nine months ended
September 30,
2019:
|
|
|
|
|
|
|
|
|
|
Number
of
Options
Outstanding
|
|
Weighted-
Average
Exercise Price
Per Option
|
|
|
|
|
|
|
Balance, December 31,
2018
|
4,894,201
|
|
|
$
|
18.79
|
|
|
Options granted
|
1,581,183
|
|
|
$
|
28.04
|
|
|
Options
exercised
|
(698,790
|
)
|
|
$
|
12.35
|
|
|
Options
forfeited
|
(664,866
|
)
|
|
$
|
24.29
|
|
|
Balance, September 30,
2019
|
5,111,728
|
|
|
$
|
21.82
|
|
The fair value of
stock options granted to employees was estimated using a
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Expected term (in
years)
|
6.0-6.1
|
|
|
6.1
|
|
|
5.5-6.1
|
|
|
5.5-6.1
|
|
|
Expected
volatility
|
62-63%
|
|
|
70
|
%
|
|
62-68%
|
|
|
70-76%
|
|
|
Risk-free interest
rate
|
1.4-1.9%
|
|
|
2.8-3.0%
|
|
|
1.4-2.6%
|
|
|
2.3-3.0%
|
|
|
Expected dividend
yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Restricted Stock Units
In January 2019,
the Company's compensation committee of the board of directors
approved the commencement of granting restricted stock units, or
RSUs, to our employees. RSUs are share awards that entitle the
holder to receive freely tradable shares of the Company's common
stock upon the completion of a specific period of continued
service. RSUs are generally subject to forfeiture if employment
terminates prior to the release of vesting restrictions. RSUs
granted are valued at the market price of the Company's common
stock on the date of grant. The Company recognizes stock-based
compensation expense for the fair value of RSUs on a straight-line
basis over the requisite service period of these
awards.
The following
table summarizes activity of RSUs granted to employees with
service-based vesting during the nine months ended
September 30,
2019:
|
|
|
|
|
|
|
|
|
|
Number
of
RSUs
Outstanding
|
|
Weighted-
Average
Grant
Date
Fair
Value
Per RSU
|
|
|
|
|
|
|
Balance, December 31,
2018
|
—
|
|
|
|
|
RSUs granted
|
571,530
|
|
|
$
|
28.59
|
|
|
RSUs vested
|
(58,156
|
)
|
|
$
|
24.89
|
|
|
RSUs forfeited
|
(62,468
|
)
|
|
$
|
24.94
|
|
|
Balance, September 30,
2019
|
450,906
|
|
|
$
|
29.57
|
|
2016 Employee Stock Purchase Plan
The Company's
2016 Employee Stock Purchase Plan, or the 2016 ESPP, was adopted on
July 19, 2016 and commenced on May 1, 2018. The Company
initially reserved 210,000
shares of common
stock for issuance under the 2016 ESPP. The number of shares
reserved for issuance under the 2016 ESPP increases automatically
on January 1 of each calendar year through January 1, 2028
by the number of
shares equal to 1%
of the total
outstanding shares of the Company’s common stock as of the
immediately preceding December 31.
Under the 2016
ESPP, employees may purchase common stock through payroll
deductions at a price equal to 85%
of the lower of
the fair market value at the beginning of the offering period or at
the end of each applicable purchase period. The 2016 ESPP generally
provides for offering periods of six
months in duration with purchase
periods ending on either May 15 or November 15. Contributions under
the 2016 ESPP are limited to a maximum of 15%
of an employee’s
eligible compensation and purchases are settled with common stock
from the ESPP’s previously authorized and available pool of shares.
The expense for the three and nine
months
ended September 30,
2019 was
based on the fair value of rights granted upon the commencement of
an offering and calculated using the following assumptions: for the
three and nine months ended September 30, 2019 expected term in
years was 0.5;
volatility was 54.6%
and
54.6-62.2%, respectively; the risk-free
interest rate was 2.4%
and
2.4-2.5%, respectively; and
no
dividend
yield.
The Company did
not record a federal or state income tax provision or benefit for
the three
and nine months ended
September 30,
2019 and 2018 as it has incurred net losses
since inception. In addition, the net deferred tax assets generated
from net operating losses have been fully reserved as the Company
believes it is not more likely than not that the benefit will be
realized.
Under Topic 842,
operating lease expense is generally recognized evenly over the
term of the lease. The Company has various non-cancelable lease
agreements for our office and manufacturing spaces with lease
periods expiring between 2023 and 2027. The Company’s lease terms
may include options to extend or terminate the leases. The lease
term represents the period up to the early termination date unless
it is reasonably certain that the Company will not exercise the
early termination option. For certain leases, the Company has
options to extend the lease term for additional periods ranging
from five to eight
years. These renewal options are
not considered in the remaining lease term unless it is reasonably
certain that the Company will exercise such options. Certain leases
include rental payments that are adjusted periodically based on
changes in consumer price and other indexes.
For the
three and
nine months ended September 30,
2019, the Company recorded operating lease costs of
$1.5
million and $4.4
million, respectively. Under the
terms of the lease agreements, the Company is also responsible for
certain variable lease payments that are not included in the
measurement of the lease liability. Variable lease costs for the
three and nine months ended September 30, 2019 were
$0.2
million and $0.7
million, respectively, primarily
related to common area maintenance, taxes, utilities and insurance
with the Company's operating leases. Cash paid for amounts included
in the measurement of operating lease liabilities for the three and
nine months ended September 30, 2019 were $1.6
million and $4.4
million, respectively.
As of
September 30,
2019,
maturities of lease liabilities for the following five fiscal years
and thereafter were as follows (in thousands except lease term and
discount rate):
|
|
|
|
|
|
|
Amount
|
|
Remainder of
2019
|
$
|
1,627
|
|
|
2020
|
6,692
|
|
|
2021
|
6,901
|
|
|
2022
|
7,130
|
|
|
2023
|
5,847
|
|
|
Thereafter
|
13,582
|
|
|
Total lease
payments
|
41,779
|
|
|
Less:
|
|
|
Imputed interest
|
(11,714
|
)
|
|
Tenant improvement not yet
received
|
(176
|
)
|
|
Present value of operating
lease liabilities
|
$
|
29,889
|
|
|
Current operating lease
liabilities
|
$
|
3,399
|
|
|
Operating lease liabilities -
long-term
|
$
|
26,490
|
|
|
|
|
|
Weighted-average remaining
lease term (in years)
|
6.1
|
|
|
Weighted-average discount
rate
|
11.0
|
%
|
As the Company
elected to apply the provisions of Topic 842 on a
prospective basis, the following comparative period disclosure is
being presented in accordance with Topic 840. The future
minimum commitments under the Company's leases as of December 31,
2018, were as follows:
|
|
|
|
|
|
|
Amount
|
|
|
(in thousands)
|
|
2019
|
$
|
6,073
|
|
|
2020
|
6,692
|
|
|
2021
|
6,901
|
|
|
2022
|
7,130
|
|
|
2023
|
5,847
|
|
|
Thereafter
|
13,024
|
|
|
Total minimum lease
payments
|
$
|
45,667
|
|
Basic net loss
per share is calculated by dividing net loss by the
weighted-average number of common shares outstanding during the
period and excludes any potential dilutive effects of common stock
equivalents. Diluted net loss per share is computed giving effect
to all potential dilutive common shares, including common stock
issuable upon exercise of stock options, convertible preferred
stock, and unvested restricted common stock. As the Company had net
losses for the three and nine
months
ended September 30,
2019 and 2018, all potential common shares
were determined to be anti-dilutive and were therefore excluded
from the calculation of diluted net loss per share.
The following
table sets forth the computation of basic and diluted net loss per
share of common stock during the three and nine
months
ended September 30,
2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in thousands, except per share data)
|
|
Net loss
|
$
|
(45,741
|
)
|
|
$
|
(36,291
|
)
|
|
$
|
(139,896
|
)
|
|
$
|
(93,229
|
)
|
|
Weighted-average number of
shares used in computing
net loss
per share
|
45,543,354
|
|
|
37,359,877
|
|
|
44,538,676
|
|
|
36,302,803
|
|
|
Net loss per share, basic and
diluted
|
$
|
(1.00
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(3.14
|
)
|
|
$
|
(2.57
|
)
|
|
|
|
|
|
|
|
|
|
The following
outstanding shares of common stock equivalents were excluded from
the computation of diluted net loss per share of common stock for
the periods presented because including them would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
Stock options to purchase
common stock
|
5,111,728
|
|
|
5,029,052
|
|
|
Restricted stock
units
|
450,906
|
|
|
—
|
|
|
|
5,562,634
|
|
|
5,029,052
|
|
|
|
|
|
|
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE ABOUT
FORWARD-LOOKING STATEMENTS
This quarterly
report contains forward-looking statements. All statements other
than statements of historical fact are “forward-looking statements”
for purposes of this Quarterly Report on Form 10-Q. These
forward-looking statements may include, but are not limited to,
statements regarding our future results of operations and financial
position, business strategy, market size, potential growth
opportunities, timing and results of preclinical and clinical
development activities, and potential regulatory approval and
commercialization of product candidates. In some cases, forward
looking-statements may be identified by terminology such as
“believe,” “may,” “will,” “should”, “predict”, “goal”, “strategy”,
“potentially,” “estimate,” “continue,” “anticipate,” “intend,”
“could,” “would,” “project,” “plan,” “expect,” “seek” and similar
expressions and variations thereof. These words are intended to
identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and
projections about future events and trends that we believe may
affect our financial condition, results of operations, business
strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions,
including those described in the “Risk Factors” section and
elsewhere in this Quarterly Report on Form 10-Q. Moreover, we
operate in a very competitive and rapidly changing environment, and
new risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of
all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
we may make. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed
in this report may not occur and actual results could differ
materially and adversely from those anticipated or implied in the
forward-looking statements.
Investors should
not rely upon forward-looking statements as predictions of future
events. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee that
the future results, levels of activity, performance or events and
circumstances reflected in the forward-looking statements will be
achieved or occur. We undertake no obligation to update publicly
any forward-looking statements for any reason after the date of
this report to conform these statements to actual results or to
changes in our expectations, except as required by
law.
As used in this
Quarterly Report on Form 10-Q, the terms “Audentes,” “the Company,”
“we,” “us,” and “our” refer to Audentes Therapeutics, Inc. and,
where appropriate, its consolidated subsidiaries, unless the
context indicates otherwise.
Investors should
read the following discussion and analysis of our financial
condition and results of operations together with our unaudited
condensed consolidated financial statements and related notes
included in Part I, Item 1 of this report and with our audited
consolidated financial statements and related notes thereto for the
year ended December 31,
2018,
included in our Annual Report on Form 10-K.
Business
Overview
We
are a leading AAV-based genetic medicines company focused on
developing and commercializing innovative products for patients
living with serious rare neuromuscular diseases. We are leveraging
our adeno-associated viral, or AAV, gene therapy technology
platform and proprietary manufacturing expertise to develop
programs across three modalities: gene replacement, vectorized exon
skipping and vectorized RNA knockdown.
We
have built a compelling portfolio of product candidates, including
AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM;
AT845 for Pompe disease; AT702, AT751 and AT753 for Duchenne
muscular dystrophy, or DMD; and AT466 for myotonic dystrophy type
1, or DM1. We are completing enrollment in the pivotal expansion
cohort of ASPIRO, a clinical trial of our most advanced product
candidate, AT132, and plan to submit a biologics license
application, or BLA, with the U.S. Food and Drug Administration, or
FDA, for AT132 in mid-2020, and a marketing authorization
application, or MAA, with the European Medicines Agency, or EMA, in
the second half of 2020. In our Pompe disease program, we submitted
our Investigational New Drug, or IND, application for AT845 to the
FDA in September 2019. The FDA’s review of our submission is
ongoing. In our DMD program, we are collaborating with Nationwide
Children’s Hospital, or Nationwide Children’s, to develop AT702, a
vectorized exon skipping product candidate designed to induce exon
2 skipping in DMD patients with duplications of exon 2 and
mutations in exons 1-5 of the dystrophin gene. We plan to submit an
IND for AT702 in the first quarter of 2020. Separate from the
Nationwide Children’s collaboration, we are conducting preclinical
work to advance AT751 and AT753, vectorized exon skipping product
candidates to treat DMD patients with genotypes amenable to exon 51
and exon 53 skipping. In combination, we estimate that AT702, AT751
and AT753 may have the potential to address more than 25% of DMD
patients, and we plan to leverage our vectorized exon skipping
platform to develop additional product candidates with the
potential to address up to 80% of DMD patients over time. We are
also working with Nationwide Children’s to evaluate vectorized RNA
knockdown and vectorized exon skipping to treat DM1. Preclinical
vector screening studies are underway, and we expect to submit an
IND for AT466 in 2020. We maintain full global rights to all of our
product candidates.
We
have developed a proprietary in-house current Good Manufacturing
Practices, or cGMP, capability to produce our product candidates,
providing us with a core strategic capability, and enabling more
control over development timelines, costs and intellectual
property. Our manufacturing facility is located in South San
Francisco, California and supports our process and analytical
development, fill-finish, quality control testing and manufacturing
operations in accordance with cGMP requirements. We have designed
and commissioned the facility to support the unique licensing
requirements of both the FDA and EMA and we have initiated BLA
readiness and validation activities for our XLMTM program.
Operating at a 2x500-liter scale, we believe our current
manufacturing capacity is sufficient to meet the anticipated global
commercial demands of our XLMTM program, and the near-term
development needs of our other product candidates. In addition to
our vector manufacturing capabilities, we have invested in a
state-of-the-art, internal plasmid manufacturing facility to
support production of nonclinical and cGMP-grade plasmids for all
of our development programs, including the potential
commercialization of AT132. We plan to continue investment in our
manufacturing capabilities to enable the cost-effective production
of high-quality AAV vectors to support our clinical development and
commercialization activities.
Recent Developments
AT132 for X-Linked Myotubular Myopathy
In
October 2019, we presented new positive interim data from ASPIRO at
the 24th International Annual Congress of the World Muscle Society.
The newly reported data include safety and efficacy assessments as
of the August 7, 2019 data cut-off date for 12 patients enrolled in
the ASPIRO dose escalation cohorts. The data include 48 weeks or
more of follow-up for seven patients enrolled in Cohort 1
(1x1014
vector genomes
per kilogram (vg/kg); six treated and one untreated control) and
24-48 weeks of follow-up for five patients in Cohort 2
(3x1014
vg/kg; four
treated and one untreated control). Key assessments include
neuromuscular function as assessed by the achievement of motor
milestones and improvement in CHOP INTEND score, and respiratory
function as assessed by reduction in ventilator dependence and
improvement in maximal inspiratory pressure. The newly reported
data do not include new muscle biopsy data. Patients receiving
AT132 have achieved significant and durable reductions in
ventilator dependence, an endpoint considered to be closely
correlated with morbidity and mortality in XLMTM patients. To date,
the first seven patients treated (all six treated patients in
Cohort 1 and the first patient treated in Cohort 2) have achieved
ventilator independence. All treated patients were making progress
against clinically meaningful developmental milestones with four
patients walking with support or alone. AT132 was generally
well-tolerated and showed a manageable safety profile across both
dose groups. Since the last data update in May 2019, there has been
one new serious adverse event, or SAE, in Cohort 2, an episode of
joint swelling that resolved without treatment. Results to date
indicate no clinically meaningful differences in the safety and
tolerability profile of AT132 between the 1x1014
vg/kg and
3x1014
vg/kg dose
cohorts.
Next steps in
the AT132 development program include the completion of enrollment
and follow-up of patients in the ASPIRO pivotal expansion cohort,
designed to confirm the safety and efficacy profile of AT132 at a
dose of 3x1014
vg/kg, and
preparations for filing of a BLA for AT132 in the United States
planned in mid-2020 and filing of a MAA in Europe planned for the
second half of 2020.
AT845 for Pompe disease
In
September 2019 we submitted our IND for AT845 to the FDA. The FDA’s
review of our submission is ongoing, and in parallel we are
progressing our clinical trial site start-up activities in
anticipation of starting a Phase 1/2 clinical study in the first
quarter of 2020.
License Agreements
We have built our
portfolio of product candidates in part by engaging in license and
collaboration agreements as well as strategic transactions with
third parties. In July 2013, we entered into a license agreement
with REGENXBIO Inc., or REGENXBIO, pursuant to which we obtained
intellectual property rights related to AT132 and AT845. Under this
arrangement, we are contractually committed to certain payments
including (i) up to $8.8 million in combined development and
regulatory milestone fees for each indication and each licensed
product; (ii) up to $45.0 million in combined commercial milestone
fees based on various annual aggregate net sales thresholds; and
(iii) certain royalty payments.
Financial Overview
Since our
inception, we have devoted substantially all of our resources to:
identifying, acquiring, and developing our product candidate
portfolio; organizing and staffing our company; raising capital;
developing our manufacturing capabilities; and providing general
and administrative support for these operations. We have never
generated revenue and have incurred significant net losses since
inception. We do not expect to receive any revenue from any product
candidates that we develop until we obtain regulatory approval and
commercialize our product candidates or enter into collaborative
agreements with third parties. Our net losses were $128.8 million,
$90.2 million and $59.7 million for the years ended December 31,
2018, 2017 and 2016, respectively, and $139.9 million
for the
nine months ended
September 30, 2019. As of September 30,
2019, we
had an accumulated deficit of $459.4
million.
We expect to incur significant expenses and increasing operating
losses for the foreseeable future. We anticipate that our expenses
will increase substantially as we:
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•
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invest
significantly to further develop and seek regulatory and marketing
approvals for our existing and future product
candidates;
|
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|
•
|
continue to
develop our proprietary in-house manufacturing facility and
capabilities;
|
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•
|
hire additional
clinical, scientific, management and administrative
personnel;
|
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•
|
ultimately
establish a sales, marketing and distribution infrastructure to
commercialize any drugs for which we may obtain marketing
approval;
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•
|
maintain, expand
and protect our intellectual property portfolio;
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•
|
further expand
our pipeline of potential product candidates;
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•
|
acquire or
in-license other assets and technologies; and
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•
|
add additional
operational, financial and management information systems and
processes to support our ongoing development efforts, any future
manufacturing or commercialization efforts and our administrative
and compliance obligations as a public company.
|
We have funded
our operations to date primarily from the issuance and sale of our
convertible preferred stock, and through the issuance and sale of
our common stock pursuant to public offerings. As of
September 30,
2019, we
had cash, cash equivalents and marketable securities of
$351.5
million.
To fund our
current operating plans, we will need additional capital, which we
may obtain through one or more equity offerings, debt financings or
other third-party funding, including potential strategic alliances
and licensing or collaboration arrangements. The amount and timing
of our future funding requirements will depend on many factors,
including the pace and results of our preclinical and clinical
development efforts. There can be no assurance that we will ever be
profitable or generate positive cash flow from operating
activities.
Financial
Operations Overview
Research and Development Expenses
Research and
development direct program expenses consist primarily of external
costs incurred for the development of our product candidates, which
include:
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•
|
expenses incurred
under agreements with consultants, third-party service providers
and investigative clinical trial sites that conduct research and
development activities on our behalf;
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•
|
laboratory and
vendor expenses related to the execution of preclinical studies and
clinical trials;
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|
•
|
costs related to
production of preclinical and clinical materials, including fees
paid to contract manufacturers and manufacturing input costs for
use in internal manufacturing processes; and
|
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•
|
costs related to
in-licensing of rights to develop and commercialize our product
candidate portfolio.
|
Personnel,
non-program and unallocated program expenses include costs
associated with activities performed by our internal research and
development organization and generally benefit multiple programs.
These costs are not allocated by product candidate and consist
primarily of:
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•
|
personnel costs,
which include salaries, bonuses, payroll taxes, benefits and
stock-based compensation expense;
|
|
|
|
•
|
facilities and
other expenses, which include expenses for rent and maintenance of
facilities, depreciation and amortization expense;
|
|
|
|
•
|
lab supplies and
equipment used for internal research and development
activities;
|
|
|
|
•
|
unallocated
manufacturing expenses; and
|
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|
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•
|
the change in
fair value of contingent acquisition consideration
payable.
|
We expense all
research and development costs in the periods in which they are
incurred. Costs for certain development activities are recognized
based on an evaluation of the progress to completion of specific
tasks performed by others using information and data provided to us
by our vendors, collaborators and third-party service providers.
Nonrefundable advance payments for goods or services to be received
in future periods for use in research and development activities
are deferred and capitalized. The capitalized amounts are then
expensed as the related goods are delivered and as services are
performed.
The largest
component of our operating expenses has historically been our
investment in research and development activities. We do not
allocate personnel and other costs, such as salaries, bonuses,
payroll taxes, benefits, stock-based compensation expense and
certain internal program costs, to product candidates on a
program-specific basis.
The following
table summarizes our research and development expenses incurred
during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
AT132 direct program
costs
|
$
|
4,835
|
|
|
$
|
7,311
|
|
|
$
|
18,736
|
|
|
$
|
14,380
|
|
|
AT845 direct program
costs
|
2,117
|
|
|
1,812
|
|
|
10,329
|
|
|
7,156
|
|
|
AT466 direct program
costs
|
325
|
|
|
—
|
|
|
945
|
|
|
—
|
|
|
AT702 direct program
costs
|
1,517
|
|
|
—
|
|
|
9,195
|
|
|
—
|
|
|
AT342 direct program
costs
|
179
|
|
|
992
|
|
|
1,123
|
|
|
3,774
|
|
|
Personnel, non-program, and
unallocated program costs(1)
|
28,663
|
|
|
19,803
|
|
|
74,444
|
|
|
50,847
|
|
|
Total research and
development expenses
|
$
|
37,636
|
|
|
$
|
29,918
|
|
|
$
|
114,772
|
|
|
$
|
76,157
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes $23,000 and $0.6 million
of costs related
to our AT307 program during the three and nine
months ended
September 30, 2018, respectively. In the first quarter of 2019, we
decided to seek a third-party to develop the AT307 program. The
costs we incurred for the AT307 program during the
three and
nine months ended September 30,
2019 were immaterial.
We expect our
research and development expenses to increase substantially for the
foreseeable future as we continue to invest in research and
development activities related to developing our product
candidates, including investments in manufacturing, as our programs
advance into later stages of development and as we conduct
additional clinical trials. The process of conducting the necessary
clinical research to obtain regulatory approval is costly and
time-consuming, and the successful development of our product
candidates is highly uncertain. As a result, we are unable to
determine the duration and completion costs of our research and
development projects or when and to what extent we will generate
revenue from the commercialization and sale of any of our product
candidates.
General and Administrative Expenses
General and
administrative expenses consist primarily of personnel costs,
facilities costs, including rent and maintenance of facilities,
depreciation and amortization expense and other expenses for
outside professional services, including commercial, legal, human
resources, audit and accounting services. Personnel costs consist
of salaries, bonuses, payroll taxes, benefits and stock-based
compensation expense. We expect our general and administrative
expenses to increase in the future due to anticipated increases in
headcount and professional services to prepare for the
commercialization of AT132, further advance our pipeline and as a
result of our operations as a public company, including expenses
related to compliance with the rules and regulations of the SEC,
Nasdaq, and other governing bodies in addition to insurance
expenses, investor relations activities and other administration,
accounting and professional services.
Interest Income, Net
Interest income
consists of interest earned on our cash, cash equivalents and
investments, and amortization of premiums or discounts from our
marketable securities.
Other Expense, Net
Other expense,
net primarily consists of gains and losses on disposals of property
and equipment, investment management fees and foreign currency
transaction gains and losses incurred during the
period.
Critical
Accounting Policies and Estimates
Our management’s
discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which
have been prepared in accordance with United States generally
accepted accounting principles, or U.S. GAAP. The preparation of
these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported
expenses incurred during the reporting periods. Our estimates are
based on our historical experience and on various other factors
that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the accounting
policies related to business combinations and contingent
consideration payable are critical to understanding our historical
and future performance, as these policies relate to the more
significant areas involving management’s judgments and
estimates.
Our critical
accounting policies and estimates are detailed in the Management’s
Discussion and Analysis of Financial Condition and Operations
included in our Annual Report on Form 10-K for the year
ended December 31,
2018.
Significant changes to our accounting policies as a result of
adopting Topic 842, Leases,
are discussed in Note 2, Summary of
Significant Accounting Policies, to the Unaudited Interim
Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
Except as
described in Note 2, Summary of
Significant Accounting Policies, to the Unaudited Interim
Condensed Consolidated Financial Statements, there have been no new
accounting pronouncements or changes to accounting pronouncements
during the nine months ended September
30, 2019,
as compared to the recent accounting pronouncements described in
our Annual Report on Form 10-K for the year ended
December 31,
2018, that
are significant to us.
Results of
Operations
Comparison of the Three Months Ended
September 30, 2019
and
2018
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
Change
|
|
|
(in thousands)
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$
|
37,636
|
|
|
$
|
29,918
|
|
|
$
|
7,718
|
|
|
General and
administrative
|
10,189
|
|
|
7,817
|
|
|
2,372
|
|
|
Total operating
expenses
|
47,825
|
|
|
37,735
|
|
|
10,090
|
|
|
Loss from
operations
|
(47,825
|
)
|
|
(37,735
|
)
|
|
(10,090
|
)
|
|
Interest income,
net
|
2,112
|
|
|
1,509
|
|
|
603
|
|
|
Other expense,
net
|
(28
|
)
|
|
(65
|
)
|
|
37
|
|
|
Net loss
|
$
|
(45,741
|
)
|
|
$
|
(36,291
|
)
|
|
$
|
(9,450
|
)
|
|
|
|
|
|
|
|
Research
and Development
Research and
development expenses increased by $7.7
million,
or 26%, to $37.6 million
for the
three months
ended September 30, 2019. The increase was primarily
the result of a $2.9 million
increase for
facilities and overhead related costs primarily due to increased
headcount and investment in manufacturing, a $2.1 million
increase in
personnel costs, a $1.4 million
increase in
license and milestone payments related to our licensing agreements,
a $0.8
million increase in consulting and
professional services, a $0.7 million
increase in
manufacturing expense, a $0.4 million
increase for
non-cash stock-based compensation expense due to increased
headcount that resulted in higher number of outstanding equity
awards, and a $0.2 million
increase in
preclinical research, partially offset by a decrease of
$0.8
million for clinical trial
cost.
Our AT132 program
expenses decreased by $2.5 million
as compared to
the same period in 2018 mainly due to fewer runs of study materials
for the AT132 program as we provided production capacity to support
other programs. Our AT845 program expenses increased by
$0.3
million as
we increased manufacturing of study materials and incurred
additional consulting and initiation costs in preparation for
planned clinical trials. In connection with the
in-licensing of AT702, we incurred $1.5 million
in development
expense during the three months ended September
30, 2019.
Additionally, we initiated development activities for our AT466
program and incurred $0.3 million
in related
expense during the three months ended September
30, 2019.
General and
Administrative
General and
administrative expenses increased by $2.4
million,
or 30%, to $10.2 million
for the
three months
ended September 30, 2019. The increase was primarily
the result of a $1.0 million
increase in
personnel due to an increased headcount, a $0.6 million
increase in
stock-based compensation expense due to increased headcount that
resulted in higher number of outstanding equity awards, a
$0.4
million increase in facilities and
overhead related costs, and a $0.3 million
increase in
consulting expense and professional services.
Interest
Income, Net
Interest income,
net increased by $0.6
million,
or 40%, to $2.1 million
for the
three months
ended September 30, 2019, primary due to a higher
cash balance as compared to the three months ended September
30, 2018 and our investment of funds
received from our public equity offerings in fixed-income
securities.
Comparison of the
nine months ended September 30, 2019
and
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
Change
|
|
|
(in thousands)
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$
|
114,772
|
|
|
$
|
76,157
|
|
|
$
|
38,615
|
|
|
General and
administrative
|
31,960
|
|
|
20,617
|
|
|
11,343
|
|
|
Total operating
expenses
|
146,732
|
|
|
96,774
|
|
|
49,958
|
|
|
Loss from
operations
|
(146,732
|
)
|
|
(96,774
|
)
|
|
(49,958
|
)
|
|
Interest income,
net
|
6,937
|
|
|
3,662
|
|
|
3,275
|
|
|
Other expense,
net
|
(101
|
)
|
|
(117
|
)
|
|
16
|
|
|
Net loss
|
$
|
(139,896
|
)
|
|
$
|
(93,229
|
)
|
|
$
|
(46,667
|
)
|
|
|
|
|
|
|
|
Research
and Development
Research and
development expenses increased by $38.6
million,
or 51%, to $114.8 million
for the
nine months ended
September 30, 2019. The increase was primarily
the result of a $9.8 million
increase in
manufacturing expense for clinical materials and supplies to
support our clinical trials and research and development efforts,
a $8.0
million increase in license and
milestone payments, primarily due to the in-licensing of AT702,
a $6.9
million increase in personnel costs,
a $6.8
million increase for facilities and
overhead related costs primarily due to increased headcount and
investment in manufacturing, a $2.5 million
increase for
non-cash stock-based compensation
expense due to increased headcount that resulted in higher number
of outstanding equity awards, a $2.4 million
increase in
consulting and professional services, and a $0.4 million
increase in
clinical trials cost, partially offset by a decrease of
$0.5
million for preclinical research.
Additionally, during the nine months ended September 30, 2018, we
revised our estimated probability and timing for triggering a
milestone payment pursuant to the Cardiogen acquisition agreement
that resulted in a $2.3 million decrease to the estimated fair
value of the contingent liability and a related $2.3 million
reduction of research and development expense.
Our AT132 and
AT845 program expenses increased by $4.4 million
and
$3.2
million,
respectively, as we conducted our ASPIRO clinical trial and
increased manufacturing of clinical materials and incurred
additional consulting and initiation costs in preparation for
planned clinical trials. In connection with the
in-licensing of AT702, we incurred a one-time license fee of
$7.0
million and $2.2 million
in development
expense during the nine months ended September
30, 2019.
Additionally, we initiated development activities for our AT466
program and incurred $0.9 million
in related
expense during the nine months ended September
30, 2019.
General and
Administrative
General and
administrative expenses increased by $11.3
million,
or 55%, to $32.0 million
for the
nine months ended
September 30, 2019. The increase was primarily
the result of a $4.4 million
increase in
personnel due to an increased headcount, a $2.7 million
increase in
stock-based compensation expense due to increased headcount that
resulted in higher number of outstanding equity awards, a
$2.6
million increase for facilities and
overhead related costs to support our continued growth, and
a $1.6
million increase in consulting
expense and professional services.
Interest
Income, Net
Interest income,
net increased by $3.3
million,
or 89%, to $6.9 million
for the
nine months ended
September 30, 2019, primary due to a higher
cash balance as compared to the nine months ended September
30, 2018 and our investment of funds
received from our public equity offerings in fixed-income
securities.
Liquidity,
Capital Resources and Plan of Operations
We are not
profitable and have incurred losses and negative cash flows from
operations each year since our inception. Our operations have been
financed primarily by net proceeds from the sale and issuance of
convertible preferred stock and common stock.
Common Stock Sales Agreement
In March 2018, we
filed an automatic universal shelf registration statement. Pursuant
to the registration statement, we entered into an “at-the-market”
program and sales agreement, or ATM, with Cowen and Company, LLC.,
or Cowen, under which we may, from time to time, offer and sell
common stock having an aggregate offering value of up to $150.0
million. Upon delivery of a placement notice and subject to the
terms and conditions of the sales agreement, Cowen would use its
commercially reasonable efforts to sell the shares from time to
time, based upon our instructions. Sales of our common stock, if
any, would be made at market prices by any method that is deemed to
be an “at the market offering” as defined in Rule 415 under the
Securities Act of 1933, as amended, including sales made directly
on Nasdaq or any other existing trading market for the common
stock, at market prices or as otherwise agreed with Cowen. Under
the sales agreement, Cowen would be entitled to a commission of up
to 3.0% of the gross proceeds per share sold. We have no obligation
to sell any shares under the sales agreement and may, at any time,
suspend offers under the sales agreement or terminate the sales
agreement by giving written notice as specified in the sales
agreement. During the nine months ended September
30, 2019,
we sold 1,421,151 shares of common stock under
the ATM for aggregate net proceeds of $54.4
million.
As of September 30, 2019, there was approximately
$78.6
million (excluding commissions)
available for future sales pursuant to the ATM.
Our primary use
of cash is to fund operating expenses, which consist of research
and development expenditures and general and administrative
expenditures. Cash used to fund operating expenses is impacted by
the timing of when we pay these expenses, as reflected in the
change in our outstanding accounts payable and accrued
expenses.
We believe that
our existing cash, cash equivalents and investments will be
sufficient to meet our anticipated cash and capital expenditure
requirements through at least the next 12 months from the issuance
of the September 30, 2019 financial statements. We have based this
estimate on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we currently
expect. We will continue to require additional financing to advance
our product candidates through clinical development, to develop,
acquire or in-license other potential product candidates and to
fund operations for the foreseeable future. We will continue to
seek funds through one or more equity offerings, debt financings or
other third-party funding, including potential strategic alliances
and licensing or collaboration arrangements. Adequate additional
funding may not be available to us on acceptable terms, or at all.
Any failure to raise capital as and when needed could have a
negative impact on our financial condition and on our ability to
pursue our business plans and strategies.
Further, our
operating plans may change, and we may need additional funds to
meet operational needs and capital requirements for clinical trials
and other research and development and manufacturing activities. We
currently have no credit facility or committed sources of capital.
Because of the numerous risks and uncertainties associated with the
development and commercialization of our product candidates, we are
unable to estimate the amounts of increased capital outlays and
operating expenditures associated with our current and anticipated
product development programs.
If we do raise
additional capital through public or private equity offerings, the
ownership interest of our existing stockholders will be diluted,
and the terms of these securities may include liquidation or other
preferences that adversely affect our stockholders’ rights. If we
raise additional capital through debt financing, we may be subject
to financial covenants and covenants limiting or restricting our
ability to take specific actions, such as incurring additional
debt, making capital expenditures, entering into licensing
agreements or other collaboration arrangements with respect to our
intellectual property or other assets or declaring dividends. If
additional funding is required, there can be no assurance that
additional funds will be available to us on acceptable terms on a
timely basis, if at all. If we are unable to raise capital, we will
need to curtail planned activities to reduce costs. Doing so will
likely have an unfavorable effect on our ability to execute our
business plans.
The following
table summarizes our cash flows for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Cash used in operating
activities
|
$
|
(118,917
|
)
|
|
$
|
(79,495
|
)
|
|
Cash used in investing
activities
|
(24,769
|
)
|
|
(90,146
|
)
|
|
Cash provided by financing
activities
|
62,927
|
|
|
234,923
|
|
|
Net (decrease)
increase in cash, cash equivalents and restricted cash
|
$
|
(80,759
|
)
|
|
$
|
65,282
|
|
|
|
|
|
|
Cash Flows from Operating Activities
Cash used in
operating activities for the nine months ended September
30, 2019 was $118.9
million.
Our net loss was $139.9
million,
which was partially offset by noncash charges of
$22.3
million,
consisting primarily of $17.3 million
of stock-based
compensation expense, $5.7 million
of depreciation
and amortization expense and $2.0 million
of amortization
of right-of-use assets, offset by $2.9 million
primarily related
to the accretion of discounts on marketable securities. The changes
in net operating assets and liabilities were primarily the result
of a decrease in prepaid expenses and current assets of
$0.6
million,
an increase of $1.4 million
in other assets,
an increase of $0.1 million
in accounts
payable and an increase of $1.5 million
in accrued
liabilities. These changes are primarily based on timing of
invoicing by our vendors and payments from us to them. In addition,
we recorded a decrease of $2.1 million
related to our
operating lease liabilities.
Cash used in
operating activities for the nine months ended September 30,
2018 was $79.5 million. Our net loss was $93.2 million, which was
partially offset by noncash charges of $13.0 million, consisting
primarily of $12.1 million of stock-based compensation expense and
$3.9 million of depreciation and amortization expense, offset by
$0.9 million related to the accretion of discounts on marketable
securities and a $2.3 million reduction in the fair value of the
contingent acquisition consideration liability. The change in our
net operating assets was primarily the result of an increase in
prepaid expenses of $1.2 million, payment of a $3.2 million lease
security deposit and a $0.7 million decrease in accounts payable
offset by an increase of $4.6 million in accrued liabilities. These
increases in prepaid expenses and accrued liabilities are based on
timing of invoicing for services, primarily for research and
development expenses.
Cash Flows from Investing Activities
Cash used in
investing activities was $24.8 million
for the
nine months ended
September 30, 2019, primarily due to purchases
of investments of $396.1 million
and purchases of
property, equipment and leasehold improvements of
$10.0
million,
offset by the proceeds of $381.4 million
from the
maturities of investments.
Cash used in
investing activities was $90.1 million for the nine months ended
September 30, 2018, primarily due to purchases of marketable
securities of $210.0 million and purchases of property and
equipment and leasehold improvements of $8.1 million, partially
offset by the sale or maturity of marketable securities of $127.9
million.
Cash Flows from Financing Activities
Cash provided by
financing activities for the nine months ended September
30, 2019 was related to proceeds
of $9.4
million from the exercise of stock
options and purchases under the 2016 ESPP and $54.4 million
in net proceeds
from the ATM, offset by $0.8 million
in withholding
taxes paid for the net share settlement of equity
awards.
Cash provided by
financing activities for the nine months ended September 30,
2018 was related to net proceeds from our follow-on offering of
$217.1 million and from the ATM of $14.6 million, net of
underwriting discounts, commissions and
offering costs, and proceeds
from the exercise of stock options of $3.2 million
Off-Balance
Sheet Arrangements
At
September 30,
2019, we
were not a party to any off-balance sheet arrangements that have,
or are reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or
capital resources.
Contractual
Obligations and Other Commitments
Lease Agreements
There were no
significant changes to our lease agreements during the
nine months ended
September 30, 2019 as compared to our previous
disclosure in our Annual Report on Form 10-K for the year
ended December 31,
2018.
License and Collaboration Agreements
As of
September 30,
2019, the
Company is subject to contingent payments upon the achievement of
certain development, regulatory and commercial milestones, totaling
up to approximately $270.9 million
across all of its
licensing agreements. Of this amount, $74.0 million
relates
to the Company’s Crigler-Najjar
and CASQ2-CPVT programs, for
which the Company announced plans to explore outlicensing
opportunities to continue development activities.
Other Contracts
We also enter
into contracts in the normal course of business with various third
parties for services related to preclinical research studies,
clinical trials, testing, manufacturing and other services. These
contracts generally provide for termination upon notice, and
therefore we believe that our non-cancelable obligations under
these agreements are not material.
ITEM 3.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to
market risks in the ordinary course of our business. These risks
primarily include interest rate sensitivities. We had cash, cash
equivalents and investments of $351.5 million
and
$414.3
million as
of September 30,
2019 and December 31,
2018,
respectively, which consisted of bank deposits, money market funds
and marketable fixed income securities. Such interest-earning
instruments carry a degree of interest rate risk; however,
historical fluctuations in interest income have not been
significant for us. We had no debt outstanding as of
September 30,
2019 or December 31,
2018.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our management,
with the participation of our Chief Executive Officer and our Chief
Financial Officer, have evaluated our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act)
as of the end of the period covered by this Quarterly Report on
Form 10-Q. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective as of September 30,
2019.
Any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control
objective and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.
Changes in
Internal Control over Financial Reporting
During the third
quarter of 2019, we implemented a new enterprise resource planning,
or ERP, system. The new ERP system was designed and
implemented, in part, to enhance the overall system of internal
controls over financial reporting through further automation and
integration of business processes. In connection with the ERP
system implementation, we updated the processes that
constitute
our internal control over financial reporting, as
necessary, to accommodate related changes to our accounting
procedures and business processes.
Other than the
ERP system implementation, there were no changes in our internal
control over financial reporting identified in connection with the
evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange
Act that occurred during the quarter ended September 30, 2019, that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART
II
ITEM 1.
LEGAL PROCEEDINGS
We are not
currently a party to any pending material legal proceedings. From
time to time, we may become involved in legal proceedings arising
in the ordinary course of our business. Regardless of outcome,
litigation can have an adverse impact on us due to defense and
settlement costs, diversion of management resources, negative
publicity and reputational harm and other factors.
ITEM 1A.
RISK FACTORS
Investing
in our common stock involves a high degree of risk. Investors
should carefully consider the risks described below, as well as the
other information in this report, including our unaudited interim
condensed consolidated financial statements and the related notes
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” before deciding whether to invest in
our common stock. This list is not exhaustive and the order and
presentation does not reflect management’s determination of
priority or likelihood. The occurrence of any of the events or
developments described below could harm our business, financial
condition, results of operations and growth prospects. In such an
event, the market price of our common stock could decline, and
investors may lose all or part of their investment.
Risks
Related to Product Development and Regulatory Approval
We are early in our development efforts. If we are unable to
develop, obtain regulatory approval for and commercialize our
product candidates, or experience significant delays in doing so,
our business will be materially harmed.
We have invested
substantially all of our efforts and financial resources in the
identification and development of our AAV gene therapy technology
platform and our portfolio of product candidates, which target a
range of rare neuromuscular diseases, including X-Linked Myotubular
Myopathy, or XLMTM, Pompe disease, Duchenne muscular dystrophy, or
DMD, and myotonic dystrophy type 1, or DM1. Our ability to generate
product revenue, which we do not expect will occur for several
years, if ever, will depend heavily on the successful development
and eventual commercialization of our product candidates, which may
never occur. We currently generate no revenue from sales of any
product and we may never be able to develop or commercialize a
marketable product.
Each of our
programs and product candidates will require preclinical and
clinical development, regulatory approval in multiple
jurisdictions, obtaining preclinical, clinical and commercial
manufacturing supply, capacity and expertise, building of a
commercial organization, significant marketing efforts and
substantial investment to achieve all of the foregoing before we
generate any revenue from product sales. Our product candidates
must be authorized for marketing by the U.S. Food and Drug
Administration, or the FDA, or certain other foreign regulatory
agencies, such as the EMA, before we may commercialize our product
candidates.
The success of
our product candidates depends on multiple factors,
including:
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successful
completion of preclinical studies, including those compliant with
Good Laboratory Practices, or GLP, toxicology studies,
biodistribution studies and minimum effective dose studies in
animals;
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effective
investigational new drug applications, or INDs, or Clinical Trial
Authorizations, or CTAs, that allow commencement of our planned
clinical trials or future clinical trials for our product
candidates in relevant territories;
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successful
enrollment and completion of clinical trials compliant with current
Good Clinical Practices, or GCPs;
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positive results
from our clinical programs that are supportive of safety and
efficacy and provide an acceptable risk-benefit profile for our
product candidates in the intended patient
populations;
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receipt of
regulatory approvals from applicable regulatory
authorities;
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continued
successful development of our internal manufacturing processes,
including process development and scale-up activities to supply
drug product for preclinical studies, clinical trials and
commercial sale;
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establishment of
arrangements with third-party contract manufacturing organizations,
or CMOs, for key materials used in our manufacturing processes and
to establish backup sources for clinical and large-scale commercial
supply;
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establishment and
maintenance of patent and trade secret protection and regulatory
exclusivity for our product candidates;
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enforcement and
defense of intellectual property rights and claims;
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commercial launch
of our product candidates, if and when approved, whether alone or
in collaboration with others;
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acceptance of our
product candidates, if and when approved, by patients and the
medical community;
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our effective
competition against other therapies available in the
market;
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establishment and
maintenance of adequate reimbursement from third-party payors for
our products; and
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maintenance of a
continued acceptable safety profile of our product candidates
following approval.
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If we do not
succeed in one or more of these factors in a timely manner, or at
all, we could experience significant delays or an inability to
successfully commercialize our product candidates, which would
materially harm our business. If we do not receive regulatory
approvals for our product candidates, we may not be able to
continue our operations.
Success in early preclinical studies or clinical trials may not be
indicative of results obtained in later preclinical studies and
clinical trials and does not ensure regulatory approval of our
product candidates.
Though viral
vectors similar to ours have been evaluated by others in clinical
trials, our product candidates only recently entered into human
clinical trials, and we may experience unexpected or adverse
results in the future. We will be required to demonstrate through
adequate and well-controlled clinical trials that our product
candidates are safe and effective, with a favorable risk-benefit
profile, for use in their target indications before we can seek
regulatory approvals for their commercial sale. Trial designs and
results from previous trials are not necessarily predictive of our
future clinical trial designs or results, and if we report interim
safety and efficacy results from an ongoing clinical trial, we may
not be able to confirm these results upon full analysis of the
complete trial data. For example, in ASPIRO, an ongoing Phase 1/2
clinical trial of AT132 in XLMTM patients, we have reported
encouraging interim data. However, the interim dataset from ASPIRO
will differ from the final datasets upon which global regulatory
decisions will be based. Potential reasons for these differences
include, but are not limited to:
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interim datasets
may be comprised of a small number of patients, and the safety and
efficacy results from longer term follow-up in patients dosed
earlier in the study, or results from future patients, may not
replicate those early results;
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interim datasets
may be comprised of patients evaluated at a specific dose level,
whereas patients enrolled later in a study may receive higher doses
with unknown implications for safety and efficacy;
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not all patients
may demonstrate improvement;
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patients may
discontinue their involvement in ASPIRO for a number of reasons,
including disease progression or a lack of clinical benefit, and
discontinuations will impact the amount of data we collect over
time;
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additional time
and patient accrual provide new opportunities to capture new
adverse events and further characterize the safety and efficacy of
AT132; and
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the precise
composition of the final datasets is subject to ongoing regulatory
feedback, which is likely to continue up until the time of
submission of a BLA, or equivalent, and the advice may vary by
regulatory authority.
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In addition, the
safety and efficacy results we observe with our product candidates
in preclinical animal models may not be predictive of results from
our clinical trials in humans, or may not translate to humans until
higher doses are utilized, if at all.
Many companies in
the biotechnology industry have suffered significant setbacks in
late-stage clinical trials after achieving positive results in
early-stage development, and there is a high failure rate for
product candidates proceeding through clinical trials. Our product
candidates may fail in late-stage clinical development if they do
not show the desired safety and efficacy, even if they have
successfully advanced through initial clinical trials. In addition,
data obtained from preclinical studies and clinical trials are
subject to varying interpretations. If agencies such as the FDA or
EMA interpret data from our development programs differently than
we do, the regulatory approval of our product candidates may be
delayed, limited or prevented.
We cannot
commercialize a product candidate until the appropriate regulatory
authorities have reviewed and approved the product candidate for
licensure. Even if our product candidates meet their safety and
efficacy endpoints in clinical trials, the regulatory authorities
may not complete their review processes in a timely manner, or we
may not be able to obtain regulatory approval. Additional delays
may result if an FDA Advisory Committee or other regulatory
authority recommends non-approval or restrictions on approval. In
addition, we may experience delays or rejections based upon
additional government regulation from future legislation or
administrative action, or changes in regulatory authority policy
during the period of product development, clinical trials and the
review process.
Regulatory
authorities also may approve a product candidate for more limited
indications than requested, or they may impose significant
limitations in the form of narrow indications, warnings or a Risk
Evaluation and Mitigation Strategy, or REMS. These regulatory
authorities may require precautions or contra-indications with
respect to conditions of use or they may grant approval subject to
the performance of costly post-marketing clinical trials. In
addition, regulatory authorities may not approve the labeling
claims that are necessary or desirable for the successful
commercialization of our product candidates. Any of the foregoing
scenarios could materially harm the commercial prospects for our
product candidates and materially and adversely affect our
business, financial condition, results of operations and
prospects.
If we do not achieve our projected development goals in the time
frames we announce and expect, the commercialization of our product
candidates may be delayed and, as a result, our stock price may
decline.
From time to
time, we estimate the timing of the accomplishment of various
scientific, clinical, regulatory, manufacturing and other product
development goals, which we sometimes refer to as milestones. These
milestones may include the commencement or completion of
preclinical studies and clinical trials and the submission of
regulatory filings. From time to time, we may publicly announce the
expected timing of some of these milestones. All of these
milestones are, and will be, based on a variety of assumptions. The
actual timing of achieving these milestones can vary significantly
compared to our estimates, in some cases for reasons beyond our
control. We may experience numerous unforeseen events during, or as
a result of, any clinical trials that we conduct that could delay
or prevent our ability to receive marketing approval or
commercialize our product candidates, including:
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the FDA and other
governmental health authorities, Institutional Review Boards, or
IRBs, or ethics committees may not authorize or may delay
authorizing us or our investigators to commence a clinical trial or
conduct a clinical trial at all or at a prospective trial site,
such as by requiring us to conduct additional preclinical studies
and to submit additional data or imposing other requirements before
permitting us to initiate or continue a clinical trial. For
example, in early 2019 our collaborators at Nationwide Children’s
Hospital, or Nationwide Children’s, submitted an IND for AT702 to
treat DMD in patients with duplications of exon 2 and mutations in
exons 1-5 of the dystrophin gene, and the FDA requested additional
preclinical work prior to authorizing the initiation of clinical
development;
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we may experience
delays in reaching, or fail to reach, agreement on acceptable terms
with prospective trial sites and prospective contract research
organizations, or CROs, the terms of which can be subject to
extensive negotiation and may vary significantly among different
CROs and trial sites;
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clinical trials
of our product candidates may produce negative or inconclusive
results and we may decide, or regulators may require us, to conduct
preclinical studies in addition to those we currently have planned
or additional clinical trials or we may decide to abandon drug
development programs. For example, in April 2019 we met with the
FDA to discuss our plans for the ASPIRO pivotal expansion,
subsequent to which they provided feedback focused on endpoint
selection, study design and duration of post-treatment follow-up.
As to endpoint selection, the FDA agreed that our proposed primary
endpoint, change from baseline in hours of ventilation support over
time through week 24, is clinically meaningful. With regard to
study design, the pivotal expansion cohort includes eight patients,
consisting of four age-matched pairs, within plus or minus 6 months
of age, with one patient from each pair randomized to receive a
single dose of AT132 at 3x1014
vg/kg, and the
other to serve as a delayed treatment control. While the FDA
recommended we conduct a double-blind, placebo-controlled study,
our alternate design introduces multiple elements of control into
the pivotal expansion cohort to increase the overall rigor and
objectivity of the efficacy assessment, including one-to-one
randomization to treatment or delayed-treatment control study arms
to amplify power to assess treatment effect, age-matching to
control for functional improvement that could be attributed to a
subject’s age, and a ventilator weaning protocol that includes a
blinded review of all respiratory functional data by an independent
panel of pulmonologists to approve reductions in ventilator
support. We believe that these study design elements will allow for
the unbiased interpretation of data from the primary efficacy
endpoint and will address key aspects of FDA feedback. As to
duration of follow-up, the FDA recommended that in order to
demonstrate the efficacy and durability of AT132, an evaluation
period of at least one-year would be needed to assess the primary
efficacy endpoint. Based on data obtained in ASPIRO to date,
we believe 24 weeks will be sufficient to meet the primary
endpoint, and we are proceeding with our plans to conduct the
primary efficacy endpoint analysis 24 weeks post-treatment, by
which time the planned BLA filing will also include supportive data
out to 24 months from Cohort 1 patients and between approximately
twelve and 24 months from Cohort 2 patients. We believe that the
ASPIRO pivotal cohort, supported by data from earlier ASPIRO
cohorts, will be sufficient to demonstrate the safety, efficacy and
durability of AT132, but there can be no assurance that the FDA
will agree with the design of the ASPIRO pivotal cohort, or that
the data generated from the ASPIRO pivotal cohort will be
sufficient to receive regulatory approval for AT132 from the FDA or
any other regulatory authority;
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the number of
patients required for clinical trials of our product candidates may
be larger than we anticipate, enrollment in these clinical trials
may be slower than we anticipate, or participants may drop out of
these clinical trials or fail to return for post-treatment
follow-up at a higher rate than we anticipate;
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our third-party
suppliers and contractors may fail to comply with regulatory
requirements or meet their contractual obligations to us in a
timely manner, or at all, or may deviate from the clinical trial
protocol or drop out of the trial, which may require that we add
new clinical trial sites or investigators;
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we may elect to,
or regulators, IRBs or ethics committees may require that we or our
investigators, suspend or terminate clinical trials for various
reasons, including noncompliance with regulatory requirements or a
finding that the participants are being exposed to health
risks;
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the cost of
planned clinical trials of our product candidates may be greater
than we anticipate;
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the supply or
quality of our product candidates or other materials necessary to
conduct clinical trials of our product candidates may be
insufficient or inadequate; and
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our product
candidates may have undesirable side effects or other unexpected
characteristics, causing us or our investigators, regulators or
IRBs or ethics committees to suspend or terminate the trials, or
reports may arise from preclinical or clinical testing of other
gene therapy studies that raise safety or efficacy concerns broadly
about the field of gene therapy, or about our product candidates
specifically. For example, we previously reported at our May and
October 2019 ASPIRO updates that a series of adverse events have
occurred in ASPIRO, several of which have been deemed to be serious
and possibly or probably related to treatment with AT132.
Additionally, in January 2018, an academic gene therapy researcher
published results from non-GLP studies conducted in a small number
of non-human primates and piglets, utilizing AAV vectors with
different capsid serotypes and transgenes than those we use in our
product candidates. These publications cited concerns about the
potential risks of high systemic doses of AAV gene therapy
products. We have not observed similar results in any of our
non-clinical studies with our candidate vectors and continue to
conduct preclinical studies and clinical trials across our
portfolio of product candidates. If we observe unexpected safety
signals in these studies or trials, we may decide, or regulatory
authorities may require us, to delay or halt further development of
our product candidates.
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Our product candidates are based on a novel AAV gene therapy
technology with which there is limited clinical experience to date,
which makes it difficult to predict the time and cost of product
candidate development and subsequently obtaining regulatory
approval.
Our product
candidates are based on gene therapy technology and our future
success depends on the successful development of this novel
therapeutic approach. There can be no assurance that any
development problems we or other gene therapy companies experience
in the future related to gene therapy technology will not cause
significant delays or unanticipated costs in the development of our
product candidates, or that such development problems can be
solved. In addition, the clinical trial requirements of the FDA,
EMA and other regulatory agencies and the criteria these regulators
use to determine the safety and efficacy of a product candidate
vary substantially according to the type, complexity, novelty and
intended use and market of the potential products. The regulatory
approval process for novel product candidates such as ours can be
more expensive and take longer than for other, better known or
extensively studied therapeutic modalities. Further, as we are
developing novel treatments for diseases in which there is limited
clinical experience with new endpoints and methodologies, there is
heightened risk that the FDA, EMA or comparable foreign regulatory
bodies may not consider the clinical trial endpoints to provide
clinically meaningful results, and the resulting clinical data and
results may be more difficult to analyze. To date, only a limited
number of gene therapy products have been approved in the United
States and the European Union, or EU, which makes it difficult to
determine how long it will take or how much it will cost to obtain
regulatory approvals for our product candidates in those or other
jurisdictions. Further, approvals by one regulatory agency may not
be indicative of what other regulatory agencies may require for
approval.
Regulatory
requirements governing gene therapy products have evolved and may
continue to change in the future. For example, in July 2018, the
FDA issued a number of draft and final guidance documents for the
industry to describe the FDA’s current thinking with regard to the
regulatory framework for gene therapy development, including
guidance related to chemistry, manufacturing, and controls, or CMC,
information and clinical trial design parameters to support product
registration. These and other requirements and guidelines
promulgated by the FDA and other regulatory review agencies,
committees and advisory groups may lengthen the regulatory review
process, require us to perform additional preclinical studies or
clinical trials, increase our development costs, lead to changes in
regulatory positions and interpretations, delay or prevent approval
and commercialization of these treatment candidates or lead to
significant post-approval limitations or restrictions.
The FDA, the National Institutes of Health, or NIH, the EMA and
other regulatory agencies have demonstrated caution in their
regulation of gene therapy treatments, and ethical and legal
concerns about gene therapy and genetic testing may result in
additional regulations or restrictions on the development and
commercialization of our product candidates, which may be difficult
to predict.
The FDA, NIH,
other regulatory agencies at both the federal and state level in
the United States, U.S. congressional committees, and the EMA and
other foreign governments, have expressed interest in further
regulating the biotechnology industry, including gene therapy and
genetic testing. For example, the EMA advocates a risk-based
approach to the development of a gene therapy product. Any such
further regulation may delay or prevent commercialization of some
or all of our product candidates. For example, in 1999, a patient
died during a gene therapy clinical trial that utilized an
adenovirus vector and it was later discovered that adenoviruses
could generate an extreme immune system reaction that can be
life-threatening. In January 2000, the FDA halted that trial
and began investigating 69 other gene therapy trials underway in
the United States, 13 of which required remedial action. In 2003,
the FDA suspended 27 additional gene therapy trials involving
several hundred patients after learning that some patients treated
in a clinical trial in France had subsequently developed leukemia.
While the new AAV vectors that we use across our portfolio of
product candidates have been developed to reduce these side
effects, gene therapy is still a relatively new approach to disease
treatment and additional adverse side effects could
develop.
Regulatory
requirements in the United States and abroad governing gene therapy
products have changed frequently and may continue to change in the
future. Our planned clinical trials may be subject to review by the
NIH Office of Biotechnology Activities’ Recombinant DNA Advisory
Committee, or RAC, even though no reviews have been required to
date. As of April 2016, the new NIH Guidelines for Research
Involving Recombinant or Synthetic Nucleic Acid Molecules,
including gene therapy, provide the opportunity for one or more
oversight bodies (IRB or the Institutional Biosafety Committee, or
IBC) to request a public RAC review based on their own review of
the protocol and NIH requirements. Regardless of the
request for public review, NIH makes its own assessment as to
whether the protocol would significantly benefit from a public RAC
review. The NIH’s recommendations are shared with the FDA and the
oversight bodies. The RAC can delay the initiation of a clinical
trial, even if the FDA has reviewed the trial design and details
and has not objected to its initiation or has notified the sponsor
that the study may begin. Conversely, the FDA can put an IND on a
clinical hold even if the RAC has provided a favorable review or
has recommended against an in-depth, public review. If there is a
public RAC review, the receipt of the final recommendation letter
concludes the protocol registration process and then oversight body
approval can be issued. In addition, adverse developments in
clinical trials of gene therapy products conducted by others may
cause the FDA or other oversight bodies to change the requirements
for approval of any of our product candidates. Similarly, the EMA
governs the development of gene therapies in the EU and may issue
new guidelines concerning the development and marketing
authorization for gene therapy products and require that we comply
with these new guidelines.
These regulatory
review committees and advisory groups and the new guidelines they
promulgate may lengthen the regulatory review process, require us
to perform additional studies or trials, increase our development
costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of our product
candidates or lead to significant post-approval limitations or
restrictions. As we advance our product candidates, we will be
required to consult with these regulatory and advisory groups and
comply with applicable guidelines. If we fail to do so, we may be
required to delay or discontinue development of such product
candidates. These additional processes may result in a review and
approval process that is longer than we otherwise would have
expected. Delays as a result of an increased or lengthier
regulatory approval process or further restrictions on the
development of our product candidates can be costly and could
negatively impact our ability to complete clinical trials and
commercialize our current and future product candidates in a timely
manner, if at all.
Even if we complete the necessary clinical trials, we cannot
predict when, or if, we will obtain regulatory approval to
commercialize a product candidate and the approval may be for a
narrower indication than we seek.
Prior to
commercialization, our product candidates must be approved by the
FDA pursuant to a BLA in the United States and by the EMA and
similar regulatory authorities outside the United States. The
process of obtaining marketing approvals, both in the United States
and abroad, is expensive and takes many years, if approval is
obtained at all, and can vary substantially based upon a variety of
factors, including the type, complexity and novelty of the product
candidates involved. Failure to obtain marketing approval for a
product candidate will prevent us from commercializing the product
candidate. We have not received approval to market any of our
product candidates from regulatory authorities in any jurisdiction.
We have no experience in submitting and supporting the applications
necessary to gain marketing approvals, and, in the event regulatory
authorities indicate that we may submit such applications, we may
be unable to do so as quickly and efficiently as desired. Securing
marketing approval requires the submission of extensive preclinical
and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the
product candidate’s safety and efficacy. Securing marketing
approval also requires the submission of information about the
product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities. Our product candidates
may not be effective, may be only moderately effective or may prove
to have undesirable or unintended side effects, toxicities or other
characteristics that may preclude our obtaining marketing approval
or prevent or limit commercial use. Regulatory authorities have
substantial discretion in the approval process and may refuse to
accept any application or may decide that our data are insufficient
for approval and require additional preclinical studies or clinical
trials. In addition, varying interpretations of the data obtained
from preclinical and clinical testing could delay, limit or prevent
marketing approval of a product candidate.
Approval of our
product candidates may be delayed or refused for many reasons,
including:
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the FDA or
comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
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we may be unable
to demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that our product candidates are safe and
effective for any of their proposed indications;
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the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval;
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we may be unable
to demonstrate that our product candidates’ clinical and other
benefits outweigh their safety risks;
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the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical programs or clinical
trials;
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the data
collected from clinical trials of our product candidates may not be
sufficient to support the submission of a BLA or other comparable
submission in foreign jurisdictions or to obtain regulatory
approval in the United States or elsewhere;
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our manufacturing
facilities, or those of third-party manufacturers with which we
contract or procure certain services or raw materials, may not be
adequate to support approval of our product candidates;
and
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the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
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Even if our
product candidates meet their safety and efficacy endpoints in
clinical trials, the regulatory authorities may not complete their
review processes in a timely manner, or we may not be able to
obtain regulatory approval. Additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends
non-approval or restrictions on approval. In addition, we may
experience delays or rejections based upon additional government
regulation from future legislation or administrative action, or
changes in regulatory authority policy during the period of product
development, clinical trials and the review process.
Regulatory
authorities also may approve a product candidate for more limited
indications than requested or they may impose significant
limitations in the form of narrow indications, warnings or REMS.
These regulatory authorities may require precautions or
contra-indications with respect to conditions of use or they may
grant approval subject to the performance of costly post-marketing
clinical trials. In addition, regulatory authorities may not
approve the labeling claims that are necessary or desirable for the
successful commercialization of our product candidates. Any of the
foregoing scenarios could materially harm the commercial prospects
for our product candidates and materially and adversely affect our
business, financial condition, results of operations and
prospects.
Further, the
regulatory authorities may require concurrent approval or the CE
mark, indicating conformity with applicable European Community
directives, of a companion diagnostic device. For the product
candidates we currently are developing, we believe that diagnoses
based on symptoms, in conjunction with existing genetic tests
developed and administered by laboratories certified under the
Clinical Laboratory Improvement Amendments, are sufficient to
diagnose patients and will be permitted by the FDA. For future
product candidates, however, it may be necessary to use FDA-cleared
or FDA-approved diagnostic tests to diagnose patients or to assure
the safe and effective use of product candidates in trial subjects.
The FDA refers to such tests as in
vitro companion diagnostic
devices. In August 2014, the FDA issued a final guidance document
describing the agency’s current thinking about the development and
regulation of in
vitro companion diagnostic
devices. The final guidance articulates a policy position that,
when an in
vitro diagnostic device is
essential to the safe and effective use of a therapeutic product,
the FDA generally will require approval or clearance of the
diagnostic device at the same time that the FDA approves the
therapeutic product. At this point, it is unclear how the FDA will
apply this policy to our current or future gene therapy product
candidates. Should the FDA deem genetic tests used for diagnosing
patients for our therapies to be in
vitro companion diagnostics
requiring FDA clearance or approval, we may face significant delays
or obstacles in obtaining approval of a BLA for our product
candidates. In the EU, the European Commission has proposed
substantial revisions to the current regulations
governing in vitro diagnostic
medical devices. If adopted in their current form, these revisions
may impose additional obligations on us that may impact the
development and authorization of our product candidates in the
EU.
We may never obtain FDA approval for any of our product candidates
in the United States, and even if we do, we may never obtain
approval for or commercialize any of our product candidates in any
other jurisdiction, which would limit our ability to realize their
full market potential.
In order to
eventually market any of our product candidates in any particular
foreign jurisdiction, we must establish and comply with numerous
and varying regulatory requirements on a
jurisdiction-by-jurisdiction basis regarding safety and efficacy.
Approval by the FDA in the United States, if obtained, does not
ensure approval by regulatory authorities in other countries or
jurisdictions. In addition, clinical trials conducted in one
country may not be accepted by regulatory authorities in other
countries, and regulatory approval in one country does not
guarantee regulatory approval in any other country. Approval
processes vary among countries and can involve additional product
testing and validation and additional administrative review
periods. Seeking foreign regulatory approval could result in
difficulties and costs for us and require additional preclinical
studies or clinical trials which could be costly and
time-consuming. Regulatory requirements can vary widely from
country to country and could delay or prevent the introduction of
our products in those countries. The foreign regulatory approval
process involves all of the risks associated with FDA approval. We
do not have any product candidates approved for sale in any
jurisdiction, including international markets, and we do not have
experience in obtaining regulatory approval in international
markets. If we fail to comply with regulatory requirements in
international markets or to obtain and maintain required approvals,
or if regulatory approvals in international markets are delayed,
our target market will be reduced and our ability to realize the
full market potential of our products will be
unrealized.
Delays or disruptions in our manufacturing process development and
operations may delay or disrupt our development and
commercialization efforts.
We have invested
in our own state-of-the-art cGMP manufacturing facility in South
San Francisco, California, where we are developing and implementing
novel production technologies to supply our preclinical studies and
clinical trials. We believe that development of an internal
manufacturing capability provides us with enhanced control of
material supply for preclinical studies and clinical trials and
commercial markets, enables the more rapid implementation of
process changes and allows for better control over
manufacturing-associated expenses and intellectual property.
However, we have limited experience as a company in developing a
manufacturing facility and there exist only a small number of CMOs
with the experience necessary to manufacture our product
candidates. We may have difficulty hiring experts to staff and
operate our internal manufacturing facility or finding and
maintaining relationships with external CMOs and, accordingly, our
production capacity could be limited. Even if we are successful,
our manufacturing capabilities could be affected by cost-overruns,
unexpected delays, equipment failures, lack of capacity, delays in
implementation of novel in-house technologies or scale-up
activities, labor shortages, natural disasters, including
earthquakes, power failures and numerous other factors that could
prevent us from realizing the intended benefits of our
manufacturing strategy. The occurrence of any of these factors
could have a material adverse effect on our business, financial
condition, results of operations, and growth
prospects.
Before we may
initiate a clinical trial of our product candidates, we must
demonstrate to the FDA that the CMC for our product candidates
meets applicable requirements, and in the EU, a manufacturing
authorization must be obtained from the appropriate EU regulatory
authorities. In addition, we must pass a pre-approval inspection of
our manufacturing facility by the FDA before any of our product
candidates can obtain marketing approval. In order to obtain
approval, we will need to ensure that all of our processes, methods
and equipment are compliant with cGMPs and other regulations, and
perform extensive audits of vendors, contract laboratories and
suppliers. If we or any of our vendors, contract laboratories or
suppliers is found to be out of compliance with cGMPs or other
regulations, we may experience delays or disruptions in
manufacturing while we work to remedy the noncompliance, or while
we work to identify suitable replacement vendors. If we or our CMOs
are unable to reliably produce products to specifications
acceptable to the FDA or other regulatory authorities, we may not
obtain or maintain the approvals we need to commercialize such
products. Even if we obtain regulatory approval for any of our
product candidates, there is no assurance that either we or our
CMOs will be able to manufacture the approved product to
specifications acceptable to the FDA or other regulatory
authorities, to produce it in sufficient quantities to meet the
requirements for the potential launch of the product or to meet
potential future demand. Any of these challenges could delay
initiation of, or completion of, clinical trials, require bridging
clinical trials or the repetition of one or more clinical trials,
increase clinical trial costs, delay approval of our product
candidates, impair commercialization efforts, increase our cost of
goods and have an adverse effect on our business, financial
condition, results of operations and growth prospects.
We may not be successful in our efforts to build a pipeline of
additional product candidates.
Our business
model is centered on applying our AAV gene therapy technology
platform and expertise in rare neuromuscular diseases to develop
and advance a broad portfolio of gene therapy product candidates
across multiple modalities through development into
commercialization. We may not be able to identify and develop new
product candidates, and even if we are successful in continuing to
build our pipeline, the potential product candidates that we
identify may not receive regulatory approval. For example, during
preclinical or clinical development, they may be shown to have
harmful side effects or other characteristics that indicate that
they are unlikely to be drugs that will receive marketing approval
and achieve market acceptance. If we do not successfully develop
and commercialize product candidates based upon our approach, we
will not be able to obtain product revenue in future periods, which
likely would result in significant harm to our financial position
and adversely affect our stock price.
Our product candidates based on gene therapy technology may cause
undesirable and unforeseen side effects or be perceived by the
public as unsafe, which could delay or prevent their advancement
into clinical trials or regulatory approval, limit the commercial
potential or result in significant negative
consequences.
There have been
several significant adverse side effects in prior clinical trials
of gene therapy product candidates, including reported cases of
leukemia and death seen in other trials using other vectors. While
the newer AAV vectors that we use have been developed to reduce
these side effects, AAV gene therapy is still a relatively new
approach to disease treatment and additional adverse side effects
could develop. There is also the potential risk of delayed adverse
events following exposure to gene therapy products due to
persistent biologic activity of the genetic material or other
components of products used to carry the genetic
material.
Known side
effects of treatment with gene therapy products include an
immunologic reaction early after administration that could be
detrimental to the patient’s health or substantially limit the
effectiveness and durability of the treatment, including the
development of a T-cell-mediated immunological response, most often
seen affecting the liver. In ASPIRO, our Phase 1/2 clinical
trial of AT132, we have seen several adverse events, or AEs, that
were deemed to be probably or possibly related to treatment,
including elevations of liver enzymes, a signal that a T-cell
mediated immune response has likely occurred. At our May and
October 2019 ASPIRO updates, we reported a series of adverse events
that were deemed to be serious, or SAEs. These included
troponin I elevations, creatine kinase elevations, myocarditis, ST
segment elevation, atrial tachycardia, hyperbilirubinemia, nausea,
vomiting and fever. To date, all of the reported adverse
events in ASPIRO have resolved without treatment or been controlled
by treatment. However, if we are unable to clinically manage
potential safety events in the future, we may decide or be required
to halt or delay further clinical development of our product
candidates.
In addition to
side effects caused by a product candidate, the administration
process or related procedures also can cause adverse side effects.
If any such adverse events occur, our clinical trials could be
suspended or terminated. If we are unable to demonstrate that any
adverse events were caused by the administration process or related
procedures, the FDA, the European Commission, the EMA or other
regulatory authorities could order us to cease further development
of, or deny approval of, our product candidates for any or all
targeted indications. Even if we can demonstrate that all future
serious adverse events are not product-related, such occurrences
could affect patient recruitment or the ability of enrolled
patients to complete the trial. Moreover, if we elect, or are
required, to not initiate, delay, suspend or terminate any future
clinical trial of any of our product candidates, the commercial
prospects of such product candidates may be harmed and our ability
to generate product revenues from any of these product candidates
may be delayed or eliminated. Any of these occurrences may harm our
ability to develop other product candidates, and may harm our
business, financial condition and prospects
significantly.
Additionally, if
any of our product candidates receives marketing approval, the FDA
could require us to adopt a REMS to ensure that the benefits of the
product outweigh its risks, which may include, among other things,
a Medication Guide outlining the risks of the product for
distribution to patients and a communication plan to health care
practitioners. Furthermore, if we or others later identify
undesirable side effects caused by any of our products, several
potentially significant negative consequences could result,
including:
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regulatory
authorities may suspend or withdraw approvals of such
product;
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regulatory
authorities may require additional warnings on the labeling of such
product;
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we may be
required to change the way such product is administered or conduct
additional clinical trials;
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we could be sued
and held liable for harm caused to patients; and
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our reputation
may suffer.
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Any of these
occurrences may harm our business, financial condition and
prospects significantly.
The diseases we seek to treat have low prevalence and it may be
difficult to identify patients with these diseases, which may lead
to delays in enrollment for our trials or slower commercial revenue
if approved.
Genetic diseases
generally, and especially those that our product candidates are
designed to address, have low rates of incidence and prevalence.
For example, we estimate that the incidence of XLMTM is
approximately one in 40,000 to one in 50,000 male births, the
incidence of Pompe disease is approximately one in 40,000 births,
the incidence of DM1 is approximately one in 8,000 births, and the
incidence of DMD is approximately one in 3,500 to one in 5,000 male
births. In addition, as we pursue increasingly precise forms of
genetic medicines, the number of patients we can treat with a
single product candidate may be less than the estimated patient
population. For example, we estimate that AT702, our lead product
candidate in DMD, may be able to treat up to approximately 6% of
DMD patients that have genotypes amenable to exon 2 skipping or
with mutations in exons 1-5 of the dystrophin gene. To address
patients amenable to exon 51 and 53 skipping, we are developing
separate product candidates, AT751 and AT753, respectively. In
combination, these three product candidates may be able to treat up
to approximately 25% of DMD patients, and we would need to develop
additional product candidates to treat other mutations utilizing
our vectorized exon skipping approach. In total, we estimate that
up to 80% of DMD patients may have genotypes amenable to exon
skipping approaches. In addition, some of our potential patients
may have neutralizing antibodies to the AAV capsid serotypes we
employ, which may limit our ability to treat them, or affect the
therapeutic efficacy of our product candidates once administered.
Working in rare genetic diseases poses unique challenges versus
more conventional drug development for primary care markets,
including the timely recruitment and enrollment of a sufficient
number of eligible patients into clinical trials. Further, because
newborn screening for certain of the diseases that our product
candidates are designed to address is not widely adopted, and it
can be difficult to diagnose these diseases in the absence of a
genetic screen, we may have difficulty finding patients who are
eligible to participate in our trials. Patient enrollment in
clinical trials may be affected by other factors
including:
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the ability to
identify and recruit patients that meet study eligibility and
exclusion criteria;
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the severity of
the disease under investigation;
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design of the
study protocol;
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the perceived
risks, benefits and convenience of administration of the product
candidate being studied;
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our efforts to
facilitate timely enrollment in clinical trials;
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the patient
referral practices of physicians; and
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the proximity and
availability of clinical trial sites to prospective
patients.
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Our inability to
enroll a sufficient number of patients for our planned clinical
trials would result in significant delays and could require us to
not initiate or abandon one or more clinical trials altogether.
Enrollment delays in our clinical trials may result in increased
development costs for our product candidates, which would cause the
value of our company to decline and limit our ability to obtain
additional financing.
Additionally, our
projections of the number of patients living with the rare diseases
our product candidates are designed to address, as well as the
subset of those patients who have the potential to benefit from our
product candidates, are based on estimates. The total addressable
market opportunity for our product candidates will ultimately
depend upon, among other things, the final labeling for each of our
product candidates, if our product candidates are approved for sale
in our target indications, acceptance by the medical community and
patient access, drug pricing and reimbursement. The number of
patients globally may turn out to be lower than expected, patients
may not be otherwise amenable to treatment with our products, or
new patients may become increasingly difficult to identify or gain
access to, all of which would adversely affect our results of
operations and our business. Our product candidates may potentially
be dosed on a one-time basis, which means that patients who enroll
in our clinical trials may not be eligible to receive our product
candidates on a commercial basis if they are approved, leading to
lower revenue potential.
A Regenerative Medicine Advanced Therapy, or RMAT, designation by
the FDA, even if granted for any of our product candidates, may not
lead to a faster development or regulatory review or approval
process and it does not increase the likelihood that our product
candidates will receive marketing approval.
Established under
the 21st
Century Cures
Act, the RMAT designation is an expedited program for the
advancement and approval of regenerative medicine products where
preliminary clinical evidence indicates the potential to address
unmet medical needs for life-threatening diseases or conditions. We
have received RMAT designation for our AT132 program and plan to
seek RMAT designation for our other product candidates if the
preliminary clinical data support such designation. Similar to
Breakthrough Therapy designation, the RMAT designation allows
companies developing regenerative medicine therapies to work more
closely and frequently with the FDA, and RMAT-designated products
may be eligible for priority review and accelerated approval. In a
November 2017 draft guidance document, the FDA stated that gene
therapies, including genetically modified cells, that lead to a
durable modification of cells or tissues, may meet the definition
of a regenerative medicine therapy. For product candidates that
have received a RMAT designation, interaction and communication
between the FDA and the sponsor of the trial can help to identify
the most efficient path for clinical development while minimizing
the number of patients placed in ineffective control
regimens.
RMAT designation
is within the discretion of the FDA. Accordingly, even if we
believe one of our product candidates meets the criteria for RMAT
designation, the FDA may disagree and instead determine not to make
such designation. In any event, the receipt of RMAT designation for
a product candidate may not result in a faster development process,
review or approval compared to drugs considered for approval under
non-expedited FDA review procedures and does not assure ultimate
approval by the FDA. In addition, even if one or more of our
product candidates qualify as RMAT therapies, the FDA may later
decide that the product no longer meets the conditions for
qualification.
A Fast Track designation by the FDA, or a Priority Medicines, or
PRIME, designation by the EMA, even if granted for any of our
product candidates, may not lead to a faster development or
regulatory review or approval process, and does not increase the
likelihood that our product candidates will receive marketing
approval.
We have received
Fast Track designation for AT132, and in the future, we may seek
additional Fast Track designations for other product candidates.
The Fast Track designation allows companies developing drugs that
treat serious conditions and fill an unmet medical need to work
more closely and frequently with the FDA and have their BLAs or New
Drug Applications, or NDAs, be submitted to the FDA on a rolling
basis. Fast Track-designated products may also be eligible for
priority review and accelerated approval. If a drug or biologic, in
our case, is intended for the treatment of a serious or
life-threatening condition and the biologic demonstrates the
potential to address unmet medical needs for this condition, the
biologic sponsor may apply for FDA Fast Track designation. The FDA
has broad discretion whether to grant this designation. Even if we
believe a particular product candidate is eligible for this
designation, there can be no assurance that the FDA would decide to
grant it. Even if we do receive Fast Track designation, we may not
experience a faster development process, review or approval
compared to conventional FDA procedures. The FDA may withdraw Fast
Track designation if it believes that the designation is no longer
supported by data from our clinical development program. Many
biologics that have received Fast Track designation have failed to
obtain approval.
We may also seek
accelerated approval for products that have obtained Fast Track
designation. Under the FDA’s accelerated approval program, the FDA
may approve a biologic for a serious or life-threatening illness
that provides meaningful therapeutic benefit to patients over
existing treatments based upon a surrogate endpoint that is
reasonably likely to predict clinical benefit, or on a clinical
endpoint that can be measured earlier than irreversible morbidity
or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity or prevalence of the
condition and the availability or lack of alternative treatments.
For biologics granted accelerated approval, post-marketing
confirmatory trials are required to describe the anticipated effect
on irreversible morbidity or mortality or other clinical benefit.
These confirmatory trials must be completed with due diligence and,
in some cases, the FDA may require that the trial be designed
and/or initiated prior to approval. Moreover, the FDA may withdraw
approval of any product candidate or indication approved under the
accelerated approval pathway if, for example:
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the trial or
trials required to verify the predicted clinical benefit of the
product candidate fail to verify such benefit or do not demonstrate
sufficient clinical benefit to justify the risks associated with
the biologic;
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other evidence
demonstrates that the product candidate is not shown to be safe or
effective under the conditions of use;
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we fail to
conduct any required post-approval trial of the product candidate
with due diligence; or
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we disseminate
false or misleading promotional materials relating to the product
candidate.
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In addition to
the FDA’s Fast Track and RMAT designations, other regulatory
authorities may grant their own priority designations, including
the Priority Medicines, or PRIME, designation granted by the EMA.
We have received PRIME designation for AT132 and in the future, we
may seek additional PRIME designations for other product
candidates. PRIME designation allows companies that develop drugs
that target an unmet medical need to receive early and proactive
support from the EMA to optimize the generation of robust data on a
drug’s benefits and risks and enable accelerated
assessment of a drug’s marketing application. PRIME
designation is subject to risks and uncertainties similar to those
described above for Fast Track and RMAT designations, and our
product candidates which have received PRIME designation may not
experience a faster development process, review or approval
compared to conventional EMA procedures.
We may be unable to maintain the benefits associated with Orphan
Drug designation, including the potential for market exclusivity,
for our product candidates, and may be unsuccessful in obtaining
Orphan Drug designation or transfer of designations obtained by
others for future product candidates.
Regulatory
authorities in some jurisdictions, including the United States and
Europe, may designate drugs, or biologics in our case, intended to
treat relatively small patient populations as orphan drugs. Under
the U.S. Orphan Drug Act, the FDA may designate a biologic as an
orphan drug if it is intended to treat a rare disease or condition,
which is defined as a patient population of fewer than 200,000
individuals in the United States. In the United States, Orphan Drug
designation entitles a company to financial incentives such as
opportunities for grant funding towards clinical trial costs, tax
credits for qualified clinical research costs, and prescription
drug user fee waivers. Similarly, in the EU, the European
Commission grants Orphan Drug designation after receiving the
opinion of the EMA’s Committee for Orphan Medicinal Products on an
Orphan Drug designation application. In the EU, Orphan Drug
designation is intended to promote the development of biologics
that are intended for the diagnosis, prevention or treatment of
life-threatening or chronically debilitating conditions affecting
not more than five in 10,000 persons in the EU and for which no
satisfactory method of diagnosis, prevention or treatment has been
authorized (or the product would be a significant benefit to those
affected). In the EU, Orphan Drug designation entitles a company to
financial incentives such as reduction of fees or fee
waivers.
Generally, if a
biologic with an Orphan Drug designation subsequently receives the
first marketing approval for the indication for which it has such
designation, the biologic is entitled to a period of marketing
exclusivity, which precludes the EMA or the FDA from approving
another marketing application for the same biologic and indication
for that time period, except in limited circumstances. If our
competitors are able to obtain orphan drug exclusivity prior to us
for products that constitute the same active moiety and treat the
same indications as our product candidates, we may not be able to
have competing products approved by the applicable regulatory
authority for a significant period of time. The applicable period
is seven years in the United States and ten years in the EU. The EU
exclusivity period can be reduced to six years if a drug no longer
meets the criteria for Orphan Drug designation or if the drug is
sufficiently profitable so that market exclusivity is no longer
justified.
As part of our
business strategy, we have sought and received Orphan Drug
designation for AT132 in the United States and Europe. Both the FDA
and the EMA have granted orphan drug designation to a prototype
version of AT845, which we plan to update to reflect the final
construct we intend to advance into clinical trials. However,
Orphan Drug designation does not guarantee future orphan drug
marketing exclusivity.
Additionally,
even if we obtain orphan drug exclusivity for our product
candidates, that exclusivity may not provide effective protection
from competition because drugs with different active moieties can
be approved for the same condition. Even after an orphan drug is
approved, the FDA can also subsequently approve a later application
for the same drug for the same condition if the FDA concludes that
the later drug is clinically superior in that it is shown to be
safer in a substantial portion of the target populations, more
effective or makes a major contribution to patient care. In
addition, a designated orphan drug may not receive orphan drug
exclusivity if it is approved for a use that is broader than the
indication for which it received orphan designation. Moreover,
orphan drug exclusive marketing rights in the United States may be
lost if the FDA later determines that the request for designation
was materially defective or if we are unable to manufacture
sufficient quantities of the product to meet the needs of patients
with the rare disease or condition. Orphan Drug designation neither
shortens the development time or regulatory review time of a drug
nor gives the drug any advantage in the regulatory review or
approval process.
A Rare Pediatric Disease designation by the FDA does not guarantee
that the NDA or BLA for the product will qualify for a priority
review voucher upon approval, and it does not lead to a faster
development or regulatory review process, or increase the
likelihood that any of our product candidates will receive
marketing approval.
Under the Rare
Pediatric Disease Priority Review Voucher program, upon the
approval of a qualifying BLA or NDA, for the treatment of a rare
pediatric disease, the sponsor of such an application would be
eligible for a rare pediatric disease priority review voucher that
can be used to obtain priority review for a subsequent BLA or NDA.
In July 2017, the FDA notified us that we obtained a Rare Pediatric
Disease designation for AT132 for the treatment of XLMTM. If a
product candidate is designated before October 1, 2020, as is the
case with AT132, it is eligible to receive a voucher if it is
approved before October 1, 2022. However, there is no guarantee
that any of our product candidates will be approved by that date,
or at all, and, therefore, we may not be in a position to obtain
priority review vouchers prior to expiration of the program, unless
Congress further reauthorizes the program. Additionally,
designation of a drug for a rare pediatric disease does not
guarantee that a BLA will meet the eligibility criteria for a rare
pediatric disease priority review voucher at the time the
application is approved. Finally, a Rare Pediatric Disease
designation does not lead to faster development or regulatory
review of the product, or increase the likelihood that it will
receive marketing approval.
We rely on third parties to conduct our preclinical studies and
clinical trials, and rely on them to perform other tasks for us. If
these third parties do not successfully carry out their contractual
duties, meet expected deadlines or comply with regulatory
requirements, we may not be able to obtain regulatory approval for
or commercialize our product candidates and our business could be
substantially harmed.
Although we have
recruited a team that has experience with clinical trials, as a
company we have limited experience in conducting clinical trials.
Moreover, we do not have the ability to independently conduct
preclinical studies and clinical trials, and we have relied upon,
and plan to continue to rely upon medical institutions, clinical
investigators, contract laboratories and other third parties, or
our CROs, to conduct preclinical studies and clinical trials for
our product candidates. We expect to rely heavily on these parties
for execution of preclinical studies and clinical trials for our
product candidates and control only certain aspects of their
activities. Nevertheless, we will be responsible for ensuring that
each of our preclinical studies and clinical trials is conducted in
accordance with the applicable protocol, legal and regulatory
requirements and scientific standards and our reliance on CROs will
not relieve us of our regulatory responsibilities. For any
violations of laws and regulations during the conduct of our
preclinical studies and clinical trials, we could be subject to
warning letters or enforcement action that may include civil
penalties up to and including criminal prosecution.
We and our CROs
will be required to comply with regulations, including GCPs for
conducting, monitoring, recording and reporting the results of
preclinical studies and clinical trials to ensure that the data and
results are scientifically credible and accurate and that the trial
patients are adequately informed of the potential risks of
participating in clinical trials and their rights are protected.
These regulations are enforced by the FDA, the Competent
Authorities of the Member States of the European Economic Area and
comparable foreign regulatory authorities for any drugs in clinical
development. The FDA enforces GCP regulations through periodic
inspections of clinical trial sponsors, principal investigators and
trial sites. If we or our CROs fail to comply with applicable GCPs,
the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities
may require us to perform additional clinical trials before
approving our marketing applications. There can be no assurance
that, upon inspection, the FDA will determine that any of our
future clinical trials will comply with GCPs. In addition, our
clinical trials must be conducted with product candidates produced
in accordance with the requirements of cGMP regulations. Our
failure or the failure of our CROs to comply with these regulations
may require us to repeat clinical trials, which would delay the
regulatory approval process and could also subject us to
enforcement action.
Although we
intend to design our planned clinical trials for our product
candidates, for the foreseeable future CROs will conduct all of our
planned clinical trials. As a result, many important aspects of our
development programs, including their conduct and timing, will be
outside of our direct control. Our reliance on third parties to
conduct preclinical studies and clinical trials will also result in
less day-to-day control over the management of data developed
through preclinical studies and clinical trials than would be the
case if we were relying entirely upon our own staff.
If any of our
relationships with these third-party CROs terminate, we may not be
able to enter into arrangements with alternative CROs. If CROs do
not successfully carry out their contractual duties or obligations
or meet expected deadlines, if they need to be replaced or if the
quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, any preclinical studies or
clinical trials with which such CROs are associated with may be
extended, delayed or terminated. In such cases, we may not be able
to obtain regulatory approval for or successfully commercialize our
product candidates. As a result, our financial results and the
commercial prospects for our product candidates in the subject
indication could be harmed, our costs could increase and our
ability to generate revenue could be delayed.
Any product candidate for which we obtain marketing approval will
be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from
the market, and we may be subject to penalties if we fail to comply
with regulatory requirements or if we experience unanticipated
problems with our product candidates, when and if any of them are
approved.
Our product
candidates and the activities associated with their development and
potential commercialization, including their testing, manufacture,
recordkeeping, labeling, storage, approval, advertising, promotion,
sale and distribution, are subject to comprehensive regulation by
the FDA and other regulatory authorities. These requirements
include submissions of safety and other post-marketing information
and reports, registration and listing requirements, compliance with
cGMPs, requirements relating to manufacturing, quality control,
quality assurance and corresponding maintenance of records and
documents, including periodic inspections by the FDA and other
regulatory authorities, and requirements regarding the distribution
of samples to physicians and recordkeeping.
The FDA may also
impose requirements for costly post-marketing studies or clinical
trials and surveillance to monitor the safety or efficacy of any
approved product. The FDA closely regulates the post-approval
marketing and promotion of drugs and biologics to ensure drugs and
biologics are marketed only for the approved indications and in
accordance with the provisions of the approved labeling. The FDA
imposes stringent restrictions on manufacturers’ communications
regarding use of their products. If we promote our product
candidates beyond their potentially approved indications, we may be
subject to enforcement action for off-label promotion. Violations
of the Federal Food, Drug, and Cosmetic Act relating to the
promotion of prescription drugs may lead to investigations alleging
violations of federal and state healthcare fraud and abuse laws, as
well as state consumer protection laws.
In addition,
later discovery of previously unknown adverse events or other
problems with our product candidates, manufacturers or
manufacturing processes, or failure to comply with regulatory
requirements, may yield various results, including:
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restrictions on
such product candidates, manufacturers or manufacturing
processes;
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restrictions on
the labeling or marketing of a product;
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restrictions on
product distribution or use;
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requirements to
conduct post-marketing studies or clinical trials;
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warning or
untitled letters;
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withdrawal of any
approved product from the market;
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refusal to
approve pending applications or supplements to approved
applications that we submit;
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recall of product
candidates;
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fines,
restitution or disgorgement of profits or revenues;
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suspension or
withdrawal of marketing approvals;
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refusal to permit
the import or export of our product candidates;
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injunctions or
the imposition of civil or criminal penalties.
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Non-compliance
with U.S., European and other requirements regarding safety
monitoring or pharmacovigilance, and with requirements related to
the development of products for the pediatric population, can also
result in significant financial penalties. Similarly, failure to
comply with U.S., European and other governmental requirements
regarding the protection of personal information can also lead to
significant penalties and sanctions.
Our product candidates for which we intend to seek approval may
face competition from biosimilars sooner than
anticipated.
With the
enactment of the Biologics Price Competition and Innovation Act of
2009, or BPCIA, an abbreviated pathway for the approval of
biosimilar and interchangeable biological products was created. The
abbreviated regulatory pathway establishes legal authority for the
FDA to review and approve biosimilar biologics, including the
possible designation of a biosimilar as interchangeable based on
its similarity to an existing reference product. Under the BPCIA,
an application for a biosimilar product cannot be approved by the
FDA until 12 years after the original branded product is approved
under a BLA. To date a handful of biosimilar products and no
interchangeable products have been approved under the BPCIA.
However, the law is complex and is still being interpreted and
implemented by the FDA. As a result, its ultimate impact,
implementation, and meaning are subject to uncertainty. While it is
uncertain when such processes intended to implement BPCIA may be
fully adopted by the FDA, any such processes could have a material
adverse effect on the future commercial prospects for our
biological products.
We believe that
if any of our product candidates are approved as a biological
product under a BLA, it should qualify for the 12-year period of
exclusivity. However, there is a risk that the FDA will not
consider any of our product candidates to be reference products for
competing products, potentially creating the opportunity for
biosimilar competition sooner than anticipated. Additionally, this
period of regulatory exclusivity does not apply to companies
pursuing regulatory approval via their own traditional BLA, rather
than via the abbreviated pathway. Moreover, the extent to which a
biosimilar, once approved, will be substituted for any one of our
reference products in a way that is similar to traditional generic
substitution for non-biological products is not yet clear, and will
depend on a number of marketplace and regulatory factors that are
still developing. Finally, there has been public discussion of
potentially decreasing the period of exclusivity from the current
12 years. If such a change were to be enacted, our product
candidates, if approved, could have a shorter period of exclusivity
than anticipated.
Enacted and future legislation may increase the difficulty and cost
for us to obtain marketing approval of and commercialize our
product candidates and may affect the prices we may
set.
In the United
States and some foreign jurisdictions, there have been a number of
legislative and regulatory changes and proposed changes regarding
the healthcare system that could, among other things, prevent or
delay marketing approval of our product candidates, restrict or
regulate post-approval activities and affect our ability to
profitably sell any products for which we obtain marketing
approval.
For example, in
March 2010, the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of
2010, or collectively the ACA, was enacted to broaden access to
health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new
transparency requirements for health care and health insurance
industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. The current federal
administration has indicated an intent to repeal the ACA. The
President has indicated an intent to address prescription drug
pricing and recent Congressional hearings have brought increased
public attention to the costs of prescription drugs. These actions
and the uncertainty about the future of the ACA and other
healthcare laws may put downward pressure on pharmaceutical pricing
and increase our regulatory burdens and operating
costs.
Moreover, the
Drug Supply Chain Security Act imposes new obligations on
manufacturers of pharmaceutical products related to product
tracking and tracing. Legislative and regulatory proposals have
been made to expand post-approval requirements and restrict sales
and promotional activities for pharmaceutical products. We are not
sure whether additional legislative changes will be enacted, or
whether the current regulations, guidance or interpretations will
be changed, or what the impact of such changes on our business, if
any, may be.
The insurance coverage and reimbursement status of newly-approved
gene therapy products is uncertain. We may not be able to obtain or
maintain adequate coverage and reimbursement for our product
candidates, if