text:
S-1/A
As filed with the Securities and Exchange Commission on June 4, 2018.
Registration No. 333-224914
FORM S-1
REGISTRATION STATEMENT
THE SECURITIES ACT OF 1933
2836 Not applicable
(Primary Standard Industrial
Classification Code Number)
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Alexandria Forbes, Ph.D.
MeiraGTx LLC
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Peter N. Handrinos
Keith Halverstam
Latham & Watkins LLP
Brent B. Siler
Divakar Gupta
Richard C. Segal
Cooley LLP
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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.
Non-accelerated filer ☒ Smaller reporting company ☐
(Do not check if a smaller reporting company) Emerging growth company ☒
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities To Be Registered Proposed
Offering Price(1)(2) Amount of
Registration Fee(3)(4)
Ordinary shares, $0.00003881 nominal value per share
$92,000,000 $11,454
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.
(3) The Registrant previously paid the registration fee in full.
(4) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated June 4, 2018.
5,000,000 Shares
This is MeiraGTx Holdings plc's initial public offering. We are offering 5,000,000 of our ordinary shares.
We expect the initial public offering price to be between $14.00 and $16.00 per ordinary share. Currently, no public market exists for our ordinary shares. Our ordinary shares have been approved for listing on the Nasdaq Global Select Market under the symbol "MGTX."
We are an "emerging growth company" under the federal securities laws and are subject to reduced public company disclosure standards. See "Prospectus Summary—Implications of Being an Emerging Growth Company."
Investing in our ordinary shares involves risks that are described in the ''Risk Factors'' section beginning on page 13 of this prospectus.
Per Share
Public offering price
Underwriting discount(1)
Proceeds, before expenses, to us
(1) We refer you to "Underwriting" beginning on page 207 for additional information regarding underwriting compensation.
The underwriters may also exercise their option to purchase up to an additional 750,000 ordinary shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.
Certain of our existing shareholders and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $40.0 million of our ordinary shares in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount and commissions on these shares as they will on any other shares sold to the public in this offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The ordinary shares will be ready for delivery on or about , 2018.
Joint Book-Running Managers
BofA Merrill Lynch Barclays Evercore ISI
Chardan
The date of this prospectus is , 2018.
PROSPECTUS SUMMARY
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
INDUSTRY AND OTHER DATA
SELECTED CONSOLIDATED FINANCIAL DATA
EXECUTIVE AND DIRECTOR COMPENSATION
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL SHAREHOLDERS
DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF ASSOCIATION
SHARES ELIGIBLE FOR FUTURE SALE
CERTAIN CAYMAN ISLANDS TAX CONSIDERATIONS
CERTAIN UNITED KINGDOM TAX CONSIDERATIONS
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
ENFORCEMENT OF CIVIL LIABILITIES
WHERE YOU CAN FIND MORE INFORMATION
Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of our ordinary shares. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ordinary shares and the distribution of this prospectus outside the United States.
ABOUT THIS PROSPECTUS
Prior to the completion of this offering, we will undertake a corporate reorganization, pursuant to which MeiraGTx Limited will become a wholly owned subsidiary of MeiraGTx Holdings plc, an exempted company incorporated under the laws of the Cayman Islands with nominal assets and liabilities, which will not have conducted any operations prior to this offering other than acquiring the entire issued share capital of MeiraGTx Limited and other actions incidental to such acquisition and its incorporation. MeiraGTx Holdings plc will be the issuer of ordinary shares in this offering. Following the corporate reorganization, our financial statements will present the results of operations of MeiraGTx Holdings plc and its consolidated subsidiaries.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms "MeiraGTx," the "Company," "we," "us" and "our" refer to MeiraGTx Limited and its wholly owned subsidiaries prior to the completion of our corporate reorganization and MeiraGTx Holdings plc and its subsidiaries after the completion of our corporate reorganization.
We have proprietary rights to trademarks, trade names and service marks appearing in this prospectus that are important to our business. Solely for convenience, the trademarks, trade names and service marks may appear in this prospectus without the ® and TM symbols, but any such references are not intended to indicate, in any way, that we forgo or will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names and service marks. All trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.
This summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be important to you in making your investment decision. You should read this entire prospectus carefully, especially the "Risk Factors" section beginning on page 12 and our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our ordinary shares.
We are a vertically integrated, clinical stage gene therapy company with four ongoing clinical programs and a broad pipeline of preclinical and research programs. We have core capabilities in viral vector design and optimization and gene therapy manufacturing, as well as a potentially transformative gene regulation technology. Led by an experienced management team, we have taken a portfolio approach by licensing, acquiring and developing technologies that give us depth across both product candidates and indications. Though initially focusing on the eye, salivary gland and central nervous system, we intend to expand our focus in the future to develop additional gene therapy treatments for patients suffering from a range of serious diseases.
We operate a flexible and scalable viral vector manufacturing facility that we expect can supply our current clinical and preclinical programs through regulatory approval and, should they be approved, provide sufficient capacity for commercial production. Completed in early 2018 and designed to meet global regulatory requirements, including the current good manufacturing practices, or cGMP, required by the U.S. Food and Drug Administration, or FDA, our 29,000 square foot facility has two cell production suites, three independent viral vector production suites providing multi-product and multi-viral vector manufacturing capabilities and an integrated, flexible fill-and-finish suite. In May 2018, we were granted a license to manufacture gene therapy product candidates in our cGMP compliant manufacturing facility by the UK Medicines and Healthcare products Regulatory Agency.
We have also established a comprehensive platform for the efficient clinical development of the next generation of gene therapies and manufacturing in accordance with cGMP. Our deep understanding of disease models informs our development of potency assays for the cGMP production of our product candidates, and our teams experienced in viral vector design work closely with our process development team to design viral vectors and develop proprietary production cell lines for efficient scaling of manufacturing processes.
We are also developing a potentially transformative technology to enable the use of small molecules to turn gene therapy product candidates on and off. The aim of this gene regulation platform is to convert gene therapy into a generalizable delivery mechanism for biologic drugs using a small molecule "switch" for temporal control. We believe the capacity for temporal control of gene therapy products has the potential to transform the gene therapy landscape by opening up new treatment possibilities.
Our initial focus is on three distinct areas of unmet medical need: inherited retinal diseases, or IRDs, severe forms of xerostomia and neurodegenerative diseases. Utilizing our product development platform, we have assembled a pipeline of gene therapies to treat these serious diseases. Our criteria for selecting our initial product candidates included:
• unmet medical need;
• high potential for meaningful clinical benefit;
• promising preclinical data using multiple animal models as well as human stem cell derived organoids;
• compartmentalized anatomy of target tissue and the partially immune protected nature of target tissue; and
• understanding of the disease state from natural history studies and detailed long-term characterization of patients prior to entry into gene therapy treatment studies.
A summary of our product candidates is below. We retain worldwide development and commercialization rights to all of our product candidates.
1. Orphan drug designation by the FDA.
2. Orphan drug designation by European Medicines Agency, or the EMA.
3. Rare pediatric disease designation by Offices of Orphan Products Development and Pediatric Therapeutics of the FDA.
4. Priority medicines, or PRIME, designation by the EMA.
5. Fast Track designation by the FDA.
In addition to these clinical and preclinical programs, we have preclinical and research programs in other indications and novel molecular technologies that we aim to advance into clinical development, including:
• neovascular age related macular degeneration, or wet AMD – use of a gene therapy product to deliver an antibody targeting the vascular endothelial growth factor receptor 2, or anti-VEGFR2, with the aim of blocking disease related vascular formation in the eye;
• geographic atrophy age related macular degeneration, or dry AMD – use of gene therapy technology to introduce light sensitive molecules into rod photoreceptors in order to restore some aspects of vision lost in this disease;
• amyotrophic lateral sclerosis, or ALS – targeting dysregulation of neuronal RNA processing, which we believe may lead to the degeneration of motor neurons that occurs in ALS;
• Alzheimer's disease – targeting endosomal trafficking, which is a central mechanism that we believe underlies Alzheimer's disease; and
• gene regulation – use of our proprietary RNA shape regulation cassette to switch gene therapy product candidates on and off with small molecules, potentially transforming gene therapy technology into a delivery mechanism for a broad array of biologic drugs.
Our Ophthalmology Programs
Eye diseases are our first area of clinical focus and we aim to provide treatments with durable, long-term clinical benefit that will halt vision loss in patients. We currently have three ongoing clinical programs in IRDs with an additional program expected to initiate a Phase 1/2 clinical trial in 2019. The targets of our three ongoing Phase 1/2 ophthalmology programs include achromatopsia related to mutations in CNGB3, X-linked retinitis pigmentosa related to mutations in RPGR, and inherited retinal dystrophy caused by mutations in RPE65. We also have a product candidate that was manufactured and released for compassionate use under a specials license in the United Kingdom to treat patients with Leber congenital amaurosis 4, or LCA4, caused by mutations in AIPL1. For each of our Phase 1/2 clinical programs, we also have a prospectively designed natural history study ongoing, which includes the same endpoints as our corresponding gene therapy treatment trial. We believe use of these natural history studies differentiates our programs by providing patient populations to facilitate the efficient execution of our clinical trials and offering insight into the appropriate endpoints for regulatory approval of our gene therapy product candidates. In addition to these clinical programs, we have preclinical programs that apply novel approaches to both wet and dry AMD.
The FDA and EMA have granted orphan drug designation to each product candidate in our ongoing clinical programs, including those treating mutations in CNGB3, RPGR and RPE65, as well as our product candidate to treat mutations in AIPL1. The FDA also granted rare pediatric disease designation for our clinical programs treating mutations in RPE65 and CNGB3 and Fast Track designation to our clinical program treating XLRP caused by mutations in RPGR. We have also received PRIME designation from the EMA for our clinical program treating mutations in CNGB3.
The deep scientific and clinical understanding of IRDs driving our approach to gene therapy development helps us to optimize our product candidates for each specific genetic mutation and phenotype. We develop our viral vectors by selecting and modifying proprietary cell specific promoters, selecting appropriate capsids for transfection of target cells and refining the vector for efficient production and scalable manufacturing. Not only does this allow us to synergistically target a portfolio of inherited eye conditions, we also believe it has potential to be applied to the development of gene-based therapies for other diseases.
Our longstanding relationships with leading institutions in retinal disease treatment, including Moorfields Eye Hospital in London, the University of Michigan Kellogg Eye Center, Massachusetts Eye and Ear,
the Medical College of Wisconsin & Froedtert Hospital and the Casey Eye Institute at the Oregon Health & Science University, provide us with access to experts whose guidance and insight informs our development strategy, as well potential patients for our clinical trials.
Our Salivary Gland Programs
Our second area of clinical focus is xerostomia, a chronic and debilitating disorder of the salivary glands in which saliva production is impaired. Xerostomia may be caused by a number of different insults to the salivary glands, including radiation therapy for head and neck cancer and certain autoimmune diseases. A Phase 1 clinical trial of our gene therapy product candidate, AAV-AQP1, is ongoing in patients who have survived cancer free for five or more years following treatment for head and neck cancer and are suffering from grade 2 or 3 radiation induced late xerostomia, or RIX. There are approximately 170,000 grade 2 or 3 RIX patients who have survived two or more years after radiation treatment for head and neck cancer in the United States, with approximately 10,000 new cases each year. We also intend to initiate a Phase 1/2 clinical trial of AAV-AQP1 for the treatment of patients with chronic xerostomia caused by Sjogren's syndrome, an autoimmune disease affecting more than two million people in the United States.
The FDA has granted orphan drug designation to AAV-AQP1.
Our Neurodegenerative Disease Programs
Neurodegenerative diseases are our third area of focus. Our first target indication is ALS and we expect to file an investigational new drug application, or IND, and initiate a clinical trial of our first product candidate for the treatment of ALS in 2019. We believe our approach to treating ALS patients is differentiated because, rather than targeting a specific genetic defect that defines a small subset of ALS patients, we aim to target the underlying cell biology driving motor neuron death in ALS, potentially enabling us to treat a broader patient population that includes both sporadic and inherited forms of the disease. Increasing evidence suggests a critical role of RNA metabolism in neuronal cells, in particular in motor neurons that are specifically affected in ALS. We believe that dysregulation of neuronal RNA processes results in the degeneration of motor neuron that leads to ALS. Using our viral vector product candidate, AAV-UPF1, we target the central quality control system regulating RNA in motor neurons with the aim of enhancing motor neuron survival in ALS patients.
We have an Alzheimer's disease program that is likewise directed towards the underlying cell biology of the disease, in this case endosomal trafficking, a mechanism cells use to cycle proteins to the cell surface. Over the past decade, evidence has emerged supporting endosomal trafficking dysfunction in neurons as a central process in the early etiology of Alzheimer's disease. In particular, a master regulator of trafficking out of the endosomes called retromer has been implicated. We are in the process of identifying the optimal approach to restoring normal endosomal function to the neurons that are the first to be affected in Alzheimer's disease and appear to drive the initiation of the disease. In parallel, we are developing and validating biomarkers of endosomal dysfunction and pre-symptomatic Alzheimer's disease. We believe this approach may also provide a framework for treating certain forms of Parkinson's disease that are also associated with endosomal dysfunction.
In addition to our four ongoing clinical programs, we have a broad pipeline of preclinical programs, core capabilities in viral vector design and optimization, gene therapy manufacturing and a potentially transformative gene regulation technology. Utilizing the following key strengths, we aim to develop, commercialize and expand our portfolio of gene therapy product candidates.
• Deep Expertise in Gene Therapy Development: Our expertise in viral vector design, optimization and process development allows us to efficiently advance gene therapy product candidates from preclinical development to cGMP manufacturing and human clinical development through commercialization.
• Potentially Transformative Gene Regulation Technology Platform: We are developing proprietary technology for innovative gene therapy treatments whose expression can be turned on and off with an easily administered small molecule. We believe the capacity for temporal control of gene therapy products has the potential to transform the gene therapy landscape by opening up new treatment possibilities.
• Manufacturing Capabilities and Capacity: We have a flexible and scalable cGMP manufacturing facility and production process, which we expect can supply all of our current clinical and preclinical programs through regulatory approval and, should they be approved, provide sufficient capacity for their commercial production.
• Robust and Diverse Clinical and Preclinical Pipeline: Applying our portfolio approach to gene therapy product development, our initial focus is on treatments for IRDs, salivary glands disorders and neurodegenerative diseases with potential for accelerated approval and has produced four ongoing clinical programs and multiple preclinical development programs.
• Relationships with Leading Institutions: Our longstanding relationships with leading institutions and experts provides us with guidance on development strategy and access to potential patients for our clinical trials.
• Natural History Study Data: We sponsor ongoing prospective long-term natural history studies in IRDs that facilitate our ability to efficiently enroll our treatment studies, potentially reducing clinical trial timelines and providing insight into the appropriate endpoints for regulatory approval.
Our goal is to develop and commercialize innovative gene therapy products to treat serious disorders and broaden the scope of indications that may be treatable by our gene therapies. Our strategy to achieve this goal is to:
• successfully complete clinical development, obtain regulatory approval and commercialize our pipeline of gene therapy product candidates to treat disorders of the eye and salivary gland;
• continue to advance the development of our pipeline of gene therapy product candidates for the treatment of neurodegenerative disorders;
• utilize our viral vector design and optimization capabilities to identify and develop new gene therapies for other serious diseases;
• advance the development of our potentially transformative proprietary technology for regulating the activity of gene therapy products using small molecules and initiate clinical trials of new product candidates; and
• evaluate strategic collaborations with other biotechnology and pharmaceutical companies to leverage our capabilities, manufacturing capacity and proprietary gene regulation technology.
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled "Risk Factors" immediately following this prospectus summary. Some of these risks are:
• We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future, and may never achieve or maintain profitability.
• We will require additional capital to fund our operations, which may not be available on acceptable terms, if at all.
• We are heavily dependent on the success of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, our most advanced product candidates, which are still in development, and if none of them receive regulatory approval or are successfully commercialized, our business may be harmed.
• We intend to identify and develop product candidates based on our novel gene therapy platform, which makes it difficult to predict the time and cost of product candidate development. Very few products that utilize transduction technology have been approved in the United States or in Europe, and there have only been a limited number of human clinical trials involving gene therapy product candidates.
• Because gene therapy is novel and the regulatory landscape that governs any product candidates we may develop is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for any product candidates we may develop.
• Clinical trials are expensive, time-consuming, difficult to design and implement, and involve an uncertain outcome. Further, we may encounter substantial delays in our clinical trials.
• The affected populations for our other product candidates may be smaller than we or third parties currently project, which may affect the addressable markets for our product candidates.
• We and our contract manufacturer for plasmid are subject to significant regulation with respect to manufacturing our products. Our manufacturing facilities and the third-party manufacturing facility which we rely on may not continue to meet regulatory requirements and have limited capacity.
• We depend on proprietary technology licensed from others. If we lose our existing licenses or are unable to acquire or license additional proprietary rights from third parties, we may not be able to continue developing our product candidates. In addition, if we are unable to obtain and maintain patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
• We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize any product candidates we may develop.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. An "emerging growth company" may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
• being permitted to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;
• not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;
• reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We may take advantage of these provisions until the last day of 2023. However, if certain events occur prior to the end of 2023, including if we become a "large accelerated filer," our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of 2023.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period.
MeiraGTx Holdings plc was formed on May 1, 2018 under the laws of the Cayman Islands. The registered office of the Company is situated at the offices of Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands. MeiraGTx Limited, a private company formed under the laws of England and Wales, is a subsidiary of MeiraGTx Holdings plc and will be its predecessor accounting entity upon closing of the offering. Our principal executive offices are located at 430 East 29th Street, 10th Floor, New York, New York 10016 and our telephone number is (646) 490-2965. Our website address is www.meiragtx.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus.
Corporate Reorganization
Following the effectiveness of this registration statement and prior to the start of trading of our ordinary shares on the Nasdaq Global Select Market, we will effect a corporate reorganization, pursuant to which the outstanding shares of MeiraGTx Limited will be exchanged for equivalent shares of MeiraGTx Holdings plc. MeiraGTx Holdings plc will become the direct parent of MeiraGTx Limited and the holding company of the business and will be the issuer of ordinary shares in this offering. We refer to these events in this prospectus as the "Corporate Reorganization." Prior to this offering, MeiraGTx Holdings plc will have only engaged in activities incidental to its formation, the Corporate Reorganization and this offering. Accordingly, financial information for MeiraGTx Holdings plc and a discussion and analysis of its results of operations and financial condition for the period of its operations prior to the Corporate Reorganization would not be meaningful and are not presented. Following the Corporate Reorganization, the historical financial statements of MeiraGTx Limited and its consolidated subsidiaries will present the results of operations of MeiraGTx Holdings plc and its consolidated subsidiaries.
Following the Corporation Reorganization and prior to the start of trading of our ordinary shares on the Nasdaq Global Select Market, we also expect to effect a 1 for 3.881 reverse share split (by way of consolidation of the share capital of the Company) on all outstanding ordinary shares and preferred shares of MeiraGTx Holdings plc. Prior to the closing of the offering, the preferred shares of MeiraGTx Holdings plc, and the preferred shares issued as a result of the exercise of all outstanding warrants, will convert into A ordinary shares and all A ordinary shares (including those resulting from the conversion of our preferred shares) shall be re-designated as ordinary shares.
Indications of Interest
Ordinary shares offered by us
5,000,000 ordinary shares.
Ordinary shares to be outstanding after this offering
27,184,140 ordinary shares (or 27,934,140 shares if the underwriters exercise their option to purchase additional ordinary shares in full).
Option to purchase additional shares
The underwriters have a 30-day option to purchase up to 750,000 additional ordinary shares at the public offering price less estimated underwriting discounts and commissions.
We estimate that the net proceeds from this offering will be approximately $67.0 million (or approximately $77.5 million if the underwriters exercise their option to purchase additional ordinary shares in full), based on an assumed initial public offering price of $15.00 per ordinary share, after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. We anticipate that we will use the net proceeds of this offering to continue to develop our most advanced product candidates, AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, scale-up our manufacturing facility and related processes, fund research and development of other pipeline product candidates and technologies, and the remainder, if any, to fund new and ongoing research and development activities and for working capital and other general corporate purposes as set forth under "Use of Proceeds" beginning on page 73.
You should carefully read the "Risk Factors" beginning on page 12 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our ordinary shares.
Proposed Nasdaq Global Select Market symbol
"MGTX"
The number of our ordinary shares to be outstanding after this offering is based on 9,376,360 ordinary shares outstanding as of April 30, 2018, including 22,777 unvested restricted shares subject to repurchase, and excludes:
• 1,614,346 ordinary shares issuable upon exercise of share options outstanding under our 2016 Equity Incentive Plan, referred to as our 2016 Plan, as of April 30, 2018, at a weighted-average exercise price of $5.32 per ordinary share;
• 3,054,996 ordinary shares reserved for future issuance under our 2018 Incentive Award Plan, referred to as our 2018 Plan, which will become effective in connection with this offering, as well as any automatic increases in the number of our ordinary shares reserved for future issuance under our 2018 Plan; and
• 509,166 ordinary shares reserved for future issuance under our 2018 Employee Share Purchase Plan, referred to as our 2018 ESPP, which will become effective in connection with this offering, as well as any automatic increases in the number of our ordinary shares reserved for future issuance under our 2018 ESPP.
Unless otherwise indicated, this prospectus reflects and assumes the following:
• the Corporate Reorganization;
• other than in the consolidated financial statements and related notes thereto included elsewhere in this prospectus or as otherwise indicated, a 1 for 3.881 reverse share split of all outstanding ordinary shares and preferred shares (by way of consolidation of the share capital of the Company), which will be effective following the Corporate Reorganization and prior to the start of trading of the ordinary shares on the Nasdaq Global Select Market;
• the exercise of all outstanding warrants by the holders thereof for an aggregate of 927,594 preferred shares for an aggregate purchase price of $9.7 million;
• the conversion of all of our preferred shares, including 927,594 preferred shares that will be issued as a result of the exercise of all outstanding warrants, into an aggregate of 11,501,432 ordinary shares prior to the closing of this offering;
• the issuance to Alexandria Forbes, Ph.D., our President and Chief Executive Officer, and Rich Giroux, our Chief Operating Officer of an aggregate of 1,306,348 ordinary shares, which number of shares assumes that we sell the number of shares set forth on the cover page of this prospectus in this offering, on the date the registration statement of which this prospectus forms a part becomes effective or, if later, on the date we file a registration statement on Form S-8 covering the issuance of the ordinary shares. 435,450 of these ordinary shares vest immediately and 870,898 will vest in eight equal quarterly installments beginning three months after effectiveness of this registration statement. These grants are referred to in this prospectus as the "Executive IPO Grants";
• no exercise of outstanding options after April 30, 2018; and
• no exercise by the underwriters of their option to purchase additional ordinary shares in this offering.
Summary Consolidated Financial Data
The following tables set forth our summary consolidated financial data for the period indicated. We have derived the consolidated statement of operations and comprehensive loss data for the years ended December 31, 2016 and 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated balance sheet data as of March 31, 2018 and the consolidated statement of operations and comprehensive loss data for the three months ended March 31, 2017 and 2018 from our unaudited financial statements included elsewhere in this prospectus. These unaudited financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of such financial data. Our historical results are not necessarily indicative of the results that should be expected for any future period. You should read the following summary consolidated financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.
Year Ended December 31, Three Months Ended March 31,
Consolidated Statement of Operations and Comprehensive Loss Data:
$ 6,026,529 $ 9,325,017 $ 2,148,540 $ 11,122,016
14,037,918 22,359,712 4,823,357 6,927,322
20,064,447 31,684,729 6,971,897 18,049,338
(20,064,447 ) (31,684,729 ) (6,971,897 ) (18,049,338 )
265,543 1,676,117 149,249 978,624
Convertible note inducement expense
— (553,500 ) — —
— (465,633 ) — 669,408
(25,440 ) (42,863 ) (8,126 ) (27,355 )
Net loss attributable to non-controlling interest in subsidiary
305,883 — — —
Net loss attributable to MeiraGTx shareholders
Other comprehensive loss
(671,391 ) (1,361,365 ) (130,895 ) (757,765 )
Comprehensive loss
Less: comprehensive loss (income) attributable to non-controlling interest
8,520 — — —
Comprehensive loss attributable to MeiraGTx shareholders
$ (20,149,264 ) $ (32,405,900 ) $ (6,951,280 ) $ (17,161,118 )
Accretion on Series C preferred shares
(85,425 ) (806,963 ) (22,761 ) (664,718 )
Adjusted net loss attributable to MeiraGTx ordinary shareholders
Basic and diluted net loss per ordinary share attributable to ordinary shareholders(1)
Weighted-average number of ordinary shares outstanding—basic and diluted(1)
(1) See Note 12 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical basic and diluted net loss per ordinary share and the weighted-average number of shares used in the computation of the per share amounts. Shares outstanding does not give effect to the anticipated 1 for 3.881 reverse stock split (by way of consolidation of the share capital of the Company) described elsewhere in this prospectus.
As of March 31, 2018
Actual Pro Forma(1) Pro Forma
As Adjusted(2)(3)
Consolidated Balance Sheet Data:
$ 32,356,851 $ 54,464,388 $ 121,464,388
$ 14,345,189 $ 12,334,964 $ 18,866,714
Convertible preferred C shares
$ 97,351,080 — —
Total shareholders' (deficit) equity
$ (60,915,366 ) $ 60,553,476 $ 121,021,741
(1) The pro forma data above gives effect to (a) the Corporate Reorganization described under "Summary—Corporate Reorganization", (b) the conversion of all outstanding preferred shares, including preferred shares issued in connection with the exercise of warrants for cash in an amount equal to $9.7 million, into ordinary shares prior to the closing of this offering, (c) the reclassification of the related warrant liability into capital in excess of nominal value, and (d) our issuance of 4.7 million preferred shares in April 2018 for aggregate proceeds of $12.7 million.
(2) The pro forma as adjusted data above reflects (a) the pro forma adjustments described in footnote (1) above, (b) the issuance of the Executive IPO Grants plus the accrual of expenses in the amount of $6.5 million, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, related to our obligation to pay associated income taxes incurred by the named executive officers in connection therewith (such $6.5 million amount representing only one-third of our total obligation to pay income taxes incurred by the named executive officers upon vesting of the Executive IPO Grants, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus) and (c) the issuance and sale of 5,000,000 ordinary shares in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3) The pro forma as adjusted information discussed above is illustrative only and will depend on the actual initial public offering price and other terms of our initial public offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total assets and total shareholders' equity by $4.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million in the number of ordinary shares offered by us at the assumed initial public offering price would increase (decrease) each of cash and cash equivalents, total assets and total shareholders' equity by $13.9 million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our ordinary shares. Our business, financial condition, results of operations or prospects could be adversely affected if any of these risks occurs, and as a result, the market price of our ordinary shares could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
We are a clinical stage company with limited operating history. We were formed and began operations in 2015 through the acquisition of Athena Vision Ltd. and certain assets from Kadmon Corporation, LLC. We have never been profitable and do not expect to be profitable in the foreseeable future. We have incurred net losses since inception, including net losses of approximately $16.4 million and $6.8 million for the three months ended March 31, 2018 and 2017, respectively, and approximately $31.0 million and $19.8 million for the years ended December 31, 2017 and December 31, 2016, respectively. As of March 31, 2018, we had an accumulated deficit of approximately $81.8 million. Since our inception, we have devoted substantially all of our resources to developing our technology platform, establishing our viral vector manufacturing facility and developing manufacturing processes, advancing the product candidates in our ophthalmology, salivary gland and neurodegenerative disease programs, building our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, and providing general and administrative support for these operations. We have not yet demonstrated an ability to successfully complete a clinical program, including large-scale, pivotal clinical trials, obtain marketing approval, manufacture product at a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Typically, it takes about six to ten years to develop a new drug from the time it enters Phase 1 clinical trials to when it is approved for treating patients, but in many cases it may take longer. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing genetic medicine products.
We expect to continue to incur significant expenses and additional operating losses for the foreseeable future as we seek to advance product candidates through preclinical and clinical development, expand our research and development activities, develop new product candidates, complete clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our products. Furthermore, the costs of advancing product candidates into each succeeding clinical phase tend to increase substantially over time. The total costs to advance any of our product candidates to marketing approval in even a single jurisdiction would be substantial. Because of the numerous risks and uncertainties associated with gene therapy product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of products or achieve or maintain profitability. Our expenses will also increase substantially if and as we operate as a public company and add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company.
Before we generate any revenue from product sales, each of our programs and product candidates will require additional preclinical and/or clinical development, potential regulatory approval in multiple jurisdictions, manufacturing, building of a commercial organization, substantial investment and significant marketing efforts. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, European Medicines Agency, or EMA, or other regulatory authorities to perform preclinical studies and
clinical trials in addition to those that we currently anticipate. These risks are further described under "—Risks Related to Discovery, Development, Clinical Testing, Manufacturing and Regulatory Approval" and "—Risks Related to Commercialization." As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our shareholders' equity and working capital.
We expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize our product candidates. We will require additional capital beyond the proceeds of this offering, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate certain of our research and development programs.
Our operations have consumed significant amounts of cash since inception. As of March 31, 2018, our cash and cash equivalents were $32.4 million. Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the third quarter of 2020. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. Because the length of time and activities associated with successful development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
• the progress, timing, costs and results of our ongoing clinical development for our CNGB3 gene therapy product candidate, AAV-CNGB3, for our RPE65-deficiency product candidate, AAV-RPE65, for our X-linked retinitis pigmentosa product candidate, AAV-RPGR, for our radiation induced xerostomia product candidate, AAV-AQP1, and continue to conduct our ongoing natural history studies for inherited retinal diseases, or IRDs;
• the initiation of Phase 1/2 clinical trials for our CNGA3 gene therapy product candidate, AAV-CNGA3, and for our product candidate for the treatment of xerostomia associated with Sjogren's syndrome, AAV-AQP1;
• continuing our current research programs, our preclinical development of product candidates from our current research programs and further developing our gene regulation technology;
• seeking to identify, assess, acquire and/or develop additional research programs and additional product candidates;
• the preclinical testing and clinical trials for any product candidates we identify and develop;
• establishing a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;
• the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other regulatory authorities;
• the cost of expanding and protecting our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
• the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;
• the effect of competing technological and market developments;
• the cost of further developing and scaling our manufacturing facility and processes;
• the cost and timing of completion of commercial-scale manufacturing activities;
• the cost of making royalty, milestone or other payments under current and any future in-license agreements;
• the extent to which we in-license or acquire other products and technologies;
• the cost of establishing sales, marketing and distribution capabilities for our product candidates in regions where we choose to commercialize our products; and
• the initiation, progress, timing and results of our commercialization of our product candidates, if approved for commercial sale.
We are heavily dependent on the success of our most advanced product candidates, AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, which are still in development, and if none of them receive regulatory approval or are successfully commercialized, our business may be harmed.
To date, we have invested a significant portion of our efforts and financial resources in the development of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1. Our future success and ability to generate product revenue is substantially dependent on our ability to successfully develop, obtain regulatory approval for and successfully commercialize these product candidates. We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect to invest a meaningful portion of our efforts and expenditures over the next few years in AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, which will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions, manufacturing sufficient supply, building of a commercial organization, substantial investment and significant marketing efforts before we can generate any revenues from any commercial sales. Accordingly, our business currently depends heavily on the successful development, regulatory approval and commercialization of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, which may never occur. We cannot be certain that AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 or AAV-AQP1 will be successful in clinical trials, receive regulatory approval or be successfully commercialized even if we receive regulatory approval. Even if we receive approval to market AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 or AAV-AQP1 from the FDA, EMA or other regulatory bodies, we cannot be certain that our product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Additionally, the research, testing, manufacturing, labeling, approval, sale, marketing and distribution of gene therapy products are and will remain subject to extensive and evolving regulation by the FDA, EMA and other regulatory authorities. We are not permitted to market AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 or AAV-AQP1 in the United States until they receive approval of a biologics license application, or BLA, from the FDA, and we cannot market them in the European Union until we receive approval for a Marketing Authorization Application, or MAA, from the EMA, or other required regulatory approval in other countries.
AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 are our most advanced product candidates, and because some of our other product candidates are based on similar technology, if AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 or AAV-AQP1 show unexpected adverse events or a lack of efficacy in the indications we intend to treat, or if we experience other regulatory or developmental issues, our development plans and business could be significantly harmed. Further, competitors may be developing products with similar technology and may experience problems with their products that could identify problems that would potentially harm our business.
• we may not be able to assemble sufficient resources to acquire or discover additional product candidates;
• competitors may develop alternatives that render our potential product candidates obsolete or less attractive;
• potential product candidates we develop may nevertheless be covered by third parties' patents or other exclusive rights;
• potential product candidates may, on further study, be shown to have harmful side effects, toxicities or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance;
• potential product candidates may not be effective in treating their targeted diseases;
• the market for a potential product candidate may change so that the continued development of that product candidate is no longer reasonable;
• a potential product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or
• the regulatory pathway for a potential product candidate is too complex and difficult to navigate successfully or economically.
Management concluded that factors raise substantial doubt about our ability to continue as a going concern and our independent registered public accounting firm has included an explanatory paragraph relation to our ability to continue as a going concern in its report on our audited consolidated financial statements included in this prospectus.
Our consolidated financial statements at December 31, 2016 and 2017 and March 31, 2017 and 2018 and for the periods then ended were prepared assuming that we will continue as a going concern and accordingly the accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. However, we do not have adequate cash on hand to fund our anticipated expenses past the next 12 months without obtaining significant additional financing. This raises substantial doubt about our ability to continue as a going concern. Such determination could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may also make it more difficult to operate our business due to concerns about our ability to meet our contractual obligations. Our ability to continue as a going concern is contingent upon, among other factors, the sale of ordinary shares in this offering or obtaining alternate financing. We cannot provide any assurance that we will be able to raise additional capital. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our clinical efforts, which is critical to the realization of our business plan. It is not possible for us to predict at this time the potential success of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we cannot continue as a viable entity, you may lose some or all of your investment.
In addition, the report of our independent registered public accounting firm with respect to our consolidated financial statements appearing elsewhere in this prospectus contains an explanatory paragraph stating the Company has suffered recurring losses from operations, is subject to significant uncertainty with respect to its product development and has stated that substantial doubt exists about the Company's ability to continue as a going concern Management's evaluation of the events and conditions and management's plans regarding these matters are also described in Note 1 to the consolidated financial statements.
We have concentrated a portion of our research and development efforts on our gene therapy platform, which uses both transduction and gene regulation technology. Our future success depends on the successful development of these novel therapeutic approaches. To date, very few products that utilize gene transfer have been approved in the United States or Europe. There have been a limited number of clinical trials of gene transduction technologies, with only one product candidate ever approved by the FDA.
Our gene therapy platform is based on a suite of viral vectors which we can deploy with gene therapy constructs, which relies on the ability of AAV to efficiently transmit a therapeutic gene to certain kinds of cells. The mechanism of action by which these vectors target particular tissues is still not completely understood. Therefore, it is difficult for us to determine that our vectors will be able to properly deliver gene transfer constructs to, enough tissue cells to reach therapeutic levels. We cannot be certain that our viral vectors will be able to meet safety and efficacy levels needed to be therapeutic in humans or that they will not cause significant adverse events or toxicities. Furthermore, recent work conducted by a third party in non-human primates suggests that intravenous delivery of certain AAV vectors at very high doses may result in severe toxicity. The indications that we target do not use IV administration for viral vector delivery and do not use doses as high as those tested in these publications, and to date we have not observed the severe toxicities described in these publications with the naturally occurring AAV vectors that we use. However, we cannot be certain that we will be able to avoid triggering toxicities in our future preclinical studies or clinical trials. Any such results could impact our ability to develop a product candidate. As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of our gene therapy platform, or any similar or competitive gene therapy platforms, will result in the identification, development, and regulatory approval of any product candidates, or that other gene therapy technologies will not be considered better or more attractive. There can be no assurance that any development problems we experience in the future related to our gene therapy platform or any of our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays and challenges in utilizing our manufacturing facility and achieving sustainable, reproducible, and scalable production. Any of these factors may prevent us from completing our preclinical studies or clinical trials or commercializing any product candidates we may develop on a timely or profitable basis, if at all.
The regulatory requirements that will govern any novel gene therapy product candidates we develop are not entirely clear and may change. Within the broader genetic medicine field, very few therapeutic products have received marketing authorization from the EMA and FDA. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing gene therapy products and cell therapy products have changed frequently and will likely continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell therapy products. For example, in the United States, the FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the
Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Gene therapy clinical trials are also subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at the institution participating in the clinical trial. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the United States National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities' Recombinant DNA Advisory Committee. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. The same applies in the European Union. The EMA's Committee for Advanced Therapies, or CAT, is responsible for assessing the quality, safety, and efficacy of advanced-therapy medicinal products. Advanced-therapy medicinal products include gene therapy medicines, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy product must be considered in the context of the relevant EU guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any gene therapy product candidate we may develop, but that remains uncertain at this point.
The clinical trials and manufacturing of our product candidates are, and the manufacturing and marketing of our products, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product
candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
Clinical testing is expensive and can take many years to complete, and subject to uncertainty. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if our future clinical trials are completed as planned, we cannot be certain that their results will support the safety and effectiveness of our product candidates for their targeted indications. Our future clinical trial results may not be successful.
To date, we have not completed any clinical trials required for the approval of our product candidates. Although we have already begun Phase 1/2 clinical trials, we may experience delays in conducting any clinical trials and we do not know whether our clinical trials will begin on time, need to be redesigned, recruit and enroll patients on time or be completed on schedule, or at all. Events that may prevent successful or timely completion of clinical development include:
• inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical trials;
• delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;
• delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;
• delays in reaching agreement with the FDA, EMA or other regulatory authorities as to the design or implementation of our clinical trials;
• obtaining regulatory approval to commence a clinical trial;
• reaching an agreement on acceptable terms with clinical trial sites or prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;
• obtaining institutional review board, or IRB, approval at each site;
• recruiting suitable patients to participate in a clinical trial;
• developing and validating the companion diagnostic to be used in a clinical trial, if applicable;
• having patients complete a clinical trial or return for post-treatment follow-up;
• clinical sites, contract research organizations, or other third parties deviating from trial protocol or dropping out of a trial;
• failure to perform in accordance with the FDA's good clinical practice, or GCP, requirements, or applicable regulatory guidelines in other countries;
• addressing patient safety concerns that arise during the course of a trial, including occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
• adding a sufficient number of clinical trial sites; or
• manufacturing sufficient quantities of product candidate for use in clinical trials.
• we may experience changes in regulatory requirements or guidance, or receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;
• clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon development programs;
• 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 at a higher rate than we anticipate;
• our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
• we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;
• the cost of clinical trials of our product candidates may be greater than we anticipate and we may not have funds to cover the costs;
• 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;
• regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and
• any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.
• incur unplanned costs;
• be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;
• obtain marketing approval in some countries and not in others;
• obtain marketing approval for indications or patient populations that are not as broad as intended or desired;
• obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
• be subject to additional post-marketing testing requirements; or
• have the product removed from the market after obtaining marketing approval.
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA, EMA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, our IND for AAV-RPE65 was filed in July 2017. On August 16, 2017, we received notification from the FDA supporting the use of the described batches of product candidate in the Phase 1/2 clinical trial. However, we received a recommendation from the FDA on a certain aspect of the manufacturing process for future clinical trials, thus putting our IND for AAV-RPE65 on partial clinical hold. We responded to the FDA on October 2, 2017 and, based on this response, the partial clinical hold was lifted on October 17, 2017. As another example, our IND for AAV-CNGB3 was filed on October 31, 2017. We received a question from the FDA around our injection device compatibility assay, thus putting our AAV-CNGB3 IND on clinical hold. In the device compatibility assay, the FDA noted a disparity between the target titer for the intended low dose dilution and the actual titer obtained on polymerase chain reaction, or PCR, analysis. The FDA requested clarification on whether this was an imprecise dilution scheme for the low dose or a PCR assay issue. We submitted our second response to the FDA on May 2, 2018 providing data that identified the issue as a PCR assay artifact and also showing data that we believe supports that this has now been addressed. On May 31, 2018 the FDA released the clinical hold on our IND for AAV-CNGB3.
Our most advanced product candidates, AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, will require extensive clinical testing before we are prepared to submit a BLA or MAA for regulatory approval. We cannot predict with any certainty if or when we might complete the clinical development for our product candidates and submit a BLA or MAA for regulatory approval of any of our product candidates or whether any such BLA or MAA will be approved. We may also seek feedback from the FDA, EMA or other regulatory authorities on our clinical development program, and the FDA, EMA or such regulatory authorities may not provide such feedback on a timely basis, or such feedback may not be favorable, which could further delay our development programs.
Our projections of the number of people who have the diseases we are seeking to treat, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are estimates based on our knowledge and understanding of these diseases. The total addressable
market opportunity for our product candidates will ultimately depend upon a number of factors including the diagnosis and treatment criteria included in the final label, if approved for sale in specified indications, acceptance by the medical community, patient access and product pricing and reimbursement. Incidence and prevalence estimates are frequently based on information and assumptions that are not exact and may not be appropriate, and the methodology is forward-looking and speculative. The process we have used in developing an estimated incidence and prevalence range for the indications we are targeting has involved collating limited data from multiple sources. Accordingly, the incidence and prevalence estimates included in this prospectus should be viewed with caution. Further, the data and statistical information used in this prospectus, including estimates derived from them, may differ from information and estimates made by our competitors or from current or future studies conducted by independent sources.
Even though we have been granted access to the PRIME scheme by the EMA for AAV-CNGB3 and the FDA granted Fast Track designation to AAV-RPGR, in the future we may seek and fail to obtain access to the PRIME scheme by the EMA or fast track designation by the FDA for other of our current or potential future product candidates. We may also seek and fail to obtain breakthrough therapy designation from the FDA for our current or any future product candidates. Such designations or access may also not lead to faster development or regulatory review or approval, and it does not increase the likelihood that our product candidates will receive marketing approval.
A sponsor may seek approval of its product candidate under programs designed to accelerate FDA's review and approval of new drugs and biological products that meet certain criteria. For example, the FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs, or if the drug has been designated as a qualified infectious disease product. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Under Fast Track, the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted if relevant criteria are satisfied, including an agreement with FDA on the proposed schedule for the submission of portions of the BLA, and the payment of applicable user fees before FDA may initiate a review. Even if Fast Track designation is granted, it may be rescinded if the product no longer meets the qualifying criteria. In April 2018, AAV-RPGR was designated a Fast Track program by the FDA for the treatment of X-linked retinitis pigmentosa owing to defects in RPGR.
In 2012, the Food and Drug Administration Safety and Innovation Act, or FDASIA, established the breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically-significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors may request that FDA designate a product candidate as a breakthrough therapy at the time of or any time after the submission of an IND, but ideally before an end-of-phase II meeting with FDA. If the FDA designates a breakthrough therapy, it may take actions appropriate to expedite the development and review of the application, which may include but are not limited to holding meetings with the sponsor and the review team throughout the development of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the product candidate to ensure collection of appropriate data needed to support approval; more frequent written correspondence from the FDA about such things as the design of the proposed clinical trials and use of biomarkers; intensive guidance on an efficient drug development program, beginning as early as Phase 1; organizational commitment involving senior managers; and eligibility for rolling review and priority review. Breakthrough therapy designation comes with all of the benefits of fast track designation, which means that the sponsor may file sections of the BLA for review on a rolling basis if certain conditions are satisfied, including an agreement with FDA on the proposed schedule for submission of portions of the application and the payment of applicable user fees before the FDA may initiate a review. Fast Track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.
Fast Track designation and designation as a breakthrough therapy are within the discretion of the FDA. Accordingly, even if we believe one of our other product candidates meets the criteria for Fast Track designation or designation as a breakthrough therapy and we seek such designation, the FDA may disagree and instead
determine not to make such designation for such product candidate. We cannot be sure that our evaluation of our product candidates as qualifying for Fast Track designation or breakthrough therapy designation will meet the FDA's expectations. In any event, the receipt of a Fast Track designation or breakthrough therapy designation for a product candidate may not result in a faster development process, review, or approval compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if additional product candidates are granted Fast Track designation or one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Similarly, access to the PRIME scheme is at the discretion of the EMA, and we cannot be sure that any additional current or future product candidates will be granted access to the scheme; that participation in the scheme will result in expedited regulatory review or approval of our product candidates; or that access to the scheme, once granted, will not be revoked.
We have received orphan drug designation from the FDA and EMA for AAV-CNGB3, AAV-RPE65, AAV-RPGR, AAV-AIPL1 and FDA for AAV-AQP1 and may seek orphan drug designation for additional product candidates in the future, but any orphan drug designations we have received or may receive in the future may not confer marketing exclusivity or other expected benefits.
We have obtained orphan drug designation from the FDA and European Commission for AAV-CNGB3 for the treatment of achromatopsia caused by mutations in the CNGB3 gene, AAV-RPE65 for the treatment of Leber congenital amaurosis, AAV-RPGR for the treatment of retinitis pigmentosa and AAV-AIPL1 for the treatment of inherited retina dystrophy due to defects in AIPL1 gene, and we obtained orphan drug designation from the FDA for AAV-AQP1 for the treatment of grade 2 and grade 3 late xerostomia from parotid gland hypofunction caused by radiotherapy. We plan to seek orphan drug designation for other current and future product candidates. Even with orphan drug designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products, which could prevent us from marketing our product candidates if another company is able to obtain orphan drug exclusivity before we do. In addition, exclusive marketing rights in the United States may be unavailable if we seek approval for an indication broader than the orphan-designated indication or may be lost in the United States if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the drug to meet the needs of patients with the rare disease or condition following approval. Further, even if we obtain orphan drug exclusivity, that exclusivity may not effectively protect our product candidates from competition because different drugs with different active moieties can be approved for the same condition. In addition, the FDA and the EMA can subsequently approve products with the same active moiety for the same condition if the FDA or the EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. 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. In addition, while we intend to seek orphan drug designation for other existing and future product candidates, we may never receive such designations. There have been legal challenges to aspects of the FDA's regulations and policies concerning the exclusivity provisions of the Orphan Drug Act, and future challenges could lead to changes that affect the protections afforded our product candidates in ways that are difficult to predict. In 2014, a U.S. district court invalidated the FDA's denial of orphan exclusivity to an orphan designated drug, which the FDA had based on its determination that the drug was not proven to be clinically superior to a previously approved "same drug." In response to the decision, the FDA released a policy statement stating that the court's decision is limited to the facts of that particular case and that the FDA will continue to deny orphan drug exclusivity to a designated drug upon approval if the drug is the "same" as a previously approved drug, unless the drug is demonstrated to be clinically superior to that previously approved drug. Since then, similar legal challenges have been initiated against the FDA for its denial of orphan drug exclusivity to other designated drugs, and in 2017, Congress amended the Orphan Drug Act to require a demonstration of clinical superiority upon approval as a condition of receiving orphan drug exclusivity when another "same drug" has already been approved for the same indication. In the future, there is the potential for additional legal challenges to the FDA's orphan drug regulations and policies, and it is uncertain how ongoing and future challenges might affect our business.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for components our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials in
the European Union must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA or MAA on a timely basis. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
• the size and nature of the patient population;
• the patient eligibility criteria defined in the protocol;
• the size of the patient population required for analysis of the trial's primary endpoints;
• the proximity of patients to study sites;
• the design of the trial;
• our ability to recruit clinical trial investigators with the appropriate competencies and experience;
• clinicians' and patients' perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;
• our ability to obtain and maintain patient consents; and
• the risk that patients enrolled in clinical trials will drop out of the trials before completion.
• regulatory authorities may withdraw approvals of such product;
• we may be required to recall a product or change the way such product is administered to patients;
• additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product;
• regulatory authorities may require additional warnings on the label, such as a "black box" warning or contraindication;
• we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;
• the product could become less competitive;
• we could be sued and held liable for harm caused to patients; and
• our reputation may suffer.
Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Frequently, product candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. In addition, the design of a clinical trial can
determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. There is a high failure rate for drugs and biologic products proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.
Even if we obtain FDA or EMA approval for AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 or AAV-AQP1 in the United States or European Union, we may never obtain approval for or commercialize it in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy.
Approval by the FDA in the United States or the EMA in the European Union does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. 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.
• restrictions on manufacturing such products;
• restrictions on the labeling or marketing of a product;
• restrictions on product distribution or use;
• requirements to conduct post-marketing studies or clinical trials;
• warning letters or holds on clinical trials;
• withdrawal of the products from the market;
• refusal to approve pending applications or supplements to approved applications that we submit;
• recall of products;
• fines, restitution or disgorgement of profits or revenues;
• suspension or withdrawal of marketing approvals;
• refusal to permit the import or export of our products;
• product seizure or detention; or
• injunctions or the imposition of civil or criminal penalties.
• an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market share in certain government healthcare programs;
• new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting "transfers of value" made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and their immediate family members;
• a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer's Medicaid rebate liability;
• a licensure framework for follow on biologic products;
• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
• establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. Most recently, the Tax Cuts and Jobs Act of 2017 was enacted, which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the "individual mandate". The current Trump administration and Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. It is uncertain the extent to which any such changes may impact our business or financial condition.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, and review the relationship between pricing and manufacturer patient programs. The Trump administration's budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, on May 11, 2018, President Trump laid out his administration's "Blueprint" to reduce the cost of prescription drugs while preserving innovation and cures. The Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. Although some of these, and other, proposals will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant
additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates, if approved.
• the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
• the U.S. federal civil and criminal false claims and civil monetary penalties laws, including the civil False Claims Act, which prohibit, among other things, , including through civil whistleblower or qui tam actions, individuals or entities from knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes which prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program,
or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as certain health plans, healthcare clearinghouses and healthcare providers as well as their business associates, independent contractors of a covered entity that perform certain services involving the use or disclosure of individually identifiable health information;
• the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
• the U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a biological product unless a biologics license is in effect for that product;
• the U.S. Physician Payments Sunshine Act and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children's Health Insurance Program, with specific exceptions, to report annually to the government information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
• analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and
• similar healthcare laws and regulations in the European Union and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers.
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting
obligations to resolve allegations of non-compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA, or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA, and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement, and other sanctions and
remedial measures and legal expenses. Any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws, or Trade Control laws by U.K., U.S., or other authorities, even if it is ultimately determined that we did not violate such laws, could be costly and time-consuming, require significant personnel resources, and harm our reputation.
Our platform and products focus on the development of gene therapies and gene regulation technology. There are a number of companies developing gene therapy products include Applied Genetic Technologies Corporation, Nightstar Therapeutics plc and Spark Therapeutics, Inc. In addition to competition from other gene therapies, any products we may develop may also face competition from other types of therapies, such as small molecule, antibody, protein or other therapies.
Many of our current or potential competitors, either alone or with their collaboration partners, have greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able
to enter the market. Additionally, technologies developed by our competitors may render our potential product candidates uneconomic or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.
• the efficacy and potential advantages compared to alternative treatments;
• effectiveness of sales and marketing efforts;
• the cost of treatment in relation to alternative treatments, including any similar generic treatments;
• our ability to offer our products for sale at competitive prices;
• the convenience and ease of administration compared to alternative treatments;
• the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
• the strength of marketing and distribution support;
• the timing of market introduction of competitive products;
• the availability of third-party coverage and adequate reimbursement;
• product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations or warnings contained in a product's approved labeling;
• the prevalence and severity of any side effects; and
• any restrictions on the use of our product together with other medications.
We may not have the resources in the foreseeable future to allocate to the sales and marketing of our product candidates in certain international markets. Therefore, our future sales in these markets will largely depend on our ability to enter into and maintain collaborative relationships for such capabilities, the collaborator's strategic interest in the product and such collaborator's ability to successfully market and sell the product. We may pursue collaborative arrangements regarding the sale and marketing of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, if approved, for certain markets overseas; however, we cannot assure that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that they will have effective sales forces.
If we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1, we may be forced to delay the potential commercialization of AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 or reduce the scope of our sales or marketing activities for AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1. If we elect to increase our expenditures to fund commercialization activities internationally, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. We could enter into arrangements with collaborative partners at an earlier stage than otherwise would be ideal and we may be required to relinquish rights to AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and prospects.
If we are unable to establish adequate sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 and may not become profitable and may incur significant additional losses. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
If AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 are approved for commercialization, we intend to enter into agreements with third parties to market them in certain jurisdictions outside the United States and the European Union. We expect that we will be subject to additional risks related to international pharmaceutical operations, including:
• different regulatory requirements for drug and biologic approvals and rules governing drug and biologic commercialization in foreign countries;
• reduced protection for intellectual property rights;
• foreign reimbursement, pricing and insurance regimes;
• unexpected changes in tariffs, trade barriers and regulatory requirements;
• economic weakness, including inflation, or political instability in particular foreign economies and markets;
• foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
• business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires, or from economic or political instability;
• greater difficulty with enforcing our contracts;
• potential noncompliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions; and
• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad.
The ACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or
interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor's own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. 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 an adverse effect on the future commercial prospects for our biological products.
If our recently completed cGMP manufacturing facility is unable to supply our product candidates for all of our current preclinical, clinical and potential commercial needs, we will be forced to seek out third-party manufacturers. We currently contract with third parties for the manufacture of plasmid used in producing our product candidates. Relying on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates, or any medicines that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.
We have begun producing our product candidates in our facility. However, if our facility is damaged, suffers any form of delay or regulatory challenges, or we are unable to scale our internal manufacturing capabilities to meet demand for our product candidates, we will need to contract with third-party manufacturers to produce our product candidates.
We currently rely on third-party manufacturers for the manufacture of plasmid used in the production of our product candidates. We do not have a long term supply agreement with any of the third-party manufacturers, and we purchase our required supply on a purchase order basis.
• the possible breach of the manufacturing agreement by the third party;
• the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and
• reliance on the third party for regulatory compliance, quality assurance, safety, and pharmacovigilance and related reporting.
• a collaboration partner may shift its priorities and resources away from our product candidates due to a change in business strategies, or a merger, acquisition, sale or downsizing;
• a collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons;
• a collaboration partner may cease development in therapeutic areas which are the subject of our strategic collaboration;
• a collaboration partner may not devote sufficient capital or resources towards our product candidates;
• a collaboration partner may change the success criteria for a product candidate thereby delaying or ceasing development of such candidate;
• a significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;
• a collaboration partner could develop a product that competes, either directly or indirectly, with our product candidate;
• a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;
• a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;
• a collaboration partner may terminate a strategic alliance;
• a dispute may arise between us and a partner concerning the research, development or commercialization of a product candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation or arbitration which may divert management attention and resources; and
• a partner may use our products or technology in such a way as to make us subject to litigation with a third party.
If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our research, clinical development, manufacturing or commercialization efforts related to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator. If we are unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition terminated collaborative agreements, we may have to delay or discontinue further development of one or more of our product candidates, undertake development and commercialization activities at our own expense or find alternative sources of capital. Moreover, any collaborative partners we enter into agreements with in the future may shift their priorities and resources away from our product candidates or seek to renegotiate or terminate their relationships with us.
We currently in-license certain intellectual property from UCL Business, Plc, or UCLB, and Brandeis University, or Brandeis. We are a party to agreements with UCL for certain technology and AAV vector-related patents and with Brandeis for certain preclinical technology for the treatment of ALS, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us. For example, in exchange for the rights granted to us by UCL, we are obligated to pay an annual management fee, milestone payments for certain commercial sales thresholds, and a certain percentages of proceeds on sublicensing revenues. If we fail to comply with our obligations to UCL, Brandeis, or any of our other collaborators, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
We may rely on other third parties from whom we license proprietary technology to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property we license from them. We may have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that may be licensed to us. It is possible that the licensors' infringement proceeding or
defense activities may be less vigorous than if we conduct them ourselves. The licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their larger size and cash resources or greater clinical development and commercialization capabilities. There can be no assurance that we will be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to acquire. Furthermore, we may be unable to in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties, which we identify as necessary for our product candidates.
If we are unable to obtain and maintain patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
If the patent applications we hold or have in-licensed with respect to our development programs and product candidates fail to issue, if their validity, breadth or strength of protection is threatened, or if they fail to
provide meaningful exclusivity for any of our current or future product candidates or technology, it could dissuade companies from collaborating with us to develop product candidates, encourage competitors to develop competing products or technologies and threaten our ability to commercialize future product candidates. Any such outcome could harm our business.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Thus, even if our patent applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our current or future product candidates, we may be open to competition from generic versions of such products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Our commercial success depends, in part, upon our ability to develop, manufacture, market and sell our product candidates without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Litigation relating to infringement or misappropriation of patent and other intellectual property rights in the pharmaceutical and biotechnology industries is common, including patent infringement lawsuits, interferences, oppositions and inter partes reviews, and reexamination proceedings before the U.S. Patent and Trademark Office, or USPTO, and corresponding foreign patent offices. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the biotechnology and pharmaceutical industries, have employed intellectual property litigation as a means to gain an
advantage over their competitors. Numerous U.S., EU and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates, and as the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the intellectual property rights of third parties. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.
Competitors may infringe our patents or other intellectual property. If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of
novelty, obviousness lack of written description, or non-enablement. Third parties might allege unenforceability of our patents because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Our patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in
certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution, but, the complexity and uncertainty of European patent laws has also increased in recent years. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business.
The USPTO, European and other patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, European and other patent agencies over the lifetime of a patent. While an inadvertent failure to make payment of such fees or to comply with such provisions can in many cases be cured by additional payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance with such provisions will result in the abandonment or lapse of the patent or patent application, and the partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If we or our licensors fail to maintain the patents and patent applications covering our product candidates or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our product candidates in any indication for which they are approved.
In addition, we may decide to abandon national and regional patent applications while they are still pending. The grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications may be rejected by the relevant patent office, while substantively similar applications are granted by others. For example, relative to other countries, China has a heightened requirement for patentability and specifically requires a detailed description of medical uses of a claimed drug. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors' patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other
proceedings. Generic drug manufacturers may develop, seek approval for and launch generic versions of our products. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.
In the United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period of the patent term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. In the European Union, our product candidates may be eligible for term extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner. The resulting reduction of years of revenue from applicable products could be substantial.
• others may be able to make products that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;
• others, including inventors or developers of our owned or in-licensed patented technologies who may become involved with competitors, may independently develop similar technologies that function as alternatives or replacements for any of our technologies without infringing our intellectual property rights;
• we or our licensors or our other collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license;
• we or our licensors or our other collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license;
• we or our licensors may fail to meet obligations to the U.S. government with respect to in-licensed patents and patent applications funded by U.S. government grants, leading to the loss of patent rights;
• it is possible that our pending patent applications will not result in issued patents;
• it is possible that there are prior public disclosures that could invalidate our or our licensors' patents;
• issued patents that we own or exclusively license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
• our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
• ownership, validity or enforceability of our or our licensors' patents or patent applications may be challenged by third parties; and
• the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may
discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor's discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. Our trademark MeiraGTx has been registered in the EU and a U.S. application is pending. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, collaborators and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees' former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful, litigation could result in substantial cost and reputational loss and be a distraction to our management and other employees.
As of March 31, 2018, we had 59 full-time employees. We will need to significantly expand our organization, and we may have difficulty identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our potential ability to generate revenue could be reduced and we may not be able to implement our business strategy. Many of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can discover and develop product candidates and operate our business will be limited.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Alexandria Forbes, Ph.D., our President and Chief Executive Officer, Rich Giroux, our Chief Operating Officer and Stuart Naylor, Ph.D., our Chief Development Officer, as well as the other principal members of our management, scientific and clinical teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time and, for certain of our executive officers, entitle them to receive severance payments in connection with their voluntary resignation of employment. Additional details regarding these arrangements can be found in the section "Executive Compensation—Executive Compensation Arrangements."
If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the
competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to develop and commercialize product candidates will be limited.
We expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product candidate development, regulatory affairs and sales, marketing and distribution. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to devote time to managing these growth activities. To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Our inability to effectively manage the expansion of our operations may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
• impairment of our business reputation and significant negative media attention;
• withdrawal of participants from our clinical trials;
• significant costs to defend the related litigation and related litigation;
• distraction of management's attention from our primary business;
• substantial monetary awards to patients or other claimants;
• inability to commercialize our product candidates;
• product recalls, withdrawals or labeling, marketing or promotional restrictions;
• decreased demand for our product candidates, if approved for commercial sale; and
• loss of revenue.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, clinical trial liability, employment practices liability, property, auto, workers' compensation, umbrella, and directors' and officers' insurance.
Any additional product liability insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for our product candidates, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the commercialization of any product candidates we develop. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
Misconduct by our employees and independent contractors, including consultants, vendors, and any third parties we may engage in connection with development and commercialization, could include intentional, reckless or negligent conduct or unauthorized activities that violate: (i) the laws and regulations of the FDA, EMA and other similar regulatory authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) data privacy, security, fraud and abuse and other healthcare laws and regulations; or (iv) laws that require the reporting of true, complete and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject
to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other U.S. federal healthcare programs or healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.
Following the vote of a majority of the eligible members of the electorate in the United Kingdom to withdraw from the European Union in a national referendum held on June 23, 2016, the U.K. government served notice under Article 50 of the Treaty of the European Union on March 29, 2017 to formally initiate a withdrawal process. The United Kingdom and the European Union have a two-year period under Article 50 to negotiate the terms for withdrawal. Any extension of the negotiation period for withdrawal will require the consent of all of the remaining 27 member states. The referendum and withdrawal have created significant uncertainty about the future relationship between the United Kingdom and the European Union. Lack of clarity about future U.K. laws and regulations as the United Kingdom determines which EU-derived laws and regulations to replace or replicate as part of a withdrawal, including healthcare and pharmaceutical regulations; financial laws and regulations; tax and free trade agreements; intellectual property rights; supply chain logistics; environmental, health, and safety laws and regulations; immigration laws; and employment laws, could decrease foreign direct investment in the United Kingdom, increase costs, depress economic activity, and restrict our access to capital. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other EU member states pursue withdrawal, barrier-free access between the U.K. and other EU member states or among the European economic area overall could be diminished or eliminated. These developments, or the perception that any of them could occur, have had and may continue to have a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates, and credit ratings may be especially subject to increased market volatility. In addition, changes to U.K. border and immigration policy could occur as a result of the United Kingdom's withdrawal from the European Union, affecting our ability to recruit and retain employees from outside the United Kingdom. Any of these factors could have an adverse effect on our business, financial condition, results of operations, and prospects.
Further, the vote for the United Kingdom's withdrawal from the European Union has resulted in a decision to move the EMA from the United Kingdom to the Netherlands, with operations currently scheduled to begin in the Netherlands by end of March 2019. This transition may cause disruption in the administrative and medical scientific links between the EMA and the UK Medicines and Healthcare products Regulatory Agency, or the MHRA, including delays in granting clinical trial authorization or marketing authorization, disruption of importation and export of active substance and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized formulations. The cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of products in the European Union and/or the United Kingdom.
Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the pound sterling and the U.S. dollar, may adversely affect us. Although some of our operations are based in the United Kingdom, we source research and development, manufacturing, consulting and other services from the United States and the European Union. Further, potential future revenue may be derived from abroad, particularly from the United States. As a result, our business and the market price of our securities may be affected by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the euro, which may have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place.
Risks Related to Our Ordinary Shares and this Offering
An active trading market for our ordinary shares may not develop.
Prior to this offering, there has been no public market for our ordinary shares. Although we have been approved to list our ordinary shares on The Nasdaq Global Select Market, or Nasdaq, an active trading market for our shares may never develop or be sustained following this offering. Any delay in the commencement of trading of our ordinary shares on Nasdaq would impair the liquidity of the market for our ordinary shares and make it more difficult for holders to sell their shares. The initial public offering price for our ordinary shares will be determined through negotiations with the underwriters. Among the factors considered in determining the initial public offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. If an active market for our ordinary shares does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares, or at all.
The market price of our ordinary shares may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our ordinary shares in this offering.
Our share price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your ordinary shares at or above the initial public offering price. The market price for our ordinary shares may be influenced by many factors, including:
• the success of competitive products or technologies;
• actual or expected changes in our growth rate relative to our competitors;
• results of clinical trials of our product candidates or those of our competitors;
• developments related to our existing or any future collaborations;
• regulatory or legal developments in the United States and other countries;
• development of new product candidates that may address our markets and make our product candidates less attractive;
• changes in physician, hospital or healthcare provider practices that may make our product candidates less useful;
• announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
• developments or disputes concerning patent applications, issued patents or other proprietary rights;
• the recruitment or departure of key personnel;
• the level of expenses related to any of our product candidates or clinical development programs;
• failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
• the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
• actual or expected changes in estimates as to financial results, development timelines or recommendations by securities analysts;
• variations in our financial results or those of companies that are perceived to be similar to us;
• changes in the structure of healthcare payment systems;
• market conditions in the pharmaceutical and biotechnology sectors;
• general economic, industry and market conditions;
• changes in accounting principles; and
• the other factors described in this "Risk Factors" section and elsewhere in this prospectus.
In addition, the stock market in general, and Nasdaq and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a security has been volatile, holders of that security have sometimes instituted securities class action litigation against the issuer. If any of the holders of our ordinary shares were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our senior management would be diverted from the operation of our business. Any adverse determination in litigation could also subject us to significant liabilities. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause the price of our ordinary shares to decline rapidly and unexpectedly. If the market price of our ordinary shares after the completion of this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
After this offering, our executive officers, directors and principal shareholders, if they choose to act together, will continue to have the ability to control or significantly influence all matters submitted to shareholders for approval.
Upon the closing of this offering, based on the number of ordinary shares outstanding as of April 30, 2018, our executive officers, directors and shareholders who owned more than 5% of our outstanding ordinary shares before this offering and their respective affiliates will, in the aggregate, hold ordinary shares representing approximately 53.0% of our outstanding ordinary shares. In addition, based on the number of ordinary shares outstanding as of April 30, 2018, Kadmon Corporation, LLC owned 16.9% of our outstanding ordinary shares before this offering and is expected to own ordinary shares representing approximately 13.0% of our outstanding voting shares upon the closing of this offering.
Certain of our existing stockholders and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $40.0 million of our ordinary shares in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because
indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The foregoing discussion does not reflect any potential purchases by these potential purchasers. See "Principal Shareholders" for more information regarding the ownership of our outstanding ordinary shares by our executive officers, directors and their affiliates.
If you purchase ordinary shares in this offering, you will suffer immediate dilution of your investment.
The initial public offering price of our ordinary shares will be substantially higher than the net tangible book value per share of our ordinary shares. Therefore, if you purchase our ordinary shares in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or warrants or to executive officers in connection with this offering, you will incur further dilution. Based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $11.06 per share as of March 31, 2018, representing the difference between our pro forma as adjusted net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of ordinary shares in this offering will have contributed approximately 27.0% of the aggregate price paid by all purchasers of our ordinary shares but will own only approximately 18.4% of our ordinary shares outstanding after this offering.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our ordinary shares. We expect that we will use the net proceeds of this offering to advance our clinical and preclinical programs, develop our gene regulation technology, invest in our vector design and production platform, build-out our internal manufacturing capacity, expand our intellectual property portfolio and pursue additional research and development activities as set forth under "Use of Proceeds." However, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a negative impact on our business, cause the price of our ordinary shares to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.
Sales of a substantial number of our ordinary shares in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our ordinary shares. After this offering, we will have outstanding 27,184,140 ordinary shares (or 27,934,140 ordinary shares if the underwriters' exercise their option to purchase additional ordinary shares in full). This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Substantially all of the remaining 22,184,140 ordinary shares will be restricted as a result of securities laws or lock-up agreements but will become eligible to be sold after this offering as described in the "Shares Eligible for Future Sale" and "Underwriting" sections of this prospectus. Moreover, after this offering, holders of an aggregate of 16,123,234 ordinary shares will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders, until such shares can otherwise be sold without restriction under Rule 144 or until the rights terminate pursuant to the terms of the shareholders agreement between us and such holders. We also intend to register 4,669,342 ordinary shares subject to equity awards issued or reserved for future issuance under our equity compensation plans on a registration statement on Form S-8. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described above. Any sales of securities by these shareholders could have a negative impact on the trading price of our ordinary shares.
Certain of our existing shareholders and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $40.0 million of our ordinary shares in this offering at the initial public offering price per share. Any such shares purchased by shareholders who are considered to be our affiliates cannot be resold in the public market immediately following this offering as a result of restrictions under securities laws, but will be able to be sold following the expiration of these restrictions as described in the "Shares Eligible for Future Sale."
We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a "large accelerated filer," our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure in this prospectus;
• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;
• reduced disclosure obligations regarding executive compensation; and
We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our ordinary shares less attractive if we rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq listing
requirements and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our ordinary shares, our share price and trading volume could decline.
The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our shares could be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our share performance, or if any of our preclinical studies or clinical trials and operating results fail to meet the expectations of analysts, our share price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
Anti takeover provisions in our organizational documents and Cayman Islands law may discourage or prevent a change of control, even if an acquisition would be beneficial to our shareholders, which could depress the price of our ordinary shares and prevent attempts by our shareholders to replace or remove our current management.
Our memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. Our board of directors is divided into three classes with staggered, three year terms. Our board of directors has the ability to designate the terms of
and issue preferred shares without shareholder approval. We are also subject to certain provisions under Cayman Islands law that could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our ordinary shares. See "Description of Share Capital."
Certain of our directors and management and certain of the other parties named in this prospectus reside outside the United States. A significant portion of our assets and such persons' assets are located outside the United States. As a result, it may be difficult or impossible for investors to effect service of process upon us within the United States or other jurisdictions, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. See "Enforcement of Civil Liabilities."
Our corporate affairs and the rights of holders of ordinary shares are governed by Cayman Islands law, including the provisions of the Cayman Islands Companies Law (2018 Revision), or the Companies Law, the common law of the Cayman Islands and by our memorandum and articles of association. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States. See "Description of Share Capital and Articles of Association—Differences in Corporate Law" in this prospectus for a description of the principal differences between the provisions of the Companies Law applicable to us and, for example, the Delaware General Corporation Law relating to shareholders' rights and protections.
Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), requires that beginning with our second annual report following our initial public offering, management assess and report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control over
financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act, or Section 404(b), requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that implement Section 404(b) until such time as we are no longer an "emerging growth company."
Under current U.K. law, a company's accumulated realized profits must exceed its accumulated realized losses (on a non-consolidated basis) before dividends can be paid. Therefore, we must have distributable profits before issuing a dividend. We have never declared or paid any cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our ordinary shares would be your sole source of gain on an investment in our ordinary shares for the foreseeable future. See the "Dividend Policy" section of this prospectus for additional information.
It is the intention of our board of directors to conduct our affairs so that the central management and control of the company is exercised in the United Kingdom. As a result, we expect to be treated as resident in the United Kingdom for UK tax purposes. Accordingly, we expect to be subject to UK taxation on our income and gains, except where an exemption applies.
Based on the current and anticipated value of our assets, including goodwill, and the composition of our income, assets and operations, we do not believe we were a "passive foreign investment company," or PFIC, for the taxable year ending on December 31, 2017, and do not expect to be a PFIC for the current taxable year. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the U.S. Internal Revenue Service, or the IRS, will not take a contrary position. Furthermore, a separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. Accordingly, we cannot assure you that we were not a PFIC for our taxable year ending on December 31, 2017 and that we will not be a PFIC for our current taxable year or any future taxable year. A non-U.S. company will be considered a PFIC for any taxable year if (i) at least 75% of its gross income is passive income (including interest income), or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. If we were to be classified as a PFIC for any taxable year during which a U.S. Holder (as defined below under "Material U.S. Federal Income Tax Consequences") holds our ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder, including (i) the treatment of all or a portion of any gain on disposition of our ordinary shares as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) the obligation to comply with certain reporting requirements. See "Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Rules."
The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities, referenced herein as the Tax Reform Act. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions and the use of net operating losses, adopting elements of a territorial tax system and introducing certain anti-base erosion provisions. We continue to examine the impact this tax reform legislation may have on our business. The effect of the Tax Reform Act on our business, whether adverse or favorable, is uncertain, and may not become evident
for some period of time. U.S. Holders should consult their legal and tax advisors regarding any such legislation and the potential tax consequences of investing in our ordinary shares.
We have significant net operating losses, or NOLs, and U.K. carryforward tax losses which we may not be able to realize or which may be restricted following the Corporate Reorganization or any future change of control. We also benefit from certain tax incentive regimes, such as research and development tax credits, in the jurisdictions in which we operate and any adverse change to these regimes, the application thereof or challenges to the tax position we have adopted under these regimes could adversely affect our results of operations and financial condition.
As of December 31, 2017, we had federal and state NOL carryforwards in the United States of $7.8 million and $7.8 million, respectively, and cumulative carryforward tax losses in the United Kingdom of $40.0 million, which we expect to be available to reduce future taxable income subject to any relevant restrictions (including those in the UK that limit the percentage of profits that can be reduced by carried forward losses). The U.S. federal and state NOL carry forwards will begin to expire in 2035 and the U.K. carryforward tax losses will continue indefinitely, subject to relevant restrictions, under current UK legislation. Also, as of December 31, 2017, we had research and development credits in the U.S. in the amount of $697,000.
The NOL carry forwards and U.K. carryforward tax losses are subject to review and possible adjustment by the U.S., U.K. and state tax authorities. NOL carryforwards and U.K. carryforward tax losses may become subject to limitations in the event of certain cumulative changes in the ownership interest of significant shareholders, as defined under Sections 382 Internal Revenue Code, as well as the Corporation Tax Act 2010 Part 14 under the UK tax rules. This could limit the amount of NOLs or carryforward tax losses that we can
utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes and changes to the UK (or US) tax rules in respect of the utilization of losses carried forward may further affect the limitation in future years.
Additionally, we have not undertaken a study on the completeness of the U.S. research and development credit. As such, the U.S. research and development credits may change and may be subject to review and adjustment by the tax authorities.
This prospectus contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential," "would" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this prospectus entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research as to such matters is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.
We estimate that the net proceeds to us from our issuance and sale of our ordinary shares in this offering will be approximately $67.0 million, assuming an initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that our net proceeds will be approximately $77.5 million. Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per ordinary share would increase (decrease) the net proceeds to us from this offering by approximately $4.6 million, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million in the number of ordinary shares we are offering would increase (decrease) the net proceeds to us from this offering by approximately $13.9 million, assuming that the initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We anticipate that we will use the net proceeds of this offering, together with cash and cash equivalents of $32.4 million as of March 31, 2018, for the following purposes:
• approximately $20 million to $25 million to further develop our most advanced product candidates, AAV-CNGB3, AAV-CNGA3, AAV-RPGR, AAV-RPE65 and AAV-AQP1 through completion of Phase 1/2 trials;
• approximately $10 million to $15 million to scale up our manufacturing facility and related processes;
• approximately $10 million to $15 million to fund research and development of our other pipeline product candidates and technologies; and
• the remainder, if any, to fund pivotal trials for AAV-CNGB3, AAV-CNGA3, AAV-RPGR and AAV-RPE65, new and ongoing research and development activities and for working capital and other general corporate purposes.
This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We may also use a portion of the net proceeds to in-license, acquire or invest in additional businesses, technologies, products or assets, although currently we have no specific agreements, commitments or understandings in this regard. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to develop product candidates can be difficult and we anticipate that we will need additional funds to complete the development of any product candidates we identify. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the third quarter of 2020. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.
Pending our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
We have never declared or paid any cash dividends on our ordinary shares. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. However, if we do pay a cash dividend on our ordinary shares in the future, we will only pay such dividend out of our profits or share premium (subject to solvency requirements) as permitted under Cayman Islands law.
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2018, as follows:
• on an actual basis reflecting the capitalization of MeiraGTx Limited;
• on a pro forma basis to reflect (a) the Corporation Reorganization described under "Summary—Corporate Reorganization", (b) the conversion of all outstanding preferred shares, including preferred shares issued in connection with the exercise of warrants for cash in an amount equal to $9.7 million, into ordinary shares prior to the closing of this offering, (c) the reclassification of the related warrant liability into capital in excess of nominal value, and (d) our issuance of 4.7 million preferred shares in April 2018 for aggregate proceeds of $12.7 million; and
• on a pro forma as adjusted basis to give further effect to (a) the issuance of 1,306,348 ordinary shares (435,450 shares of which will vest upon closing of the offering), which reflects the Executive IPO Grants, plus the accrual of expenses in the amount of $6.5 million, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, related to our obligation to pay associated income taxes incurred by the named executive officers in connection therewith (such $6.5 million amount representing only one-third of our total obligation to pay income taxes incurred by the named executive officers upon vesting of the Executive IPO Grants, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus) and (b) our issuance and sale of 5,000,000 ordinary shares in this offering at an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other financial information contained in this prospectus.
Actual,
MeiraGTx
Limited Pro Forma,
Holdings plc Pro Forma As
Adjusted,
Holdings plc(1)
Warrant liability
$ 2,010,225 $ — $ —
Series C preferred shares, $0.00001 nominal value per share; 9,361,141 shares issued and outstanding, actual; no shares, issued and outstanding, pro forma and pro forma as adjusted
97,351,080 — —
Shareholders' (deficit) equity:
Ordinary shares, $0.00003881 nominal value per share; 9,336,540 shares issued and outstanding, actual; 20,877,792 shares issued and outstanding, pro forma; 27,184,140 shares issued and 26,313,242 shares outstanding, pro forma as adjusted
23,691,708 145,336,087 218,867,607
Accumulated other comprehensive loss
(2,780,242 ) (2,780,242 ) (2,780,242 )
(81,827,196 ) (82,003,179 ) (95,066,679 )
(60,915,366 ) 60,553,476 121,021,741
(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, capital in excess of nominal value, total shareholders' equity and total capitalization by $4.6 million, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million in the number of ordinary shares offered by us at the assumed initial public offering price per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, capital in excess of nominal value, total shareholders' equity and total capitalization by approximately $13.9 million.
The number of shares in the table above includes 37,270 unvested restricted shares and does not include:
• 1,614,346 ordinary shares issuable upon exercise of share options outstanding under our 2016 Plan as of March 31, 2018, at a weighted-average exercise price of $5.32 per ordinary share;
• 3,054,996 ordinary shares reserved for future issuance under our 2018 Plan, which will become effective in connection with this offering, as well as any automatic increases in the number of our ordinary shares reserved for future issuance under the 2018 Plan; and
• 509,166 ordinary shares reserved for future issuance under our 2018 ESPP, which will become effective in connection with this offering, as well as any automatic increases in the number of our ordinary shares reserved for future issuance under our 2018 ESPP.
If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per ordinary share and the pro forma as adjusted net tangible book value per ordinary share after this offering.
As of March 31, 2018, we had a historical net tangible book value of $22.4 million, or $2.40 per ordinary share. Our historical net tangible book value per share represents total tangible assets less total liabilities, divided by the number of our ordinary shares outstanding as of March 31, 2018.
Our pro forma net tangible book value as of March 31, 2018 was $46.6 million, or $2.23 per ordinary share. Pro forma net tangible book value represents the amount of our total tangible assets less total liabilities, after giving effect to (a) the Corporate Reorganization described under "Summary—Corporate Reorganization", (b) the conversion of all outstanding preferred shares, including preferred shares issued in connection with the exercise of warrants for cash in an amount equal to $9.7 million, into ordinary shares prior to the closing of this offering, (c) the reclassification of the related warrant liability into capital in excess of nominal value, and (d) our issuance of 4.7 million preferred shares in April 2018 for aggregate proceeds of $12.7 million. Pro forma net tangible book value per ordinary share represents our pro forma net tangible book value divided by the total number of ordinary shares outstanding as of March 31, 2018, after giving effect to the pro forma adjustment described above.
After giving further effect to (a) the issuance of the Executive IPO Grants plus the accrual of expenses in the amount of $6.5 million, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, related to our obligation to pay associated income taxes incurred by the named executive officers (such $6.5 million amount representing only one-third of our total obligation to pay income taxes incurred by the named executive officers upon vesting of the Executive IPO Grants, based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus) and (b) receipt of the net proceeds from our issuance and the sale of 5,000,000 ordinary shares in this offering at an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been approximately $107.1 million, or approximately $3.94 per ordinary share. This amount represents an immediate increase in pro forma net tangible book value of $1.71 per ordinary share to our existing shareholders and an immediate dilution of approximately $11.06 per ordinary share to new investors participating in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per ordinary share after this offering from the amount of cash that a new investor paid for an ordinary share. The following table illustrates this dilution:
Assumed initial public offering price per ordinary share
Historical net tangible book value per ordinary share as of March 31, 2018
Decrease per ordinary share attributable to the conversion of
our preferred shares
(0.17 )
Pro forma net tangible book value per ordinary share as of March 31, 2018
Increase per ordinary share attributable to this offering
Pro forma as adjusted net tangible book value per ordinary share after this offering
Dilution per ordinary share to new investors in this offering
Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per ordinary share after this offering by $0.17, and dilution in
pro forma net tangible book value per ordinary share to new investors by $0.17, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase of 1.0 million in the number of ordinary shares offered by us would increase our pro forma as adjusted net tangible book value per ordinary share after this offering by $0.36 per ordinary share and decrease the dilution to new investors by $0.36 per ordinary share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. A decrease of 1.0 million in the number of ordinary shares offered by us would decrease our pro forma as adjusted net tangible book value per ordinary share after this offering by $0.39 per ordinary share and increase the dilution to new investors by $0.39 per ordinary share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional ordinary shares in full, the pro forma as adjusted net tangible book value after this offering would be $4.21 per ordinary share, the increase in pro forma net tangible book value per ordinary share would be $0.30 and the dilution per share to new investors would be $10.79 per ordinary share, in each case assuming an initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
The following table summarizes the pro forma as adjusted basis described above, as of March 31, 2018, the differences between the number of ordinary shares purchased from us, the total consideration paid to us in cash and the average price per share that existing shareholders and new investors paid. The calculation below is based on an assumed initial public offering price of $15.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Shares Purchased Total Consideration Average Price
Existing shareholders
22,184,140 81.6 % $ 128,742,388 63.2 % $ 5.80
5,000,000 18.4 75,000,000 36.8 $ 15.00
27,184,140 100.0 % $ 203,742,388 100.0 %
Certain of our existing shareholders and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $40.0 million of our ordinary shares in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The table above does not reflect any potential purchases by these potential purchasers.
The foregoing tables and calculations are based on the number of our ordinary shares outstanding as of March 31, 2018 (which included 37,270 unvested restricted shares subject to repurchase), after giving effect to the automatic conversion of all preferred shares into ordinary shares in connection with this offering, and exclude:
• 1,614,346 ordinary shares issuable upon exercise of share options outstanding under our 2016 Plan as of March 31, 2018, at a weighted-average exercise price of $5.32 per share;
• 3,054,996 additional ordinary shares reserved for future issuance under our 2018 Plan, which will become effective in connection with this offering, as well as any automatic increases in the number of our ordinary shares reserved for future issuance under the 2018 Plan; and
To the extent any of these outstanding options is exercised, there will be further dilution to new investors. If all of such outstanding options had been exercised as of March 31, 2018, the pro forma as adjusted net tangible book value per ordinary share after this offering would be $4.01, and total dilution per ordinary share to new investors would be $10.99.
If the underwriters exercise their option to purchase additional ordinary shares in full:
• the percentage of our ordinary shares held by existing shareholders will decrease to approximately 79.4% of the total number of our ordinary shares outstanding after this offering; and
• the number of shares held by new investors will increase to 5,750,000, or approximately 20.6% of the total number of our ordinary shares outstanding after this offering.
The following tables present our selected consolidated financial as of the dates and for the periods indicated. We have derived the consolidated statement of operations and comprehensive loss data for the years ended December 31, 2016 and 2017 from our audited consolidated financial statements appearing at the end of this prospectus. We have derived the consolidated balance sheet data as of March 31, 2018 and the consolidated statement of operations and comprehensive loss data for the three months ended March 31, 2017 and 2018 from our unaudited financial statements included elsewhere in this prospectus. These unaudited financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of such financial data.
Our historical results are not necessarily indicative of the results that should be expected in any future period. You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus
Convertible note inducement
Change in fair market value of warrant liability
Net loss attributable to MeiraGTx ordinary shareholders
(1) See Note 12 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical basic and diluted net loss per ordinary share and the weighted-average number of shares used in the computation of the per share amounts. Shares outstanding does not give effect to the anticipated 1 for 3.881 reverse share split (by way of consolidation of the share capital of the Company) described elsewhere in this prospectus.
As of December 31, As of March 31,
$ 17,476,641 $ 8,548,638 $ 32,356,851
$ 6,856,572 $ 21,880,853 $ 14,345,189
Total shareholders' deficit
$ (17,139,083 ) $ (47,365,265 ) $ (60,915,366 )
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of financial condition and operating results together with the section captioned "Selected Financial Data" and our financial statements and the related notes appearing at the end of this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the prospectus captioned "Risk Factors" and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
MeiraGTx Holdings plc was incorporated under the laws of the Cayman Islands to become the holding company of our business pursuant to our Corporate Reorganization. Prior to this offering, MeiraGTx Holdings plc will have only engaged in activities incidental to its formation, the Corporate Reorganization and this offering. Accordingly, financial information for MeiraGTx Holdings plc and a discussion and analysis of its results of operations and financial condition for the period of its operations prior to the Corporate Reorganization would not be meaningful and are not presented. Following the Corporate Reorganization, our financial statements will present the results of operations of MeiraGTx Holdings plc and its consolidated subsidiaries.
We are a vertically integrated, clinical stage gene therapy company with four ongoing clinical programs and a broad pipeline of preclinical and research programs. We have core capabilities in viral vector design and optimization, gene therapy manufacturing as well as a potentially transformative gene regulation technology. Led by an experienced management team, we have taken a portfolio approach by licensing, acquiring and developing technologies that give us depth across both product candidates and indications. Though initially focusing on the eye, salivary gland and central nervous system, we intend to expand our focus in the future to develop additional gene therapy treatments for patients suffering from a range of serious diseases.
We are a private limited company incorporated under the laws of England and Wales, and were formed and commenced operations in 2015. Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. Since our formation, we have devoted substantially all of our resources to developing our technology platform, establishing our viral vector manufacturing facility and developing manufacturing processes, advancing the product candidates in our ophthalmology, salivary gland and neurodegenerative disease programs, building our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, and providing general and administrative support for these operations. In 2016, we completed the acquisition of assets held by BRI-Alzan, Inc., a Delaware corporation, including a worldwide license agreement to develop certain preclinical technology for the treatment of ALS. To date, we have financed our operations primarily with cash on hand and proceeds from the sales of our Series C preferred shares and Series A ordinary shares. Through March 31, 2018, we received gross proceeds of approximately $97.6 million from sales of our Series C preferred shares. In addition, from April 1, 2018 through April 30, 2018, we issued 1,212,697 Series C preferred shares for gross proceeds of $12.7 million. As of April 30, 2018, we had cash and cash equivalents of $39.8 million.
We are a clinical stage company and have not generated any product revenues to date. We have four clinical programs and a pipeline of preclinical programs. Since inception, we have incurred significant operating losses. Our net losses for the three months ended March 31, 2017 and 2018 were $6.8 million and $16.4 million, respectively, and for the years ended December 31, 2016 and 2017 were $19.5 million and $31.1 million, respectively. As of March 31, 2018, we had an accumulated deficit of $81.8 million. We do not expect to generate revenue from sales of any products for several years, if at all.
Our total operating expenses were $7.0 million and $18.0 million for the three months ended March 31, 2017 and 2018, respectively, and were $20.1 million and $31.7 million for the years ended December 31, 2016 and 2017, respectively. We expect our operating expenses to increase substantially in connection with our ongoing development activities related to our product candidates. We anticipate that our expenses will increase due to costs associated with our clinical development program targeting in achromatopsia due to mutations in the CNGB3 or CNGA3 gene, inherited retinal dystrophy caused by mutations in RPE65, or RPE65-deficiency, and X-Linked retinitis pigmentosa, or XLRP. In addition, we expect to incur increasing costs associated with our clinical activities for hAQP1 for the treatment of radiation-induced xerostomia. We also expect to incur expenses related to research activities in additional therapeutic areas to expand our pipeline, hiring additional personnel in manufacturing, research, clinical trials, quality and other functional areas, and associated cash and share-based compensation expense, as well as the further development of internal manufacturing capabilities and capacity and other associated costs including the management of our intellectual property portfolio. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.
As a result of these anticipated expenditures, we will require additional capital beyond the proceeds of this offering, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates. Furthermore, upon closing of this offering, we expect to incur additional costs associated with being a public company. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate certain of our research and development programs.
Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the third quarter of 2020. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. See "—Liquidity and Capital Resources." Because of the numerous risks and uncertainties associated with the development of our product candidates, any future product candidates, our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
• the initiation, progress, timing, costs and results of our planned clinical trials for our product candidates;
• the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
• the costs and timing of further developing our manufacturing facilities in the United Kingdom;
• the costs of operating as a public company.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.
• employee-related expenses, including salaries, benefits and travel of our research and development personnel;
• expenses incurred in connection with third-party vendors that conduct clinical and preclinical studies and manufacture the drug product for the clinical trials and preclinical activities;
• acquisition of in-process research and development;
• costs associated with clinical and preclinical activities including costs related to facilities, supplies, rent, insurance, certain legal fees, share-based compensation, and depreciation; and
• expenses incurred with the development and operation of our manufacturing facility.
The following table summarizes our research and development expenses:
December 31, Three Months Ended
2016 2017 Change 2017 2018 Change
Ophthalmology programs
$ 2,026,592 $ 4,133,015 $ 2,106,423 $ 766,505 $ 1,465,179 $ 698,674
Salivary gland programs
967,745 913,706 (54,039 ) 225,101 211,215 (13,886 )
922,127 2,220,843 1,298,716 425,737 604,518 178,781
9,741,798 11,878,287 2,136,489 3,130,144 3,854,023 723,879
$ 14,037,918 $ 22,359,712 $ 8,321,794 $ 4,823,355 $ 6,927,322 $ 2,103,967
We cannot determine with certainty the duration and costs of future clinical trials of our product candidates or any other product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and
timing of clinical trials and development of our existing product candidates or any other product candidate we may develop will depend on a variety of factors, including:
• the scope, rate of progress, expense and results of clinical trials of our existing product candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;
• uncertainties in clinical trial design and patient enrollment rates;
• the actual probability of success for our product candidates, including the safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
• significant and changing government regulation and regulatory guidance;
• the timing and receipt of any marketing approvals; and
• the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
Our consolidated financial statements are presented in U.S. dollars, which is our reporting currency. The financial position and results of operations of our subsidiaries MeiraGTx UK II and MeiraGTx B.V. are measured using the foreign subsidiaries' local currency as the functional currency. MeiraGTx UK II cash accounts holding U.S. dollars are remeasured based upon the exchange rate at the date of remeasurement with the resulting gain or loss included in the consolidated statement of operations and comprehensive loss. Expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the consolidated balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders' equity and as other comprehensive loss on the consolidated statement of operations and comprehensive loss.
Convertible note inducement expense consists of the issuance of a warrant to a convertible note holder as an inducement to convert the note payable into Series C preferred shares.
We have determined that our warrants are classified as liabilities on our balance sheet because the Series C preferred shares underlying the warrants have a redemption feature in the event of a change of control of the
Company. The fair values of the warrants are estimated using the Black-Scholes valuation model with certain assumptions regarding risk free interest rate, expected volatility, expected divided yield and expected life. The Black-Scholes value of the warrants was recorded as a warrant liability and is remeasured quarterly. Any changes in the quarterly valuation of the warrants is charged to operations.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Our consolidated financial statements include the accounts of MeiraGTx Limited and its wholly owned subsidiaries, MeiraGTx, LLC, a Delaware limited liability company, BRI-Alzan, Inc., a Delaware corporation, (the assets of which we acquired in 2016, as described above), MeiraGTx B.V., a Netherlands corporation, and MeiraGTx UK Limited, a limited company incorporated under the laws of England and Wales. The consolidated financial statements also include the accounts of MeiraGTx UK II Limited, a limited company incorporated under the laws of England and Wales, which was a 60% owned subsidiary from April 27, 2015 through April 8, 2016. On April 8, 2016, we acquired the remaining 40% of interest in MeiraGTx UK II Limited.
Our consolidated financial statements are presented in U.S. dollars, our reporting currency. The financial position and results of operations of MeiraGTx UK II and MeiraGTx UK II cash accounts holding U.S. dollars are remeasuring based upon the exchange rate at the date of remeasurement with the resulting gain or loss included in the consolidated statement of operations and comprehensive loss. Expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the consolidated balance sheet dates. The resulting translation gain and loss adjustments are recording directly as a separate component of shareholders' equity and as other comprehensive loss on the consolidated statements of operations and comprehensive loss.
Since our inception in 2015, we have not recorded any U.K. or U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our U.S. research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2017, we had U.S. federal and state net operating loss carryforwards of $7.8 million and $7.8 million, respectively, each of which begin to expire in 2035. We also had U.K. net operating loss carryforwards of $40.0 million, which will continue indefinitely under current U.K. legislation.
Research and development costs are charged to expense as incurred. These costs include, but are not limited to, employee-related expenses, including salaries, benefits and travel of our research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical and preclinical studies and manufacture the drug product for the clinical studies and preclinical activities; acquisition of in-process research and development; facilities; supplies; rent, insurance, certain legal fees, stock-based compensation, depreciation and other costs associated with clinical and preclinical activities and regulatory operations. Refundable research and development tax credits received are recorded as an offset to these costs.
Costs for certain development activities, such as outside research programs funded by us, are recognized based on an evaluation of the progress to completion of specific tasks with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.
We grant share options to employees, non-employee members of our board of directors and non-employee consultants as compensation for services performed. Employee and non-employee members of the board of directors' awards of share-based compensation are accounted for in accordance with ASC 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all share-based payments to employees and non-employee directors, including grants of share options, to be recognized in the statement of operations and comprehensive loss based on their grant date fair values. The grant date fair value of share options is estimated using the Black-Scholes option valuation model.
Using this model, fair value is calculated based on assumptions with respect to (i) the fair value our ordinary shares on the grant date; (ii) expected volatility of our ordinary share price, (iii) the periods of time over which employees and members of our board of directors are expected to hold their options prior to exercise (expected term), (iv) expected dividend yield on our ordinary shares, and (v) risk-free interest rates.
Our ordinary shares have not been traded on a public exchange. Therefore, we do not have sufficient company-specific information available to determine the expected term based on its historical data. As a result, the expected term of share options granted to employees and members of our board of directors is determined using the average of the vesting period and contractual life of the option, an accepted method for our option grants under the SEC's Staff Accounting Bulletin No. 107 and No. 110, Share-Based Payment.
Similarly, we believe that our future volatility will differ materially during the expected term from the volatility that would be calculated from our historical share prices to date. Consequently, expected volatility is based on an analysis of guideline companies in accordance with ASC 718. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future. Risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the option's expected term.
As of January 1, 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, and accounts for forfeitures as they occur from that date. Additionally, excess tax benefits and deficiencies will be recognized as income tax expense or benefit in the income statement. There was no cumulative effect adjustment as we did not issue any options prior to January 1, 2016.
We account for options granted to non-employee consultants under ASC 505-50, Equity-Based Payments to Non-Employees. As such, we estimate the fair value of each such option using the Black-Scholes model, with the expected term of share options granted to non-employees initially equal to the options' maximum contractual life of ten years, at issuance. On each subsequent reporting date until performance is complete, we revalue all outstanding options granted to non-employee consultants during the vesting period of each tranche. Under ASC 505-50, upon re-measurement of each award, income or expense is recognized during its vesting term. Compensation cost relating to awards with service-based graded vesting schedules is recognized as general and administrative and research and development expenses in the consolidated statement of operations and comprehensive loss using the straight-line method.
Restricted Shares
In connection with certain service agreements and research agreements, we have granted restricted Ordinary Shares as compensation. The shares are recognized in the statement of operations and comprehensive loss based on their grant date fair values. Compensation cost relating to share grants with service-based graded vesting schedules is recognized based on the vesting schedule.
Determination of Fair Value of Ordinary Shares
As there has been no public market for our ordinary shares to date, the estimated fair value of our ordinary shares has been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of ordinary shares and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.
Third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The third party estimated the fair value of the equity value of our company using a special case of the market approach known as the backsolve method. The backsolve method was used to solve for the implied total equity value based on our issuances of Series C preferred shares. Consideration was given to the rights and preferences of each of our classes of equity and the expected time to a liquidity event. An option pricing allocation method, or OPM, was selected to allocate the total equity value. The OPM treats ordinary shares and preferred shares as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the ordinary shares have value only if the funds available for distribution to shareholders exceeded the value of the preferred share liquidation preference at the time of the liquidity event, such as a strategic sale or a merger. These third-party valuations resulted in a valuation of our ordinary shares of $7.57, $2.64, $5.63 and $6.02 per share as of December 31, 2016, September 15, 2017, December 31, 2017 and March 31, 2018, respectively.
The decrease in the valuation from December 31, 2016 to September 15, 2017 was due primarily to the Company decreasing the offering price of the Series C preferred shares from $20.96 per share at December 31, 2016 to $10.48 per share at September 15, 2017. Additionally, warrants were issued in connection with the issuance of Series C preferred shares at that time.
In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our ordinary shares as of each grant date, including:
• the prices at which we sold Series C preferred shares and the superior rights and preferences of the Series C preferred shares relative to our ordinary shares at the time of each grant;
• the progress of our research and development programs, including the status and results of clinical trials and preclinical studies for our product candidates;
• our stage of development and commercialization and our business strategy;
• external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;
• our financial position, including cash on hand, and our historical and forecasted performance and operating results;
• the lack of an active public market for our ordinary shares and our Series C preferred shares;
• the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and
• the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used different assumptions or estimates, the fair value of our ordinary shares and our share-based compensation expense could have been materially different.
During 2017, we issued warrants to purchase Series C preferred shares to certain investors. Due to the potential redemption feature of the underlying Series C preferred shares, the warrants have been classified as a liability. Liability accounting requires that the fair value of warrants be remeasured each reporting period with changes recorded in the statement of operations and comprehensive loss. These warrants to purchase Series C preferred shares will remain outstanding until the exercise or expiration of the warrants or the completion of this offering, at which time the warrant liability will be remeasured to fair value and reclassified to capital in excess of nominal value.
For the unobservable inputs for the warrants, the expected volatility was determined at each measurement date by taking an average of the volatility of other publicly traded peer biotechnology companies.
The expected life was determined at each measurement date based upon our estimate of the time until the Company has a conversion event, as described in Note 11 of our consolidated financial statements included elsewhere in this prospectus. The fair value of the Series C preferred shares were based upon recent issuances of our Series C preferred shares on or about these dates.
The estimated fair values of our warrants are not necessarily indicative of the amounts that would be realized in a current market exchange. The determination of the fair value of the warrants are sensitive to changes in in the assumptions used and a change in those inputs could result in a significantly higher or lower fair value measurement. If the volatility were to increase or the expected life were to increase, the fair value of the warrants would increase. Conversely, if the volatility were to decrease or the expected life were to decrease, the fair value of the warrants would decrease.
Series C preferred shares
The Series C preferred shares are not redeemable. However in the event of a Sale (as defined in the Articles of Association), which would include a change of control that is outside of our control, the Series C preferred shares are entitled to receive a payment which is equal to their liquidation value. The feature is being accounted for as a redemption under ASC 480.
We are accounting for our Series C preferred shares under the requirements of ASC 480 which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The carrying value of the Series C preferred shares is presented in as temporary equity and is increased by periodic accretions so that the carrying amount will equal the redemption amount at the estimated date that the Series C preferred shares will be converted into ordinary shares. These increases are affected through charges against additional paid-in capital, to the extent it is available, or accumulated deficit. For all issuances of Series C preferred shares, the difference between the amount invested by the holders of the Series C preferred shares, net of issuance costs and the initial fair value of warrants issued in connection with the Series C preferred shares (if applicable) and the liquidation value of the Series C preferred shares is recorded as accretion over the estimated life of the Series C preferred shares. The accretion is added to net loss to arrive at the net loss available to ordinary shareholders in the calculation of loss per ordinary share.
Comparison of Three Months Ended March 31, 2017 and 2018
The following table summarizes our results of operations for the three months ended March 31, 2017 and 2018, respectively:
Three Months Ended March 31,
$ 2,148,540 $ 11,122,016 $ 8,973,476
6,971,897 18,049,338 11,077,441
(6,971,897 ) (18,049,338 ) (11,077,441 )
-— 669,408 669,408
( 8,126 ) (27,355 ) ( 19,229 )
$ (6,820,385 ) $ (16,403,353 ) $ ( 9,582,968 )
General and administrative expenses were $2.1 million for the three months ended March 31, 2017, compared to $11.1 million for the three months ended March 31, 2018. The increase of $9.0 million was primarily due to increases of $5.8 million in payroll, $3.3 million in stock-based compensation, $0.1 million in consultant costs, $0.1 million in legal and $0.2 million in accounting fees, which was partially offset by decreases of $0.4 million in rent and $0.1 million in depreciation expenses.
Research and development expenses for the three months ended March 31, 2017 were $4.8 million, compared to $6.9 million for the three months ended March 31, 2018. The increase of $2.1 million was primarily due to an increase in costs of $1.8 million related to preparation for production of our manufacturing facility, $0.2 million in license fees and $0.1 million in neurodegenerative research.
Foreign currency gain was $0.1 million for the three months ended March 31, 2017 compared to $1.0 million for the three months ended March 31, 2018. The increase of $0.8 million was primarily due to a weakening U.S. dollar against the pound sterling during the three months ended March 31, 2018.
The change in fair market value of the warrant liability for the three months ended March 31, 2018 was due to the revaluation of warrants, which were issued to certain investors in September and November 2017, using the Black-Scholes valuation model at December 31, 2017 and March 31, 2018. As a result of the revaluation, there was a decrease of $0.7 million in the fair market value of the warrant liability at March 31, 2018, which resulted in a gain being recorded for the three months ended March 31, 2018.
Comparison of Years Ended December 31, 2016 and 2017
The following table summarizes our results of operations for the years ended December 31, 2016 and 2017, respectively:
$ 6,026,529 $ 9,325,017 $ 3,298,488
20,064,447 31,684,729 11,620,282
265,543 1,676,117 1,410,574
— (553,500 ) (553,500 )
32,068 26,073 (5,995 )
(25,440 ) (42,863 ) (17,423 )
General and administrative expenses were $6.0 million for the year ended December 31, 2016, compared to $9.3 million for the year ended December 31, 2017. The increase of $3.3 million was primarily due to increases of $0.8 million in payroll, $0.5 million in legal, $1.7 million in rent and $0.3 million in depreciation expenses.
Research and development expenses for the year ended December 31, 2016 were $14.0 million, compared to $22.4 million for the year ended December 31, 2017. The increase of $8.4 million was primarily due to an increase in costs of $2.5 million related to preparation for production of our manufacturing facility, $0.9 million related costs of consultants, $5.1 million of clinical trial costs related to our ophthalmology programs, $0.8 million in payroll, $1.0 million in neurodegenerative research, and $0.4 million in share-based compensation which was partially offset by a decrease of $0.6 million in acquired research and development related to an asset acquisition in 2016 and the receipt of a $1.7 million research and development credit in the United Kingdom in 2017.
Foreign currency gain was $0.3 million for the year ended December 31, 2016 compared to $1.7 million for the year ended December 31, 2017. The increase of $1.4 million was primarily due to a weakening U.S. dollar against the pound sterling in 2017.
There was no convertible note inducement expense for the year ended December 31, 2016 compared to $0.5 million for the year ended December 31, 2017. The increase of $0.5 million was primarily due to the issuance of a warrant to purchase 231,898 Series C preferred shares in 2017 to a convertible noteholder as an inducement to convert the note into Series C preferred shares.
There was no warrant liability for the year ended December 31, 2016, compared to $0.5 million for the year ended December 31, 2017. The increase of $0.5 million was primarily due to the revaluation of certain warrants, which were issued to certain investors in September and November 2017, using the Black-Scholes valuation model at December 31, 2017.
Since our inception, we have incurred significant operating losses. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of its product candidates. These factors raise substantial doubt about our ability to continue as a going concern. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will increase in connection with conducting preclinical studies and clinical trials for our product candidates, building out internal capacity to have product manufactured to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
We are required to maintain a stand-by letter of credit as a security deposit under a certain lease with ARE, an entity that is under common control with an entity that is a minority shareholder of the Company and whose CEO is on our board of directors. See "Certain Relationships and Related Person Transactions." Our bank requires us to maintain restricted cash balances to serve as collateral for the letter of credit issued to the landlord by the bank. In connection with an amendment to one of the ARE leases in November 2017, one of the letters of credit in the amount of $321,978 and the related restricted cash balance were released in December 2017. As of December 31, 2016 and 2017, the restricted cash balances for the ARE leases were invested in a commercial money market account. The restricted cash balance for the other ARE lease remains at $123,376 through the end of the lease term in December 2021, plus three months. We had $444,844 and $123,376 of restricted cash included in long-term assets as of December 31, 2016 and 2017, respectively, and $444,844 and $123,376 of restricted cash included in long-term assets as of March 31, 2017 and 2018, respectively.
We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily through the sale of our Series C preferred shares and cash on hand.
As of March 31, 2018, we had $32.4 million of cash and cash equivalents.
The following table summarizes our sources and uses of cash for the period presented:
Net cash used in operating activities
(2,593,584 ) (10,535,717 ) (1,737,520 ) (1,210,452 )
20,757,202 19,340,215 196,543 42,401,814
Increase (decrease) in cash
$ 3,795,666 $ (9,250,888 ) $ (7,936,315 ) $ 23,795,393
During the three months ended March 31, 2017, our cash used in operating activities of $6.4 million was primarily due to our net loss of $6.8 million as we incurred expenses associated with research activities on our clinical programs and research activities for our other product candidates and incurred general and administrative expenses. The loss included non-cash charges of $0.9 million, which consisted of $0.9 million of share-based compensation and depreciation of $0.2 million, which was partially offset by a foreign currency gain of $0.2 million. Additionally, current assets, consisting of prepaid expenses and other current assets, increased by $0.5 million.
During the three months ended March 31, 2018, our cash used in operating activities of $17.4 million was primarily due to our net loss of $16.4 million as we incurred expenses associated with research activities on our clinical programs and research activities for our other product candidates and incurred general and administrative expenses. The loss included non-cash charges of $3.2 million, which consisted of $4.3 million of share-based compensation, depreciation of $0.5 million and issuance of Series C preferred shares in connection with a license agreement of $0.1 million, which was partially offset by a foreign currency gain of $1.0 million and a change in the fair value of the warrant liability of $0.7 million. Additionally, current liabilities, consisting of accounts payable, accrued expenses, deferred rent and due to affiliate, increased by $4.2 million.
During the year ended December 31, 2016, our cash used in operating activities of $14.4 million was primarily due to our net loss of $19.8 million as we incurred expenses associated with research activities on our clinical programs and research activities for our other product candidates and incurred general and administrative expenses. The loss included non-cash charges of $3.9 million, which consisted of $2.8 million of share-based compensation, acquired research and development of $0.6 million, issuance of shares for services of $0.3 million and depreciation of $0.2 million. Additionally, current liabilities, consisting of accounts payable, accrued expenses deferred rent and due to affiliate, increased by $2.8 million, which was partially offset by increases in current assets, consisting of prepaid expenses and other current assets, in the amount of $1.3 million.
During the year ended December 31, 2017, our cash used in operating activities of $18.1 million was primarily due to our net loss of $31.0 million as we incurred expenses associated with research activities on our clinical programs and research activities for our other product candidates and incurred general and administrative expenses. The loss included non-cash charges of $3.0 million, which consisted of $3.0 million of share-based compensation, change in fair value of warrant liability in the amount of $0.5 million, convertible note inducement expense of $0.5 million and depreciation of $0.7 million, which was partially offset by a foreign currency gain of $1.7 million. Additionally, current liabilities, consisting of accounts payable, accrued expenses
deferred rent and due to affiliate, increased by $11.1 million, was partially offset by decreases in current assets, consisting of prepaid expenses and other current assets, in the amount of $1.2 million.
Net cash used in investing activities for the three months ended March 31, 2017 and March 31, 2018 of $1.7 million and $1.2 million, respectively, consisted of purchases of property and equipment, primarily for our manufacturing facility.
Net cash used in investing activities for the year ended December 31, 2016 and December 31, 2017 of $2.6 million and $10.5 million, respectively, consisted of purchases of property and equipment, primarily for our manufacturing facility.
Net cash provided by financing activities was $0.2 million for the three months ended March 31, 2017, represented proceeds from the issuance of our Series C preferred shares.
Net cash provided by financing activities was $42.4 million for the three months ended March 31, 2018, represented proceeds of $43.8 million from the issuance of Series C preferred shares, which was partially offset by the payment of a note in the amount of $1.4 million.
Net cash provided by financing activities was $20.8 million for the year ended December 31, 2016, represented proceeds from the issuance of our Series C preferred shares.
Net cash provided by financing activities was $19.3 million for the year ended December 31, 2017, represented proceeds of $16.8 million from the issuance of Series C preferred shares and $2.5 million from the issuance of a note payable.
Our operating expenses increased substantially in 2017 and are expected to increase substantially in the future in connection with our ongoing activities, particularly as we advance our clinical activities including scale-up of manufacturing processes and additional clinical trials. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.
• pursue the preclinical and clinical development of our product candidates;
• scale up our manufacturing processes and capabilities to support our preclinical studies and clinical trials of our product candidates;
• in-license or acquire the rights to other products, product candidates or technologies;
• maintain, expand and protect our intellectual property portfolio;
• hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel; and
• expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company.
Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the third quarter of 2020. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
• the progress, costs and results of our preclinical development and initial clinical trials for our gene therapy programs;
• the progress, costs and results of our additional clinical, research and preclinical development programs in gene therapy;
• the costs and timing of process development and manufacturing scale-up activities associated with our clinical programs;
• our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;
• the scope, progress, results and costs of any product candidates that we may derive from our platform technology or any other product candidates that we may develop;
• the extent to which we in-license or acquire rights to other products, product candidates or technologies; and
• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of ordinary shares. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
The following is a summary of our significant contractual obligations as of December 31, 2017.
Payments Due by Period
Contractual Obligation
1 Year and
3 years and
Operating lease obligation(1)
$ 3,490,362 $ 1,215,723 $ 1,676,375 $ 598,264 $ —
Capitalized, lease obligations(2)
70,304 34,410 35,894 — —
Notes payable(3)
1,527,147 1,527,147 — — —
(1) Represents the leases for office, laboratory, and manufacturing space in London, UK and New York, New York under non-cancelable operating leases that expire between July 2017 and December 2021. The lease for manufacturing space includes a 5-year option that, if exercised, would extend the expiration of that lease through February 2026. The obligation for such extension is not included in the above table.
(2) Represents future payments under capitalized leases for office equipment.
(3) Represents our note payable to ARE East-River Science Park LLC that bears interest at an annual rates of 5.0% and is due on December 31, 2018. The balance includes interest payment obligations.
The contractual obligations table does not include any potential future payments we may be required to make under (1) our license agreements with UCL Business, plc, Brandeis University and other entities or (2) our sponsored research agreements with universities and commercial research organizations. These agreements may be terminated upon 30-90 days written notice and, therefore, the amounts to be paid by us are not fixed or determinable at this time.
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities and foreign currency exchange rates. However, relative to foreign currency exposures as of December 31, 2017, a 10% unfavorable movement in foreign currency exchange rates would not expose us to a significant increase in net loss. We had cash and cash equivalents of $17.5 million and $8.5 million as of December 31, 2016 and 2017, respectively, which consist of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. Other than accounts payable and accrued expenses incurred in the ordinary course of business, we had other debt outstanding of $0 million as of December 31, 2016, and a note payable of $1.4 million as of December 31, 2017.
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an "emerging growth company," which we are, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period.
We have also established a comprehensive platform for the efficient clinical development of the next generation of gene therapies and manufacturing in accordance with cGMP. Our deep understanding of disease models informs our development of potency assays for the cGMP production of our product candidates, and our teams experienced in viral vector design and optimization work closely with our process development team to design viral vectors and develop proprietary production cell lines for efficient scaling of manufacturing processes.
• amyotrophic lateral sclerosis, or ALS—targeting dysregulation of neuronal RNA processing, which we believe may lead to the degeneration of motor neurons that occurs in ALS;
• Alzheimer's disease—targeting endosomal trafficking, which is a central mechanism that we believe underlies Alzheimer's disease; and
• gene regulation—use of our proprietary RNA shape regulation cassette to switch gene therapy product candidates on and off with small molecules, potentially transforming gene therapy technology into a delivery mechanism for a broad array of biologic drugs.
Eye diseases are our first area of clinical focus and we aim to provide treatments with durable, long-term clinical benefit that will halt vision loss in patients. We currently have three ongoing Phase 1/2 clinical programs in IRDs, with an additional program expected to initiate a Phase 1/2 clinical trial in 2019. The targets of our three ongoing Phase 1/2 ophthalmology programs include achromatopsia, or ACHM, related to mutations in CNGB3, X-linked retinitis pigmentosa related to mutations in RPGR, or XLRP-RPGR, and inherited retinal dystrophy caused by mutations in RPE65, or RPE65-deficiency. We also have a product candidate that was manufactured and released for compassionate use under a specials license in the United Kingdom to treat patients with Leber congenital amaurosis 4, or LCA4, caused by mutations in AIPL1. For each of our Phase 1/2 clinical programs we have a prospectively designed natural history study ongoing, which includes the same endpoints as our corresponding gene therapy treatment trial. We believe use of these natural history studies differentiates our programs by providing patient populations to facilitate the efficient execution of our clinical trials and offering insight into the appropriate endpoints for regulatory approval of our gene therapy product candidates. In addition to these clinical programs in IRDs, we have preclinical programs that apply novel approaches to both wet and dry AMD.
The FDA and EMA have granted orphan drug designation to each product candidate in our ongoing clinical programs, including those treating mutations in CNGB3, RPGR and RPE65, as well our product candidate to treat mutations in AIPL1. The FDA has also granted rare pediatric disease designation for our clinical programs treating mutations in RPE65 and CNGB3 and Fast Track designation to our clinical program treating XLRP caused by mutations in RPGR. We have also received PRIME designation from the EMA for our clinical program treating mutations in CNGB3.
The deep scientific and clinical understanding of IRDs driving our approach to gene therapy development helps us to optimize our product candidates for each specific genetic mutation and phenotype. We develop our viral vectors by selecting and modifying proprietary cell specific promoters, selecting appropriate capsids for transfection of target cells and refining the vector for efficient production and scalable manufacturing. Not only does this allow us to synergistically target a portfolio of inherited eye conditions, we also believe it has potential to be applied to the development of gene therapies for other diseases.
Our longstanding relationships with leading institutions in retinal disease treatment, including the Moorfields Eye Hospital in London, the University of Michigan Kellogg Eye Center, Massachusetts Eye and Ear, the Medical College of Wisconsin & Froedtert Hospital and the Casey Eye Institute at the Oregon Health & Science University, provide us with access to experts whose guidance and insight informs our development strategy, as well potential patients for our clinical trials.
Our second area of clinical focus is xerostomia, a chronic and debilitating disorder of the salivary glands in which saliva production is impaired. Xerostomia may be caused by a number of different insults to the salivary
glands, including radiation therapy for head and neck cancer and certain autoimmune diseases. A Phase 1 clinical trial of our gene therapy product candidate, AAV-AQP1, is ongoing in patients who have survived cancer free for five or more years following treatment for head and neck cancer and are suffering from grade 2 or 3 radiation induced late xerostomia, or RIX. There are approximately 170,000 grade 2 or 3 RIX patients who have survived two or more years after radiation treatment for head and neck cancer in the United States, with approximately 10,000 new cases each year. We also intend to initiate a Phase 1/2 clinical trial of AAV-AQP1 for the treatment of patients with chronic xerostomia caused by Sjogren's syndrome, an autoimmune disease affecting more than two million people in the United States.
Neurodegenerative diseases are our third area of focus. Our first target indication is ALS and we expect to file an investigational new drug application, or IND, for our first neurodegenerative disease product candidate in 2019. We believe our approach to treating ALS patients is differentiated because, rather than targeting a specific genetic defect that defines a small subset of ALS patients, we aim to target the underlying cell biology driving motor neuron death in ALS, potentially enabling us to treat a broader patient population that includes both sporadic and inherited forms of the disease. Increasing evidence suggests a critical role of RNA metabolism in neuronal cells, in particular in motor neurons that are specifically affected in ALS. We believe that dysregulation of neuronal RNA processes results in the degeneration of motor neurons that leads to ALS. Using our viral vector product candidate, AAV-UPF1, we target the central quality control system regulating RNA in motor neurons with the aim of enhancing motor neuron survival in ALS patients.
We have an Alzheimer's disease program that is likewise directed towards the underlying cell biology of the disease, in this case endosomal trafficking, a mechanism cells use to cycle proteins to the cell surface. Over the past decade, evidence has emerged supporting endosomal trafficking dysfunction in neurons as a central process in the early etiology of Alzheimer's disease. In particular, a master regulator of trafficking out of the endosomes called retromer has been implicated. We are in the process of identifying what we believe to be the optimal approach to restoring normal endosomal function to the neurons that are the first to be affected in Alzheimer's. In parallel, we are developing and validating biomarkers of endosomal dysfunction and pre-symptomatic Alzheimer's disease. We believe this approach may also provide a framework for treating certain forms of Parkinson's disease that are also associated with endosomal dysfunction.
In addition to our four ongoing clinical programs, we have a broad pipeline of preclinical programs, core capabilities in viral vector design and optimization, gene therapy manufacturing and a potentially transformative gene regulation technology. Utilizing the following key strengths, we aim to develop, commercialize and expand our portfolio of product candidates.
• Deep Expertise in Gene Therapy Development: We believe our expertise in viral vector design, optimization and process development allows us to efficiently advance gene therapy products candidates from preclinical development to cGMP manufacturing and clinical development through commercialization.
• Potentially Transformative Gene Regulation Technology Platform: We are developing proprietary technology to enable innovative gene therapy treatments whose expression can be turned on and off with an easily administered small molecule. We believe the capacity for temporal control of gene therapy products has the potential to transform the gene therapy landscape by opening up new treatment possibilities.
• continue to advance the development of our pipeline of product candidates for the treatment of neurodegenerative disorders;
The figure below depicts the steps in our product engine, including disease selection, design, development/testing, clinical and manufacturing:
Gene Therapy Overview
Gene therapy uses a delivery vehicle, referred to as a vector, to insert a functionally active gene into cells in the body. The gene encodes a therapeutic protein that may block disease pathways or may enhance a deficient pathway. Gene therapy has been studied for over 50 years, with a variety of different viral vectors employed to deliver therapeutic genes. Since the first clinical study of therapeutic gene transfer in humans in 1990, more than 2,300 gene therapy studies covering a broad range of disease targets have been initiated. Recently, the first gene therapies have received regulatory approval, including approval by the FDA of Luxturna for an ophthalmology condition, resulting in a growing acceptance of gene therapy technology as a potentially safe and effective therapeutic approach.
Our current programs use the adeno-associated virus, or AAV, as the vector for delivering gene sequences into a patient's cells. The key components of an AAV vector include: (i) the capsid, or the outer viral protein shell that encloses the target DNA, which is responsible for binding to the cell surface and allowing the therapeutic gene that it is carrying to enter the cell; (ii) the therapeutic gene, or transgene, that encodes the therapeutic protein; and (iii) the promoter, or the DNA sequence that drives the expression of the transgene. AAV is a good vector for gene therapy delivery because of its relative safety and broad applicability. AAV is less immunogenic, or less prone to causing an immune reaction, than previous generations of gene therapy vectors, such as adenoviral vectors and AAV does not readily integrate into the genome of the target cell, reducing the potential for oncogenesis, or the induction of cancer. AAV vectors can transfer a therapeutic gene into, or transduce, numerous cell types. Slight differences in capsid proteins can modulate the efficiency with which
different capsids deliver genes to different cells, thus allowing different AAV capsids to be selected to most effectively target particular cell types.
The therapeutic gene sequence that enters the targeted cell includes both the protein coding region and an engineered promoter sequence that is used to drive functional gene expression. These engineered promoters may be designed to drive different levels of gene expression or to limit gene expression to specific cell types. Additional aspects of the transgene sequence may be engineered for optimal gene expression, such as codon usage and synthetic introns, which may enhance levels of therapeutic protein expression.
Gene therapy can be used to address monogenic diseases, which result mutations in a single gene in a patient's genome. In such cases, the viral vector is used to deliver a normal copy of the gene to the cells that are defective due to the lack of the gene function. The normal gene then drives production of the missing protein and offers a therapeutic benefit in patients with the disease. This gene replacement approach underlies all of our clinical IRD programs.
Rather than replacing a gene that is defective or missing in a monogenic disease, gene therapy can also provide a therapeutic impact by adding a particular new gene function to cells and thereby change cell behavior and function. This is the aim of our salivary gland programs, where our treatment is designed to promote water to flow through otherwise impermeable cells in damaged salivary glands and increase saliva flow into the mouth. Additionally, gene therapy may be used to deliver a therapeutic protein that may block a disease pathway or enhance a deficient cellular pathway in multifactorial diseases such as wet AMD and neurodegenerative diseases, including ALS and Alzheimer's disease.
Importantly, AAV vectors enable targeting of therapeutic genes to non-dividing cells, in which they are thought to remain for the rest of the cell's life. This means that a single treatment may offer patients a durable effect and long term benefit. The specific cells of the eye, salivary gland and the neurons that we target in our current gene therapy programs are largely non-dividing cells and preclinical evidence has shown that they can be effectively targeted by the specific AAV capsids that we use, enabling us to potentially achieve a durable impact on each of the diseases that we treat.
Overview and Strategy
We currently have three ongoing Phase 1/2 clinical programs targeting IRDs, including ACHM related to mutations in CNGB3, XLRP-RPGR and RPE65-deficiency, with an additional program expected to enter a Phase 1/2 clinical trial in 2019 in patients with ACHM related to mutations in CNGA3. We also have a product candidate that was manufactured and released for compassionate use under a specials license in the UK to treat LCA4 patients. We chose diseases of the eye as our first area of clinical focus because we believe the eye is ideally suited for gene therapy for the following reasons.
• The eye is easily accessible and has highly compartmentalized anatomy, which allows for accurate delivery of vectors to specific tissues using direct visualization and microsurgical techniques.
• The structure of the eye allows for efficient delivery to specific cell subtypes with small volumes of vector, making the dose per patient much lower than for systemic treatment.
• Anatomical barriers and unique structure of the eye make the immune response to the intraocular administration of vectors more attenuated than systemic administration.
• Largely non-dividing cell populations in the eye make good targets for potentially stable, long-term gene delivery and expression.
• The retina, a structure in the back of the eye, is visible and there are many well validated structural and functional readouts allowing the detailed assessment of the therapeutic impact of the gene therapy treatment.
Our strategy for developing gene therapies targeting eye diseases is to begin with a number of monogenic IRDs that are good candidates for gene replacement therapies and expand to more common eye diseases over time. We have taken a portfolio approach to the development of IRDs because, while some of these genetic defects are rare, IRDs as a class are one of the most common causes of blindness in working age adults and there are multiple synergies at the clinical, regulatory and commercial levels between many of these diseases caused by different gene mutations.
Two of our clinical-stage product candidates are targeting IRD indications in achromatopsia caused by mutations in the CNGB3 gene and inherited retinal dystrophy caused by mutations in the RPE65 gene. The primary defect in these particular genetic disorders is the absence of function of one of the two different types of photoreceptors that constitute the light sensing part of the retina, rods or cones. In achromatopsia, the cones completely lack function, while in RPE65-deficiency it is the rods that lack function. In these indications, we anticipate that restoring a normal copy of the mutant gene to the retina of patients with these genetic disorders may restore function to the particular type of photoreceptor that is defective in each of these indications. Although cone photoreceptors are generally preserved during childhood in RPE65-deficient patients, the lack of healthy active rods eventually affects the cones that they support and over time both rods and cones die, the retina degenerates and RPE65-deficient patients become totally blind.
We also have a clinical-stage product candidate for XLRP-RPGR, in which all photoreceptors, both rods and cones, function poorly, leading to degeneration of the retina and total blindness. We have used data and learnings from our RPE65 studies to inform the design and techniques used in our XLRP-RPGR program. The aim of our XLRP-RPGR treatment is to slow the degeneration of the retina, which we measure using validated surrogate structural endpoints and changes in the detailed structural maps of these patients' retinas over time.
In order to expand our gene therapy pipeline for retinal diseases, we are also developing treatments for certain multifactorial eye diseases, which are diseases caused by multiple genetic or environmental factors. We have a preclinical program using an anti-VEGFR2 antibody targeting wet AMD and we anticipate filing an IND for this program by the end of 2019. We are also working to integrate our gene regulation technology with our wet AMD program. Our ultimate aim is to activate the anti-VEGFR2 antibody gene that we have installed in the eye with a small molecule applied topically in an eye drop. This could potentially allow for intermittent dosing of the antibody using an eye drop rather than injection. Additionally, we are developing a novel approach to treat advanced dry AMD patients who have lost central vision through our innovative "rod-to-cone" technology. By genetically engineering rods with molecules that will improve their speed of response to light, we aim to effectively transform a patch of rod photoreceptors in the outer part of the retina to behave more like cone photoreceptors, thus improving vision.
We intend to leverage our platform to take advantage of the many synergies across our ophthalmology programs, including identification, diagnosis and characterization of patients, specialized surgical techniques, clinical and regulatory process, vector production and cGMP manufacturing, as well as commercial synergies, if these product candidates are approved by the FDA and other regulatory authorities.
Our Competitive Advantage: Natural History Studies, Relationships with Leading Institutions and Our cGMP Manufacturing Facility
IRDs as a class are the most common cause of blindness in the working age population worldwide and a leading cause of impaired vision in children in developed countries. There are approximately 200,000 people in each of the United States and European Union affected by IRDs. However, IRDs may be caused by mutations in over 200 identified genes, and in many cases each genetically defined IRD may be a small patient population. Meaningful clinical trials for these sorts of rare indications are especially challenging because they require access
to sufficient patients and baseline data on each patient in order to secure clear indicators of efficacy as a result of intervention. We seek to address this problem by sponsoring prospectively designed natural history studies in each of the indications that we are treating in our Phase 1/2 trials.
The lead investigator for the natural history studies is Michel Michaelides, Professor of Ophthalmology at Moorfields Eye Hospital in London. For each of the natural history studies, baseline assessments are made upon enrollment, with follow up assessments at six month intervals for two years and annual assessments for up to an additional three years. A broad range of assessments are used, including functional tests, retinal imaging and electrophysiological assessments. The same assessments used for each natural history study are used in our corresponding clinical trial targeting the same indication, allowing us to compare the impact of our product candidates on the progression of these diseases on a population, as well as individual patient basis.
We expect the natural history studies will enhance our understanding of disease progression for each indication we are targeting and allow us to identify optimal windows for intervention, provide specific functional and structural parameters to quantify treatment effects and define clinical endpoints. These studies also provide us with a source of potential patients for our treatment studies and have facilitated efficient enrollment of these studies. These patients are not only genotyped, but have up to five years of detailed functional and structural assessment data prior to enrollment into an appropriate treatment study.
We also have longstanding active relationships and clinical site agreements with leading institutions in retinal disorder treatments, including Moorfields Eye Hospital in London, the University of Michigan Kellogg Eye Center, Massachusetts Eye and Ear, the Medical College of Wisconsin & Froedtert Hospital and the Casey Eye Institute at the Oregon Health & Science University. Our relationships with these institutions, in most cases, precede the date on which we entered into a clinical site agreement with the applicable institution. Professor Robin Ali, Ph.D., our Head of Preclinical Ophthalmology and one of our founders, is Professor of Human Molecular Genetics at UCL Institute of Ophthalmology and Theme Leader for Gene Therapy at NIHR Biomedical Research Centre for Opthalmology, Moorfields Eye Hospital in London, and a Visiting Professor at the University of Michigan Kellogg Eye Center. These institutions are among the premier treatment centers for the indications that we are pursuing and provide us with access to potential patients for our clinical trials and experts in IRDs who offer strategic guidance and expertise for our development strategy. These institutions provide services with respect to our preclinical and clinical studies. For example, our AAV-CNBG3 clinical trial is being conducted at Moorfields Eye Hospital in London, and surgeries for our AAV-RPE65 clinical trial have been performed there and at University of Michigan Kellogg Eye Center. Participants enrolled at the University of Michigan Kellogg Eye Center for our RPE65-deficiency natural history study travel to the Medical College of Wisconsin & Froedtert Hospital for adaptive optic assessments. The Casey Eye Institute at the Oregon Health & Science University provides certain reading center and other clinical services with respect to our clinical trials. University of Michigan Kellogg Eye Center, Medical College of Wisconsin & Froedert Hospital and Massachusetts Eye and Ear each provide services in relation to our natural history study for XLRP-RPGR.
We believe our flexible and scalable cGMP compliant manufacturing facility has sufficient capacity to support the development needs for our current clinical and preclinical ophthalmology programs, and commercial needs, if our product candidates are approved by the FDA and other regulatory authorities.
Disease Background and Market Opportunity
Achromatopsia, or ACHM, is an IRD that specifically prevents cone photoreceptors from functioning. ACHM patients are legally blind from birth and usually suffer from severely reduced visual acuity of 20/200 or worse, a disabling sensitivity to light, or photoaversion, total color blindness and involuntary back and forth eye movements, or nystagmus.
Cones and rods are the two kinds of photoreceptors in the human eye. Photoreceptors are light-sensitive cells that absorb light and convert it into an electrical signal that is transmitted to the brain for the perception of
light, or vision. Rods can detect very low levels of light and are quickly inactivated in higher light levels, enabling vision in dim light. Cones, on the other hand, remain active in high light levels and support daytime vision and the perception of color. Even though only 5% of the photoreceptors in the eye are cones, they are concentrated in the central part of the retina, the macula, where they are tightly packed, thus enabling high-acuity daytime vision. The highest cone density is in the centermost spot of the macula, called the fovea. Since cones are essential for central visual acuity, color vision, and most daily visual activities, ACHM patients suffer significant vision loss due to the complete lack of cone function.
ACHM occurs in approximately one in 30,000 people in the United States. To date, mutations of any one of six genes encoding components of the light sensing machinery of cone photoreceptors have been identified as causing ACHM. The CNGB3 and CNGA3 genes are the two most common of these genes, together accounting for up to 92% of ACHM cases, with CNGB3 slightly more common than CNGA3 in most geographic territories. Together, the proteins encoded by the CNGB3 and CNGA3 genes make up the cone-specific cyclic nucleotide gated, or CNG, channel, which is essential for cones to produce an electrical signal in response to light. Mutations in either of these genes prevent the formation of the CNG channel.
There are estimated to be approximately 12,000 patients with ACHM caused by mutations in CNGB3 in the United States, Japan and Germany, France, Spain, Italy and the United Kingdom, or the EU5, with about 25% of those patients being under the age of 18 and approximately 125 new cases being diagnosed annually. We believe the availability of a therapeutic option may increase patient identification and the estimated prevalence of ACHM.
Our Gene Therapy Program
We have designed specifically optimized gene therapy viral vector candidates to treat ACHM caused by mutations in each of CNGB3 and CNGA3, with which we aim to address the majority of patients suffering from ACHM. Our product candidates are delivered via subretinal injection covering the central macula region of the eye, where most of the cones in the retina are located.
ACHM is predominantly a stationary disease, which means that ACHM patients' retinas contain non-functioning cones that survive intact for many decades. This is in contrast to many IRDs in which the entire retina slowly degenerates over a patient's life. This extended survival of cones with their potential for light sensitivity presents a wide window of opportunity to introduce a normal copy of the mutated gene via a gene therapy product candidate and thereby restore cone function. While the stationary nature of ACHM means that cones remain present for decades, the functional connections between active cones and the visual cortex in the brain are thought to become fixed in teenage years. Therefore, we believe that younger individuals are likely to benefit most from gene therapy treatment for ACHM because of their greater visual plasticity. Another debilitating symptom of ACHM, which lasts throughout life, is photoaversion. A disabling and ubiquitous symptom of ACHM, photoaversion is the avoidance of light due to discomfort in the presence of levels of light equivalent to a normally lit room or daylight. ACHM patients often avoid light and wear dark glasses, which further diminishes their already very poor vision. We believe it is possible that restoration of cone function in adult patients might have an impact on photoaversion even if brain plasticity is limited.
We believe that gene therapy treatment for ACHM in which we aim to restore cone function via a gene replacement strategy may offer benefits across a range of ages, which we aim to define in our clinical development programs.
ACHM Caused By Mutations in CNGB3
With our collaborators at the University College of London's Institute of Ophthalmology, or UCL IO, led by Professor Robin Ali, we have developed a product candidate to treat ACHM caused by mutations in the CNGB3 gene. Mutations in the CNGB3 gene prevent cone photoreceptors from functioning because CNGB3's gene product is integral to the formation of a specific membrane channel that enables cones' electrical response to light. CNGB3 is a gene exclusively expressed in cones and our aim is to replace the absent function of the mutant CNGB3 gene with a normal copy of the gene in cones of IRD patients and thereby restore cone function.
In order to drive expression of the functional gene specifically in cones and not in other cells of the retina, we use the cone specific human cone arrestin, or CAR, promoter to drive the expression of a codon optimized CNGB3 cDNA. Codon optimization improves protein expression by increasing translation efficiency. To transfect cone photoreceptors, we use the AAV8 capsid, which enables the efficient delivery of the CNGB3 gene cargo to those photoreceptors. As the vast majority of the cones in the eye are located centrally and concentrated in the macula, we treat this central region of the retina through subretinal injection to deliver the viral vector product candidate to the photoreceptors in which its activity is required.
Preclinical studies in mice lacking the Cngb3 gene were carried out by our collaborators at UCL IO and led by Professor Robin Ali in 2010 and 2011 and the data was published in Human Molecular Genetics in 2011. In these studies, it was observed that delivery of our CNGB3 product candidate, AAV-CNGB3, via subretinal injection at doses between 6E9 and 8E9 viral genomes per eye, or vg/eye, was associated with a restoration of cone function to near normal levels.
In one of these studies, retinal response to light was measured in three groups of mice: Cngb3 mutant mice treated with AAV-CNGB3, untreated Cngb3 mutant mice and normal mice. Mice were treated with AAV-CNGB3 vector dosed at 2E12 vg/mL (8E9 vg/eye) via subretinal injection. One eye was treated per mouse. Vector was administered when mice were 30 days old, and electrical responses, or ERGs, of the retina were measured 90 days following administration of the vector.
Figure 1 shows representative ERG responses of the retina to different light stimuli: a single flash of bright light (1A; 1B; 1C) and repeated pulses, or flickers, of bright light at different frequencies to assess the refresh rate of the photoreceptors (1A'; 1B'; 1C'). Retinas from three different groups of mice were tested: retinas of normal mice (Figure 1A), retinas of mutant mice lacking the Cngb3 gene (Figure 1B) and retinas of mutant mice lacking the Cngb3 gene, but treated with AAV-CNGB3 (Figure 1C). It was observed that the response to a bright light pulse was largely absent in the retinas of Cngb3 mutant mice, as this response is largely mediated by the cones and is therefore severely impacted by the Cngb3 mutation (Figure 1B). It was also observed that treatment of Cngb3 mutant mice with AAV-CNGB3 was associated with a high-degree of restored cone function in these mutant mouse retinas in response to a single flash of bright light (Figure 1C). In addition, we tested the response of cones to rapid flickers of bright light (Figure 1A') because only cones can register multiple sequential signals from rapid flickers. It was observed that registering rapid flickers was also impacted by the Cngb3 mutation (Figure 1B') and the cone flicker response was nearly completely restored in the retinas of Cngb3 mutant mice following treatment with AAV-CNGB3 (Figure 1C').
Figure 1. Electrical responses of the retina reacting to two different light stimuli: a single flash of bright light and repeat pulses of bright light at increasing frequency, or flickers.
Figure 1A and 1A'. The electrical responses of the retina from a normal mouse reacting to a flash of bright light and flickers.
Figure 1B and 1B'. The electrical responses of the retina from a mutant mouse lacking Cngb3 reacting to a flash of bright light and flickers.
Figure 1C and 1C'. The electrical responses of the retina from a mutant mouse lacking Cngb3 treated with AAV-CNGB3 reacting to a flash of bright light and flickers. Treatment with AAV-CNGB3 was associated with a high degree of restoration of cone function, with the electrical response to a bright flash of light and rapid flickers nearly matching the response observed in the normal mouse retina.
In another one of the preclinical studies carried out by our collaborators at UCL IO, it was assessed whether functional improvement at the retinal level of Cngb3 mutant mice was impacted by the age of the mice at the time treatment with the gene therapy product candidate. In this study, Cngb3-mutant mice were treated with AAV-CNGB3 at 30 days old, the P30 group, or 180 days old, the P180 group. One eye was treated in each mouse via subretinal injection dosed at 2E12 vg/mL (8E9 vg/eye). Optomotor measurements were taken 60 days after treatment of the P30 group of the Cngb3 mutant mice treated with AAV-CNGB3 (n=11), untreated Cngb3 mutant mice (n=11) and normal, age-matched untreated mice (n=5). Optomotor measurements were also taken 60 days after the treatment of the P180 group of the Cngb3 mutant mice treated with AAV-CNGB3 (n=6), untreated Cngb3 mutant mice (n=6) and normal, age-matched untreated mice (n=5). Optomoter assessments were made by placing each mouse on a pedestal located in the center of four inward facing computer screens, that projected a rotating image. The head-tracking responses of each mouse was observed using an overhead infrared video camera. Visual acuity was measured by involuntary reflex head-tracking responses driven by the left (clockwise rotations, black arrow) and right (counter-clockwise rotations, white arrow) eyes, respectively (Figure 2A).
Figure 2B is a graph comparing the visual acuity as measured by the average optomotor assessment of the normal eyes, eyes from Cngb3 mutant mice treated with AAV-CNGB3 and eyes from Cngb3-mutant mice that were untreated. It was observed that Cngb3 mutant mice had a significantly lower visual acuity than normal mice. However, after treatment with AAV-CNGB3, visual acuity in the Cngb3 mutant mice eyes treated at 30 days old was observed to be restored to a similar level as that observed in normal mice. In contrast, no significant difference in visual acuity between the treated and untreated eyes was observed when treatment was given at 180 days old. Data from this study suggests that treatment received at an older age is less capable of restoring visual acuity.
Figure 2A. Depiction of how optomotor assessments were taken. Each mouse was placed on a pedestal located in the center of four inward facing screens and was observed by an overhead infrared video camera. The assessments were made 60 days following treatment of the Cngb3 mutant mice with AAV-CNGB3 at 30 days old and 180 days old.
Figure 2B. Graph showing averaged optomotor assessment of each group. Visual acuity, as measured by the optomotor assessment, was observed to be restored to normal levels in the mouse treated at 30 days old (left panel) but not in the mouse treated at 180 days old (right panel).
Between October 2016 and December 2016, we carried out a dose-ranging preclinical study at UCL IO to determine the efficacy of different doses of AAV-CNGB3 in rescuing cone response to a single pulse of bright light in Cngb3 mutant mice as measured by electrical responses across the retina, or ERG. The study was conducted to support a planned Phase 1/2 clinical trial in patients with CNGB3 mutations following the FDA's request for additional rescue data at a range of different doses. While long-term functional rescue was observed in prior tests, there was no dosage titration tested in those studies. The data from this study has not been published.
We assessed cone-mediated ERG responses in Cngb3 mutant mice at three doses and compared these responses to baseline recordings of untreated eyes at two different time-points following treatment. Cngb3 mutant mice were administered AAV-CNGB3 via subretinal injection of 4uL of vector at each dose. Mice were treated at four weeks of age and ERG responses were measured in these mice at four weeks and eight weeks following treatment. Three eyes were treated at each of the three doses, and three eyes were untreated. The reviewer analyzing the ERG traces was masked to which eye received treatment.
Figure 3 shows the photopic ERG amplitudes measured to assess cone photoreceptor function in Cngb3 mutant mice treated with AAV-CNGB3 at 1E11 vg/mL (4E8 vg/eye; n=3), 3E11 vg/mL (1.2E9 vg/eye; n=3) and 1E12 vg/mL (4E9 vg/eye; n=3), and untreated eyes (n=3) at four and eight weeks post administration. A photopic ERG is the electrical response of the retina corresponding to cone electrical activity following a single pulse of bright light (single ERG recordings are shown in Figure 1). The higher the ERG amplitude, the greater the response of the retina to bright light. These data show a statistically significant increase in cone ERG responses for all three doses of AAV-CNGB3 and for both time-points following vector administration except for low dose at four weeks post injection (p=0.051). These data indicate that AAV-CNGB3 is associated with the rescue of the cone electrical response in the retina of Cngb3 mutant mice in a dose-responsive fashion. While initial responses were observed in mice four weeks after subretinal injection of the vector, at all three doses significantly stronger ERG responses were observed eight weeks after vector administration, with the maximum ERG response observed at the highest dose eight weeks after administration.
In this study, a dose response in ERG amplitudes from treated eyes was observed, suggesting that increasing amounts of AAV-CNGB3 is associated with greater rescue of responses in Cngb3 mutant mice. The three doses tested in this study are the same as those doses administered in our AAV-CNGB3 Phase 1/2 clinical trial on a vg/mL of viral vector titer basis.
Figure 3. Graph of averaged photopic ERG amplitudes at four and eight week time-points post administration of AAV-CNGB in Cngb3 mutant mice treated at four weeks of age. The blue line indicates the electrical response amplitudes observed following administration of different doses of AAV-CNGB3 measured at four weeks after treatment. The red line shows the increased level of electrical response observed in the same mice treated with AAV-CNGB3 four weeks later, at eight weeks following treatment. This is compared to the ERG response in untreated eyes, which remained unchanged at both time points.
During 2016, we conducted three preclinical toxicology studies of AAV-CNGB3 at UCL IO. We conducted a nine month study in normal mice in which four eyes were dosed with saline as a control, nine eyes were dosed at 2E9 vg/eye, and nine eyes were dosed at 4E9 vg/eye, with a toxicology assessment at one, three, six and nine months post-administration. We also conducted an eight week study in normal mice, in which 15 mice were dosed with saline as a control, 15 mice were dosed at 2E9 vg/eye, and 15 mice were dosed at 4E9 vg/eye, providing five mice from each group for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. We also conducted an eight week rabbit study in which the right eyes of nine animals were dosed with saline as a control, the right eyes of nine animals were dosed at 0.8E11 vg/eye and the right eyes of nine animals were dosed at 2.4E11 vg/eye, providing three animals from each dose group for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. Biodistribution was examined in the eight week mouse and rabbit studies. No harmful effects on the retina or systemically were observed at the time-points listed after treatment. The data from these studies have not been published. We used these data to support our clinical trial application, or CTA, and IND for treatment of patients with ACHM related to CNGB3 mutations with AAV-CNGB3.
Clinical Development of AAV-CNGB3
We have an ongoing natural history study in ACHM including over 90 patients that allows us to collect structural and functional data for up to five years on prospectively defined endpoints, including functional tests (visual acuity, contrast sensitivity, mobility maze and photoaversion assessments), retinal imaging (color fundus
photography, fundus autofluoresence imaging, spectral domain optical coherence tomography and visual field testing) and electrophysiological assessments. The study center is the Moorfields Eye Hospital in London. We believe access to these ACHM patients has enabled us to efficiently enroll the most appropriate patients into our CNGB3 Phase 1/2 clinical trial. We intend to present this natural history data to regulatory agencies for discussion of our pivotal trial design and path to regulatory approval. In addition to giving us access to patients and potentially accelerated enrollment in our treatment studies, we believe the prospective natural history data on each treated patient allow us to gather robust data from our Phase 1/2 clinical trial in a condensed timeframe.
We are conducting a Phase 1/2 clinical trial of AAV-CNGB3 in both adult and pediatric patients. In the dose escalation phase of the trial, up to 18 adult patients (18 years or older) may be administered one of three different doses of vector in dose escalating cohorts of three to six patients at a time. We have treated patients in all three dose cohorts. We have also treated one pediatric patient in the expansion cohort of the trial. We will close out this trial six months after the last pediatric patient has been treated. Six months following treatment, each patient moves onto a long term follow up study in which they are followed for safety and indication of benefit for an additional four and a half years.
The primary endpoint of this open-label, dose-escalation clinical trial is the safety of a one-time subretinal administration of AAV-CNGB3 in patients with ACHM caused by CNGB3 mutations. Secondary endpoints include the outcomes of a range of functional assessments and detailed structural analysis of the retina, including imaging of individual photoreceptors.
This trial is open in the United Kingdom under our CTA. We have treated 10 adult patients at the Moorfields Eye Hospital in London, including three patients at the highest proposed dose, and one pediatric patient.
We submitted our IND for AAV-CNGB3 to the FDA in the fourth quarter of 2017. The IND was initially not opened because we received a question from the FDA regarding our injection device compatibility assay, thus putting the IND on clinical hold until we have satisfactorily answered the FDA's question and the clinical hold is lifted by the FDA. In the device compatibility assay the FDA noted a disparity between the target titer for the intended low dose dilution and the actual titer obtained on polymerase chain reaction, or PCR, analysis. The FDA requested clarification on whether this was an imprecise dilution scheme for the low dose or a PCR assay issue. We submitted a response to the FDA on May 2, 2018 providing data that identified the issue as a PCR assay artifact and also showing data that we believe supports that this has now been addressed. On May 31, 2018 the FDA released the clinical hold on our IND for AAV-CNGB3.
In this trial, AAV-CNGB3 viral vector is delivered via subretinal injection of up to 0.5mL targeting the central region of the retina, including the macula and fovea, where most of the cones are located. One eye is treated in each patient, which is the eye assessed to be the worst eye at baseline. We have treated 10 adult patients (between 18 and 33 years old) in the dose escalation phase of our Phase 1/2 clinical trial. These 10 patients were dosed in three cohorts with escalating doses of 1E11 vg/mL (cohort one), 3E11 vg/mL (cohort two) and 1E12 vg/mL (cohort three) of AAV-CNGB3.
In each of the 10 adult patients treated and one pediatric patient treated, the macula, including the fovea, was covered by the subretinal injection. Subretinal injections have been administered by two different surgeons at the Moorfields Eye Hospital in London.
In adult CNGB3 patients, treatment of the central retina with our AAV-CNGB3 product candidate via subretinal injection has been generally well tolerated. Following the review of the safety data for each cohort treated in this study, the independent monitoring committee, or IDMC, recommended escalation to the higher dose in the next cohort. Data from the first adult treatment cohort along with our preclinical data of AAV-CNGB3 was used to support our PRIME designation that was awarded by the EMA in February 2018.
As of May 4, 2018, all three patients in cohort one and the first patient in cohort two have completed the first six months of follow up after treatment and have moved into the long term follow up protocol. In this timeframe we have not yet observed changes in visual function assessment in these adult patients. However, we have observed signs of improvement in measurements of photoaversion in two of the four patients in the treated eye compared to baseline. This preliminary observation has been observed at both the three and six month assessments following treatment in both patients. This is preliminary data and measurements must be repeated at further time points and in additional patients to support any potential effect. In this clinical trial, photoaversion is assessed by measuring changes in the opening between the upper and lower eyelids, or the palpebral aperture, in response to exposure to light of 16.6 cd/cdm2 in patients following treatment compared to pretreatment baseline. As discussed in Investigative Ophthalmology & Visual Science in 2017, this is a surrogate endpoint of photoaversion in ACHM patients.
We anticipate completing dosing in our CNGB3 Phase 1/2 clinical trial, including the pediatric dosing, in the second half of 2018. We expect to release data from the adult dose escalation cohorts along with preliminary six month data from the pediatric patients in 2019.
With this data, we plan to meet with the regulatory agencies in 2019 to discuss the pivotal trial design and path to regulatory approval, with the aim of initiating a pivotal trial in CNGB3 patients in 2019.
Our CNGB3 gene therapy product candidate, AAV-CNGB3, was granted orphan drug designation by the FDA and EMA, as well as rare pediatric disease designation by the FDA for the treatment of achromatopsia caused by mutations in the CNGB3 gene. We have also been granted PRIME designation by the EMA.
ACHM Caused by Mutations in CNGA3
We are also developing AAV-CNGA3 to treat ACHM caused by mutations in the CNGA3 gene. While the mechanism for treating CNGA3 related ACHM is similar to that for CNGB3, we believe a larger amount of CNGA3 protein is required to restore cone function compared to CNGB3. We believe this may reflect the 1:3 ratio in which CNGB3:CNGA3 subunits associate to form the cone CNG channel. We have designed a synthetic promoter to drive high levels of CNGA3 expression specifically in cones. In preclinical studies, our novel cone specific promoter has been associated with strong gene expression in all human cone subtypes in human retinas grown in vitro using human pluripotent stem cells, or hPSC. AAV-CNGA3 utilizes this proprietary pan cone promoter to drive a codon optimized CNGA3 gene sequence. We believe this novel promoter can drive sufficient expression of CNGA3 in cones to restore light sensitivity to these cones in CNGA3 deficient patients. We use the AAV8 capsid to transfect cone photoreceptors in the back of the eye and we target the cones concentrated in the central region of the retina via a subretinal injection that covers the macula.
A key aspect of developing an effective treatment for ACHM caused by CNGA3 mutations is a promoter that drives robust gene expression in all of the three different cone subtypes, S/blue, L/red and M/green. In particular, it is important to evaluate the activity of the promoter in human photoreceptors, which can be achieved prior to treating patients using human stem cell derived retinas. Our relationship with UCL provides access to what we believe is one of the few centers in the world that can generate human "mini retinas," or HMRs, which are human retinas grown in vitro from hPSCs. These HMRs develop from stem cells over several months to form primary photoreceptors arrayed in a spherical structure that resembles many aspects of the human retina and includes all the rod and cone subtypes, allowing us to assess and predict the utility of many aspects of gene therapy vectors for human clinical application.
In vitro studies to measure the gene expression driven by our cone specific promoter in human cones using HMRs were conducted at UCL IO during 2017. Figure 4A shows a fully formed HMR that has been transfected with a construct in which our cone specific promoter was associated with the expression of green fluorescent protein, or GFP, a green marker gene. The expression of GFP is seen specifically in cone photoreceptors throughout this HMR, indicating that our promoter is driving robust gene expression in human cones. To support that this promoter drives gene expression in all cone subtypes, GFP expression driven by our promoter was overlaid with markers specific to each of the cone types. Figure 4B is an image of an S/blue cone and Figure 4C is an image of an L/red cone and an M/green cone, with the cone-specific marker labeled in red in each case. The multiple colors in Figures 4B' and 4C' show the overlay of these cone-specific markers with cone specific GFP expression, indicating that our promoter drives gene expression in all cone subtypes in this HMR. The data from these studies have not been published.
Figure 4A. An hPSC derived HMR showing GFP expression (green) driven by our promoter in human cones throughout the HMR.
Figure 4B. The red marker identifies this cone as an S/blue cone.
Figure 4B'. An overlay of GFP expression from our promotor on top of the S/blue cone specific marker. The overlap between the cone marker and GFP expression indicates that our promoter drives gene expression in S/blue cones.
Figure 4C. The red marker identifies M/red and L/green cones.
Figure 4C'. An overlay of GFP expression from our promotor on top of the M/Red and L/green cone specific marker. The overlap between the cone marker and GFP expression indicates that our promoter drives gene expression in M/red and L/green cones.
In preclinical studies of mutant mice lacking the Cnga3 gene conducted at UCL IO during 2017 and 2018, treatment of retinas of Cnga3 mutant mice with AAV-CNGA3 was associated with restoration of the cone electrical response following subretinal delivery. Figure 5 and Figure 6 show the rescue of cone function that was observed in two of these studies with doses spanning those proposed in the clinical trial and in a dose dependent manner. We believe this supports the evaluation of AAV-CNGA3 to treat patients with ACHM caused by mutations in CNGA3 in a Phase 1/2 clinical trial. The data from these studies have not been published.
Figure 5 shows the electrical response of retinas to a single flash of bright light. A retina from three different mice were tested: a normal mouse (Figure 5A), a mutant mouse lacking the Cnga3 gene (Figure 5B) and a mutant mouse lacking the Cnga3 gene, but treated with 3uL of 1E12 vg/mL AAV-CNGA3 (Figure 5C). A high degree of restoration of function of mutant cones was observed in the retina from the Cnga3 mutant mouse treated with AAV-CNGA3, with approximately 60% of the electrical response to a bright flash of light of the normal retina observed in the retina from the Cnga3 mutant mouse that were treated with AAV-CNGA3. The mice were injected with AAV-CNGA3 at four weeks of age and assessed using ERG four weeks post injection.
Figure 5. Cone electrical response in mice retinas reacting to a single flash of bright light, measured by ERG.
Figure 5A. The electrical response of the retina from a normal mouse reacting to a flash of bright light.
Figure 5B. The electrical response of the retina from a mutant mouse lacking Cnga3 reacting to a flash of bright light.
Figure 5C. The electrical response of the retina from a mutant mouse lacking Cnga3 treated with AAV-CNGA3 reacting to a flash of bright light.
Figure 6 shows the cone-mediated ERG responses measured in Cnga3 mutant mice treated with three different doses of AAV-CNGA3. 3uL of AAV-CNGA3 was administered via subretinal injection in each eye at 1E11 vg/mL (n=5), 3E11 vg/mL (n=5) and 1E12 vg/mL (n=5). The mice were treated at 15 days old and the ERG was measured four weeks after treatment. The reviewer analyzing the ERG responses was masked to which eye received treatment. Doses tested in this study span the doses of AAV-CNGA3 proposed for our Phase 1/2 clinical trial. Figure 6 shows the ERG responses that were observed at each of the three doses.
Figure 6. The photopic ERG amplitudes measured to assess cone photoreceptor function in Cnga3 mutant mice treated with AAV-CNGA3 at doses of 1E11 vg/mL (n=5), 3E11 vg/mL (n=5) and 1E12 vg/mL (n=5). Mice were treated at 15 days post-natal and ERGs were assessed four weeks following treatment. The retinal ERGs are the electrical recordings corresponding to cone activity following a single pulse of bright light. A dose response was observed in retinal sensitivity obtained using the three tested doses and a treatment effect was also observed in the lowest dose tested.
In 2018, we anticipate completing a toxicology package similar to that used with the AAV-RPGR program using cGMP AAV-CNGA3 material manufactured at our cGMP facility. We anticipate conducting an approximately six month toxicology study in mice and two, eight week acute toxicology and biodistribution studies in mice and rabbits. The long-term toxicology study initiated in the first quarter of 2018.
Clinical development of AAV-CNGA3
We have an ongoing natural history study in ACHM including over 90 patients that allows us to collect structural and functional data for up to five years on prospectively defined endpoints, including functional tests (visual acuity, contrast sensitivity, mobility maze and photoaversion assessments), retinal imaging (color fundus photography, fundus autofluoresence imaging, spectral domain optical coherence tomography and visual field testing) and electrophysiological assessments. The study center is the Moorfields Eye Hospital in London. We believe access to these ACHM patients will enable us to efficiently enroll appropriate patients into our CNGA3 Phase 1/2 clinical trial. In addition to giving us access to patients and potentially accelerated enrollment in our treatment study, we believe the prospective natural history data on each treated patient will allow us to gather robust data from our Phase 1/2 clinical trial in a condensed timeframe.
We aim to initiate a Phase 1/2 dose escalating trial of AAV-CNGA3 in ACHM patients with mutations in CNGA3. We expect this clinical trial will have the same design as our ongoing AAV-CNGB3 Phase 1/2 clinical trial and will initially be conducted in both adult and pediatric patients at two sites in the United States and Europe. AAV-CNGA3 clinical material is currently being manufactured at our cGMP facility. We expect to release material for this trial in early 2019 and open a Phase 1/2 dose escalation trial in CNGA3 patients shortly thereafter.
X-Linked Retinitis Pigmentosa
Retinitis pigmentosa, or RP, is a group of IRDs which represent the most common genetic cause of blindness. The condition is characterized by progressive retinal degeneration and vision loss that ends in complete blindness. There are currently no approved treatments for RP. We believe gene therapy is a promising therapeutic approach. RP initially presents as nighttime blindness during childhood or early adulthood, progressing to peripheral visual field loss and "tunnel vision," central visual impairment, reduced visual acuity and, ultimately, complete blindness.
RP may be caused by mutations in any of over 100 different genes. The most severe forms of RP are X-linked, or XLRP, with onset in early childhood and rapid progression to blindness generally by the time patients reach 30 to 40 years old. RP has an estimated prevalence of one in 3,500 in the United States, and between 10% and 15% of RP patients are estimated to suffer from XLRP. The most frequent mutation causing XLRP is in the retinitis pigmentosa GTPase regulator gene, or RPGR. XLRP associated with a mutation in RPGR, or XLRP-RPGR, accounts for more than 70% of cases of XLRP. There are estimated to be approximately 20,000 XLRP-RPGR patients in the United States, Japan and EU5, with a little less than 50% those patients being under the age of 40 and approximately 200 new cases being diagnosed annually. We believe the availability of a therapeutic option may increase patient identification and the estimated prevalence of XLRP-RPGR.
The RPGR protein has an essential role in the maintenance of the structure and function of both rod and cone photoreceptors. The RPGR protein is tightly localized in the photoreceptors at the junction of the inner and outer segments, or cilium, of the photoreceptors. Correct localization of the RPGR protein to this site is important for the transport of light sensing proteins to the outer part of the photoreceptors, where these proteins convert light signals into electrical signals. In the absence of the RPGR protein the movement of light sensing protein within both rods and cones is impaired, leading to dysfunction and death of photoreceptors, resulting in retinal degeneration and ultimately complete blindness.
Our product candidate for the treatment of XLRP, AAV-RPGR, is designed to treat XLRP caused by mutations in RPGR, the most common form of XLRP. The eye specific form of RPGR is encoded by a nucleotide sequence called RPGR open reading frame 15, or RPGR-ORF 15. Both rods and cones photoreceptors require RPGR-ORF 15 to function. The protein coding message RPGR-ORF 15 contains a region of repeated sequences that make the RPGR-ORF 15 nucleotide sequence unstable in the cell. We have engineered a small deletion in RPGR-ORF 15 that we observed was associated with a stable sequence that rescued RPGR protein levels, localization and function in mouse and human photoreceptors in preclinical studies. Our novel AAV-RPGR viral vector utilizes the human rhodopsin kinase, or RK, promoter to specifically drive the expression of our stabilized RPGR-ORF 15 in both rods and cones. We selected the AAV5 capsid because of its efficient transfection into both of these types of photoreceptors.
In preclinical studies, performed at UCL IO between 2009 and 2015 and discussed in Gene Therapy in 2016, it was observed that treatment with AAV-RPGR containing our stabilized RPGR-ORF15 was associated with rescue of the Rpgr mutant phenotype in mice that completely lacked the RPGR protein as measured by ERG responses of retinas from Rpgr mutant mice and assessments of RPGR protein. Restored levels, localization and function of RPGR protein in mutant mice lacking the Rpgr gene were observed, along with the restoration and localization of photosensitive proteins in both rod and cone photoreceptors, and reduction of long-term retinal degeneration. In addition to these experiments in Rpgr mutant mice, we have observed that our RPGR-ORF 15 construct also rescued levels, localization and function of RPGR protein in human photoreceptors, in HMRs derived from patients with RPGR mutations. We believe that AAV-RPGR may have the potential to positively impact human photoreceptor function and survival in XLRP-RPGR patients, slowing or halting the degeneration that leads to blindness in these patients.
Figure 7 and Figure 8 show data from these preclinical studies regarding the effect of subretinal delivery of AAV-RPGR containing our stabilized RPGR-ORF 15 in mice lacking the Rpgr gene. In these studies, different color stains were used to investigate the restoration of (i) RPGR protein expression, (ii) correct localization of RPGR protein and (iii) RPGR function. Figure 7 and Figure 8 show a retina from a normal mouse (7A and 8A), a retina from a mutant mouse strain lacking the gene for Rpgr (7B and 8B) and a retina from the same mutant mouse strain that lacks the gene for Rpgr, but treated with AAV-RPGR containing our stabilized RPGR-ORF 15 (7C and 8C).
The red stain in Figure 7 marks a photoreceptor protein, rootletin, within the cilium, or middle section, of every photoreceptor, while the green stain reveals the localization of RPGR protein. The green stain in Figure 7A shows the localization of RPGR protein within the photoreceptor at the end of the cilium in a normal mouse retina. Figure 7B shows a retina from a mouse lacking the Rpgr gene without any green staining, indicating the absence of the RPGR protein. Figure 7C shows a retina from a mouse lacking the Rpgr gene that was treated with AAV-RPGR containing our stabilized RPGR-ORF 15. The green staining at the end of the photoreceptor cilium is similar to the normal mouse retina. Treatment with AAV-RPGR containing our stabilized RPGR-ORF 15 was associated with the restoration of RPGR protein expression and localization within the individual photoreceptor cells consistent with normal RPGR expression.
Figure 7. In these preclinical mouse models, the red staining marks a normal protein in the photoreceptor cilia, rootletin, while the green stain reveals localization of RPGR protein within the photoreceptor.
Figure 7A. The retina from a normal mouse.
Figure 7B. The retina from a mouse completely lacking the Rpgr gene.
Figure 7C. The retina from a mouse completely lacking the Rpgr gene and treated with AAV-RPGR containing our stabilized RPGR-ORF 15. The green stain indicates that RPGR protein expression was restored and was similarly localized within the individual photoreceptor consistent with normal RPGR expression.
Figure 8 shows a different analysis of retinas from the same mutant mouse strain that completely lacks the gene for RPGR expression. This analysis uses a yellow tag to reveal the location of photoreceptor light pigment, or opsins. The top row shows the rod opsin (8A; 8B; 8C), rhodopsin, and the bottom row shows cone opsin (8A'; 8B'; 8C'). Fully functional RPGR is critical for the correct localization of opsins and Figures 8B and 8B' show that in a Rpgr mutant mouse retina the opsins are incorrectly localized. Figures 8C and 8C' show that treatment of these mutant animals with subretinal injection of AAV-RPGR containing our stabilized RPGR-ORF 15 enabled the correct location of the opsins within the photoreceptor as seen in the similarity to the normal mouse, indicating that RPGR is functionally active in supporting correct localization of key photoreceptor proteins.
Figure 8. In these preclinical mouse experiments, a yellow tag reveals the location of the opsins.
Figures 8A and 8A'. Normal mouse retina showing the localization of rhodopsin and opsin.
Figures 8B and 8B'. Rpgr mutant mouse retina showing the localization of rhodopsin and opsin.
Figures 8C and 8C'. Rpgr mutant mouse retina that was treated with AAV-RPGR containing our stabilized RPGR-ORF 15 shows the localization of rhodopsin and opsin. The similar localization between the normal mouse retina and the Rpgr mutant mouse retina that was treated with AAV-RPGR containing our stabilized RPGR-ORF 15 indicates that the rhodopsin and opsin are correctly localized and can perform their key function in the visual cycle.
We are further advancing the HMR system to evaluate the potential for our product candidates to functionally restore mutant photoreceptor cells in a human retina.
One of the many tasks that RPGR performs in the photoreceptor is to enable a process called glutamylation of a key cilia protein called tubulin, which is required for photoreceptor function. We conducted an in vitro study at UCL IO in 2016 using HMRs derived from stem cells from XLRP-RPGR patients to determine the effect of AAV-RPGR containing our stabilized RPGR-ORF 15 on human photoreceptors. The data from this study has not been published. An HMR grown from hPSC from a normal individual is shown in Figure 9A, in which glutamylation of tubulin in normal human photoreceptors is stained in green. Figure 9B shows a HMR derived from a XLRP-RPGR patient and cultured over several months to form many of the anatomic layers of the retina and consisting of all photoreceptor types, while Figure 9C shows the impact of AAV-RPGR containing our stabilized RPGR-ORF 15 treatment on a similarly cultured HMR derived from a XLRP-RPGR patient.
The HMR derived from a XLRP-RPGR patient lacks RPGR protein, making the photoreceptors dysfunctional with no glutamylation of tubulin present (Figure 9B). When HMRs from a XLRP-RPGR patient were treated with AAV-RPGR containing our stabilized RPGR-ORF 15 we observed that glutamylation of tubulin returned (Figure 9C). We also stained HMRs derived from an XLRP-RPGR patient with a pink marker of RPGR protein. In Figure 9B no pink staining was observed, confirming the lack of RPGR protein. In Figure 9C, when the HMR from a XLRP-RPGR patient was treated with AAV-RPGR containing our stabilized RPGR-ORF 15, pink staining can be seen at the correct localization in the base of the cilium of the photoreceptors that are now stained with green glutamylation of tubulin marker. This restoration of RPGR protein expression and localization, and restoration of markers of photoreceptor function in human photoreceptors in HMRs derived from XLRP-RPGR patients, indicates potential clinical utility of AAV-RPGR containing our stabilized RPGR-ORF 15.
Figure 9. A HMR derived from hPSCs from a normal individual (9A) or a XLRP-RPGR patient (9B and 9C) cultured over several months to form many of the anatomic layers of the retina and consisting of all photoreceptor types with the glutamylation of tubulin having a green fluorescent stain.
Figure 9A. A HMR derived from normal hPSCs.
Figure 9B. A HMR derived from a XLRP-RPGR patient.
Figure 9C. A HMR derived from a XLRP-RPGR patient that was treated with AAV-RPGR containing our stabilized RPGR-ORF 15. The appearance of pink RPGR protein at the base of the photoreceptor cilium and glutamylation of tubulin returns, demonstrating the restoration of RPGR protein expression, localization and function.
To support the advancement of AAV-RPGR into clinical development, we conducted three single-dose toxicology studies from January 2016 to August 2017 at UCL IO. We performed a six month toxicology study in normal mice delivering doses of saline in both eyes for the control (n=5), and doses of AAV-RPGR in both eyes of 2E9 vg/eye (n=5) and 4E9 vg/eye (n=5), with a toxicology assessment at one, three and six months post-administration. Two further toxicology studies were performed. An eight week mouse study in which groups of mice were dosed with saline in both eyes as a control (n=15), AAV-RPGR in both eyes at 1E9 vg/eye (n=15) or AAV-RPGR in both eyes at 4E9 vg/eye (n=15), providing five mice from each group for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. An eight week rabbit study was also conducted, in which nine right eyes were dosed per group, with doses of saline as a control, and AAV-RPGR doses of 0.8E11 vg/eye and 2.4E11 vg/eye, providing three rabbits for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. Biodistribution was examined in the eight week mouse and rabbit studies. No harmful effects on the retina or systemically were observed. We used these data to support our CTA and IND for treatment of XLRP-RPGR patients with AAV-RPGR.
Clinical Development of AAV-RPGR
We have an ongoing natural history study in XLRP-RPGR including approximately 100 patients, which allows us to collect structural and functional data for up to five years on prospectively defined endpoints,
including functional tests (visual acuity and contrast sensitivity), retinal imaging (color fundus photography, fundus autofluoresence imaging, spectral domain optical coherence tomography, adaptive optics and visual field testing) and electrophysiological assessments. The study centers are the Moorfields Eye Hospital in London, the Kellogg Eye Center at the University of Michigan, the Medical College of Wisconsin & Froedtert Hospital and Massachusetts Eye and Ear. We believe access to this large population of XLRP-RPGR patients has enabled us to efficiently enroll appropriate patients into our XLRP-RPGR Phase 1/2 clinical trial. In addition to giving us access to patients and potentially accelerated enrollment in our treatment studies, we believe the prospective natural history data on each treated patient will allow us to gather robust data from our Phase 1/2 clinical trial in a condensed timeframe. Of particular interest is the area and width of the ellipsoid zone, which is a validated surrogate marker of retinal degeneration in RP and other IRDs.
The ellipsoid zone is a marker of retinal structure observed by optical coherence tomography, or OCT, and has been demonstrated to contract as the retina degenerates in a number of different IRDs. The ellipsoid zone has been shown to progressively decrease over time in step with the degeneration of the retina that occurs in XLRP-RPGR patients. Our natural history study provides data on ellipsoid zone width and area for up to five years prior to treatment with AAV-RPGR for each patient that then enrolls in our gene therapy treatment trial.
Figure 10 shows two sets of images taken 24 months apart using OCT and fundus autofluorescent imaging, two imaging techniques used to capture micrometer-resolution images of the eye, of the ellipsoid zone of one XLRP-RPGR patient in the natural history study. This patient was 20 years old upon entering the study when the first assessment was taken. Measurements associated with these images show that the ellipsoid zone area decreased from 10.98 mm2 to 7.94mm2 and the width of the ellipsoid zone decreased from 2830 microns to 2204 microns over 24 months.
Figure 10. OCT and fundus autofluorescence images of the ellipsoid zone of one RPGR-XLRP patient in the natural history study taken 24 months apart. During the 24 month time frame the width and area of the ellipsoid zone have diminished.
Figure 10A. These two OCT images, taken 24 months apart at the same position in the retina, illustrates the width of the ellipsoid zone.
Figure 10B. These two images show the fundus autofluorescence imaging of the same retina taken 24 months apart. The fovea is located approximately in the center of the ring and can be seen as a slightly darker dot. The outlined "autofluorescent" area was reduced over the 24 months between the capture of the two images.
A further benefit of the XLRP-RPGR natural history study is access to longitudinal data from the population of XLRP-RPGR patients over time. Figure 11 is a graph of data collected in our XLRP-RPGR natural history study of individual patients, which evidence a relationship between a patient's ellipsoid zone width and age. These data show a reduction in ellipsoid zone width over time in each patient, as well as the increased rate of
decline in younger individuals. We believe these data will support both our Phase 1/2 clinical trial and any future pivotal trial by enabling us to select patients with similar characteristics and rate of disease progression for treatment with AAV-RPGR, as well as providing longitudinal and individual patient data on the rate of ellipsoid zone shrinkage to more readily assess the impact of therapeutic intervention.
Figure 11. Graph of data gathered in our XLRP-RPGR natural history study showing the correlation between ellipsoid zone width (Y-axis) and age (X-axis) in individual patients.
We are conducting a Phase 1/2 clinical trial of AAV-RPGR in both adult and pediatric XLRP-RPGR patients. This trial is open in the United Kingdom under our CTA and United States under our IND. In the dose escalation phase of the trial, up to 18 adult patients may be administered one of three different doses of vector in dose escalating cohorts of three to six patients at a time. Once an acceptable safety profile has been established in adults, up to 18 adults or children may then be treated at an acceptable dose. We expect to begin enrolling patients in this expansion cohort in the second half of 2018. The primary endpoint of this open-label, dose-escalation clinical trial is the safety of delivering AAV-RPGR through subretinal injection. Secondary endpoints include the outcomes of a range of functional tests, quality of life measures and detailed analysis of the retina, including structural analysis of individual photoreceptors and measurements of ellipsoid zone via optical coherence tomography and fundus autofluorescence ring size. Following discussions with the FDA, we will be splitting the extension cohort into two groups to be treated with two different doses of AAV-RPGR. We will look at a range of functional and structural assessments including the ellipsoid zone progression as an acceptable surrogate marker of retinal degeneration with the aim of gaining early data on the activity of our potential gene therapy product in this patient population. Retinal images of treated and untreated fellow eyes at different time-points will be read at an independent reading center and evaluators will be blinded to treatment.
RP initially presents as nighttime blindness during childhood or early adulthood, progressing to peripheral visual field loss and "tunnel vision," central visual impairment, reduced visual acuity and, ultimately, complete blindness. XLRP-RPGR is a progressive disease in which the retina gradually degenerates starting in the outer, or peripheral, regions of the retina and initially causing "tunnel vision" with final degeneration of the central retina resulting in the complete loss of visual acuity and blindness that generally occurs by the time patients are 30 to 40 years old. We believe that to prevent this ultimate degeneration to blindness and to retain visual acuity, the central region of the retina, including the macula and fovea, must be preserved. To this end, we aim to deliver AAV-RPGR to this central region of the retina. In our Phase 1/2 clinical trial, AAV-RPGR viral vector is delivered via subretinal injection of up to 1mL with the potential for the surgeon to use multiple
retinotomies targeting the region of the central retina, including the macula and fovea. One eye is treated in each patient, which is the eye assessed to be the worst eye at baseline.
We have treated seven adult (aged 19 to 30 years old) patients in the Phase 1/2 XLRP-RPGR clinical trial, three patients in cohort one at a dose of 1E11 vg/ml and four patients in cohort two at a dose of 2E11vg/ml. In all patients, subretinal injection covered the central part of the retina, including the macula and fovea. Following review of the safety data from cohort one of this trial, the IDMC recommended escalation of dose in the second cohort.
As of May 4, 2018, we have three month data on the three patients in cohort one, with one patient reaching six months post treatment. While preliminary, we observed indications of improved retinal sensitivity in the first two patients in cohort one as assessed by two different measures of retinal sensitivity, navigation of the mobility maze in dim lighting conditions and perimetry using the Octopus 900 perimeter to assess the sensitivity of the central retinal field. The Octopus 900 perimeter assesses light sensitivity across the retinal field by measuring patients response to small spots of light in a grid. In both of these patients, data from Octopus 900 perimetry assessments compared to baseline measurements showed signs of improvement in retinal sensitivity at three months following treatment, with continued signs of improvement in the first patient to reach the six month post-treatment assessment. In both patients we also observed improvement in the speed and error rate of navigating the mobility maze at low light levels (one lux) at the three month assessment following treatment compared to pretreatment baseline in the treated eye and not in the untreated eye. This early signal of improvement in two assessments of photoreceptor function in XLRP-RPGR patients following treatment with AAV-RPGR is encouraging. However, this is preliminary data and needs to be supported by data collected at later time-points and in larger numbers of patients in future cohorts.
We anticipate completing adult dosing in this Phase 1/2 clinical trial during the third quarter of 2018, and completing the dosing of the two pediatric cohorts in 2019. We expect preliminary data from the dose escalation phase to be available during the first half of 2019.
We will close out this trial 18 months after the last pediatric patient has been treated. Patients will then move into a long-term follow up study for safety and indication of benefit for an additional three and a half years.
The FDA and EMA have granted orphan status to AAV-RPGR for the treatment of retinitis pigmentosa. The FDA has also granted fast track designation to AAV-RPGR for the treatment of XLRP caused by defects in RPGR.
RPE65-Deficiency
RPE65-deficiency causes rod photoreceptor dysfunction and impaired vision from birth. The RPE65 gene encodes a protein that is produced in the retinal pigment epithelium, or RPE, a thin layer of cells at the back of the eye that support photoreceptors and nourish the retina. The RPE65 protein is essential for rod function because it recycles the light sensing machinery in rod photoreceptors. Absence of RPE65 results in severe dysfunction of rods and causes impaired vision in dim lighting conditions. Although cone photoreceptors are generally preserved during childhood in RPE65-deficient patients, the lack of function and degeneration of the rods eventually results in the loss of cones and degeneration of the whole retina over time. Consequently, most RPE65-deficient patients experience central vision loss progressing to complete blindness by early adulthood.
RPE65-deficiency is often characterized as a specific subtype of Leber congenital amaurosis or RP that is caused by mutations in the RPE65 gene, called Leber congenital amaurosis 2 and RP20, respectively. However, we believe a more precise approach to genetic diseases is to focus on the underlying genetic defect, rather than the phenotype, and have therefore identified RPE65-deficiency as the target of our product candidate AAV-RPE65.
Based on an estimated prevalence of approximately one in 500,000 people in the United States suffering from Leber congenital amaurosis, or LCA, related to mutations in the RPE65 gene, and approximately one in 70,000 people in the United States having RP due to mutations in the RPE65 gene, RPE65-deficiency occurs in approximately one in 125,000 people in the United States. There are estimated to be approximately 6,000 RPE65-deficiency patients in the United States, Japan and EU5, with almost 30% of those patients being under the age of 30 and approximately 50 new cases being diagnosed annually. We believe the availability of a therapeutic option may increase patient identification and estimated prevalence of RPE65-deficiency.
Our gene therapy candidate for the treatment of RPE65-deficiency, AAV-RPE65, is an AAV2/5 viral vector, in which a codon optimized RPE65 gene is driven by a novel synthetic RPE cell specific promoter.
RPE65-deficiency is a well validated condition for gene replacement therapy. In multiple clinical trials, including one conducted by our collaborators at UCL, replacing the mutant RPE65 gene with a normal copy of the gene resulted in improved nighttime vision in affected children and young adults, suggesting the potential impact of gene therapy on rod function in this disease. The FDA recently approved the first gene treatment for RPE65-deficiency, Luxturna. While RPE65-deficiency primarily causes a loss of rod function initially leading to impaired vision in dim light, these patients ultimately experience complete blindness because of degeneration of the cone rich fovea. To prevent blindness, therefore, we believe it is critical to treat the central retina in order to maintain structural integrity in this region and save central vision. We aim to treat as extensive an area of the central retina as possible, including the cone rich fovea. Thus, in addition to improving rod function, we aim to provide sufficient RPE65 protein to the cells in the central retina to prevent the degeneration of both rods and cones in this region, and thereby prevent the progression to complete blindness.
We focus on detailed structural and functional data in our treatment studies with the aim of demonstrating an impact on the degeneration of the central retina.
Our novel AAV2/5 vector, AAV-RPE65, has been optimized for both transduction of RPE cells and RPE65 protein production and our surgical approach targets the central area of retina whose preservation is most critical for long term maintenance of visual function. Building on the work of Professor Ali and in collaboration with the team at UCL, we have developed AAV-RPE65. AAV-RPE65 is a second generation viral vector that has compared favorably to our first generation AAV2/2 vector in a number of ways, including being two to three logs, or 100 to 1,000 times, more potent on a particle for particle basis than our original AAV2/2 vector in a head to head Rpe65 null animal model rescue experiment. On a logarithmic scale, each ''log'' represents a 10-fold change. We believe this increased potency will improve transgene expression and RPE65 protein production in the back of the eye. The table below summarizes elements of the optimization of AAV-RPE65 compared to our original AAV2/2 vector. Vector optimization studies were performed at UCL IO and were carried out from 2010 to 2015. The data summarized here was referred to in Gene Therapy in 2016. We used these data to support our IND and CTA for treatment of RPE65-deficient patients with AAV-RPE65.
Optimization of AAV2/5 compared to AAV2/2
Transfection Efficiency Changing the capsid from AAV2/2 to AAV2/5 was associated with an improvement of the transfection efficiency of RPE by four times.
Protein Expression (Promoter) AAV2/5's optimized promoter was associated with a 20 times increase in protein expression.
Protein Expression (Codon) AAV2/5's optimized codon usage was associated with a seven times increase in protein expression in human cells.
mRNA Stability Utilizing SV40 intron increases mRNA stability and was associated with a two and one half times increase in protein production.
Overall Efficacy The optimized construct was associated with a 300 to 1,000 times increase in efficacy in mouse functional rescue and is expected to be two to three logs more potent on a particle for particle basis in humans.
We conducted four single-dose toxicology and biodistribution studies of AAV-RPE65 from January 2015 to December 2016. We performed a long-term toxicology study in normal mice in which four eyes were
dosed with saline as a control and nine eyes were dosed with AAV-RPE65 at 4E9 vg/eye, with a toxicology assessment at one, three, six and nine months post-administration. We also conducted an eight week mouse study, an eight week rabbit study and an eight week minipig study. In the mouse study, 15 mice were dosed in both eyes with saline as a control, 15 mice were dosed in both eyes with AAV-RPE65 at 1.2E9 vg/eye and 15 mice were dosed in both eyes with AAV-RPE65 at 3.7E9 vg/eye, providing five mice from each group for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. In the rabbit study, nine rabbit's right eyes were dosed for each group with a saline control group, a 0.6E11 vg/eye group and a 1.9E11 vg/eye group, providing three animals from each group for studying local and systemic effects at each time-point of one, four and eight weeks after treatment. The minipig study was a two week single dose injection study in minipigs (n=2, each dosed in one eye) at a dose of 1.84E1011 vg/eye. The minipig study was performed by Charles River Laboratories, while the other three studies were performed at UCL IO. No harmful effects on the retina were observed during these studies. We used these data in support of our CTA and IND for treatment of RPE65-deficient patients with AAV-RPE65.
Clinical development of AAV-RPE65
We have an ongoing natural history study in patients with RPE65-deficiency with approximately 30 patients enrolled that allows us to collect structural and functional data on prospectively defined endpoints, including functional tests (mobility maze, color vision, visual acuity and quality of life measures), retinal imaging (color fundus photography, fundus autofluoresence imaging, visual field testing, spectral domain optical coherence tomography and adaptive optics) and electrophysiological assessments. The study is global, with study centers including at the Moorfields Eye Hospital in London, University of Michigan Kellogg Eye Center and the Medical College of Wisconsin & Froedtert Hospital. We plan to present this natural history data to regulatory agencies in our meetings following completion of the Phase 1/2 clinical trial for discussion of our pivotal trial design and path to regulatory approval.
A Phase 1/2 clinical trial of AAV-RPE65 in both adult and pediatric patients is ongoing. The design of the trial is the same as our ACHM Phase 1/2 clinical trials. In the dose escalation phase of the trial, up to 18 adult participants may be administered one of three different doses of vector in dose escalating cohorts of three to six participants at a time. Once an acceptable safety profile has been established in adults, up to nine children may then be treated at an acceptable dose. The primary endpoint of this open-label, dose-escalation clinical trial is the safety of delivering AAV-RPE65 through subretinal injection in patients with RPE65-deficiency. Secondary endpoints include the outcomes of a range of functional tests, detailed structural analysis of the retina and quality of life measures.
This clinical trial is enrolling patients in the United Kingdom under our CTA, as well as the United States under our IND. We have treated 14 patients in this clinical trial and the first seven patients have consented to participate in the long-term follow up study. Children are currently being dosed in the United States and United Kingdom. Surgeries in this trial have been carried out in the United States at the University of Michigan Kellogg Eye Center and in the United Kingdom at the Moorfields Eye Hospital by three different surgeons. No differences in outcomes have been observed between the different surgeons.
In cohort one, three adults (aged 19, 20 and 20 years old) were administered up to 1mL of 1E11 vg/mL of AAV-RPE65 vector. In each patient, the central region of the retina was targeted. No serious adverse events or dose limiting events have been reported in this cohort as of the 18 month time point following vector administration.
In each patient treated in cohort one, we observed improvement or stability in central visual function following treatment compared to baseline and compared to the untreated fellow eye. Retinal sensitivity was measured with threshold static perimetry using Octopus 900 perimetry and visual field modelling and analysis, or VFMA. Observations at 18 months following vector administration in the first cohort have demonstrated a
potential increase in retinal sensitivity by up to 40% from baseline. In contrast, we observed that the untreated eyes of patients in this cohort suffered a reduction in retinal sensitivity of up to 40%, which is in consistent with data from our parallel prospective natural history study of RPE65-deficient patients. In addition to the perimetry and VFMA data, improvements in time and error rate in mobility maze navigation have been observed in these patients at six and 12 months following treatment. However, this is preliminary data and needs to be supported by data collected at later time-points and in larger numbers of patients.
In addition to the functional data discussed above, we are collecting detailed structural data on all patients in our Phase 1/2 clinical trial. This includes data to visualize the mosaic of individual cones in the central part of the retina over time in each patient. We have sequential cone map data for more than 18 months following subretinal injections that covered the macula and fovea in the patients in cohort one, and as of May 4, 2018, we have not observed retinal thinning or loss of cones over time following treatment. We are continuing to monitor the detailed structure of both treated and untreated fellow eye in the five year follow on study to assess if AAV-RPE65 treatment has an impact on degeneration in the treated area of the eye compared to the untreated fellow eye.
In cohort two, three adults (aged 16, 20 and 22) were administered vector peripherally via subretinal injection into the outer region of the retina at a higher dose of up to 1mL of 3E11 vg/mL. Following completion of the four week steroid taper, in two patients inflammatory responses were noted by the investigator as being probably related to vector administration. Both responded to a further course of steroids. Improvements in visual mobility in study eye over non-study eye were observed at 12 months at the four lux lighting level in this cohort. Similar increases in retinal sensitivity to cohort one have not been observed at this dose level. We believe data from cohort two is suggestive that peripheral administration of the vector into more degenerating areas of the retina may result in an increased chance of an immune response with a decreased potential benefit compared central administration of the vector. Following the review of the safety data for each adult cohort treated in this study, the IDMC recommended escalation to the higher dose in the next cohort.
Based on the safety and activity data from the patients treated at the 1E11 vg/mL dose level (cohort one), the decision was made to treat pediatric patients at this dose prior to receiving the full safety data from adult cohort three, and to target the central part of the retina in all pediatric patients. Treatment of pediatric patients is currently ongoing in the United Kingdom and United States and five pediatric patients have been treated. We expect to treat one additional pediatric patient in this trial.
We carry out detailed assessments of retinal sensitivity across the entire retina, with the majority of tested retinal locations covering the central retina, at baseline and at prospectively defined time-points following treatment using the Octopus 900 perimeter. The Octopus 900 perimeter, unlike other standard clinical devices, enables full-field static perimetry using testing algorithms specifically designed for retinal conditions, affords the use of custom-developed testing grids, and allows the full dataset to be extracted and modelled for more accurate measurement of change over time.
Discreet small spots of light are shone onto multiple predetermined points (the test grid) covering the central retinal field and peripheral retina, with the patient responding each time they perceive a spot of light. Each point on the retina is tested multiple times with different intensities of light, thereby allowing the determination of both the reliability and reproducibility of the patients' response to each light level at each spot and an accurate measurement of the exact retinal sensitivity at topographically determined points. The data is read out as a 'heat map' of sensitivity across the retinal field. The reliability of the patient and the data produced is also calculated and provided by the machine. In addition to the heat map of retinal sensitivity and conventional mean sensitivity metric produced by Octopus 900 assessment, we also conduct advanced VFMA. This produces a volumetric measure of retinal sensitivity presented both numerically as well as in a topographical retinal sensitivity map, which better represents the entire dataset across the visual field. We compare the VFMA data from the retinal map at each timepoint following treatment to the baseline data to measure the extent and position of changes in retinal sensitivity over time in treated and untreated eyes.
As of May 4, 2018, we have received initial post-treatment Octopus 900 perimetry data in which we observed a strong response at the three month time-point in an 11 year old pediatric patient treated with AAV-RPE65 at a dose of 1E11 vg/mL, one of the two pediatric patients we currently have follow up data from that time point on. However, this is preliminary data and needs to be supported by data collected at later time-points and in larger numbers of patients. Figure 12 shows the 'heat maps' produced by Octopus 900 assessment showing the light sensitivity across the retinal fields of the left (Figure 12A) and right (Figure 12B) eyes of this 11 year old RPE65 patient at baseline prior to treatment with AAV-RPE65. Figure 13 shows the 'heat maps' produced by Octopus 900 assessment showing the light sensitivity across the retinal fields the untreated left eye (Figure 13A) and the treated right eye (Figure 13B) of this 11 year old RPE65 patient at the first Octopus 900 assessment at three months following treatment with AAV-RE65 at a dose of 1E11 vg/mL via subretinal injection covering the central retina including the macula and fovea.
The increased color observed in the patient's right eye in Figure 13 compared to the right eye in Figure 12, and especially the prominence of the green and yellow in the right eye, indicates a significant increase in light sensitivity in these areas of the retina. The reliability of this patient's data measured by the Octopus 900 perimeter scored the highest level achievable in the test. Reliability scores measured by Octopus 900 range from zero to 100, with 100 being totally unreliable and zero being the maximum reliability score. This patient achieved a reliability score of zero.
Figure 12. Image of the 'heat map' left and right eyes of an 11 year old patient produced prior to treatment with AAV-RPE65.
Figure 13. Image of the heat map left and right eyes of an 11 year old patient produced three months following treatment with AAV-RPE65 in the right eye, the left eye was untreated.
We anticipate completing dosing of the final pediatric patients in the second half of 2018. We will close out this trial six months after the last pediatric patient has been treated. Patients will then move into a long term follow up study in which patients will be followed for safety and an indication of benefit for an additional four and a half years.
Preliminary six month data from the full pediatric cohort will be available in the first half of 2019, along with top line data from the adults treated in the dose escalation phase of this study.
The FDA and EMA each granted orphan status to AAV-RPE65 for the treatment of LCA caused by mutations in RPE65. The FDA also granted AAV-RPE65 rare pediatric disease designation for the treatment of inherited retinal dystrophy due to biallelic RPE65 mutations.
LCA4
Disease Background
LCA4 is an IRD that causes complete blindness before age five. AIPL1 is a central protein for the maintenance of photoreceptor structure and function. Deletion of the AIPL1 gene causes the most severe form of early retinal dystrophy, LCA4, in which the retinal structure is destroyed with complete vision loss. LCA4 is rare, representing approximately 8% of all LCA cases.
There are currently no approved treatments for LCA4, and we believe an effective intervention will require introducing a normal functional copy of the AIPL1 gene into rod and cone photoreceptors early in a patient's life while some retinal structure remains in order to activate function and survival of the photoreceptors that are still present. We believe gene therapy has the potential to be the only effective way to address the disease's root cause.
LCA4's extremely rapid progression, rarity and early age of onset make the standard process of seeking regulatory approval through clinical development challenging because adult safety trials would not yield meaningful data given the early onset of the disease. We believe we are well placed to initiate the first clinical intervention in this indication through our relationships with UCL and Moorfields Eye Hospital, whose expertise and large IRD patient population enables such an aggressive and uncommon IRD to be treated.
To address LCA4, we developed a viral vector to replace the AIPL1 gene in all photoreceptors by using the AIPL1 cDNA driven by the rhodopsin kinase promoter, which is active in both rods and cones.
Much of the preclinical work to support the proof of concept for gene therapy in LCA4 was conducted by our collaborators at UCL IO, led by Professor Robin Ali, and was published in Gene Therapy in 2010.
Figure 14 and Figure 15 show histological sections revealing the structure of retinas from Aipl1 mutant mice treated with AAV-AIPL1, compared to untreated retinas from Aipl1 mutant mice, at six months and 23 months after treatment.
It was observed at both time-points that Aipl1 mutant mice treated with AAV-AIPL1 suffered less photoreceptor loss than untreated Aipl1 mutant mice, with the retinas of untreated mutant mice almost completely degenerated by 24 months of age. Aipl1 mutant mice were treated with .5uL of AAV-AIPL1 at 1E12 at four weeks post-natal and eyes were sectioned at six months and 23 months after treatment. These treated retinas were compared to retinas from untreated control Aipl1 mice (n=17 eyes), and retinas from normal mice without the Aipl1 mutation sectioned at the same post-natal ages as the treated Aipl mutant mice. The data indicates that subretinal administration of AAV-AIPL1 is associated with the protection of the retina from degradation that occurs in Aipl1 mutant mice, and this effect was durable out to two years, the oldest age studied in these mice.
Figure 14. Histological sections of retinas of Aipl1 mutant mice treated with AAV-AIPL1 six months after treatment with AAV-AIPL1, compared to untreated retina. The top image is the retina of an untreated Aipl1 mutant mouse at seven months post-natal. The lower image is the retina of a Aipl1 mutant mouse at seven months post-natal, and six months following treatment with AAV-AIPL1.
Figure 15. Histological sections of retinas of Aipl1 mutant mice treated with AAV-AIPL1 23 months after treatment with AAV-AIPL1, compared to untreated retina and retina from a normal mouse. The left image is the retina of an normal mouse at 24 months post-natal. The middle image is the retina of an Aipl1 mutant mouse at 24 months post-natal, and 23 months following treatment with AAV-AIPL1. The right image is the retina of an untreated Aipl1 mutant mouse at 24 months post-natal.
Clinical material was manufactured to cGMP standards under a specials license. Some of this clinical material was used in studies in 2017 at UCL to confirm potency in an AIPL1 deficient mouse and to perform toxicology testing in normal mice and rabbits. A potency study was conducted at a AAV-AIPL1 dose of 3E9 vg/eye with a group size of three eyes. Assessments were performed at three weeks and supported the potency of the cGMP clinical material through analysis of the ERG response.
A toxicology study was performed with normal mice and rabbits. In the mouse portion, five animals per group were evaluated for local and systemic effects at four weeks. In the rabbit portion, three animals per group were evaluated for local and systemic effects at four and eight weeks. Safety evaluation included functional assessments using ERG, fundoscopy, and structural assessments.
Our product candidate, AAV-AIPL1, was manufactured and released for compassionate use under a specials license in the UK to treat LCA4 patients at the Moorfields Eye Hospital. This allows physicians at the
Moorfields Eye Hospital to prescribe a treatment of AAV-AIPL1 for LCA4 patients they deem appropriate. We play no role in the physician's treatment decision. We intend to use the data produced by the compassionate use treatment to inform any potential clinical development plan as well as any interactions with the regulatory agencies that would enable us to make this intervention more widely available to the LCA4 patient population. Although patients have been reviewed at the Moorfields Eye Hospital, so far none have been treated with AAV-AIPL1. As the manufacturer of AAV-AIPL1 under a specials license, we have a record retention requirement and a continuing obligation to inform the MHRA of any suspected adverse reaction to our medicinal product which is a serious adverse reaction.
The UK's Human Medicines Regulations 2012 allow for the manufacture and supply of medicinal products not authorized for marketing to patients with special needs at the request of the healthcare professional responsible for the patient's care (these products are referred to as "specials"). A special may only be supplied in: (i) response to an unsolicited order from a healthcare professional responsible for the care of the patient, (ii) if the product is manufactured and assembled in accordance with the specifications of that healthcare professional to fulfil the special needs of the individual patient that cannot be met by products already authorized for marketing and (iii) if the product is manufactured under a specials license granted by the UK's Medicines and Healthcare Products Regulatory Agency, or MHRA.
Manufacturing a special also imposes a five year record retention requirements subject to review by the MHRA, including details of any suspected adverse reaction to the product so sold or supplied of which the person is aware or subsequently becomes aware, as well as a continuing obligation to notify the MHRA of any suspected adverse reaction to the medicinal product which is a serious adverse reaction.
The FDA and EMA granted orphan designation to our product candidate, AAV-AIPL1, for treatment of inherited retina dystrophy due to defects in AIPL1 gene.
Age-Related Macular Degeneration (AMD)
AMD is a chronic eye condition that causes gradual decline of central vision. It is the leading cause of vision loss in individuals more than fifty years old in the United States and it affects 6.2 million people globally. Although AMD does not usually lead to complete blindness because peripheral vision is generally maintained, losing central vision has a critical impact on visual acuity, which is achieved by the closely packed cones of the central retina. As a result, loss of central retinal function has a significant impact on a person's independence and quality of life.
AMD is a complex disease attributed to several different causes. A number of genetic and environmental risk factors have been associated with the development of AMD. Two late forms of AMD have been characterized: geographic atrophy, or dry AMD, and neovascular AMD, or wet AMD. Dry AMD is characterized by the progressive, irreversible loss of many of the cell types in the retina, including the RPE, photoreceptors, and underlying capillaries of the macula, and causes a decline in central visual function. Wet AMD is defined by the growth and invasion of immature blood vessels from the underlying choroid into the retina. Leakage from these fragile blood vessels causes build-up of blood and fluid under the retina, leading to detachment of the RPE or retina and long term scarring.
Current therapeutic options for AMD are limited. There is no approved therapy that impacts the disease progression of dry AMD. The best available treatment for patients after they lose central vision and acuity is support and rehabilitation services to help them better utilize the remaining peripheral part of their retina.
Effective treatments for wet AMD are focused on blocking blood vessel growth, or angiogeneisis, that underlies the pathology of the disease. These wet AMD treatments specifically block the activity of vascular
endothelial growth factor, or VEGF, one of the key drivers of angiogenesis. There are two approved anti-VEGF treatments on the market, ranibizumab, or Lucentis, and aflibercept, or Eyelea. These may be effective in some wet AMD patients, but require challenging dosing regimens that typically include intra-ocular injections every one to three months.
Our Gene Therapy Programs
Wet AMD
We aim to use a gene-based strategy to deliver an anti-angiogenic molecule to the retina and create a "local factory" that will deliver a continual supply of antiangiogenic molecules to the key parts of the eye. This would require a one-time injection procedure to deliver the gene therapy to the affected eye. We focus our blockade on the receptor involved in driving aberrant blood vessel growth and leakage, VEGF Receptor 2, or VEGFR2. Rather than depleting the VEGF ligand from the system we aim to block the receptor for that ligand preventing VEGF binding to the receptor and thereby preventing downstream pathology of wet AMD that is normally triggered by VEGF binding to VEGFR2. We use an anti-VEGFR2 antibody. In some rodent models the inhibition of the VEGFR2 with this antibody appears to have reduced long term toxicity as compared to the depletion of the VEGF ligand. Initial studies have identified a lead candidate that we have now moved from the research stage to formal preclinical development. We are also working to integrate our gene regulation technology with our wet AMD program. Our ultimate aim is to activate the anti-VEGFR2 antibody gene that we have installed in the eye with a small molecule applied topically with an eye drop. This could potentially allow for intermittent dosing of the antibody using an eye drop rather than an injection.
Dry AMD - Rod to Cone Program
To treat dry AMD, and specifically to treat patients with geographic atrophy in which the central part of the retina is irreversibly damaged, we are advancing a novel strategy to alter the very character of rod photoreceptors.
In advanced forms of dry AMD, central visual function is lost after the fovea and the larger central retina area has degenerated, and any residual vision is generally via the outer retina's rods. A critical characteristic of cones that allows for response to high light levels is that they recover rapidly after they are stimulated by light. In contrast to cones, rods work in low light levels and require longer exposure to trigger an impulse and are then much slower to recover to a state when they can respond again. Therefore, seeing via rods is slow and imprecise, whereas cones mediate acute high resolution vision. By genetically engineering rods with molecules that will improve their speed of recovery and response to light, we aim to effectively transform a patch of rod photoreceptors to behave more like cones. This rod-to-cone transformation would potentially be achieved by using localized gene therapy vector placement in the rod-rich peripheral retina to create a small patch or "pseudo fovea," where cone like behavior of rods would enable the patient's brain to fixate on a functional part of the peripheral retina and recover a more cone like response to higher light levels.
The proof of concept has already been achieved in animal models, with first generation molecules designed to speed up the visual cycle recovery times in rods. We will continue to develop and optimize these molecules using our screening systems to allow selection for sensitivity to natural high light intensities and for the high refresh rate required.
Disease Background and Market Opportunity—RIX
Radiation induced xerostomia, or RIX, is a severe and debilitating long-term side effect of radiation treatment for head and neck cancer. There is not currently any FDA approved treatment for RIX. Worldwide, there are approximately 500,000 new cases of head and neck cancer diagnosed each year, with approximately
50,000 cases in the United States alone, making it the fifth most common malignancy. Approximately 85% of patients who receive radiation treatment for head and neck cancer experience reduced saliva production during treatment, and approximately 40% of those patients who remain cancer free for two or more years after treatment continue to suffer from grade 2 or 3 RIX. There are approximately 170,000 such patients in the United States, with approximately 10,000 new cases each year. Severity of RIX is measured from grade 1 (mildest) to 4 (most severe). As these patients tend to be under the care of a physician and dentist and have access to some form of health insurance, we believe this is an accessible indication with much larger commercial potential than some genetic diseases that are currently targets of our gene therapy programs.
RIX is a frequent side effect of head and neck cancer treatment because the standard treatment of locally advanced head and neck cancer involves radiotherapy, which can cause irreversible damage to non-diseased tissues located near oral tumors, such as the salivary glands. The fluid secreting, or acinar cells, of the salivary glands are uniquely sensitive to radiation, are destroyed acutely on IR exposure and to a large extent do not regenerate, resulting in chronically reduced salivary output. Because saliva plays such a critical role in the physiology and protection of upper gastrointestinal, or GI, tract tissues, patients with chronic RIX suffer severe long term complications of head and neck irradiation that has a significant impact on the patient's daily living. Chronic RIX results in severe side effects, including difficulty swallowing, or dysphagia, oral discomfort, malnutrition, oral mucositis, changes in taste, increased oral infections and dental cavities.
Our Gene Therapy Program—RIX
Salivary glands are an attractive target organ for gene therapy treatments because they are self-contained, partially immune protected and easily accessible, allowing for non-invasive delivery of small vector doses.
We are developing AAV-AQP1 to treat RIX by increasing water conduction in the chronically damaged salivary glands by introducing a water conducting channel into the remaining epithelial cells of these damaged glands. Adequate water secretion by surviving epithelial cells has the potential to deliver the protective exocrine proteins produced by remaining gland cells into the mouth.
The key to our approach is that, unlike the water conducting acinar cells, the water impermeable duct cells of the glands appear to be resilient to IR exposure. As a consequence of this relative resilience to radiation treatment, salivary glands damaged by radiation treatment tend to contain mostly water impermeable ductal epithelial cells. To make these duct cells permeable to water, AAV-AQP1 introduces the gene for the human aquaporin water channel, or hAQP1. We have demonstrated that this has the potential to convey water permeability and causes ductal cells to generate an osmotic gradient, which causes them to secrete fluid into the lumen of the duct.
The proof of concept for this mechanism and its ability to increase the volume of saliva secreted by damaged salivary glands was observed in a Phase 1/2 clinical trial conducted by the U.S. National Institutes of Health, or NIH, in patients with chronic grade 2 or 3 RIX. The trial was designed as a short-term dose escalation trial of doses of AAV-AQP1 between 4.8E7 and 5.8E9 pu/gland using adenovirus as the vector to deliver the hAQP1 to the remaining epithelial cells in the parotid gland of 11 patients suffering from chronic RIX. There were no reported severe adverse events among the patients treated, two out of three patients in each of the first three cohorts in this clinical trial were observed to have objective increases in saliva volume produced by the treated parotid gland, with increases in parotid flow ranging from 60% to 540%, and all but one of these patients showed a decrease in symptoms of dry mouth as measured by subjective visual analog scales, validated in other forms of xerostomia. The results of this study were published in Proceedings of the National Academy of Sciences in 2012.
We are currently conducting a Phase 1 dose escalation clinical trial in patients with grade 2 or 3 RIX who remain cancer free for at least five years after receiving radiation treatment. In this trial we are using AAV2 to deliver the hAQP1 gene, as we believe AAV2 efficiently transfects the salivary gland cells and does not spread
beyond the target cells. Up to 18 adult patients may be administered doses of AAV-AQP1 between 3E9 and 6E11 viral particles per gland in dose escalation cohorts of three patients each. The aim of the trial is to determine the safety of inserting hAQP1 locally into the salivary glands of RIX patients, as well as to measure changes in salivary flow resulting from the introduction of this channel. We have completed dosing in the first cohort and begun dosing in the second cohort, having treated five patients. This clinical trial is being conducted in conjunction with the National Institute of Dental and Craniofacial Research at the NIH Dental Clinic.
We expect to initiate an additional clinical trial at Memorial Sloan Kettering Cancer Center in the second half of 2018.
The FDA granted orphan drug designation for AAV-AQP1 to treat symptoms of grade 2 and grade 3 late xerostomia from parotid gland hypofunction caused by radiotherapy for cancer of the oral cavity.
The destruction of salivary tissue resulting in chronic xerostomia may also be caused by chronic autoimmune disease. Sjogren's syndrome is an autoimmune disease in which a patient's immune system may target the salivary glands. Chronic inflammation of the salivary glands results in long term damage and chronic xerostomia in many Sjogren's patients. Data from preclinical studies in animal models of Sjogren's syndrome and data from explants of minor salivary glands of Sjogren's patients suggest that Sjogren's syndrome may also be treatable with our AAV-AQP1 vector. Supported by data from our preclinical studies and our ongoing RIX clinical trials, we anticipate initiating a clinical trial of AAV-AQP1 for xerostomia caused by Sjogren's syndrome in 2019.
We also have research and preclinical programs targeting neurodegenerative diseases, with a research focus in ALS and Alzheimer's disease. In each of these diseases, we aim to target what we believe is a central factor in the underlying cell biology of the diseases, specifically RNA metabolism in ALS and endosomal trafficking dysfunction in Alzheimer's disease. Relying on our expertise in viral vector design, delivery, production and manufacturing, we are aiming to develop and optimize vectors to effectively treat both genetic and sporadic forms of these diseases.
ALS is a devastating, progressive, neurodegenerative disease leading to the loss of motor neurons, which are the neurons that control the ability to move, speak, swallow and ultimately to breathe. The gradual paralysis in ALS invariably leads to death. While 10% of ALS cases are caused by inherited genetic mutations, most ALS occurs sporadically, with no known genetic cause. Mutations in over 20 genes have been identified that cause the inherited ALS cases. Characterization of these disease-causing genes have implicated several cellular pathways in the disease, with a prominent role emerging for genes involved in the cellular control of RNA. Many new regulatory roles are being discovered for RNA, particularly in neurons.
One gene linked to ALS is the transactive response DNA-binding protein 43, or TDP-43. The TDP-43 protein is one of a number of proteins that binds to cellular RNA and regulates its function and stability. When TDP-43 does not function normally, RNA regulation in the neurons loses its tight control and the motor neurons die. While mutations in TDP-43 account for only about 0.5% of ALS cases, aggregates of TDP-43 protein are observed in motor neurons of more than 95% of all ALS patients, including both inherited and sporadic, and TDP-43 aggregation is a central feature of diseased motor neurons in ALS patients. TDP-43, therefore, may be a critical therapeutic target for the treatment of both sporadic and inherited forms of ALS. TDP-43 aggregates are also seen in approximately 50% of patients with frontotemporal dementia, or FTD, suggesting a potentially similar underlying mechanism of this neurodegenerative disease.
Our Gene Therapy Approach
Genetic approaches using yeast as the primary model system have been used to identify ways of protecting motor neurons from death in ALS. A genetic screen was conducted to look for activated genes that rescue the toxicity of TDP-43 aggregation. A group of fives genes that reduce TDP-43 toxicity, was identified including members of the nonsense mediated decay, or NMD, machinery, and two genes in particular: up frameshift protein 1, or UPF1, and up frameshift protein 2, or UPF2.
NMD is the quality control system regulating RNA processing and activity in all cells, and has additional and broader functions specifically in regulating RNA in neurons.
Over the past decade, increasing evidence suggests that motor neurons may be particularly vulnerable to defects in RNA regulation, which may be caused by a number of defects, including TDP-43 aggregation. We believe that increasing the master quality control machinery for RNA processing, NMD, in motor neurons may improve the ability of motor neurons to survive in ALS.
We have designed a viral vector product candidate, AAV-UPF1, with the aim of increasing UPF1 expression in the motor neurons of ALS patients. In preclinical studies, we observed that administration of AAV-UPF1 reduced motor neuron death thought to be driven by the toxic effects of several different genetic causes of ALS including, TDP-43, FUS and C9orf72. Improvements in ALS-like symptoms related to limb strength and mobility in rodent models of ALS have also been observed following administration of AAV-UPF1.
We believe that gene therapy using AAV-UPF1 may increase UPF1 levels in cells affected by ALS, and we intend to deliver our viral vector product candidate to the central nervous system via intrathecal injection, or injection into the spinal canal. We are currently conducting IND enabling studies in animal models and have observed the preservation of neurons and a positive impact on functional endpoints in Fus and TDP-43 neuronal cell cultures. Data is expected to become available on studies regarding modes of central nervous system delivery in non-human primates during 2018 and head-to-head non-human primates capsid study is set to launch during the second half of 2018. In the second half of 2018 we anticipate initiating manufacturing for our ALS program and engaging the FDA in pre-IND discussions, with the goal of filing an IND and initiating a clinical trial of AAV-UPF1 in ALS patients in 2019.
With the world population aging, Alzheimer's disease has emerged as an extremely common and costly disease. While some treatments that have temporary effects on Alzheimer's disease symptoms are available, there is currently no approved treatment that halts the progression of the disease. Two biological pathways have been identified that are considered causes of Alzheimer's disease. They are identified as causative because mutations in genes that affect these pathways alone cause patients to develop the disease. The first causative pathway, identified in rare forms of early onset Alzheimer's disease, is the misprocessing of amyloid precursor protein, or APP, caused by genetic defects in APP itself and the APP processing proteins presenilin 1 and 2. The second causative pathway is related to the correct movement, or trafficking, of cellular protein which is controlled by a cell component called the endosome. Loss of function mutations in the endosomal protein sortilin-related receptor 1, or SORL1, have recently been shown to cause Alzheimer's disease.
The endosome is an organelle within the cell that is responsible for correctly directing protein trafficking to different sites within the cell as well as to the cell surface. In neurons, there is significant protein trafficking, particularly at dendrites or neuronal connections where the endosomal trafficking system regulates the movement of the cell signaling machinery that allows neurons to communicate with one another.
The molecular machine that drives endosomal protein trafficking is made up of a complex of proteins together called the retromer. The protein encoded by the Alzheimer's disease causing gene SORL1 is a retromer component. SORL1 and other components of the retromer complex are commonly deficient in Alzheimer's disease patients' brains. Defects in the endosomal trafficking pathway have also been implicated in other neurodegenerative diseases, including Parkinson's disease, ALS and frontotemporal dementia.
Our Alzheimer's disease program focuses on the endosomal trafficking pathway. In preclinical studies, we observed that increasing levels of key retromer proteins may reverse endosomal trafficking defects. We are identifying suitable retromer targets for gene augmentation in pre-symptomatic Alzheimer's patients.
There are several reasons why gene therapy is, in principle, well suited for Alzheimer's disease and other neurodegenerative diseases. The first relates to the pathophysiology, time course, and anatomical spread of these disorders. Neurodegenerative diseases generally begin locally in selectively vulnerable regions with "cell sickness" years before rampant cell death and wide-spread anatomical distribution. To be most effective, we believe interventions should be administrated early and will benefit from local delivery. Even then, however, an intervention must maintain its efficacy for years because, unlike other cells in the body, neurons do not typically divide over the course of their life. We believe AAV-delivered gene therapy products may have a durable effect. In the best case scenario, one delivery successfully taken up by targeted neurons would be sufficient for years of efficacy.
An important component of our approach is the development and validation of surrogate markers of endosomal dysfunction and predictive markers of Alzheimer's disease. In particular, several well studied biomarkers linked to Alzheimer's disease, such as amyloid-beta and tau, have also been shown to be biomarkers of endosomal trafficking dysfunction in neurons. Such biomarkers could potentially be used to identify patients with Alzheimer's disease, as well as demonstrate potential product efficacy in the absence of Alzheimer's disease symptoms. By targeting endosomal trafficking dysregulation we aim to address the underlying cause of Alzheimer's disease as well as other neurodegenerative diseases, such as certain forms of Parkinson's disease.
Our Gene Regulation Platform
We are developing a potentially transformative technology designed to enable us to use small molecules to turn gene therapy product candidates on and off. The aim of this gene regulation platform is to transform gene therapy into a generalizable mechanism for the delivery of biologic drugs. The idea is that the gene encoding a particular biologic drug, for example epoetin alfa, or a therapeutic antibody, would be delivered to target cells in the body, but these genes would only be activated in the presence of a specific small molecule. The therapeutic protein would be manufactured by the body only in the presence of the small molecule so that intermittent production of the therapeutic protein would be achieved by dosing with the small molecule drug.
This temporal regulation of gene therapy products by exogenous small molecules has long been a goal of gene therapy researchers. The ability to regulate transgenes by introducing temporal control has the potential to transform the gene therapy landscape and the biologics industry as a whole. Our approach focuses on riboswitches to regulate gene expression rather than on the modulation of transcription factor activity, and this is the basis of our gene regulation platform.
Riboswitches are pieces of RNA that fold into alternative shapes depending on the binding of a specific small molecule to that RNA sequence. One RNA shape allows the gene containing the riboswitch to be active, while the alternative shape inactivates the gene. Riboswitches are used extensively by bacteria, but none have been identified in mammalian cells to date.
We designed a de-novo mammalian riboswitch that we have observed responds to small molecules and switch genes on and off in mammalian cells. Our riboswitch contains a stretch of RNA sequence, called an
aptamer, that binds to a specific small molecule. The riboswitch is inserted into the therapeutic transgene cDNA. In the absence of the specific small molecule, the unbound riboswitch folds into the shape that drives the destruction of the entire RNA message and no therapeutic protein is produced in the absence of the small molecule. However, when the small molecule is present and binds to the riboswitch it adopts the alternative RNA shape, causing stable messages to be formed and the therapeutic protein to be produced.
One of the features of our mammalian riboswitch is its range of regulation. Using a small molecule we were able to switch the riboswitch containing gene on to levels greater than 1,000x higher than in the absence of the small molecule. We believe this technology is viable for a therapeutic product and is also the first instance of a proprietary system for screening randomized aptamers and small molecules within mammalian cells for functional interactions.
Our Manufacturing Capabilities
We recently completed our cGMP manufacturing facility situated in London, United Kingdom. Supporting our global approach to clinical development and market supply, we designed the 29,000 square foot facility to meet multiple regulatory standards, including the Medicines and Health Products Regulatory Agency, or MHRA, in the UK, EMA and FDA standards. We recently had our final MHRA certification inspection. In May 2018, we were granted a license to manufacture gene therapy product candidates in our cGMP compliant manufacturing facility by the UK Medicines and Healthcare products Regulatory Agency.
We believe our facility can supply all of our current clinical and preclinical programs through regulatory approval and, should they be approved, provide sufficient capacity, for commercial production. Strategically, we believe our facility will minimize our dependence on third-party CMOs, which we believe provides a significant strategic, clinical and commercial advantage.
Our facility is flexible and scalable, with eleven independent air handling units, two cell culture suites and three separate viral vector production suites, which allows us to produce multiple product candidates in parallel, as well as sequentially at different scales. This allows us to accommodate up to three independent parallel manufacturing streams of viral products that are isolated within dedicated production areas.
Our manufacturing facility includes an integrated analytical department and in-house analytical tool kit that allows for in-house release of clinical and commercial manufactured products. Equipped with dedicated areas for microbiology, molecular biology, and cell-based analytics. Our analytical department can perform product related assays, allowing us to retain and gain expertise that is normally lost to third parties. The close integration allows for rapid turnaround and flexibility in scheduling of key assays, reducing lead times for product candidate releases. Further, our dedicated product fill and finish suite allows us to manufacture a full range of clinical and commercial products under one roof and in our control.
We have more than 40 highly trained multidisciplinary staff on our manufacturing team with backgrounds in manufacturing, managing and delivering gene therapy products.
We have identified and licensed a proprietary HEK293 cell line that is well characterized and that we have banked in 400 vials. The specific cell line, size of the bank,

redpajama_set_name: RedPajamaCommonCrawl