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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from                  to                 

Commission File Number: 001-38520

MeiraGTx Holdings plc

(Exact Name of Registrant as Specified in its Charter)

Cayman Islands

    

98-1448305

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

450 East 29th Street, 14th Floor

New York, NY

10016

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (646860-7985

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

     

Trading
Symbol(s)

    

Name of each exchange
on which registered

Ordinary Shares,
$0.00003881 par value per share

MGTX

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ☐

    

Accelerated filer       ☐ 

Non-accelerated filer     

Small reporting company        

Emerging growth Company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of April 30, 2021, the registrant had 44,282,073 ordinary shares, $0.00003881 par value per share, outstanding.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Form 10-Q that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding expectations regarding meetings with global regulatory authorities and the FDA, product pipeline, anticipated product benefits, goals and strategic priorities, product candidate development and status and expectations relating to clinical trials, growth expectations or targets and pre-clinical and clinical data expectations in respect of collaborations, including, in each case, in light of the COVID-19 pandemic, as well as statements that include the words “expect,” “will,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “could,” “should,” “would,” “continue,” “anticipate” and similar statements of a future or forward-looking nature. These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under “Item 1A. Risk Factors” in this Form 10-Q. These and other important factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this Form 10-Q. Any such forward-looking statements represent management’s estimates as of the date of this Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, unless required by law, we disclaim any obligation to do so, even if subsequent events cause our views to change. Thus, one should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Form 10-Q.

i

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Risk Factor Summary

We are providing the following summary of the principal risk factors contained in this Form 10-Q to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review in their entirety the full risk factors set forth in the section of this Form 10-Q captioned “Item 1A. Risk Factors” for additional information regarding the material factors that make an investment in our ordinary shares speculative or risky. These risks and uncertainties include, among others, the following:

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 our Most Advanced Product Candidates (as defined in “Item 1A. Risk Factors”), which are still in development, and if none of them receive regulatory approval or are successfully commercialized, our business may be harmed.
The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.
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 gene therapies have been approved in the United States or in Europe.
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 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 manufacturers for plasmid are subject to significant regulation with respect to manufacturing our products. Our manufacturing facilities and the third-party manufacturing facilities which we rely on may not continue to meet regulatory requirements and have limited capacity.
Enacted and future healthcare legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
We are subject to government regulation and other legal obligations relating to privacy and data protection. Compliance with these requirements is complex and costly. Failure to comply could materially harm our business.
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.

ii

Table of Contents

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.
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 will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
Our future success depends on our ability to retain our key personnel and to attract, retain and motivate qualified personnel.

Preliminary Notes

Unless the context otherwise requires, references in this Form 10-Q to “Meira,” “we,” “us”, “our” and “the Company” refer to MeiraGTx Holdings plc and its subsidiaries.

We have proprietary rights to trademarks, trade names and service marks appearing in this Form 10-Q that are important to our business. Solely for convenience, the trademarks, trade names and service marks may appear in this Form 10-Q 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 Form 10-Q are the property of their respective owners.

iii

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Table of Contents

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

Condensed Consolidated Statement of Shareholders’ Equity

3

Condensed Consolidated Statement of Shareholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 3.

Defaults Upon Senior Securities

88

Item 4.

Mine Safety Disclosures

88

Item 5.

Other Information

88

Item 6.

Exhibits

89

Signatures

90

iv

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share amounts)

March 31, 

December 31, 

    

2021

    

2020

ASSETS

 

  

 

  

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

199,410

$

209,520

Accounts receivable - related party

12,015

38,479

Prepaid expenses

 

6,365

 

7,082

Tax incentive receivable

7,388

12,930

Other current assets

 

4,948

 

4,565

Total Current Assets

 

230,126

 

272,576

Property and equipment, net

 

47,303

 

44,042

Intangible assets, net

2,060

2,119

In-process research and development

812

852

Security deposits

 

1,034

 

812

Other assets

204

214

Equity method and other investments

6,665

Right-of-use assets

51,472

43,082

TOTAL ASSETS

$

339,676

$

363,697

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

CURRENT LIABILITIES:

 

  

 

  

Accounts payable

$

7,902

$

7,134

Accrued expenses

 

17,248

 

20,861

Lease obligations, current

 

2,773

 

2,583

Deferred revenue - related party, current

 

25,597

 

23,545

Other current liabilities

 

 

24

Total Current Liabilities

 

53,520

 

54,147

Deferred revenue - related party

 

43,303

 

49,297

Lease obligations

 

19,999

 

19,666

Asset retirement obligations

 

1,856

 

1,814

Deferred income tax liability

204

214

TOTAL LIABILITIES

 

118,882

 

125,138

COMMITMENTS (Note 10)

 

  

 

  

SHAREHOLDERS' EQUITY:

 

  

 

  

Ordinary Shares, $0.00003881 par value, 1,288,327,750
authorized,
44,282,073 and 44,189,150 shares issued and
outstanding at March 31, 2021 and December 31, 2020, respectively

 

2

 

2

Capital in excess of par value

 

510,605

 

504,482

Accumulated other comprehensive loss

 

(5,168)

 

(4,897)

Accumulated deficit

 

(284,645)

 

(261,028)

Total Shareholders' Equity

 

220,794

 

238,559

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

339,676

$

363,697

See Notes to Condensed Consolidated Financial Statements

1

Table of Contents

MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except share and per share amounts)

For the Three-Month Periods Ended March 31, 

    

2021

    

2020

License revenue - related party

$

4,595

$

4,210

Operating expenses:

General and administrative

9,918

11,806

Research and development

 

16,709

 

8,083

Total operating expenses

 

26,627

 

19,889

Loss from operations

 

(22,032)

 

(15,679)

Other non-operating income (expense):

Foreign currency loss

(1,615)

(757)

Interest income

89

789

Interest expense

(59)

(34)

Net loss

 

(23,617)

 

(15,681)

Other comprehensive (loss) income:

Foreign currency translation (loss) gain

(271)

3,946

Total comprehensive loss

$

(23,888)

$

(11,735)

Net loss

$

(23,617)

$

(15,681)

Basic and diluted net loss per ordinary share

$

(0.54)

$

(0.43)

Weighted-average number of ordinary shares outstanding

43,974,395

36,624,950

See Notes to Condensed Consolidated Financial Statements

2

Table of Contents

MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE PERIOD ENDED MARCH 31, 2021

(unaudited)

(in thousands, except share amounts)

Accumulated Other

Total

Ordinary

Capital in Excess

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

of Par Value

    

Loss

    

Deficit

    

Equity

Balance at December 31, 2020

 

44,189,150

$

2

$

504,482

$

(4,897)

$

(261,028)

$

238,559

Exercise of share options

17,923

 

 

141

 

 

 

141

Share-based compensation

 

 

 

4,817

 

 

 

4,817

Issuance of shares in connection with equity method and other investments

75,000

1,165

1,165

Other comprehensive loss

 

 

 

 

(271)

 

 

(271)

Net loss for the three-month period ended March 31, 2021

 

 

 

 

 

(23,617)

 

(23,617)

Balance at March 31, 2021

 

44,282,073

$

2

$

510,605

$

(5,168)

$

(284,645)

$

220,794

See Notes to Condensed Consolidated Financial Statements

3

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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE PERIOD ENDED MARCH 31, 2020

(unaudited)

(in thousands, except share amounts)

Accumulated Other

Total

Ordinary

Capital in Excess

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

of Par Value

    

(Loss) Income

    

Deficit

    

Equity

Balance at December 31, 2019

 

36,791,906

$

1

$

395,631

$

(1,794)

$

(203,036)

$

190,802

Exercise of share options

 

26,010

175

175

Share-based compensation

 

5,683

5,683

Other comprehensive income

 

3,946

3,946

Net loss for the three-month period ended March 31, 2020

 

(15,681)

(15,681)

Balance at March 31, 2020

 

36,817,916

$

1

$

401,489

$

2,152

$

(218,717)

$

184,925

See Notes to Condensed Consolidated Financial Statements

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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

For the Three-Month Periods Ended March 31, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(23,617)

$

(15,681)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

Share-based compensation expense

 

4,817

 

5,683

Foreign currency loss

 

1,615

 

757

Depreciation and amortization

 

1,758

 

815

Net change in right-of-use assets and liabilities

(35)

48

Loss on disposal of equipment, furniture and fixtures

8

Gain on termination of lease liability

(144)

Amortization of interest on asset retirement obligations

 

35

 

33

(Increase) decrease in operating assets:

 

 

Accounts receivable - related party

26,764

(4,706)

Prepaid expenses

 

739

 

828

Tax incentive receivable

5,667

4,628

Other current assets

 

(348)

 

(99)

Security deposits

 

(212)

 

191

Increase (decrease) in operating liabilities:

 

 

Accounts payable

 

1,593

 

3,944

Accrued expenses

 

(5,071)

 

(4,479)

Other current liabilities

 

(24)

 

Deferred revenue - related party

 

(4,595)

 

(4,210)

Net cash provided by (used in) operating activities

 

9,086

 

(12,384)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(4,502)

 

(4,036)

Payment for right-of-use asset

(8,866)

Equity method and other investments

(5,500)

Net cash used in investing activities

 

(18,868)

 

(4,036)

Cash flows from financing activities:

 

  

 

Payments on lease obligations - financing leases

 

(5)

 

(10)

Exercise of share options

 

141

 

175

Net cash provided by financing activities

 

136

 

165

Net decrease in cash and cash equivalents

 

(9,646)

 

(16,255)

Effect of exchange rate changes on cash

 

(464)

 

(315)

Cash and cash equivalents at beginning of period

 

209,520

 

227,357

Cash and cash equivalents at end of period

$

199,410

$

210,787

Supplemental disclosure of non-cash transactions:

 

  

 

  

Issuance of shares in connection with equity method and other investments

$

1,165

$

Fixed asset acquisition included in accounts payable and accrued expenses at end of period

$

1,709

$

2,505

Right-of-use assets obtained in exchange for lease liabilities

$

1,120

$

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

24

$

See Notes to Condensed Consolidated Financial Statements

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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       Organization and Basis of Presentation:

The Company

MeiraGTx Holdings plc and subsidiaries (the “Company” or “Meira Holdings”), an exempted company incorporated under the laws of the Cayman Islands, is a vertically integrated, clinical-stage gene therapy company with six programs in clinical development and a broad pipeline of preclinical and research programs.  The Company has 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, the Company has taken a portfolio approach by licensing, acquiring and developing technologies that give depth across both product candidates and indications.  The Company’s initial focus is on three distinct areas of unmet medical need: inherited retinal diseases, neurodegenerative diseases and severe forms of xerostomia.  Though initially focusing on the eye, central nervous system and salivary gland, the Company intends to expand its focus in the future to develop additional gene therapy treatments for patients suffering from a range of serious diseases. The Company also owns and operates a current good manufacturing practices, or cGMP, multi-product, multi-viral vector manufacturing facility in London, United Kingdom, which includes fill and finish capabilities and can supply the Company’s clinical and potential commercial material. Additionally, the Company expanded its manufacturing and supply chain capabilities by acquiring a second cGMP viral vector manufacturing facility and its first cGMP plasmid and DNA production facility in Shannon, Ireland. The Company completed the acquisition of these facilities in January 2021.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Interim Financial Statements

The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the condensed consolidated financial statements not misleading. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Form 10-K”).

Liquidity

The Company has not yet achieved profitable operations. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of the Company’s product candidates will require significant additional financing. The Company’s accumulated deficit at March 31, 2021 totaled $284.6 million, and management expects to incur substantial losses in future periods. The success of the Company is subject to certain risks and uncertainties, including, among others: uncertainty of product development; competition in the Company’s field of use; uncertainty of capital availability; uncertainty in the Company’s ability to enter into agreements with collaborative partners; expanding and protecting the Company’s intellectual property portfolio, dependence on third parties,

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dependence on key personnel and the COVID-19 pandemic and mitigation measures. For the three-months ended March 31, 2021, the Company generated $9.1 million of positive cash flows from operations. However, the Company generally does not generate positive cash flows from operations and there are no assurances that the Company will generate positive cash flows in the future. Additionally, there are no assurances that the Company will be successful in obtaining an adequate level of financing for the development and commercialization of its product candidates.

As of March 31, 2021, the Company had cash and cash equivalents in the amount of $199.4 million, which consisted of depository accounts. On January 30, 2019, the Company entered into a collaboration, option and license agreement with Janssen Pharmaceuticals, Inc. (“Janssen”), one of the Janssen Pharmaceuticals Companies of Johnson & Johnson (the “Collaboration Agreement”), for the research, development and commercialization of gene therapies for the treatment of inherited retinal diseases (“IRD”). Under the terms of the Collaboration Agreement, the Company received an upfront payment of $100.0 million. The Company also receives funding for certain research, manufacturing, clinical development and commercialization costs, potential additional milestone payments upon the achievement of such milestones and royalties on future net sales of products. The Company estimates that its cash and cash equivalents on-hand at March 31, 2021 will be sufficient to cover its expenses for at least the next twelve months from the date of issuance of these condensed consolidated financial statements.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.

There are also many uncertainties regarding the pandemic caused by the novel coronavirus, or COVID-19, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its financial condition, liquidity, operations, clinical studies, employees, vendors, and industry. While the pandemic did not materially affect the Company's financial results and business operations during the three-month period ended March 31, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

The Company’s capital resources and operations to date have been funded primarily with the proceeds from the Collaboration Agreement and private and public equity offerings. In the future, the Company may seek to raise additional capital through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable it to complete the development and potential commercialization of its product candidates. The COVID-19 outbreak and mitigation measures also have had, and may continue to have, an adverse impact on global economic conditions, which could have an adverse effect on the Company’s ability to raise capital when needed.  

2.       Summary of Significant Accounting Policies and Recent Accounting Pronouncements:

Certain of the Company’s significant accounting policies are described below. All of the Company’s significant accounting policies are disclosed in the notes to the audited consolidated financial statements as of and for the year ended December 31, 2020 included in the Company’s Form 10-K. Since the date of such financial statements, the Company has adopted the new accounting pronouncements which are disclosed further in this note.

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Consolidation

The accompanying condensed consolidated financial statements include the accounts of Meira Holdings and its wholly owned subsidiaries:

MeiraGTx Limited, a limited company incorporated under the laws of England and Wales;

MeiraGTx, LLC, a Delaware limited liability company (“Meira LLC”);

MeiraGTx UK II Limited, a limited company incorporated under the laws of England and Wales (“Meira UK II”);

MeiraGTx Ireland DAC, a designated activity company incorporated under the laws of Ireland (“Meira Ireland”);

MeiraGTx Netherlands, B.V., a private company with limited liability incorporated under the laws of the Netherlands (“Meira Netherlands”);

MeiraGTx Belgium, a private company with limited liability incorporated under the laws of Belgium (“Meira Belgium”);

BRI-Alzan, Inc., a Delaware corporation (“BRI-Alzan”);

MeiraGTx Bio, Inc., a Delaware corporation (“Meira Bio”);

MeiraGTx B.V., a private company with limited liability incorporated under the laws of the Netherlands (“Meira B.V.”);

MeiraGTx Neurosciences, Inc., a Delaware corporation (“Meira Neuro”); and

MeiraGTx UK Limited, a limited company incorporated under the laws of England and Wales (“Meira UK”).

All intercompany balances and transactions between the consolidated companies have been eliminated in consolidation.

Use of Estimates

Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these condensed consolidated financial statements, management used significant estimates in the following areas, among others: collaboration revenue, the accounting for research and development costs, share-based compensation, leases, asset retirement obligations and tax incentive receivable.

Additionally, the Company has made estimates of the impact of the COVID-19 pandemic within the condensed consolidated financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

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Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s credit risk.

The Company follows ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for application to financial assets and liabilities. In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1: Observable inputs such as quoted prices in active markets for identical assets the reporting entity has the ability to access as of the measurement date;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Equity Method and Other Investments

The Company accounts for equity investments under the equity method of accounting when the requirements for consolidation are not met, and the Company has significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for the Company’s share of net income or loss and cash contributions and distributions and are included in equity method and other investments in the accompanying condensed consolidated balance sheets. Equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value, with any changes in fair value recognized in net income. For any such investments that do not have readily determinable fair values, the Company elects the measurement alternative to measure the investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If it is determined that a loss in value of the equity method investment is other than temporary, an impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods, and available information at the time the analysis is prepared.

Leases

The Company accounts for leases in accordance with ASC 842. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the Company has the right to control the use of the identified asset. The Company accounts for the lease and non-lease components as a single lease component.

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From time to time the Company enters into direct financing lease arrangements that include a lessee obligation to purchase the leased asset at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value of 90% or more of the fair value of the leased asset at the date of lease inception.

Operating leases where the Company is the lessee are included in right-of-use (“ROU”) assets and lease obligations are included on the Company’s consolidated balance sheets. The lease obligations are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date and subsequent reporting periods.

Finance leases where the Company is the lessee are included in ROU assets and lease obligations on the Company’s consolidated balance sheets. The lease obligations are initially measured in the same manner as for operating leases and are subsequently measured at amortized cost using the effective interest method.

Key estimates and judgments include how the Company determined (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases where it is the lessee do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company uses the implicit rate when readily determinable.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or not to terminate) the lease controlled by the lessor.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, minus any accrued lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset, or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability.

The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less at lease commencement. Lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.

Asset Retirement Obligations

Accounting for asset retirement obligations requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value when incurred and capitalized as part of the related long-lived asset. In the absence of quoted market prices, the Company estimates the fair value of its asset retirement obligations using Level 3 present value techniques, in which estimates of future cash flows associated with retirement activities are discounted using a credit-adjusted risk-free rate. Asset retirement obligations currently reported as other liabilities on the condensed consolidated balance sheet were measured during a period of historically low interest rates. The impact on measurements of new asset retirement obligations using different rates in the future may be significant.

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The Company uses estimates to determine the asset retirement obligations at the end of the lease term and discounts such asset retirement obligations using an estimated discount rate. Interest on the discounted asset retirement obligation is amortized over the term of the lease using the effective interest method and is recorded as interest expense in the condensed consolidated statements of operations and comprehensive loss.

The change in asset retirement obligations is as follows (in thousands):

For the Three-Month Periods Ended March 31, 

2021

2020

Balance at beginning of period

    

$

1,814

    

$

1,655

Amortization of interest

 

35

 

33

Effects of exchange rate

 

7

 

(35)

Balance at end of period

$

1,856

$

1,653

Collaboration Arrangements

The Company evaluates its collaborative arrangements pursuant to ASC 808, Collaborative Arrangements (“ASC 808”) and ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company considers the nature and contractual terms of collaborative arrangements and assesses whether the arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards with respect to the arrangement. If the Company is an active participant and is exposed to significant risks and rewards with respect to the arrangement, the Company accounts for the arrangement as a collaboration under ASC 808. To date, the Company has entered into two separate collaboration agreements, both of which are with Janssen, which were determined to be within the scope of ASC 808.

ASC 808 does not address recognition or measurement matters related to collaborative arrangements. Payments between participants pursuant to a collaborative arrangement that are within the scope of other authoritative accounting literature on income statement classification are accounted for using the relevant provisions of that literature. If the payments are not within the scope of other authoritative accounting literature, the income statement classification for the payments is based on an analogy to authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational and consistently applied accounting policy election. Payments received from a collaboration partner to which this policy applies may include upfront payments in respect of a license of intellectual property, development and commercialization-based milestones, and royalties.

Refer to the discussion in Note 8 for further information related to the accounting for the Collaboration Agreement.

Revenue Recognition

Arrangements with collaborators may include licenses to intellectual property, research and development services, manufacturing services for clinical and commercial supply, and participation on joint steering committees. The Company evaluates the promised goods or services to determine which promises, or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a performance obligation, the Company considers the stage of development of the underlying intellectual property, the capabilities and expertise of the customer relative to the underlying intellectual property, and whether the promised goods or services are integral to or dependent on other promises in the contract. When accounting for an arrangement that contains multiple performance obligations, the Company must develop judgmental assumptions, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract.

When the Company concludes that a contract should be accounted for as a combined performance obligation and recognized over time, the Company must then determine the period over which revenue should be recognized and the method by which to measure revenue. The Company generally recognizes revenue using a cost-based input method.

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The Collaboration Agreement with Janssen is accounted for under ASC 808, however, as ASC 808 does not address recognition or measurement matters such as determining the appropriate unit of accounting or when the recognition criteria are met, the Company accounts for the consideration received from Janssen in accordance with ASC 606. In accordance with ASC 606, the Company recognizes revenue when its customer or collaborator obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps:

i.identify the contract(s) with a customer;
ii.identify the performance obligations in the contract;
iii.determine the transaction price;
iv.allocate the transaction price to the performance obligations within the contract; and
v.recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be by analogy within the scope of ASC 606, the Company assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements typically consist of a license to the Company’s intellectual property and research, development and manufacturing services. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.

The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

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The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue.

Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the Company’s condensed consolidated balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue – related party, current. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue – related party.

The Company’s collaboration revenue arrangements include the following:

Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty.) The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.

Research and Development Services: The Company is incurring research and development costs, with Janssen responsible for up to 100% of the costs, depending on the type of research and development services being performed. The Company records costs associated with the development activities as research and development expenses in the condensed consolidated statements of operations and comprehensive loss consistent with ASC 730, Research and Development. The reimbursement of the research and development costs by Janssen is representative of the joint risk sharing nature of the arrangement. The Company considered the guidance in ASC 808 and recognizes the payments received from Janssen as a reduction to research and development expense when the related costs are incurred.

Research and Development

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 the Company’s research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical and preclinical studies and for the drug product for the clinical studies and preclinical activities; facilities; supplies; rent, insurance, certain legal fees, share-based compensation, depreciation and other costs

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associated with clinical and preclinical activities and regulatory operations. Research funding under collaboration agreements and refundable research and development credits / tax credits are recorded as an offset to these costs.

Costs for certain development activities, such as Company funded outside research programs, 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 condensed consolidated financial statements as prepaid expenses or accrued expenses, as the case may be.

Net Loss per Ordinary Share

Basic net loss per ordinary share is computed by dividing net loss by the weighted average number of shares of the Company’s ordinary shares assumed to be outstanding during the period of computation. Diluted net loss per ordinary share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional ordinary shares that would have been outstanding if the potential ordinary shares had been issued at the beginning of the year and if the additional ordinary shares were dilutive (treasury stock method) or the two-class method, whichever is more dilutive. For all periods presented, basic and diluted net loss per ordinary share are the same, as any additional ordinary share equivalents would be anti-dilutive.

The following securities are considered to be ordinary share equivalents, but were not included in the computation of diluted net loss per ordinary share because to do so would have been anti-dilutive:

    

March 31, 

    

March 31, 

    

2021

    

2020

Share options

 

6,168,592

 

4,675,850

Restricted share units

1,050,000

545,000

Restricted ordinary shares subject to forfeiture

290,000

108,864

 

7,508,592

 

5,329,714

Segment Information

Management has concluded it has a single reporting segment for purposes of reporting financial condition and results of operations.

The Company’s license revenue, research funding and deferred revenue from its Collaboration Agreement are generated in the United Kingdom.

The following table summarizes non-current assets by geographical area (in thousands):

    

March 31, 

    

December 31, 

2021

2020

United States

$

23,782

$

17,536

United Kingdom

 

45,447

 

44,487

Ireland

37,938

27,413

Netherlands

 

2,383

 

1,685

$

109,550

$

91,121

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and

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will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance is applicable for fiscal years beginning after December 15, 2019 and interim periods within those years, however, the FASB extended the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. The Company is currently evaluating the potential impact of the adoption of this standard on its related disclosures.  

3.       Equity Method and Other Investments

The Company’s investments consist of the following:

March 31, 2021

Investee

  

Investment Type

  

Ownership Percentage

  

Carrying Value

  

Cost Basis

(in thousands)

Visiogene LLC

Equity Method Investment

25

%

$

5,165

$

5,165

Other

Cost Method Investment

3

%

1,500

1,500

Total equity method and other investments

$

6,665

$

6,665

Visiogene LLC

On January 4, 2021, the Company and Visiogene LLC (“Visiogene”) entered into a License and Investment Agreement (“Visiogene License Agreement”) for an exclusive, worldwide license to certain of Visiogene’s intellectual property relating to ocular gene therapy. Concurrently, the Company and Visiogene entered into a Preferred Unit Purchase Agreement (“Visiogene Unit Agreement”) pursuant to which the Company purchased 3,000,000 Visiogene preferred units. In connection with the two Visiogene agreements, the Company paid $5.0 million in cash and issued to Visiogene 75,000 ordinary shares of the Company with a fair market value of $1.2 million based on the closing price of the Company’s ordinary shares on the date of closing.

The Company accounted for the payments under the Visiogene License Agreement and Visiogene Unit Agreement as a basket transaction and allocated $1.0 million to the Visiogene License Agreement and the remaining $5.2 million was allocated to the Visiogene preferred units. The $1.0 million allocated to the Visiogene License Agreement was expensed as acquired in-process research and development as the Company determined there was no alternative future use. The Company accounts for this investment using the equity method of accounting.

4.       Accrued Expenses

Accrued expenses for the periods presented are comprised of the following (in thousands):

    

March 31, 

    

December 31, 

2021

2020

Clinical trial costs

$

9,708

$

10,261

Fixed assets

 

1,847

 

949

Manufacturing costs

 

1,829

 

1,886

Research and development

 

1,482

 

893

Professional fees

 

784

 

1,219

Compensation and benefits

586

3,791

Consulting

 

570

 

1,047

Other

 

442

 

815

$

17,248

$

20,861

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5.       Share-Based Compensation

Equity Incentive Plans

The Company’s 2018 Incentive Award Plan and 2016 Equity Incentive Plan (collectively, the “Plans”) were adopted by the Company’s board of directors and shareholders. Under the Plans, the Company has granted share options and restricted share units (“RSUs”) to selected officers, employees and non-employee consultants. The Company’s board of directors or a committee thereof administers the Plans. Upon the adoption of the 2018 Incentive Award Plan, the Company ceased issuing awards under the 2016 Equity Incentive Plan.

Options

A summary of the Company’s share option activity related to employees, non-employee members of the board of directors and non-employee consultants as of and for the year ended December 31, 2020 and the three-month period ended March 31, 2021 is as follows (in thousands, except share and per share amounts):

Weighted-

    

    

Weighted-

    

Average

Average

Remaining

Number of

Exercise

Contractual

Options

Price

Life (years)

Outstanding at December 31, 2020

 

4,824,771

$

11.85

 

7.67

years

Granted

 

1,427,700

$

11.93

 

Exercised

 

(17,923)

$

7.87

 

Expired

$

Forfeited

 

(65,956)

$

15.21

 

Outstanding at March 31, 2021

 

6,168,592

$

12.88

7.94

years

Options exercisable at March 31, 2021

 

2,670,380

$

10.05

 

6.70

years

Aggregate intrinsic value of options outstanding as of March 31, 2021

$

19,651

 

  

 

  

Aggregate intrinsic value of options exercisable as of March 31, 2021

$

14,823

 

  

 

  

Options granted under the Plans have a maximum contractual term of ten years. Options granted generally vest 25% on the first anniversary of the date of grant and the balance ratably over the next 36 months. Options granted to directors when they join the board generally vest in 36 equal monthly installments following the date of grant, and annual options granted to directors generally vest on the earlier of the first anniversary of the date of grant or the day before the Company’s annual meeting of shareholders after the date of grant.

The total fair value of options vested during the three-month periods ended March 31, 2021 and 2020 was $5.4 million and $1.7 million, respectively.

The weighted-average grant date fair value of options granted during the three-month periods ended March 31, 2021 and 2020 was $11.93 and $15.24 per share, respectively.

The grant date fair values of the share options granted were estimated using the Black-Scholes option valuation model with the following ranges of assumptions:

    

2021

    

2020

Risk-free interest rate

 

0.62 - 1.07%

 

0.72 - 2.56%

Expected volatility

 

90%

 

90%

Expected dividend yield

 

0%

 

0%

Expected life (in years)

 

6.1

 

6.1

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As of March 31, 2021, the total compensation expense relating to unvested options granted that had not yet been recognized was $35.6 million, which is expected to be realized over a period of 3.9 years. The Company will issue shares upon exercise of options from ordinary shares reserved under the Plans.

Restricted Share Units

On January 8, 2020, March 6, 2020, and January 14, 2021 the Company granted 505,000, 40,000, and 505,000 RSUs, respectively, to certain members of senior management and a consultant. The RSUs were valued at $20.30, $16.45, and $16.43 per share, respectively. The related share-based compensation expense, which is recognized ratably over the requisite service period, is included in general and administrative and research and development expenses in the condensed consolidated statements of operations and comprehensive loss.

These RSUs vest 50% on the second anniversary of the date of grant and 25% on each of the third and fourth anniversaries of the date of grant.

Total share-based compensation expense recorded in connection with the RSUs was $1.1 million and $0.6 million, of which $0.9 million and $0.6 million was recorded as general and administrative expense and $0.2 million and $0.01 million was recorded as research and development expense during the three-month periods ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the total compensation expense relating to unvested RSUs granted that had not yet been recognized was $15.4 million, which is expected to be realized over a period of 3.8 years.

Restricted Ordinary Shares

On June 7, 2018, 1,306,348 restricted ordinary shares, which represented 5% of the fully-diluted outstanding shares of the Company as of such date, were issued to certain members of senior management in accordance with their employment agreements. One-third of such shares vested immediately, with the balance vesting quarterly over the next eight quarters beginning six months after the effectiveness of the Company’s registration statement on Form S-1 filed with the Securities and Exchange Commission (“SEC”) on June 7, 2018 (the “Registration Statement”). The shares were valued at $15.00 per share and the related share-based compensation expense, which is recognized over the requisite service period, is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. Additionally, under the terms of the employment agreements, the Company was required to pay the income taxes incurred by the grantees in connection with the grant of those restricted shares.

Total compensation expense in connection with the issuance of those restricted ordinary shares, in the amount of $3.5 million, of which $1.6 million was share-based and $1.9 million was paid in cash, was recorded as general and administrative expense during the three-month period ended March 31, 2020. These restricted ordinary shares were fully vested as of June 2020.

During the three-month periods ended March 31, 2021 and 2020 the Company recognized total share-based compensation expense in the accompanying condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

Three-month periods ended March 31, 

    

2021

    

2020

Research and development

$

2,278

$

1,418

General and administrative

 

2,539

4,265

Total share-based compensation

$

4,817

$

5,683

The Company does not expect to realize any tax benefits from its share option activity or the recognition of share-based compensation expense because the Company currently has net operating losses and has a full valuation allowance against its deferred tax assets. Accordingly, no amounts related to excess tax benefits have been reported

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in cash flows from operations or cash flows from financing activities for the three-month periods ended March 31, 2021 and 2020.

6.       Ordinary Shares

As discussed in Note 3, on January 4, 2021, the Company issued 75,000 ordinary shares in connection with the Visiogene transaction in the amount of $1,164,750.

7.       Income Taxes

The Company did not record a provision for income taxes for the three-month periods ended March 31, 2021 and 2020, as the Company has generated losses for all periods.

The Company periodically evaluates the realizability of its deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed both positive and negative evidence and determined that there is a continued need for a full valuation allowance on its deferred tax assets (after consideration of the reversal of the deferred tax liabilities for the ROU assets and fixed assets) in the United States, United Kingdom, Ireland and Netherlands as of March 31, 2021. Should the Company determine that it would be able to realize its remaining deferred tax assets in the foreseeable future, an adjustment to its remaining deferred tax assets would cause a material increase to income in the period such determination is made.

8.       Related-Party Transactions

Collaboration and License Agreements

Janssen Pharmaceuticals, Inc.

On January 30, 2019, the Company entered into a Collaboration Agreement with Janssen for the research, development and commercialization of gene therapies for the treatment of IRDs. Under the agreement, Janssen paid the Company a non-refundable upfront fee of $100.0 million. Janssen and the Company will collaborate to develop the Company’s current clinical programs in retinitis pigmentosa and two genetic forms of achromatopsia, and Janssen has the exclusive right to commercialize these three product candidates (“Clinical IRD Product Candidates”) globally.

Pursuant to the Collaboration Agreement, the Company and Janssen also agreed on a research collaboration to develop a pipeline of preclinical inherited retinal disease gene therapy candidates (“Research IRD Product Candidates”). The parties will select and prioritize the Research IRD Product Candidates and Janssen has the right to opt-in for a fee for each of the specified targets (each an “Option Target”) to obtain certain development, manufacturing and commercialization rights for the Research IRD Product Candidates.

Unless terminated earlier under certain termination clauses, the Collaboration Agreement will continue in effect, on a product-by-product and country-by-country basis, until such time as the royalty terms expire in such country. The Company has determined enforceable rights exist in the Collaboration Agreement as the termination clauses are substantive termination penalties by way of the non-refundable upfront fee and the reversion of any licensed intellectual property granted to Janssen upon the termination of the agreement.

On February 27, 2019, in connection with a private placement, the Company issued 2,898,550 ordinary shares to Johnson & Johnson Innovation – JJDC, Inc. (“JJDC”), the investment arm of Johnson and Johnson and owner of Janssen, on the same terms and conditions as the other investors in the offering. After the offering, JJDC became a related party.

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Clinical IRD Product Candidates

Under the Collaboration Agreement, the Company and Janssen will jointly develop Clinical IRD Product Candidates to permit Janssen to commercialize such Clinical IRD Product Candidates under an exclusive license from the Company. In general, the Company will have the primary responsibility to develop each Clinical IRD Product Candidate in accordance with the development plan for each Clinical IRD Product Candidate, including where applicable, conducting any necessary research in order to submit the applicable regulatory filings to regulatory authorities. The Company will manufacture these products in its cGMP manufacturing facility for both clinical and commercial supply. Janssen will pay 100% of the clinical and commercialization costs of the products and the Company is eligible to receive untiered 20% royalties on net sales of products and additional development and commercialization milestones up to $340.0 million.

Research IRD Product Candidates

Under the Collaboration Agreement, the Company and Janssen will collaborate to develop Research IRD Product Candidates, with Janssen paying for the majority of the research costs. Janssen has the right to exclusively license any product coming out of the collaboration at the time of an investigational new drug application (“IND”) for an additional fee for each Research IRD Product Candidate. Janssen will then pay 100% of the clinical and commercialization costs for these Research IRD Product Candidates and the Company will receive an untiered royalty on net sales in the high teens as well as development milestones for each Research IRD Product Candidate.

Revenue Recognition under the Collaboration Agreement

The Collaboration Agreement is accounted for under ASC 808, however, ASC 808 does not address recognition or measurement matters. Therefore, the Company will account for the recognition and measurement of consideration under ASC 606. In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company evaluated the potential performance obligations in the contract, which included the exclusive license to Clinical IRD Product Candidates, the research, development and manufacturing services (“the services”), and the participation in various joint committees and determined that none of the performance obligations by themselves were distinct. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. The services, when combined with the licenses, represent a bundle and should be accounted for as a single performance obligation due to the relevance of the services to the value of the early-stage license and the potential for the intellectual property to be significantly modified during the services period. The Company also evaluated whether or not the right to purchase exclusive option rights for specified Research IRD Product Candidates represents future performance obligations and concluded that these represent a separate buyer decision at market rates, rather than a material right performance obligation. As such, these options have been excluded from the initial allocation of transaction price and the Company will account for these options as separate contracts when and if Janssen elects to exercise the options.

Under ASC 606, the Company recognized collaboration revenue using the cost-to-cost input method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the combined performance obligation by the potential product candidate. Under this method, revenue is being recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. Under ASC 606, the estimated transaction price includes variable consideration subject to constraints. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved. The estimate of the Company’s measure of progress and estimate of variable

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consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.

Under ASC 606 the Company accounts for (i) the licenses it conveyed with respect to the Clinical IRD Product Candidates and (ii) its obligations to perform services as a single performance obligation under the Collaboration Agreement with Janssen on a product candidate basis. Janssen’s right to purchase exclusive options to obtain certain development, manufacturing and commercialization rights are accounted for separately as they do not represent material rights, based on the criteria of ASC 606. Upon the exercise of any purchased option by Janssen, the contract promises associated with an Option Target would use a separate cost-to-cost model for purposes of revenue recognition under ASC 606.

In 2019, the Company received a $100.0 million non-refundable upfront fee from Janssen and allocated this amount plus other variable consideration not subject to constraint to each identified performance obligation using a combination of methods allowable under ASC 606. The Company applies the practical expedient in Topic 606 and does not include disclosures regarding amounts for variable consideration allocated to wholly-unsatisfied performance obligations or wholly-unsatisfied distinct goods that form part of a single performance obligation, if any. This variable consideration includes expected reimbursement of research and development costs.

During the three-month periods ended March 31, 2021 and 2020, the Company recognized $4.6 million and $4.2 million, respectively, of the deferred revenue – related party as license revenue.

The Company also recognized $12.1 million and $14.0 million, during the three-month periods ended March 31, 2021 and 2020, respectively, related to the reimbursement of research and development expenses, of which $11.7 million and $14.0 million was recorded as an offset to research and development expenses and $0.4 million and $0 was recorded as an offset to prepaid expenses, respectively.

As of March 31, 2021, the Company expects to recognize the remaining $68.9 million in deferred revenue associated with the non-refundable upfront fee over the estimated research and development period using the cost-to-cost input method over an estimated period of approximately 4.25 years.

A summary of the deferred revenue recognition is as follows (in thousands):

Deferred revenue at December 31, 2019

    

$

86,214

Deferred revenue recognized as license revenue during the year ended December 31, 2020

 

(15,563)

Effects of exchange rate

 

2,191

Deferred revenue at December 31, 2020

72,842

Deferred revenue recognized as license revenue during the three-month period ended March 31, 2021

(4,595)

Effects of exchange rate

653

Deferred revenue at March 31, 2021

$

68,900

Research Agreement

Effective October 23, 2016, the Company entered into a four-year master services agreement with UCL Consultants Limited, an entity affiliated with University College of London (“UCL”), which is a shareholder of the Company. In October 2020, the master services agreement was extended for an additional four years.  Pursuant to a task order to the master services agreement, UCL Consultants Limited had provided pre-clinical research and development under the direction of the Company.  The services rendered under the task order were completed in 2020.

Total research and development expenses under this agreement for the three-month periods ended March 31, 2021 and 2020 were approximately $0 and $0.1 million, respectively.

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There are no future obligations under the agreement as of March 31, 2021.

License Agreement

Effective February 4, 2015, the Company entered into an exclusive worldwide license agreement with UCL Business, PLC (“UCL Business”) to develop up to eight programs using certain ocular gene therapy technology. Under the terms of the agreement, the Company had agreed to pay UCL Business certain sales milestone payments, if achieved, in the aggregate amount of £39.8 million, or approximately $54.8 million using the exchange rate at March 31, 2021, and royalties on net sales, as defined upon commercialization. Additionally, the Company is responsible for all patent prosecution and maintenance costs incurred and has also agreed to pay UCL Business an annual maintenance fee of £0.05 million, or approximately $0.07 million, until the first commercial sale of a product. The agreement terminates upon the later of (i) the last valid claim in a relevant product, (ii) the expiration of regulatory exclusivity to all licensed products, or (iii) the 10th anniversary of the first commercial sale of a product.

On July 28, 2017, March 15, 2018 and September 7, 2018, the Company entered into additional exclusive worldwide license agreements with UCL Business under the same terms as the February 4, 2015 worldwide license agreement.

In January and February, 2019, the Company amended and restated the following agreements: (i) the License Agreement, dated February 4, 2015, as amended, between the Company and UCL Business; (ii) the License Agreement, dated July 28, 2017, as amended, between the Company and UCL Business; and (iii) the License Agreement, dated March 15, 2018, between the Company and UCL Business to establish new stand-alone license agreements for the following inherited retinal disease programs: (a) achromatopsia (“ACHM”) caused by mutations in CNGB3; (b) ACHM caused by mutations in CNGA3; (c) X-linked retinitis pigmentosa (“XLRP”); and (d) RPE65-mediated IRD.

The Company’s obligation to pay UCL Business a share of certain sublicensing revenues, as was provided under the February 4, 2015 agreement, has been removed from each of the stand-alone agreements with respect to the IRD programs listed above. Each of the stand-alone agreements now reflects terms substantially similar to those of the February 4, 2015 agreement.

Additionally, under the new stand-alone agreement related to CNGB3 the Company paid UCL Business an upfront payment of £1.5 million, or approximately $2.0 million, and issued 158,832 of the Company’s ordinary shares, which were valued at £1.5 million, or approximately $2.0 million.

Effective March 23, 2020, the Company entered into another worldwide license agreement with UCL Business, to develop an additional ocular gene therapy technology. Under the terms of the agreement, the Company agreed to pay UCL Business certain development and sales milestone payments, if achieved, in the aggregate amount of $39.3 million and royalties on net sales, as defined upon commercialization. Additionally, the Company is responsible for all patent prosecution and maintenance costs incurred and also agreed to pay UCL Business an upfront payment of $0.05 million and an annual maintenance fee of $0.03 million until the first commercial sale of a product. The agreement terminates upon the later of (i) the last valid claim in a relevant product, or (ii) the 10th anniversary of the first commercial sale of a product.

The Company incurred research and development expenses under the agreements in the amount of $0.3 million and $0.2 million during the three-month periods ended March 31, 2021 and 2020, respectively.

Leases

ARE Lease

Effective July 1, 2016, the Company entered into a non-cancellable operating lease (the “ARE Lease”) for laboratory and related office facilities in New York with ARE-East River Science Park, LLC (“ARE”). The ARE Lease provided for monthly base rent and property management fees, including rent escalations and rent holidays, plus operating expenses during the lease term, which was scheduled to expire on December 31, 2021. The Company

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recorded monthly rent expense on a straight-line basis from July 1, 2016 through February 29, 2020, the date the ARE Lease was terminated as described below.

On January 28, 2020, the Company and ARE mutually agreed to terminate the lease with no further obligation for either party effective as of February 29, 2020. Accordingly, the remaining right of use asset and operating lease liability in the amount of $0.9 million and $1.0 million, respectively, was written off which resulted in a gain of $0.1 million.

Total rent expense under this operating lease was $0.08 million for the three-month period ended March 31, 2020.

Kadmon Lease

The Company leases office space on a month-to-month basis from Kadmon Corporation, LLC (“Kadmon”).

During the three-month periods ended March 31, 2021 and 2020, the Company incurred and paid rent charges from Kadmon in the amount of $0.2 million and $0.1 million, respectively, which are included in loss from operations.

9.       Leases

The Company has commitments under operating leases for laboratory, warehouse, clinical trial sites and office space. The Company also has finance leases for manufacturing space and office equipment. The Company’s leases have initial lease terms ranging from 3 years to 191 years. Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include fixed payments.

Total rent expense under these leases was $1.1 million and $0.8 million for the three-month periods ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Company has short term lease commitments amounting to approximately $0.05 million on a monthly basis for two leases for office space that are month-to-month leases.

On August 4, 2020, Meira Ireland entered into two agreements (the “Agreements”) with Shannon Commercial Enterprises DAC trading as Shannon Commercial Properties, to acquire two properties in the Shannon Free Zone in Shannon, Ireland for an aggregate price of €18 million, or approximately $21.2 million. These properties will serve as the Company’s second cGMP viral vector manufacturing facility and its first cGMP plasmid and DNA production facility.

The closing for the first building occurred in August 2020 and the closing for the second building occurred in January 2021.  The total cost of the first and second buildings, including taxes and legal fees, was €11.9 million and €7.5 million, or approximately $13.8 million and $8.9 million, respectively, and have been recorded as right of use assets in the condensed consolidated balance sheets as of March 31, 2021. There is no corresponding lease liability as the Company paid the full cost on the date of the closings.

At the closings, Meira Ireland entered into a lease for each property providing for a long leasehold interest of approximately 191 years.

The leases also include customary terms and conditions, with a nominal annual lease cost and annual maintenance fees of approximately €0.03 million, or approximately $0.04 million, in the aggregate, which is subject to change depending on the annual maintenance costs within the Shannon Free Zone development.

During the three-month period ended March 31, 2021, the Company recognized four operating leases for locations in connection with the Phase 3 Lumeos clinical trial of AAV-RPGR with initial lease terms between 5 years and 6 years. Certain lease agreements contain provisions for tenant allowances and future rent increases. Payments due under the lease contracts include fixed payments. In conjunction with these operating leases, the Company recognized initial operating lease right-of-use assets in the amount of $1.1 million and corresponding lease liabilities

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in the amount of $1.2 million which are included in the right-of-use assets and lease obligations in the condensed consolidated balance sheets as of March 31, 2021.

The components of lease cost for the three-month periods ended March 31, 2021 and 2020 are as follows (in thousands):

    

Three-month periods ended March 31, 

2021

2020

Finance lease cost

    

  

 

  

Amortization of right-of-use assets

$

309

$

74

Interest on lease liabilities

 

1

 

1

Total finance lease cost

 

310

 

75

Operating lease cost

 

1,137

 

1,027

Short-term lease cost

 

189

 

162

Total lease cost

$

1,636

$

1,264

Amounts reported in the condensed consolidated balance sheets for leases where the Company is the lessee as of March 31, 2021 and December 31, 2020 were as follows (in thousands):

March 31,

  

 

December 31,

  

    

2021

    

2020

Operating leases

    

  

  

Right-of-use asset

$

22,023

$

21,486

Capitalized lease obligations

$

22,747

$

22,221

Finance leases

 

  

 

  

Right-of-use asset

$

29,449

$

21,596

Capitalized lease obligations

$

25

$

28

Weighted-average remaining lease term

 

  

 

  

Operating leases

 

6.7

years

 

7.0

years

Finance leases

 

177.4

years

 

175.1

years

Weighted-average discount rate

 

 

  

Operating leases

 

8.5

%  

 

8.6

%  

Finance leases

 

8.0

%  

 

8.0

%  

Other information related to leases for the three-month periods ended March 31, 2021 and 2020 are as follows (in thousands):

    

Three-month periods ended March 31, 

2021

    

2020

Cash paid for amounts included in the measurement of lease liabilities

 

  

    

 

  

Operating cash flows from finance leases

$

4

$

8

Operating cash flows from operating leases

$

1,186

$

737

Financing cash flows from finance leases

$

1

$

1

Right-of-use assets obtained in exchange for lease liabilities

 

 

Operating leases

$

1,120

$

Finance leases

$

$

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Future minimum lease payments under non-cancellable leases as of March 31, 2021 are as follows (in thousands):

    

Operating Leases

    

 Finance Leases 

2021

$

3,438

$

13

2022

4,745

13

2023

 

4,837

 

2024

 

4,655

 

2025

 

4,651

 

Thereafter

 

7,404

 

Total undiscounted lease payments

$

29,730

$

26

Less: Imputed interest

 

(6,983)

 

(1)

Total lease liabilities

$

22,747

$

25

10.     Commitments

There were no new material commitments entered into during the three-month period ended March 31, 2021.

11.     Subsequent Events

Management has evaluated subsequent events through the date of this filing.  Based on its evaluation, there were no subsequent events to report.

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Item 2. 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 our financial statements and related notes appearing in this Quarterly Report on Form 10-Q (“Form 10-Q”) and those included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the “Risk Factors” section of this Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. For convenience of presentation some of the numbers have been rounded in the text below. Unless the context requires otherwise, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to the “Company,” “we,” “us” and “our” refer to MeiraGTx Holdings plc and its subsidiaries.

Overview

We are a vertically integrated, clinical-stage gene therapy company with six programs in clinical development 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 ophthalmology, salivary gland and neurodegenerative disease programs, 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 an exempted company incorporated under the laws of the Cayman Islands in 2018, and prior to that, we commenced operations as MeiraGTx Limited, a private limited company incorporated under the laws of England and Wales 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 (“GAAP”). Since our formation, we have devoted substantially all of our resources to developing our technology platform, establishing our viral vector manufacturing facilities and our plasmid and DNA production 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, developing our business plan, raising capital, and providing general and administrative support for these operations. To date, we have financed our operations primarily with cash on hand and proceeds from the sales of our Series A ordinary shares, convertible preferred C shares and ordinary shares. Through March 31, 2021, we received gross proceeds of approximately $446.0 million from sales of our ordinary shares, Series A ordinary shares and convertible preferred C shares and $100.0 million from the collaboration, option and license agreement with Janssen Pharmaceuticals, Inc. (“Janssen”), one of the Janssen Pharmaceuticals Companies of Johnson & Johnson (the “Collaboration Agreement”). As of March 31, 2021, we had cash and cash equivalents of $199.4 million, as well as $12.0 million in receivables due from Janssen in the second quarter of 2021 in connection with the Collaboration Agreement.

We are a clinical stage company and have not generated any product revenues to date. We have six clinical programs and a pipeline of preclinical programs. Since inception, we have incurred significant operating losses. Our net losses for the three-month periods ended March 31, 2021 and 2020 were $23.6 million and $15.7 million, respectively. As of March 31, 2021, we had an accumulated deficit of $284.6 million. We do not expect to generate revenue from sales of any products for several years, if at all. In March 2019, we received an upfront payment in the amount of $100.0 million from the Collaboration Agreement. Additionally, pursuant to the Collaboration Agreement, we are eligible to receive research and development funding and potential milestone payments and royalties.

Our total operating expenses were $26.6 million and $19.9 million for the three-month periods ended March 31, 2021 and 2020, respectively. While we expect our operating expenses to increase substantially in connection with our ongoing development activities related to our product candidates, including the planned advancement of AAV-RPGR into the Phase 3 Lumeos clinical trial for the treatment of patients with XLRP and the initiation of a Phase 3 clinical trial of AAV-RPE65 for the treatment of retinal dystrophy associated with mutations in the RPE65 gene, we believe that certain

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of these increases will be partially offset by the research funding in connection with the Collaboration Agreement. In addition to these planned Phase 3 trials, we anticipate that our expenses will also increase due to costs associated with our clinical development program targeting achromatopsia due to mutations in the CNGB3 or CNGA3 gene. In addition, we expect to continue incurring increasing costs associated with our clinical activities for AAV-AQP1 for the treatment of radiation-induced xerostomia and xerostomia associated with Sjogren’s syndrome. We expect to file an IND application for AAV-GAD in the third quarter of 2021 following the release of the clinical material manufactured in our London cGMP facility. We also incurred expenses during the three-month period ended March 31, 2021 and expect to continue to incur expenses related to research activities in additional therapeutic areas to expand our pipeline, hiring additional personnel in manufacturing, research, clinical operations, 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.

We will require additional capital in the future, 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, we expect to continue incurring 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.  The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions, which could have an adverse effect on our ability to raise capital when needed.

Based on our cash and cash equivalents at March 31, 2021, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the middle of 2023. 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.

Adequate additional funds may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible 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 shareholder. Any future debt financing or preferred equity or other 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 and may require the issuance of warrants, which could potentially dilute your ownership interests.

If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, 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 programs, any future commercialization efforts or further development of our manufacturing facilities or processes, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

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Highlights and Recent Developments

Recent Clinical Development Highlights and Anticipated 2021 Milestones

AAV-RPGR for the Treatment of X-Linked Retinitis Pigmentosa (XLRP):

We and our development partner Janssen continue to prepare for initiation of the Phase 3 Lumeos clinical trial.
We and Janssen intend to present additional data from the Phase 1/2 clinical trial of X-linked retinitis pigmentosa (MGT009) at medical meetings later this year.

AAV-RPE65 for the Treatment of RPE65-associated Retinal Dystrophy:

We continue to anticipate initiating a Phase 3 pivotal trial of AAV-RPE65 in the second half of 2021.

AAV-AQP1 for the Treatment of Grade 2/3 Radiation-Induced Xerostomia:

Dosing in the second cohort of the AQUAx phase 1 trial is ongoing and we expect to complete enrollment in 2021. Four clinical sites are now open in the U.S.
We are currently planning a phase 2 study and expect to initiate this trial in the second half of 2022.

AAV-GAD for the Treatment of Parkinson’s Disease:

We expect to file an Investigational New Drug (IND) application in the third quarter of 2021 with material manufactured from our cGMP facility in London.

Riboswitch Gene Regulation Platform:

We continue to generate in-vivo data demonstrating regulation of multiple therapeutic genes in multiple tissues. We plan to host an R&D day in the second half of 2021 detailing our proprietary riboswitch gene regulation platform, including data to support potential therapeutic targets.

AAV-CNGB3 and AAV-CNGA3 for the Treatment of Achromatopsia (ACHM):

We and Janssen continue to advance the ongoing clinical development of AAV-CNGB3 and AAV-CNGA3 for the treatment of ACHM associated with mutations in the CNGB3 and CNGA3 genes.
oOn January 26, 2021, the U.S. Food and Drug Administration (FDA) granted Fast Track designation to our AAV-CNGA3 gene therapy product candidate for the treatment of ACHM caused by mutations in the CNGA3 gene.
oWe and Janssen have now completed dosing of both adults and pediatric patients in the Phase 1/2 dose escalation study of AAV-CNGA3 and expect to provide an update on further clinical studies for both AAV-CNGB3 and AAV-CNGA3 later in 2021.

Recent Corporate Development Highlights

Manufacturing and Supply Chain:

We have made significant progress optimizing our proprietary AAV manufacturing platform process. With our internal plasmid facility now operational, we continue to expedite bringing the entire manufacturing process and supply chain in-house to more rapidly and cost-effectively bring innovative and potentially curative treatments to patients.

Components of Our Results of Operations

License Revenue