Benitec Biopharma Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock trades on Nasdaq under the symbol “BNTC.” Prior to the Re-domiciliation, the American Depositary Shares of Benitec Limited traded on Nasdaq under the same trading symbol and the ordinary shares of Benitec Limited traded on the Australian Stock Exchange (“ASX”). In connection with the Re-domiciliation, Benitec Limited’s ordinary shares were delisted from the ASX. On September 22, 2020, the closing sale price of our common stock as reported on Nasdaq was $6.05 per share. Holders As of September 15, 2020, we had approximately 3,348 record holders of our common stock. The number of record holders is based on the actual number of holders registered on the books of our transfer agent and does not reflect holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies. Dividends We never have declared or paid any cash dividends on our capital stock. Currently, we anticipate that we will retain all available funds for use in the operation and expansion of our business and do not anticipate paying any cash dividends for the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of our Board and will depend on our future earnings, capital requirements, financial condition, prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors that our Board deems relevant. Recent Sales of Unregistered Securities On June 4, 2018, Benitec Limited issued 36,442,672 ordinary shares (which were converted to 121,475 shares of common stock as part of the Re-domiciliation) to existing shareholders. The shares were priced at A$0.17 per share. This issuance was exempt from registration under the Securities Act in reliance on Regulation S. On September 30, 2019, Benitec Limited entered into a securities purchase agreement (“SPA”) with certain sophisticated and professional investors in the United States to issue 2,800,000 American Depositary Shares (“ADSs”), with each ADS representing 20 fully paid ordinary shares (which were converted to 186,666 shares of common stock as part of the Re-domiciliation), at a purchase price of US$0.70 per ADS, in a registered direct offering. The Investors were also issued warrants to purchase up to 412,890 ADSs (representing 27,526 shares of common stock after the Re-domiciliation) in aggregate, at a purchase price per warrant equal to US$0.6999 per ADS to be issued on exercise of the warrant (“Pre-Funded Warrants”). The Pre-Funded Warrants were exercisable at any time from issue, in whole or in part, at an exercise price of US$0.0001 per ADS issued on exercise (subject to certain adjustments), provided that the beneficial ownership of the relevant Investor in the total number of ADSs on issue not exceed 9.99%. The Pre-Funded Warrants have all been exercised. This issuance was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2). On April 15, 2020, the Company completed the Re-domiciliation. In connection with the Re-domiciliation, Benitec issued 1,070,957 shares of common stock, on the basis of one share of common stock for every 300 ordinary shares of Benitec Limited issued and outstanding prior to the Re-domiciliation. The Re-domiciliation was effected pursuant to a statutory scheme of arrangement under Australian law (the “Scheme”). The issuance of Benitec’s shares of common stock in the Scheme was exempt from registration under the Securities Act in reliance on Section 3(a)(10). 81 Table of Contents On April 22, 2020, Benitec issued 37,417 shares of common stock in connection with a cashless exercise of warrants exercisable for 107,095 shares of common stock. The issuance was exempt from registration under the Securities Act in reliance on Section 3(a)(9). Use of Proceeds Not applicable. Purchases of Equity Securities Not applicable. Item 6. Selected Financial Data. We are a smaller reporting company and not required to provide this information. 82 Table of Contents Item 7. 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 consolidated financial statements and the related notes and other financial information included in Item 8 in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the Annual Report captioned “Risk Factors” and elsewhere in this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements. Overview We endeavor to become the leader in discovery, development, and commercialization of therapeutic agents capable of addressing significant unmet medical need via the application of the silence and replace approach to the treatment of genetic disorders. Benitec Biopharma Inc. (“Benitec” or the “Company” or in the third person, “we” or “our”) is a development-stage biotechnology company focused on the advancement of novel genetic medicines with headquarters in Hayward, California. The proprietary platform, called DNA-directed RNA interference, or ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes following a single administration. The Company is developing ddRNAi-based therapeutics for chronic and life-threatening human conditions including Oculopharyngeal Muscular Dystrophy (OPMD), and Chronic Hepatitis B. BB-301 is the most advanced ddRNAi-based genetic medicine currently under development by Benitec. BB-301 is an internally optimized, AAV-based gene therapy agent that is designed to both silence the expression of mutated, disease-causing genes (to slow, or halt, the underlying mechanism of disease progression) and replace the mutant genes with normal, “wild type” genes (to drive restoration of function in diseased cells). This fundamental approach to disease management is called “silence and replace” and this biological mechanism offers the potential to restore the underlying physiology of the treated tissues and, in the process, improve treatment outcomes for patients suffering from the chronic and, potentially, fatal effects of Oculopharyngeal Muscular Dystrophy (OPMD). BB-301 has been granted Orphan Drug Designation in the United States and the European Union. Through the combination of the targeted gene silencing effects of RNAi and the durable transgene expression achievable via the use of modified viral vectors, the silence and replace approach has the potential to produce long-term silencing of disease-causing genes along with simultaneous replacement of wild type gene function following a single administration of the proprietary genetic medicine. We believe this novel attribute of the investigational agents under development by Benitec may facilitate the achievement of robust clinical activity while greatly reducing the dosing frequencies traditionally expected for medicines employed for the management of chronic diseases. Additionally, the establishment of chronic gene silencing and gene replacement may significantly reduce the risk of patient non-compliance during the course of medical management of potentially fatal clinical disorders. Unless otherwise indicated, all dollar amounts in this section are provided in thousands. Re-domiciliation On April 15, 2020, or the Implementation Date, the Re-domiciliation of Benitec Limited, a public company incorporated under the laws of the State of Western Australia, or Benitec Limited, was completed in accordance with the Scheme Implementation Agreement, as amended and restated as of January 30, 2020, between Benitec Limited and us. As a result of the Re-domiciliation, the jurisdiction of incorporation was changed from Australia to Delaware, and Benitec Limited became our wholly owned subsidiary. 83 Table of Contents The Re-domiciliation was effected pursuant to a statutory scheme of arrangement under Australian law, or the Scheme, whereby on the Implementation Date, all of the issued and outstanding ordinary shares of Benitec Limited were exchanged for newly issued shares of our common stock, on the basis of one share of our common stock, par value $0.0001 per share, for every 300 ordinary shares of Benitec Limited issued and outstanding. Holders of Benitec Limited’s American Depository Shares, or ADSs (each of which represented 200 ordinary shares), received two shares of our common stock for every three ADSs held. COVID-19 In December 2019, an outbreak of a novel strain of coronavirus was identified in Wuhan, China. This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country, including Australia and the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Certain of our research and development efforts are conducted globally, including the ongoing development of our silence and replace therapeutic for the treatment of Oculopharyngeal Muscular Dystrophy (OPMD), and will be dependent upon our ability to initiate preclinical and clinical studies despite the ongoing COVID-19 pandemic. As we continue to actively advance our preclinical programs, including our ongoing tissue transduction studies for BB-301, we are in close contact with our principal investigators and preclinical trial sites, which are primarily located in the France, and are assessing the impact of COVID-19 on our studies and the expected development timelines and costs of all of our product candidates, on an ongoing basis. In light of recent developments relating to the COVID-19 global pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA’s updated industry guidance for conducting clinical trials issued on March 18, 2020, we have experienced delays to the original timeline regarding the initiation and anticipated completion of the ongoing BB-301 IND-enabling development work. The initiation of the BB-301 tissue transduction study, which represents a key component of the IND-enabling work, was delayed by several months, however, the study has been recently initiated and the dosing of the initial preclinical cohorts has proceeded without incident. We will continue to evaluate the impact of the COVID-19 pandemic on our business and expect to reevaluate the timing of our anticipated preclinical and clinical milestones as we learn more and the impact of COVID-19 on our industry becomes more clear. We had also implemented work-from-home measures for the majority of our employees between March 2020 and June 2020, resulting in a reduction of laboratory work and a halt of non-essential business travel. As we transition our employees back to our premises, there is a risk that COVID-19 infections occur at our offices or laboratory facilities and significantly affect our operations. Additionally, if any of our critical vendors are impacted, our business could be affected if we become unable to timely procure essential equipment, supplies or services in adequate quantities and at acceptable prices. Axovant Termination Benitec’s License and Collaboration Agreement, dated July 9, 2018, with Axovant Sciences GmbH, or Axovant, was terminated as of September 3, 2019. As a result, all rights and licenses which Benitec had granted to Axovant to develop and commercialize BB-301 and related gene therapy product candidates terminated. Prior to such termination, the Benitec team endeavored to conduct several additional exploratory nonclinical analyses in order to potentially improve the biological efficacy of BB-301 via further optimization of the route of administration employed to dose the target muscle tissues. 84 Table of Contents Nonclinical data derived from in vivo evaluations of BB-301 in two distinct large animal species suggested the existence of an opportunity to further improve the biological efficacy of the compound via additional optimization of the proprietary delivery method employed to dose key target tissues that underlie the morbidity and mortality associated with the natural history of OPMD. The initial biological efficacy profile observed for BB-301 following in vivo testing in the A17 mouse model of OPMD, including full correction of the disease phenotype, remained unchanged. However, the Benitec management team desired to complete a series of exploratory analyses prior to the formal IND filing and the subsequent initiation of clinical testing. Completion of the experimental work noted above would have delayed the initiation of the BB-301 clinical study beyond the timelines that were initially outlined by Axovant following the execution of the License and Collaboration Agreement between Benitec and Axovant. As such, Axovant elected to terminate the License and Collaboration Agreement between Benitec and Axovant, and all rights and licenses granted to Axovant terminated, including the rights to BB-301, which was in preclinical development for the treatment of OPMD, and all other early stage research collaboration programs that were governed by the agreement. Nonclinical Programs Nonclinical research efforts supporting the development of ddRNAi-based therapeutic agents and silence and replace-based therapeutic agents targeting the treatment of Chronic Hepatitis B Virus Infection (“HBV”) and Age-Related Macular Degeneration (“AMD”) have concluded and are no longer being continued by the Company. Workforce Reduction On July 31, 2019, Benitec announced the completion of a workforce reduction of approximately 50%. Through this streamlining of operations, the Company retained staff members who are key to the achievement of the core research and development goals. The rationalization of resources was deemed to be supportive of an extended financial runway for the Company while allowing Benitec to continue to advance the BB-301 program. Royalties, milestone payments and other license fees We are required to pay royalties, milestone payments and other license fees in connection with our licensing of intellectual property from third parties, including as discussed below. In December 2016, we entered into an exclusive sublicense agreement with NantWorks, LLC, pursuant to which we agreed to make certain milestone and royalty payments, as well as periodic payments for so long as the agreement remained in effect. In December of 2018, the Company accrued a milestone payment of USD 300,000 (AUD 425,411), which was anticipated to be paid to NantWorks, LLC under the sublicense agreement. It was later determined that the milestone was not required to be paid and, therefore, the accrual was reversed in December of 2019. We terminated the exclusive sublicense agreement for convenience, with the termination effective as of June 2020. We have collaborated with Biomics Biotechnologies Co., Ltd., or Biomics, pursuant to several collaboration agreements in relation to single-stranded RNA and shRNA sequences for treatment of hepatitis B. In July 2015, we entered into an earn-out agreement with Biomics which confirmed Benitec’s ownership of certain patents resulting from the collaboration in exchange for an upfront payment and equity issuance to Biomics and a share of certain future licensing revenue received by Benitec. Foreign Currency Translation and Other Comprehensive Income (Loss) The Company’s functional currency and reporting currency is the United States dollar . BBL’s functional currency is the Australian dollar (AUD). Assets and liabilities are translated at the exchange rate in effect at the 85 Table of Contents balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as other comprehensive income (loss). Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses). Results of Operations Revenues In the past Benitec Limited has generated revenue from its operations through two activities: revenue from customers and revenue from government research and development grants. In the fiscal year ended June 30, 2020, the Company generated funds primarily from capital raising activities. The Company has not generated any revenues from the sales of products. Revenues from licensing fees and interest income are included in the revenue from customers line item on our statements of operations and comprehensive income (loss). The Research and Development Tax Incentive is recognized as Government research and development grants. Our licensing fees have been generated through the licensing of our ddRNAi technology to biopharmaceutical companies, and in the fiscal year-ended June 30, 2019, revenue was generated through a License and Collaboration Agreement with Axovant Sciences (the “Axovant Agreement”). The following table sets forth a summary of our revenues for each of the periods set forth below: Year Ended June 30, 2020 2019 (US$’000) Revenues: Revenues from customers $ 97 $ 11,551 Government research and development grants 5 648 Total revenues $ 102 $ 12,199 Revenues from customers On July 9, 2018, the Company entered into the Axovant Agreement. The Axovant Agreement granted Axovant Sciences an exclusive worldwide license to develop, manufacture, and commercialize products containing the Company’s product known as BB-301, which was designed for the potential treatment of Oculopharyngeal Muscular Dystrophy. Service revenue consists of payments for services provided to Axovant Sciences pursuant to the Axovant Agreement. On June 6, 2019, the termination of the Axovant Agreement was announced. The termination of the Axovant Agreement was effective as of September 3, 2019. The termination discharges all future performance obligations under the contract at the termination date. During the year ended June 30, 2020, the Company recognized $97 in customer revenues, as compared to $11,551 for the comparable year ended June 30, 2019. The decrease in revenues from customers is due to the termination of the Axovant Agreement. 86 Table of Contents Government research and development grants The Company has historically received, but is currently not receiving, grants through the Australian federal government’s Research and Development Tax Incentive program, under which the government provides a cash refund for the 43.5% of eligible research and development expenditures by small Australian entities, which are defined as Australian entities with less than A$20 million in revenue, having a tax loss. The Research and Development Tax Incentive grant is made by the Australian federal government for eligible research and development purposes based on the filing of an annual application. Prior to the Re-domiciliation, this grant was available for our research and development activities in Australia, as well as activities in the United States to the extent such U.S.-based expenses relate to our activities in Australia, did not exceed half the expenses for the relevant activities and were approved by the Australian government. Grants are recorded when a reliable estimate can be made. During the year ended June 30, 2020, we recognized $5 in government research and development grants, as compared $648 for the comparable year ended June 30, 2019. The decrease in grant revenue is due to excluding the OPMD program from the R&D claim of the grant from the Australian government. Further, the Company no longer continued the nonclinical research efforts targeting the treatment of Chronic Hepatitis B Virus Infection (HBV) and AMD in the fiscal year ended June 30, 2020. The decrease in grant revenue is a result of Benitec no longer claiming the grant from the Australian government due to the Re-domiciliation of Benitec to the United States of America. Research and Development Expenses Research and development expenses relate primarily to the cost of conducting clinical and pre-clinical trials. Clinical development costs are a significant component of research and development expenses. Estimates have been used in determining the expense liability under certain clinical trial contracts where services have been performed but not yet invoiced. Generally, the costs, and therefore estimates, associated with clinical trial contracts are based on the number of patients, drug administration cycles, the type of treatment and the outcome being the length of time before actual amounts can be determined will vary depending on length of the patient cycles and the timing of the invoices by the clinical trial partners. General and Administrative Expenses General and administrative expenses consist primarily of salaries, related benefits, travel, and equity-based compensation expense. General and administrative expenses also include facility expenses, professional fees for legal, consulting, accounting and audit services and other related costs. We anticipate that our general and administrative expenses may increase as the Company focuses on the continued development of the pre-clinical OPMD program. The Company also anticipates an increase in expenses relating to accounting, legal and regulatory-related services associated with maintaining compliance with the exchange listing and the SEC requirements, director and officer insurance premiums and other costs associated with being a domestic public company after the Re-domiciliation and no longer a “foreign private issuer” under SEC rules. 87 Table of Contents Expenses The following table sets forth a summary of our expenses for each of the periods set forth below: Year Ended June 30, 2020 2019 (US$’000) Expenses: Royalties and license fees $ (185 ) $ 435 Research and development 3,001 4,567 General and Administrative 5,567 4,614 Total expenses 8,383 9,616 During the year ended June 30, 2020, we incurred ($185) in royalties and license fees, as compared to $435 for the comparable year ended June 30, 2019. The decrease in royalties and license fees for the year is primarily due to the Company determining that there was no longer a requirement to pay a previously anticipated milestone of $300. During the year ended June 30, 2020, we incurred $3,001 in research and development expenses, as compared $4,567 for the comparable year ended June 30, 2019. The decrease in research and development expenses is primarily due to the Company being reimbursed $606 by Axovant Sciences for costs relating to the OPMD program in fiscal year 2020 and the termination of the AMD program. General and administrative expense was $5,567 and $4,614 for the years ended June 30, 2020 and 2019, respectively. The increase was due to increases in corporate costs offset by decreases in payroll, travel, and consultant costs. Other Income (Loss) The following table sets forth a summary of our other income (loss) for each of the periods set forth below: Year Ended June 30, 2020 2019 (US$’000) Other Income (Loss): Foreign currency transaction loss (88 ) (75 ) Interest income, net 62 122 Other income, net 34 — Unrealized loss on investment (1 ) (21 ) Total other income (expense) 7 26 The other income, net during the year ended June 30, 2020 totaled $7, which consists of foreign currency transaction loss, interest income, other income, unrealized loss on investment. During the year ended June 30, 2019, other income, net totaled $26. Foreign currency transaction loss has increased due to a change in foreign exchange rates. Interest income decreased due to fewer transactions with interest. Other income, net increased due to COVID-19 stimulus incentives from the Australian government. Unrealized loss on investment decreased due to the change in fair market value of the investments. Liquidity and Capital Resources The Company has incurred cumulative losses and negative cash flows from operations since our predecessor’s inception in 1995, except for the year ended June 30, 2019 where we had a net income of $2,609 and generated positive cash flows of $4,790 from operating activities. The Company had accumulated losses of $116.6 million as of June 30, 2020. We expect that our research and development expenses may increase due to the continued development of the OPMD program. It is also likely that there will be an increase in the general 88 Table of Contents and administrative expenses due to the obligations of being a domestic public company in the United States as a result of the Re-domiciliation and no longer a “foreign private issuer” under SEC Rules. We had no borrowings for the years ended June 30, 2020 and 2019 and do not currently have a credit facility. As of June 30, 2020, we had cash and cash equivalents of $9.8 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash and cash equivalents are held in bank accounts. Our short-term investments consist of term deposits with maturity within 180 days. The following table sets forth a summary of the net cash flow activity for each of the periods set forth below: Year Ended June 30, 2020 2019 (US$’000) Net cash provided by (used in): Operating activities $ (7,535 ) $ 4,790 Investing activities (94 ) (400 ) Financing activities 1,770 — Net increase (decrease) in cash $ (5,859 ) $ 4,390 Operating activities Net cash used in operating activities for the year ended June 30, 2020 was $7,535. Net cash provided by operating activities for the year ended June 30, 2019 was $4,790. Net cash used in operating activities was primarily the result of our net loss and change in working capital, partially offset by equity-based compensation expense and the lease liability. Investing activities Net cash used in investing activities for the year ended June 30, 2020 and 2019 was $94 and $400, respectively, and primarily related to purchases of equipment in 2020 and 2019. Financing activities Net cash provided by financing activities was $1,770 and $0 for the years ended June 30, 2020 and 2019, respectively. Cash from financing activities related to the issuance of ordinary shares, including $2,250 in gross proceeds from a private placement and entitlement offer for the year ended June 30, 2020, partially offset by $480 in share issue transaction costs. There were no private placements for the year ended June 30, 2019. The future of the Company as an operating business will depend on its ability to generate revenues mostly from licensing, strategic alliances and collaboration arrangements with pharmaceutical companies. While we continue to progress discussions and advance opportunities to engage with pharmaceutical companies and continue to seek licensing partners for ddRNAi in disease areas that are not our focus, there can be no assurance as to whether we will enter into such arrangements or what the terms of any such arrangement could be. While we have established some licensing arrangements, we do not have any products approved for sale and have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. 89 Table of Contents Unless and until we establish significant revenues from licensing programs, strategic alliances or collaboration arrangements with pharmaceutical companies, or from product sales, we anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of product candidates and begin to prepare to commercialize any product that receives regulatory approval. We are subject to the risks inherent in the development of new gene therapy products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We estimate that our cash and cash equivalents together with the net proceeds of a planned public offering of common stock will be sufficient to fund the Company’s operations at least for the next twelve months. In connection with the Company’s planned public offering, on August 14, 2020, the Company filed a registration statement on Form S-1 with the SEC. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: • the timing and costs of our planned clinical trials for our ddRNAi and silence and replace product candidates; • the timing and costs of our planned preclinical studies for our ddRNAi and silence and replace product candidates; • the number and characteristics of product candidates that we pursue; • the outcome, timing and costs of seeking regulatory approvals; • revenue received from commercial sales of any of our product candidates that may receive regulatory approval; • the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; • the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; • the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and • the extent to which we need to in-license or acquire other products and technologies. Contractual Obligations and Commercial Commitments On July 9, 2018, the Company entered into an Agreement with Axovant Sciences. The Agreement granted Axovant Sciences an exclusive worldwide license to develop, manufacture, and commercialize products containing the Company’s product known as BB-301, which was designed for the potential treatment of Oculopharyngeal Muscular Dystrophy. On June 6, 2019, the termination of the Agreement with Axovant Sciences was announced. The termination of the Agreement was effective as of September 3, 2019. The termination discharges all future performance obligations at termination date under the contract. Off-Balance Sheet Arrangements The Company had no material off-balance sheet arrangements as of June 30, 2020. 90 Table of Contents Critical Accounting Policies and Significant Accounting Estimates The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of Notes to the consolidated financial statements included in Item 8 in this Annual Report describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies. A critical accounting policy is defined as one that is both material to the presentation of the Company’s consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on the Company’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) the Company is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates the Company could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the Company’s financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as the Company’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties are discussed in the section above entitled “Risk Factors.” Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the Company’s consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States of America, and provide a meaningful presentation of the Company’s financial condition and results of operations. Management believes that the following are critical accounting policies: Revenue Recognition The Company adopted and implemented on July 1, 2018, ASC 606—“ Revenue from Contracts with Customers ” (“ASC 606”). ASC 606 did not have a material impact on the consolidated financial statements. Upon implementation of ASC 606, the Company recognizes revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies judgement in determining whether contracts entered into fall within the scope of ASC 606. In doing so, management considers the commercial substance of the transaction and how risks and benefits of the contract accrue to the various parties to the contract. In determining the accounting treatment of the contract with Axovant, management assessed that the contract was within the scope of ASC 606. Management has also made the judgement that the grant of the license and transfer of associated know-how and materials are accounted for as one performance obligation as they are not considered to be distinct; they are 91 Table of Contents highly interrelated and could not provide benefits to the customer independently from each other. Judgements were made in relation to the transfer of the license and know-how and whether this should be recognized over time or a point in time. The point in time has been determined with regard to the point at which the transfer of know-how has substantially been completed and the customer has control of the asset and the ability to direct the use of and receive substantially all of the remaining benefits. Licensing revenues Revenue from licensees of the Company’s intellectual property reflects the transfer of a right to use the intellectual property as it exists at the point in time in which the license is transferred to the customer. Consideration can be variable and is estimated using the most likely amount method. Subsequently, the estimate is constrained until it is highly probable that a significant revenue reversal will not occur when the uncertainty is resolved. Revenue is recognized as or when the performance obligations are satisfied. The Company recognizes contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Company satisfies a performance obligation before it receives the consideration, the Company recognizes either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Royalties Revenue from licensees of the Company’s intellectual property reflect a right to use the intellectual property as it exists at the point in time in which the license is granted. Where consideration is based on sales of product by the licensee, revenue is recognized when the customer’s subsequent sales of product occurs. Services revenue Revenue is earned (constrained by variable considerations) from the provision of research and development services to customers. Services revenue is recognized when performance obligations are either satisfied over time or at a point in time. Generally, the provision of research and development services under a contract with a customer will represent satisfaction of a performance obligation over time where the Company retains the right to payment for services performed but not yet completed. Share-Based Compensation The Company records share-based compensation in accordance with ASC 718, “ Stock Compensation ”. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee share-based compensation at fair value using the Black-Scholes Option Pricing Model. The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. There was no cumulative effect of adoption on July 1, 2019. Recent Accounting Pronouncements Accounting Standards recently adopted ASU 2016-02 —In February 2016, the FASB issued ASU No. 2016-02: “ Leases (Topic 842)” whereby lessees will need to recognize most leases on their balance sheet as a right of use asset and a lease liability. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this ASU effective July 1, 2019. 92 Table of Contents The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. The Company has undertaken a detailed review and has concluded that it will have a material impact on its financial position on the transactions and balances recognized in the consolidated financial statements when it is first adopted for the year ending June 30, 2020 due to the material size of lease entered into by the Company. The Company’s only lease is the lease on its research and development facilities. ASU 2018-07 —In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-07 “ Compensation—Stock Compensation (Topic 718)”. This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The Company adopted this ASU, effective July 1, 2019. New Accounting Standards and Interpretations not yet mandatory or early adopted ASU 2016-13 —In June 2016, the FASB issued ASU No. 2016-13: “ Financial Instruments—Credit Losses (Topic 326)”. This ASU represents a significant change in the accounting for credit losses model by requiring immediate recognition of management’s estimates of current expected credit losses (CECL). Under the prior model, losses were recognized only as they were incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold of being probable. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company has determined that it has met the criteria of a smaller reporting company (“SRC”) as of November 15, 2019. As such, ASU 2019-10: “ Financial Instruments-Credit Losses, Derivatives and Hedging, and Leases: Effective Dates” amended the effective date for the Company to be for reporting periods beginning after December 15, 2022. The Company will adopt this ASU effective July 1, 2023. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company and not required to provide this information. 93 Table of Contents