MeiraGTx Holdings plc (MGTX) FY 2023 MD&A

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 financial statements and the related notes appearing in this Form 10-K.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, 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 section of this Form 10-K captioned “Item 1A.  Risk Factors” and elsewhere in this Form 10-K, 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.

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Overview

We are a vertically integrated, clinical-stage gene therapy company with a broad pipeline of late stage clinical programs supported by end-to-end manufacturing capabilities. We have an internally developed manufacturing platform process, internal plasmid production for GMP, two GMP viral vector production facilities as well as an in-house Quality Control hub for stability and release, all fit for IND through commercial supply. We have core capabilities in viral vector design and optimization and a potentially transformative riboswitch gene regulation platform technology that allows for the precise, dose-responsive control of gene expression by oral small molecules. We are focusing the riboswitch platform on delivery of metabolic peptides including GLP-1, GIP, glucagon and PYY using oral small molecules, as well as cell therapy for oncology and autoimmune diseases. Although initially focusing on the eye, central nervous system, and salivary gland, we have developed the technology to apply genetic medicine to more common diseases, increasing efficacy, addressing novel targets, and expanding access in some of the largest disease areas where the unmet need remains great.

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 GMP 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, debt financing and upfront and milestone payments in connection with the Collaboration Agreement and Asset Purchase Agreement. Through December 31, 2023, we received gross proceeds of approximately $562.9 million from sales of our ordinary shares, Series A ordinary shares and convertible preferred C shares, gross proceeds of approximately $75.0 million from issuance of debt, $130.0 million from the Collaboration Agreement with Janssen, and $65.0 million from the Asset Purchase Agreement with Janssen. As of December 31, 2023, we had cash, cash equivalents and restricted cash of $130.6 million, as well as $10.1 million we expect to receive from Janssen in the first quarter of 2024 in connection with the Collaboration Agreement.

We are a clinical stage company and have not generated any product revenues to date. We have ongoing clinical development programs and a broad pipeline of preclinical programs. Since inception, we have incurred significant operating losses. Our net losses for the years ended December 31, 2023 and 2022 were $84.0 million and $129.6 million, respectively. As of December 31, 2023, we had an accumulated deficit of $554.2 million. We do not expect to generate revenue from sales of products for several years, if at all. Under the Collaboration Agreement, we received an upfront payment in the amount of $100.0 million in March 2019 and a milestone payment in the amount of $30.0 million in December 2021. Additionally, pursuant to the Collaboration Agreement, we received research and development funding for certain research, manufacturing and clinical development costs. On December 20, 2023, we entered into an Asset Purchase Agreement with Janssen pursuant to which the Company sold and assigned to Janssen a License Agreement between the Company and UCLB relating to the research, development, manufacture and exploitation of the RPGR Product, and other related assets as described in the Asset Purchase Agreement. In connection with entering into the Asset Purchase Agreement, we entered into a Termination Agreement with Janssen terminating the Collaboration Agreement. The Company and Janssen also entered into a Supply Agreement on December 20, 2023 pursuant to which the Company agreed to manufacture and supply the RPGR Product for Janssen. In December 2023, we received a non-refundable upfront payment of $65.0 million in connection with the Asset Purchase Agreement.

Our total operating expenses were $151.1 million and $132.3 million for the years ended December 31, 2023 and 2022, respectively. We expect to continue incurring increasing costs associated with our clinical activities for AAV-hAQP1 for the treatment of radiation-induced xerostomia and xerostomia associated with Sjogren’s syndrome, as well as

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for AAV-GAD for the treatment of Parkinson’s disease. We also incurred expenses during the year ended December 31, 2023 and expect to continue to incur expenses related to research activities in additional therapeutic areas to expand our pipeline, developing our potentially transformative gene regulation technology, hiring additional personnel as needed 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.

On August 2, 2022 we, as borrower, and the Subsidiary Guarantors, entered into the Financing Agreement by and among the Company, the Subsidiary Guarantors, the lenders and other parties from time to time party thereto and Perceptive, as administrative agent and lender. On December 19, 2022, the Financing Agreement was converted to a Notes Purchase Agreement between the same parties and under substantially the same terms and conditions as the Financing Agreement, subject to certain customary note constitution terms. On August 10, 2023, the Company and the Subsidiary Guarantors entered into the First Consent and Amendment with Perceptive.

The Notes Purchase Agreement provides for the issuance of the Tranche 1 Notes in an initial amount of $75.0 million. Pursuant to the First Consent and Amendment, we may request in our sole discretion, and Perceptive has agreed to subscribe to purchase upon such request, the issuance of the Tranche 2 Notes in an additional amount of $25.0 million at any time before August 2, 2024. Previously, our request for the issuance of the Tranche 2 Notes was to be determined at Perceptive’s sole discretion. The Notes Purchase Agreement matures on August 2, 2026 and is interest-only during the term. We have the option to redeem outstanding principal notes at any time along with an applicable early redemption fee. Outstanding amounts under the Notes Purchase Agreement bear interest at a fluctuating rate per annum equal to 10.00% plus the secured overnight financing rate administered by the Federal Reserve Bank of New York for a one-month tenor, subject to a 1.00% floor.

On November 9, 2022, we entered into a securities purchase agreement with Johnson & Johnson Innovation – JJDC, Inc. (“JJDC”), the investment arm of Johnson & Johnson, pursuant to which we, in a private placement, agreed to issue and sell to JJDC an aggregate of 3,742,514 ordinary shares at a purchase price of $6.68 per share for gross proceeds of approximately $25.0 million.

On May 3, 2023, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we, in a private placement, agreed to issue and sell an aggregate of 10,773,913 ordinary shares at a purchase price of $5.75 per share, for gross proceeds of approximately $62.0 million. The closing occurred on May 5, 2023.

On October 30, 2023, we entered into the Investment Agreement with Sanofi Foreign Participations, and solely for the limited purposes set forth therein, Sanofi, pursuant to which, among other things and subject to the terms and conditions specified therein, we issued an aggregate of 4,000,000 ordinary shares of the Company at a purchase price of $7.50 per share for gross proceeds of $30.0 million. The Investment Agreement also provides Sanofi Foreign Participations and its affiliates with a right of first negotiation for use of our riboswitch gene regulation technology for certain Immunology and Inflammation (I&I), including modulation of IL-4 and IL-13, and Central Nervous System (CNS) targets, as well as for GLP-1 and other gut peptides for metabolic disease, and for our Phase 2 xerostomia program, in each case, on the terms set forth therein.

On December 20, 2023, we entered into an Asset Purchase Agreement with Janssen pursuant to which the Company sold and assigned to Janssen a License Agreement between the Company and UCLB relating to the research, development, manufacture and exploitation of the RPGR Product, and other related assets as described in the APA. In connection with entering into the Asset Purchase Agreement, we entered into a Termination Agreement with Janssen terminating the Collaboration Agreement. The Company and Janssen also entered into a Supply Agreement on December 20, 2023 pursuant to which we agreed to manufacture and supply the RPGR Product for Janssen. Under the Asset Purchase Agreement, Janssen paid the Company a non-refundable upfront cash payment of $65.0 million in December 2023 and a milestone payment of $50.0 million in the first quarter of 2024 in connection with the achievement of the initiation of the extension study for the Phase 3 LUMEOS clinical trial for the RPGR Product.

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Additionally, pursuant to and subject to the terms and conditions set forth in the Asset Purchase Agreement, Janssen agreed to pay the Company additional future contingent consideration of up to an aggregate of $300.0 million.

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.

Based on our cash, cash equivalents and accounts receivable – related party at December 31, 2023 and the near-term milestone payments we have received and expect to receive under the Asset Purchase Agreement, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2026. This estimate does not include the $285.0 million in milestones we are eligible to receive under the Asset Purchase Agreement upon first commercial sale of an RPGR Product in the United States and in at least one of the United Kingdom, France, Germany, Spain and Italy, for completion of the transfer of certain manufacturing technology to Janssen and upon regulatory approval of a Janssen-selected manufacturing facility in each of the United States and European Union for commercial manufacture of the RPGR Product. 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 or any future commercialization efforts 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 Development Highlights and Anticipated Milestones

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AAV-hAQP1 for the Treatment of Grade 2/3 Radiation-Induced Xerostomia:

Grade 2/3 radiation-induced xerostomia (RIX) is a severely debilitating consequence of radiation treatment for head and neck cancer that affects approximately 30-40% of all patients treated with radiation for head and neck cancer. This is a completely unmet need with no treatment options, and a large addressable market with over 170,000 patients currently in the U.S., and an additional 15,000 new patients in the U.S. each year. Treatment with AAV-hAQP1 involves a small dose locally delivered to the salivary gland via a non-invasive procedure, that can be delivered in a dental office or oncology center where these patients are seen at least annually following radiation treatment. The small local dose of AAV-hAQP1 that we manufacture in-house allows for a low cost of goods, and the potential long term durability and ease of delivery make this large addressable market a compelling commercial opportunity.

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AAV-AIPL1 Specials License in UK:

LCA4 is an ultra rare and severe inherited retinal disease (IRD) resulting from mutations in the

aryl hydrocarbon receptor interacting protein-like 1 gene (AIPL1). Children with LCA4 are blind from birth due to the absence of AIPL1, a retinal photoreceptor-specific protein expressed in cones and rods. By the age of 4 years old, retinal degeneration is complete. We have developed AAV-AIPL1 to deliver the AIPL1 gene to the retina of children with LCA4. This product candidate, manufactured at our London facility, is available for treatment of children with LCA4 under a Specials License from the MHRA.

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

Parkinson’s is the second most common neurodegenerative disease after Alzheimer’s with approximately 90,000 patients diagnosed annually in the U.S. Most Parkinson’s patients respond to dopamine replacement therapy, however, after about 5 years even higher doses of dopamine no longer manage the motor symptoms of the disease, leaving little effective treatment for this large population of patients. One treatment that has efficacy in this patient population is deep

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brain stimulation (DBS), which requires multiple surgeries and in-dwelling hardware with onerous safety and tolerability issues. In contrast, our gene therapy treatment for Parkinson’s involves the delivery of a very small dose of AAV-GAD encoding the enzyme that converts the activating neurotransmitter glutamate to the calming neurotransmitter GABA, to the specific nucleus of the brain targeted by DBS. We have demonstrated that localized treatment with AAV-GAD leads to a change in circuitry to the motor cortex which results in alleviation of motor symptoms. This is a one-time treatment, involving no in-dwelling hardware or subsequent tuning, no off target side effects, and with a small dose of viral vector that has a low cost of goods.

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Riboswitch Gene Regulation Technology Platform:

Our riboswitch technology allows for repeatable, long-term delivery of any messenger RNA (mRNA) from the DNA template encoding any peptide or protein on stimulation by bespoke orally delivered small molecules.

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Asset Purchase Agreement with Jannsen:

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Strategic Investment from Sanofi:

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End-to-End Manufacturing Infrastructure:

We have comprehensive end-to end-manufacturing capabilities with a commercial ready platform process and GMP-licensed manufacturing and QC facilities in both the UK and Ireland, comprising the following:

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Components of Our Results of Operations

License revenue – related party

Our license revenue consisted of the amortization of the upfront and milestone payments we received in connection with the Collaboration Agreement.

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Operating expenses

Our operating expenses since inception have consisted primarily of general and administrative costs and research and development costs.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and office facility-related expenses, which include direct depreciation costs.

We have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:

We expense research and development costs as incurred.

Research and development activities are central to our business model. We expect to continue incurring increasing research and development costs associated with our clinical activities for AAV-hAQP1 for the treatment of radiation-induced xerostomia and xerostomia associated with Sjogren’s syndrome, as well as for AAV-GAD for the treatment of Parkinson’s disease. In addition, we expect to continue to incur expenses related to research activities in additional therapeutic areas to expand our pipeline and developing our potentially transformative gene regulation technology.

We cannot determine with certainty the duration and costs of future clinical trials of our product candidates or any other product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our existing product candidates or any other product candidate we may develop will depend on a variety of factors, including:

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another U.S. or foreign regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

Other non-operating income (expense)

Other non-operating income (expense) includes the following:

Foreign currency gain (loss)

Our consolidated financial statements are presented in U.S. dollars, which is our reporting currency. The financial position and results of operations of our subsidiaries MeiraGTx UK II Limited, MeiraGTx Ireland DAC, MeiraGTx Netherlands B.V., MeiraGTx B.V. and MeiraGTx Belgium are measured using the foreign subsidiaries’ local currency as the functional currency. These entities’ cash accounts holding U.S. dollars and intercompany payables and receivables are remeasured based upon the exchange rate at the date of remeasurement with the resulting gain or loss included in the consolidated statement of operations and comprehensive loss.

Interest income

Interest income is comprised on interest earned on our interest-bearing bank accounts..

Interest expense

Interest expense consists of interest expense and amortization of the debt discount in connection with the debt financing described in Note 13 to our consolidated financial statements.

Gain on sale of nonfinancial assets

The gain on sale of nonfinancial assets represents the value allocated to the nonfinancial assets sold and assigned to Janssen including the UCLB RPGR License Agreement relating to the research, development, manufacture

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and exploitation of the RPGR Product, and other related assets pursuant to the Asset Purchase Agreement, net of carrying value.

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Other comprehensive (loss) income

Other comprehensive (loss) income includes the following:

Foreign currency translation (loss) gain

Expenses of subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the consolidated balance sheet date. The resulting translation gain adjustments are recorded directly as a separate component of shareholders’ equity and as other comprehensive loss on the consolidated statements of operations and comprehensive loss.

Critical Accounting Policies and Use of Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgements that affect the reporting amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgements, including those related to license and collaboration revenue, share-based compensation and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from our sources. Actual results may differ from these estimates under different assumptions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing in this Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Collaboration Arrangements

We evaluate our collaborative arrangements pursuant to Accounting Standards Codification (“ASC”) 808, Collaborative Arrangements (“ASC 808”) and ASC 606, Revenue from Contracts with Customers (“ASC 606”). We consider the nature and contractual terms of collaborative arrangements and assess whether the arrangement involves a joint operating activity pursuant to which we are an active participant and are exposed to significant risks and rewards with respect to the arrangement. If we are an active participant and exposed to significant risks and rewards with respect to the arrangement, we account for the arrangement as a collaboration under ASC 808. To date, we have 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 we conclude that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, we recognize our allocation of the shared costs incurred with respect to the jointly conducted activities pursuant to ASC 730, Research and Development. If we concluded that some or all aspects of the arrangement represent a transaction with a customer, we account for those aspects of the arrangement within the scope of ASC 606. 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

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this policy applies may include upfront payments in respect of a license of intellectual property, development and commercialization-based milestones, and royalties.

Revenue Recognition

We evaluate the promised goods or services to determine which promises, or group of promises, represent performance obligations in our contracts with customers. In contemplation of whether a promised good or service meets the criteria required of a performance obligation, we consider 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, we 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 we conclude that a contract should be accounted for as a combined performance obligation and recognized over time, we must then determine the period over which revenue should be recognized and the method by which to measure revenue. We generally recognize revenue using a cost-based input method.

At inception, we determine whether contracts are within the scope of ASC 606 or other topics. For contracts that are determined to be within the scope of ASC 606, we recognize revenue when the customer or collaborator obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition, we perform the following five steps:

We only apply the five-step model to contracts when we determine that it is probable we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, we assess 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 for our arrangements typically consist of a license to our intellectual property and research, development and manufacturing services. We 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.

We determine transaction prices based on the amount of consideration we expect 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, we estimate the probability and extent of consideration we expect 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. We then consider any constraints on the variable

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consideration and include 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.

We then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize 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, we utilize 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. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

If there are multiple performance obligations, we allocate the transaction price to each performance obligation based on their estimated standalone selling prices (“SSP”). We estimate the SSP for each performance obligation by considering information such as market conditions, entity-specific factors, and information about our customer that is reasonably available. We consider estimation approaches that allow us to maximize the use of observable inputs. These estimation approaches may include the adjusted market assessment approach, the expected cost plus a margin approach or the residual approach. We also consider whether to use a different estimation approach or a combination of approaches to estimate the SSP for each performance obligation. Developing certain assumptions (e.g., treatable patient population, expected market share, probability of success and product profitability, and discount rate based on weighted-average cost of capital) to estimate the SSP of a performance obligation requires significant judgment.

We record 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 our 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.

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 our research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical and preclinical studies and manufacture the drug product for the clinical studies and preclinical activities; acquisition of in-process research and development; facilities; supplies; rent, insurance, certain legal fees, stock-based compensation, depreciation and other costs associated with clinical and preclinical activities and regulatory operations. Research funding under collaboration agreements and refundable research and development credits / tax credits received are recorded as an offset to these costs.

Costs for certain development activities, such as outside research programs funded by us, are recognized based on an evaluation of the progress to completion of specific tasks with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.

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Share-Based Compensation

Options

We grant share options to employees, non-employee members of our board of directors and non-employee consultants as compensation for services performed. Share-based compensation are accounted for in accordance with ASC 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all share-based payments, including grants of share options, to be recognized in the statement of operations and comprehensive loss based on their grant date fair values. The grant date fair value of share options is estimated using the Black-Scholes option valuation model.

Using this model, fair value is calculated based on assumptions with respect to (i) the fair value of our ordinary shares on the grant date; (ii) expected volatility of our ordinary share price, (iii) the periods of time over which recipients are expected to hold their options prior to exercise (expected term), (iv) expected dividend yield on our ordinary shares, and (v) risk-free interest rates.

Our ordinary shares were not traded on a public exchange prior to our IPO in June 2018. Therefore, we believe that our future volatility will differ materially during the expected term from the volatility that would be calculated from our historical share prices to date. Consequently, expected volatility is based on an analysis of our Company and guideline companies in accordance with ASC 718. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future. Risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the option’s expected term.

Restricted Share Units

The Company grants restricted share units (“RSUs”) to employees, non-employee members of our board of directors and non-employee consultants as compensation for services performed. Awards of RSUs are accounted for in accordance with ASC 718, Compensation - Stock Compensation, or ASC 718. ASC 718 requires all share-based payments, including grants of RSUs, to be recognized in the consolidated statement of operations and comprehensive loss based on their grant date fair values. The grant date fair value of RSUs is determined using the closing market price of the Company’s ordinary shares on the date of grant.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

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License revenue – related party

License revenue was $14.0 million for the year ended December 31, 2023, compared to $15.9 million for the year ended December 31, 2022. This decrease is a result of the Company recognizing the deferred revenue progress of the $100.0 million upfront payment and the $30.0 million milestone payment received in connection with the Collaboration Agreement through the termination date of the Collaboration Agreement on December 20, 2023.

General and administrative expenses

General and administrative expenses were $47.3 million for the year ended December 31, 2023, compared to $46.6 million for the year ended December 31, 2022. The increase of $0.7 million was primarily due to an increase of $4.1 million in legal and accounting fees, $2.2 million in payroll and payroll-related costs, $0.4 million in share-based compensation and $0.1 million in rent and facilities costs. These increases were partially offset by a decrease of $4.2 million in other general and administrative costs, $1.3 million in insurance, $0.3 million in consulting fees and $0.3 million in depreciation.

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Research and development expenses

Research and development expenses for the years ended December 31, 2023 and 2022 were as follows (in thousands):

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Clinical program expenses represent the direct costs for each clinical trial plus the cost of the clinical trial material charged from the manufacturing costs.

Manufacturing expenses represent the costs to manufacture clinical trial material, including payroll, facilities, manufacturing supplies, raw materials, quality control and quality assurance. Upon completion of the manufacture of a batch of clinical trial material, the standard cost of manufacturing the batch of clinical trial material is charged to the clinical programs. A year to date true-up of the standard batch cost has been reflected in the fourth quarter.

Preclinical program expenses represent the direct costs for each group of preclinical programs.

Other research and development expenses represent costs that are not allocated to a specific clinical or preclinical program, such as payroll and payroll related costs, share-based compensation, travel, rent and facilities costs, depreciation and other non-program specific expenses.

Research and development expenses for the year ended December 31, 2023 were $103.8 million, compared to $85.7 million for the year ended December 31, 2022. The increase of $18.1 million was primarily due to an increase of $15.4 million in clinical trial expenses primarily related to the bota-vec and AAV-hAQP1 programs, $14.0 million of manufacturing costs, $3.1 million of other research and development expenses and a decrease of $2.1 million in research funding provided under the Collaboration Agreement with Janssen. These increases were partially offset by a decrease of $16.6 million in expenses related to our preclinical programs primarily related to preclinical ocular diseases in the year ended December 31, 2023 compared to the year ended December 31, 2022.

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Foreign currency gain (loss)

Foreign currency gain was $9.3 million for the year ended December 31, 2023 compared to a loss of $9.5 million for the year ended December 31, 2022. The change of $18.8 million was primarily due to the strengthening of the U.S. dollar against the pound sterling and euro during the year ended December 31, 2023 as it relates to the valuation of our intercompany payables and receivables.

Interest income

Interest income was $2.3 million for the year ended December 31, 2023 compared to $0.8 million for the year ended December 31, 2022. The increase was due to higher interest rates and cash balances during 2023.

Interest expense

Interest expense was $13.2 million for the year ended December 31, 2023 compared to $4.9 million for the year ended December 31, 2022. The increase was primarily due to the interest expense and amortization of the debt discount in connection with the debt financing described in Note 13 to our consolidated financial statements included elsewhere in this Form 10-K. Twelve months of interest was recorded during the year ended December 31, 2023 compared to five months of interest recorded during the year ended December 31, 2022.

Gain on sale of nonfinancial assets

The gain on sale of nonfinancial assets was $54.2 million for the year ended December 31, 2023 compared to $0 for the year ended December 31, 2022. This increase was a result of the recognition of the value allocated to the nonfinancial assets sold and assigned to Janssen including the UCLB RPGR License Agreement relating to the research, development, manufacture and exploitation of the RPGR Product, and other related assets pursuant to the APA, net of carrying value.

Other Comprehensive (Loss) Income – Foreign Currency Translation (Loss) Gain

Foreign currency translation adjustments resulted in a translation loss of $7.5 million for the year ended December 31, 2023 compared to a translation gain of $8.7 million for the year ended December 31, 2022. The change in the amount of $16.2 million was primarily due to a strengthening of the U.S. dollar against the pound sterling and euro during the year ended December 31, 2023.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. For the year ended December 31, 2023, we used $105.4 million in cash flows from operations. We did not generate positive cash flows from operations during the year and there are no assurances that we will generate positive cash flows in the future. Additionally, there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our product candidates. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will increase in connection with conducting preclinical studies and clinical trials for our product candidates, building out internal capacity to have products manufactured to support preclinical studies and clinical trials as well as to manufacture commercial products, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result of these incurred and expected expenses we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

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We do not currently have any approved products and have never generated any revenue from product sales. We have historically financed our operations primarily through cash on hand and proceeds from the sale of our ordinary shares, series A ordinary shares and convertible preferred C shares. In March 2019 and December 2021, we received a $100.0 million upfront payment and a $30.0 million milestone payment, respectively, in connection with the Collaboration Agreement, which also provided us with research funding, and we were eligible to receive additional potential milestone payments and royalties. On December 20, 2023, we entered into an Asset Purchase Agreement with Janssen pursuant to which the Company sold and assigned to Janssen a License Agreement between the Company and UCLB relating to the research, development, manufacture and exploitation of the RPGR Product, and other related assets as described in the Asset Purchase Agreement. In connection with entering into the Asset Purchase Agreement, we entered into a Termination Agreement with Janssen terminating the Collaboration Agreement. The Company and Janssen also entered into a Supply Agreement on December 20, 2023 pursuant to which the Company agreed to manufacture and supply the RPGR Product for Janssen. In December 2023, we received a non-refundable upfront payment of $65.0 million in connection with the Asset Purchase Agreement, and in the first quarter of 2024 we received a milestone payment of $50.0 million in connection with the achievement of the initiation of the extension study for the Phase 3 LUMEOS clinical trial for the RPGR Product.

Additionally, on August 2, 2022, we, as borrower, and our Subsidiary Guarantors, entered into a Financing Agreement by and among us, the Subsidiary Guarantors, the lenders and other parties from time to time party thereto and Perceptive, as administrative agent and lender. On December 19, 2022, the Financing Agreement was converted to a Notes Purchase Agreement between the same parties and under substantially the same terms and conditions as the Financing Agreement, subject to certain customary note constitution terms.

The Notes Purchase Agreement provides for the issuance of the Tranche 1 Notes in an initial amount of $75.0 million. Pursuant to the First Consent and Amendment, we may request, in our sole discretion, and Perceptive has agreed to subscribe to purchase upon such request, the issuance of the Tranche 2 Notes in an additional amount of $25.0 million at any time before August 2, 2024. Previously, our request for the issuance of the Tranche 2 Notes was to be determined at Perceptive’s sole discretion. The Notes Purchase Agreement matures on August 2, 2026 and is interest-only during the term. We have the option to redeem outstanding principal notes at any time along with an applicable early redemption fee. Outstanding amounts under the Notes Purchase Agreement bear interest at a fluctuating rate per annum equal to 10.00% plus the secured overnight financing rate administered by the Federal Reserve Bank of New York for a one-month tenor, subject to a 1.00% floor.

Our obligations under the Notes Purchase Agreement are secured by our London, UK and Shannon, Ireland manufacturing facilities, $3.0 million of our cash and the bank accounts of the Subsidiary Guarantors, and the issued and outstanding equity interests of the Subsidiary Guarantors.

The Notes Purchase Agreement imposes certain covenants and restrictions on us and the Subsidiary Guarantors, including restrictions pertaining to: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) limitations on certain investments, (iv) making distributions, dividends and other payments, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) our maintenance of at least $3.0 million in a U.S. bank account, (viii) transactions with affiliates, (ix) changes to governing documents, (x) changes to certain agreements and leases and (xi) changes in control; however, certain of these restrictions contain exceptions which allow us to license, sell and monetize assets in our AAV-hAQP1 program in development to treat radiation-induced xerostomia, our AAV-GAD program in development to treat Parkinson’s disease and our gene regulation platform technologies.

In connection with entering into the Financing Agreement, we granted warrants (the “Warrants”) to Perceptive to purchase up to (i) 400,000 ordinary shares of the Company at an exercise price of $15.00 per share and (ii) 300,000 ordinary shares of the Company at an exercise price of $20.00 per share. The Warrants will expire on August 2, 2027.

Based on our current cash, cash equivalents and accounts receivable – related party at December 31, 2023 and the near-term milestone payments we have received and expect to receive under the Asset Purchase Agreement, we

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estimate that we will be able to fund our operating expenses and capital expenditure requirements into the first quarter of 2026. This estimate does not include the $285.0 million in milestones we are eligible to receive under the Asset Purchase Agreement upon first commercial sale of an RPGR Product in the United States and in at least one of the United Kingdom, France, Germany, Spain and Italy, for completion of the transfer of certain manufacturing technology to Janssen and upon regulatory approval of a Janssen-selected manufacturing facility in each of the United States and European Union for commercial manufacture of the RPGR Product. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Cash Flows

We had $130.6 million and $115.5 million of cash, cash equivalents, and restricted cash as of December 31, 2023 and 2022, respectively.

The following table summarizes our sources and uses of cash for the period presented:

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Operating Activities

During the year ended December 31, 2023, our cash used in operating activities of $105.4 million was primarily due to our net loss of $84.0 million as we incurred expenses associated with research activities on our clinical programs, manufacturing of our clinical trial materials, preclinical research programs and general and administrative expenses. The net loss included net non-cash gains of $20.4 million, which consisted of $54.2 million of a gain on sale of nonfinancial assets, $27.7 million of share-based compensation, $13.7 million of depreciation and amortization, $9.3 million of a foreign currency gain, $1.1 million of amortization of the debt discount, $1.1 million impairment related to acquired in-process research and development and right-of-use assets, $0.5 million of a fair value upward adjustment, $0.2 million of net change in right-of-use assets and liabilities and $0.2 million of amortization of interest on asset retirement obligations. Additionally, operating assets, consisting of accounts receivable-related party, prepaid expenses, tax incentive receivable, other current assets and other assets, decreased by $6.0 million and operating liabilities, consisting of accounts payable, accrued expenses, and deferred revenue-related party, decreased by $6.9 million.

During the year ended December 31, 2022, our cash used in operating activities of $73.1 million was primarily due to our net loss of $129.6 million as we incurred expenses associated with research activities on our clinical programs, manufacturing of our clinical trial materials, preclinical research programs and general and administrative expenses. The net loss included non-cash charges of $46.9 million, which consisted of $28.6 million of share-based compensation, $9.5 million of a foreign currency loss, $8.7 million of depreciation and amortization, $0.4 million of a fair value downward adjustment, $0.2 million of negative net change in right-of-use assets and liabilities, $0.2 million of amortization of interest on asset retirement obligations and $0.4 million of amortization of the debt discount. Additionally, operating assets, consisting of accounts receivable-related party, prepaid expenses, tax incentive receivable, other current assets and other assets, decreased by $5.2 million and operating liabilities, consisting of accounts payable, accrued expenses, and deferred revenue-related party, decreased by $4.4 million.

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Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 of $34.0 million consisted of $54.2 million from proceeds from the sale of nonfinancial assets and $20.2 million of purchases of property and equipment for our manufacturing, laboratory and process development facilities.

Net cash used in investing activities for the year ended December 31, 2022 of $45.0 million consisted of purchases of property and equipment for our manufacturing, laboratory and process development facilities and buildout costs of our new facilities in Ireland.

Financing Activities

Net cash provided by financing activities was $84.0 million for the year ended December 31, 2023, which consisted primarily of $92.0 million from the issuance of ordinary shares, which was offset by $6.4 million of issuance costs and $1.5 million of payments for withholdings of shares for income taxes.

Net cash provided by financing activities was $95.2 million for the year ended December 31, 2022, which consisted primarily of $75.0 million from issuance of the Tranche 1 Notes, $25.0 million from the issuance of ordinary shares and $0.2 million in exercise of share options, which was offset by $2.8 million of payments for withholdings of shares for income taxes, and issuance costs of $2.2 million.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements under applicable SEC rules and do not have any holdings in variable interest entities.

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