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.
Overview
We are a vertically integrated, clinical-stage genetic medicines company with a broad pipeline of late-stage clinical programs, including Parkinson’s disease, radiation-induced xerostomia and AIPL1-associated retinal dystrophy. Our clinical programs use targeted local delivery of small doses of genetic medicines to treat both inherited and more common conditions with severe unmet need. The successful development of the clinical pipeline is supported by our internal end-to-end manufacturing capabilities. We have two GMP viral vector production facilities, internal plasmid production for GMP, as well as an in-house Quality Control hub for stability and release, all fit for IND through
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commercial supply. In addition, we have developed a proprietary manufacturing platform with leading yield and quality aspects and commercial readiness. Our core capabilities in viral vector and capsid optimization allow increased potency, decreased dose and significantly reduced cost of goods for our genetic medicines. We have developed a potentially transformative gene regulation platform using bespoke synthetic riboswitch technology invented in-house that allows for the precise, dose-responsive control of any transgene under the control of oral small molecules. We are focusing the riboswitch platform on in vivo delivery of biologic therapeutics such as the metabolic peptides GLP-1, GIP, glucagon, amylin, PYY and leptin via oral small molecules, as well as cell therapy for oncology and autoimmune diseases, and long-term intractable pain. We have developed unique comprehensive technology capabilities 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 high.
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, 2024, we received gross proceeds of approximately $622.3 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 Johnson & Johnson Innovative Medicine, and $125.0 million from the Asset Purchase Agreement with Johnson & Johnson Innovative Medicine. As of December 31, 2024, we had cash, cash equivalents and restricted cash of $105.7 million, as well as $0.7 million we expect to receive from Johnson & Johnson Innovative Medicine in the first quarter of 2025 in connection with the PPQ and transition services we provided to Johnson & Johnson Innovative Medicine.
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, 2024 and 2023 were $147.8 million and $84.0 million, respectively. As of December 31, 2024, we had an accumulated deficit of $702.0 million. We do not expect to generate revenue from sales of products unless and until we successfully initiate and complete clinical development and obtain regulatory approval for any product candidates, or satisfy our third party obligations. 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 Johnson & Johnson Innovative Medicine pursuant to which the Company sold and assigned to Johnson & Johnson Innovative Medicine 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 Johnson & Johnson Innovative Medicine terminating the Collaboration Agreement. The Company and Johnson & Johnson Innovative Medicine also entered into a Supply Agreement on December 20, 2023 pursuant to which the Company agreed to manufacture and supply the RPGR Product for Johnson & Johnson Innovative Medicine. In December 2023, we received a non-refundable upfront payment of $65.0 million in connection with the Asset Purchase Agreement. During the year ended December 31, 2024, we received $60.0 million in milestone payments under the Asset Purchase Agreement.
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Our total operating expenses were $197.5 million and $151.1 million for the years ended December 31, 2024 and 2023, 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, AAV-GAD for the treatment of Parkinson’s disease, as well as costs associated with the delivery of services under the Asset Purchase and related agreements. We also incurred expenses during the year ended December 31, 2024 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 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 Johnson & Johnson Innovative Medicine pursuant to which the Company sold and assigned to Johnson & Johnson Innovative Medicine 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 Johnson & Johnson Innovative Medicine terminating the Collaboration Agreement. The Company and Johnson & Johnson Innovative Medicine also entered into a Supply Agreement on December 20, 2023 pursuant to which we agreed to manufacture and supply the RPGR Product for Johnson & Johnson Innovative Medicine. Under the Asset Purchase Agreement, Johnson & Johnson Innovative Medicine paid the Company a non-refundable upfront cash payment of $65.0 million in December 2023. Additionally, pursuant to and subject to the terms and conditions set forth in the Asset Purchase Agreement, Johnson & Johnson Innovative Medicine agreed to pay the Company future contingent consideration of up to an aggregate of $350.0 million, as follows: (i) 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; (ii) $10.0 million upon completion of certain specified development services for the drug substance for the RPGR Product; (iii) $5.0 million upon completion of certain specified development services for the drug product for the RPGR Product; (iv) $175.0 million upon the first commercial sale of an RPGR Product in the United States; (v) $75.0 million upon the first commercial sale of an RPGR Product in at least one of the United Kingdom, France, Germany, Spain and Italy; (vi) $25.0 million upon completion of the transfer of certain manufacturing technology for drug substance and drug product from the Company to Johnson & Johnson Innovative Medicine; and (vii) $10.0 million upon regulatory approval of a Johnson & Johnson Innovative Medicine-selected manufacturing facility in each of the United States and European Union for commercial manufacture of the RPGR Product. As of December 31, 2024, we have received $60.0 million in milestone payments from Johnson & Johnson Innovative Medicine. Johnson & Johnson Innovative Medicine is also responsible for any royalty or milestone amounts that become payable on the RPGR Product under the UCLB RPGR License Agreement.
In December 2023, we entered into an “at-the-market” sales agreement with BofA Securities, Inc., or BofA, pursuant to which we may sell from time to time, ordinary shares having an aggregate offering price of up to $100.0 million through BofA, acting as our agent. During the year ended December 31, 2024, we raised gross proceeds of $8.4
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million through the sale of 1,508,517 ordinary shares pursuant to an “at-the-market” equity offering program. Under the “at-the-market” equity program which is currently effective and may remain available for us to use in the future, we may sell an additional $91.6 million of ordinary shares. Whether we choose to affect future sales under the “at-the-market” equity offering program will depend on a number of factors, including, among others, market conditions and the trading price of our ordinary shares relative to other sources of capital.
On August 12, 2024, we entered into an underwriting agreement with BofA in connection with the issuance and sale by the Company in a public offering of 12,500,000 of our ordinary shares at a public offering price of $4.00 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276183) and a related prospectus supplement filed with the SEC. The closing of the offering occurred on August 13, 2024. We received gross proceeds from the offering of $50.0 million and incurred underwriting discounts and commissions and estimated offering expenses of approximately $1.9 million.
On August 12, 2024, the Company agreed to sell shares to an accredited investor (the “Investor”) through a private placement rather than through the public offering and as a result, on August 23, 2024, we entered into a securities purchase agreement with the Investor, pursuant to which we, in a private placement, agreed to issue and sell to the Investor 250,000 ordinary shares at a purchase price of $4.00 per share, for gross proceeds of $1.0 million (the “Private Placement”). The closing of the Private Placement occurred on August 29, 2024.
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, accounts receivable – related party and tax incentive receivable at December 31, 2024, together with the proceeds from the anticipated closing of the strategic collaboration with Hologen Ltd, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2027 and to repay our debt obligation of $75.0 million to Perceptive (due in August 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 Johnson & Johnson Innovative Medicine and upon regulatory approval of a Johnson & Johnson Innovative Medicine-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
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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.
Highlights and Recent Developments
Strategic Collaboration with Hologen AI:
● We will receive $200 million in upfront cash consideration at closing.
AAV-GAD for the Treatment of Parkinson’s Disease:
● The primary study objective of safety and tolerability was met.
AAV2-hAQP1 for the Treatment of Xerostomia:
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AAV-AIPL1 Specials License in the UK:
● We have aligned on an expedited CMC package to support approval.
An RPDD may be granted by the FDA to drugs and biologics intended to treat certain orphan diseases affecting fewer than 200,000 patients in the U.S., the serious or life-threatening manifestations of which primarily affect individuals aged 18 years or younger. Under the FDA’s Rare Pediatric Disease Priority Review Voucher (PRV) program, a sponsor that receives approval for a biologics license application for a rare pediatric disease may be eligible to receive a voucher for a priority review of a subsequent marketing application for a different product. PRVs may be used by the sponsor or sold to another sponsor for their use and have recently been sold for between $100 million to $158 million.
Botaretigene Sparoparvovec for the Treatment of XLRP:
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Riboswitch Gene Regulation Technology Platform for in vivo Delivery:
Manufacturing:
United Kingdom (MeiraGTx UK II Ltd.)
Our UK manufacturing facility holds two authorizations issued by the MHRA:
The UK facility was inspected in May 2024, and the licences were successfully renewed. The outcome of this inspection confirmed that the site was found to be in compliance with GMP requirements for Investigational Medicinal Products (IMPs) and was operating at the required compliance level to support an application for a commercial MIA licence. We plan to submit this application in the second quarter of 2025.
Ireland (MeiraGTx Ireland DAC)
Our Shannon facility holds two authorizations issued by Ireland’s Health Products Regulatory Authority (HPRA):
The QC laboratory is actively undertaking release and stability testing on PPQ batches.
The latest HPRA inspection in February 2025 was highly successful—both QC licences were renewed, and viral vector manufacturing was added to the MIA(IMP) licence. This means the Shannon site can manufacture material for use in clinical trials, a first-of-its-kind licence for a gene therapy facility in Ireland.
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Strategic Investment from Sanofi:
Components of Our Results of Operations
Service Revenue – Related Party
Our service revenue consisted of the process performance qualification (“PPQ”) services performed in connection with the Asset Purchase Agreement and related agreements.
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.
Operating Expenses
Our operating expenses since inception have consisted primarily of general and administrative costs and research and development costs. Beginning in 2024, we incurred expenses classified as cost of service revenue – related party performed in connection with the Asset Purchase Agreement and related agreements.
Cost of Service Revenue – Related Party
Our cost of service revenue consisted of the PPQ services performed in connection with the Asset Purchase Agreement and related agreements.
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; maintaining and protecting our intellectual property portfolio; 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:
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● acquisition and impairment of in process research and development;
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 develop 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:
● uncertainties in clinical trial design and patient enrollment rates;
● significant and changing government regulation and regulatory guidance;
● the timing and receipt of any marketing approvals; and
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.
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Other Non-Operating Income (Expense)
Other non-operating income (expense) includes the following:
Foreign Currency (Loss) Gain
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 are measured using the foreign subsidiaries’ local currency as the functional currency, either the pound sterling or the euro. 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 Johnson & Johnson Innovative Medicine 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 Asset Purchase Agreement, net of carrying value.
Other Comprehensive Loss
Other comprehensive loss includes the following:
Foreign Currency Translation Loss
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.
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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.
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 (“ASC 730”). 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 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:
i. identify the contract(s) with a customer;
ii. identify the performance obligations in the contract;
iii. determine the transaction price;
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v. recognize revenue when (or as) the entity satisfies a performance obligation.
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 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 contract assets when the right to consideration is deemed unconditional. Contract assets are reclassified as accounts receivable once billed. 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
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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.
Our collaboration and revenue arrangements include the following:
Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, 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 for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone Payments: At the inception of an agreement that includes research and development milestone payments, we evaluate each milestone to determine when and how much of the milestone to include in the transaction price. We first estimate the amount of the milestone payment that we could receive using either the expected value or the most likely amount approach. We primarily use the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, we consider whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty.) We update the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.
Research and Development Services: Under the Collaboration Agreement, we incurred research and development costs, with Johnson & Johnson Innovative Medicine responsible for up to 100% of the costs, depending on the type of research and development services being performed. We recorded costs associated with the development activities as research and development expenses in the consolidated statements of operations and comprehensive loss consistent with ASC 730. The reimbursement of the research and development costs by Johnson & Johnson Innovative Medicine was representative of the joint risk sharing nature of the arrangement. We considered the guidance in ASC 808 and recognize the payments received from Johnson & Johnson Innovative Medicine as a reduction to research and development expense when the related costs are incurred. Under the Asset Purchase Agreement, research and development services (PPQ services) are recorded as incurred under cost of service revenue – related party.
Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the outset of the arrangement.
Customer Options: Customer options are evaluated at contract inception to determine whether those options provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer. If the customer options represent a material right, the material right is treated as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the standalone selling price. As a practical alternative to estimating the standalone selling price of a material right when the underlying goods or services are both (i) similar to the original goods or services in the contract and (ii) provided in accordance with the terms of the
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original contract, we allocate the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer. Amounts allocated to any material right are recognized as revenue when or as the related future goods or services are transferred or when the option expires.
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.
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.
The expected term of share options granted to the optionees is determined using the average of the vesting period and contractual life of the option, an accepted method for our Company’s option grants under the SEC Staff Accounting Bulletin No. 107 and No. 110, Share-Based Payment.
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. ASC 718 requires all share-based payments, including grants of RSUs, to be recognized in
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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.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
(in thousands)
Revenues:
Service revenue - related party $ 33,279 $ — $ 33,279
License revenue - related party — 14,017 (14,017)
Operating expenses:
Cost of service revenue - related party 23,791 — 23,791
Other non-operating income (expense)
Fair value adjustments — 499 (499)
Other comprehensive loss:
Foreign currency translation loss (2,284) (7,482) 5,198
Service Revenue – Related Party
Service revenue was $33.3 million for the year ended December 31, 2024, due to progress of PPQ services under the Asset Purchase Agreement and related agreements. There was no service revenue for the year ended December 31, 2023.
License Revenue – Related Party
There was no license revenue for the year ended December 31, 2024, compared to $14.0 million for the year ended December 31, 2023. The decrease is due to the termination of the Collaboration Agreement concurrent with the execution of the Asset Purchase Agreement.
Cost of Service Revenue – Related Party
Cost of service revenue was $23.8 million for the year ended December 31, 2024, due to progress of PPQ services under the Asset Purchase Agreement and related agreements. There was no cost of service revenue for the year ended December 31, 2023.
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General and Administrative Expenses
General and administrative expenses were $54.2 million for the year ended December 31, 2024, compared to $47.3 million for the year ended December 31, 2023. The increase of $6.9 million was primarily due to an increase of $2.1 million in professional fees, and the remaining $4.8 million was related to other general and administrative costs, none of which were individually significant.
Research and Development Expenses
Research and development expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands):
For the Years Ended December 31,
Clinical Programs
Other ocular diseases 1,763 — 1,763
Preclinical Programs
Neurodegenerative diseases 1,608 2,242 (634)
Preclinical ocular diseases 2,474 2,849 (375)
Other research and development expenses 25,686 29,506 (3,820)
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.
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.
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Research and development expenses for the year ended December 31, 2024 were $119.5 million, compared to $103.8 million for the year ended December 31, 2023. The increase of $15.7 million was primarily due to an increase in manufacturing costs of $3.2 million, preclinical expenses of $1.2 million and a reduction in reimbursements from Johnson & Johnson Innovative Medicine of $70.4 million as the reimbursement for the year ended December 31, 2023 was in connection with research funding provided under the Collaboration Agreement, which was terminated on December 20, 2023. These increases were partially offset by a decrease of $55.3 million in clinical trial expenses primarily related to bota-vec as Johnson & Johnson Innovative Medicine is now primarily funding the research and development related to this program as a result of the Asset Purchase Agreement and $3.8 million of other research and development expenses.
Foreign Currency (Loss) Gain
Foreign currency loss was $2.9 million for the year ended December 31, 2024 compared to a gain of $9.3 million for the year ended December 31, 2023. The change of $12.2 million was primarily due to the restructuring and payment of certain intercompany receivables and payables during the year ended December 31, 2023. Foreign currency gains and losses subsequent to the restructuring are recorded as a part of accumulated other comprehensive income.
Interest Income
Interest income was $4.1 million for the year ended December 31, 2024 compared to $2.3 million for the year ended December 31, 2023. The increase was due to higher interest rates and cash balances during 2024.
Interest Expense
Interest expense was $13.3 million for each of the years ended December 31, 2024 and 2023.
Gain on Sale of Nonfinancial Assets
The gain on sale of nonfinancial assets was $28.4 million for the year ended December 31, 2024 compared to $54.2 million for the year ended December 31, 2023. This decrease was a result of a lower value of transaction consideration recognized in connection with the Asset Purchase Agreement during the year ended December 31, 2024 compared to 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, 2024, we used $104.5 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.
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 and upfront and milestone payments from
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collaboration agreements. On December 20, 2023, we entered into an Asset Purchase Agreement with Johnson & Johnson Innovative Medicine pursuant to which the Company sold and assigned to Johnson & Johnson Innovative Medicine 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 Johnson & Johnson Innovative Medicine terminating the Collaboration Agreement. The Company and Johnson & Johnson Innovative Medicine also entered into a Supply Agreement on December 20, 2023 pursuant to which the Company agreed to manufacture and supply the RPGR Product for Johnson & Johnson Innovative Medicine. During the year ended December 31, 2024, we received $60.0 million in milestone payments under the Asset Purchase Agreement.
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 were able to request, in our sole discretion, and Perceptive 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 subject to the terms of the Notes Purchase Agreement. 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. Under each of the First Consent and Amendment and the Second Consent and Amendment, the Notes Purchase Agreement was amended to increase the 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, accounts receivable – related party, and tax incentive receivable at December 31, 2024, together with the proceeds from the anticipated closing of the strategic collaboration with Hologen Ltd, we estimate that we will be able to fund our operating expenses and capital expenditure requirements into 2027 and to repay our debt obligation of $75.0 million to Perceptive (due in August 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,
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for completion of the transfer of certain manufacturing technology to Johnson & Johnson Innovative Medicine and upon regulatory approval of a Johnson & Johnson Innovative Medicine-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 $105.7 million and $130.6 million of cash, cash equivalents, and restricted cash as of December 31, 2024 and 2023, respectively.
The following table summarizes our sources and uses of cash for the period presented:
For the Years Ended December 31,
(in thousands)
Net cash used in operating activities $ (104,495) $ (105,365)
Net cash provided by investing activities 23,479 34,034
Net cash provided by financing activities 54,534 84,023
Operating Activities
During the year ended December 31, 2024, our cash used in operating activities of $104.5 million was primarily due to our net loss of $147.8 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 income and expense of $13.6 million, which consisted primarily of $25.2 million of share-based compensation, $12.8 million of depreciation and amortization, $2.9 million of a foreign currency loss and $1.3 million of non-cash interest, which was partially offset by $28.4 million of a gain on sale of nonfinancial assets and $0.2 million of a gain on termination of lease liabilities. Additionally, operating assets, consisting of accounts receivable – related party, contract assets – related party, prepaid expenses, tax incentive receivable, other current assets, inventory and other assets, net, decreased by $6.2 million and operating liabilities, consisting of accounts payable, accrued expenses, other current liabilities and deferred revenue – related party, increased by $23.5 million.
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 income and expense of $20.4 million, which consisted primarily of $27.7 million of share-based compensation, $13.7 million of depreciation and amortization, $1.3 million of non-cash interest and $1.1 million impairment related to acquired in-process research and development, which was partially offset by $54.2 million of a gain on sale of nonfinancial assets, $9.3 million of a foreign currency gain, $0.5 million of a fair value upward adjustment and $0.2 million of net change in right-of-use assets and liabilities. Additionally, operating assets, consisting of accounts receivable – related party, prepaid expenses, tax incentive receivable, other current assets and other assets, net, decreased by $6.0 million and operating liabilities, consisting of accounts payable, accrued expenses, other current liabilities and deferred revenue – related party, decreased by $6.9 million.
Investing Activities
Net cash provided by investing activities for the year ended December 31, 2024 of $23.5 million consisted of $28.4 million from proceeds from the sale of nonfinancial assets offset by $4.9 million of purchases of property and equipment for our manufacturing, laboratory and process development facilities.
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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 offset by $20.2 million of purchases of property and equipment for our manufacturing, laboratory and process development facilities.
Financing Activities
Net cash provided by financing activities was $54.5 million for the year ended December 31, 2024, which consisted primarily of $59.4 million from the issuance of ordinary shares, which was offset by $2.5 million of issuance costs and $2.3 million of payments for withholdings of shares for income taxes.
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.
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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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risks in the ordinary course of our business. These risks primarily include foreign currency exchange rate sensitivities and interest rate risk.
Foreign Currency Exchange Risk
We currently operate in the United States, the United Kingdom and the European Union. Our activities in these jurisdictions expose us to currency exchange rate fluctuations primarily between the U.S. Dollar and the British pound sterling and euro. When the U.S. Dollar strengthens against these currencies, the U.S. Dollar value of non-U.S. Dollar based losses increases. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. As of December 31, 2024, we did not hold any foreign currency forward contracts. With respect to our foreign currency exposures as of December 31, 2024, we estimate a 10% unfavorable movement in foreign currency exchange rates would have the effect of creating an additional foreign currency loss of approximately $11.3 million within other non-operating income (expense) for the year ended December 31, 2024.
Interest Rate Risk
We are exposed to market risk as a result of changes in interest rates applicable to borrowings under our Notes Purchase Agreement. Borrowings under the Notes Purchase Agreement bear interest at a fluctuating rate per annum equal to 10.00% plus the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York for a one-month tenor, subject to a 1.00% floor. See Note 13 to our consolidated financial statements included elsewhere in this Form 10-K. We may use interest rate cap derivatives, interest rate swaps or other interest rate hedging instruments to economically hedge and manage interest rate risk with respect to our variable floating rate debt. As of December 31, 2024, the annual interest rate was 14.85% and the outstanding balance of the Tranche 1 Notes was $75.0 million. Assuming no change in the outstanding borrowings under the Notes Purchase Agreement, we estimate that a hypothetical 1% increase in the SOFR would increase our annual interest expense by approximately $0.8 million for the year ended December 31, 2024.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 42) F-2
Consolidated:
Balance Sheets F-4
Statements of Operations and Comprehensive Loss F-5
Statements of Shareholders' Equity F-6
Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of MeiraGTx Holdings plc and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MeiraGTx Holdings plc and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which they relate.
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Accrued Clinical Trial Costs
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Jericho, New York
March 13, 2025
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, December 31,
ASSETS
CURRENT ASSETS:
Accounts receivable - related party 707 10,138
Contract assets - related party 950 —
Inventory 385 —
Intangible assets, net 821 1,118
Equity method and other investments 6,749 6,766
Right-of-use assets - operating leases, net 10,576 15,910
Right-of-use assets - finance leases, net 22,198 24,432
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Lease obligations, current 4,053 4,193
Deferred revenue - related party, current 4,827 2,926
Other current liabilities 903 1,278
Asset retirement obligations 2,821 2,401
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Accumulated other comprehensive loss (3,719) (1,435)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 269,751 $ 326,744
See Notes to Consolidated Financial Statements
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
For the Years Ended December 31,
Revenues:
Service revenue - related party $ 33,279 $ —
License revenue - related party — 14,017
Operating expenses:
Cost of service revenue - related party 23,791 —
Other non-operating income (expense):
Foreign currency (loss) gain (2,886) 9,300
Gain on sale of nonfinancial assets 28,434 54,208
Fair value adjustment — 499
Other comprehensive loss:
Foreign currency translation loss (2,284) (7,482)
Basic and diluted net loss per ordinary share $ (2.12) $ (1.49)
See Notes to Consolidated Financial Statements
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
(in thousands, except share amounts)
Accumulated Other Total
Shares Amount of Par Value Income (Loss) Deficit Equity
Other comprehensive loss — — — (7,482) — (7,482)
Other comprehensive loss — — — (2,284) — (2,284)
See Notes to Consolidated Financial Statements
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
Cash flows from operating activities:
Foreign currency loss (gain) 2,886 (9,300)
Net change in right-of-use assets and liabilities 16 (222)
Gain on termination of lease liabilities (172) —
Loss on disposal of equipment, furniture and fixtures 9 13
Loss on equity method investment 17 6
Amortization of interest on asset retirement obligations 209 177
Amortization of debt discount 1,103 1,083
Fair value adjustment — (499)
Gain on sale of nonfinancial assets (28,434) (54,208)
(Increase) decrease in operating assets:
Accounts receivable - related party 6,325 9,975
Contract assets - related party (954) —
Inventory (387) —
Tax incentive receivable 4,055 (5,148)
Other current assets (2,302) 222
Other assets, net 759 (1,809)
Increase (decrease) in operating liabilities:
Other current liabilities 32 (1,355)
Deferred revenue - related party 26,664 (7,506)
Net cash used in operating activities (104,495) (105,365)
Cash flows from investing activities:
Purchase of property, plant and equipment (4,955) (20,174)
Proceeds from sale of nonfinancial assets 28,434 54,208
Net cash provided by investing activities 23,479 34,034
Cash flows from financing activities:
Exercise of share options — 10
Proceeds from the issuance of ordinary shares 59,390 91,950
Issuance costs in connection with ordinary shares (2,516) (6,418)
Net cash provided by financing activities 54,534 84,023
Supplemental disclosure of non-cash transactions:
Change in estimate of asset retirement obligations $ 345 —
Issuance of shares in connection with asset acquisition $ — $ 209
Supplemental disclosure of cash flow information:
See Notes to Consolidated Financial Statements
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principal Business Activity
The Company
MeiraGTx Holdings plc and subsidiaries (the “Company” or “Meira Holdings”), an exempted company incorporated under the laws of the Cayman Islands, is a vertically integrated, clinical-stage genetic medicines company with a broad pipeline of late-stage clinical programs,including Parkinson's disease, radiation-induced xerostomia and AIPL1-associated retinal dystrophy. MeiraGTx clinical programs use targeted local delivery of small doses of genetic medicines to treat both inherited and more common conditions with severe unmet need. The successful development of the clinical pipeline is supported by the Company’s internal end-to-end manufacturing capabilities. The Company has two viral vector production facilities for good manufacturing practices (“GMP”), internal plasmid production for GMP, as well as an in-house Quality Control hub for stability and release, all fit for IND through commercial supply. In addition, the Company has developed a proprietary manufacturing platform with leading yield and quality aspects and commercial readiness. The Company’s core capabilities in viral vector and capsid optimization allow increased potency, decreased dose and significantly reduced cost of goods for its genetic medicines. The Company has developed a potentially transformative gene regulation platform using bespoke synthetic riboswitch technology invented in-house that allows for the precise, dose-responsive expression of any transgene under the control of oral small molecules. The Company is focusing the riboswitch platform on in vivo delivery of biologic therapeutics such as the metabolic peptides GLP-1, GIP, glucagon, amylin, PYY and leptin via oral small molecules, as well as cell therapy for oncology and autoimmune diseases, and long-term intractable pain. The Company has developed unique comprehensive technology capabilities 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 high.
On January 30, 2019, the Company entered into a collaboration, option and license agreement with Janssen Pharmaceuticals, Inc. (“Janssen”), one of the Janssen Pharmaceuticals Companies of Johnson & Johnson (the “Collaboration Agreement”), for the research, development and commercialization of gene therapies for the treatment of inherited retinal diseases (“IRD”). Under the terms of the Collaboration Agreement, the Company received an upfront payment of $100.0 million in March 2019 and a $30.0 million milestone payment in December 2021. The Company also received funding for certain research, manufacturing, clinical development and commercialization costs, and had the potential to obtain additional milestone payments upon the achievement of such milestones and royalties on future net sales of products. On December 20, 2023, the Company entered into an Asset Purchase Agreement (“Asset Purchase Agreement”) with Janssen pursuant to which the Company sold and assigned to Janssen, and Janssen purchased and assumed, that certain License Agreement, dated February 5, 2019, by and between UCL Business Plc (now UCL Business Ltd.) (“UCLB”), on the one hand, and MeiraGTx UK II Limited and MeiraGTx Limited, on the other hand (the “UCLB RPGR License Agreement”), 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, the Company 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.
Under the Asset Purchase Agreement, Janssen paid the Company a non-refundable upfront cash payment of $65.0 million in December 2023. Additionally, pursuant to and subject to the terms and conditions set forth in the Asset Purchase Agreement, Janssen agreed to pay the Company future contingent consideration of up to an aggregate of $350.0 million, as follows: (i) 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; (ii) $10.0 million upon completion of certain specified development services for the drug substance for the RPGR Product; (iii) $5.0 million upon completion of certain specified development services for the drug product for the RPGR Product; (iv) $175.0 million upon the first commercial sale of an RPGR Product in the United States; (v) $75.0 million upon the first commercial sale of an RPGR Product in at least one of the United Kingdom, France, Germany, Spain and Italy;
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(vi) $25.0 million upon completion of the transfer of certain manufacturing technology for drug substance and drug product from the Company to Janssen; and (vii) $10.0 million 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. As of December 31, 2024, we have received $60.0 million in milestone payments from Johnson & Johnson Innovative Medicine. Janssen is also responsible for any royalty or milestone amounts that become payable on the RPGR Product under the UCLB RPGR License Agreement.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Liquidity
The Company has not yet achieved profitable operations. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of the Company’s product candidates will require significant additional financing. The Company’s accumulated deficit at December 31, 2024 totaled $702.0 million, and management expects to incur substantial losses in future periods. The success of the Company is subject to certain risks and uncertainties, including among others, uncertainty of product development; competition in the Company’s field of use; uncertainty of capital availability; uncertainty in the Company’s ability to enter into agreements with collaborative partners; expanding and protecting the Company’s intellectual property portfolio; dependence on third parties; and dependence on key personnel. For the year ended December 31, 2024, the Company used $104.5 million in cash flows from operations and there are no assurances that the Company will generate positive cash flows in the future. Additionally, there are no assurances that the Company will be successful in obtaining an adequate level of financing for the development and commercialization of its product candidates.
As of December 31, 2024, the Company had cash, cash equivalents and restricted cash in the amount of $105.7 million, which consisted of depository and money market accounts held at large international banks. The Company estimates that its cash and cash equivalents on hand, accounts receivable – related party and tax incentive receivable at December 31, 2024 will be sufficient to cover its expenses for at least the next twelve months from the date of issuance of these consolidated financial statements.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
The Company’s capital resources and operations to date have been funded primarily with the proceeds from the Collaboration Agreement, Asset Purchase Agreement and private and public equity offerings, as well as the proceeds from the debt financing described in Note 13. In the future, the Company may seek to raise additional capital through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable it to complete the development and potential commercialization of its product candidates.
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of Meira Holdings and its wholly owned subsidiaries:
MeiraGTx Limited, a limited company incorporated under the laws of England and Wales;
MeiraGTx, LLC, a Delaware limited liability company (“Meira LLC”);
MeiraGTx UK II Limited, a limited company incorporated under the laws of England and Wales (“Meira UK II”);
MeiraGTx Ireland DAC, a designated activity company incorporated under the laws of Ireland (“Meira Ireland”);
MeiraGTx Netherlands B.V., a private company with limited liability incorporated under the laws of the Netherlands (“Meira Netherlands”);
MeiraGTx Belgium, a private company with limited liability incorporated under the laws of Belgium (“Meira Belgium”);
BRI-Alzan, Inc., a Delaware corporation;
MeiraGTx Bio Inc., a Delaware corporation;
MeiraGTx B.V., a private company with limited liability incorporated under the laws of the Netherlands (“Meira B.V.”);
MeiraGTx Neurosciences, Inc., a Delaware corporation;
MeiraGTx Therapeutics, Inc., a Delaware corporation;
MeiraGTx UK Limited, a limited company incorporated under the laws of England and Wales;
MeiraGTx Neuro I, LLC, a Delaware limited liability company;
MeiraGTx Neuro II, LLC, a Delaware limited liability company;
MeiraGTx Manufacturing Limited, a limited company incorporated under the laws of England and Wales;
MeiraGTx Ocular UK Limited, a limited company incorporated under the laws of England and Wales;
MeiraGTx Gene Regulation Limited, a limited company incorporated under the laws of England and Wales; and
MeiraGTx Neuro UK Limited, a limited company incorporated under the laws of England and Wales.
All intercompany balances and transactions between the consolidated companies have been eliminated in consolidation.
Use of Estimates
Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these consolidated financial statements, management used significant estimates in the following areas, among others: collaboration and service revenue, fair value of nonfinancial assets, stand-alone selling price and material rights in connection with the Asset Purchase and Supply Agreements, the accounting for research and development costs, share-based compensation, leases, asset retirement obligations, fair value of financial instruments and tax incentive receivable.
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of checking and money market accounts held at large international banks that are readily convertible into cash.
Restricted Cash
Restricted cash represents a guarantee put in place as required by the terms of the research and innovation grant from IDA Ireland which offers financial assistance in establishing the Company’s operations in Shannon, Ireland. The following table provides a reconciliation of the components of cash and cash equivalents and restricted cash reported in the Company’s consolidated balance sheets to the total of the amount presented in the consolidated statements of cash flows (in thousands):
December 31, December 31,
Inventory
The Company’s inventory consists entirely of raw materials and is valued at the lower of cost or net realizable value. The Company regularly reviews its inventory quantities and, when appropriate, records a provision for obsolete and excess inventory to derive the new cost basis. The Company has not recognized a provision for obsolete and excess inventory as of December 31, 2024.
Financial Instruments
The carrying value of accounts receivable-related party, tax incentive receivable, other current assets, and accounts payable reported in the consolidated balance sheets equal or approximate fair value due to their short maturities.
Tax Incentive Receivable
Meira UK II is eligible to participate in United Kingdom (“UK”) research and development tax incentive programs under which it is eligible to receive a cash refund from His Majesty’s Revenue & Customs (“HMRC”) for a percentage of the qualified research and development costs expended by Meira UK II under the small and medium sized enterprises (“SME”) program and the research and development expenditures credit (“RDEC”) program. The SME cash refund is available to companies with less than 500 employees and annual aggregate revenue of less than 100.0 million euros or total aggregate assets less than 86.0 million euros during the reimbursable period. The Company’s estimate of the amount of cash refund it expects to receive related to the SME and RDEC programs is included in tax incentive receivable in the accompanying consolidated balance sheets and such amounts are recorded as a reduction of research and development expense in the statements of operations. During the years ended December 31, 2024 and 2023, the Company recorded reductions to research and development expenses of $5.5 million and $5.1 million, respectively.
In addition, the Company incurs Value Added Tax (“VAT”) on services provided by UK and European Union vendors, which it is entitled to reclaim. The Company’s estimate of the amount of cash refund it expects to receive
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related to VAT was $2.0 million and $0.6 million as of December 31, 2024 and 2023, respectively, which is included in other current assets in the accompanying consolidated balance sheets.
Fair Value Measurements
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.
The Company follows ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for application to financial assets and liabilities. In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
The table below represents the values of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis (in thousands):
Fair Value Measurement Using:
Significant Significant Other Significant
December 31, Observable Inputs Observable Inputs Unobservable
Description 2024 (Level 1) (Level 2) (Level 3)
Restricted cash $ 2,009 $ 2,009 $ — $ —
Fair Value Measurement Using:
Significant Significant Other Significant
December 31, Observable Inputs Observable Inputs Unobservable
Description 2023 (Level 1) (Level 2) (Level 3)
Restricted cash $ 1,083 $ 1,083 $ — $ —
At December 31, 2024, the Company believes the carrying value of the Tranche 1 Notes (as defined in Note 13) approximates fair value as the interest rate is reflective of the rate the Company could obtain on debt with similar terms and conditions.
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Method and Other Investments
The Company accounts for equity investments under the equity method of accounting when the requirements for consolidation are not met, and the Company has significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for the Company’s share of net income or loss and cash contributions and distributions and are included in equity method and other investments in the accompanying consolidated balance sheets. Equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value, with any changes in fair value recognized in net income (loss). For any such investments that do not have readily determinable fair values, the Company elects the measurement alternative to measure the investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If it is determined that a loss in value of the equity method investment is other than temporary, an impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods, and available information at the time the analysis is prepared.
Concentrations of Credit Risk
The Company maintains its cash and cash equivalents primarily in depository and money market accounts within two large financial institutions in the United States and one large financial institution in the United Kingdom and Ireland. Cash balances deposited at these major financial banking institutions exceed the insured limits. The Company has not experienced any losses on its bank deposits and believes these deposits do not expose the Company to any significant credit risk.
Intangible Assets
Intangible assets consist of purchased rights to licensed technology as it relates to the Company’s manufacturing processes and has future alternative use in the Company’s operations. The licensed technology is being amortized on a straight-line basis over 7 years, which represents the estimated period of benefit and the expected pattern of consumption (see Note 6).
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the lesser of their useful lives or the terms of the leases (see Note 5).
The estimated useful lives of the asset categories are as follows:
Asset Category Useful Lives
Computer and office equipment 3 years
Laboratory equipment 5 years
Furniture and fixtures 5 years
Manufacturing equipment 7 years
Leasehold improvements lesser of useful life or remaining term of lease
Expenditures for leasehold improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations as incurred.
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MEIRAGTX HOLDINGS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASC Topic 360, Property, Plant and Equipment, addresses the financial accounting and reporting for impairment or disposal of long-lived assets. The Company reviews the recorded values of long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. The Company did not record any material impairment charges in 2024 or 2023.
Leases
The Company accounts for leases in accordance with FASB Topic ASC 842, Leases (“ASC 842”). The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the Company has the right to control the use of the identified asset. The Company accounts for the lease and non-lease components as a single lease component.
From time to time the Company enters into direct financing lease arrangements that include a lessee obligation to purchase the leased asset at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value of 90% or more of the fair value of the leased asset at the date of lease inception.
Operating leases where the Company is the lessee are included in right-of-use (“ROU”) assets – operating leases, net and lease obligations on the Company’s consolidated balance sheets. The lease obligations are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date and subsequent reporting periods.
Finance leases where the Company is the lessee are included in ROU assets – finance leases, net and lease obligations on the Company’s consolidated balance sheets. The lease obligations are initially measured in the same manner as for operating leases and are subsequently measured at amortized cost using the effective interest method.
Key estimates and judgments include how the Company determined (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases where it is the lessee do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company uses the implicit rate when readily determinable.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or not to terminate) the lease controlled by the lessor.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, minus any accrued lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset, or the Company is reasonably certain to exercise an option to purchase the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability.
The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have lease terms of 12 months or less at lease commencement. Lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.
Asset Retirement Obligations
Accounting for asset retirement obligations requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value when incurred and capitalized as part of the related long-lived asset. In the absence of quoted market prices, the Company estimates the fair value of its asset retirement obligations using Level 3 present value techniques, in which estimates of future cash flows associated with retirement activities are discounted using a credit-adjusted risk-free rate. Asset retirement obligations currently reported on the Company’s consolidated balance sheets were measured during a period of historically low interest rates. The impact on measurements of new asset retirement obligations using different rates in the future may be significant.
The Company uses estimates to determine the asset retirement obligations at the end of the lease term and discounts such asset retirement obligations using an estimated discount rate. Interest on the discounted asset retirement obligation is amortized over the term of the lease using the effective interest method and is recorded as interest expense in the consolidated statements of operations and comprehensive loss.
The change in asset retirement obligations is as follows (in thousands):
For the Years Ended December 31,
Balance at beginning of period $ 2,401 $ 2,179
Change in estimate 345 —
Assignment of leases to Johnson & Johnson Innovative Medicine (115) —
Amortization of interest 209 177
Effects of exchange rate changes (19) 45