On February 2, 2017, the Company entered into a strategic research and development collaboration agreement with Bionic Sight, LLC (“Bionic Sight”) to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire: (i) a majority equity interest in Bionic Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.

Under the agreement, AGTC made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. This initial investment represented an equity interest of approximately 5% in Bionic Sight. In addition to the initial investment, AGTC contributed ongoing research and development support costs through additional payments and other

in-kind

contributions (the “AGTC Ongoing R&D Support”). The AGTC Ongoing R&D Support payments and

in-kind

contributions were made over time and continued until December 2019, the month that Bionic Sight received both Investigational New Drug (“IND”) clearance from the United States Food and Drug Administration (“FDA”) and receipt of written approval from an internal review board to conduct clinical trials from at least one clinical site for that product candidate (the “IND Trigger”). Prior to the achievement of the IND Trigger, the Company had incurred approximately $2.2 million of research and development support costs and

in-kind

contributions, which were reported as research and development expense in the Company’s financial statements.

Upon achievement of the IND Trigger, AGTC was (i) entitled to receive additional equity in Bionic Sight, based on the valuation in place at the beginning of the agreement, for the AGTC Ongoing R&D Support payments and

in-kind

contributions, and (ii) obligated to purchase additional equity in Bionic Sight for $4.0 million and receive such equity interest based on certain

pre-determined

valuation criteria. The Company made the $4.0 million payment to Bionic Sight in January 2020. Thereafter, AGTC is not obligated to purchase additional equity in Bionic Sight or make any additional

in-kind

contributions under the agreement.

The Company concluded that the AGTC Ongoing R&D Support was within the scope of Topic 606 because the services rendered represented a distinct service delivered to a counterparty that meets the definition of a customer. The Company further concluded that those services represented one combined performance obligation. Because the consideration that the Company was entitled to was contingent upon achievement of the IND Trigger, that consideration was determined to be variable and the amount was fully constrained until achievement of the IND Trigger. As a result of achieving the IND Trigger in December 2019, the Company recognized $2.2 million of collaboration revenue during the year ended June 30, 2020. With regard to the obligation to purchase additional equity in Bionic Sight for $4.0 million, the Company concluded at contract inception that such option represented a forward contract to be accounted for within the scope of ASC 321,

Investments—Equity Securities

. The Company assessed the fair value of this forward contract at the inception of the Bionic Sight agreement and determined the value to be de minimis. As the forward contract did not have a readily determinable fair value, the Company elected to use a measurement alternative for all subsequent measurements of the financial instrument. Under such measurement alternative, the forward contract was remeasured at fair value when observable transactions involving the underlying equity securities or impairment of those securities occurred. As noted above, the Company made a supplemental investment of $4.0 million in Bionic Sight and the underlying equity interests were delivered in March 2020, resulting in the settlement of the forward contract at that time. From the inception of the Bionic Sight arrangement and through the settlement date in March 2020, no observable transactions or impairment involving the underlying equity securities had occurred.

The Company recorded its initial $2.0 million investment in Bionic Sight using the equity method of accounting for investments. Upon receipt of the additional shares in March 2020, the Company concluded that equity method accounting was still appropriate for the Company’s investment in Bionic Sight. Given that the conversion price used to calculate the number of additional shares that the Company was to receive was based on contractually fixed valuation amounts, the Company assessed whether there was a difference between the cost of the investment and the underlying equity in the net assets of Bionic Sight. The Company concluded that any such difference was not material to the Company’s financial statements and, therefore, recorded its additional investment in Bionic Sight at $6.2 million. For the years ended June 30, 2020 and 2019, the Company recorded equity in net losses of an affiliate of $47,000 and $35,000, respectively, in its Statements of Operations to reflect its equity interest in the net losses of Bionic Sight.

During October 2019, the Company entered into a strategic collaboration agreement with Otonomy, Inc. (“Otonomy”) to

co-develop

and

co-commercialize

AAV-based

gene therapy to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene (GJB2) – the most common cause of congenital hearing loss. Mutations in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation can have

severe-to-profound

deafness in both ears that is identified in screening tests routinely performed on newborns. Under the collaboration agreement, the parties began equally sharing the program costs and proceeds, if any, in January 2020 and can include additional genetic hearing loss targets in the future.

The Company has concluded that the Otonomy collaboration agreement is within the scope of Topic 808, which defines collaborative arrangements and addresses the presentation of transactions between the two parties in the income statement and related disclosures. However, Topic 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company concluded that ASC Topic 730,

Research and Development,

should be applied by analogy to payments between the parties during the development activities. As such, payments made to or received from Otonomy for development activities are recorded as research and development expenses. For the year ended June 30, 2020, settlement activity between the parties under the Otonomy agreement had an immaterial effect on the Company’s research and development expenses.

On July 1, 2015, the Company entered into a collaboration agreement with Biogen, pursuant to which the Company and Biogen collaborated to develop, seek regulatory approval for and commercialize gene therapy products to treat XLRS, XLRP and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. Effective March 8, 2019, Biogen terminated the collaboration agreement. Upon termination, the Company received back the exclusive license rights to develop, manufacture and commercialize the product candidates for all of its partnered programs, including the XLRP program, XLRS program and the three discovery programs. The Company recognized revenue as it performed under the Biogen collaboration agreement; however, subsequent to the date of termination, no additional revenue has been, or will be,

recognized.

Under the Biogen collaboration agreement, the Company granted to Biogen with respect to the XLRS and XLRP programs, and upon exercise of an option for the applicable discovery program, an exclusive, royalty-bearing license, with the right to grant sublicenses, to use

adeno

-associated virus vector technology and other technology controlled by the Company for the licensed products or discovery programs developed under the collaboration agreement. Biogen and the Company also granted each other worldwide licenses, with the right to grant sublicenses, of their respective interests in other intellectual property developed under the collaboration outside the licensed products or discovery programs. Biogen

pre-funded

the Company to conduct all development activities through the completion of a first in human trial for the XLRS program and all development activities through the date of Investigational New Drug Application and the completion of a natural history study for the XLRP program. In addition, Biogen

pre-funded

the Company to conduct discovery, research and development activities for additional drug candidates through the stage of clinical candidate designation for discovery programs targeting three indications (of which one indication had two development plans at contract inception), after which, Biogen had an option to continue to develop, seek regulatory approval for and commercialize the designated clinical candidate. The

pre-funded

research and development activities for each program are referred to as

“Pre-Funded

Activities.”

Under the Biogen collaboration agreement, the Company was paid an upfront nonrefundable fee of $94.0 million, including $58.4 million that was contractually described as relating to the

Pre-Funded

Activities, and $35.6 million that was contractually described as relating to the access of licenses. In addition, under the terms of a related equity agreement, Biogen purchased 1,453,957 shares of the Company’s common stock for an aggregate cash purchase price of $30.0 million, of which $10.8 million was considered to be allocated consideration as part of the Biogen collaboration agreement. Additionally, under the Biogen collaboration agreement, the Company was also eligible to receive payments based on the successful achievement of certain milestones. Prior to the termination of the collaboration agreement, the Company triggered total milestone payments of $17.5 million, including a $10.0 million payment in July 2018 related to the treatment of a first patient of second cohort in a Phase 1/2 Clinical XLRP study.

The Company concluded that the Biogen collaboration agreement, manufacturing agreement and equity agreement should be accounted for as one arrangement because those agreements were with the same party and were negotiated and executed contemporaneously. The Company further concluded that certain goods and services promised under such collaboration agreement for consideration were consistent with a vendor/customer relationship and should be accounted for under Topic 606. The associated performance obligations and allocated transaction prices upon the initial application of Topic 606 on July 1, 2018 are summarized in the table below.

The amount allocated to the

Pre-Funded

Activities associated with the discovery programs was comprised of four distinct performance obligations based on the separate development plans for discovery candidates at contract inception. The Company concluded that the delivered license was not distinct from the

Pre-Funded

Activities as Biogen could not obtain the benefit of the license without the related services. Further, each of the license and related

Pre-Funded

Activities performance obligation was considered a distinct performance obligation as each development plan was pursued independent of every other development plan.

The Company concluded that “Post-Funded Activities” represented customer options that were not material rights because any services requested by Biogen and provided by the Company were reimbursed at a rate that reflected the estimated stand-alone selling price for the services. As such, the Company recognized revenue related to Post-Funded Activities as the services were provided.

The Company concluded that the option to receive (i) commercial licenses for any discovery programs that achieved clinical candidate designation, as defined in the Biogen collaboration agreement, and (ii) manufacturing licenses for up to six genes pursuant to the manufacturing agreement represented customer options that were not material rights because the exercise prices for such options reflected the estimated stand-alone selling prices for the underlying performance obligation. As such, the Company only accounted for such options when they were exercised.

The Company used the most-likely method to determine the amount of variable consideration in the Biogen collaboration agreement. The Company concluded that any estimated amount of variable consideration related to clinical and regulatory milestone payments should be fully constrained as the achievement of such milestones was highly susceptible to factors outside of the Company’s control. The Company further concluded that any commercial milestones and sales-based royalties would be recognized when the related sales occurred as they were deemed to relate predominately to the license granted and, therefore, were also excluded from the transaction price.

The total Biogen transaction price was allocated to the performance obligations based on the relative estimated stand-alone selling price of each performance obligation or, in the case of certain variable consideration, to one or more performance obligations. The estimated stand-alone selling prices for performance obligations, that included a license and

Pre-Funded

Activities, were developed using the estimated selling price of the license and an estimate of the overall effort to perform the

Pre-Funded

Activities. The estimated selling price of the licenses were determined using a discounted cash flow valuation utilizing forecasted revenue and costs for the Company’s product candidate licenses.

The Company recognized revenue related to the performance obligations that included a license and

Pre-Funded

Activities over the estimated period of the research and development services using a proportional performance model. The Company measured proportional performance based on the costs incurred relative to the total costs expected to be incurred to satisfy the performance obligation. Management believes that recognizing revenue on a proportional performance basis based on costs incurred faithfully depicts the transfer of goods and services to the customer because the customer consumed the Company’s services as such services were performed. The Company accounted for the termination of the Biogen collaboration agreement upon the effective date of the termination and updated its total costs incurred to satisfy the performance obligations.

Licenses and related services revenue is comprised of revenue related to the Company’s completion of performance obligations that include the delivery of licenses and

Pre-Funded

Activities. Development services revenue relates to the delivery of Post-Funded Activities. Milestone revenue relates to the portion of milestone payments received that are recognized as revenue based on the proportional performance of the underlying performance obligation and revenue recognized due to the termination of the Biogen collaboration agreement. Among other things, the Company recognized the then outstanding deferred revenue balance upon the effective termination date of the Biogen collaboration agreement.

The Company increased deferred revenue and accumulated deficit by $22.6 million as of July 1, 2018 in connection with the adoption of Topic 606. The impact of adopting Topic 606 is reflected in the balance as of June 30, 2018 in the above table. Contract liability additions during the year ended June 30, 2019 consisted of a $10.0 million milestone payment received under the Biogen collaboration agreement related to the Company’s XLRP program. For the year ended June 30, 2019, the Company recognized revenue of $29.5 million related to deferred revenue that existed as of June 30, 2018.