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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
 
 
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to         

Commission file number: 001-36080
IVERIC bio, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
20-8185347
(I.R.S. Employer Identification No.)
 
 
 
One Penn Plaza, 35th Floor
New York, NY
(Address of principal executive offices)
 
10119
(Zip Code)
 
 
 
(212) 845-8200
(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
ISEE
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes    o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes    o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company x
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    ý No
As of November 8, 2019 there were 41,606,189 shares of Common Stock, $0.001 par value per share, outstanding.





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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words "anticipate," "believe," "goals," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
the potential benefits of our business plan and strategy to develop our therapeutic and gene therapy product candidates and programs and pursue our collaborative gene therapy sponsored research programs;
our expectations regarding the impact of results from our OPH2003 clinical trial evaluating Zimura for the treatment of geographic atrophy secondary to dry age-related macular degeneration on our business strategy, including our plans to pursue further development of Zimura and/or seek potential collaboration or outlicensing opportunities;
our expectations regarding the potential for Zimura to receive regulatory approval for the treatment of geographic atrophy secondary to dry age-related macular degeneration based on the clinical trial results we have received to date and results from any planned or future clinical trials;
our expectations related to our use of available cash;
our estimates regarding expenses, future revenues, capital requirements and needs for, and ability to obtain, additional financing;
the timing, costs, conduct and outcome of our ongoing and planned research and preclinical development activities, including statements regarding the timing of the initiation of and completion of these activities, and the costs to obtain and timing of receipt of results from such activities, and the impact of the results of such activities on our business strategy;
the timing, costs, conduct and outcome of our ongoing clinical trials, including statements regarding the timing of the completion of such clinical trials, the costs to obtain and timing of receipt of results from such clinical trials, and the impact of the results of such clinical trials on our business strategy;
our ability to establish and maintain arrangements and capabilities for the manufacture of our product candidates;
the timing of and our ability to obtain marketing approval of our product candidates, and the ability of our product candidates to meet existing or future regulatory standards;
our ability to consummate business development transactions, including for collaboration or out-licensing opportunities for further clinical development and potential commercialization of Zimura or in-license or other opportunities to acquire rights to additional product candidates or technologies to treat retinal diseases;
the potential advantages of our product candidates and other technologies that we are pursuing, including the advantages and limitations of inhibition of complement C5 and HtrA1, gene therapy, including the use of minigenes, and other mechanisms of action for which we are pursuing development of our product candidates;
our estimates regarding the potential market opportunity for our product candidates;
our sales, marketing and distribution capabilities and strategy;
the rate and degree of potential market acceptance and clinical utility of our product candidates, if approved;
the potential receipt of revenues from future sales of our product candidates, if approved;
our intellectual property position;

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the impact of existing and new governmental laws and regulations; and
our competitive position.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and our stockholders should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the "Risk Factors" section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, licenses, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our other periodic reports, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
USE OF TRADEMARKS
The trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks named in this Quarterly Report on Form 10-Q after their first reference in this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IVERIC bio, Inc.
Unaudited Consolidated Balance Sheets
(in thousands, except share and per share data)

 
September 30, 2019

December 31, 2018
Assets
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
94,851

 
$
131,201

Prepaid expenses and other current assets
1,110

 
2,086

Income tax receivable
1,012

 

Total current assets
96,973

 
133,287

Property and equipment, net
212

 
335

Right-of-use asset, net
745

 

Income tax receivable, non-current
882

 
3,529

Other assets
11

 
14

Total assets
$
98,823

 
$
137,165

Liabilities and Stockholders' Equity
 

 
 

Current liabilities
 

 
 

Accrued research and development expenses
$
4,950

 
$
7,337

Accounts payable and accrued expenses
3,666

 
5,869

Lease liability
745

 

Total current liabilities
9,361

 
13,206

Total liabilities
9,361

 
13,206

Stockholders' equity
 

 
 

Preferred stock—$0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding
$

 
$

Common stock—$0.001 par value, 200,000,000 shares authorized, 41,601,639 and 41,397,197 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
42

 
41

Additional paid-in capital
552,468

 
545,585

Accumulated deficit
(463,048
)
 
(421,667
)
Total stockholders' equity
89,462

 
123,959

Total liabilities and stockholders' equity
$
98,823

 
$
137,165

   
The accompanying unaudited notes are an integral part of these financial statements.

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IVERIC bio, Inc.
Unaudited Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating expenses:
 

 
 

 
 
 
 

Research and development
$
10,383

 
$
9,407

 
$
28,077

 
$
25,609

General and administrative
4,674

 
5,968

 
15,353

 
17,945

Total operating expenses
15,057

 
15,375

 
43,430

 
43,554

Loss from operations
(15,057
)
 
(15,375
)
 
(43,430
)
 
(43,554
)
Interest income
495

 
637

 
1,782

 
1,711

Other income (expense)

 
(1
)
 
151

 
(17
)
Loss before income tax provision (benefit)
(14,562
)
 
(14,739
)
 
(41,497
)
 
(41,860
)
Income tax provision (benefit)
(125
)
 
6

 
(116
)
 
(833
)
Net loss
$
(14,437
)
 
$
(14,745
)
 
$
(41,381
)
 
$
(41,027
)
Comprehensive loss
$
(14,437
)
 
$
(14,745
)
 
$
(41,381
)
 
$
(41,027
)
Net loss per common share:
 

 
 

 
 
 
 
Basic and diluted
$
(0.35
)
 
$
(0.41
)
 
$
(1.00
)
 
$
(1.13
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
41,552

 
36,202

 
41,486

 
36,181

   
The accompanying unaudited notes are an integral part of these financial statements.


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IVERIC bio, Inc.
Unaudited Consolidated Statements of Stockholders' Equity
(in thousands)

 
Preferred Stock
 
Common Stock
 
Additional
paid-in
capital
 
Accumulated
Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance at December 31, 2018

 
$

 
41,397

 
$
41

 
$
545,585

 
$
(421,667
)
 
$
123,959

Issuance of common stock under employee stock compensation plans

 

 
56

 

 
41

 

 
41

Share-based compensation

 

 

 

 
2,470

 

 
2,470

Net loss

 

 

 

 

 
(12,501
)
 
(12,501
)
Balance at March 31, 2019

 
$

 
41,453

 
$
41

 
$
548,096

 
$
(434,168
)
 
$
113,969

Issuance of common stock under employee stock compensation plans

 

 
24

 

 

 

 

Share-based compensation

 

 

 

 
2,207

 

 
2,207

Net loss

 

 

 

 

 
(14,443
)
 
(14,443
)
Balance at June 30, 2019

 
$

 
41,477

 
$
41

 
$
550,303

 
$
(448,611
)
 
$
101,733

Issuance of common stock under employee stock compensation plans

 
$

 
50

 
$
1

 
$
39

 
$

 
$
40

Share-based compensation

 
$

 

 
$

 
$
2,126

 
$

 
$
2,126

Issuance of common stock

 
$

 
75

 
$

 
$

 
$

 
$

Net loss

 
$

 

 
$

 
$

 
$
(14,437
)
 
$
(14,437
)
Balance at September 30, 2019

 
$

 
41,602

 
$
42

 
$
552,468

 
$
(463,048
)
 
$
89,462

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional
paid-in
capital
 
Accumulated
Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance at December 31, 2017

 
$

 
36,110

 
$
36

 
$
522,759

 
$
(484,754
)
 
$
38,041

Issuance of common stock under employee stock compensation plans

 

 
54

 

 
27

 

 
27

Share-based compensation

 

 

 

 
3,082

 

 
3,082

Net loss

 

 

 

 

 
(13,073
)
 
(13,073
)
Balance at March 31, 2018

 
$

 
36,164

 
$
36

 
$
525,868

 
$
(497,827
)
 
$
28,077

Issuance of common stock under employee stock compensation plans

 

 
24

 

 

 

 

Share-based compensation

 

 

 

 
2,662

 

 
2,662

Net loss

 

 

 

 

 
(13,209
)
 
(13,209
)
Balance at June 30, 2018

 
$

 
36,188

 
$
36

 
$
528,530

 
$
(511,036
)
 
$
17,530

Issuance of common stock under employee stock compensation plans

 
$

 
30

 
$

 
$
38

 
$

 
$
38

Share-based compensation

 
$

 

 
$

 
$
2,604

 
$

 
$
2,604

Net loss

 
$

 

 
$

 
$

 
$
(14,745
)
 
$
(14,745
)
Balance at September 30, 2018

 
$

 
36,218

 
$
36

 
$
531,172

 
$
(525,781
)
 
$
5,427


The accompanying unaudited notes are an integral part of these financial statements.

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IVERIC bio, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
Operating Activities
 

 
 

Net loss
$
(41,381
)
 
$
(41,027
)
Adjustments to reconcile net loss to net cash used in operating activities
 

 
 

Depreciation and other expense
123

 
139

Gain on sale of property and equipment
(150
)
 

Deferred income taxes

 
233

Share-based compensation
6,803

 
8,348

Changes in operating assets and liabilities:
 

 
 

Income tax receivable
1,635

 
1,387

Prepaid expense and other assets
979

 
1,096

Accrued research and development expenses
(2,387
)
 
932

Accounts payable and accrued expenses
(2,203
)
 
(2,937
)
Net cash used in operating activities
(36,581
)
 
(31,829
)
Investing Activities
 

 
 

Proceeds from sale of assets
150

 

Net cash provided by (used in) investing activities
150

 

Financing Activities
 

 
 

Proceeds from employee stock plan purchases
81

 
65

Net cash provided by financing activities
81

 
65

Net change in cash and cash equivalents
(36,350
)
 
(31,764
)
Cash and cash equivalents
 

 
 

Beginning of period
131,201

 
166,972

End of period
$
94,851

 
$
135,208

Supplemental disclosure of cash paid
 

 
 

Income tax refunds received
$
1,765

 
$
2,467


   The accompanying unaudited notes are an integral part of these financial statements.

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IVERIC bio, Inc.
Notes to Unaudited Consolidated Financial Statements
(in thousands, except per share data)
1. Business
Description of Business and Organization
IVERIC bio, Inc. (the “Company”), formerly Ophthotech Corporation, was incorporated on January 5, 2007, in Delaware. The Company is a science-driven biopharmaceutical company focused on the discovery and development of novel treatment options for retinal diseases with significant unmet medical needs. The Company is currently developing both therapeutic product candidates for age-related retinal diseases and gene therapy product candidates for orphan inherited retinal diseases ("IRDs"). In April 2019, the Company changed its name from Ophthotech Corporation to IVERIC bio, Inc. as the Company continued to broaden its focus to include gene therapies.
The Company recently announced initial, top-line data from its international, randomized, double masked, sham controlled multi-center clinical trial (the "OPH2003 trial"), assessing the safety and efficacy of its most advanced product candidate, Zimura® (avacincaptad pegol), a complement C5 inhibitor, for the treatment of geographic atrophy ("GA"). GA is the advanced stage of dry age-related macular degeneration ("AMD") and is characterized by retinal cell death and degeneration of tissue in the central portion of the retina, or the macula, which may result in loss of vision. The top-line data confirmed that Zimura met the prespecified primary endpoint in the trial in reducing the rate of GA growth in patients with dry AMD. Based on the data the Company has received from the OPH2003 trial to date, the Company has commenced site selection and planning activities for a second pivotal clinical trial for Zimura in GA with the goal of initiating enrollment in this Phase 3 clinical trial during the first quarter of 2020. The Company plans to continue to explore all options for the future development and potential commercialization of Zimura, including potential collaboration and out-licensing opportunities, while it commences Phase 3 activities.
The Company's therapeutics portfolio consists of two ongoing clinical trials evaluating Zimura and its preclinical development program of High temperature requirement A serine peptidase 1 protein ("HtrA1") inhibitors. In addition to the OPH2003 clinical trial of Zimura in GA, which remains ongoing, the Company has an ongoing randomized, double masked, sham controlled clinical trial evaluating Zimura for the treatment of autosomal recessive Stargardt disease (the "OPH2005 trial"). The Company is developing its HtrA1 inhibitor program for GA and potentially other age-related retinal diseases. The Company previously evaluated Zimura in combination with Lucentis® (ranibizumab), an anti-vascular endothelial growth factor ("anti-VEGF") agent for the treatment of wet AMD, for which the Company completed a Phase 2a safety trial (the "OPH2007 trial") during the fourth quarter of 2018.
The Company's gene therapy portfolio consists of several ongoing research and preclinical development programs that use adeno-associated virus ("AAV") for gene delivery. These AAV gene therapy programs are targeting the following orphan IRDs:
rhodopsin-mediated autosomal dominant retinitis pigmentosa ("RHO-adRP") which is characterized by progressive and severe bilateral loss of vision leading to blindness;
IRDs associated with mutations in the BEST1 gene, including Best vitelliform macular dystrophy, or Best disease, which is generally characterized by bilateral egg yolk-like lesions in the macula, which, over time, progress to atrophy and loss of vision;
Leber congenital amaurosis type 10 ("LCA10") which is characterized by severe bilateral loss of vision at or soon after birth;
autosomal recessive Stargardt disease ("STGD1") which is characterized by progressive damage to the macula and retina of young adults, leading to loss of vision; and
IRDs associated with mutations in the USH2A gene, which include Usher syndrome type 2A and USH2A-associated nonsyndromatic autosomal recessive retinitis pigmentosa.
The Company's business development efforts have resulted in the expansion of its research and development pipeline and the transition of the Company to include a focus on gene therapy. The Company initiated multiple gene therapy sponsored research programs with the University of Massachusetts Medical School ("UMMS") in February 2018 and initiated an additional gene therapy sponsored research program with UMMS for USH2A-related IRDs in July 2019. Additionally, the Company in-licensed its novel AAV gene therapy product candidate for the treatment of RHO-adRP ("IC-100") from the University of Florida Research Foundation ("UFRF") and the University of Pennsylvania ("Penn") in June 2018, in-licensed its

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novel AAV gene therapy product candidate for the treatment of BEST1-related IRDs, including Best disease ("IC-200") from Penn and UFRF in April 2019 and in-licensed its minigene sponsored research program for LCA10 (the "miniCEP290 program") from the University of Massachusetts in July 2019. The Company also acquired its HtrA1 inhibitor program through the acquisition of Inception 4, Inc. ("Inception 4") in October 2018.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on February 28, 2019.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include all adjustments necessary for the fair presentation of the Company's financial position for the periods presented. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company's Consolidated Balance Sheets and the amount of expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, accounting for research and development costs, revenue recognition, accounting for share-based compensation and accounting for income taxes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. The carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
As of September 30, 2019, the Company had cash and cash equivalents of approximately $94.9 million.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash in bank accounts, the balances of which generally exceed federally insured limits. The Company maintains its cash equivalents in investments in money market funds and, at times, in U.S. Treasury securities and investment-grade corporate debt securities with original maturities of 90 days or less.
Concentration of Suppliers
The Company currently relies exclusively upon a single third-party manufacturer to provide supplies of the drug substance for Zimura on a purchase order basis. The Company also engages a single third-party manufacturer to provide fill/finish services for clinical supplies of Zimura. In addition, the Company currently relies upon a single third-party supplier to supply it with the polyethylene glycol reagent used to manufacture Zimura on a purchase order basis. Furthermore, the Company and its contract manufacturers currently rely upon sole-source suppliers of certain raw materials and other specialized components of production used in the manufacture and fill/finish of Zimura. The Company currently relies exclusively upon a single third-party contract manufacturer for IC-100 and IC-200, and sole-source suppliers for certain starting materials to be used in the manufacture of such product candidates. The Company currently relies upon a single third-party contract manufacturer to produce small quantities of the active pharmaceutical ingredient ("API") for its HtrA1 inhibitors for preclinical development purposes and expects to rely on a single third-party contract manufacturer to conduct process development, scale-up and Good Manufacturing Practices ("GMP") manufacture of the API of its HtrA1 inhibitors for potential preclinical toxicology studies and clinical trials. If the Company’s third-party manufacturers or fill/finish service providers should become

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unavailable to the Company for any reason, including as a result of capacity constraints, financial difficulties or insolvency, the Company believes that there are a limited number of potential replacement manufacturers, and the Company likely would incur added costs and delays in identifying or qualifying such replacements.
Foreign Currency Translation
The Company considers the U.S. dollar to be its functional currency. Expenses denominated in foreign currencies are translated at the exchange rate on the date the expense is incurred. The effect of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is included in the Consolidated Statements of Operations and Comprehensive Loss. Foreign exchange transaction gains and losses are included in the results of operations and are not material in the Company's financial statements.
Financial Instruments
Cash equivalents and available for sale securities are reflected in the accompanying financial statements at fair value. The carrying amount of accounts payable and accrued expenses, including accrued research and development expenses, approximates fair value due to the short-term nature of those instruments.
Leases
The Company has leased its office space and has entered into various other agreements in conducting its business. At inception, the Company determines whether an agreement represents a lease and at commencement evaluates each lease agreement to determine whether the lease is an operating or financing lease. Some of the Company's lease agreements have contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, although its remaining outstanding lease for its principal offices has no further options, allowances, holidays or clauses. As described below under "Recently Adopted Accounting Pronouncements," the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) as of January 1, 2019.
Pursuant to ASU 2016-02, all of the Company's leases outstanding on January 1, 2019 continued to be classified as operating leases. With the adoption of ASU 2016-02, the Company recorded an operating lease right-of-use asset and an operating lease liability on its Consolidated Balance Sheet. Right-of-use lease assets represent the Company's right to use the underlying asset for the lease term and the lease obligation represents the Company's commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit discount rate, the Company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all office lease agreements the Company combines lease and nonlease components. Leases with an initial term of 12 months or less are not recorded on the Company's Consolidated Balance Sheet.
Prior to the adoption of ASU 2016-02, when the Company's lease agreements contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, the Company recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the Company's Consolidated Statements of Operations over the term of each lease. In cases where the lessor granted the Company leasehold improvement allowances that reduced the Company's lease expense, the Company capitalized the improvements as incurred and recognized deferred rent, which was amortized over the shorter of the lease term or the expected useful life of the improvements.
Property and Equipment
Property and equipment, which consists mainly of clinical equipment, computers, software, other office equipment, and leasehold improvements, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally three to ten years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset.
Research and Development
The Company's research and development expenses primarily consist of costs associated with the manufacturing, development and preclinical and clinical testing of its product candidates and costs associated with its collaborative gene

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therapy sponsored research programs. The Company's research and development expenses consist of:
external research and development expenses incurred under arrangements with third parties, such as academic research collaborators, contract research organizations ("CROs"), and contract development and manufacturing organizations ("CDMOs") and other vendors for the production and analysis of drug substance and drug product; and
employee-related expenses for employees dedicated to research and development activities, including salaries, benefits and share-based compensation expense.
Research and development expenses also include costs of acquired product licenses, in-process research and development, and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to collaborators.
All research and development expenses are charged to operations as incurred in accordance with ASC 730, Research and Development.
Income Taxes
The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense.
Share-Based Compensation
The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors and consultants, including employee stock options, restricted stock units (“RSUs”) and options granted to employees to purchase shares under the 2016 Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period, net of estimated forfeitures. For grants containing performance-based vesting provisions, expense is recognized over the estimated achievement period only when the performance-based milestone is deemed probable of achievement. If performance-based milestones are later determined not to be probable of achievement, then all previously recorded stock-based compensation expense associated with such options will be reversed during the period in which the Company makes this determination.
Prior to January 1, 2019, share-based compensation awarded to non-employees was subject to revaluation over the vesting term of each award. Subsequent to the adoption of ASU 2018-07, Improvements to Non-Employee Share-Based Payment Accounting, the value of non-employee share-based compensation is measured on the date of grant, similar to share-based compensation granted to employees.
Stock Options
The Company estimates the fair value of stock options granted to employees, non-employee directors and consultants on the date of grant using the Black-Scholes option-pricing model. Due to the lack of trading history, the Company's computation of stock-price volatility is based on the volatility rates of comparable publicly held companies over a period equal to the expected term of the options granted by the Company. The Company's computation of expected term is determined using the "simplified" method, which is the midpoint between the vesting date and the end of the contractual term. The Company believes that it does not have sufficient reliable exercise data in order to justify the use of a method other than the "simplified" method of estimating the expected exercise term of employee stock option grants. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon U.S. Treasury yield at the date of grant for a term equivalent to the expected term of the option.
The weighted-average assumptions used to estimate grant date fair value of stock options using the Black-Scholes option pricing model were as follows for the three and nine months ended September 30, 2019 and 2018:

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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Expected common stock price volatility
89%
 
84%
 
88%
 
83%
Risk-free interest rate
1.38%-1.84%
 
2.80%-2.90%
 
1.38%-2.54%
 
2.39%-2.90%
Expected term of options (years)
6.1
 
6.1
 
5.7
 
5.8
Expected dividend yield
 
 
 
RSUs
The Company estimates the fair value of RSUs granted to employees using the closing market price of the Company's common stock on the date of grant.
ESPP
In April 2016, the Company's board of directors adopted the ESPP pursuant to which the Company may sell up to an aggregate of 1,000,000 shares of its common stock. The ESPP was approved by the Company’s stockholders in June 2016. The ESPP is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes option-pricing model and recognized over the six month withholding period prior to purchase.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Publicly-traded business entities were required to apply the amendments in ASU 2016-2 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application was permitted for all publicly-traded business entities and all nonpublicly-traded business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. On January 1, 2019 the Company adopted this guidance utilizing the simplified transition option that allows companies to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected to adopt the package of practical expedients permitted in Accounting Standards Codification Topic 842, or ASC 842. Accordingly, the Company continues to account for its existing operating leases as operating leases under the new guidance, without reassessing whether the contracts contain a lease under ASC 842 or whether classification of the operating leases would be different under ASC Topic 842.
As a result of the adoption, the Company recognized, as of the beginning of the period of adoption, right-of-use assets and lease liabilities of approximately $1.5 million, which represents the present value of its remaining lease payments using a weighted average estimated incremental borrowing rate of 6%, on its Consolidated Balance Sheet. The adoption of this standard did not have a material impact on the Company’s results of operations for the period ended September 30, 2019.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments became effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. During the three months ended March 31, 2019, the Company adopted this guidance. The adoption did not have a material impact on its financial statements for the period ended and as of September 30, 2019.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including, among other changes, the

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consideration of costs and benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of this new accounting guidance to have a material impact on its financial statements or disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this new accounting guidance to have a material impact on its financial statements or disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808), which clarifies the interaction between the guidance for collaborative arrangements (Topic 808) and the new revenue recognition standard (Topic 606). For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of this new accounting guidance to have a material impact on its financial statements or disclosures.
3. Net Loss Per Common Share
Basic and diluted net loss per common share is determined by dividing net loss by the weighted average common shares outstanding during the period. For the periods where there is a net loss, shares underlying stock options and RSUs have been excluded from the calculation of diluted net loss per common share because the effect of including such shares would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same. The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Basic and diluted net loss per common share calculation:
 

 
 

 
 
 
 
Net loss
$
(14,437
)
 
$
(14,745
)
 
$
(41,381
)
 
$
(41,027
)
Weighted average common shares outstanding - basic and dilutive
41,552

 
36,202

 
41,486

 
36,181

Net loss per share of common stock - basic and diluted
$
(0.35
)
 
$
(0.41
)
 
$
(1.00
)
 
$
(1.13
)
The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding for the periods presented, as the effect of including such shares would be anti-dilutive:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Stock options outstanding
5,468

 
4,855

 
5,468

 
4,855

Restricted stock units
695

 
184

 
695

 
184

Total
6,163

 
5,039

 
6,163

 
5,039

4. Cash, Cash Equivalents and Available for Sale Securities
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase to be cash equivalents. As of September 30, 2019 and December 31, 2018, the Company had cash and cash equivalents of approximately $94.9 million and $131.2 million, respectively. Cash and cash equivalents included cash of $3.8 million at September 30, 2019 and $4.4 million at December 31, 2018. Cash and cash equivalents at September 30, 2019 and December 31, 2018 included $91.1 million and $126.8 million, respectively, of investments in money market funds and certain investment-grade corporate debt securities with original maturities of 90 days or less.
The Company considers securities with original maturities of greater than 90 days at the date of purchase to be available for sale securities. The Company held no available for sale securities at September 30, 2019 or at December 31, 2018, respectively.

12


The Company believes that its existing cash and cash equivalents as of September 30, 2019 will be sufficient to fund its operations and capital expenditure requirements as currently planned through the first half of 2021. This estimate is based on the Company's current business plan, including the continuation of its current research and development programs and site selection and planning activities for its Phase 3 clinical trial for Zimura in GA. This estimate does not reflect any additional expenditures, including associated development costs, in the event it in-licenses or acquires any new product candidates or commences any new sponsored research programs. The Company has based this estimate on assumptions that may prove to be wrong, and it could use its available capital resources sooner than it currently expects.
5. Share-Based Compensation
Pursuant to the evergreen provisions of the Company's 2013 stock incentive plan (the "2013 Plan"), annual increases have resulted in the addition of an aggregate of approximately 8,554,000 additional shares to the 2013 Plan, including for 2019, an increase of approximately 1,656,000 shares, or approximately 4% of the total number of shares of the Company's common stock outstanding as of January 1, 2019. As of September 30, 2019, the Company had approximately 2,755,000 shares available for grant under the 2013 Plan.
Share-based compensation expense, net of estimated forfeitures, includes expenses related to stock options and RSUs granted to employees, non-employee directors and consultants, as well as options granted to employees to purchase shares under the ESPP. Stock-based compensation by award type was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Stock options
$
1,447

 
$
1,827

 
$
4,557

 
$
5,795

Restricted stock units
667

 
764

 
2,197

 
2,529

Employee stock purchase plan
12

 
13

 
49

 
24

Total
$
2,126

 
$
2,604

 
$
6,803

 
$
8,348

The Company allocated stock-based compensation expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Research and development
$
942

 
$
1,171

 
$
3,101

 
$
3,717

General and administrative
1,184

 
1,433

 
3,702

 
4,631

Total
$
2,126

 
$
2,604

 
$
6,803

 
$
8,348

Stock Options
A summary of the stock option activity, weighted average exercise prices, options outstanding, exercisable and expected to vest as of September 30, 2019 is as follows (in thousands except weighted average exercise price):
 
Number of Shares Underlying Options
 
Weighted
Average
Exercise
Price
Outstanding, December 31, 2018
5,903

 
$
13.72

Granted
177

 
$
1.31

Forfeited
(420
)
 
$
19.59

Expired
(192
)
 
$
26.87

Outstanding, September 30, 2019
5,468

 
$
12.41

Vested and exercisable, September 30, 2019
2,946

 
$
20.06

Vested and expected to vest, September 30, 2019
5,266

 
$
12.76

As of September 30, 2019, there were approximately $4.9 million of unrecognized compensation costs, net of estimated forfeitures, related to stock option awards grants, which are expected to be recognized over a remaining weighted average period of 1.7 years.

13


RSUs
The following table presents a summary of the Company's outstanding RSU awards granted as of September 30, 2019 (in thousands except weighted average grant-date fair value):
 
Restricted
Stock
Units
 
Weighted Average
Grant-Date
Fair Value
Outstanding, December 31, 2018
679

 
$
15.61

Awarded
102

 
$
1.26

Vested
(59
)
 
$
52.77

Forfeited
(27
)
 
$
13.77

Outstanding, September 30, 2019
695

 
$
10.48

Outstanding, Expected to vest
576

 
$
5.17

As of September 30, 2019, there were approximately $1.5 million of unrecognized compensation costs, net of estimated forfeitures, related to RSUs grants, which are expected to be recognized over a remaining weighted average period of 1.5 years.
ESPP
As of September 30, 2019, there were 881,763 shares available for future purchases under the ESPP. There were 38,944 and 70,466 shares of common stock issued under the ESPP during the three and nine months ended September 30, 2019. Cash proceeds from ESPP purchases were $39 thousand and $81 thousand during the three and nine months ended September 30, 2019. There were 19,184 and 31,413 shares of common stock issued under the ESPP during the three and nine months ended September 30, 2018. Cash proceeds from ESPP purchases were $38 thousand and $65 thousand during the three and nine months ended September 30, 2018.
6. Income Taxes    
For the three and nine months ended September 30, 2019, the Company recorded a $0.1 million benefit for income taxes. For the three and nine months ended September 30, 2018, the Company recorded a de minimis provision for income taxes and a $0.8 million benefit for income taxes, respectively. The income tax benefit for the three and nine months ended September 30, 2019 was primarily to reflect a settlement of a local tax audit. The benefit for income taxes recorded during the nine months ended September 30, 2018 includes the settlement of a local tax audit recorded by the Company during the three months ended June 30, 2018 offset partially by the provision for income taxes recorded by the Company during the three months ended March 31, 2018 to reflect the impact of sequestration on the Company's estimate of refundable AMT credits.
The Company will continue to evaluate its ability to realize its deferred tax assets on a quarterly basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of products currently under development. Any additional changes to the valuation allowance recorded on deferred tax assets in the future would impact the Company’s income taxes.
7. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company reviews investments on a periodic basis for other than temporary impairments. This review is subjective as it requires management to evaluate whether an event or change in circumstances has occurred in the period that may have a significant adverse effect on the fair value of the investment. The Company uses the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company classifies its investment-grade corporate debt securities within the fair value hierarchy as Level 2 assets, as it primarily utilizes quoted market prices or rates for similar instruments to value these securities.

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The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market. The Company's Level 1 assets consist of investments in money market funds and U.S. Treasury securities.
Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. The Company's Level 2 assets may consist of investments in investment-grade corporate debt securities.
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability. The Company does not hold any assets that are measured using Level 3 inputs.
The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2019:
 
Fair Value Measurement Using
 
Quoted prices in
active markets for
identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Assets
 

 
 

 
 

Investments in money market funds*
$
83,315

 
$

 
$

Investments in investment-grade corporate debt securities*
$

 
$
7,779

 
$

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2018:
 
Fair Value Measurement Using
 
Quoted prices in
active markets for
identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Assets
 

 
 

 
 

Investments in money market funds*
$
97,402

 
$

 
$

Investments in investment-grade corporate debt securities*
$

 
$
29,425

 
$

 
*
Investments in money market funds and investment-grade corporate debt securities with maturities less than 90 days are reflected in cash and cash equivalents in the accompanying Consolidated Balance Sheets.
No transfer of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three and nine months ended September 30, 2019.
The Company held no available for sale securities at September 30, 2019 or at December 31, 2018.
8. Operating Leases
The Company leases office space located in New York, New York and Princeton, New Jersey under non-cancelable operating lease arrangements. The lease for the Company's New York office space expires at the end of June 2020, whereas the sublease for the Company's Princeton office space expires in March 2020. As of January 1, 2019, the Company recognized right-of-use assets and lease liabilities of approximately $1.5 million, which represents the present value of its remaining lease payments using a weighted average estimated incremental borrowing rate of 6%.
For the three and nine months ended September 30, 2019, lease and rent expense was $0.3 million and $0.8 million, respectively. Cash paid from operating cash flows for amounts included in the measurement of lease liabilities was $0.3 million and $0.8 million, respectively, for the three and nine months ended September 30, 2019. At September 30, 2019, the Company's operating leases had a weighted average remaining lease term of 0.7 years.

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The following presents the maturity of the Company's operating lease liabilities as of September 30, 2019:
 
September 30, 2019
Remainder of 2019
$
260

2020
504

Total remaining obligation
764

Less imputed interest
(19
)
Present value of lease liabilities
$
745

9. Commitments and Contingencies
Zimura - Archemix Corp.
The Company is party to an agreement with Archemix Corp., or Archemix, under which the Company in-licensed rights in certain patents, patent applications and other intellectual property related to Zimura and pursuant to which the Company may be required to pay sublicense fees and make milestone payments (the "C5 License Agreement"). Under the C5 License Agreement, for each anti-C5 aptamer product that the Company may develop under the agreement, including Zimura, the Company is obligated to make payments to Archemix of up to an aggregate of $57.5 million if the Company achieves specified development, clinical and regulatory milestones, with $30.5 million of such payments relating to a first indication, $24.5 million of such payments relating to second and third indications and $2.5 million of such payments relating to sustained delivery applications. Under the C5 License Agreement, the Company is also obligated to make additional payments to Archemix of up to an aggregate of $22.5 million if the Company achieves specified commercial milestones based on net product sales of all anti-C5 products licensed under the agreement. The Company is also obligated to pay Archemix a double-digit percentage of specified non-royalty payments the Company may receive from any sublicensee of its rights under the C5 License Agreement. The Company is not obligated to pay Archemix a running royalty based on net product sales in connection with the C5 License Agreement.
IC-100 - University of Florida and the University of Pennsylvania
Under its exclusive license agreement with UFRF and Penn for rights to IC-100, the Company is obligated to make payments to UFRF, for the benefit of Penn and UFRF (together, the "Licensors"), of up to an aggregate of $23.5 million if the Company achieves specified clinical, marketing approval and reimbursement approval milestones with respect to a licensed product and up to an aggregate of an additional $70.0 million if the Company achieves specified commercial sales milestones with respect to a licensed product. The Company is also obligated to pay UFRF, for the benefit of the Licensors, a low single-digit percentage of net sales of licensed products. The Company is also obligated to pay UFRF, for the benefit of the Licensors, a double-digit percentage of specified non-royalty payments the Company may receive from any third-party sublicensee of the licensed patent rights. Further, if the Company receives a rare pediatric disease priority review voucher from the U.S. Food and Drug Administration ("FDA") in connection with obtaining marketing approval for a licensed product and the Company subsequently uses such priority review voucher in connection with a different product candidate, the Company will be obligated to pay UFRF, for the benefit of the Licensors, aggregate payments in the low double-digit millions of dollars based on certain approval and commercial sales milestones with respect to such other product candidate. In addition, if the Company sells such a priority review voucher to a third party, the Company will be obligated to pay UFRF, for the benefit of the Licensors, a low double-digit percentage of any consideration received from such third party in connection with such sale.
IC-200 - University of Pennsylvania and the University of Florida
Under its exclusive license agreement with Penn and UFRF for rights to IC-200, the Company is obligated to make payments to Penn, for the benefit of the Licensors, of up to an aggregate of $15.7 million if the Company achieves specified clinical, marketing approval and reimbursement approval milestones with respect to one licensed product and up to an aggregate of an additional $3.1 million if the Company achieves these same milestones with respect to a different licensed product. In addition, the Company is obligated to make payments to Penn, for the benefit of the Licensors, of up to an aggregate of $48.0 million if the Company achieves specified commercial sales milestones with respect to one licensed product and up to an aggregate of an additional $9.6 million if the Company achieves these same milestones with respect to a different licensed product. The Company is also obligated to pay Penn, for the benefit of the Licensors, a low single-digit percentage of net sales of licensed products. The Company is also obligated to pay Penn, for the benefit of the Licensors, a high single-digit to a mid-teen percentage of specified non-royalty payments the Company may receive from any third-party sublicensee of the licensed patent rights, with the applicable percentage based upon the stage of development of the sublicensed product at the time the Company enters into the sublicense. Further, if the Company receives a rare pediatric disease priority review voucher from the FDA in connection with obtaining marketing approval for a licensed product and the Company subsequently uses such priority

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review voucher in connection with a different product candidate outside the scope of the agreement, the Company will be obligated to pay Penn, for the benefit of the Licensors, aggregate payments in the low double-digit millions of dollars based on certain approval and commercial sales milestones with respect to such other product candidate. In addition, if the Company sells such a priority review voucher to a third party, the Company will be obligated to pay Penn, for the benefit of the Licensors, a high single-digit percentage of any consideration received from such third party in connection with such sale.
miniCEP290 Program - University of Massachusetts
On July 22, 2019, the Company entered into its exclusive license agreement with the University of Massachusetts ("UMass") for rights to its miniCEP290 program (the "miniCEP290 License Agreement"). Pursuant to the terms of the miniCEP290 License Agreement, the Company paid UMass a $0.4 million upfront license fee and issued to UMass 75,000 shares of the Company's common stock, which were valued at approximately $0.1 million on July 22, 2019.
Under the miniCEP290 License Agreement, the Company is obligated to pay UMass up to an aggregate of $14.75 million in cash and issue up to 75,000 shares of common stock of the Company if the Company achieves specified clinical and regulatory milestones with respect to a licensed product. In addition, the Company is obligated to pay UMass up to an aggregate of $48.0 million if the Company achieves specified commercial sales milestones with respect to a licensed product. The Company is also obligated to pay UMass royalties at a low single-digit percentage of net sales of licensed products. If the Company or any of its affiliates sublicenses any of the licensed patent rights or know-how to a third party, the Company will be obligated to pay UMass a high single-digit to a mid-tens percentage of the consideration received in exchange for such sublicense, with the applicable percentage based upon the stage of development of the licensed products at the time the Company or the applicable affiliate enters into the sublicense. If the Company receives a priority review voucher from the FDA in connection with obtaining marketing approval for a licensed product, and the Company subsequently uses such priority review voucher in connection with a different product candidate outside the scope of the agreement, the Company will be obligated to pay UMass a low-tens percentage of the fair market value of the priority review voucher at the time of approval of such product candidate and a low-twenties percentage of the fair market value of the priority review voucher at the time of achievement of a specified commercial sales milestone for such product candidate. In addition, if the Company sells such a priority review voucher to a third party, the Company will be obligated to pay UMass a low-thirties percentage of any consideration received from such third party in connection with such sale.
HtrA1 Inhibitors - Former Equityholders of Inception 4
Under the agreement and plan of merger pursuant to which the Company acquired Inception 4 (the "Inception 4 Merger Agreement"), the Company is obligated to make payments to the former equityholders of Inception 4 of up to an aggregate of $105 million, subject to the terms and conditions of the Inception 4 Merger Agreement, if the Company achieves certain specified clinical and regulatory milestones with respect to a product candidate from its HtrA1 inhibitor program, with $45 million of such potential payments relating to GA and $60 million of such potential payments relating to wet AMD. Under the Inception 4 Merger Agreement, the Company does not owe any commercial milestones or royalties based on net sales. The future milestone payments will be payable in the form of shares of the Company's common stock, calculated based on the price of its common stock over a five-trading day period preceding the achievement of the relevant milestone, unless and until the issuance of such shares would, together with all other shares issued in connection with the acquisition, exceed an overall maximum limit of approximately 7.2 million shares, which is equal to 19.9% of the number of issued and outstanding shares of the Company's common stock as of the close of business on the business day prior to the closing date of the Inception 4 acquisition, and will be payable in cash thereafter. The Inception 4 Merger Agreement also includes customary indemnification obligations to the former equityholders of Inception 4, including for breaches of the representations and warranties, covenants and agreements of the Company and its subsidiaries (other than Inception 4) in the Inception 4 Merger Agreement.
Employment Contracts
The Company also has letter agreements with certain employees that require the funding of a specific level of payments if certain events, such as a termination of employment in connection with a change in control or termination of employment by the employee for good reason or by the Company without cause, occur.
 Contract Service Providers
In addition, in the course of normal business operations, the Company has agreements with contract service providers to assist in the performance of the Company’s research and development and manufacturing activities. Expenditures to CROs and CDMOs represent significant costs in preclinical and clinical development. Subject to required notice periods and the Company’s obligations under binding purchase orders and any cancellation fees that the Company may be obligated to pay, the Company can elect to discontinue the work under these agreements at any time. 

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Legal Proceedings
On January 11, 2017, a putative class action lawsuit was filed against the Company and certain of its current and former executive officers in the United States District Court for the Southern District of New York, captioned Frank Micholle v. Ophthotech Corporation, et al., No. 1:17-cv-00210. On March 9, 2017, a related putative class action lawsuit was filed against the Company and the same group of its current and former executive officers in the United States District Court for the Southern District of New York, captioned Wasson v. Ophthotech Corporation, et al., No. 1:17-cv-01758. These cases were consolidated on March 13, 2018. On June 4, 2018, the lead plaintiff filed a consolidated amended complaint (the “CAC”). The CAC purports to be brought on behalf of shareholders who purchased the Company’s common stock between March 2, 2015 and December 12, 2016. The CAC generally alleges that the Company and certain of its officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the results of the Company’s Phase 2b trial and the prospects of the Company’s Phase 3 trials for Fovista in combination with anti-VEGF agents for the treatment of wet AMD. The CAC seeks unspecified damages, attorneys’ fees, and other costs. The Company and individual defendants filed a motion to dismiss the CAC on July 27, 2018. On September 18, 2019, the court issued an order dismissing some, but not all, of the allegations in the CAC.
On February 7, 2018, a shareholder derivative action was filed against the members of the Company’s board of directors in the New York Supreme Court Commercial Division, captioned Cano v. Guyer, et al., No. 650601/2018. The complaint alleges that the defendants breached their fiduciary duties to the Company by adopting a compensation plan that overcompensates the non-employee members of the Company's board of directors relative to boards of directors of companies of comparable market capitalization and size. The complaint also alleges that the defendants were unjustly enriched as a result of the alleged conduct. The complaint purports to seek unspecified damages, on behalf of the Company, attorneys’ fees, and other costs, as well as an order directing the Company to reform and improve its corporate governance and internal procedures to comply with applicable laws. The Company filed a motion to dismiss this case on May 14, 2018. On June 4, 2018, the plaintiff filed an amended complaint. On June 25, 2018, the Company filed a renewed motion to dismiss this case. On December 3, 2018, the parties filed a stipulation of settlement that contemplates that the Company will adopt certain compensation-related governance reforms and does not obligate the defendants or the Company to pay any monetary damages. The court approved the settlement at a hearing on March 12, 2019. As part of the settlement, in April 2019 the Company paid $300,000 in fees and costs to plaintiff's counsel. As contemplated by the settlement, the Company's board of directors adopted certain compensation-related governance reforms, including a non-employee director compensation policy, which the Company's stockholders approved on May 15, 2019 at its 2019 annual meeting.
On August 31, 2018, a shareholder derivative action was filed against current and former members of the Company's board of directors and certain current and former officers of the Company in the United States District Court for the Southern District of New York, captioned Luis Pacheco v. David R. Guyer, et al., Case No. 1:18-cv-07999. The complaint, which is based substantially on the facts alleged in the CAC, alleges that the defendants breached their fiduciary duties to the Company and wasted the Company's corporate assets by failing to oversee the Company's business, and also alleges that the defendants were unjustly enriched as a result of the alleged conduct, including through receipt of bonuses, stock options and similar compensation from the Company, and through sales of the Company's stock between March 2, 2015 and December 12, 2016. The complaint purports to seek unspecified damages on the Company's behalf, attorneys’ fees, and other costs, as well as an order directing the Company to reform and improve its corporate governance and internal procedures to comply with applicable laws, including submitting certain proposed amendments to the Company's corporate charter, bylaws and corporate governance policies for vote by the Company's stockholders. On December 14, 2018, the Company filed a motion to dismiss the complaint. On September 19, 2019, the court denied the Company's motion to dismiss this complaint. This matter was subsequently referred to a special litigation committee of the Company's board of directors.
On October 16, 2018, the Company’s board of directors received a shareholder demand to investigate and commence legal proceedings against certain members of the Company’s board of directors. The demand alleges facts that are substantially similar to the facts alleged in the CAC and the Pacheco complaint and asserts claims that are substantially similar to the claims asserted in the Pacheco complaint. On January 30, 2019, the Company’s board of directors received a second shareholder demand from a different shareholder to investigate and commence legal proceedings against certain current and former members of the Company’s board of directors based on allegations that are substantially similar to the allegations contained in the first demand letter. These shareholder demands have been referred to a demand review committee of the Company's board of directors.
The Company denies any and all allegations of wrongdoing and intends to vigorously defend against these lawsuits. The Company is unable, however, to predict the outcome of these matters at this time. Moreover, any conclusion of these matters in a manner adverse to the Company and for which it incurs substantial costs or damages not covered by the Company's directors’ and officers’ liability insurance would have a material adverse effect on its financial condition and business. In addition, the litigation could adversely impact the Company's reputation and divert management’s attention and resources from

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other priorities, including the execution of its business plan and strategies that are important to the Company's ability to grow its business, any of which could have a material adverse effect on the Company's business.
10. Subsequent Event
On October 28, 2019, the Company announced initial, top-line data from its Phase 2b clinical trial evaluating Zimura for the treatment of GA secondary to dry AMD. As a result of this data, under the terms of the C5 License Agreement, the Company is obligated to pay Archemix a milestone payment of $1.0 million during the first quarter of 2020.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the "Risk Factors" section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a science-driven biopharmaceutical company focused on the discovery and development of novel treatment options for retinal diseases with significant unmet medical needs. We are currently developing both therapeutic product candidates for age-related retinal diseases and gene therapy product candidates for orphan inherited retinal diseases, or IRDs. In April 2019, we changed our name from Ophthotech Corporation to IVERIC bio, Inc. as we continued to broaden the focus of our company to include gene therapies. We believe that both therapeutics and gene therapy serve an important role in drug development and providing potential treatment options for patients suffering from retinal diseases. Our most advanced therapeutic product candidate is Zimura® (avacincaptad pegol), a complement C5 inhibitor. We recently announced positive initial, top-line data from a randomized, controlled clinical trial of Zimura in geographic atrophy, or GA, secondary to dry age-related macular degeneration, or AMD, which we believe may qualify as a pivotal clinical trial for regulatory purposes, and are commencing preparations for a second pivotal clinical trial of Zimura in this indication. We also believe that gene therapies using adeno-associated virus, or AAV, for gene delivery, hold tremendous promise for retinal diseases. We currently have two gene therapy product candidates in preclinical development and several collaborative gene therapy sponsored research programs ongoing. We plan to initiate clinical development of IC-100, our lead gene therapy product candidate, during the second half of 2020, subject to successful completion of preclinical development and regulatory review.
We are committed to the advancement of our therapeutic programs in parallel with our gene therapies. We recently announced initial, top-line data from our international, randomized, double masked, sham controlled multi-center clinical trial, which we refer to as our OPH2003 trial, assessing the safety and efficacy of Zimura for the treatment of GA. GA is the advanced stage of dry AMD and is characterized by retinal cell death and degeneration of tissue in the central portion of the retina, or the macula, which may result in loss of vision. The top-line data confirmed that Zimura met the prespecified primary endpoint in the trial in reducing the rate of GA growth in patients with dry AMD. The reduction in the mean rate of GA growth over 12 months was 0.110mm (p-value = 0.0072) for the Zimura 2 mg group as compared to the corresponding sham control group and 0.124mm (p-value = 0.0051) for the Zimura 4 mg group as compared to the corresponding sham control group, corresponding to an approximate 27% relative reduction in the mean rate of GA growth over 12 months when compared with sham. These data for both dose groups were statistically significant and we believe demonstrate a clinically relevant reduction in rate of GA growth. Based on our review of the safety data to date, Zimura was generally well tolerated over 12 months of administration in this clinical trial. Over this 12-month time period, there were no reported Zimura-related adverse events, no cases of Zimura-related intraocular inflammation, no ocular serious adverse events, no cases of Zimura related increase in intraocular pressure, no cases of endophthalmitis, and no discontinuations attributed by investigators to Zimura in the trial. We believe that the safety and efficacy results from the OPH2003 trial could potentially satisfy the FDA’s requirements as one of the two pivotal clinical trials typically required for marketing approval. Based on the data we have received from the OPH2003 trial to date, we have commenced site selection and planning activities for a second pivotal clinical trial for Zimura in GA with the goal of initiating enrollment in this Phase 3 clinical trial during the first quarter of 2020. We plan to continue to explore all options for the future development and potential commercialization of Zimura, including potential collaboration and out-licensing opportunities, while we commence Phase 3 activities.
Our team has significant experience in the efficient execution of large-scale clinical trials for retinal diseases. We have deep relationships with global retina thought leaders, including those at a number of leading academic research institutions with which we have developed collaborative relationships, and an extensive network of ophthalmic clinical trial sites. We will seek to leverage these existing relationships as we prepare for our pivotal Phase 3 clinical trial for Zimura. We believe that the combination of these factors provides us a competitive advantage in retinal drug development.
Our therapeutics portfolio consists of two ongoing clinical trials evaluating Zimura and our preclinical development program of High temperature requirement A serine peptidase 1 protein, or HtrA1, inhibitors. In addition to the OPH2003 clinical trial of Zimura in GA, which remains ongoing, we have an ongoing randomized, double masked, sham controlled

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clinical trial evaluating Zimura for the treatment of autosomal recessive Stargardt disease, or STGD1, which we refer to as our OPH2005 trial. We are developing our HtrA1 inhibitor program for GA and potentially other age-related retinal diseases. We previously evaluated Zimura in combination with Lucentis® (ranibizumab), an anti-vascular endothelial growth factor, or anti-VEGF, agent for the treatment of wet AMD, for which we completed a Phase 2a safety trial, which we refer to as the OPH2007 trial, during the fourth quarter of 2018.
Our gene therapy portfolio consists of several ongoing research and preclinical development programs that use AAV for gene delivery. These AAV gene therapy programs are targeting the following orphan IRDs:
rhodopsin-mediated autosomal dominant retinitis pigmentosa, or RHO-adRP, which is characterized by progressive and severe bilateral loss of vision leading to blindness;
IRDs associated with mutations in the BEST1 gene, including Best vitelliform macular dystrophy, or Best disease, which is generally characterized by bilateral egg yolk-like lesions in the macula, which, over time, progress to atrophy and loss of vision;
Leber congenital amaurosis type 10, or LCA10, which is characterized by severe bilateral loss of vision at or soon after birth;
autosomal recessive Stargardt disease, or STGD1, which is characterized by progressive damage to the macula and retina of young adults, leading to loss of vision; and
IRDs associated with mutations in the USH2A gene, which include Usher syndrome type 2A, or Usher 2A, and USH2A-associated nonsyndromatic autosomal recessive retinitis pigmentosa.
Therapeutic Development Programs
Zimura Clinical Programs
Zimura, our complement C5 inhibitor, is a chemically-synthesized, pegylated RNA aptamer. We recently announced initial, top-line data from our OPH2003 clinical trial of Zimura for GA, and the trial remains ongoing. We also are conducting our OPH2005 clinical trial of Zimura for STGD1.
OPH2003 Clinical Trial: Assessing safety and efficacy of Zimura in GA secondary to dry AMD
At the end of October 2019, we announced initial, top-line data from OPH2003, an international, randomized, double masked, sham controlled, multi-center clinical trial evaluating the safety and efficacy of various doses of Zimura in patients with GA secondary to dry AMD. The primary efficacy analysis was performed at the 12-month time point, and the data we announced in October 2019 was for the first 12 months of the trial. Pursuant to the clinical trial protocol, patients will continue to be treated and followed through month 18 in order to collect additional data regarding Zimura in GA. We expect to remain masked regarding the treatment group to which each individual patient was randomized until the patient reaches month 18.
Trial Design and Enrollment
A total of 286 patients were enrolled across two parts of the trial.
Part 1. In Part 1 of the trial, 77 patients were randomized into one of three treatment groups in a 1:1:1 ratio as follows:
Cohort
 
Zimura 1mg
 
Zimura 2mg
 
Sham
Patients
 
26
 
25
 
26
In Part 1 of the trial, Zimura was administered by monthly intravitreal injections, while patients in the sham control group received monthly sham injections. In 2017, we modified the trial design to change the total number of patients to be enrolled, to change the primary endpoint from a vision endpoint to an anatomic endpoint, to shorten the time point for the primary efficacy analysis to month 12 and to include a Zimura 4mg dose group. The patients who were enrolled in Part 1 remained in the trial following these modifications.

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Part 2. In Part 2 of the trial, we enrolled 209 additional patients, who were randomized into one of three treatment groups in a 1:2:2 ratio as follows:
Cohort
 
Zimura 2mg
 
Zimura 4mg
 
Sham
Patients
 
42
 
83
 
84
In Part 2 of the trial, patients in the Zimura 2mg group received one intravitreal injection of Zimura 2mg and one sham injection at each monthly visit; patients in the Zimura 4mg group received two intravitreal injections of Zimura 2mg at each monthly visit; and patients in the sham control group received two sham injections at each monthly visit. In its current formulation, doses of Zimura above 2mg would require more than one intravitreal injection.
The primary efficacy endpoint was the mean rate of growth of GA over 12 months, while secondary efficacy endpoints evaluated mean changes in patients’ visual acuity in different lighting conditions over the same period.
Key Inclusion and Exclusion Criteria
In order to determine eligibility to participate in the trial, the location and size of each patient’s GA was assessed using fundus autofluorescence, or FAF, images, which is a standard imaging modality used by retina specialists. An independent masked reading center assessed FAF images throughout the trial, including at baseline to determine eligibility.
The fovea is the central portion of the macula where visual acuity is the highest. We sought to enroll patients whose GA was located, in whole or in part, within 1500 microns of the foveal center but that did not enter the foveal center. A disc area is the size of the area of the retina where a standard sized optic nerve emerges, which is generally accepted to be 2.5mm2. We enrolled patients with a total GA area of between 1 and 7 disc areas (or 2.5mm2 to 17.5mm2) inclusive. If the GA was multifocal, meaning it was not continuous and had multiple locations, at least one focal lesion needed to measure at least 0.5 disc areas (or 1.25mm2). Each patient's best corrected visual acuity, or BCVA, was also assessed using the Snellen equivalent scale, which equates the detail a patient can see at a distance of 20 feet with the detail an individual with 20/20 vision can see at a greater distance. For example, a patient with 20/50 vision sees at 20 feet what a person with 20/20 vision would see at 50 feet. To be eligible to participate in the trial, patients' BCVA in the study eye was initially required to be between 20/25 and 20/100 inclusive during Part 1 of the trial. As part of the modifications we made for Part 2 of the trial, we expanded the inclusion criteria to include patients whose BCVA in the study eye was between 20/25 and 20/320 inclusive. BCVA on the Snellen equivalent scale can be equated to a number of letters of vision on the Early Treatment of Diabetic Retinopathy Study, or ETDRS, chart. BCVAs of 20/25, 20/100 and 20/320 on the Snellen equivalent scale are equivalent to 75 ETDRS letters, 50 ETDRS letters and 25 ETDRS letters, respectively.
Patients were stratified across treatment groups by baseline BCVA, baseline GA area and the baseline pattern of autofluorescence at the margins of the GA lesion, referred to as the junctional zone. Stratification for baseline characteristics is a method for allocating patients to treatment groups to ensure that there are approximately the same ratio of patients with a given baseline characteristic in each treatment group as the overall randomization ratio. For vision, patients were stratified based on whether their vision was above or below 50 ETDRS letters. For GA area, patients were stratified based on whether their GA area was above or below 4 disc areas. For autofluorescence pattern, patients were stratified based on several well-known patterns that have been described in the scientific literature.
Dry AMD progresses to the wet form of AMD in approximately 10% to 15% of AMD patients. Wet AMD occurs when new and abnormal blood vessels proliferate under or within the retina. These abnormal new blood vessels originate beneath the retina, in a layer called the choroid, and invade into the overlying retinal layers, and are referred to as choroidal neovascularization, or CNV. When we initiated the OPH2003 study, we did not believe that reliable measurement of GA by FAF for patients with CNV in the study eye could be performed. Therefore in the clinical trial protocol for the OPH2003 trial, we indicated that patients in any arm of the trial who developed CNV in the study eye would be removed from the trial and any future study treatments and assessments. We also excluded patients who had any evidence of CNV in either eye at their initial assessment. Patients who had a prior history of intravitreal treatment for any indication in either eye were excluded, as well as patients with any ocular condition in the study eye that could affect central vision or otherwise confound assessments.
Baseline Characteristics
We collected baseline characteristics for all patients participating in the trial. GA area was measured based on the area of GA in square millimeters (mm2). Reported scientific literature indicate that the rate of GA growth may be dependent on the baseline lesion size, with larger GA lesions generally growing faster than smaller lesions, subject to an overall plateau effect as the GA grows to consume almost the entire macula. For this reason, patients were stratified in this trial based on their baseline

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lesion size. To further mitigate for the impact of baseline lesion size on the growth of GA, a square root transformation was performed. It is reported in the scientific literature and accepted in the field that using the square root of the lesion size for calculating the mean change in size over time mitigates for the impact of the baseline lesion size. We used the square root transformation of GA area, measured in millimeters (mm) to perform the assessment of the primary efficacy endpoint in the OPH2003 trial.
In addition to measuring the area of GA, we followed patients for changes in their vision (BCVA), as measured both at a standard light level, or luminance, and lower light level, or low luminance (LL BCVA), measured in each case by ETDRS letters. Although GA can be associated with profound and irreversible vision loss, the vision loss that patients experience is not necessarily linearly correlated to the progression of GA. The specific location of the GA within patients' retinas can affect patients' vision differently. In general, patients whose GA expands into the fovea experience vision loss that is disproportionate to the vision loss experienced by patients whose GA does not expand into the fovea. Further, patients with GA may demonstrate good visual acuity but poor functional vision if their GA results in dark spots, referred to as scotomas, in their central visual field. Patients with scotomas may be able to read a vision chart letter-by-letter, especially if their GA has not entered the fovea, but they may have trouble reading a paragraph of text or driving, as these activities of daily living draw upon a field of vision that is broader than a single point of focus. For this reason, and based on our prior interactions with the FDA, we believe the efficacy assessment that is most likely to demonstrate clinical relevance for an investigational product across a heterogeneous GA patient population is reduced rate of growth in GA. If an investigational product can slow the growth of GA, it has the potential to preserve, or slow the loss of, functional vision for patients whose GA is expanding into critical areas of their central visual field, which would be clinically meaningful. Testing for visual acuity also serves as an important safety assessment to assure that the decrease in visual acuity in the Zimura treatment groups was not different from the sham control groups.
In addition to baseline GA area, it has been reported in the scientific literature that GA that is non-subfoveal, or that has not impacted the foveal center, is positively correlated with a higher rate of GA area progression and growth. We believe that once a GA lesion expands into the fovea, the rate of growth may be slowed. In addition, once GA expands to encompass the central fovea, additional progression can be limited in the central region of the retina, with any continued expansion occurring predominantly in the outer part of the retina.
For patients within each treatment group, where a numerical measurement was collected, we calculated the mean and standard deviation, or SD, for each measurement. SD is a statistical measure of the variability of a particular measurement within a patient population. Generally, two-thirds of all patients fall within approximately one SD, plus or minus, of the mean for any particular measurement.
    

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The baseline characteristics of the patients who participated in the OPH2003 trial are presented below for each treatment group in each Part of the trial. Based on these data, we believe that the baseline characteristics were generally balanced across the treatment groups.
 
 
Part 1
 
Part 2
Cohort
 
Zimura 1mg
(N = 26)
 
Zimura 2mg
(N = 25)
 
Sham
(N = 26)
 
Zimura 2mg
(N = 42)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Mean age, years (SD)
 
73.8 (8.0)
 
77.7 (9.6)
 
78.1 (8.4)
 
79.4 (10.7)
 
79.2 (8.3)
 
78.2 (9.0)
Female gender, number (%)
 
15 (57.7%)
 
18 (72.0%)
 
18 (69.2%)
 
27 (64.3%)
 
58 (69.9%)
 
61 (72.6%)
Active smokers, number (%)
 
6 (23.1%)
 
10 (40.0%)
 
7 (26.9%)
 
15 (35.7%)
 
26 (31.3%)
 
29 (34.5%)
Caucasian race, number (%)
 
25 (96.2%)
 
25 (100%)
 
25 (96.2%)
 
42 (100%)
 
82 (98.8%)
 
82 (97.6%)
Iris color:
 
 
 
 
 
 
 
 
 
 
 
 
    Light
 
13 (50.0%)
 
16 (64.0%)
 
17 (65.4%)
 
29 (69.0%)
 
54 (65.1%)
 
57 (67.9%)
    Medium
 
7 (26.9%)
 
6 (24.0%)
 
7 (26.9%)
 
9 (21.4%)
 
22 (26.5%)
 
21 (25.0%)
    Dark
 
6 (23.1%)
 
3 (12.0%)
 
2 (7.7%)
 
4 (9.5%)
 
7 (8.4%)
 
6 (7.1%)
Mean intraocular pressure, mmHg (SD)
 
15.0 (1.9)
 
14.6 (2.6)
 
14.5 (2.8)
 
14.1 (2.4)
 
15.2 (2.5)
 
14.9 (2.5)
Non-subfoveal GA, number (%)
 
23 (88.5%)
 
20 (80.0%)
 
22 (84.6%)
 
42 (100%)
 
81 (97.6%)
 
82 (97.6%)
Mean GA area, mm2 (SD)
 
7.37 (4.32)
 
6.60 (3.35)
 
7.33 (3.73)
 
7.77 (4.01)
 
7.90 (4.18)
 
7.45 (3.89)
Mean Sq. Root of GA area, mm (SD)
 
2.591 (0.827)
 
2.471 (0.717)
 
2.623 (0.687)
 
2.705 (0.684)
 
2.715 (0.732)
 
2.636 (0.709)
Bilateral GA, number (%)
 
26 (100%)
 
25 (100%)
 
25 (96.2%)
 
42 (100%)
 
83 (100%)
 
83 (98.8%)
Mean BCVA, ETDRS letters (SD)
 
70.5 (8.0)
 
71.6 (7.5)
 
71.3 (7.5)
 
69.4 (11.3)
 
69.5 (9.8)
 
68.3 (11.0)
Mean LL BCVA, ETDRS letters (SD)
 
38.1 (22.7)
 
43.0 (19.7)
 
36.7 (21.2)
 
33.1 (21.3)
 
36.8 (20.9)
 
33.9 (18.8)
Patients with Hyperautofluorscence (%)
 
25 (96.2%)
 
25 (100%)
 
26 (100%)
 
41 (97.6%)
 
82 (98.8%)
 
83 (98.8%)
Height, cm (SD)
 
168.7 (12.0)
 
165.9 (8.6)
 
164.9 (12.1)
 
164.9 (11.0)
 
163.7 (10.6)
 
163.7 (9.3)
Weight, kg (SD)
 
81.9 (17.8)
 
75.6 (14.9)
 
74.7 (15.6)
 
80.8 (22.3)
 
76.2 (18.2)
 
78.4 (17.8)
    

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12-Month Safety Data
    Based on our review of the safety data to date, Zimura was generally well tolerated after 12 months of administration. Over this 12-month time period, there were no reported ocular serious adverse events, no Zimura-related adverse events, no cases of Zimura-related intraocular inflammation, no cases of Zimura-related increased intraocular pressure, no cases of endophthalmitis, and no discontinuations attributed by investigators to Zimura in the trial.
The number of patients with one or more serious, systemic, treatment emergent adverse events, organized by MedDRA system organ class, a standard method of reporting adverse events, are set forth in the table below:
Patients with One or More Serious Treatment Emergent Adverse Events (TEAEs) in Any Organ Class
 
 
Part 1
 
Part 2
 
 
Zimura 1mg
(N = 26)
 
Zimura 2mg
(N = 25)
 
Sham
(N = 26)
 
Zimura 2mg
(N = 42)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Cardiac disorders
 
1 (3.8%)
 
0
 
0
 
0
 
2 (2.4%)
 
3 (3.6%)
Gastrointestinal disorders
 
1 (3.8%)
 
1 (4.0%)
 
1 (3.8%)
 
0
 
2 (2.4%)
 
6 (7.1%)
General disorders and administration site conditions
 
0
 
0
 
0
 
1 (2.4%)
 
0
 
0
Hepatobiliary disorders
 
0
 
1 (4.0%)
 
1 (3.8%)
 
0
 
1 (1.2%)
 
0
Infections and infestations
 
0
 
1 (4.0%)
 
0
 
1 (2.4%)
 
6 (7.2%)
 
2 (2.4%)
Injury, poisoning and procedural complications
 
0
 
1 (4.0%)
 
0
 
1 (2.4%)
 
3 (3.6%)
 
2 (2.4%)
Metabolism and nutrition disorders
 
0
 
0
 
1 (3.8%)
 
0
 
0
 
0
Musculoskeletal and connective tissue disorders
 
1 (3.8%)
 
0
 
0
 
0
 
0
 
2 (2.4%)
Benign, malignant and unspecified neoplasms (including cysts and polyps)
 
0
 
0
 
0
 
0
 
1 (1.2%)
 
2 (2.4%)
Nervous system disorders
 
1 (3.8%)
 
1 (4.0%)
 
1 (3.8%)
 
1 (2.4%)
 
3 (3.6%)
 
1 (1.2%)
Psychiatric disorders
 
0
 
0
 
1 (3.8%)
 
0
 
0
 
1 (1.2%)
Respiratory, thoracic and mediastinal disorders
 
0
 
1 (4.0%)
 
0
 
0
 
2 (2.4%)
 
3 (3.6%)
The number of patients with one or more systemic TEAEs, including serious systemic TEAEs, identified by the investigator as related to the study drug (Zimura or sham) are set forth in the table below:
Reported Systemic Treatment Emergent Adverse Events (TEAEs) Related to Zimura or Sham
 
 
Part 1
 
Part 2
 
 
Zimura 1mg
(N = 26)
 
Zimura 2mg
(N = 25)
 
Sham
(N = 26)
 
Zimura 2mg
(N = 42)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Subjects with at least one TEAE
 
0
 
0
 
0
 
0
 
0
 
0
The number of patients with one or more ocular TEAEs in the study eye are set forth in the table below:
Reported Ocular TEAEs in Study Eyes
 
 
Part 1
 
Part 2
 
 
Zimura 1mg
(N = 26)
 
Zimura 2mg
(N = 25)
 
Sham
(N = 26)
 
Zimura 2mg
(N = 42)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Eye disorders
 
12 (46.2%)
 
8 (32.0%)
 
4 (15.4%)
 
24 (57.1%)
 
50 (60.2%)
 
33 (39.3%)
Eye disorders related to injection procedure
 
3 (11.5%)
 
4 (16.0%)
 
2 (7.7%)
 
14 (33.3%)
 
36 (43.4%)
 
23 (27.4%)

    

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All of the above TEAEs that were not related to the injection procedure were also not related to the study drug. The number of patients with one or more ocular TEAEs in the study eye, identified by the investigator as related to the study drug (Zimura or sham) is set forth in the table below:
Reported Ocular TEAEs in the Study Eye Related to Zimura or Sham
 
 
Part 1
 
Part 2
 
 
Zimura 1mg
(N = 26)
 
Zimura 2mg
(N = 25)
 
Sham
(N = 26)
 
Zimura 2mg
(N = 42)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Subjects with at least one TEAE
 
0
 
0
 
0
 
0
 
0
 
0
Incidence of CNV. During the first 12 months of this trial, the incidence of CNV in the untreated fellow eyes was 10 patients (3.5%) and in the study eyes was 3 patients (2.7%) in the sham group, 1 patient (4.0%) in the Zimura 1mg group, 6 patients (9.0%) in the Zimura 2mg group, and 8 patients (9.6%) in the Zimura 4mg group.
Statistical Analysis for Efficacy Measures
OPH2003 was designed as a Phase 2b screening trial based on the criteria described by Drs. Thomas Fleming and Barbara Richardson in their publication regarding clinical trial design in the context of microbicides for the prevention of HIV in the Journal of Infectious Disease in 2004. A screening trial uses the same primary efficacy endpoint as an anticipated Phase 3 clinical trial that would be used to support potential regulatory approval. However, screening trials generally have a considerably smaller sample size than the anticipated Phase 3 clinical trial. Because it is particularly important to avoid false negative outcomes in a screening trial, screening trials may have higher false positive error rates than would typically be allowed in a Phase 3 trial.
A Phase 2b screening trial has three possible outcomes:
If the estimated effect size indicates low levels of benefit, the experimental intervention would be judged as not plausibly more efficacious than the sham control, and should be discarded in its current dosage in the indication evaluated; or
If the estimated effect size is moderate but clinically relevant, with a relatively low likelihood of being achieved (for example, a probability of less than 10%), if there truly were no effect, the experimental intervention would be judged as plausibly more efficacious than the sham control and should be evaluated definitively in subsequent Phase 3 clinical trials.
If the estimated effect size is clinically relevant and reaches the traditional threshold for statistical significance, as was the case in the OPH2003 trial for both the Zimura 2mg and Zimura 4mg dose groups as compared to the corresponding sham control groups, the trial could potentially serve as one of the two pivotal trials typically required for regulatory approval.
A properly designed Phase 2b screening trial has a considerable likelihood of ruling out ineffective or harmful interventions, while providing encouraging (or even statistically significant) evidence of benefit that likely would require confirmation by one additional, independent Phase 3 trial.
For the primary and secondary efficacy analysis, we evaluated the ITT, or intent-to-treat, population, which includes all patients who were randomized in the trial and who received at least one dose of study drug in the relevant treatment group.
The statistical evidence from the OPH2003 trial regarding the comparison of Zimura 2 mg to sham control is provided by data from both Part 1, with a 1:1 randomization ratio of patients to Zimura 2mg (25 patients) and to sham (26 patients), as well as data from Part 2, with a 1:2 randomization ratio of patients to Zimura 2mg (42 patients) and to sham (84 patients), for a total of 67 patients receiving Zimura 2mg and 110 patients receiving sham. While we believe it is fully appropriate to use the aggregate data from Parts 1 and 2 in the analysis of the relative effects of Zimura 2mg as compared to sham, it would not be appropriate to simply pool the data from patients in both Parts 1 and 2, in particular, because the randomization fraction differs across these two parts of the trial. However, based on the randomization procedures used in each part of the trial, for purposes of statistical comparisons, within Part 1 of the trial, the 25 patients receiving Zimura 2mg should be comparable to the 26 patients receiving sham. Similarly, for purposes of statistical comparisons, within Part 2 of the trial, the 42 patients receiving Zimura 2mg should be comparable to the 84 patients receiving sham. The efficacy of Zimura 2mg was therefore evaluated through an analysis which included a regression factor by trial part. The statistical analysis for the Zimura 4mg group as compared to sham compares data for patients from Part 2 of the trial only. Data from patients receiving Zimura 1mg in Part 1 of the trial was not part of the prespecified statistical analysis for the efficacy endpoints.

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The prespecified statistical analysis plan for the primary and secondary endpoints of this trial used a model of repeated measures, or MRM, to compare data for the Zimura 2mg and Zimura 4mg groups to the corresponding sham groups.  MRM analysis is a commonly used method to interpret and analyze a longitudinal data set that may be missing data points. During the course of a clinical trial, patients may withdraw from the clinical trial because their condition is asymptomatic, because patients believe that continued participation in the trial is not justified based on the time commitment or treatment burden, such as receiving monthly intravitreal injections, at the recommendation of the investigator or because the protocol requires it. Additionally, patients may not come to a scheduled visit at which key assessments are scheduled to be taken or patient data may not be evaluable because of poor image quality or data recording errors. Early withdrawal, missed visits and unevaluable data all result in data missing from the final data set for a clinical trial. Although the protocol called for collection of FAF images of GA at baseline, at month 6 and at month 12, for patients who withdrew from the trial before month 12, the study protocol required the collection of an FAF image to provide a measurement of GA at the time of withdrawal, which was included in the primary analysis so long as it was taken within the month prior to month 6 or month 12 time point. The MRM analysis would need measurements from at least two different time points for modeling purposes and therefore patients with at least two GA measurements were included in the analysis.
The following table sets forth for the data in the primary statistical analysis the number of patients for whom GA measurements were missing for purposes of performing this analysis. Patients whose GA measurements were missing at baseline, or at month 6 and month 12, could not be included in the primary analysis. All other patients were included in the primary analysis.
Cohort
 
Zimura 2mg
(N = 67)
 
Sham 2mg
(N = 110)
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
Missing GA measurement at BL, M6 and M12
 
0 (0%)
 
0 (0%)
 
0 (0%)
 
0 (0%)
Missing GA measurement at M6 and M12 only
 
8 (11.9%)
 
11 (10.0%)
 
17 (20.5%)
 
5 (6.0%)
Missing GA measurement at BL only
 
0 (0%)
 
0 (0%)
 
1 (1.2%)
 
0 (0%)
Total patients excluded from MRM analysis
 
8 (11.9%)
 
11 (10%)
 
18 (21.7%)
 
5 (6.0%)
Missing GA measurement at M6 only
 
1 (1.5%)
 
7 (6.4%)
 
3 (3.6%)
 
6 (7.1%)
Missing GA measurement at M12 only
 
10 (14.9%)
 
9 (8.1%)
 
11 (13.3%)
 
7 (8.3%)
No missing GA measurements(a) 
 
48 (71.6%)
 
83 (75.5%)
 
51 (61.5%)
 
66 (78.6%)
Total patients included in MRM analysis
 
59 (88.0%)
 
99 (90.0%)
 
65 (78.3%)
 
79 (94.1%)
BL = Baseline; M6 = Month 6; M12 = Month 12
(a) = complete observations
In total, 53 (18.5%) of patients withdrew from the trial during the first 12 months. Of the patients who withdrew during the first 12 months, 2 patients were from the Zimura 1mg group (7.7% withdrawals), 12 patients were from the combined Zimura 2mg group (17.9% withdrawals), 25 patients were from the Zimura 4mg group (30.1% withdrawals) and 14 patients were from the combined sham group (12.7% withdrawals). GA measurements for patients who withdrew from the study prior to the month 12 time point may have been included in the MRM analysis, as detailed in the table above.
Sensitivity analyses. We performed several sensitivity analyses to assess the impact of missing data on the robustness of the OPH2003 trial results.  The analyses we performed were based on approaches that the FDA generally recommends sponsors of investigational products use to evaluate their clinical data. Based on these analyses, and accounting for the data missing from our data set because of patient withdrawals or for other reasons, the statistical analysis for the 12 month data from the OPH2003 clinical trial appear to be robust. Descriptions of these sensitivity analyses and their outcomes are summarized below. For a description of the thresholds we used to determine statistical significance on the primary efficacy endpoint, see the paragraph below the tables below under "Primary Efficacy Endpoint Data."
A "shift imputation" approach, in which missing data are imputed, or replaced, by values calculated from similar patients with observed values, plus a defined shift. The analysis is repeated assuming a progressively larger shift with each iteration.  The analysis becomes increasingly conservative as the shift increases (because missing values are replaced by worse values than would have been observed, had the values not been missing). The shift is increased until a tipping point is reached and statistical significance is lost. If significance is lost for smaller shift values, the results of the analyses are sensitive to missing data, whereas if significance is lost for larger shift values, the results of the analyses are robust to missing data.
A shift of at least 0.05mm in terms of square root of GA was required to lose statistical significance for both the Zimura 2mg and Zimura 4mg groups. The difference between the Zimura treatment groups and the corresponding

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sham groups, in terms of mean change of square root of GA, was 0.11mm for the Zimura 2mg group and 0.12mm for the Zimura 4mg group, so a shift of 0.05mm represents more than 40% of the observed treatment effect, which is large.
Arbitrary imputation approaches, in which missing data are replaced by:
the mean value of same treatment group, which seems a reasonable imputation approach since it replaces missing values by the mean of all observed values in the same treatment group;
the mean value of comparator treatment group, which is a very conservative approach. If there is a treatment effect, missing values in the sham control group are replaced by better values, on average, from the Zimura treatment group, while missing values in the Zimura treatment group are replaced by worse values, on average, from the sham control group;
the mean value of both treatment groups, which is a conservative approach because it assumes no treatment effect for missing values; and
the mean value of the sham control group, which is also a conservative approach because it draws only upon data from the sham control group, which by definition did not have any treatment benefit.
Statistical significance for the reduction in mean rate of GA growth for the Zimura 2mg and Zimura 4mg groups as compared to the corresponding sham groups was retained for all arbitrary imputation approaches.
A “pattern mixture model imputation” approach, which is a technically complex model and is especially useful when data are suspected to be missing “not at random”.
Statistical significance for the reduction in mean rate of GA growth for the Zimura 2mg and Zimura 4mg groups as compared to the corresponding sham groups was retained for the pattern mixture model imputation approach, which suggests again that the results of the analyses are robust to missing data, even if these data had been missing not at random.
Based on our sensitivity analyses, and accounting for the data missing from our data set because of patient withdrawals or for other reasons, we believe the statistical analysis for the 12 month data from the OPH2003 clinical trial is robust.
Primary Efficacy Endpoint Data
The prespecified primary efficacy endpoint was an anatomic endpoint, the mean change in rate of GA growth over 12 months, as measured by FAF based on readings at three time points: baseline, month 6 and month 12, calculated using the square root transformation of the GA area. The readings were performed by an independent masked reading center. The primary efficacy endpoint data are summarized in the following table:
Mean Rate of Change in Geographic Atrophy (GA) Area from Baseline to Month 12
(MRM Analysis) (Square Root Transformation)
Cohort
 
Zimura 2mg
(N = 67)
 
Sham 2mg
(N = 110)
 
Difference
 
P-value
 
% Difference
Mean Change in GA(a) (mm)
 
0.292(b)
 
0.402(b)
 
0.110
 
0.0072(c)
 
27.38%

Cohort
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
 
Difference
 
P-value
 
% Difference
Mean Change in GA(a) (mm)
 
0.321
 
0.444
 
0.124
 
0.0051(c)
 
27.81%
(a)
= based on the least squared means from the MRM model.
(b)
= these least squared means are estimates from the MRM model, drawing on all available data, including data from groups with different randomization ratios in Part 1 and Part 2, and should not be interpreted as directly observed data.
(c)
= reflects statistically significant p-value; Hochberg procedure was used for significance testing.
    

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The analysis of the mean change in GA for Zimura 2mg vs. Sham 2mg was adjusted for the fact that this dose of Zimura was tested in the two parts of the trial, which had different randomization ratios. The least squared mean changes in GA in Part 1 and Part 2 are shown separately in the following table:
Mean Rate of Change in Geographic Atrophy (GA) Area from Baseline to Month 12
(MRM Analysis) (Square Root Transformation)
Cohort
 
 
 
Zimura 2mg
(N = 25)
 
Sham 2mg
(N = 26)
 
Difference
Part 1
 
Mean Change in GA(a) (mm)
 
0.329
 
0.422
 
0.093
(a)
= based on the least squared means from the MRM model
Cohort
 
 
 
Zimura 2mg
(N = 42)
 
Sham 2mg
(N = 84)
 
Difference
Part 2
 
Mean Change in GA(a) (mm)
 
0.308
 
0.422
 
0.114
(a)
= based on the least squared means from the MRM model
When the data from the Zimura 2mg comparisons from each Part of the trial are combined in the MRM model, the mean difference in GA growth over 12 months between the Zimura 2mg and sham control groups is 0.110 mm, as indicated in the combined analysis in the tables above.
Statistical significance is established by performing statistical analysis on a data set to assess the degree to which an observed outcome is likely to be associated with variability in the studied patient population or chance as compared to the impact of the investigational product being studied. A higher degree of statistical significance is associated with a lower p-value. Typically, a two-sided p-value of 0.05 or less represents statistical significance when performing only a single prespecified primary analysis for a single primary endpoint. However, when multiple doses of a drug are tested a more stringent statistical method that accounts for multiple comparisons must be applied. For this purpose, we used the Hochberg multiple comparison procedure to assess the statistical significance of the results observed in the OPH2003 trial. Under the Hochberg procedure, it is necessary to use a stricter standard for statistical significance (a two-sided p-value of 0.025 or less) for any particular dose. For OPH2003, the results for the primary efficacy endpoint observed for both the Zimura 2mg and Zimura 4mg groups, as compared to the corresponding sham group, achieved p-values of 0.0072 and 0.0051, respectively, both of which are less than 0.025, indicating that both results were statistically significant.
Secondary Efficacy Endpoints Data
The prespecified secondary endpoints in this trial were the mean change in BCVA (ETDRS letters) from baseline to month 12 and the mean change in LL BCVA (ETDRS letters) from baseline to month 12. As we believe that BCVA may not be the optimal assessment to evaluate the impact of GA on patients’ functional vision, we included vision in the prespecified analysis as a secondary, and not as a primary, endpoint. Testing for visual acuity also serves as an important safety assessment to assure that the decrease in visual acuity in the Zimura treatment groups was not different from the sham control groups.
The OPH2003 trial was not designed to reliably assess differences in mean changes in BCVA or LL BCVA with statistical significance. Data for the secondary endpoints are summarized in the following tables:
Mean Change in Best Corrected Visual Acuity (BCVA) from Baseline to Month 12
(MRM Analysis) (ETDRS letters)
Cohort
 
Zimura 2mg
(N = 67)
 
Sham 2mg
(N = 110)
 
Difference
Mean Change in BCVA(a)
 
-7.90(b)
 
-9.29(b)
 
1.39
Cohort
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
 
Difference
Mean Change in BCVA(a)
 
-3.79
 
-3.51
 
-0.28
(a)
= based on the least squared means from the MRM model
(b)
= these least squared means are estimates from the MRM model, drawing on all available data, including data from groups with different randomization ratios in Part 1 and Part 2, and should not be interpreted as directly observed data.


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Mean Change in Low Luminance Best Corrected Visual Acuity (LL BCVA) from Baseline to Month 12
(MRM Analysis) (ETDRS letters)
Cohort
 
Zimura 2mg
(N = 67)
 
Sham 2mg
(N = 110)
 
Difference
Mean Change in LL BCVA(a)
 
-1.03(b)
 
-1.41(b)
 
0.38
Cohort
 
Zimura 4mg
(N = 83)
 
Sham 4mg
(N = 84)
 
Difference
Mean Change in LL BCVA(a)
 
1.53
 
2.97
 
-1.44
(a)
= based on the least squared means from the MRM model
(b) = these least squared means are estimates from the MRM model, drawing on all available data, including data from groups with different randomization ratios in Part 1 and Part 2, and should not be interpreted as directly observed data.

Zimura 1mg 12-Month Efficacy Data.
Efficacy data from patients receiving Zimura 1mg was not part of the prespecified statistical analysis. The total number of patients randomized to the Zimura 1mg group (26 patients) is relatively small, and the trial was not powered to reliably assess differences in outcomes for these patients as compared to patients in the sham control group in Part 1 (26 patients). However, we performed descriptive analyses on the 12 month data for patients in the Zimura 1mg as compared to the patients in the sham control group in Part 1 of the trial to aid our assessment of whether a dose response relationship was present across treatment groups included in the clinical trial.
GA area data for the Zimura 1mg group and the sham group from Part 1 of the trial are summarized in the following tables:
Summary of Geographic Atrophy (GA) Area (mm) and Mean Percentage Change from Baseline to Month 12
(Square Root Transformation)
Cohort
 
Zimura 1mg
(N = 26)
 
Sham Part 1
(N = 26)
Mean Sq. Root of GA at BL, mm (SD)
 
2.591 (0.827)
 
2.623 (0.687)
Mean Sq. Root of GA at M12, mm (SD)
 
3.055 (0.604)
 
3.021 (0.722)
Difference
 
0.464
 
0.398
Mean % Change(a) (SD)
 
14.48% (8.2%)
 
16.49% (7.2%)
BL = Baseline; M12 = Month 12
(a) Mean % Change in GA area is an average of the percentage change in GA area observed for each patient.

Although the sample size for the Zimura 1mg group is small, we believe the apparent reduction in mean percentage change in GA area from baseline to month 12 in the Zimura 1mg group as compared to the sham control group in Part 1, when combined with the statistically significant results observed for the primary efficacy endpoint for the Zimura 2mg and Zimura 4mg groups as compared to their corresponding sham control groups, is suggestive of a potential dose response relationship across treatment groups.
    

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Anticipated 18-Month Data
In accordance with the clinical trial protocol, we will continue to treat and follow patients over 18 months to collect additional data for Zimura in GA. Once all patients reach the 18 month time point, we expect that we will receive unmasked individual patient data for all evaluations performed throughout the trial, and, for each treatment group, mean change in the GA lesion area over 18 months and mean BCVA and mean LL BCVA at month 18. We are not planning to perform any prespecified statistical analyses with respect to the 18 month data as the trial was not designed to reliably assess differences between the Zimura treatment groups and corresponding sham control groups.
Requirements for Regulatory Approval of Zimura in GA
To obtain regulatory approval for Zimura for the treatment of geographic atrophy secondary to dry AMD, we expect that we will need to obtain favorable results from a total of two adequate and well-controlled pivotal clinical trials, demonstrating the safety and efficacy of Zimura in this indication. To establish efficacy, we believe it would be sufficient to demonstrate robust, statistically significant results showing a clinically relevant reduction in the rate of growth of GA over 12 months, based on measurements over three time points (baseline, month 6 and month 12). We selected this measure as the primary endpoint for the OPH2003 trial based on our prior interactions with the FDA, as well as our understanding of clinical trials for other investigational products in development for the treatment of GA. We designed the OPH2003 trial as a well-controlled screening trial such that, in the event that the prespecified primary efficacy endpoint results were statistically significant, the trial could potentially qualify as a pivotal clinical trial for registration purposes. Based on the results we have received, the statistical analysis that we have performed and preliminary, informal discussions we have had with the FDA, we believe that the safety and efficacy results from our OPH2003 international, randomized, double masked, sham controlled, multi-center clinical trial could potentially satisfy the FDA’s requirements as one of the two pivotal clinical trials typically required for marketing approval. In the paragraphs that follow, we describe in detail the basis for our belief.
Requirements for Safety Data
Zimura has generally been well tolerated in our clinical trials to date. Over the 12-month time point for all patients in the OPH2003 trial, there were no reported ocular serious adverse events, no Zimura-related adverse events, no cases of Zimura-related intraocular inflammation, no cases of Zimura-related increased intraocular pressure, no cases of endophthalmitis, and no discontinuations attributed by investigators to Zimura in the trial. We believe the observed CNV incidence rate in the study eye for patients receiving Zimura as compared to sham and the untreated fellow eyes during the first 12 months of the trial is within an acceptable range when compared to published clinical trial data for another complement inhibitor currently in development for GA. The most frequently reported ocular adverse events in the OPH2003 trial were related to the injection procedure.
To demonstrate the safety of Zimura to a degree sufficient to support approval, we believe that the FDA and EMA would require data from a minimum of 300 patients having received the dose of Zimura for which we are seeking approval, or a higher Zimura dose, for a minimum of 12 months, with 24-month safety data available for some portion, but not all, of these 300 patients. Including patients randomized to the Zimura 4mg group in the OPH2005 trial of Zimura for STDG1, we expect that we will have 12-month safety data for approximately 145 patients who will have received monthly Zimura 2mg or Zimura 4mg once we receive initial top-line data from the OPH2005 clinical trial during the second half of 2020. Therefore, based on the safety profile of Zimura observed in these patients to date and the number of patients treated, we believe that the remaining minimum safety requirements could potentially be satisfied through a single additional, pivotal clinical trial providing for monthly administration of Zimura over 12 months, at which point the primary efficacy analysis would be performed, with treatment extending to 24 months for the overall safety analysis, with the potential for less frequent dosing regimen after month 12.
Requirements for Efficacy Data
As described above, we believe that reduction in the rate of GA growth over 12 months, based on measurements over three time points (baseline, month 6 and month 12) is an efficacy endpoint that the FDA and EMA would likely accept in considering Zimura for approval for the treatment of GA secondary to dry AMD. The measurements for this endpoint are performed by a masked independent reading center to minimize the potential for bias.
Statistical Significance. In our OPH2003 trial, the reduction in the mean rate of GA growth over 12 months was 0.110 mm (p-value = 0.0072) for the Zimura 2 mg group as compared to the corresponding sham control group and 0.124 mm (p-value = 0.0051) for the Zimura 4 mg group as compared to the corresponding sham control group, corresponding to an approximate 27% relative reduction in the mean rate of GA growth over 12 months when compared with sham. These data for both dose groups were statistically significant. See above under “Primary Efficacy Endpoint Data” for a discussion of the procedures we used to verify the statistical significance of these data.

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Clinical Relevance. Clinical relevance refers to an assessment of how meaningful the observed outcome is or would be for patients. The FDA and other regulatory authorities consult with clinicians in the field of study to advise on the relevance of an observed outcome for patients. As there are no FDA or EMA approved therapies for the treatment of GA secondary to dry AMD, we do not yet know for certain what outcomes the FDA and other regulatory authorities will consider to be clinically relevant for this indication. However, since established literature and clinical experience indicates that patients functional vision is impacted by the growth of the GA over time, which ultimately leads to severe vision loss, we believe that reduction of GA growth would have a meaningful impact on the patients’ well-being and quality of life and therefore is clinically relevant.
To secure approval to market an investigational product, a sponsor must demonstrate to the applicable regulatory authority that the potential benefits to be conferred to patients outweigh the potential risks associated with a treatment.
Robustness. In addition to statistical significance and clinical relevance, data from pivotal clinical trials must be robust. The International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use defines robustness as a concept that refers to the sensitivity of the overall conclusions to various limitations of the data, assumptions, and analytic approaches to data analysis. OPH2003 is an international, randomized, double masked, sham controlled, multi-center clinical trial. The primary endpoint is an objective anatomic endpoint based on measurements performed by a masked independent reading center. The images are analyzed by two experienced image readers, with any discrepancy of greater than 10% arbitrated by the reading center director, who is a recognized expert in the field of GA.
In clinical trials, it is common for data for some number of subjects to be missing for assessments performed throughout the trial. The degree of data that is missing from a clinical data set can impact the robustness of the data. See above under “Statistical Analysis for Efficacy Measures” for information regarding the GA measurement data that was missing from the analysis of the primary efficacy endpoint in the OPH2003 trial, as well as a description of the sensitivity analyses we have performed. Based on our sensitivity analyses, and accounting for the data missing from our data set because of patient withdrawals or for other reasons, we believe the statistical analysis for the 12 month data from the OPH2003 trial is robust.
Although we seek to apply our enrollment criteria consistently, there may be instances where an investigator proposes a patient to participate in the trial and the reading center determines that, although a patient may not meet all criteria precisely, participation in the trial is warranted based on the overall GA pattern and size. For example, this can result in the enrollment of patients with baseline GA area slightly below 1 disc area, as was the case with one patient each in the Zimura 4mg group and the Part 2 sham control group (which is part of the comparison for both the Zimura 2mg and Zimura 4mg groups). These patients have been included in the ITT analysis for our primary efficacy endpoint. The FDA, EMA or other regulatory authorities may not agree with the inclusion of these patients in our statistical analysis, which could impact the robustness of our conclusions.
Currently, the trial is ongoing and patients continue to be treated and followed for an additional six months after the 12-month time point. We do not expect to receive the full data set with individual patient data unmasked as to treatment group until after the month 18 visit is completed for all patients. It is possible that unexpected or inconsistent findings could emerge based on additional data we receive for the period between months 12 and 18 or based on the full data set with unmasked, individual patient data. We may uncover individual patient data that causes us to re-evaluate and potentially change our initial conclusions based on the data we have received and our sensitivity analyses performed to date. Ultimately, for the OPH2003 trial to be accepted as a pivotal trial, the FDA, EMA and other regulatory authorities would need to agree that the overall data package from the OPH2003 trial and a subsequent pivotal clinical trial meet the applicable requirements and are sufficiently robust to demonstrate an acceptable safety profile, together with a clinically relevant efficacy outcome with statistical significance, and support an overall favorable benefit-to-risk determination.
Phase 3 Design and Activities
Based on the foregoing, assuming that Zimura’s safety profile remains consistent with findings observed to date and subject to regulatory review of the robustness of the OPH2003 trial results, we believe that one additional international, randomized, double masked, sham controlled, pivotal Phase 3 clinical trial may be needed to demonstrate the safety and efficacy of Zimura in GA secondary to dry AMD in a manner sufficient to support an application for regulatory approval from the FDA and EMA in this indication. We expect that such a randomized, sham controlled, pivotal Phase 3 clinical trial would include a primary efficacy analysis at 12 months, with patients continuing to be treated and followed for a total of 24 months. Patients would likely receive monthly administrations of Zimura or monthly sham injections for the first 12 months of the trial, with the potential to modify the treatment regimen for less frequent administrations during the second 12 months. We will continue to analyze the OPH2003 data to determine the number of patients this Phase 3 clinical trial would likely need to include, as well as the relevant dose level or levels, to potentially demonstrate a clinically relevant outcome with statistical significance and to satisfy the safety requirements of the FDA and other regulatory authorities.

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We expect that the design of the Phase 3 clinical trial, including the inclusion and exclusion criteria and primary outcome measure, would be similar to the design used for the OPH2003 trial, although we may potentially modify the protocol for patients who develop CNV in the study eye during the trial. As discussed above, when we initiated the OPH2003 study, we did not believe that reliable measurements of GA by FAF images for patients with CNV in the study eye could be performed. Therefore, in the clinical trial protocol for the OPH2003 trial, we indicated that patients in any arm of the trial who developed CNV in the study eye would be removed from the trial and any future study treatments and assessments. Based on additional third-party clinical data published since the OPH2003 trial commenced, we believe that GA for patients developing CNV in the study eye (and who receive standard of care anti-VEGF treatment for the CNV) could potentially be assessed reliably by FAF. Pending discussions with our independent reading center, we may modify the protocol for the Phase 3 trial, as compared to the protocol for OPH2003, to provide that patients who develop CNV in the study eye will remain in the trial and continue to receive the study drug, standard of care anti-VEGF treatment, and be followed to collect additional data to be included in our analysis. We also may evaluate additional secondary efficacy endpoints, in addition to, or in lieu of mean change in BCVA and mean change in LL BCVA.
Our belief and understanding of the remaining clinical requirements to demonstrate the safety and efficacy of Zimura for the treatment of GA secondary to dry AMD in a manner sufficient to support an application for regulatory approval from the FDA and EMA is based on our review of initial, top-line data from the OPH2003 trial as well as preliminary, informal discussions with the FDA. Our expectations regarding the minimum clinical requirements to demonstrate the safety and efficacy of Zimura for GA may change as we continue to review and analyze the OPH2003 12-month clinical data set, as 18-month clinical data from OPH2003 becomes available, and as new regulatory or third party information becomes available.
We have commenced site selection and planning activities for the Phase 3 clinical trial for Zimura in GA. We have drug supply available to begin such a trial and plan to begin enrolling patients in the trial during the first quarter of 2020.
OPH2005: Phase 2b Clinical Trial for Autosomal Recessive Stargardt Disease (STGD1)
OPH2005 is an ongoing, randomized, double masked, sham controlled, multi-center Phase 2b clinical trial evaluating the safety and efficacy of Zimura for the treatment of STGD1. Similar to OPH2003, OPH2005 was designed to be a Phase 2b screening trial, with the potential to demonstrate statistically significant results depending on the magnitude of the potential benefit observed. We completed enrollment for this clinical trial in February 2019 with a total of 95 patients enrolled. This trail remains on track and we expect that initial, top-line data from this clinical trial will be available during the second half of 2020.
HtrA1 Inhibitor Program
We are pursuing the preclinical development of certain HtrA1 inhibitors, to which we acquired rights through our October 2018 acquisition of Inception 4, Inc., or Inception 4, for the treatment of GA secondary to dry AMD. Our HtrA1 inhibitor program includes a number of lead small molecule compounds that show high affinity and specificity for HtrA1 when tested, as well as a number of backup compounds. We are pursuing process development and formulation development with the goal of identifying a viable manufacturing process and a formulation for intravitreal application in the eye. If we are successful in identifying a viable manufacturing process for and formulating a product candidate from this program, we plan to initiate IND-enabling activities for the selected product candidate. Based on current timelines and subject to successful completion of preclinical development and regulatory review, we plan to file an IND for a product candidate from this program during 2021.
Gene Therapy Research and Development Programs
IC-100: Product Candidate for RHO-adRP
We are pursuing the preclinical development of IC-100, our novel AAV gene therapy product candidate for the treatment of RHO-adRP. We acquired exclusive development and commercialization rights to IC-100 through a June 2018 license agreement with the University of Florida Research Foundation, or UFRF, and the University of Pennsylvania, or Penn. We and Penn are conducting additional preclinical studies of IC-100 and a natural history study of RHO-adRP patients. In parallel, we have engaged a gene therapy contract development and manufacturing organization, or CDMO, as the manufacturer for preclinical and Phase 1/2 clinical supply of IC-100. Process development is ongoing and we are planning for Phase 1/2 clinical manufacturing and other IND-enabling activities. Based on current timelines and subject to regulatory review, we expect to initiate a Phase 1/2 clinical trial for IC-100 during the second half of 2020.
IC-200: Product Candidate for BEST1-Related IRDs
We are pursuing the preclinical development of IC-200, our novel AAV gene therapy product candidate for the treatment of BEST1-related IRDs, including Best disease. We acquired exclusive development and commercialization rights to IC-200 through an April 2019 license agreement with Penn and UFRF. We and Penn are conducting additional preclinical studies of IC-200 and natural history studies of patients with BEST1-related IRDs. In parallel, we have engaged a gene therapy

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CDMO as the manufacturer for pre-clinical and Phase 1/2 clinical supply of IC-200. Process development is ongoing and we are planning for Phase 1/2 clinical manufacturing and other IND-enabling activities. Based on current timelines and subject to regulatory review, we expect to initiate a Phase 1/2 clinical trial for IC-200 during the first half of 2021.
Minigene Therapy Research Programs
AAV vectors are generally limited as a delivery vehicle by the size of their genetic cargo, which is restricted to approximately 4,700 base pairs of genetic code. The use of "minigenes" seeks to deliver a smaller but still functional form of a larger gene packaged into a standard-size AAV delivery vector. The predominant or standard, non-mutated form of a gene is referred to as the wildtype form, and the protein resulting from expression of the wildtype gene is referred to as wildtype protein. The goal of minigene therapy is to deliver a gene expressing a protein that, although different from the wildtype protein, is nonetheless functional for purposes of treating the associated disease.
We are funding multiple sponsored research programs at the University of Massachusetts Medical School, or UMMS, seeking to use a minigene approach to develop new gene therapies for orphan IRDs. We refer to each of these programs by reference to the gene of interest for which we are seeking to create a minigene therapy. We refer to these programs collectively as our collaborative gene therapy sponsored research programs. We receive research results from these programs as they become available. UMMS has granted us an option to obtain an exclusive license to any patents or patent applications that result from these programs.
miniCEP290 Program for LCA10
One of the minigene research programs, which we refer to as the miniCEP290 program, is targeting LCA10, which is associated with mutations in the CEP290 gene. The naturally occurring CEP290 gene is approximately 8,000 base pairs. In a 2018 publication in Human Gene Therapy, researchers at UMMS presented their findings that injection of a CEP290 minigene into a newborn mouse model for LCA10 resulted in rescue of photoreceptor cells, as evidenced by both anatomical and functional measures. The goal of the sponsored research was to create and evaluate other CEP290 minigene constructs in the mouse model and optimize the effect observed in that publication.
Encouraged by the results of the sponsored research we received to date, through which we have identified what we believe are multiple promising minigene constructs, we exercised our option and in July 2019 entered into a license agreement for exclusive development and commercialization rights to patent rights and know-how for this program. The sponsored research is ongoing and UMMS is continuing to test additional CEP290 minigene constructs. We plan to continue to advance our miniCEP290 program with the constructs that appear most promising with the goal of identifying a lead product candidate in the first half of 2020 to advance into preclinical development and IND-enabling activities.
miniABCA4 Program for STGD1
Another of the minigene research programs, which we refer to as the miniABCA4 program, is targeting STGD1, which is associated with mutations in the ABCA4 gene. UMMS is constructing and evaluating several ABCA4 minigene constructs in both in vitro and in vivo experiments. We expect to receive results from the miniABCA4 program in 2020.
miniUSH2A Program for USH2A-Related IRDs
In July 2019, we entered into a sponsored research agreement with UMMS for USH2A-related IRDs. We refer to this program as the miniUSH2A program. This program will employ the minigene approach for the USH2A gene, which encodes a protein called usherin. Usherin is believed to be important in the development and maintenance of cells in the retina and the inner ear. Usher 2A is an autosomal recessive genetic condition characterized by hearing loss from birth and progressive vision loss, due to retinitis pigmentosa, that begins in adolescence or adulthood. USH2A-associated nonsyndromatic autosomal recessive retinitis pigmentosa is a genetic condition that manifests as vision loss without associated hearing loss. The miniUSH2A program seeks to develop an AAV deliverable, mutation independent, minigene therapy option for the vision loss associated with USH2A mutations. There are currently no U.S. Food and Drug Administration, or FDA, or European Medicines Agency, or EMA, approved therapies to treat Usher 2A or USH2A-associated nonsyndromatic autosomal recessive retinitis pigmentosa.

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Research and Development Pipeline
We have summarized the current status of our ongoing research and development programs in the table below. We have given an IC number (IC-100 and IC-200) to our preclinical gene therapy product candidates. In the future, we intend to give an IC number to other gene therapy product candidates that advance to preclinical development from our collaborative gene therapy sponsored research programs or that we in-license or acquire, in each case, once a lead product candidate is identified for a particular program.
https://cdn.kscope.io/6e22d680b1de6091f1c93436fb68a997-pipelinechartq3.jpg
Business Development Activities
Since early 2017, we have been pursuing a business development strategy to evaluate available technologies to treat ophthalmic diseases, particularly those in the back of the eye, and to explore opportunities to obtain rights to additional products and product candidates employing these technologies. As we evaluated numerous potential opportunities, we have come to believe that gene therapy is a promising treatment modality for retina diseases for which there are significant unmet medical needs. Our efforts have resulted in the expansion of our research and development pipeline and the transition of our company to focus principally on gene therapy. We expect to continue to evaluate, on a selective basis, opportunities to potentially obtain rights to additional gene therapy product candidates and technologies for retinal diseases. We intend to continue to focus on opportunities that present a compelling scientific rationale, have the potential to address an unmet medical need and present a meaningful commercial opportunity. To the extent feasible, we plan to target opportunities where we believe third-party funding for specific programs or technologies may be available.
In addition, based on the initial, top-line data from our OPH2003 trial of Zimura in GA, we intend to explore all options for the future development and potential commercialization of Zimura, including potential collaboration and out-licensing opportunities.
Financial Matters
As of September 30, 2019, we had cash and cash equivalents of $94.9 million. We believe that our cash and cash equivalents will be sufficient to fund our operations and capital expenditure requirements as currently planned through the first half of 2021. In addition, we reaffirm our prior estimate that year-end 2019 cash and cash equivalents will range between $80 million and $85 million. These estimates are based on our current business plan, including the continuation of our current research and development programs and the site selection and planning activities for our Phase 3 clinical trial for Zimura in GA. These estimates do not reflect any additional expenditures, including associated development costs, in the event we in-license or acquire any new product candidates or commence any new sponsored research programs. We have based these

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estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.
Financial Operations Overview
Revenue
As we have no products approved for sale, we do not expect to receive any revenue related to our product candidates until we obtain regulatory approval for and commercialize such products, or until we potentially enter into agreements with third parties for the development and commercialization of our product candidates. If our development efforts for any of our product candidates result in regulatory approval or if we enter into agreements with third parties, including for any collaborations or outlicensing of rights for further development and potential commercialization of Zimura, we may generate revenue from product sales or from such third parties.
Research and Development Expenses
Our research and development expenses primarily consist of costs associated with the manufacturing, development, and preclinical and clinical testing of our product candidates and costs associated with our collaborative gene therapy sponsored research programs. Our research and development expenses consist of:
external research and development expenses incurred under arrangements with third parties, such as academic research collaborators, contract research organizations, or CROs, and CDMOs and other vendors for the production and analysis of drug substance and drug product; and
employee-related expenses for employees dedicated to research and development activities, including salaries, benefits and share-based compensation expense.
Research and development expenses also include costs of acquired product licenses, in-process research and development, and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to collaborators.
All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 730, Research and Development, or ASC 730. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we record expenses by functional department. Accordingly, we do not allocate all research and development expenses to individual projects or product candidates, although we do allocate some portion of these expenses by project or product candidate, as shown below.
The following table summarizes our research and development expenses for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Zimura
$
2,826

 
$
5,519

 
$
9,805

 
$
13,255

HtrA1
150

 

 
382

 

IC-100: RHO-adRP
1,992

 
138

 
4,617

 
1,052

IC-200: BEST1-related IRDs
1,941

 

 
3,224

 

Other gene therapy
447

 
530

 
886

 
1,020

Prior product candidate Fovista
11

 
(391
)
 
40

 
(327
)
Personnel-related
1,720

 
1,381

 
5,024

 
4,657

Share-based compensation
942

 
1,171

 
3,101

 
3,717

Other
354

 
1,059

 
998

 
2,235

 
$
10,383

 
$
9,407

 
$
28,077

 
$
25,609


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As we continue our ongoing clinical trials for Zimura and initiate our Phase 3 clinical trial for Zimura in GA, we expect our research and development expenses for Zimura to increase. We estimate that the aggregate external costs of our Phase 3 clinical trial for Zimura in GA will range between $30 million and $40 million, depending on trial design, and that the aggregate external costs associated with manufacturing process scale-up and validation for Zimura will range between $10 million and $20 million. These costs do not include employee-related expenses for employees dedicated to Zimura clinical development and manufacturing activities, including salaries, benefits and share-based compensation expense. We also expect our research and development expenses for each of IC-100, IC-200, our miniCEP290 program and our HtrA1 inhibitors program to increase. We expect our research and development expenses for our other collaborative gene therapy sponsored research programs to decrease. Our research and development expenses may also increase if we in-license or acquire any new product candidates, including from our collaborative gene therapy sponsored research programs, or commence any new sponsored research programs.
We expect we will require substantial, additional funding in order to complete the activities necessary to develop and commercialize one or more of our product candidates. We will require additional funding as we continue the clinical development of Zimura and continue the development of our other product candidates and programs. Although the future development of our product candidates is highly uncertain, we expect the development of our product candidates will continue for at least the next several years. At this time, we cannot reasonably estimate the total remaining costs necessary to complete development, to complete process development and manufacturing scale-up and validation activities and to potentially seek marketing approval for any of our product candidates.
The successful development of our product candidates is subject to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
the scope, rate of progress and costs of our research and development activities, including manufacturing activities;
the potential benefits of our product candidates over other therapies;
preclinical development results and clinical trial results;
the terms and timing of regulatory approvals;
our ability to market, commercialize and achieve market acceptance for any of our product candidates; and
our ability to successfully file, prosecute, defend and enforce patent claims and other intellectual property rights, together with associated expenses.
A change in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of that product candidate.
We may require additional funding beyond what we currently expect due to unforeseen or other reasons. Our costs may exceed our expectations if we experience any unforeseen issue in our ongoing clinical trials, such as issues with the retention of enrolled patients or the availability of drug supply, or in our preclinical development programs, such as inability to develop formulations or if we experience issues with manufacturing, or if we further expand the scope of our clinical trials, preclinical development programs or collaborative gene therapy sponsored research programs. Our costs may also exceed our expectations for other reasons, for example, if we are required by the FDA, the EMA or regulatory authorities in other jurisdictions to perform clinical or nonclinical trials or other studies in addition to those we currently expect to conduct, if we experience issues with process development, establishing or scaling-up of manufacturing activities or activities to enable and qualify second source suppliers, or if we decide to increase preclinical and clinical research and development activities or build internal research capabilities or pursue internal research efforts. For example, we plan to begin a single Phase 3 clinical trial evaluating Zimura for GA with the expectation that data collected from such trial, together with data from our OPH2003 clinical trial, will be sufficient to seek marketing approval and we may subsequently decide to, or be required by regulatory authorities to, enroll additional patients in the Phase 3 clinical trial beyond our initial expectations or conduct additional clinical trials for Zimura in GA in order to seek or maintain regulatory approval. As a result of any of the above, we may need or may seek to obtain additional funding for our continuing operations sooner or in greater amounts than expected.
See the “Liquidity and Capital Resources” section of this Quarterly Report on Form 10-Q for more information regarding our current and future financial resources and our expectations regarding our research and development expenses and funding requirements.

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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation expense, in our executive, legal, finance, business development, human resources, investor relations and information technology functions. Other general and administrative expenses include facility costs and professional fees for legal, including patent-related, services and expenses, consulting and accounting services, and travel expenses.
Interest Income
We currently have invested our cash and cash equivalents in money market funds and investment-grade corporate debt securities, which generate a nominal amount of interest income.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses, revenue recognition, share-based compensation and income taxes described in greater detail below. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Of those policies, we believe that the following accounting policies are the most critical to aid our stockholders in fully understanding and evaluating our financial condition and results of operations.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred with respect to academic research collaborators, CROs, CDMOs and other vendors in connection with research and development and manufacturing activities.
We base our expenses related to academic research collaborators, CROs and CDMOs on our estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.
Share-Based Compensation
We account for all share-based compensation payments issued to employees, non-employee directors, and consultants by estimating the fair value of each equity award. Accordingly, share-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of forfeitures. We recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us on a straight-line basis. In accordance with authoritative guidance, we re-measure the fair value of consultant share-based awards as the awards vest, and recognize the resulting value, if any, as expense during the period the related services are rendered.

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We apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation. Determining the amount of share-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. We recognize share-based compensation expense ratably over the requisite service period, which in most cases is the vesting period of the award. For grants containing performance-based vesting provisions, expense is recognized over the estimated achievement period only when the performance-based milestone is deemed probable of achievement. If performance-based milestones are later determined not to be probable of achievement, then all previously recorded stock-based compensation expense associated with such options will be reversed during the period in which we make this determination. Calculating the fair value of share-based awards requires us to make highly subjective assumptions.
Prior to January 1, 2019, share-based compensation awarded to non-employees was subject to revaluation over the vesting term of each award. Subsequent to the adoption of ASU 2018-07, Improvements to Non-Employee Share-Based Payment Accounting, the value of non-employee share-based compensation is measured on the date of grant, similar to share-based compensation granted to employees.
We use the Black-Scholes option pricing model to value our stock option awards and the options to purchase shares under our employee stock purchase plan. Use of this valuation methodology requires that we make assumptions as to: the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the expected dividend yield of our common stock. As a recent public company, we do not have sufficient history to estimate the volatility of our common stock price or the expected life of the options. We calculate expected volatility based on reported data for similar publicly traded companies for which historical information is available and will continue to do so until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants.
We use the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of stock option grants to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. The weighted-average assumptions used to estimate grant date fair value of stock options using the Black-Scholes option pricing model were as follows for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Expected common stock price volatility
89%
 
84%
 
88%
 
83%
Risk-free interest rate
1.38%-1.84%
 
2.80%-2.90%
 
1.38%-2.54%
 
2.39%-2.90%
Expected term of options (years)
6.1
 
6.1
 
5.7
 
5.8
Expected dividend yield
 
 
 
We estimate the fair value of restricted stock units, or RSUs, granted to employees using the closing market price of our common stock on the date of grant.
We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised.
Share-based compensation expense for equity grants to employees, non-employee directors and consultants was $2.1 million and $2.6 million for the three months ended September 30, 2019 and 2018, respectively, net of expected forfeitures. Share-based compensation expense for equity grants to employees, non-employee directors and consultants was $6.8 million and $8.3 million for the nine months ended September 30, 2019 and 2018, respectively, net of expected forfeitures. 
As of September 30, 2019, we had $6.5 million of total unrecognized share-based compensation expense, which we expect to recognize over a weighted-average remaining vesting period of approximately 1.6 years. We expect our share-based compensation expense for our equity awards to employees, non-employee directors and consultants to decrease in future periods as a result of a decrease in the fair value of our common stock.

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For the three and nine months ended September 30, 2019 and 2018, we allocated share-based compensation as follows:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
 
2018
2019
 
2018
 
(in thousands)
Research and development
$
942

 
$
1,171

$
3,101

 
$
3,717

General and administrative
1,184

 
1,433

3,702

 
4,631

Total
$
2,126

 
$
2,604

$
6,803

 
$
8,348

In October 2019, our board of directors adopted the 2019 Inducement Stock Incentive Plan, or the Inducement Plan, pursuant to which we may grant, subject to the terms of the Inducement Plan and Nasdaq rules, nonstatutory stock options, restricted stock, restricted stock units, and other stock-based awards up to an aggregate of 1,000,000 shares of our common stock. The Inducement Plan permits us to, subject to the approval of each grant by the compensation committee of our board of directors, use the stock-based awards available under the Inducement Plan to attract key employees for the growth of our business. On October 31, 2019, we filed a Registration Statement on Form S-8 with the Securities and Exchange Commission, or the SEC, to register under the Securities Act of 1933, as amended, all shares that are issuable under the Inducement Plan. An initial award under the Inducement Plan consisting of an option to purchase 300,000 shares of our common stock and 50,000 restricted stock units was granted to one new employee and effective as of November 1, 2019.
Income Taxes
For the three and nine months ended September 30, 2019, we recorded a $0.1 million benefit for income taxes. For the three and nine months ended September 30, 2018, we recorded a de minimis provision for income taxes and a $0.8 million benefit for income taxes, respectively. The income tax benefit for the three and nine months ended September 30, 2019 was primarily to reflect a settlement of a local tax audit. The benefit for income taxes recorded during the nine months ended September 30, 2018 includes the settlement of a local tax audit recorded during the three months ended June 30, 2018 offset partially by the provision for income taxes recorded during the three months ended March 31, 2018 to reflect the impact of sequestration on our estimate of refundable AMT credits.
The deferred tax assets associated with our losses incurred in 2018 and to date in 2019 have a full valuation allowance recorded against them due to our history of losses and the lack of other positive evidence to support future taxable income against which these losses could be applied. See Note 6 to our financial statements in Part I-Item 1 of this Quarterly Report on Form 10-Q for further information regarding our expectations with respect to our income tax provision.


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Results of Operations
Comparison of Three Month Periods Ended September 30, 2019 and 2018
 
Three months ended September 30,
 
 
 
2019
 
2018
 
Increase
(Decrease)
 
(in thousands)
 
 
Statements of Operations Data:
 

 
 

 
 

Operating expenses:
 

 
 

 
 

Research and development
$
10,383

 
$
9,407

 
$
976

General and administrative
4,674

 
5,968

 
(1,294
)
Total operating expenses
15,057

 
15,375

 
(318
)
Loss from operations
(15,057
)
 
(15,375
)
 
(318
)
Interest income
495

 
637

 
(142
)
Other income (expense)

 
(1
)
 
(1
)
Loss before income tax provision (benefit)
(14,562
)
 
(14,739
)
 
(177
)
Income tax provision (benefit)
(125
)
 
6

 
(131
)
Net loss
$
(14,437
)
 
$
(14,745
)
 
$
(308
)
Research and Development Expenses
Our research and development expenses were $10.4 million for the three months ended September 30, 2019, an increase of $1.0 million compared to $9.4 million for the three months ended September 30, 2018. The increase in research and development expenses for the three months ended September 30, 2019 was primarily due to a $3.7 million increase in costs resulting from the initiation and expansion of our gene therapy programs and a $0.2 million increase in costs resulting from the initiation of our HtrA1 inhibitor program. This increase was offset by a $2.7 million decrease in costs associated with our Zimura programs. The decreased costs for our Zimura programs included lower costs related to a decrease in Zimura manufacturing activities and lower clinical trial costs as a result of the completion of the OPH2007 wet AMD trial during the fourth quarter of 2018 and the completion of patient recruitment for our OPH2003 dry AMD trial during the fourth quarter of 2018 and the associated reduction in site initiation costs.
General and Administrative Expenses
Our general and administrative expenses were $4.7 million for the three months ended September 30, 2019, a decrease of $1.3 million, compared to $6.0 million for the three months ended September 30, 2018. The decrease in general and administrative expenses for the three months ended September 30, 2019 was primarily due to a decrease in costs to support our operations and infrastructure.
Interest Income
Interest income for the three months ended September 30, 2019 was $0.5 million compared to interest income of $0.6 million for the three months ended September 30, 2018.
Income Tax Provision (Benefit)
For the three months ended September 30, 2019, we recorded an income tax benefit which was primarily to reflect a settlement of a local tax audit. For the three months ended September 30, 2018, we recorded a de minimis provision for income taxes.

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Comparison of Nine Month Periods Ended September 30, 2019 and 2018
 
Nine months ended September 30,
 
 
 
2019
 
2018
 
Increase
(Decrease)
 
(in thousands)
 
 
Statements of Operations Data:
 
 
 
 
 
Operating expenses: