in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation can have
severe-to-profound deafness in both ears that is identified in screening tests routinely performed in newborns. Under the collaboration agreement, the parties will
equally share the program costs and proceeds beginning in January 2020 and can include additional genetic hearing loss targets in the future.
has concluded that the Otonomy collaboration agreement is within the scope of ASC 808, which defines collaborative arrangements and addresses the presentation of the transactions between the two parties in the income statement and related
disclosures. However, ASC 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company has concluded that ASC 730, Research and Development,
should be applied by analogy to payments made between the parties during the development activities. As such, payments made to or received from Otonomy for development activities in a given quarter will be recorded as research and development
expenses. For both the three and nine months ended March 31, 2020, settlement activity between the parties under the Otonomy agreement had an immaterial effect on the Companys research and development expenses.
On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus
originating in Wuhan, China (the COVID-19 outbreak) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. National, state and local governments in affected regions have implemented, and may continue to implement, safety precautions,
including quarantines, border closures, increased border controls, travel restrictions, shelter in place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals are taking
additional steps to avoid or reduce infection, including limiting travel and staying home from work.
The worldwide spread of the COVID-19 outbreak is expected to result in a global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, while also disrupting sales channels and marketing
activities for an unknown period of time until the disease is contained. The extent to which the COVID-19 outbreak may impact the Companys financial condition or results of operations is uncertain and,
as of the date of these financial statements, management is not aware of any specific event or circumstance that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities. However, future
events are subject to change and managements best estimates and judgments may require future adjustments. Therefore, actual results could differ materially from current estimates. Management is closely monitoring the evolving impact of the
pandemic on all aspects of the Companys business and periodically evaluates its estimates and they are adjusted prospectively based on such periodic evaluation.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides an overview of our financial condition as of March 31, 2020, and results of
operations for the three and nine months ended March 31, 2020 and 2019. This discussion should be read in conjunction with the accompanying Unaudited Condensed Financial Statements and accompanying notes, as well as our Annual Report on Form 10-K for the year ended June 30, 2019, as amended (the June 2019 Form 10-K). In addition to historical financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to
these differences include those discussed below under the heading Risk Factors in Part II, Item 1A, and elsewhere in this report, as well as those set forth in Part I, Item 1A, Risk Factors of the June 2019 Form 10-K. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities,
potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as anticipates, believes, could,
seeks, estimates, expects, hopes, intends, may, plans, potential, predicts, projects, should, will,
would or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our managements plans,
estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those
anticipated in these forward-looking statements, even if new information becomes available in the future.
As used herein, except as otherwise indicated
by context, references to we, us, our, or the Company refer to Applied Genetic Technologies Corporation.