UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One) 

   
     
þ  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

or

     
¨  

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 0-9314

 

ABEONA THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   83-0221517
(State or other jurisdiction of   (I.R.S. Employer I.D. No.)
incorporation or organization)    

 

3333 Lee Parkway, Suite 600, Dallas, TX 75219

(Address of principal executive offices)

 

(214) 665-9495

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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. Yes  þ  No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes þ   No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company þ
    (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

The number of shares outstanding of the registrant’s common stock as of November 16, 2015 was 32,732,783 shares.

 

 

 

 

ABEONA THERAPEUTICS INC.

 

INDEX

 

    Page No.
PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements:  
     
  Condensed Consolidated Balance Sheets at September 30, 2015 (unaudited) and December 31, 2014 17
     
  Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2015 and September 30, 2014 18
     
  Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2015 19
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and September 30, 2014 20
     
  Notes to Unaudited Condensed Consolidated Financial Statements 21
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
     
Item 4. Controls and Procedures 12
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 14
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
     
Item 3. Defaults Under Senior Securities 15
     
Item 6. Exhibits 15
     
SIGNATURES 16

 

 1 

 

 

PART I –FINANCIAL INFORMATION

 

This Quarterly Report on Form 10-Q (including the information incorporated by reference) contains ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and that involve risks and uncertainties. These statements and other risks described below as well as those discussed elsewhere in this Quarterly Report Form 10-Q, documents incorporated by reference and other documents and reports that we file periodically with the Securities and Exchange Commission (“SEC”) include, without limitation, statements relating to uncertainties associated with research and development activities, clinical trials, our ability to raise capital, the timing of and our ability to achieve regulatory approvals, dependence on others to market our licensed products, collaborations and our ability to attract licensing partners, future cash flow, the timing and receipt of licensing and milestone revenues, the future success of our marketed products and products in development, our belief that advances in biotechnology will provide significant opportunities to develop new treatments for rare diseases, our sales projections, and the sales projections of our licensing partners, our ability to achieve licensing milestones, the size of the prospective markets in which we may offer products, anticipated product launches and our commercialization strategies, anticipated product approvals and timing thereof, product opportunities, clinical trials and U.S. Food and Drug Administration (‘‘FDA’’) applications, as well as our drug development strategy, our clinical development organization expectations regarding our rate of technological developments and competition, our plan not to establish an internal marketing organization, our expectations regarding minimizing development risk and developing and introducing technology, the terms of future licensing arrangements, our ability to secure additional financing for our operations, our ability to establish new relationships and maintain current relationships, our ability to attract and retain key personnel, our belief that we will not pay any cash dividends in the foreseeable future, our belief that a failure to obtain necessary additional capital in the future will result in our operations being jeopardized, our expectation that we will continue to incur losses, our belief that we will expend substantial funds to conduct research and development programs, preclinical studies and clinical trials of potential products, our belief that we have a rich pipeline of products and product candidates, our belief that recently licensed technology will enable us to provide new therapeutic applications and expand market opportunities while enhancing margins, our belief that we will continue to evaluate the most cost-effective methods to advance our programs, our ability to achieve profitability on a sustained basis or at all, and our expected cash burn rate. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “could,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. We intend the forward-looking statements to be covered by the safe harbor for forward-looking statements in these sections. The forward-looking information is based on various factors and was derived using numerous assumptions.

 

Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward-looking statements due to a number of factors. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment only as of the date of this report. We caution readers not to place undue reliance on such statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

 2 

 

 

ITEM 1.FINANCIAL STATEMENTS

 

The response to this Item is submitted as a separate section of this report. See page 17.

 

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

Abeona Therapeutics Inc. (“Abeona” or the “Company”) is focused on developing and delivering gene therapy and plasma-based products for severe and life-threatening rare diseases. Abeona's lead programs are ABO-101 (AAV9 NAGLU) and ABO-102 (scAAV9 SGSH), adeno-associated virus (AAV)-based gene therapies for Sanfilippo syndrome (MPS IIIB and IIIA, respectively). We are also developing ABO-201 (scAAV9 CLN3) gene therapy for juvenile Batten disease (JBD); and ABO-301 (AAV FANCC) for Fanconi anemia (FA) disorder using a novel CRISPR/Cas9-based gene editing approach to gene therapy program for rare blood diseases. In addition, we are also developing rare plasma protein therapies including PTB-101 SDF Alpha™ (alpha-1 protease inhibitor) for inherited COPD using our proprietary SDF™ (Salt Diafiltration) ethanol-free process. Our principal executive office is located at 3333 Lee Parkway, Suite 600, Dallas, Texas 75219. Our website address is www.abeonatherapeutics.com.

 

Recent Developments

 

On October 6, 2015 we announced a license with Stanford University for AAV LK19, a therapeutic gene delivery vector for the treatment of Fanconi anemia (FA) and rare blood disease platform. The license augments a previously announced license agreement with the University of Minnesota for ABO-301 (AAV-FANCC) to treat patients with FA disorder and other rare blood diseases.

 

On July 31, 2015 we closed a $15.5 million direct placement of registered common stock with institutional investors, including Soros Fund Management and Perceptive Life Science Fund, and two members of the Board of Directors. The financing was comprised of 2.83 million shares of our common stock at a price of $5.50 per share.

 

On July 7, 2015 we announced preliminary results of our SDF plasma protein programs, confirming that multiple batches of our two-step salt precipitation process yields resultant fractions with significantly enhanced levels of alpha-1 protease inhibitor and immunoglobulins (IVIG) relative to the industry-standard Cohn process.

 

On July 1, 2015 we announced additional financing of $4.6 million through warrant exercises of out $5.00 warrants.

 

 3 

 

 

Product Development Strategy

 

Abeona is focused on developing and delivering gene therapy and plasma-based products for severe and life-threatening rare diseases. A rare disease is one that affects fewer than 200,000 people in the United States. There are nearly 7,000 rare diseases, which may involve chronic illness, disability, and often, premature death. More than 25 million Americans and 30 million Europeans have one. While rare diseases can affect any age group, about 50% of people affected are children (15 million); and rare diseases account for 35% of deaths in the first year of life. These rare diseases are often poorly diagnosed, very complex, and have no treatment or not very effective treatment—over 95% of rare diseases do not have a single FDA or EMA approved drug treatment. However, most rare diseases are often caused by changes in genes—80% are genetic in origin and can present at any stage of life. We believe emerging insights in genetics and advances in biotechnology, as well as new approaches and collaboration between researchers, industry, regulators and patient groups, provide significant opportunities to develop breakthrough treatments for rare diseases.

 

Developing Next Generation Gene Therapy

 

Gene therapy is the use of DNA as a potential therapy to treat a disease. In many disorders, particularly genetic diseases caused by a single genetic defect, gene therapy aims to treat a disease by delivering the correct copy of DNA into a patient's cells. The healthy, functional copy of the therapeutic gene then helps the cell function correctly. In gene therapy, DNA that encodes a therapeutic protein is packaged within a "vector", often a “naked” virus, which is used to transfer the DNA to the inside of cells within the body. Gene therapy can be delivered by a direct injection, either intravenously (IV) or directly into a specific tissue in the body, where it is taken up by individual cells. Once inside cells, the correct DNA is expressed by the cell machinery, resulting in the production of missing or defective protein, which in turn is proposed to treat the patient's underlying disease and can provide long-term benefit.

 

Abeona is developing next generation adeno-associated virus (AAV) gene therapies. Viruses such as AAV are utilized because they have evolved a way of encapsulating and delivering one or more genes of the size needed for clinical application, and can be purified in large quantities at high concentration. Unlike AAV vectors found in nature, the AAV vectors used by Abeona have been genetically-modified such that they do not replicate. Although the preclinical studies in animal models of disease demonstrate the promising impact of AAV-mediated gene expression to affected tissues such as the heart, liver and muscle, our programs use a specific virus that is capable of delivering therapeutic DNA across the blood brain barrier and into the central nervous system (CNS) and the somatic system (body), making them attractive for addressing lysosomal storage diseases which have severe CNS manifestations of the disease.

 

Lysosomal storage diseases (LSD) are a group of rare inborn errors of metabolism resulting from deficiency in normal lysosomal function. These diseases are characterized by progressive accumulation of storage material within the lysosomes of affected cells, ultimately leading to cellular dysfunction. Multiple tissues ranging from musculoskeletal and visceral to tissues of the central nervous system are typically involved in disease pathology. Since the advent of enzyme replacement therapy (ERT) to manage some LSDs, general clinical outcomes have significantly improved; however, treatment with infused protein is lifelong and continued disease progression is still evident in patients. Thus, AAV-based gene therapy may provide a viable alternative or adjunctive therapy to current management strategies for LSDs.

 

Our initial programs are focused on LSDs such as Mucopolysaccharidosis (MPS) IIIA and IIIB. Also known as Sanfilippo syndromes type A and type B, MPS III is a progressive neuromuscular disease with profound CNS involvement. Our lead product candidates, ABO-101 and ABO-102, have been developed to replace the damaged, malfunctioning enzymes within target cells with the normal, functioning version. ABO-201 is a similar product, using an AAV9 to deliver the correct lysosomal gene that is defective in juvenile neuronal ceroid lipofuscinosis. Delivered via a single injection, these drugs are only given once.

 

 4 

 

 

ABO-101 for MPS III B and ABO-102 for MPS III A (Sanfilippo syndrome)

 

Mucopolysaccharidosis (MPS) type III (Sanfilippo syndrome) is a group of four inherited genetic diseases, described as type A, B, C or D, which cause enzyme deficiencies that result in the abnormal accumulation of glycosaminoglycans (sugars) in body tissues. MPS III is a lysosomal storage disease, a group of rare inborn errors of metabolism resulting from deficiency in normal lysosomal function. The incidence of MPS III (all four types combined) is estimated to be 1 in 70,000 births.

 

Mucopolysaccharides are long chains of sugar molecules used in the building of connective tissues in the body. There is a continuous process in the body of replacing used materials and breaking them down for disposal. Children with MPS III are missing an enzyme called heparan sulfate which is essential in breaking down the used mucopolysaccharides. The partially broken down mucopolysaccharides remain stored in cells in the body causing progressive damage. Babies may show little sign of the disease, but as more and more cells become damaged, symptoms start to appear.

 

In MPS III, the predominant symptoms occur due to accumulation within the central nervous system (CNS), including the brain and spinal cord, resulting in cognitive decline, motor dysfunction, and eventual death. To date, there is no cure for MPS III and treatments are largely supportive.

 

Abeona is developing next generation AAV-based gene therapies for MPS III (Sanfilippo syndrome), which involves a one-time delivery of a normal copy of the defective gene to cells of the central nervous system with the aim of reversing the effects of the genetic errors that cause the disease.

 

After a single dose in Sanfilippo preclinical models, ABO-101 and ABO-102 induced cells in the CNS and peripheral organs to produce the missing enzymes which helped repair the damage caused to the cells. Preclinical in vivo efficacy studies in Sanfilippo syndrome have demonstrated functional benefits that remain for months after treatment. A single dose of ABO-101 or ABO-102 significantly restored normal cell and organ function, corrected cognitive defects that remained months after drug administration, increased neuromuscular control and increased the lifespan of animals with MPS III over 100% one year after treatment compared to untreated control animals. These results are consistent with studies from several laboratories suggesting AAV treatment could potentially benefit patients with Sanfilippo Syndrome Type A and B. In addition, safety studies conducted in animal models of Sanfilippo syndromes have demonstrated that delivery of AB0-101 or AB0-102 are well tolerated with minimal side effects.

 

 5 

 

 

ABO-201 for Juvenile Batten Disease (JBD)

 

ABO-201 (scAAV9 CLN3) is an AAV-based gene therapy which has shown promising preclinical efficacy in delivery of a normal copy of the defective CLN3 gene to cells of the central nervous system with the aim of reversing the effects of the genetic errors that cause juvenile Batten disease. Juvenile Batten disease (JBD) is a rare, fatal, autosomal recessive (inherited) disorder of the nervous system that typically begins in children between 4 and 8 years of age. Often the first noticeable sign of JBD is vision impairment, which tends to progress rapidly and eventually result in blindness. As the disease progresses, children experience the loss of previously acquired skills (developmental regression). This progression usually begins with the loss of the ability to speak in complete sentences. Children then lose motor skills, such as the ability to walk or sit. They also develop movement abnormalities that include rigidity or stiffness, slow or diminished movements (hypokinesia), and stooped posture. Beginning in mid- to late childhood, affected children may have recurrent seizures (epilepsy), heart problems, behavioral problems, and difficulty sleeping. Life expectancy is greatly reduced. Most people with juvenile Batten disease live into their twenties or thirties. As yet, no specific treatment is known that can halt or reverse the symptoms of JBD disease.

 

JBD disease is the most common form of a group of disorders known as neuronal ceroid lipofuscinoses (NCLs). Collectively, all forms of NCL affect an estimated 2 to 4 in 100,000 live births in the United States. NCLs are more common in Finland, where approximately 1 in 12,500 individuals are affected; as well as Sweden, other parts of northern Europe, and Newfoundland, Canada.

 

Most cases of JBD disease are caused by mutations in the CLN3 gene, which is the focus of our AAV-based gene therapy approach. These mutations disrupt the function of cellular structures called lysosomes. Lysosomes are compartments in the cell that normally digest and recycle different types of molecules. Lysosome malfunction leads to a buildup of fatty substances called lipopigments and proteins within these cell structures. These accumulations occur in cells throughout the body, but neurons in the brain seem to be particularly vulnerable to damage. The progressive death of cells, especially in the brain, leads to vision loss, seizures, and intellectual decline in children with JBD disease.

 

ABO-301 for Fanconi Anemia (FA)

 

ABO-301 (AAV FANCC) is an AAV-based gene therapy which has shown promising preclinical efficacy in delivery of a normal copy of the defective gene to cells of the hematopoietic or blood system with the aim of reversing the effects of the genetic errors that cause Fanconi anemia (FA). FA is a rare (1 in 160,000) pediatric, autosomal recessive (inherited) disease characterized by multiple physical abnormalities, organ defects, bone marrow failure, and a higher than normal risk of cancer. The average lifespan for people with FA is 20 to 30 years.

 

The major function of bone marrow is to produce new blood cells. In FA, a DNA mutation renders the FANCC gene nonfunctional. Loss of FANCC causes patient skeletal abnormalities and leads to bone marrow failure. FA patients also have much higher rates of hematological diseases, such as acute myeloid leukemia (AML) or tumors of the head, neck, skin, gastrointestinal system, or genital tract. The likelihood of developing one of these cancers in people with FA is between 10 and 30 percent. Aside from bone marrow transplantation (BMT) there are no specific treatments known that can halt or reverse the symptoms of FA. Reparing fibroblast cells in FA patients with a functional FANCC gene is the focus of our AAV-based gene therapy approach.

 

Using a novel CRISPR (clustered, regularly interspaced short palindromic repeats)-Cas9 (CRISPR associated protein 9) system, researchers used a protein-RNA complex composed of an enzyme known as Cas9 bound to a guide RNA molecule that has been designed to recognize a particular DNA sequence. The RNA molecules guide the Cas9 complex to the location in the genome that requires repair. CRISPR-Cas9 uniquely enables surgically efficient knock-out, knock-down or selective editing of defective genes in the context of their natural promoters, unlocking the potential to treat both recessive and dominant forms of genetic diseases. Most importantly, this approach has the potential to allow more precise gene modification.

 

 6 

 

 

Plasma-based Therapeutics using the SDF™ technology platform

 

Abeona’s proprietary Salt Diafiltration Process™ (SDF) focuses on ethanol-free extraction of therapeutic biologics from human plasma. Plasma biologics are biopharmaceutical proteins extracted, purified, and formulated from human blood plasma by the use of biotechnological processing techniques including precipitation, diafiltration, affinity chromatography, and ion-exchange chromatography. These products are rendered virus-safe by means of chemical treatment, nanofiltration, and pasteurization. Plasma biologics primarily address indications arising from genetic deficiencies, which are increasingly being identified by means of newly available rapid and low-cost diagnostic genetic tests. Examples of plasma biologics include Alpha-1 Antitrypsin (also known as alpha-1 proteinase inhibitor, A1PI), Intravenous Immune Globulin (IVIG), Anti-Hemophilic Factor VIII (AHF) and Albumin.

 

Plasma biologics are currently obtained from human plasma by a fractionation process known as the Cohn Cold Ethanol Fractionation Process (Cohn Process), which was developed prior to World War II to provide a stable solution of human albumin for the rapid treatment of hemorrhagic shock on the battlefield. This process employs various concentrations of ethanol combined with adjustments of pH, ionic strength, and temperature to bring about the necessary separations by precipitation. Ethanol can inactivate many of the plasma proteins.

 

In contrast to the highly denaturing Cohn Process, Abeona’s patented SDF™ method involves a short two-step, ethanol-free salt precipitation process optimized to extract a wide range of therapeutically useful biologic proteins from human blood plasma. SDF™ enables the production of higher yields of these proteins compared with the Cohn Process.

 

PTB-101 SDF Alpha™ (alpha-1 protease inhibitor) for emphysema or chronic obstructive pulmonary disease (COPD) due to severe congenital deficiency of A1PI (alpha-1-antitrypsin deficiency)

 

Alpha-1 antitrypsin deficiency is a rare (1 in 1,500 to 3,500) genetic (inherited) autosomal disorder that may cause lung disease from an inability to neutralize the enzyme neutrophil elastase and liver disease from retained misfolded protein. Alpha-1 antitrypsin deficiency occurs worldwide, but its prevalence varies by population. Alpha-1 antitrypsin is also known as alpha-1 proteinase inhibitor (A1PI).

 

About 10 percent of infants with alpha-1 antitrypsin deficiency develop liver disease, which often causes yellowing of the skin and whites of the eyes (jaundice). Approximately 15 percent of adults with alpha-1 antitrypsin deficiency develop liver damage (cirrhosis) due to the formation of scar tissue in the liver. Signs of cirrhosis include a swollen abdomen, swollen feet or legs, and jaundice. Individuals with alpha-1 antitrypsin deficiency are also at risk of developing a type of liver cancer called hepatocellular carcinoma.

 

 7 

 

 

Alpha-1 antitrypsin deficiency is inherited with an autosomal codominant pattern, which means that two different versions of the gene may be active (expressed), and both versions contribute to the genetic trait. The most common version (allele) of the SERPINA1 gene, called M, produces normal levels of alpha-1 antitrypsin. Most people in the general population have two copies of the M allele (MM) in each cell. Other versions of the SERPINA1 gene lead to reduced levels of alpha-1 antitrypsin. For example, the S allele produces moderately low levels of this protein, and the Z allele produces very little alpha-1 antitrypsin. Individuals with two copies of the Z allele (ZZ) in each cell are likely to have alpha-1 antitrypsin deficiency. Those with the SZ combination have an increased risk of developing liver and lung diseases such as chronic obstructive pulmonary disease (COPD).

 

It is estimated that about 200,000 individuals in the United States and Europe have severe alpha-1 antitrypsin deficiency. However, only about 5% of this number have been diagnosed as symptoms caused by this deficiency are very similar to asthma and chronic obstructive pulmonary disease (COPD) from non-genetic causes. Only about 1–2% of COPD patients have severe alpha-1 antitrypsin deficiency. The Global Initiative for Chronic Obstructive Lung Disease (GOLD) defines COPD as group of airflow-limited diseases including emphysema and chronic bronchitis. While severe alpha-1 antitrypsin deficiency can lead to or exacerbate all forms of COPD, it is considered to be the dominant cause of Panacinar Emphysema, a form of emphysema which causes gradual destruction of all lung aveolii.

 

PTB-101 SDF Alpha™ (alpha1-proteinase inhibitor) for Alpha-1 Antitrypsin Deficiency (Alpha-1)

 

Abeona is developing PTB-101 SDF Alpha™ (alpha-1-proteinase inhibitor) for chronic augmentation and maintenance therapy in adults with clinically evident panacinar emphysema and other forms of COPD due to severe deficiency of alpha-1-proteinase inhibitor.

 

Polymer Hydrogel Technology (PHT™)

 

MuGard® (mucoadhesive oral wound rinse) approved for mucositis, stomatitis, aphthous ulcers, and traumatic ulcers

 

MuGard® is our marketed product for the management of oral mucositis, a frequent side-effect of cancer therapy for which there is no other established treatment. MuGard, a proprietary nanopolymer formulation, has received marketing clearance from the FDA in the US as well as Europe, China, Australia, New Zealand and Korea. We launched MuGard in the U.S. in 2010 and licensed MuGard for commercialization in the U.S. to AMAG Pharmaceuticals, Inc. (AMAG) in 2013. We licensed MuGard to RHEI Pharmaceuticals, N.V. (RHEI) for China and other Southeast Asian countries in 2010; Hanmi Pharmaceutical Co. Ltd. (Hanmi) for South Korea in 2014; and Norgine B.V. (Norgine) for the European Union, Switzerland, Norway, Iceland, Lichtenstein, Australia and New Zealand in 2014.

 

ProctiGard™ (mucoadhesive oral wound rinse) approved for rectal mucositis and radiation proctitis

 

ProctiGard™ received 510(K) marketing clearance from the FDA on July 22, 2014 for the treatment of symptomatic management of rectal mucositis. ProctiGard is our product for the treatment of radiation proctitis, a frequent side effect of radiation treatment to the pelvic region. Radiation proctitis, or RP, is the inflammation and damage to the lower portion of the colon after exposure to x-rays or ionizing radiation as part of radiation therapy. RP is most common after treatments for cancer, such as cervical, colon and prostate cancer. RP can be acute, occurring within weeks of initiation of therapy, or can occur months or years after treatment. We intend to commercialize ProctiGard in a manner similar to the commercialization of MuGard, which may include confirmatory clinical trials, with the objective of commercialization in collaboration with marketing partners globally.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

We have historically funded our operations primarily through public and private sales of common stock, preferred stock, convertible notes and through licensing agreements. Our principal source of liquidity is cash and cash equivalents. Licensing payments and royalty revenues provided limited funding for operations during the period ended September 30, 2015. As of September 30, 2015, our cash and cash equivalents were $43,282,000.

 

As of September 30, 2015, our working capital was $42,120,000. Our working capital at September 30, 2015 represented an increase of $33,463,000 as compared to our working capital as of December 31, 2014 of $8,657,000. The net increase in the working capital at September 30, 2015 reflects financings, warrant exercises and the acquisition of Abeona Therapeutics LLC (Abeona Ohio) less nine months of net operating costs and changes in current assets and liabilities.

 

On July 31, 2015 we closed an upsized $15.5 million direct placement of registered common stock with institutional investors, including Soros Fund Management and Perceptive Life Science Fund, and two members of our Board of Directors. The financing was comprised of 2.83 million shares of our common stock at a price of $5.50 per share.

 

If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors will be diluted and the new investors could obtain terms more favorable than previous investors.

 

We have incurred negative cash flows from operations since inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. Since inception, our expenses have significantly exceeded revenues, resulting in an accumulated deficit as of September 30, 2015 of $308,260,000. We cannot provide assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis, or at all.

 

Since our inception, we have devoted our resources primarily to fund our research and development programs. We have been unprofitable since inception and to date have received limited revenues from the sale of products. We expect to incur losses for the next several years as we continue to invest in product research and development, preclinical studies, clinical trials and regulatory compliance.

 

THIRD QUARTER 2015 COMPARED TO THIRD QUARTER 2014

 

Our licensing revenue for the third quarter of 2015 and 2014 was $151,000 and $152,000, respectively. We recognize licensing revenue over the period of the performance obligation under our licensing agreements.

 

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We recorded royalty revenue for MuGard of $134,000 for third quarter of 2015 and $84,000 for the same period of 2014, an increase of $50,000. We licensed MuGard to AMAG on June 6, 2013 and currently receive quarterly royalties from AMAG under our agreement.

 

Total research and development spending for the third quarter of 2015 was $1,581,000, as compared to $73,000 for the same period of 2014, an increase of $1,508,000. The increase in expenses was primarily due to:

 

·increased development work on our products ($526,000);
·increased salary and related costs ($338,000) from the hiring of scientific staff;
·increased stock based compensation expense for granted restricted stock ($213,000) and granted stock options ($317,000); and
·other net increases in research spending ($114,000).

 

Total general and administrative expenses were $4,717,000 for the third quarter of 2015, as compared to $795,000 for the same period of 2014, an increase of $3,922,000. The increase in expenses was due primarily to the following:

 

·increased stock based compensation expense for granted restricted stock ($1,679,000) and granted stock options ($1,067,000);
·increased investor relations expenses ($410,000);
·increased legal and audit fees ($262,000);
·increased salary and related costs ($202,000) from hiring additional general and administrative staff;
·increased director fees ($150,000);
·increased expense for new licenses ($80,000); and
·other net increases in general and administrative expenses ($72,000).

 

Depreciation and amortization was $151,000 for the third quarter of 2015 as compared to $1,000 for the same period in 2014, an increase of $150,000. We have acquired new licenses and fixed assets in 2015. We are amortizing the licenses over the life of the patents.

 

Total operating expenses for the third quarter of 2015 were $6,449,000 as compared to total operating expenses of $869,000 for the same period of 2014, an increase of $5,580,000 for the reasons listed above.

 

Interest and miscellaneous income was $92,000 for the third quarter of 2015 as compared to $11,000 for the same period of 2014, an increase of $81,000. Miscellaneous income is $52,000 higher in 2015 than for the same period in 2014 due to write-offs of certain accounts payables.

 

Interest and other expense was $1,000 for the third quarter of 2015 as compared to $147,000 in the same period of 2014, a decrease of $146,000. The interest in 2014 represents interest accrued on unpaid dividends. All dividends and accrued interest on dividends due were paid in December 2014. There are no more dividends accruing.

 

We recorded a loss for the derivative liability related to preferred stock of $700,000 for the third quarter of 2014. The preferred stock related to the dividends was converted into common stock in December 2014.

 

 10 

 

 

Preferred stock dividends of $740,000 were accrued for the third quarter of 2014. The preferred stock related to the dividends was converted into common stock in December 2014.

 

Net loss allocable to common stockholders for the third quarter of 2015 was $6,073,000, or a $0.19 basic and diluted loss per common share as compared to a net loss of $2,209,000, or a $4.15 basic and diluted loss per common share, for the same period in 2014, an increased loss of $3,864,000.

 

NINE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2014

 

Our licensing revenue for the first nine months of 2015 was $452,000 and $448,000 for the same period of 2014. We recognize licensing revenue over the period of the performance obligation under our licensing agreements.

 

We recorded royalty revenue for MuGard of $373,000 for first nine months of 2015 as compared to $243,000 for the same period of 2014, an increase of $130,000. We licensed MuGard to AMAG on June 6, 2013 and currently receive quarterly royalties from AMAG under our agreement.

 

Total research and development spending for the first nine months of 2015 was $2,644,000, as compared to $298,000 for the same period of 2014, an increase of $2,346,000. The increase in research and development expenses was primarily due to:

 

·increased development work on our products ($1,157,000);
·increased salary and related costs ($513,000) from increased scientific staff;
·increased stock based compensation expense for granted restricted stock ($213,000) and granted stock options ($315,000); and
·other net increases in research spending ($148,000).

 

Total general and administrative expenses were $10,073,000 for the first nine months of 2015, as compared to $3,055,000 for the same period of 2014, an increase of $7,018,000. The increase in expenses was due primarily to the following:

 

·increased stock based compensation expense for granted restricted stock ($2,717,000) and granted options ($1,039,000);
·increased legal and audit fees ($957,000);
·increased salary and related costs ($842,000) from hiring additional general and administrative staff;
·increased investor relations expenses ($761,000);
·increased director fees ($340,000); and
·net increase other general and administrative expenses ($362,000).

 

Depreciation and amortization was $401,000 for the first nine months of 2015 as compared to $2,000 for the same period in 2014. We have acquired new licenses and fixed assets in 2015.

 

Total operating expenses for the first nine months of 2015 were $13,118,000 as compared to total operating expenses of $3,355,000 for the same period of 2014, an increase of $9,763,000 for the reasons listed above.

 

 11 

 

 

Interest and miscellaneous income was $111,000 for the first nine months of 2015 as compared to $45,000 for the same period of 2014, an increase of $66,000. Miscellaneous income is $52,000 higher in 2015 than for the same period in 2014 due to write-offs of certain accounts payables.

 

Interest and other expense was $4,000 for the first nine months of 2015 as compared to $406,000 in the same period of 2014, a decrease of $402,000. The interest in 2014 represents interest accrued on unpaid dividends. All dividends and accrued interest on dividends due were paid in December 2014. There are no more dividends accruing.

 

We recorded a loss for the derivative liability related to preferred stock of $11,810,000 for the first nine months of 2014. The preferred stock related to the dividends was converted into common stock in December 2014.

 

Preferred stock dividends of $2,191,000 were accrued for the first nine months of 2014. The preferred stock related to the dividends was converted into common stock in December 2014.

 

Net loss allocable to common stockholders for the first nine months of 2015 was $12,186,000, or a $0.47 basic and diluted loss per common share as compared to a net loss of $17,026,000, or a $32.46 basic and diluted loss per common share, for the same period in 2014, a decreased loss of $4,840,000.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4.CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management and consultants, including the Executive Chairman (our principal executive officer) and Vice President Finance (our principal accounting officer), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

 

 12 

 

 

Based on our evaluation, our management concluded in our Annual Report on Form 10-K for the year ended December 31, 2014 that there was a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weakness identified in our Annual Report on Form 10-K for the year ended December 31, 2014 related to the monitoring and review of work performed by our Chief Accounting Officer and our then accounting consultant in the preparation of audit and financial statements, footnotes and financial data provided to the Company’s registered public accounting firm in connection with the annual audit. All of our financial reporting was carried out by our Chief Accounting Officer. This lack of accounting staff resulted in a lack of segregation of duties. The material weakness identified did not result in the restatement of any previously reported financial statements or any related financial disclosure

 

As of the date of this Quarterly Report on Form 10-Q, we are making changes to alleviate such material weakness. As of the end of the period covered by this Quarterly Report on Form 10-Q we have not completed our review that our disclosure controls and procedures were effective based on the criteria established in Internal ControlIntegrated Framework issued by COSO.

 

Changes In Internal Control Over Financial Reporting

 

There were changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting. We hired a Director of Finance and Operations and an Accounting Assistant to segregate duties.

 

 13 

 

 

PART II -- OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

Alan Schmidt (“Schmidt”), a former shareholder of Genaera Corporation (“Genaera”), and a former unitholder of the Genaera Liquidating Trust (the ‘‘Trust’’), filed a purported class action in the United States District Court for the Eastern District of Pennsylvania in June 2012. The lawsuit named thirty defendants, including Abeona, MacroChem Corporation, which was acquired by us in February 2009, Jeffrey Davis, the then-CEO and currently a director of Abeona, and Steven H. Rouhandeh and Mark Alvino, both of whom are our directors (the ‘‘Abeona Defendants’’). With respect to the Abeona Defendants, the complaint alleged direct and derivative claims asserting that directors of Genaera and the Trustee of the Trust breached their fiduciary duties to Genaera, Genaera’s shareholders and the Trust’s unitholders in connection with the licensing and disposition of certain assets, aided and abetted by numerous defendants including the Abeona Defendants. Schmidt seeks monetary damages, disgorgement of any distributions received from the Trust, rescission of sales made by the Trust, attorneys’ and expert fees, and costs. On December 19, 2012, Schmidt filed an amended complaint (the “Amended Complaint”) which asserted substantially the same allegations with respect to the Abeona Defendants. On February 4, 2013, the Abeona Defendants moved to dismiss all claims asserted against them. On August 12, 2013 the court granted the Abeona Defendants’ motions to dismiss and entered judgment in favor of the Abeona Defendants on all claims. On August 26, 2013, Schmidt filed a motion for reconsideration. On September 10, 2013 Schmidt filed a Notice of Appeal with the District Court. On September 17, 2013, Schmidt filed his appeal with the U.S. Third Circuit Court of Appeals (the “Third Circuit”). On September 25, 2013, the District Court denied Schmidt’s motion for reconsideration. On October 17, 2013, Schmidt amended his appeal to include the District Court’s denial of his motion for reconsideration. On March 20, 2014, Schmidt filed his Brief and Joint Appendix. On May 22, 2014, the Abeona Defendants filed their Oppositions to Schmidt’s Brief. On May 29, 2014, Schmidt was granted an extension of time until June 23, 2014 to file his Reply Brief and filed his Reply Brief on that date. The Third Circuit held oral argument on September 12, 2014. On October 17, 2014, in a split decision, the Third Circuit reversed the District Court’s decision holding, among other things, that the District Court’s determination that the Amended Complaint was time-barred on statute of limitations grounds was premature. The Third Circuit did not rule upon any of the other grounds for dismissal advanced in the District Court and on appeal. The Third Circuit remanded the case to the District Court for further proceedings. On January 6, 2015, the District Court ordered the parties to file supplemental briefs on all remaining arguments for dismissal, and further ordered that a hearing on the motions to dismiss would be held on February 3, 2015. On January 23, 2015, the Abeona Defendants filed their Supplemental Brief. At the February 3, 2015 hearing, Schmidt sought and was granted leave to amend his complaint for a second time. Schmidt filed his Second Amended Complaint on February 3, 2015. The Second Amended Complaint asserts substantially the same factual allegations with respect to the Abeona Defendants, but eliminates all causes of action against the Abeona Defendants except for aiding and abetting the Genaera directors’ and officers’ purported breaches of fiduciary duties, a claim for “punitive damages” and a claim for rescission of a settlement agreement between the Trust and the Abeona Defendants. On March 20, 2015, the Abeona Defendants filed a motion to dismiss the Second Amended Complaint. On November 10, 2015, the District Court granted the Abeona Defendant’s motion and dismissed the action in its entirety. On November 11, 2015, Schmidt filed a Notice of Appeal with the District Court. We intend to continue contesting the claims vigorously.

 

We are not currently subject to any other material pending legal proceedings.

 

ITEM 1A.RISK FACTORS

 

Our products could infringe on the intellectual property rights of others, and we may be required to license technology from third parties in the future in order to market our products.    Companies in the biotechnology and pharmaceutical industries steadfastly pursue and protect intellectual property rights. This can result in considerable and costly litigation to determine the validity of patents and claims by third parties of infringement of patents or other intellectual property. Our gene therapy products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents or inventions or other proprietary rights in technology necessary for our business. We have or may be required to obtain licenses from other companies to use such proprietary rights.  We may be unable to obtain licenses to use such proprietary rights.  Furthermore, should we violate the terms of a license, that license could be cancelled. Our ability to achieve profitability and positive cash flow may be negatively affected by our inability to procure such a license, the cancellation of any such license, any new license fees arising out of any new license, or any increases in license fees we currently pay.  Periodically companies inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If we are forced to defend against infringement claims, we may face costly litigation and diversion of technical and management personnel, even if the allegations of infringement are unwarranted. In addition, as a result of potential infringement claims, we may be required to obtain one or more licenses from other companies to use the infringed technology, and the license fees we pay may negatively affect our ability to achieve profitability and positive cash flow. If there is a successful claim of infringement against us and we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business, and our ability to grow revenue and achieve profitability and positive cash flow, could be adversely affected.

 

 14 

 

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 6.EXHIBITS.

 

Exhibits:

10.1**Employment Agreement dated May 6, 2015 between Registrant and Timothy J. Miller

 

31.1Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1*Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101The following materials formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and September 30, 2014, (iii) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and September 30, 2014, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

 

 

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities and Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filing.

 

** Management contract or compensatory plan.

 

 15 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ABEONA THERAPEUTICS INC.

 

Date:  November 16, 2015 By: /s/ Steven H. Rouhandeh
    Steven H. Rouhandeh
    Executive Chairman
    (Principal Executive Officer)
     
Date:  November 16, 2015 By: /s/ Stephen B. Thompson
    Stephen B Thompson
    Vice President Finance
    (Principal Accounting Officer)

 

 16 

 

 

Abeona Therapeutics Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

 

   September 30, 2015   December 31, 2014 
   (unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $43,282,000   $11,520,000 
Receivables   271,000    35,000 
Prepaid expenses and other current assets   137,000    - 
Total current assets   43,690,000    11,555,000 
Property and equipment, net   87,000    4,000 
Licensed technology, net   6,755,000    4,991,000 
Goodwill   38,955,000    - 
Other assets   62,000    32,000 
Total assets  $89,549,000   $16,582,000 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable  $968,000   $1,896,000 
Short-term notes payable   -    400,000 
Current portion of deferred revenue   602,000    602,000 
Total current liabilities   1,570,000    2,898,000 
Contingent consideration liability   6,489,000    - 
Payable due Licensor   4,000,000    4,000,000 
Long-term deferred revenue   4,417,000    4,868,000 
Total liabilities   16,476,000    11,766,000 
Commitments and contingencies          
Stockholders' equity          
Common stock - $.01 par value; authorized 200,000,000 shares; issued, 32,728,106 at September 30, 2015 and 19,960,801 at December 31, 2014   327,000    200,000 
Additional paid-in capital   381,006,000    300,690,000 
Accumulated deficit   (308,260,000)   (296,074,000)
Total stockholders' equity   73,073,000    4,816,000 
           
Total liabilities and stockholders' equity  $89,549,000   $16,582,000 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

 17 

 

 

Abeona Therapeutics Inc. and Subsidiaries

 

Condensed Consolidated Statements of Operations

(unaudited)

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2015   2014   2015   2014 
Revenues                    
License revenues  $151,000   $152,000   $452,000   $448,000 
Royalties   134,000    84,000    373,000    243,000 
Total revenues   285,000    236,000    825,000    691,000 
                     
Expenses                    
Research and development   1,581,000    73,000    2,644,000    298,000 
General and administrative   4,717,000    795,000    10,073,000    3,055,000 
Depreciation and amortization   151,000    1,000    401,000    2,000 
Total expenses   6,449,000    869,000    13,118,000    3,355,000 
                     
Loss from operations   (6,164,000)   (633,000)   (12,293,000)   (2,664,000)
                     
Interest and miscellaneous income   92,000    11,000    111,000    45,000 
Interest and other expense   (1,000)   (147,000)   (4,000)   (406,000)
Loss on change in fair value of derivative - preferred stock   -    (700,000)   -    (11,810,000)
    91,000    (836,000)   107,000    (12,171,000)
Net loss   (6,073,000)   (1,469,000)   (12,186,000)   (14,835,000)
                     
Less preferred stock dividends   -    740,000    -    2,191,000 
Net loss allocable to common stockholders  $(6,073,000)  $(2,209,000)  $(12,186,000)  $(17,026,000)
                     
Basic and diluted loss per common share  $(0.19)  $(4.15)  $(0.47)  $(32.46)
                     
Weighted average number of common shares outstanding   31,787,777    532,258    25,865,739    524,595 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

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Abeona Therapeutics Inc. and Subsidiaries

 

Condensed Consolidated Statements of Stockholders' Equity

(unaudited)

 

   Common Stock             
   Shares   Amount   Additional
paid-in
capital
   Accumulated
deficit
   Total
stockholders’
equity
 
Balance December 31, 2014   19,960,801   $200,000   $300,690,000   $(296,074,000)  $4,816,000 
Common stock issued to employees   10,000    -    32,000    -    32,000 
Common stock issued for services   28,000    -    87,000    -    87,000 
Stock option compensation expense   -    -    224,000    -    224,000 
Net loss   -    -    -    (2,000,000)   (2,000,000)
Balance March 31, 2015   19,998,801   $200,000   $301,033,000   $(298,074,000)  $3,159,000 
                          
Restricted common stock issued to employees   1,350,000    13,000    1,023,000    -    1,036,000 
Common stock issued for services   22,500    -    75,000    -    75,000 
Exercise of $5.00 warrants   927,119    9,000    4,626,000    -    4,635,000 
Common stock issued for $3.00 share net of costs   2,333,334    24,000    6,977,000    -    7,001,000 
Common stock issued for $8.00 share net of costs   1,250,000    13,000    8,992,000    -    9,005,000 
Common stock issued to Abeona Ohio holders   3,979,761    40,000    38,207,000    -    38,247,000 
Stock option compensation expense   -    -    904,000    -    904,000 
Net loss   -    -    -    (4,113,000)   (4,113,000)
Balance June 30, 2015   29,861,515   $299,000   $361,837,000   $(302,187,000)  $59,949,000 
                          
Restricted common stock issued to employees   -    -    1,892,000    -    1,892,000 
Common stock issued for services   37,500    -    442,000    -    442,000 
Common stock issued for $5.50 share net of costs   2,829,091    28,000    15,383,000    -    15,411,000 
Stock option compensation expense   -    -    1,452,000    -    1,452,000 
Net loss   -    -    -    (6,073,000)   (6,073,000)
Balance September 30, 2015   32,728,106   $327,000   $381,006,000   $(308,260,000)  $73,073,000 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

 19 

 

 

Abeona Therapeutics Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   Nine Months ended September 30, 
   2015   2014 
Cash flows from operating activities:          
Net loss  $(12,186,000)  $(14,835,000)
Adjustments to reconcile net loss to cash used in operating activities:          
Loss on change in fair value of derivative – preferred stock   -    11,810,000 
Depreciation and amortization   401,000    2,000 
Stock option compensation expense   2,851,000    1,159,000 
Stock issued to directors, employees and consultants   2,960,000    - 
Stock issued for services   333,000    291,000 
Change in operating assets and liabilities:          
Receivables   (235,000)   71,000 
Prepaid expenses and other current assets   (109,000)   1,000 
Other assets   (29,000)   - 
Accounts payable and accrued expenses   (1,081,000)   767,000 
Interest payable on dividends   -    423,000 
Deferred revenue   (451,000)   (198,000)
Net cash used in operating activities   (7,546,000)   (509,000)
           
Cash flows from investing activities:          
Capital expenditures   (41,000)   - 
Cash from Abeona Ohio   3,697,000    - 
Net cash provided by investing activities   3,656,000    - 
           
Cash flows from financing activities:          
Proceeds from $3.00 common stock issuances net of costs   7,001,000    - 
Proceeds from $8.00 common stock issuances net of costs   9,005,000    - 
Proceeds from $5.50 common stock issuances net of costs   15,411,000    - 
Proceeds from exercise of $5.00 warrants   4,635,000    - 
Payment of short-term debt   (400,000)   250,000 
Net cash provided by financing activities   35,652,000    250,000 
           
           
Net increase (decrease)  in cash and cash equivalents   31,762,000    (259,000)
Cash and cash equivalents at beginning of period   11,520,000    424,000 
Cash and cash equivalents at end of period  $43,282,000   $165,000 
           
Supplemental cash flow information:          
Cash paid for interest  $-   $- 
           
Supplemental disclosure of noncash transactions:          
Shares issued to holders of Abeona Ohio for acquisition  $31,758,000   $- 
Contingent milestones to Abeona Ohio members   6,489,000      
Licensed technology from Abeona Ohio   2,156,000      
Preferred stock dividends in dividends payable   -    2,191,000 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

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Abeona Therapeutics Inc. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended September 30, 2015 and 2014

(unaudited)

 

Abeona Therapeutics Inc. (together with our subsidiaries, “we”, “our”, “Abeona” or the “Company”) is a Delaware corporation. We are an emerging biopharmaceutical company focused on developing and delivering gene therapy and plasma-based products for severe and life-threatening rare diseases. Abeona's lead programs are ABO-101 (AAV9 NAGLU) and ABO-102 (scAAV9 SG), adeno-associated virus (AAV)-based gene therapies for Sanfilippo syndrome (MPS IIIB and IIIA, respectively). We are also developing ABO-201 (scAAV9 CLN3) gene therapy for juvenile Batten disease (JBD); and ABO-301 (AAV FANCC) for Fanconi anemia (FA) disorder using a novel CRISPR/Cas9-based gene editing approach to gene therapy program for rare blood diseases. In addition, we are also developing rare plasma protein therapies including PTB-101 SDF Alpha™ (alpha-1 protease inhibitor) for inherited COPD using our proprietary SDF™ (Salt Diafiltration) ethanol-free process. Our efforts have been principally devoted to research and development, resulting in significant losses.

 

(1)Interim Financial Statements

 

The condensed consolidated balance sheet as of September 30, 2015, the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2015, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014, were prepared by management without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, except as otherwise disclosed, necessary for the fair presentation of the financial position, results of operations, and changes in financial position for such periods, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the period ended September 30, 2015 are not necessarily indicative of the operating results which may be expected for a full year. The condensed consolidated balance sheet as of December 31, 2014 contains financial information taken from the audited Abeona financial statements as of that date.

 

Certain reclassifications to the consolidated financial statements for all periods presented have been made to conform to the September 30, 2015 presentation.

 

On June 19, 2015 we changed our name from PlasmaTech Biopharmaceuticals, Inc. to Abeona Therapeutics Inc.

 

 21 

 

 

(2)Intangible Assets

 

Intangible assets consist of the following (in thousands):

 

   September 30, 2015   December 31, 2014 
   Gross
carrying
value
   Accumulated
amortization
   Gross
carrying
value
   Accumulated
Amortization
 
Amortizable intangible assets                    
                     
Licensed technology  $7,156   $401   $5,000   $9 

 

Amortization expense related to intangible assets totaled $145,000 and $392,000 for the three and nine months ended September 30, 2015, respectively, and totaled $0 for the three and nine months ended September 30, 2014. The aggregate estimated amortization expense for intangible assets remaining as of September 30, 2015 is as follows (in thousands):

 

2015  $145 
2016   582 
2017   582 
2018   582 
2019   582 
2020   582 
over 5 years   3,700 
      
Total  $6,755 

 

(3)Stock Based Compensation

 

For the three and nine months ended September 30, 2015, we recognized stock-based compensation expense of $1,452,000 and $2,580,000, respectively. For the three and nine months ended September 30, 2014 we recognized stock-based compensation expense of $172,000 and $1,159,000, respectively.

 

The following table summarizes stock-based compensation for the three and nine months ended September 30, 2015 and 2014:

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2015   2014   2015   2014 
Research and development  $142,000   $18,000   $246,000   $113,000 
General and administrative   1,310,000    154,000    2,334,000    1,046,000 
Stock-based compensation expense included in operating expense  $1,452,000   $172,000   $2,580,000   $1,159,000 

 

For the three and nine months ended September 30, 2015 we granted no stock options and 1,815,000 stock options, respectively, and for the three and nine months ended September 30, 2014 we granted no stock options and 210,000 stock options, respectively.

 

 22 

 

 

For the three and nine months ended September 30, 2015 stock valued at $1,892,000 and $2,960,000, respectively, was recorded to our directors, employees and consultants. For the three and nine months ended September 30, 2014 stock valued at $84,000 and $291,000, respectively, was granted to consultants.

 

(4)Litigation

 

Alan Schmidt (“Schmidt”), a former shareholder of Genaera Corporation (“Genaera”), and a former unitholder of the Genaera Liquidating Trust (the ‘‘Trust’’), filed a purported class action in the United States District Court for the Eastern District of Pennsylvania in June 2012. The lawsuit named thirty defendants, including Abeona, MacroChem Corporation, which was acquired by us in February 2009, Jeffrey Davis, the then-CEO and currently a director of Abeona, and Steven H. Rouhandeh and Mark Alvino, both of whom are our directors (the ‘‘Abeona Defendants’’). With respect to the Abeona Defendants, the complaint alleged direct and derivative claims asserting that directors of Genaera and the Trustee of the Trust breached their fiduciary duties to Genaera, Genaera’s shareholders and the Trust’s unitholders in connection with the licensing and disposition of certain assets, aided and abetted by numerous defendants including the Abeona Defendants. Schmidt seeks monetary damages, disgorgement of any distributions received from the Trust, rescission of sales made by the Trust, attorneys’ and expert fees, and costs. On December 19, 2012, Schmidt filed an amended complaint (the “Amended Complaint”) which asserted substantially the same allegations with respect to the Abeona Defendants. On February 4, 2013, the Abeona Defendants moved to dismiss all claims asserted against them. On August 12, 2013 the court granted the Abeona Defendants’ motions to dismiss and entered judgment in favor of the Abeona Defendants on all claims. On August 26, 2013, Schmidt filed a motion for reconsideration. On September 10, 2013 Schmidt filed a Notice of Appeal with the District Court. On September 17, 2013, Schmidt filed his appeal with the U.S. Third Circuit Court of Appeals (the “Third Circuit”). On September 25, 2013, the District Court denied Schmidt’s motion for reconsideration. On October 17, 2013, Schmidt amended his appeal to include the District Court’s denial of his motion for reconsideration. On March 20, 2014, Schmidt filed his Brief and Joint Appendix. On May 22, 2014, the Abeona Defendants filed their Oppositions to Schmidt’s Brief. On May 29, 2014, Schmidt was granted an extension of time until June 23, 2014 to file his Reply Brief and filed his Reply Brief on that date. The Third Circuit held oral argument on September 12, 2014. On October 17, 2014, in a split decision, the Third Circuit reversed the District Court’s decision holding, among other things, that the District Court’s determination that the Amended Complaint was time-barred on statute of limitations grounds was premature. The Third Circuit did not rule upon any of the other grounds for dismissal advanced in the District Court and on appeal. The Third Circuit remanded the case to the District Court for further proceedings. On January 6, 2015, the District Court ordered the parties to file supplemental briefs on all remaining arguments for dismissal, and further ordered that a hearing on the motions to dismiss would be held on February 3, 2015. On January 23, 2015, the Abeona Defendants filed their Supplemental Brief. At the February 3, 2015 hearing, Schmidt sought and was granted leave to amend his complaint for a second time. Schmidt filed his Second Amended Complaint on February 3, 2015. The Second Amended Complaint asserts substantially the same factual allegations with respect to the Abeona Defendants, but eliminates all causes of action against the Abeona Defendants except for aiding and abetting the Genaera directors’ and officers’ purported breaches of fiduciary duties, a claim for “punitive damages” and a claim for rescission of a settlement agreement between the Trust and the Abeona Defendants. On March 20, 2015, the Abeona Defendants filed a motion to dismiss the Second Amended Complaint. On November 10, 2015, the District Court granted the Abeona Defendant’s motion and dismissed the action in its entirety. On November 11, 2015, Schmidt filed a Notice of Appeal with the District Court. We intend to continue contesting the claims vigorously.

 

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We are not currently subject to any other material pending legal proceedings.

 

(5)Abeona Therapeutics LLC Acquisition

 

On May 15, 2015, we agreed to issue an aggregate of 3,979,761 unregistered shares of our common stock to the members of Abeona Therapeutics LLC (Abeona Ohio). Abeona Ohio’s principal activities were focused on developing and delivering gene therapy products for severe and life-threatening rare diseases. Abeona Ohio's lead program is ABO-101 (AA9 NAGLU) and ABO-102 (scAAV9 SGHG), adeno-associated virus (AAV)-based gene therapies for Sanfilippo syndrome (MPS IIIA and IIIB) in collaboration with patient advocate groups, researchers and clinicians, anticipated to commence clinical trials in 2015.

 

The initial consideration of $31,758,000 was calculated using the Company’s stock price on date of the closing, May 15, 2015 of $7.98 times the number of the Company shares (3,979,761) issued to Abeona Ohio members.

 

There is a contingent valuation on three milestones. Per the merger agreement with Abeona Ohio each milestone would consist of either cash, our stock or a combination of both, at the Company’s election, equivalent to a stated dollar amount. The fair value of the probability of achieving all three milestones is estimated at $6,489,000.

 

The following preliminary purchase price allocation is based on information we have to date and is unaudited.

 

Total purchase price     
Initial consideration  $31,758,000 
Contingent consideration   6,489,000 
Total purchase price  $38,247,000 
      
Allocation of the purchase price     
Cash  $3,697,000 
Accounts receivable   1,000 
Prepaid expenses   28,000 
Property and equipment   51,000 
Other assets   1,000 
Accounts payable   (153,000)
Total tangible assets   3,625,000 
      
Licensing agreement   2,156,000 
Goodwill   38,955,000 
Contingent consideration liability   (6,489,000)
      
Total net asset value  $38,247,000 

 

In connection with the acquisition $375,000 in merger costs were expensed.

 

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