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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended September 30, 2022

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 001-15771

 

ABEONA THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   83-0221517
(State or Other Jurisdiction of incorporation or Organization   (I.R.S. Employer Identification No.)

 

1330 Avenue of the Americas, 33rd Floor, New York, NY 10019

(Address of principal executive offices, zip code)

 

(646) 813-4701

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.01 par value   ABEO   Nasdaq Capital 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. Yes ☒ 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). Yes ☒ 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 ☐
Non-accelerated filer Smaller reporting company
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 standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares outstanding of the registrant’s common stock as of November 7, 2022 was 17,175,799 shares.

 

 

 

 

 

 

ABEONA THERAPEUTICS INC.

Form 10-Q

For the Quarter Ended September 30, 2022

 

INDEX

 

   

Page

No.

PART I - FINANCIAL INFORMATION  
     
Item 1 Financial Statements: 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 3
     
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 4
     
  Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 5
     
  Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
     
Item 4. Controls and Procedures 25
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 6. Exhibits 26
     
SIGNATURES 27

 

1

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains statements that express management’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “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. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “could,” “would,” “seeks,” “estimates,” and variations of such words and similar expressions, and the negatives thereof, are intended to identify such forward-looking statements. Such “forward-looking statements” speak only as of the date made and are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by management that are difficult to predict. Various factors, some of which are beyond the Company’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.

 

Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in forward-looking statements due to a number of factors. These statements include statements about: our plans to submit a Biologics License Application for EB-101 and the timing thereof; the expected benefits of EB-101 being granted Orphan Drug and Rare Pediatric Disease designations by the FDA; our plans to continue development of AAV-based gene therapies designed to treat ophthalmic and other diseases and next-generation AAV-based gene therapies; the achievement of or expected timing, progress and results of clinical development, clinical trials and potential regulatory approvals; our pipeline of product candidates; our belief that EB-101 could potentially benefit patients with RDEB; development of our novel AAV-based gene therapy platform technology; our belief in the adequacy of the clinical trial data from our VIITAL™ clinical trial, together with the data generated in the program to date, to support regulatory approvals; our dependence upon our third-party and related-party customers and vendors and their compliance with regulatory bodies; our estimates regarding expenses, future revenues, capital requirements, and needs for additional financing; our intellectual property position and our ability to obtain, maintain and enforce intellectual property protection and exclusivity for our proprietary assets; our estimates regarding the size of the potential markets for our product candidates, the strength of our commercialization strategies and our ability to serve and supply those markets; and future economic conditions or performance.

 

Important factors that could affect performance and cause results to differ materially from management’s expectations are described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated from time to time in the Company’s SEC filings, including this Quarterly Report on Form 10-Q. These factors include: our ability to successfully submit a Biologics License Application for EB-101 and the outcome thereof; our ability to find a potential commercialization partner for EB-101; our ability to access our existing at-the-market sale agreement; our ability to access additional financial resources and/or our financial flexibility to reduce operating expenses if required; our ability to obtain additional equity funding from current or new stockholders; the potential impacts of global healthcare emergencies, such as pandemics, on our business, operations, and financial condition; our ability to out-license technology and/or other assets, deferring and/or eliminating planned expenditures, restructuring operations and/or reducing headcount, and sales of assets; the dilutive effect that raising additional funds by selling additional equity securities would have on the relative equity ownership of our existing investors, including under our existing at-the-market sale agreement; the outcome of any interactions with the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies relating to any of our products or product candidates; our ability to continue to secure and maintain regulatory designations for our product candidates; our ability to develop manufacturing capabilities compliant with current good manufacturing practices for our product candidates; our ability to manufacture cell and gene therapy products and produce an adequate product supply to support clinical trials and potentially future commercialization; the rate and degree of market acceptance of our product candidates for any indication once approved; and our ability to meet our obligations contained in license agreements to which we are party.

 

2

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

   September 30,
2022
   December 31,
2021
 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $5,733   $32,938 
Short-term investments   12,434    12,086 
Restricted cash   5,338    5,891 
Accounts receivable       3,000 
Other receivables   1,047     
Prepaid expenses and other current assets   945    2,377 
Total current assets   25,497    56,292 
Property and equipment, net   6,606    12,339 
Right-of-use lease assets   6,638    9,403 
Licensed technology, net       1,384 
Other assets   20    168 
Total assets  $38,761   $79,586 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $1,748   $4,325 
Accrued expenses   4,121    5,585 
Current portion of lease liability   1,810    1,818 
Current portion of payable to licensor   4,921    4,599 
Deferred revenue       296 
Total current liabilities   12,600    16,623 
Payable to licensor   4,064    3,828 
Other long-term liabilities   200    200 
Long-term lease liabilities   6,484    7,560 
Total liabilities   23,348    28,211 
Commitments and contingencies   -    - 
Stockholders’ equity:          
Preferred stock - $0.01 par value; authorized 2,000,000 shares; No shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively        
Common stock - $0.01 par value; authorized 200,000,000 shares; 7,671,351 and 5,888,217 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   77    1,472 
Additional paid-in capital   709,590    705,570 
Accumulated deficit   (694,210)   (655,640)
Accumulated other comprehensive loss   (44)   (27)
Total stockholders’ equity   15,413    51,375 
Total liabilities and stockholders’ equity  $38,761   $79,586 

 

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

 

3

 

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

   2022   2021   2022   2021 
   For the three months ended September 30,   For the nine months ended September 30, 
   2022   2021   2022   2021 
                 
Revenues:                    
License and other revenues  $   $   $1,346   $ 
                     
Expenses:                    
Royalties           350     
Research and development   5,490    9,056    22,693    25,923 
General and administrative   3,890    5,816    11,574    17,261 
Impairment of licensed technology           1,355     
Impairment of right-of-use lease asset           1,561     
Impairment of construction-in-progress           1,792     
Total expenses   9,380    14,872    39,325    43,184 
                     
Loss from operations   (9,380)   (14,872)   (37,979)   (43,184)
                     
Gain on settlement with licensor       6,743        6,743 
PPP loan payable forgiveness income       1,758        1,758 
Interest income   72    7    103    35 
Interest expense   (157)   (683)   (558)   (3,603)
Other income (expense)   (19)   3    (136)   (2)
Net loss  $(9,484)  $(7,044)  $(38,570)  $(38,253)
Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock           (3,782)    
Net loss attributable to Common Shareholders  $(9,484)  $(7,044)  $(42,352)  $(38,253)
                     
Basic and diluted loss per common share  $(1.48)  $(1.80)  $(7.05)  $(9.93)
                     
Weighted average number of common shares outstanding – basic and diluted   6,421,245    3,924,024    6,009,902    3,853,318 
                     
Other comprehensive income (loss):                    
Change in unrealized gains (losses) related to available-for-sale debt securities   (4)   1    (11)   10 
Foreign currency translation adjustments   (6)   (9)   (6)   (9)
Comprehensive loss  $(9,494)  $(7,052)  $(42,369)  $(38,252)

 

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

 

4

 

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
Three months ended September 30, 2022
 
   Convertible Redeemable Preferred Stock                 

Accumulated

    
   Series A   Series B   Common Stock  

Additional

Paid-in

   Accumulated  

Other

Comprehensive

  

Total

 Stockholders’

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
                                         
Balance at June 30, 2022      $       $    5,870,375   $1,467   $703,379   $(684,726)  $(34)  $20,086 
Stock-based compensation expense                           632            632 
Issuance of common stock, net of offering costs under open market sale agreement (ATM)                      1,038,134    10    4,179              4,189 
Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax witholding settlement                   762,842    8    (8)            
Reverse stock-split adjustment                       

(1,408

)   

1,408

             
Net loss                               (9,484)       (9,484)
Other comprehensive loss                                           (10)   (10)
Balance at September 30, 2022      $       $    7,671,351   $77   $709,590   $(694,210)  $(44)  $15,413 

 

Nine months ended September 30, 2022
 
   Convertible Redeemable Preferred Stock                 

Accumulated

    
   Series A   Series B   Common Stock  

Additional

Paid-in

   Accumulated  

Other

Comprehensive

  

Total

 Stockholders’

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
                                         
Balance at December 31, 2021      $       $    5,888,217   $1,472   $705,570   $(655,640)  $          (27)  $51,375 
Stock-based compensation expense                           2,218            2,218 
Issuance of common stock, net of offering costs under open market sale agreement (ATM)                      1,038,134    10    4,179              4,189 
Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax witholding settlement                745,000    3    (3)            
Issuance of Series A and Series B Convertible Redeemable Preferred Stock   1,000,006    17,974    250,005    4,494                       
Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock       3,026        756           (3,782)          (3,782)
Redemption of Series A and Series B Convertible Redeemable Preferred Stock   (1,000,006)   (21,000)   (250,005)   (5,250)                      
Reverse stock-split adjustment                       

(1,408

)   

1,408

             
Net loss                         (38,570)       (38,570)
Other comprehensive loss                              (17)   (17)
Balance at September 30, 2022      $       $    7,671,351   $77   $709,590   $(694,210)  $(44)  $15,413 

 

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

 

5

 

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity Continued

(Unaudited)

(In thousands, except share amounts)

 

   Shares   Amount   Capital   Deficit   Loss   Equity 
Three months ended September 30, 2021
                  Accumulated    
   Common Stock  

Additional

Paid-in

   Accumulated  

Other

Comprehensive

   Total Stockholde’ 
   Shares   Amount   Capital   Deficit   Loss   Equity 
                         
Balance at June 30, 2021    4,050,041   $ 1,013   $ 684,987   $ (601,913)  $ (1)  $ 84,086 
Stock-based compensation expense           2,537            2,537 
Issuance of common stock, net of offering costs under open market sale agreement (ATM)   790        33            33 
Issuance of common stock in connection with the exercise of stock options   4,878    1    139            140 
Issuance of common stock in connection with restricted share awards, net of cancellations   18,993    5    (5)            
Net loss               (7,044)       (7,044)
Other comprehensive loss                   (8)   (8)
Balance at September 30, 2021   4,074,702   $1,019   $687,691   $(608,957)  $(9)  $79,744 

 

Nine months ended September 30, 2021
                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-in   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Capital   Deficit   Income/(Loss)   Equity 
                         
Balance at December 31, 2020   3,845,267   $961   $672,304   $(570,704)  $(10)  $102,551 
Stock-based compensation expense          6,915          6,915 
Issuance of common stock, net of offering costs under open market sale agreement (ATM)   123,332    32    7,667          7,699 
Issuance of common stock in connection with the exercise of stock options   25,227    6    825          831 
Issuance of common stock in connection with restricted share awards, net of cancellations   80,876    20    (20)          
Net loss             (38,253)       (38,253)
Other comprehensive income                 1    1 
Balance at September 30, 2021   4,074,702   $1,019   $687,691   $(608,957)  $        (9)  $79,744 

 

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

 

6

 

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

   2022   2021 
   For the nine months ended September 30, 
   2022   2021 
         
Cash flows from operating activities:          
Net loss  $(38,570)  $(38,253)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation and amortization   2,364    2,443 
Stock-based compensation expense   2,218    6,915 
Non-cash gain on settlement with licensor       (6,743)
Non-cash PPP loan payable forgiveness income       (1,758)
Non-cash impairment of licensed technology   1,355     
Non-cash impairment of right-of-use lease asset   1,561     
Non-cash impairment of construction-in-progress   1,792     
Accretion and interest on short-term investments   (206)   256 
Amortization of right-of-use lease assets   1,204    825 
Non-cash interest   558     
Loss on disposal of property and equipment   121     
Change in operating assets and liabilities:          
Accounts receivable   3,000     
Other receivables   (1,047)    
Prepaid expenses and other current assets   1,432    1,801 
Other assets   148    (23)
Accounts payable, accrued expenses and lease liabilities   (5,125)   (4,459)
Deferred revenue   (296)    
Change in payable to licensor       3,588 
Net cash used in operating activities   (29,491)   (35,408)
           
Cash flows from investing activities:          
Capital expenditures   (105)   (903)
Proceeds from disposal of property and equipment   1,590     
Purchases of short-term investments   (43,866)   (15,164)
Proceeds from maturities of short-term investments   43,707    74,130 
Net cash provided by investing activities   1,326    58,063 
           
Cash flows from financing activities:          
Proceeds from ATM sales of common stock, net of issuance costs   4,189    7,699 
Proceeds from exercise of stock options       831 
Proceeds from issuance of Series A and Series B Convertible Redeemable Preferred Stock, net of issuance costs   22,468     
Redemption of Series A and Series B Convertible Redeemable Preferred Stock   (26,250)    
Net cash provided by financing activities   407    8,530 
           
Net increase(decrease) in cash, cash equivalents and restricted cash   (27,758)   31,185 
Cash, cash equivalents and restricted cash at beginning of period   38,829    13,571 
Cash, cash equivalents and restricted cash at end of period  $11,071   $44,756 
           
Supplemental cash flow information:          
Cash and cash equivalents  $5,733   $43,781 
Restricted cash   5,338    975 
Total cash, cash equivalents and restricted cash  $11,071   $44,756 

 

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

 

7

 

 

ABEONA THERAPEUTICS INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1 – NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

 

Background

 

Abeona Therapeutics Inc. (together with the Company’s subsidiaries, “Abeona” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases. The Company’s lead clinical program is EB-101, an autologous, engineered cell therapy currently in development for recessive dystrophic epidermolysis bullosa (“RDEB”). The Company’s development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other diseases, next-generation AAV-based gene therapies using the novel AIM™ capsid platform that the Company has exclusively licensed from the University of North Carolina at Chapel Hill, and internal AAV vector research programs.

 

Reverse Stock Split

 

On June 30, 2022, the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”), to effectuate a reverse stock split of the Company’s outstanding common stock, par value $0.01 per share (“Common Stock”), at an exchange ratio of 25-to-1 (the “Reverse Stock Split”). The Reverse Stock Split was effective on July 1, 2022. The number of authorized shares of Common Stock immediately after the Reverse Stock Split (“New Common Stock”) remains at 200,000,000 shares. All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

 

As a result of the Reverse Stock Split, every 25 shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted into one share of New Common Stock without any change in the par value per share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to a fraction of one share of New Common Stock as a result of the Reverse Stock Split instead received an amount in cash equal to such fraction multiplied by the closing sale price of Common Stock on the Nasdaq Capital Market on July 1, 2022, as adjusted for the Reverse Stock Split.

 

Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at July 1, 2022, which resulted in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under the Company’s 2015 Equity Incentive Plan were reduced proportionately.

 

Basis of Presentation

 

The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation. 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. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. Certain information that is normally required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The December 31, 2021 condensed consolidated balance sheet was derived from the audited statements, but does not include all disclosures required by U.S. GAAP.

 

Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 31, 2022.

 

Uses and Sources of Liquidity

 

The unaudited interim condensed consolidated financial statements have been prepared on the going concern basis, which assumes the Company will have sufficient cash to pay its operating expenses, as and when they become payable, for a period of at least 12 months from the date the financial report is issued.

 

8

 

 

As of September 30, 2022, the Company had cash, cash equivalents, restricted cash and short-term investments of $23.5 million. For the nine months ended September 30, 2022, the Company had cash outflows from operations of $29.5 million. The Company has not generated significant revenues and has not achieved profitable operations. There is no assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and nonclinical testing, and commercialization of the Company’s product candidates will require significant additional financing.

 

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful discovery and development of product candidates, obtaining the necessary regulatory approval to market the Company’s product candidates, raising additional capital to continue to fund the Company’s operations, development of competing drugs and therapies and protection of proprietary technology. As a result of these and other risks and the related uncertainties, there can be no assurance of the Company’s future success.

 

The Company believes that its current cash and cash equivalents, restricted cash and short-term investments plus the proceeds from the private placement financing on November 3, 2022 (see Note 12) are sufficient resources to fund operations through at least the next 12 months from the date of this report on Form 10-Q. The Company may need to secure additional funding to carry out all of its planned research and development activities. If the Company is unable to obtain additional financing or generate license or product revenue, the lack of liquidity and sufficient capital resources could have a material adverse effect on its future prospects.

 

Use of Estimates

 

The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates and assumptions.

 

Summary of Significant Accounting Policies

 

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 that are of significance, or potential significance, to the Company, other than the adoption of accounting pronouncements below.

 

Reclassifications

 

Certain comparative figures have been reclassified to conform to the current year presentation. The Company reclassified depreciation and amortization costs of $0.8 million and $16,000 to research and development and general and administrative expenses, respectively, on the condensed consolidated statements of operations and comprehensive loss during the three months ended September 30, 2021. The Company reclassified depreciation and amortization costs of $2.4 million and $49,000 to research and development and general and administrative expenses, respectively, on the condensed consolidated statements of operations and comprehensive loss during the nine months ended September 30, 2021. The Company also reclassified certain rent expenses of $0.3 million and $0.9 million from general and administrative to research and development expenses on the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2021, respectively. Additionally, the Company also reclassified $5.0 million of restricted cash from prepaid expenses, other current assets and restricted cash and $0.9 million of restricted cash from other assets and restricted cash to restricted cash on the condensed consolidated balance sheets as of December 31, 2021.

 

Net Loss Per Share

 

Basic and diluted net loss per share is computed by dividing net loss attributable to common shareholders by the weighted-average number of shares of common stock. The Company does not include the potential impact of dilutive securities in diluted net loss per share, as the impact of these items is anti-dilutive. Potential dilutive securities result from outstanding restricted stock, stock options, and stock purchase warrants.

 

9

 

 

The following table sets forth the potential securities that could potentially dilute basic income/(loss) per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the periods presented:

 

   For the three and nine months ended September 30, 
   2022   2021 
           
Stock options   242,644    310,208 
Restricted stock   821,269    114,209 
Warrants   1,788,000     
Total   2,851,913    424,417 

 

Recently Adopted Accounting Pronouncements

 

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the condensed consolidated financial statements upon adoption.

 

NOTE 2 – SHORT-TERM INVESTMENTS

 

The following table provides a summary of the short-term investments (in thousands):

 

   September 30, 2022 
   Amortized Cost   Gross Unrealized Gain   Gross Unrealized Loss   Fair Value 
                 
Available-for-sale, short-term investments                    
U.S. treasury and federal agency securities  $12,445        (11)  $12,434 
Total available-for-sale, short-term investments  $12,445        (11)  $12,434 

 

   December 31, 2021 
   Amortized Cost   Gross Unrealized Gain   Gross Unrealized Loss   Fair Value 
                 
Available-for-sale, short-term investments                    
U.S. treasury securities  $12,077    9       $12,086 
Total available-for-sale, short-term investments  $12,077    9       $12,086 

 

As of September 30, 2022, the available-for-sale securities classified as short-term investments mature in one year or less. Unrealized losses on available-for-sale securities as of September 30, 2022 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. None of the short-term investments have been in a continuous unrealized loss position for more than 12 months. Accordingly, no other-than-temporary impairment was recorded for the three or nine months ended September 30, 2022.

 

There were no significant realized gains or losses recognized on the sale or maturity of available-for-sale investments for the three or nine months ended September 30, 2022 or 2021.

 

10

 

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follows (in thousands):

 

   Useful lives (years) 

September 30,

2022

  

December 31,

2021

 
            
Laboratory equipment  5  $8,144   $9,081 
Furniture, software and office equipment  3 to 5   1,726    1,896 
Leasehold improvements  Shorter of remaining lease term or useful life   8,586    8,603 
Construction-in-progress          3,219 
Subtotal      18,456    22,799 
Less: accumulated depreciation      (11,850)   (10,460)
Total property and equipment, net     $6,606   $12,339 

 

Depreciation expense was $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $2.3 million and $2.4 million for the nine months ended September 30, 2022 and 2021, respectively. During the three and nine months ended September 30, 2022, the Company incurred a loss on disposal of equipment of $16,000 and $0.1 million, respectively, which is reflected in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

 

On March 31, 2022, the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the construction-in-progress that was dedicated to the ABO-101 and ABO-102 programs had no future value, and thus recorded an impairment charge of $1.8 million for the nine months ended September 30, 2022.

 

NOTE 4 – LICENSED TECHNOLOGY

 

On May 15, 2015, the Company acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital to the AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B. The license is amortized over the life of the license of 20 years. On March 31, 2022, the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the remaining value of the licensed technology had no future value and thus recorded an impairment charge of nil and $1.4 million for the three and nine months ended September 30, 2022, respectively.

 

The following table provides a summary of licensed technology (in thousands):

 

   September 30, 2022   December 31, 2021 
         
Licensed technology  $2,156   $2,156 
Less accumulated amortization   (801)   (772)
Less impairment charge   (1,355)    
Total licensed technology, net  $   $1,384 

 

Amortization expense on licensed technology was nil and $29,000 for the three months ended September 30, 2022 and 2021, respectively and $29,000 and $87,000 for the nine months ended September 30, 2022 and 2021, respectively.

 

NOTE 5 – SETTLEMENT LIABILITY

 

On November 12, 2021, the Company entered into a settlement agreement (“Settlement Agreement”) with the Company’s prior licensor REGENXBIO Inc. (“REGENXBIO”) to resolve all existing disputes between the parties. In accordance with the Settlement Agreement, the Company agreed to pay REGENXBIO a total of $30.0 million, payable as follows: (1) $20.0 million paid in November 2021 after execution of the Settlement Agreement, (2) $5.0 million on the first anniversary of the effective date of the Settlement Agreement, and (3) $5.0 million upon the earlier of (i) the third anniversary of the effective date of the Settlement Agreement or (ii) the closing of a Strategic Transaction, as defined in the Settlement Agreement.

 

11

 

 

As of September 30, 2022, the Company recorded the payables due to REGENXBIO in the condensed consolidated balance sheets based on the present value of the remaining payments due to REGENXBIO under the Settlement Agreement using an interest rate of 9.6%. The current portion of the payable due in November 2022 is $4.9 million and the long-term portion due in November 2024 is $4.1 million as of September 30, 2022. As of September 30, 2022, the Company recorded $5.0 million of restricted cash in the condensed consolidated balance sheet that serves as collateral for the payment owed to REGENXBIO in November 2022.

 

NOTE 6 – FAIR VALUE MEASUREMENTS

 

The Company calculates the fair value of the Company’s assets and liabilities that qualify as financial instruments and includes additional information in the notes to the condensed consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses, payables to licensor and deferred revenue approximate their carrying amounts due to the relatively short maturity of these instruments.

 

U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

  Level 1 - Quoted prices in active markets for identical assets or liabilities.
     
  Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
     
  Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.

 

The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

 

The following table provides a summary of financial assets measured at fair value on a recurring and non-recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):

 

Description 

Fair Value at

September 30, 2022

   Level 1   Level 2   Level 3 
                 
Recurring Assets:                    
Cash equivalents                    
Money market fund  $2,312   $2,312   $   $ 
Short-term investments                    
U.S. treasury and federal agency securities   12,434        12,434     
Total assets measured at fair value  $14,746   $2,312   $12,434   $ 

 

12

 

 

Description 

Fair Value at

December

31, 2021

   Level 1   Level 2   Level 3 
                 
Recurring Assets:                    
Cash equivalents                    
Money market fund  $28,590   $28,590   $   $ 
Short-term investments                    
U.S. treasury securities   12,086        12,086     
Total recurring assets   40,676    28,590    12,086     
                     
Non-recurring Assets                    
Licensed technology, net  $1,384   $   $   $1,384 
                     
Total assets measured at fair value  $42,060   $28,590   $12,086   $1,384 

 

NOTE 7 – ACCRUED EXPENSES

 

The following table provides a summary of the components of accrued expenses (in thousands):

 

  

September 30,

2022

  

December 31,

2021

 
         
Accrued employee compensation  $2,092   $1,794 
Accrued contracted services and other   2,029    3,091 
Accrued sublicense fee owed to licensor       700 
Total accrued expenses  $4,121   $5,585 

 

NOTE 8 – LEASES

 

The Company leases space under operating leases for manufacturing and laboratory facilities in Cleveland, Ohio, as well as administrative offices in New York, New York. The Company also leases office space in Madrid, Spain as well as certain office equipment under operating leases, which have a non-cancelable lease term of less than one year and, therefore, the Company has elected the practical expedient to exclude these short-term leases from the Company’s right-of-use assets and lease liabilities.

 

On March 31, 2022, the Company announced that they were pursuing a strategic partner to take over development activities of ABO-102 and that the Company was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the portion of the lease that was dedicated to the future facility for the ABO-101 and ABO-102 programs, had no future value and thus, the Company recorded an impairment charge of nil and $1.6 million for the three and nine months ended September 30, 2022, respectively.

 

The following table provides a summary of the components of lease costs and rent (in thousands):

 

   2022   2021   2022   2021 
  

For the three months ended

September 30,

  

For the nine months ended

September 30,

 
   2022   2021   2022   2021 
                 
Operating lease cost  $467   $434   $1,400   $1,302 
Variable lease cost   154    105    366    344 
Short-term lease cost   17    13    58    23 
Total operating lease costs  $638   $552   $1,824   $1,669 

 

13

 

 

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of September 30, 2022 are as follows:

 

Maturity of lease liabilities:  (in thousands) 
     
Remainder of 2022  $446 
2023   1,829 
2024   1,872 
2025   1,631 
2026   871 
Thereafter   3,662 
Total undiscounted operating lease payments   10,311 
Less: imputed interest   2,017 
Present value of operating lease liabilities  $8,294 

 

The weighted-average remaining term of the Company’s operating leases was 79 months and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 7.2% as of September 30, 2022.

 

NOTE 9 – STOCK-BASED COMPENSATION

 

The Company has two stock-based compensation plans: (1) Abeona Therapeutics Inc. 2015 Equity Incentive Plan (the “2015 Incentive Plan”), which was approved by stockholders on May 7, 2015 and last amended on May 20, 2020 and (2) Abeona Therapeutics Inc. 2005 Equity Incentive Plan (the “2005 Incentive Plan”), under which no further grants can be made.

 

The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

  

For the three months ended

September 30,

  

For the nine months ended

September 30

 
   2022   2021   2022   2021 
                 
Research and development  $173   $688   $729   $2,935 
General and administrative   459    1,849    1,489    3,980 
Total stock-based compensation expense  $632   $2,537   $2,218   $6,915 

 

Stock Options: The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option valuation model. The Company then recognize the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:

 

  Expected volatility – the Company estimates the volatility of the share price at the date of grant using a “look-back” period which coincides with the expected term, defined below. The Company believes using a “look-back” period which coincides with the expected term is the most appropriate measure for determining expected volatility.
  Expected term – the Company estimates the expected term using the “simplified” method, as outlined in SEC Staff Accounting Bulletin No. 107, “Share-Based Payment.”
  Risk-free interest rate – the Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant.
  Dividends – the Company uses an expected dividend yield of zero because the Company has not declared nor paid a cash dividend, nor are there any plans to declare a dividend.

 

14

 

 

The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-valuation model utilizing the following assumptions:

 

    For the nine months ended September 30, 
    2022    2021 
           
Expected volatility   95.1% - 96.0%    91.8% - 99.8% 
Expected term   6.07 - 6.08 years    5.25 - 6.08 years 
Risk-free interest rate   1.7% - 3.3%    0.8% - 1.2% 
Expected dividend yield        

 

The following table summarizes stock option activity for the 2015 Incentive Plan during the nine months ended September 30, 2022: 

   Number of Options   Weighted Average Exercise Price  

Weighted Average Remaining

Contractual

Term (years)

   Aggregate Intrinsic Value (in thousands) 
                 
Outstanding at December 31, 2021   314,194   $38.48    7.63   $ 
Granted   7,760   $5.30       $ 
Cancelled/forfeited   (82,510)  $39.31       $ 
Exercised      $       $ 
Outstanding at September 30, 2022   239,444   $37.10    6.71   $ 
Exercisable   140,414   $36.67    5.39   $ 
Unvested   99,030   $37.72    8.58   $ 

 

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. As of September 30, 2022, the total compensation cost related to non-vested option awards not yet recognized was approximately $3.3 million with a weighted average remaining vesting period of 2.3 years.

 

The following table summarizes stock option activity for the 2005 Incentive Plan during the nine months ended September 30, 2022:

 

   Number of Options   Weighted Average Exercise Price  

Weighted Average Remaining

Contractual Term (years)

   Aggregate Intrinsic Value (in thousands) 
                 
Outstanding at December 31, 2021   3,200   $32.00    1.80   $ 
Cancelled/forfeited      $       $ 
Exercised      $       $ 
Outstanding at September 30, 2022   3,200   $32.00    1.04   $ 
Exercisable   3,200   $32.00    1.04   $ 
Unvested      $       $ 

 

15

 

 

Restricted Stock:

 

The following table summarizes restricted stock award activity during the nine months ended September 30, 2022:

 

  

Number of

Awards

   Weighted Average Grant Date Fair Value 
         
Outstanding at December 31, 2021   97,260   $46.59 
Granted   779,722   $3.12 
Cancelled/forfeited   (30,742)  $40.65 
Vested   (24,971)  $50.66 
Outstanding at September 30, 2022   821,269   $5.42 

 

As of September 30, 2022, there was approximately $4.1 million of total unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted average vesting period of 3.1 years. The total fair value of restricted stock awards that vested during the nine months ended September 30, 2022 was $1.3 million.

 

NOTE 10 – EQUITY

 

Series A and B Convertible Redeemable Preferred Stock

 

On May 2, 2022, the Company consummated an offering with certain institutional investors for the private placement of 1,000,006 shares of the Company’s Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) and 250,005 shares of the Company’s Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”). The shares, which have since been redeemed in accordance with their terms described below, and are thus no longer outstanding as of September 30, 2022, had an aggregated stated value of $25.0 million. Each share of the Preferred Stock had a purchase price of $19.00, representing an original issue discount of 5% of the stated value. In connection with this offering, the Company had net proceeds of $22.5 million and recognized a deemed dividend of $3.8 million. In connection with this transaction, the Company placed $26.3 million into an escrow account for any future redemption which consisted of the gross proceeds of $25.0 million and the redemption value of $1.3 million.

 

The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $11.25 per share. The holders of the Series A Preferred Stock and Series B Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder approval of an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split and 60 days after the closing of the issuances of the Series A Preferred Stock and Series B Preferred Stock and until 90 days after such closing. The Company had the option to redeem the Series A Preferred Stock for cash at 105% of the stated value commencing after the 90th day following the closing of the issuance of the Series A Preferred Stock, subject to the holders’ rights to convert the shares prior to such redemption. As a result, the Preferred Stock was recorded separately from stockholders’ equity because it was redeemable upon the occurrence of redemption events that were considered not solely withing the Company’s control. As such, during the nine months ended September 30, 2022, the Company recognized approximately $3.8 million in deemed dividends related to the Preferred Stock in the condensed consolidated statements of operations and comprehensive loss and the condensed consolidated statements of changes in stockholders’ equity.

 

On June 17, 2022, the holders of all 1,000,006 shares of Series A Preferred Stock and 250,005 shares of Series B Preferred Stock exercised their right to cause the Company to redeem all such shares for $26.3 million, which represented a price equal to 105% of the stated value. The redemption of these shares was paid out of the escrow account noted above.

 

Common Stock and Warrants

 

Reverse Stock Split

 

Effective July 1, 2022, the Company’s stock underwent a 25:1 Reverse Stock Split. The number of authorized shares of Common Stock immediately after the Reverse Stock Split remained at 200,000,000 shares.

 

16

 

 

Public Offerings

 

On December 21, 2021, the Company closed an underwritten public offering of 1,788,000 post-split shares of common stock at a public offering price of $9.75 post-split per share and stock purchase warrants to purchase 1,788,000 post-split shares of common stock at an exercise price of $9.75 post-split. The net proceeds to the Company were approximately $16.0 million, after deducting $1.5 million of underwriting discounts and commissions and offering expenses payable by the Company.

 

As of September 30, 2022, there were 1,788,000 post-split stock purchase warrants outstanding. These stock purchase warrants expire on December 21, 2026. During such time as each warrant is outstanding, the holder of the warrant is entitled to participate in any dividends or other distribution of assets to holders of shares of common stock. There was no warrant activity during the three or nine months ended September 30, 2022.

 

Open Market Sale Agreement

 

On August 17, 2018 the Company entered into an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”) pursuant to which, the Company may sell from time to time, through Jefferies LLC, shares of its common stock for an aggregate sales price of up to $150.0 million. Any sales of shares pursuant to this agreement are made under the Company’s effective “shelf” registration statement on Form S-3 that is on file with and has been declared effective by the SEC. The Company is currently subject to General Instruction I.B.6 of Form S-3, as a result of which the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. The Company remains subject to this one-third limitation until such time as its public float exceeds $75 million. The Company sold 1,038,134 shares of its common stock under the ATM Agreement and received $4.2 million of net proceeds during the nine months ended September 30, 2022. Subsequent to September 30, 2022, the Company sold an additional 2,440,882 shares of its common stock under the ATM Agreement and received $8.6 million of net proceeds.

 

NOTE 11 – LICENSE AGREEMENT

 

On May 16, 2022, the Company and Ultragenyx Pharmaceutical Inc. (“Ultragenyx”) entered into an exclusive license agreement (the “License Agreement”) for AAV gene therapy ABO-102 for the treatment of Sanfilippo syndrome type A (MPS IIIA). Under the License Agreement, Ultragenyx will assume responsibility for the ABO-102 program from the Company, with the exclusive right to develop, manufacture, and commercialize ABO-102 worldwide. Also pursuant to the License Agreement, following regulatory approval, the Company is eligible to receive tiered royalties from mid-single-digit up to 10% on net sales and up to $30.0 million in commercial milestone payments. Both forms of consideration comprise the transaction price to which the Company expects to be entitled in exchange for transferring the related intellectual property and certain, contractually-specified transition services to Ultragenyx. The sales-based royalty and milestone payments are subject to the royalty recognition constraint. As such, these fees are not recognized as revenue until the later of: (a) the occurrence of the subsequent sale, and (b) the performance obligation to which they relate has been satisfied.

 

Additionally, pursuant to the License Agreement, Ultragenyx will reimburse the Company for certain development and transition costs actually incurred by the Company. These costs are passed through to Ultragenyx without mark-up. The Company has determined that these costs are not incurred for the purpose of satisfying any performance obligation under the License Agreement. Accordingly, the reimbursement of these costs is recognized as a reduction of research and development costs. Such amounts due to the Company from Ultragenyx under the License Agreement of $0.8 million are recorded as a component of other receivables in the condensed consolidated balance sheet as of September 30, 2022.

 

NOTE 12 – SUBSEQUENT EVENTS

 

On November 3, 2022 the Company announced that it has entered into a securities purchase agreement to sell 7,065,946 shares of its common stock, and, in lieu of shares of common stock, pre-funded warrants exercisable for 543,933 shares of common stock, and accompanying warrants to purchase 7,609,879 shares of its common stock to a group of new and existing institutional investors in a private placement. The offering price for each share of common stock and accompanying warrant was $4.60, and the offering price for each pre-funded warrant and accompanying warrant was $4.59, which equals the offering price per share of the common stock and accompanying warrant, less the $0.01 per share exercise price of each pre-funded warrant. Each accompanying warrant will represent the right to purchase one share of the Company’s common stock at an exercise price of $4.75 per share of common stock. The pre-funded warrants and the accompanying warrants will be exercisable immediately, and will expire five years from the date of issuance. Gross proceeds of the private placement are expected to be approximately $35.0 million, before deducting placement agent fees and other expenses.

 

17

 

 

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

 

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

 

OVERVIEW

 

Abeona Therapeutics Inc. (“we,” “our,” “Abeona” or the “Company”) is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases. Our lead clinical program is EB-101, an autologous, engineered cell therapy currently in development for recessive dystrophic epidermolysis bullosa (“RDEB”).

 

Our development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other diseases, next-generation AAV-based gene therapies using the novel AIM™ capsid platform that we have exclusively licensed from the University of North Carolina at Chapel Hill, and internal AAV vector research programs.

 

RECENT DEVELOPMENTS

 

EB-101 (Autologous, Engineered Cell Therapy) for RDEB

 

On November 3, 2022, we announced positive topline data from VIITAL™ study. The pivotal Phase 3 VIITAL™ study evaluated the efficacy, safety and tolerability of EB-101 in 43 large chronic wound pairs in 11 subjects with RDEB. The large chronic wounds randomized and treated in VIITAL™ measured greater than 20 cm2 of surface area and had remained open for a minimum of six months and a maximum of 21 years (mean 6.2 years).  The co-primary endpoints of the study were: (1) the proportion of RDEB wound sites with greater than or equal to 50% healing from baseline, comparing randomized treated with matched untreated (control) wound sites at the six-month timepoint, as determined by direct investigator assessment; and (2) pain reduction associated with wound dressing change assessed by the mean differences in scores of the Wong-Baker FACES scale between randomized treated and matched untreated (control) wounds at the six-month timepoint.

 

The VIITAL™ study met its two co-primary efficacy endpoints demonstrating statistically significant, clinically meaningful improvements in wound healing and pain reduction in large chronic RDEB wounds. EB-101 was shown to be well-tolerated with no serious treatment-related adverse events observed, consistent with past clinical experience. There were no deaths or instances of positive replication-competent retrovirus results, and no systemic immunologic responses were reported during the study, as well as no squamous cell carcinoma at treatment sites after application of EB-101. Two subjects reported at least one serious adverse event unrelated to EB-101. Four subjects reported related treatment emergent adverse events, including procedural pain, muscle spasms and pruritis. Infections unrelated to EB-101 were observed in eight patients.

 

Based on the positive topline results, we intend to submit a Biologics License Application (“BLA”) for EB-101 to the U.S. Food and Drug Administration (“FDA”) in the second quarter of 2023. EB-101 has been granted Orphan Drug and Rare Pediatric Disease (“RPD”) designations by the FDA. Among the potential benefits of Orphan Drug designation are a potential seven years of market exclusivity following FDA approval, potentially preventing FDA approval of another product deemed to be the same as the approved product for the same indication, waiver of application fees, and tax credits for qualified clinical testing expenses conducted after orphan designation is received. A sponsor who receives an approval for a BLA with RPD designation may qualify for a Priority Review Voucher (“PRV”), subject to final determination by the FDA. A PRV may be used to receive expedited review of a subsequent marketing application for a different product or sold to another company.

 

We have continued to prepare our current Good Manufacturing Practices (“cGMP”) commercial facility in Cleveland, Ohio for manufacturing EB-101 drug product to support our planned BLA filing to the FDA. EB-101 study drug product for all our VIITAL™ study participants has been manufactured at our Cleveland facility and we completed submission of Module 3 for Chemistry, Manufacturing and Controls (“CMC”) describing the in-house production of both retroviral vector and the final drug product to the Investigational New Drug Application (“IND”) in December 2021. Based on feedback from the FDA in a Type-B meeting in March 2022, we believe that we have alignment with the FDA on significant components of the CMC plan for the BLA submission for EB-101, including characterization and validation plans.

 

Ultragenyx License Agreement

 

On May 16, 2022, we entered into an exclusive license agreement (the “License Agreement”) with Ultragenyx Pharmaceutical Inc. (“Ultragenyx”) for our investigational AAV gene therapy ABO-102 for the treatment of Sanfilippo syndrome type A (“ABO-102”). Under the License Agreement, Ultragenyx will assume responsibility for the ABO-102 program from us, with the exclusive right to develop, manufacture, and commercialize ABO-102 worldwide. Also pursuant to the License Agreement, following regulatory approval, we are eligible to receive tiered royalties from mid-single-digit up to 10% on net sales and up to $30.0 million in commercial milestone payments.

 

Preclinical Pipeline

 

While our lead clinical program is currently focused on an ultra-rare indication, we intend to address larger areas of unmet medical need in the future, and our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for five undisclosed ophthalmic conditions each with estimated U.S. prevalence ranging from 5,000 to 15,000 patients. In 2021, we shared data from studies in non-human primates that will help to determine optimal routes of administration and we believe we have made significant progress toward measuring efficacy in the preclinical setting. We have also generated appropriate mouse models, produced research grade vectors, and started dosing mice in proof-of-concept studies that we hope will support pre-IND meetings with the FDA in early 2023.

 

18

 

 

Private Placement Financing

 

On November 3, 2022, we entered into a securities purchase agreement to sell 7,065,946 shares of our common stock, and, in lieu of shares of common stock, pre-funded warrants exercisable for 543,933 shares of common stock, and accompanying warrants to purchase 7,609,879 shares of our common stock to a group of new and existing institutional investors in a private placement. The offering price for each share of common stock and accompanying warrant was $4.60, and the offering price for each pre-funded warrant and accompanying warrant was $4.59, which equals the offering price per share of the common stock and accompanying warrant, less the $0.01 per share exercise price of each pre-funded warrant. Each accompanying warrant will represent the right to purchase one share of the our common stock at an exercise price of $4.75 per share of common stock. The pre-funded warrants and the accompanying warrants will be exercisable immediately, and will expire five years from the date of issuance. Gross proceeds of the private placement are expected to be approximately $35.0 million, before deducting placement agent fees and other expenses. We intend to use the net proceeds from the proposed private placement for development, working capital and general corporate purposes.

 

Preferred Stock Offering

 

On May 2, 2022, we consummated an offering with certain institutional investors for the private placement of 1,000,006 shares of our Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) and 250,005 shares of our Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock, and together with the Series A Preferred Stock, the “Preferred Stock”). The shares, which have since been redeemed in accordance with their terms described below, and are thus no longer outstanding as of September 30, 2022, had an aggregated stated value of $25.0 million. Each share of Preferred Stock had a purchase price of $19.00, representing an original issue discount of 5% of the stated value. The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by us, into shares of Common Stock at a conversion price of $11.25 per share. The holders of the Preferred Stock had the right to require us to redeem their shares of preferred stock for cash at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder approval of an amendment to our Restated Certificate of Incorporation to effect a reverse stock split and 60 days after the closing of the issuances of the Series A Preferred Stock and Series B Preferred Stock and until 90 days after such closing. We had the option to redeem the Series A Preferred Stock for cash at 105% of the stated value commencing after the 90th day following the closing of the issuance of the Series A Preferred Stock, subject to the holders’ rights to convert the shares prior to such redemption. On June 17, 2022, the holders of all 1,000,006 shares of Series A Preferred Stock and all 250,005 shares of Series B Preferred Stock exercised their right to cause us to redeem all of such shares at a price equal to 105% of the stated value.

 

Reverse Stock Split

 

On June 30, 2022, we filed a Certificate of Amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effectuate a reverse stock split of our outstanding common stock, par value $0.01 per share at an exchange ratio of 25-to-1 (the “Reverse Stock Split”). The Reverse Stock Split was effective on July 1, 2022. The number of authorized shares of our common stock immediately after the Reverse Stock Split remained at 200,000,000 shares.

 

Open Market Sale Agreement

 

We sold 1,038,134 shares of our common stock under the ATM Agreement (as defined below) and received $4.2 million of net proceeds during the nine months ended September 30, 2022. Subsequent to September 30, 2022, we sold an additional 2,440,882 shares of our common stock under the ATM Agreement and received $8.6 million of net proceeds.

 

Nasdaq Compliance

 

On November 16, 2021, we had received a deficiency letter from the Nasdaq Stock Market (“Nasdaq”) informing that our common stock was below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) based on the closing bid price of the common stock for the 30 consecutive business days prior to the date of the notice. Following the effectuation of our Reverse Stock Split on July 19, 2022, we received formal notification from Nasdaq confirming that we had regained compliance with the Bid Price Requirement.

 

RESULTS OF OPERATIONS

 

Comparison of Three Months Ended September 30, 2022 and September 30, 2021

 

   For the three months ended         
   September 30,   September 30,   Change 
($ in thousands)  2022   2021   $   % 
                 
Expenses:                    
Research and development  $5,490   $9,056   $(3,566)   (39)%
General and administrative   3,890    5,816    (1,926)   (33)%
Total expenses   9,380    14,872    (5,492)   (37)%
                     
Loss from operations   (9,380)   (14,872)   5,492    (37)%
                     
Gain on settlement with licensor       6,743    (6,743)   N/A 
PPP loan payable forgiveness income       1,758    (1,758)   N/A 
Interest income   72    7    65    929%
Interest expense   (157)   (683)   526    (77)%
Other income (expense)   (19)   3    (22)   (733)%
Net loss  $(9,484)  $(7,044)  $(2,440)   35%

 

N/A - not applicable or not meaningful

 

19

 

 

Research and development

 

Research and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical and development costs, clinical trial costs, manufacturing and manufacturing facility costs, costs associated with regulatory approvals, depreciation on lab supplies and manufacturing facilities, and consultant-related expenses.

 

Total research and development spending for the three months ended September 30, 2022 was $5.5 million, as compared to $9.1 million for the same period of 2021, a decrease of $3.6 million. The decrease in expenses was primarily due to:

 

  decreased clinical and development work for our cell and gene therapy product candidates and other related costs of $1.4 million which is net of the $1.2 million pass through costs to Ultragenyx;
  decreased salary and related costs of $0.4 million; and
  decreased non-cash stock compensation expenses of $0.5 million.

 

We expect our research and development activities to continue as we attempt to advance our product candidates towards potential regulatory approval, reflecting costs associated with:

 

  employee and consultant-related expenses;
  preclinical and developmental costs;
  clinical trial costs;
  the cost of acquiring and manufacturing clinical trial materials; and
  costs associated with regulatory approvals.

 

General and administrative

 

General and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related costs, professional expenses (e.g., legal expenses) and other general operating expenses not otherwise included in research and development expenses.

 

Total general and administrative expenses were $3.9 million for the three months ended September 30, 2022, as compared to $5.8 million for the same period of 2021, a decrease of $1.9 million. The decrease in expenses was primarily due to:

 

  decreased professional fees of $0.8 million;
  decreased non-cash stock-based compensation of $1.4 million; and
  decreased other costs of $0.2 million; partially offset by
  increased salary and related costs of $0.5 million.

 

Gain on settlement with licensor

 

Gain on settlement with licensor was nil for the three months ended September 30, 2022, as compared to $6.7 million in the same period of 2021. On November 12, 2021, we entered into a Settlement Agreement with REGENXBIO Inc. (“REGENXBIO”) to resolve all current disputes between us and REGENXBIO (the “Settlement Agreement”). The accounting for the Settlement Agreement resulted in a $6.7 million gain on settlement with REGENXBIO in the first three months of 2021.

 

PPP loan payable forgiveness income

 

Paycheck Protection Program (“PPP”) loan payable forgiveness income was nil for the three months ended September 30, 2022 as compared to $1.8 million in the same period of 2021. In July 2021, we received notice from the Small Business Administration (“SBA”) that our PPP loan had been forgiven so the PPP loan payable was reversed in the first three months of 2021.

 

Interest income

 

Interest income was $72,000 for the three months ended September 30, 2022, as compared to $7,000 in the same period of 2021. The increase resulted from higher earnings on short-term investments driven by higher interest rates partially offset by a lower average balance of short-term investments.

 

20

 

 

Interest expense

 

Interest expense was $0.2 million for the three months ended September 30, 2022, as compared to $0.7 million in the same period of 2021. The decrease results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO.

 

Other income (expense)

 

Other income (expense) was ($19,000) for the three months ended September 30, 2022, as compared to $3,000 in the same period of 2021. The decrease results primarily from the loss on disposal of fixed assets.

 

Comparison of Nine Months Ended September 30, 2022 and September 30, 2021

 

   For the nine months ended         
   September 30,   September 30,   Change 
($ in thousands)  2022   2021   $   % 
                 
Revenues:                    
License and other revenues  $1,346   $   $1,346    N/A 
                     
Expenses:                    
Royalties   350        350    N/A 
Research and development   22,693    25,923    (3,230)   (12)%
General and administrative   11,574    17,261    (5,687)   (33)%
Impairment of licensed technology   1,355        1,355    N/A 
Impairment of right-of-use lease asset   1,561        1,561    N/A 
Impairment of construction-in-progress   1,792        1,792    N/A 
Total expenses   39,325    43,184    (3,859)   (9)%
                     
Loss from operations   (37,979)   (43,184)   5,205    (12)%
                     
Gain on settlement with licensor       6,743    (6,743)   N/A 
PPP loan payable forgiveness income       1,758    (1,758)   N/A 
Interest income   103    35    68    194%
Interest expense   (558)   (3,603)   3,045    (85)%
Other expense   (136)   (2)   (134)   6,700%
Net loss  $(38,570)  $(38,253)  $(317)   1%

 

N/A - not applicable or not meaningful

 

License and other revenues

 

License and other revenues for the nine months ended September 30, 2022 was $1.3 million, as compared to nil for the same period of 2021. The revenue in 2022 resulted from a clinical milestone achieved in the second quarter of 2022 under a sublicense agreement we entered into with Taysha Gene Therapies (“Taysha”) in October 2020 relating to an investigational AAV-based gene therapy for Rett syndrome, including certain intellectual property relating to MECP2 gene constructs and regulation of their expression. There was also revenue consisting of the recognition of deferred revenue related to grants for the ABO-102 and ABO-101 development programs.

 

Royalties

 

Total royalties expenses were $0.4 million for the nine months ended September 30, 2022, as compared to nil for the same period of 2021, an increase of $0.4 million. The increase in expense was due to royalties owed to our licensors resulting from the $1.0 million milestone due from Taysha.

 

21

 

 

Research and development

 

Total research and development spending for the nine months ended September 30, 2022 was $22.7 million, as compared to $25.9 million for the same period of 2021, a decrease of $3.2 million. The decrease in expenses was primarily due to:

 

  decreased clinical and development work for our cell and gene therapy product candidates and other related costs of $0.8 million which primarily relates to the license out/discontinuation of our MPSIII programs;
  decreased non-cash stock compensation expenses of $2.2 million; and
  decreased salary and related costs of $0.4 million; partially offset by
  increased other costs of $0.2 million.

 

General and administrative

 

Total general and administrative expenses were $11.6 million for the nine months ended September 30, 2022, as compared to $17.3 million for the same period of 2021, a decrease of $5.7 million. The decrease in expenses was primarily due to:

 

  decreased professional fees of $4.0 million; and
  decreased non-cash stock-based compensation of $2.5 million; partially offset by
  increased salary and related costs of $0.7 million.

 

Impairment of licensed technology

 

Impairment of licensed technology was $1.4 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021. The licensed technology was for the ABO-102 and ABO-101 development programs, which, as a result of our shift in priorities, we determined the remaining value of the licensed technology had no future value and thus recorded impairment of $1.4 million for the nine months ended September 30, 2022.

 

Impairment of right-of-use lease asset

 

Impairment of right-of-use lease asset was $1.6 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021. The impairment was related to a lease for a future manufacturing facility for the ABO-102 and ABO-101 development programs, which, as a result of our shift in priorities, we determined the remaining value of the portion of this lease had no future value and thus recorded impairment of $1.6 million for the nine months ended September 30, 2022.

 

Impairment of construction-in-progress

 

Impairment of construction-in-progress was $1.8 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021. The construction-in-progress was for a facility for the ABO-102 and ABO-101 development programs. As a result of our shift in priorities, we determined the remaining value of the construction-in-progress facility had no future value and thus recorded impairment of $1.8 million for the nine months ended September 30, 2022.

 

Gain on settlement with licensor

 

Gain on settlement with licensor was nil for the nine months ended September 30, 2022, as compared to $6.7 million in the same period of 2021. On November 12, 2021, we entered into a Settlement Agreement with REGENXBIO to resolve all current disputes between us and REGENXBIO. The accounting for the Settlement Agreement resulted in a $6.7 million gain on settlement with REGENXBIO in the first nine months of 2021.

 

PPP loan payable forgiveness income

 

PPP loan payable forgiveness income was nil for the nine months ended September 30, 2022 as compared to $1.8 million in the same period of 2021. In July 2021, we received notice from the SBA that our PPP loan had been forgiven so the PPP loan payable was reversed in the first nine months of 2021.

 

Interest income

 

Interest income was $103,000 for the nine months ended September 30, 2022, as compared to $35,000 in the same period of 2021. The increase resulted from higher earnings on short-term investments driven by higher interest rates partially offset by a lower average balance of short-term investments.

 

Interest expense

 

Interest expense was $0.6 million for the nine months ended September 30, 2022, as compared to $3.6 million in the same period of 2021. The decrease results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO.

 

22

 

 

Other expense

 

Other expense was ($136,000) for the nine months ended September 30, 2022, as compared to ($2,000) in the same period of 2021. The decrease results primarily from the loss on disposal of fixed assets.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows for the Nine months Ended September 30, 2022 and 2021

 

   For the nine months ended September 30, 
($ in thousands)  2022   2021 
         
Total cash and cash equivalents (used in)/provided by:          
Operating activities  $(29,491)  $(35,408)
Investing activities   1,326    58,063 
Financing activities   407    8,530 
Net (decrease) increase in cash and cash equivalents  $(27,758)  $31,185 

 

Operating activities

 

Net cash used in operating activities was $29.5 million for the nine months ended September 30, 2022, primarily comprised of our net loss of $38.6 million and a decrease in operating assets and liabilities of $1.9 million, partially offset by net non-cash charges of $11.0 million.

 

Net cash used in operating activities was $35.4 million for the nine months ended September 30, 2021, primarily comprised of our net loss of $38.3 million, partially offset by an increase in operating assets and liabilities of $0.9 million and net non-cash charges of $1.9 million.

 

Investing activities

 

Net cash provided by investing activities was $1.3 million for the nine months ended September 30, 2022, primarily comprised of proceeds from maturities of short-term investments of $43.7 million and proceeds from disposal of property and equipment of $1.6 million, partially offset by purchases of short-term investments of $43.9 million and capital expenditures of $0.1 million.