What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 132 added, 111 removed, 204 unchanged (54% of the section changed)

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We have additional AAV-based gene therapies in various developmental stages designed to treat

the CLN1 and CLN3 forms of Batten Disease, cystic fibrosis and retinal diseases.

Moreover, we are developing 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.

the CLN3 form of Batten Disease, cystic fibrosis and retinal diseases.

Moreover, we are developing 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.

We believe our product candidates are eligible for orphan drug designation,

breakthrough therapy designation, or other expedited review processes in the U.S., Europe or Japan.

Our pipeline includes five

Our pipeline includes four

product candidates for which we hold several U.S.

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options exist today.

our last fiscal year, we made significant progress toward fulfilling our goal of harnessing the promise of genetic medicine to

transform the lives of people impacted by serious diseases and redefine the standard of care through gene and cell therapies.

our last fiscal year, we have made significant progress toward fulfilling our goal of harnessing the promise of genetic medicine

to transform the lives of people impacted by serious diseases and redefine the standard of care through gene and cell therapies.

Our strategy to achieve this goal consists of:

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OF COVID-19 PANDEMIC ON OUR BUSINESS

emergence of the coronavirus (“COVID-19”) pandemic has created extraordinary challenges and uncertainty across all

aspects of healthcare.

We continue to assess the evolving impact of the COVID-19 pandemic on our business and are taking appropriate

actions to manage our spending activities and preserve our cash resources.

We continue to actively monitor the situation and may

take further actions to adjust our business operations that we determine are in the best interests of our patients, employees,

suppliers and stockholders.

While we are unable to determine or predict the extent, duration or scope of the overall impact the

COVID-19 pandemic will have on our business, operations, financial condition or liquidity, we believe it is important to

keep our stakeholders informed about how our response to COVID-19 is progressing and how our operations and financial condition

may change as the fight against COVID-19 continues.

continue to assess the impact of the COVID-19 pandemic on our business and take appropriate actions to manage our spending activities

and preserve our cash resources.

We continue to actively monitor the situation and may take further actions to adjust our business

operations that we determine are in the best interests of our patients, employees, suppliers and stockholders.

While we are unable

to determine or predict the extent, duration or scope of the overall impact the COVID-19 pandemic will have on our business, operations,

financial condition or liquidity, we believe it is important to keep our stakeholders informed about how our response to COVID-19

is progressing and how our operations and financial condition may change.

Program Activities

remain committed to advancing our clinical programs.

We are continually assessing the dynamic situation and have implemented measures

to minimize disruption.

We also are regularly reassessing plans along with associated processes and policies to ensure our patients

and employees are safe, and that continuity in our operations remains.

remain committed to advancing our clinical programs and have implemented measures to minimize disruption.

We also are regularly

reassessing plans along with associated processes and policies to ensure our patients and employees are safe, and that continuity

in our operations remains.

current clinical trial sites are now active.

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Manufacturing

at our Cleveland manufacturing facility were significantly scaled back in March 2020 until early June 2020 to ensure the

safety of employees and those around them, and to accommodate reduced manufacturing and clinical development activities.

paused our manufacturing activities for EB-101 clinical material, pending patient enrollment, as well as our AAV manufacturing

and process development activities.

at our Cleveland manufacturing facility were significantly scaled back from March 2020 until early June 2020 to ensure the safety

of employees and those around them, and to accommodate reduced manufacturing and clinical development activities.

We had paused

our manufacturing activities for EB-101 clinical material, pending patient enrollment, as well as our AAV manufacturing and process

development activities.

During this pause period, we took the opportunity to complete maintenance and monitoring projects.

In June 2020, we resumed our EB-101 manufacturing activities

including process development for the internal production of retrovirus as well as our AAV process development and manufacturing

June 2020, we resumed our EB-101 manufacturing activities, including process development for the internal production of retrovirus

as well as our AAV process development and manufacturing activities.

of the additional protective measures we instituted during the first quarter in response to the COVID-19 pandemic remain in place,

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changes to prior guidance as we continue to follow applicable government, regulatory and institutional guidelines.

OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THREE MONTHS ENDED JUNE 30, 2019

research and development spending for the second quarter of 2020 was $6.1 million, as compared to $16.3 million for the same period

OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019

and other revenues for the third quarter of 2020 were $7.0 million, as compared to nil for the same period of 2019.

in revenue was due to the sublicense and inventory purchase agreements we entered into with Taysha Gene Therapies (“Taysha”)

in August 2020 for ABO-202, an AAV gene therapy for CLN1 disease (also known as infantile Batten disease).

The agreements grant

to Taysha worldwide exclusive rights to intellectual property developed by scientists at the University of North Carolina at Chapel

Hill and us, and our know-how relating to the research, development and manufacture of the gene therapy.

research and development spending for the third quarter of 2020 was $8.0 million, as compared to $10.9 million for the same period

of 2019, a decrease of $2.9 million.

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clinical and development work for our gene and cell therapy product candidates ($2.6 million), due to scaled back manufacturing,

clinical and non-clinical development activities resulting from the effects of the COVID-19 pandemic, as well as cost

savings from the decision to internally manufacture retrovirus for the EB-101 program;

clinical and non-clinical development activities resulting from the effects of the COVID-19 pandemic, as well as cost savings

from the decision to internally manufacture retrovirus for the EB-101 program;

salary and related costs ($0.3 million).

general and administrative expenses were $5.5 million for the second quarter of 2020, as compared to $5.6 million for the same

general and administrative expenses were $4.4 million for the third quarter of 2020, as compared to $4.7 million for the same

period of 2019, a decrease of $0.3 million.

The decrease in expenses was primarily due to:

professional fees ($0.4 million);

salary and related costs ($0.3 million);

in net other general and administrative expenses ($0.1 million);

partially offset by

salary and related costs ($0.5 million).

and amortization were $0.8 million for the second quarter of 2020, as compared to $2.1 million for the same period in 2019, a

decrease of $1.3 million.

The decrease was driven primarily by decreased amortization expense on licensed technology due to the

write-off of the REGENXBIO licensed technology in the first quarter of 2020.

expense was $0.8 million for the second quarter of 2020, as compared to nil for the same period of 2019.

The increase in interest

expense results from accrued interest on the amounts owed to REGENXBIO under the prior license agreement.

As described in more

detail below, we have filed an arbitration claim alleging that REGENXBIO materially breached the license agreement and seeking,

among other things, a declaration that we are not responsible for such payments.

loss for the second quarter of 2020 was $13.0 million, or a $0.14 basic and diluted loss per common share as compared to a net

loss of $23.9 million, or a $0.49 basic and diluted loss per common share, for the same period in 2019.

The decrease in the net

loss resulted primarily from decreased clinical and development expenses and scaled back activities in manufacturing, clinical

and non-clinical development arising from the effects of the COVID-19 pandemic.

OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO SIX MONTHS ENDED JUNE 30, 2019

research and development spending for the first six months of 2020 was $12.9 million, as compared to $28.0 million for the same

professional fees ($0.1 million).

and amortization was $0.8 million for the third quarter of 2020, as compared to $2.0 million for the same period in 2019, a decrease

of $1.3 million.

The decrease was driven primarily by decreased amortization expense on licensed technology due to the write-off

of the REGENXBIO licensed technology in the first quarter of 2020.

and miscellaneous income was $0.3 million for the third quarter of 2020, as compared to $0.3 million of the same period in 2019.

and other expense was $1.3 million for the third quarter of 2020, as compared to nil for the same period of 2019.

results primarily from accrued interest on the amounts that we may owe to REGENXBIO under the prior license agreement, which

amount is subject to the arbitration discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I,

As described in more detail in Note 3, we have filed an arbitration claim alleging that REGENXBIO materially breached

the license agreement and seeking, among other things, a declaration that we are not responsible for such payments.

loss for the third quarter of 2020 was $7.2 million, or a $0.08 basic and diluted loss per common share as compared to a net loss

of $17.4 million, or a $0.35 basic and diluted loss per common share, for the same period in 2019.

The decrease in the net loss

resulted primarily from increased license and other revenues along with decreased clinical and development expenses and scaled

back activities in manufacturing, clinical and non-clinical development arising from the effects of the COVID-19 pandemic.

OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2019

and other revenues for the first nine months of 2020 were $7.0 million, as compared to nil for the same period of 2019.

in revenue was due to the aforementioned sublicense and inventory purchase agreements we entered into with Taysha in August 2020.

research and development spending for the first nine months of 2020 was $20.9 million, as compared to $39.0 million for the same

period of 2019, a decrease of $18.1 million.

The decrease in expenses was primarily due to:

clinical and development work for our gene and cell therapy product candidates ($13.9

million), partially due to scaled back manufacturing, clinical and non-clinical development

activities resulting from the effects of the COVID-19 pandemic, as well as cost

savings from the decision to internally manufacture retrovirus for the EB-101 program;

clinical and development work for our gene and cell therapy product candidates ($16.5 million), partially due to scaled back

manufacturing, clinical and non-clinical development activities resulting from the effects of the COVID-19 pandemic, as well

as cost savings from the decision to internally manufacture retrovirus for the EB-101 program;

salary and related costs ($1.1 million);

general and administrative expenses were $12.0 million for the first six months of 2020, as compared to $11.3 million for the

other research and development costs ($0.5 million).

general and administrative expenses were $16.4 million for the first nine months of 2020, as compared to $16.0 million for the

same period of 2019, an increase of $0.4 million.

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professional fees ($0.8 million).

and amortization were $2.9 million for the first six months of 2020, as compared to $3.7 million for the same period in 2019,

and amortization was $3.7 million for the first nine months of 2020, as compared to $5.7 million for the same period in 2019,

a decrease of $2.0 million.

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expense of $0.6 million.

expense was $1.4 million for the first six months of 2020, as compared to nil for the same period of 2019.

The increase in interest

expense results from accrued interest on the amounts owed to REGENXBIO under the prior license agreement.

As described in more

detail below, we have filed an arbitration claim alleging that REGENXBIO materially breached the license agreement and seeking,

among other things, a declaration that we are not responsible for such payments.

license agreement with REGENXBIO terminated on May 2, 2020.

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the license agreement with REGENXBIO exceeded its fair value, we recorded a $32.9 million non-cash impairment charge in the first

six months of 2020.

loss for the first six months of 2020 was $61.2 million, or a $0.66 basic and diluted loss per common share as compared to a net

loss of $42.5 million, or a $0.88 basic and diluted loss per common share, for the same period in 2019.

The increase in the net

loss results primarily from a licensed technology impairment charge of $32.9 million, partially offset by lower research and development

expenses of $15.1 million.

nine months of 2020.

and miscellaneous income was $1.3 million for the first nine months of 2020, as compared to $0.8 million of the same period in

The increase results from higher earnings on short-term investments driven by a higher average balance of short-term investments.

and other expense was $2.7 million for the first nine months of 2020, as compared to nil for the same period of 2019.

results primarily from accrued interest on the amounts that we may owe to REGENXBIO under the prior license agreement, which

amount is subject to the arbitration discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I,

As described in more detail in Note 3, we have filed an arbitration claim alleging that REGENXBIO materially breached

the license agreement and seeking, among other things, a declaration that we are not responsible for such payments.

loss for the first nine months of 2020 was $68.4 million, or a $0.73 basic and diluted loss per common share as compared to a

net loss of $59.9 million, or a $1.22 basic and diluted loss per common share, for the same period in 2019.

The increase in the

net loss results primarily from a licensed technology impairment charge of $32.9 million, partially offset by increased license

and other revenues along with decreased clinical and development expenses.

AND CAPITAL RESOURCES

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could negatively affect our business, financial condition, and access to sources of liquidity.

Our principal source of liquidity is cash,

cash equivalents and short-term investments.

As of June 30, 2020 and December 31, 2019, our cash, cash equivalents and short-term

investments were $107.9 million and $129.3 million, respectively.

Based upon our current operating plans, we believe that we have

sufficient resources to fund operations through the next 12 months with our existing cash, cash equivalents and short-term investments.

We will need to secure additional funding in the future, to carry out all our planned research and development activities.

If we are 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 our future prospects.

of June 30, 2020 and December 31, 2019, our working capital was $71.2 million and $93.7 million, respectively.

The decrease in

working capital at June 30, 2020 resulted primarily from $15.3 million of cash used for operating activities.

principal source of liquidity is cash, cash equivalents and short-term investments.

As of September 30, 2020 and December 31,

2019, our cash, cash equivalents, receivables and short-term investments were $103.9 million and $129.3 million, respectively.

Based upon our current operating plans, we believe that we have sufficient resources to fund operations through the next 12 months

with our existing cash, cash equivalents, receivables and short-term investments.

We will need to secure additional funding in

the future, to carry out all our planned research and development activities.

If we are 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 our future prospects.

October 2020, we announced that we have retained Jefferies LLC as our financial advisor to assist with the review of strategic

options focused on advancing our mission and maximizing stakeholder value.

We initiated this formal process to explore a broad

range of strategic alternatives, including, but not limited to, the partnering of our various clinical and pre-clinical programs,

or a sale or merger of the Company, in an effort to unlock the potential of those assets.

There can be no assurance this strategic

review will result in the completion of any particular course of action, and there is no defined timeline for completion of the

review process.

of September 30, 2020 and December 31, 2019, our working capital was $65.8 million and $93.7 million, respectively.

in working capital at September 30, 2020 resulted primarily from $33.4 million of cash used for operating activities.

May 2, 2020, we received loan proceeds in the amount of approximately $1.8 million under the PPP, which was established under

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two years at an interest rate of 1%, with a deferral of payments for the first six months, beginning on May 2, 2020.

to use the proceeds from our PPP Loan for purposes consistent with the PPP.

While we currently believe that our use of

the loan proceeds will meet the conditions for forgiveness of the PPP Loan, there can be no assurance that forgiveness for any

portion of the PPP Loan will be obtained.

that we have used the proceeds from our PPP Loan for purposes consistent with the PPP.

While we currently believe that our use

of the loan proceeds will meet the conditions for forgiveness of the PPP Loan, there can be no assurance that forgiveness for

any portion of the PPP Loan will be obtained.

December 24, 2019, we closed an underwritten public offering of 32,382,945 shares of common stock at a public offering price of

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estimated offering expenses payable by the Company.

In October 2020, all of the pre-funded warrants were exercised and converted

into shares of common stock.

August 17, 2018, we entered into an open market sale agreement with Jefferies LLC.

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We did not sell any shares of our common stock under this

agreement during the six months ended June 30, 2020.

agreement during the nine months ended September 30, 2020.

Cumulatively, as of September 30, 2020, we have sold an aggregate of

3,086,950 shares of our common stock under this agreement and received $17.0 million of proceeds.

November 4, 2018, we entered into a license agreement with REGENXBIO Inc.

to obtain rights to an exclusive worldwide license (subject

to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to REGENXBIO’s NAV AAV9 vector

for gene therapies for treating MPS IIIA, MPS IIIB, CLN1 Disease and CLN3 Disease.

Consideration for the rights granted under

the original agreement included fees totaling $180 million and a running royalty on net sales, including:

(i) an initial fee of

$20 million, $10 million of which was due to REGENXBIO shortly after the effective date of the agreement, and $10 million of which

was due on the first anniversary of the effective date of the agreement in November 2019, (ii) annual fees totaling up to $100

million, payable in $20 million annual installments beginning on the second anniversary of the effective date (the first of which

remains payable if the agreement is terminated before the second anniversary in November 2020), (iii) sales milestone payments

totaling $60 million, and (iv) royalties payable in the low double digits to low teens on net sales of products covered under

the agreement.

On November 1, 2019, we entered into an amendment of the original license agreement.

The amended agreement replaced

the $10 million payment due on November 4, 2019 with a $3 million payment due on November 4, 2019 and an additional $8 million

payment (which included $1 million of interest) due no later than April 1, 2020.

The payment was scheduled to be paid by April

1, 2020 and the guaranteed amount of $20 million was due to be paid on November 4, 2020 and are recorded as payable to licensor

on the consolidated balance sheet.

(“REGENXBIO”) to obtain rights to an exclusive

worldwide license (subject to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to REGENXBIO’s

NAV AAV9 vector for gene therapies for treating MPS IIIA, MPS IIIB, CLN1 Disease and CLN3 Disease.

Consideration for the rights

granted under the original agreement included fees totaling $180 million and a running royalty on net sales, including:

initial fee of $20 million, $10 million of which was due to REGENXBIO shortly after the effective date of the agreement, and $10

million of which was to be due on the first anniversary of the effective date of the agreement in November 2019, (ii) annual fees

totaling up to $100 million, payable in $20 million annual installments beginning on the second anniversary of the effective date

(the first of which was to remain payable if the agreement were terminated before the second anniversary in November 2020), (iii)

sales milestone payments totaling $60 million, and (iv) royalties payable in the low double digits to low teens on net sales of

products covered under the agreement.

The license was being amortized over the life of the patent of eight years.

1, 2019, we entered into an amendment of the original license agreement.

The amended agreement replaced the $10 million payment

due on November 4, 2019 with a $3 million payment due on November 4, 2019 and an additional $8 million payment (which included

$1 million of interest) that would have been due no later than April 1, 2020.

That $8 million payment had been scheduled to be

paid by April 1, 2020 and the $20 million that had been due to be paid on November 4, 2020, and both were recorded as payable

to licensor on the consolidated balance sheet.

As discussed below, the Company has disputed that it is responsible for the $8

million and $20 million payments, and those payments are the subject of a current arbitration between the Company and REGENXBIO,

as further discussed below.

to the April 1, 2020 deadline, we engaged REGENXBIO in discussions in an attempt to renegotiate the financial terms of the agreement,

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and seeking, among other things, a declaration that as a result of REGENXBIO’s material breach, we are not responsible for

payments totaling $28 million (which would otherwise have been due in 2020) plus accrued interest of $0.8 million as of June 30,

payments totaling $28 million (which would otherwise have been due in 2020) plus accrued interest (of $2.1 million as of September

REGENXBIO disputes our arbitration claim and has filed a counterclaim seeking payment of the $28 million plus interest,

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Since inception, our expenses have significantly exceeded revenues,

resulting in an accumulated deficit of $547.6 million as of June 30, 2020.

We have not been profitable since inception and to

date have received limited revenues from the sale of products.

resulting in an accumulated deficit of $554.9 million as of September 30, 2020.

We have not been profitable 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis