Item 2. Management’s Discussion and Analysis
ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Abeona
Therapeutics Inc., a Delaware corporation (together with our subsidiaries, “we,” “our,” “Abeona”
or the “Company”), is a clinical-stage biopharmaceutical company developing gene and cell therapies for life-threatening
rare genetic diseases. Our lead clinical programs consist of: (i) EB-101, an autologous, gene-corrected cell therapy for recessive
dystrophic epidermolysis bullosa (“RDEB”), (ii) ABO-102, an adeno-associated virus (“AAV”)-based gene
therapy for Sanfilippo syndrome type A (“MPS IIIA”), and (iii) ABO-101, an AAV-based gene therapy for Sanfilippo syndrome
type B (“MPS IIIB”). We have additional AAV-based gene therapies in various developmental stages designed to treat
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 four
product candidates for which we hold several U.S. and EU regulatory designations:
Our
robust and diverse pipeline features early-stage and late-stage candidates with the potential to transform the treatment of devastating
genetic diseases, and we are conducting clinical trials in the U.S. and abroad.
Our
Mission and Strategy
Abeona
is at the forefront of gene and cell therapy research and development. We are a fully integrated company featuring innovative
research, therapies in clinical development, in-house manufacturing facilities, a robust pipeline, and scientific, clinical, and
commercial leadership. We see our mission as working together to create, develop, manufacture and deliver gene and cell therapies
to patients impacted by serious diseases. We partner with leading academic researchers, patient advocacy organizations and caregivers
to bring therapies that address the underlying cause of a broad spectrum of rare genetic diseases where no effective treatment
options exist today.
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Since
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:
Advancing
our Clinical Gene and Cell Therapy Programs and Research and Development with a Focus on Rare and Orphan Diseases.
We
have three programs in clinical development—EB-101, ABO-101 and ABO-102—and a pipeline of additional earlier stage
programs. Through our gene and cell therapy expertise in research and development, we believe we are positioned to rapidly introduce
novel therapeutics to transform the standard of care in devastating diseases and establish our leadership position in the field.
Applying
Novel Next Generation AIM™ Capsid Technology to Develop New In-Vivo Gene Therapies.
We
are researching and developing next-generation AAV-based gene therapy using novel capsids developed from the AIM™ Capsid
Technology Platform and additional Company-invented AAV capsids. We aim to continue to develop chimeric AAV capsids capable of
improved tissue targeting for various indications and potentially evading immunity to wildtype AAV vectors.
Establishing
Leadership Position in Commercial-Scale Gene and Cell-Therapy Manufacturing.
We
established current Good Manufacturing Practice (“cGMP”), clinical-scale manufacturing capabilities for gene-corrected
cell therapy and AAV-based gene therapies in our state-of-the-art Cleveland, OH facility. We believe that our platform provides
us with distinct advantages, including flexibility, scalability, reliability, and the potential for reduced development risk,
cost, and faster times to market. We have focused on establishing internal Chemistry, Manufacturing and Controls (“CMC”)
capabilities that drive value for our organization through process development, assay development and manufacturing. We have also
deployed robust quality systems governing all aspects of product lifecycle from preclinical through commercial stage.
Establishing
Additional Gene and Cell Therapy Franchises and Adjacencies through In-Licensing and Strategic Partnerships.
We
seek to be the partner of choice in rare disease and have closely collaborated with leading academic institutions, key opinion
leaders, patient foundations and industry partners to generate novel intellectual property, accelerate research and development,
and understand the needs of patients and their families.
Maintaining
and Growing IP Portfolio.
We
strive to have a leading intellectual property portfolio. To that end, we seek patent rights for various aspects of our programs,
including vector engineering and construct design, product packaging, production processes, and all features of our clinical products
including composition of matter and method of administration and delivery. We expect to continue to expand our intellectual property
portfolio by aggressively seeking patent rights for promising aspects of our product engine and product candidates.
IMPACT
OF COVID-19 PANDEMIC ON OUR BUSINESS
We
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.
Clinical
Program Activities
We
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.
All
current clinical trial sites are now active. We are also providing virtual and remote follow-up to ensure compliance with safety
oversight. In June 2020, we resumed patient enrollment in our Phase III VIITAL™ study of EB-101 after the study was paused
in March 2020 to ensure the safety of study participants and site staff during the pandemic. The ongoing Phase I/II clinical trials
of our investigational AAV-based gene therapies for MPS IIIA and IIIB (ABO-102 and ABO-101, respectively) have continued to treat
patients, with additional enrollment expected in those programs.
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Manufacturing
Activities
Operations
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 activities.
Business
Operations
Many
of the additional protective measures we instituted during the first quarter in response to the COVID-19 pandemic remain in place,
and we continue to regularly assess and improve our safety practices and policies.
The
extent of the impact of the COVID-19 pandemic on our business, operations, and clinical trials continues to evolve and will depend
on certain developments, including: (i) the duration of the declared health emergencies; (ii) future actions taken by governmental
authorities and regulators with respect to the pandemic, including reinstituting state and local lockdowns; (iii) the impact on
our partners, collaborators, and suppliers; and (iv) actions being taken by us in response to this crisis. We remain dedicated
to communicating regularly and openly with our stakeholders as more information becomes available, including updates on material
changes to prior guidance as we continue to follow applicable government, regulatory and institutional guidelines.
RESULTS
OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019
License
and other revenues for the third quarter of 2020 were $7.0 million, as compared to nil for the same period of 2019. The increase
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.
Total
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. The decrease in expenses was primarily due to:
●
decreased
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; and
●
decreased
salary and related costs ($0.3 million).
Total
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:
●
decreased
salary and related costs ($0.3 million); and
●
decreases
in net other general and administrative expenses ($0.1 million); partially offset by
●
increased
professional fees ($0.1 million).
Depreciation
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.
Interest
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.
Interest
and other expense was $1.3 million for the third quarter of 2020, as compared to nil for the same period of 2019. The increase
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,
Item 1. 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.
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Net
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.
RESULTS
OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2019
License
and other revenues for the first nine months of 2020 were $7.0 million, as compared to nil for the same period of 2019. The increase
in revenue was due to the aforementioned sublicense and inventory purchase agreements we entered into with Taysha in August 2020.
Total
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:
●
decreased
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;
●
decreased
salary and related costs ($1.1 million); and
●
decreased
other research and development costs ($0.5 million).
Total
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. The increase in expenses was primarily due to:
●
increased
salary and related costs ($1.1 million), partially resulting from severance costs associated with management changes; and
●
increases
in net other general and administrative expenses ($0.1 million); partially offset by
●
decreased
professional fees ($0.8 million).
Depreciation
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. The decrease was driven primarily by decreased amortization expense of $2.6 million on licensed technology
due to the write-off of the REGENXBIO licensed technology in the first quarter of 2020, partially offset by increased depreciation
expense of $0.6 million.
Our
license agreement with REGENXBIO terminated on May 2, 2020. Since our impairment testing indicated that the carrying value of
the license agreement with REGENXBIO exceeded its fair value, we recorded a $32.9 million non-cash impairment charge in the first
nine months of 2020.
Interest
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
2019. The increase results from higher earnings on short-term investments driven by a higher average balance of short-term investments.
Interest
and other expense was $2.7 million for the first nine months of 2020, as compared to nil for the same period of 2019. The increase
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,
Item 1. 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.
Net
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.
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LIQUIDITY
AND CAPITAL RESOURCES
We
have historically funded our operations primarily through sale of common stock. The COVID-19 pandemic has negatively affected
the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption
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 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.
In
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.
As
of September 30, 2020 and December 31, 2019, our working capital was $65.8 million and $93.7 million, respectively. The decrease
in working capital at September 30, 2020 resulted primarily from $33.4 million of cash used for operating activities.
On
May 2, 2020, we received loan proceeds in the amount of approximately $1.8 million under the PPP, which was established under
the CARES Act and is administered by the U.S. Small Business Administration (“SBA”). Under the terms of the CARES
Act, PPP loan recipients can apply for loan forgiveness. The potential loan forgiveness for all or a portion of PPP loans is determined,
subject to limitations, based on the use of loan proceeds over the 24 weeks after the loan is funded for payment of payroll costs
and any payments of mortgage interest, rent, and utilities. The amount of loan forgiveness will be reduced if PPP loan recipients
terminate employees or reduce salaries during the covered period. The unforgiven portion of our PPP Loan, if any, is payable over
two years at an interest rate of 1%, with a deferral of payments for the first six months, beginning on May 2, 2020. We believe
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.
On
December 24, 2019, we closed an underwritten public offering of 32,382,945 shares of common stock at a public offering price of
$2.50 per share. In addition, as part of the offering, we sold to an existing investor “pre-funded” warrants to purchase
up to an aggregate of 9,017,055 shares of common stock at a purchase price of $2.4999 per pre-funded warrant, which equals the
public offering price per share of the common stock less the $0.0001 per share exercise price of each pre-funded warrant. The
gross proceeds to the Company were approximately $103.5 million, before deducting the underwriting discounts and commissions and
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.
On
August 17, 2018, we entered into an open market sale agreement with Jefferies LLC. Pursuant to the terms of this agreement, we
may sell from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $150.0 million.
Any sales of shares pursuant to this agreement are made under our effective “shelf” registration statement on Form
S-3 that is on file with and has been declared effective by the SEC. We did not sell any shares of our common stock under this
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.
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License
Agreement
On
November 4, 2018, we entered into a license agreement with REGENXBIO Inc. (“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: (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 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. 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) 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.
Prior
to the April 1, 2020 deadline, we engaged REGENXBIO in discussions in an attempt to renegotiate the financial terms of the agreement,
but we were unable to reach a mutual understanding that we believed would have been favorable for the Company or our programs,
and we did not make the $8 million payment due by April 1, 2020. On April 17, 2020, REGENXBIO sent us a written demand for the
$8 million fee, payable within a 15-day cure period after receipt of the demand letter. The license terminated on May 2, 2020,
when the 15-day period expired. There were no penalties for early termination of the license. On May 25, 2020, we filed an arbitration
claim with the American Arbitration Association alleging that REGENXBIO materially breached the license agreement prior to termination
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 $2.1 million as of September
30, 2020). REGENXBIO disputes our arbitration claim and has filed a counterclaim seeking payment of the $28 million plus interest,
which REGENXBIO argues remains due. For additional information, refer to Part II, Item 1. Legal Proceedings of this Form 10-Q.
Since
our inception, we have incurred negative cash flows from operations and have expended, and expect to continue to expend, substantial
funds to complete our planned product development efforts. Since inception, our expenses have significantly exceeded revenues,
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
to invest in product research and development, preclinical studies, clinical trials and regulatory compliance and cannot provide
assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained
basis, or at all.
If
we raise additional funds by selling additional equity securities, the relative equity ownership of our existing investors will
be diluted, and the new investors could obtain terms more favorable than previous investors. If we raise additional funds through
collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to
delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop
and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
We
are carefully and continually re-assessing key business activities and all associated spending decisions as the COVID-19 pandemic
continues to evolve. Nonetheless, we are spending necessary funds on manufacturing activities and preclinical studies and clinical
trials of potential products, including research and development with respect to our acquired and developed technology. Our future
capital requirements and adequacy of available funds depend on many factors, including:
●
the
evolving impact to our business, operations, and clinical programs from the COVID-19 pandemic and related effects on the U.S.
and global economy;
●
the
successful development and commercialization of our gene and cell therapy and other product candidates;
●
the
ability to establish and maintain collaborative arrangements with corporate partners for the research; development and commercialization
of products;
21
●
continued
scientific progress in our research and development programs;
●
the
magnitude, scope and results of preclinical testing and clinical trials;
●
the
costs involved in filing, prosecuting and enforcing patent claims;
●
the
costs involved in conducting clinical trials;
●
competing
technological developments;
●
the
cost of manufacturing and scale-up;
●
the
ability to establish and maintain effective commercialization arrangements and activities; and
●
the
successful outcome of our regulatory filings.
Due
to uncertainties and certain of the risks described above, including those relating to the COVID-19 pandemic and our ability to
successfully commercialize our product candidates, our ability to obtain applicable regulatory approval to market our product
candidates, our ability to obtain necessary additional capital to fund operations in the future, our ability to successfully manufacture
our products and our product candidates in clinical quantities or for commercial purposes, government regulation to which we are
subject, the uncertainty associated with preclinical and clinical testing, intense competition that we face, market acceptance
of our products, the potential necessity of licensing technology from third parties and protection of our intellectual property,
it is not possible to reliably predict future spending or time to completion by project or product category or the period in which
material net cash inflows from significant projects are expected to commence. If we are unable to timely complete a particular
project, our research and development efforts could be delayed or reduced, our business could suffer depending on the significance
of the project and we might need to raise additional capital to fund operations, as discussed in the risks above, including those
relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional
capital to fund operations in the future.
We
plan to continue our policy of investing any available funds in suitable certificates of deposit, money market funds, government
securities and investment-grade, interest-bearing securities. We do not invest in derivative financial instruments.
OFF-BALANCE
SHEET ARRANGEMENTS
We
did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under
applicable SEC rules.
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