ABEONA THERAPEUTICS INC. 10-Q

ITEM 1A. RISK FACTORS Our business and financial results are subject to numerous risks and uncertainties. As a result, the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2019 should be carefully considered. There have been no material changes in the assessment of other risk factors set forth in our 2019 Form 10-K, except for the additional risk factors noted below, which update the risk factors included in Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020: The COVID-19 pandemic and efforts to reduce its spread has affected our operations and significantly impacted worldwide economic conditions, and could continue to have a material effect on our operations, business and financial condition. To date, the COVID-19 pandemic resulted in intermittent shutdowns of non-essential businesses throughout Europe and the U.S., including in Spain and Australia, where we also conduct operations. The impact of the COVID-19 pandemic has also resulted in social, economic, and labor instability in the countries in which we, or the third parties with whom we engage, operate. Public health officials have recommended precautions to mitigate the spread of the coronavirus, including prohibitions on congregating in heavily populated areas and shelter-in-place orders. As a result, our operations at our Cleveland manufacturing facility were significantly scaled back in the first nine months of 2020 to ensure that our employees and those around them have the best chance to remain safe and to accommodate reduced manufacturing and clinical development activities during this uncertain time. The COVID-19 pandemic has substantially burdened healthcare systems worldwide, delaying enrollment in and progression of our clinical trials. Required inspections and reviews by regulatory agencies have also been delayed due to the focus of resources on COVID-19, as well as travel and other restrictions. For example, our Phase III VIITAL TM clinical trial was temporarily paused in March 2020 due to the COVID-19 pandemic but resumed in June 2020. Significant delays in the timing of our clinical trials and in regulatory reviews could adversely affect our ability to commercialize our product candidates. Although we remain committed to advancing our clinical programs, we recognize some delays are inevitable in light of the closure of non-essential businesses, stay at home orders, and economic impacts related to the COVID-19 pandemic, especially as healthcare resources are justly redirected to those who need them most. Many of the third parties with whom we engage, including suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, are also experiencing shutdowns or other business disruptions. Despite our current clinical trial sites gradually resuming activities on site and us having resumed our EB-101 manufacturing activities, we may continue to experience disruptions that could severely impact our business, supply chain, manufacturing operations, clinical trials and pre-clinical studies, including: ● continued interruption of key clinical trial activities, including continued limitations on travel imposed or recommended by federal or state governments, employers and others; ● continued delays or inability to obtain raw material or ingredients; ● continued delays or difficulties in enrolling patients in our clinical trials; ● continued delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; ● delays or difficulties in manufacturing clinical drug material; ● continued diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; and ● continued limitations in employee resources that would otherwise be focused on the conduct of our manufacturing operations, clinical trials and preclinical studies, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people. 24 The ultimate impact of the COVID-19 pandemic remains uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, operations, or financial condition, or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our ability to access the capital markets as needed and on our operations and business, and those of the third parties on which we rely. Our loan under the Paycheck Protection Program may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan. We have 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 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 proceeds are disbursed 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 the 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. Additionally, the PPP loan application required us to certify that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP loans and that our receipt of the PPP loans is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, the certification described above contains subjective criteria and is subject to interpretation. In addition, the SBA has stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied all eligibility requirements for the PPP loan, the SBA concludes we have been ineligible to receive the PPP loan or in violation of any of the laws or regulations that apply to us in connection with the PPP loan, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loan. In the event that we seek forgiveness of all or a portion of the PPP Loan, we will also be required to make certain certifications that will be subject to audit and review by government entities and could subject us to significant penalties and liabilities if found to be inaccurate. In addition, a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations or financial condition. If we fail to comply with our obligations under existing license agreements, the licensor may have the right to terminate such license, in which event we would not be able to develop, manufacture, or market products covered by the license or may face other penalties under the agreements, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. If we fail to comply with our obligations under these license agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we may face challenges for patent infringement if we continue to develop, manufacture, or market products covered by the license, or may face other penalties under the agreements. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. 25 It is possible that such termination may occur even if we believe that we have complied with our obligations under a license agreement, if a dispute arises between us and a licensor. Our license agreement with REGENXBIO had granted us an exclusive worldwide license (subject to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to use REGENXBIO’s NAV AAV9 capsid in gene therapies for treating MPS IIIA, MPS IIIB, CLN1 Disease, and CLN3 Disease. On May 2, 2020, REGENXBIO terminated the license agreement. We filed an arbitration claim against REGENXBIO relating to $28 million plus interest that REGENXBIO argues remains due following the agreement’s termination, and that arbitration proceeding is ongoing. We may not prevail in the arbitration proceeding. Even if we do prevail, it is possible that REGENXBIO may in the future assert that our proposed products infringe one or more of REGENXBIO’s AAV9 patent claims, and we still may ultimately need a license to use the AAV9 capsid in our proposed MPS IIIA, MPS IIIB, CLN1, and CLN3 products. Absent such a license, if we are found to infringe an AAV9 patent claim, it is possible that a court may enjoin the sale of one or more of our proposed AAV9-based products, order us to pay a less favorable royalty rate to REGENXBIO than the royalty rate in the original license agreement, or order us to pay other damages. ITEM 6. EXHIBITS See Exhibit Index below, which is incorporated by reference herein. Exhibit Index Exhibits: 31.1 Principal Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2 Principal Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 32* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following materials from Abeona’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (v) Notes to Condensed Consolidated Financial Statements. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). * Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filing. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ABEONA THERAPEUTICS INC. Date: November 9, 2020 By: /s/ Michael Amoroso Michael Amoroso Chief Operating Officer (Principal Executive Officer) Date: November 9, 2020 By: /s/ Edward Carr Edward Carr Chief Accounting Officer (Principal Financial Officer) 27