ABEONA THERAPEUTICS INC. 10-Q

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, gene-corrected cell therapy for recessive dystrophic epidermolysis bullosa (“RDEB”), which is currently in the pivotal Phase 3 VIITAL™ clinical trial. Our development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other diseases and 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, Gene-Corrected Cell Therapy) for RDEB We achieved target enrollment in the first quarter of 2022 for our pivotal Phase 3 VIITAL™ study for our investigational product for RDEB, EB-101. We anticipate topline data readout in the late third quarter or early fourth quarter of 2022. We are focusing our research and development resources on the VIITAL™ readout while actively pursuing a potential commercialization partner. We are optimistic about EB-101’s potential based on updated Phase 1/2a results presented at various medical congresses. 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 Biologics License Application (“BLA”) filing to the U.S. Food and Drug Administration (“FDA”). EB-101 study drug product for all our VIITAL™ study participants has been manufactured at our Cleveland facility and we have now 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”). Based on feedback from the FDA, we believe that we have alignment with the FDA on the CMC requirements 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 (“MPS IIIA”) (“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 yield data beginning in the third quarter of 2022 to support pre-IND meetings with the FDA in the second half of 2022 or early 2023. 17 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, together 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 June 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. 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 Series A Preferred Stock and Series B 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 90 th 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 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 (the “Certificate of Amendment”), 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. Nasdaq Compliance On July 19, 2022, we received formal notification from the Nasdaq Stock Market LLC confirming that we had regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that our common stock maintain a minimum bid price of at least $1.00 per share, and confirming that the matter is now closed. RESULTS OF OPERATIONS Comparison of Three Months Ended June 30, 2022 and June 30, 2021 For the three months ended June 30, June 30, Change ($ in thousands) 2022 2021 $ % Revenues: License and other revenues $ 1,000 $ — $ 1,000 N/A Expenses: Royalties 350 — 350 N/A Research and development 6,658 8,533 (1,875 ) (22 )% General and administrative 3,460 5,182 (1,722 ) (33 )% Impairment of construction-in-progress (1,460 ) — (1,460 ) N/A Total expenses 9,008 13,715 (4,707 ) (34 )% Loss from operations (8,008 ) (13,715 ) 5,707 (42 )% Interest and other income 30 8 22 275 % Interest expense (317 ) (1,500 ) 1,183 (79 )% Net loss $ (8,295 ) $ (15,207 ) $ 6,912 (45 )% N/A - not applicable or not meaningful 18 License and other revenues License and other revenues for the three months ended June 30, 2022 was $1.0 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 (“Rett”), including certain intellectual property relating to MECP2 gene constructs and regulation of their expression. Royalties Total royalties were $0.4 million for the three months ended June 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 related to Rett. 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 June 30, 2022 was $6.7 million, as compared to $8.5 million for the same period of 2021, a decrease of $1.8 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 $0.5 million which is net of the $1.8 million pass through costs to Ultragenyx; ● decreased salary and related costs of $0.5 million; partially offset by ● decreased non-cash stock compensation expenses of $0.9 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 the following: ● 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. We expect to continue to incur our general and administrative costs as we seek potential regulatory approval and potential commercialization of our product candidates. Total general and administrative expenses were $3.5 million for the three months ended June 30, 2022, as compared to $5.2 million for the same period of 2021, a decrease of $1.7 million. The decrease in expenses was primarily due to: ● decreased professional fees of $0.8 million; ● decreased non-cash stock-based compensation of $0.8 million; and ● decreased other costs of $0.1 million. Impairment of construction-in-progress Impairment for construction-in-progress was $(1.5) million for the three months ended June 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, we recorded impairment of $3.3 million for the three months ended March 31, 2022. We subsequently received certain refunds pertaining to the planned facility build-out, which reduced the overall impairment charge by $1.5 million for the three months ended June 30, 2022. Interest and other income Interest and other income was $30,000 for the three months ended June 30, 2022, as compared to $8,000 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. 19 Interest expense Interest expense was $0.3 million for the three months ended June 30, 2022, as compared to $1.5 million in the same period of 2021. The decrease results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO, Inc. Comparison of Six Months Ended June 30, 2022 and June 30, 2021 For the six months ended June 30, June 30, Change ($ in thousands) 2022 2021 $ % Revenues: License and other revenues $ 1,346 $ — $ 1,346 N/A Expenses: Royalties 350 — 350 N/A Research and development 17,203 16,868 335 2 % General and administrative 7,684 11,444 (3,760 ) (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 29,945 28,312 1,663 6 % Loss from operations (28,599 ) (28,312 ) (287 ) 1 % Interest and other income 31 23 8 35 % Interest expense (518 ) (2,920 ) 2,402 (82 )% Net loss $ (29,086 ) $ (31,209 ) $ 2,123 (7 )% N/A - not applicable or not meaningful License and other revenues License and other revenues for the six months ended June 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 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 were $0.4 million for the six months ended June 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 related to Rett. Research and development Total research and development spending for the six months ended June 30, 2022 was $17.2 million, as compared to $16.9 million for the same period of 2021, an increase of $0.3 million. The increase in expenses was primarily due to: ● increased clinical and development work for our cell and gene therapy product candidates and other related costs of $1.8 million which is net of the $1.8 million pass through costs to Ultragenyx; ● increased other costs of $0.2 million; partially offset by ● decreased non-cash stock compensation expenses of $1.7 million. General and administrative Total general and administrative expenses were $7.7 million for the six months ended June 30, 2022, as compared to $11.4 million for the same period of 2021, a decrease of $3.7 million. The decrease in expenses was primarily due to: ● decreased professional fees of $2.9 million; ● decreased non-cash stock-based compensation of $1.1 million; partially offset by ● increased other costs of $0.3 million. 20 Impairment of licensed technology Impairment of licensed technology was $1.4 million for the six months ended June 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 and as a result of our shift in priorities, we determined the remaining value of the licensed technology had no future value and thus, we recorded impairment of $1.4 million for the six months ended June 30, 2022. Impairment of right-of-use lease asset Impairment of right-of-use lease asset was $1.6 million for the six months ended June 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 and 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, we recorded impairment of $1.6 million for the six months ended June 30, 2022. Impairment of construction-in-progress Impairment of construction-in-progress was $1.8 million for the six months ended June 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, we recorded impairment of $1.8 million for the six months ended June 30, 2022. Interest and other income Interest and miscellaneous income was $31,000 for the six months ended June 30, 2022, as compared to $23,000 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 $0.5 million for the six months ended June 30, 2022, as compared to $2.9 million in the same period of 2021. The decrease results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO, Inc. LIQUIDITY AND CAPITAL RESOURCES Cash Flows for the Six Months Ended June 30, 2022 and 2021 For the six months ended June 30, ($ in thousands) 2022 2021 Total cash and cash equivalents (used in) /provided by: Operating activities $ (22,700 ) $ (25,074 ) Investing activities (323 ) 31,300 Financing activities (3,782 ) 8,357 Net (decrease) increase in cash and cash equivalents $ (26,805 ) $ 14,583 Operating activities Net cash used in operating activities was $22.7 million for the six months ended June 30, 2022, primarily comprised of our net loss of $29.1 million and a decrease in operating assets and liabilities of $2.7 million, partially offset by net non-cash charges of $9.1 million. Net cash used in operating activities was $25.1 million for the six months ended June 30, 2021, primarily comprised of our net loss of $31.2 million and a decrease in operating assets and liabilities of $0.7 million, partially offset by net non-cash charges of $6.8 million. Investing activities Net cash used in investing activities was $0.3 million for the six months ended June 30, 2022, primarily comprised of proceeds from maturities of short-term investments of $32.7 million and proceeds from disposal of property and equipment of $1.5 million, partially offset by purchases of short-term investments of $34.4 million and capital expenditures of $0.1 million. Net cash provided by investing activities was $31.3 million for the six months ended June 30, 2021, primarily comprised of proceeds from maturities of short-term investments of $47.0 million, partially offset by purchases of short-term investments of $15.2 million and capital expenditures of $0.5 million. 21 Financing activities Net cash used in financing activities was $3.8 million for the six months ended June 30, 2022, primarily comprised of the proceeds and redemption of our convertible redeemable preferred stock. Net cash provided by financing activities was $8.4 million for the six months ended June 30, 2021, primarily comprised of proceeds of $7.7 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and proceeds of $0.7 million from the exercise of stock options. We have historically funded our operations primarily through sales 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, restricted cash and short-term investments, collectively referred to as our cash resources. As of June 30, 2022, our cash resources were $26.0 million. We believe that our current cash and cash equivalents, restricted cash and short-term investments are only sufficient to fund our operating expenses into the second quarter of 2023. However, in order to further advance development and seek potential regulatory approval of our investigational EB-101 product for RDEB, or to advance any of our preclinical AAV-based ophthalmology assets, we would need to secure additional funds through equity or debt offerings, potential upfront payments from potential commercial partners, potential sale of a priority review voucher, or other potential sources. We cannot be certain that additional funding will be available on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about our ability to continue as a going concern. We have an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”) pursuant to which, 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 the ATM Agreement during the six months ended June 30, 2022. Cumulatively, as of June 30, 2022, we have sold an aggregate of 270,350 shares of our common stock under the ATM Agreement and received $25.0 million of net proceeds. 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. 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 reassessing key business activities and all associated spending decisions. 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 successful development and commercialization of our cell and gene therapy and other product candidates; ● the ability to establish and maintain collaborative arrangements with corporate partners for the research, development, and commercialization of products; ● 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; ● any continuing impact to our business, operations, and clinical programs from the COVID-19 pandemic and government actions related thereto; ● 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, 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. 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. 22 Critical Accounting Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if: ● it requires assumptions to be made that were uncertain at the time the estimate was made, and ● changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material. For a discussion of the critical accounting estimates that affect the unaudited condensed consolidated financial statements, see “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. See Note 1 to our unaudited condensed consolidated financial statements for a discussion of our significant accounting policies. Recently Issued Accounting Standards Not Yet Effective or Adopted Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.