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/A for the year ended December 31, 2023 (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 is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases. Our lead clinical program is pz-cel, investigational autologous, COL7A1 gene-corrected epidermal sheets, currently in development for recessive dystrophic epidermolysis bullosa (“RDEB”). We have announced positive data from the VIITAL™ study evaluating the efficacy, safety and tolerability of pz-cel. The VIITAL™ study met both its two co-primary efficacy endpoints demonstrating statistically significant, clinically meaningful improvements in wound healing and pain reduction in large chronic RDEB wounds. On September 25, 2023, we submitted a Biologics License Application (“BLA”) for pz-cel to the U.S. Food and Drug Administration (“FDA”). In November 2023, the FDA accepted and granted priority review for our BLA for pz-cel, and subsequently, under the Prescription Drug User Fee Act (“PDUFA”), the FDA set a target action date of May 25, 2024. In April 2024, the FDA issued a Complete Response Letter (“CRL”) in response to the BLA. The CRL follows the completion of Abeona’s Late Cycle Review Meeting with the FDA in March 2024. At the Late Cycle Review Meeting and in a subsequent information request, the FDA noted that certain additional information needed to satisfy the Chemistry Manufacturing and Controls (“CMC”) requirements of the pz-cel BLA must be satisfactorily resolved before the application can be approved. In response, we submitted plans to the FDA with the commitment to provide certain CMC data prior to BLA approval, and full validation reports after approval in mid-2024. We discussed these plans with the FDA in a subsequent informal meeting. In the CRL, the FDA indicated that the proposed timing of the data submission by us would not have allowed sufficient time for the FDA to complete its review by the May 25, 2024 PDUFA date. The information needed to satisfy the CMC requests in the CRL pertains to validation requirements for certain manufacturing and release testing methods, including some that were captured in observations made during the FDA’s pre-license inspection (“PLI”). The CRL did not identify any deficiencies related to the clinical efficacy or clinical safety data in the BLA, and the FDA did not request any new clinical trials or clinical data to support the approval of pz-cel. We have continued to prepare our current Good Manufacturing Practices (“cGMP”) commercial facility in Cleveland, Ohio for manufacturing pz-cel drug product to support our planned commercial launch of pz-cel, if approved. Pz-cel study drug product for all our VIITAL™ study participants has been manufactured at our Cleveland facility. As part of our commercial planning, we continue to engage with stakeholders across the healthcare system, including public and private payors, and healthcare providers to better understand market access and potential pricing for pz-cel. We have also begun discussions with high volume treatment centers of excellence to onboard them for pz-cel application upon potential FDA approval. Our development portfolio also features adeno-associated virus (“AAV”) based gene therapies designed to treat ophthalmic diseases using the novel AIM™ capsids that we have exclusively licensed from the University of North Carolina at Chapel Hill, and internal AAV vector research programs. 23 Preclinical Pipeline Our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for serious genetic eye diseases, including ABO-504 for Stargardt disease, ABO-503 for X-linked retinoschisis (“XLRS”) and ABO-505 for autosomal dominant optic atrophy (“ADOA”). We completed pre-Investigational New Drug Application (“pre-IND”) meetings with the FDA regarding the preclinical development plans and regulatory requirements to support first-in-human trials. Other Recent Developments On January 8, 2024, we entered into a $50 million credit facility with the Avenue Venture Opportunities Fund, L.P. The credit agreement, which has a term of three and a half years, includes a first tranche of $20 million at closing, a second tranche of $10 million of committed capital, and an additional accordion option to upsize the credit facility by an additional $20 million upon satisfaction of certain terms and conditions. On May 7, 2024, we closed on an underwritten offering of 12,285,056 shares of our common stock and, in lieu of common stock, pre-funded warrants to purchase 6,142,656 shares of our common stock, at an offering price of $4.07 per share, which is equal to the closing price on Thursday, May 2, 2024, or $4.0699 per pre-funded warrant, which represents the per share offering price for the common stock less the $0.0001 per share exercise price for each pre-funded warrant. The pre-funded warrants will be immediately exercisable at a nominal exercise price of $0.0001 per share and may be exercised at any time until the pre-funded warrants are exercised in full. We estimate that the net proceeds from the Offering will be approximately $70.2 million, after deducting the underwriting discounts and commissions and paying estimated offering expenses. RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 2024 and March 31, 2023 For the three months ended Change ($ in thousands) March 31, 2024 March 31, 2023 $ % Revenues: License and other revenues $ — $ — $ — N/A Expenses: Research and development 7,207 8,041 (834 ) (10 )% General and administrative 7,123 3,997 3,126 78 % Total expenses 14,330 12,038 2,292 19 % Loss from operations (14,330 ) (12,038 ) (2,292 ) 19 % Interest income 843 364 479 132 % Interest expense (952 ) (101 ) (851 ) 843 % Change in fair value of warrant and derivative liabilities (17,301 ) 2,265 (19,566 ) (864 )% Other income 162 403 (241 ) (60 )% Net loss $ (31,578 ) $ (9,107 ) $ (22,471 ) 247 % N/A – not applicable or not meaningful 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 March 31, 2024 was $7.2 million, as compared to $8.0 million for the same period of 2023, a decrease of $0.8 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 $1.9 million which was due to the reduction in number of clinical trials ongoing; ● decreased other costs of $0.3 million; partially offset by ● increased salary and related costs of $1.2 million; and ● increased stock compensation expenses of $0.2 million. We expect our research and development activities to continue as we work towards advancing 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 fees (e.g., legal expenses), pre-commercial launch activity costs and other general operating expenses not otherwise included in research and development expenses. Total general and administrative expenses were $7.1 million for the three months ended March 31, 2024, as compared to $4.0 million for the same period of 2023, an increase of $3.1 million. The increase in expenses was primarily due to: ● increased salary and related costs of $0.9 million; ● increased pre-commercial preparation costs of $1.3 million; ● increased non-cash stock-based compensation of $0.6 million; and ● increased other costs such as professional fees, rent, and recruiting of $0.3 million. Interest income Interest income was $0.8 million for the three months ended March 31, 2024, as compared to $0.4 million in the same period of 2023. The increase resulted from higher earnings on short-term investments driven by higher interest rates and increased average short-term investment balances. 24 Interest expense Interest expense was $1.0 million for the three months ended March 31, 2024, as compared to $0.1 million in the same period of 2023. The increase was primarily due to the credit facility entered into by the Company in January 2024, resulting in recognized interest expense of $0.8 million. Change in fair value of warrant and derivative liabilities The change in fair value of warrant and derivative liabilities was a loss of $17.3 million for the three months ended March 31, 2024, as compared to a gain of $2.3 million for the same period in 2023. We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. In addition, the conversion feature in our loan agreement is required to be classified as a liability and valued at fair market value at each reporting period. The change in the fair value of warrant and derivative liabilities was primarily due to the increase in our stock price year over the year and a shorter term. Other income Other income was $0.2 million for the three months ended March 31, 2024, as compared to $0.4 million in the same period of 2023. The change was primarily a result of other income related to a refund of overpayment of franchise taxes that was received in 2023. LIQUIDITY AND CAPITAL RESOURCES Cash Flows for the Three Months Ended March 31, 2024 and 2023 For the three months ended ($ in thousands) March 31, 2024 March 31, 2023 Total cash, cash equivalents and restricted cash (used in) provided by: Operating activities $ (14,538 ) $ (11,744 ) Investing activities (7,817 ) 2,211 Financing activities 25,440 (4 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ 3,085 $ (9,537 ) Operating activities Net cash used in operating activities was $14.5 million for the three months ended March 31, 2024, primarily comprised of our net loss of $31.6 million and decreases in operating assets and liabilities of $2.8 million and net non-cash charges of $19.9 million. Non-cash charges consisted primarily of $17.3 million of the change in fair value of warrant and derivative liabilities, $1.5 million of stock-based compensation and $0.5 million of depreciation and amortization. Net cash used in operating activities was $11.7 million for the three months ended March 31, 2023, primarily comprised of our net loss of $9.1 million and decreases in operating assets and liabilities of $2.0 million and net non-cash charges of $0.6 million. Investing activities Net cash used in investing activities was $7.8 million for the three months ended March 31, 2024, primarily comprised of proceeds from maturities of short-term investments of $22.3 million, offset by purchases of short-term investments of $29.3 million and capital expenditures of $0.7 million. Net cash provided by investing activities was $2.2 million for the three months ended March 31, 2023, primarily comprised of proceeds from maturities of short-term investments of $10.4 million, partially offset by purchases of short-term investments of $8.0 million and capital expenditures of $0.2 million. Financing activities Net cash provided by financing activities was $25.4 million for the three months ended March 31, 2024, primarily comprised of proceeds of $6.4 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and net proceeds of $19.0 million from our January 2024 Loan Agreement. Net cash used in financing activities was $4,000 for the three months ended March 31, 2023, primarily comprised of the net settlement of restricted share awards. We have historically funded our operations primarily through sales of common stock. 25 Our principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our cash resources. As of March 31, 2024, our cash resources were $62.7 million. We believe that our current cash and cash equivalents, restricted cash and short-term investments and accounting for the gross proceeds from our $75.0 million underwritten offering that closed on May 7, 2024, are sufficient to fund operations through at least the next 12 months from the date of this report on Form 10-Q. We may need to secure additional funding to carry out all of our planned research and development and potential commercialization 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. 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 sold 889,315 shares of our common stock under the ATM Agreement and received $6.4 million of net proceeds during the three months ended March 31, 2024. 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 and potential commercialization efforts. We have not been profitable since inception and to date have received limited revenues from the sale of products or licenses. We expect to incur losses for the next several years as we continue to invest in commercialization, 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. Our future capital requirements and adequacy of available funds depend on many factors, including: ● the successful development, regulatory approval 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; ● 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, 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. 26 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. 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 a 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 as well as the discussion below related to our derivative liability. See Note 1 to our unaudited condensed consolidated financial statements for a discussion of our significant accounting policies. Derivative Liability We account for the fair value of the conversion right embedded within the loan agreement in accordance with the guidance in ASC 815, which requires us to bifurcate and separately account for the conversion feature as an embedded derivative contained in our loan agreement. Accordingly, we account for the conversion feature as a derivative liability in our condensed consolidated balance sheet. Derivatives are measured at their fair value on the balance sheet. In determining the appropriate fair value, we use a Monte Carlo simulation model, which incorporated assumptions and estimates to value the derivatives. The derivative liability is remeasured at each reporting period with the change in fair value recorded to change in fair value of warrant and derivative liabilities in the condensed consolidated statement of operations until the derivative is exercised, expired, reclassified, or otherwise settled. Recently Issued Accounting Standards Not Yet Effective or Adopted See Note 1 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards not yet effective or adopted. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.