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Item 7. Management’s Discussion and Analysis

2026-03-17 compared with 2025-03-20 · 245 added, 355 removed, 161 unchanged (79% of the section changed)

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10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

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”).

In 2022, we announced positive data from the VIITAL™ study evaluating the efficacy, safety and tolerability

The VIITAL™ study met both its co-primary efficacy endpoints demonstrating statistically significant, clinically

meaningful improvements in wound healing and pain reduction in large chronic RDEB wounds.

In September 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

The CRL 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.

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.

In August 2024, we completed a Type A Meeting with the FDA to discuss our forthcoming resubmission

of our BLA and in October 2024, we resubmitted our BLA.

The FDA notified the Company in November 2024 that the BLA was accepted

for review, with an assigned PDUFA target action date of April 29, 2025.

have continued to prepare our current Good Manufacturing Practices (“cGMP”) facility in Cleveland, Ohio for

manufacturing commercial grade pz-cel drug product to support our planned commercial launch of pz-cel, if approved.

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.

are a commercial-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases.

On April 28, 2025,

the FDA approved ZEVASKYN ® (prademagene zamikeracel) gene-modified cellular sheets, also known as ZEVASKYN ® ,

as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with RDEB, a serious

and debilitating genetic skin disease.

There is no cure for RDEB, and ZEVASKYN ® is the only FDA-approved product to treat

RDEB wounds with a single application.

ZEVASKYN ® was granted Orphan Drug and Rare Pediatric Disease designations by the

is manufactured at our current cGMP manufacturing facility in Cleveland, Ohio, and is made available through ZEVASKYN ®

qualified treatment centers.

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 developed

internally through our AAV vector research programs.

with high unmet need using novel AIM™ capsids.

Abeona’s novel, next-generation AAV capsids are being evaluated to improve

tropism profiles for a variety of devastating diseases.

preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for serious genetic eye diseases, including

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preclinical development plans and regulatory requirements to support first-in-human trials.

October 18, 2024, we signed a lease for 16,566 square feet of office space at 6700 Euclid Avenue, Cleveland, Ohio.

The lease commences

on January 1, 2025 and the lease term matches the term for our existing 6555 Carnegie Avenue facility.

The additional space at the 6700

Euclid Avenue facility will allow us to convert office space at the 6555 Carnegie Avenue facility into additional manufacturing space

to increase pz-cel manufacturing capacity.

Since we resumed manufacturing operations in mid-January

after a planned facility shutdown, a patient treatment has been completed, multiple biopsies have been collected for scheduled ZEVASKYN ®

treatments in the coming weeks, and additional biopsies are scheduled.

OF OPERATIONS

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($ in thousands)

Product revenue, net

License and other revenues

Total revenues

Costs and expenses:

Cost of sales

Research and development

General and administrative

Gain on operating lease right-of-use assets

Total expenses

Selling, general and administrative

Total costs and expenses

Loss from operations

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Change in fair value of warrant and derivative liabilities

- not applicable or not meaningful

Gain from sale of priority review voucher, net

Other income, net

Income (loss) before income taxes

Income tax expense

Net income (loss)

April 28, 2025, the FDA approved ZEVASKYN ® as the first and only autologous cell-based gene therapy for the treatment

of wounds in adult and pediatric patients with RDEB.

Product revenue, net, resulting from the sale of ZEVASKYN ® , for the

year ended December 31, 2025 was $2.4 million.

On December 8, 2025, we announced the first commercial patient treatment with FDA-approved

ZEVASKYN ® at Lucile Packard Children’s Hospital Stanford in Palo Alto, CA.

There was no product revenue for the

year ended December 31, 2024 as the approval by the FDA for ZEVASKYN ® did not occur until 2025.

and other revenues

and other revenues for the year ended December 31, 2024 was nil, as compared to $3.5 million for the same period of 2023.

license or other revenue in 2024 as no clinical development milestones were met in 2024.

The revenue in 2023 consists of revenue resulting

from achieving clinical development milestones achieved under a sublicense agreement we entered into with Taysha Gene Therapies in October

2020 relating to an investigational AAV-based gene therapy for Rett syndrome.

royalty expenses were nil for the year ended December 31, 2024, as compared to $1.6 million for the same period of 2023.

expense in 2023 was due to royalties owed to our licensors resulting from the milestones due from Taysha related to Rett syndrome.

and other revenues for the year ended December 31, 2025 was $3.4 million as compared to nil for the same period of 2024.

in 2025 consists primarily of revenue resulting from achieving a clinical development milestone under a sublicense agreement

we entered into with Taysha in October 2020 relating to an investigational AAV-based gene therapy for Rett syndrome.

in 2025, we also recorded $0.4 million resulting from a third party exercising its option to license certain of our AAV capsids.

was no license or other revenue in 2024 as no clinical development milestones were met in 2024.

of sales during the year ended December 31, 2025 was $1.5 million and primarily includes costs associated with the first commercial

patient treatment with FDA-approved ZEVASKYN ® in December of 2025 and costs associated with the August 2025

production of a full batch of ZEVASKYN ® that could not be released due to technical issues that arose in implementing

the rapid sterility lot release assay that was mandated by the FDA during BLA review.

There was no cost of sales in the same period

of 2024, as ZEVASKYN ® was approved by the FDA in April 2025.

royalty expenses were $1.9 million for the year ended December 31, 2025, as compared to nil for the same period of 2024.

in was primarily due to royalties owed to our licensors resulting from the milestone due from Taysha related to Rett syndrome.

and development

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.

and development expenses include, but are not limited to, payroll and personnel expenses, preclinical lab supplies, preclinical and development

costs, clinical trial costs, preclinical manufacturing and manufacturing facility costs, costs associated with regulatory approvals,

preclinical depreciation on lab supplies and manufacturing facilities, and preclinical consultant-related expenses.

research and development spending for the year ended December 31, 2025 was $26.8 million, as compared to $34.4 million for the same period

of 2023, an increase of $3.3 million.

The increase in expenses was primarily due to a $4.0 million increase in salaries and $0.5 million

in non-cash stock-based compensation costs due to increased headcount related to manufacturing capacity expansion preparing for the potential

launch of pz-cel, partially offset by a decrease in clinical and development work costs of $1.3 million due to reduced spending on clinical

trials as the majority of our clinical trials have finalized except for our long-term follow up trials.

of 2024, a decrease of $7.6 million.

The reduction in expenses was primarily due to costs capitalized into inventory and engineering

runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN ® in

April of 2025.

expect our research and development activities to continue as we work towards advancing our product candidates towards potential regulatory

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associated with regulatory approvals.

and administrative

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.

general and administrative expenses were $29.9 million for the year ended December 31, 2024, as compared to $19.0 million for the same

period of 2023, an increase of $10.9 million.

The increase in expenses was primarily due to:

salary and related costs of $3.8 million;

pre-commercial preparation costs of $3.6 million;

non-cash stock-based compensation of $1.4 million;

other costs such as recruiting and professional fees of $2.1 million.

on operating lease right-of-use assets

gain on operating lease right-of-use assets was $1.1 million for the year ended December 31, 2023.

The gain on operating lease right-of-use

assets for 2023 was related to the termination of our operating leases for office space that we no longer use, resulting in a gain from

the difference between the carrying value of the right-of-use lease assets and the related lease liabilities.

There was no such gain

during the year ended December 31, 2024.

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), selling and other costs for commercial launch and other general

operating expenses not otherwise included in research and development expenses.

We expect our selling, general, and administrative

costs to continue to increase as we expand our commercialization of ZEVASKYN ® and advance other product candidates

toward potential regulatory approval.

selling, general and administrative expenses were $65.0 million for the year ended December 31, 2025, as compared to $29.9 million

for the same period of 2024, an increase of $35.1 million.

The increase in expenses was primarily due to increases in commercial

costs of $2.3 million, related to our continued commercialization efforts, increases in salaries and stock-based compensation of

$18.6 million due to new hires, and $4.8 million of costs related to engineering runs with the remainder due to other

commercial costs upon FDA approval in April of 2025.

income was $5.6 million for the year ended December 31, 2025, as compared to $4.2 million in the same period of 2024.

The increase resulted

from higher earnings on short-term investments driven by higher interest rates and increased average short-term investment balances.

from higher earnings on short-term investments driven by increased average short-term investment balances.

expense was $3.7 million for the year ended December 31, 2025, as compared to $4.2 million in the same period of 2024.

The increase was

primarily due to the Avenue credit facility entered into by the Company in January 2024, resulting in recognized interest expense of

$3.8 million.

Interest expense

was due to the credit facility we entered into in January 2024 and decreased as a result of the July 2025 amendment to the credit facility

reducing the interest rate for the senior secured term loan thereunder from 13.5% to 11.75%.

in fair value of warrant and derivative liabilities

change in fair value of warrant and derivative liabilities was a loss of $0.8 million for the year ended December 31, 2024, as compared

to a loss of $11.7 million in the same period of 2023.

issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period.

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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 offset by a reduced term of each of the warrants and derivative liabilities.

At September 30, 2024, the

conversion feature in our loan agreement no longer met the criteria of a derivative liability, and the derivative liability was reclassified

income was $1.2 million for the year ended December 31, 2024, as compared to $2.9 million in the same period of 2023.

The change was

primarily a result of $2.1 million in other income related to the impact of the employee retention credit that was recorded in 2023,

partially offset by a refundable job creation tax credit of $0.5 million received in 2024.

change in fair value of warrant liabilities resulted in a gain of $6.1 million for the year ended December 31, 2025.

The gain in the fair value

of warrant liabilities was primarily due to the decrease in our stock price as of December 31, 2025 compared to December 31, 2024 and

to the shorter expected term period over period.

change in fair value of warrant and derivative liabilities was a loss of $0.8 million for the year ended December 31, 2024.

on the fair value of warrant and derivative liabilities was primarily due to the increase in our stock price year over the year offset

by a reduced term of each of the warrants and derivative liabilities.

At September 30, 2024, the conversion feature in our loan agreement

no longer met the criteria of a derivative liability, and the derivative liability was reclassified to equity.

from sale of priority review voucher, net

May 2025, we sold our PRV awarded to us following the FDA approval of ZEVASKYN ® .

We received gross proceeds of $155.0

million during the year ended December 31, 2025 and recognized a gain from the PRV sale of $152.4 million, net of transaction costs of

$2.6 million, as it did not have a carrying value at the time of sale.

income, net was $0.4 million for the year ended December 31, 2025, as compared to $1.2 million in the same period of 2024.

was primarily a result of the refundable job creation tax credit of $0.5 million received in 2024 that was not received in 2025.

recorded a current income tax expense of $0.1 million for the year ended December 31, 2025.

We did not record an income tax expense for

the year ended December 31, 2024 as we generated sufficient tax losses, after consideration of discrete items.

The current income tax

expense for the year ended December 31, 2025 was primarily driven by pre-tax income from the gain on sale of the PRV.

AND CAPITAL RESOURCES

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Net increase in cash, cash equivalents and restricted cash

cash used in operating activities was $56.0 million for the year ended December 31, 2024, primarily comprised of our net loss of

$63.7 million and decreases in operating assets and liabilities of $4.4 million, partially offset by net non-cash charges of $12.1

Non-cash charges consisted primarily of $0.8 million of the change in fair value of warrant and derivative liabilities,

$6.6 million of stock-based compensation, $1.5 million of non-cash interest expense and $2.0 million of depreciation and

amortization.

cash used in operating activities was $37.0 million for the year ended December 31, 2023, primarily comprised of our net loss of $54.2

million and increases in operating assets and liabilities of $1.8 million partially offset by net non-cash charges of $19.0 million.

Non-cash charges consisted primarily of $11.7 million of the change in fair value of warrant liabilities, $4.8 million of stock-based

cash used in operating activities was $76.3 million for the year ended December 31, 2025, primarily comprised of our net income of $71.2

million, offset by decreases in operating assets and liabilities of $5.4 million, the $152.4 million gain on sale of priority review voucher for which the cash proceeds are recorded in investing

activities, and net non-cash charges of $10.2 million.

charges consisted primarily of $6.1 million of gain as a result of the change in fair value of warrant and derivative liabilities, $10.8 million of stock-based

compensation and $2.5 million of depreciation and amortization.

cash used in operating activities was $56.0 million for the year ended December 31, 2024, primarily comprised of our net loss of $63.7

million and decreases in operating assets and liabilities of $4.4 million, partially offset by net non-cash charges of $12.1 million.

Non-cash charges consisted primarily of $0.8 million of the change in fair value of warrant and derivative liabilities, $6.6 million

of stock-based compensation, $1.5 million of non-cash interest expense and $2.0 million of depreciation and amortization.

cash provided by investing activities was $105.0 million for the year ended December 31, 2025, primarily comprised of net proceeds from

sale of priority review voucher of $152.4 million, proceeds from maturities of short-term investments of $167.3 million, offset by purchases

of short-term investments of $206.6 million and capital expenditures of $8.0 million.

cash used in investing activities was $39.2 million for the year ended December 31, 2024, primarily comprised of purchases of short-term

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of $120.2 million.

cash provided by investing activities was $0.2 million for the year ended December 31, 2023, primarily comprised of proceeds from maturities

of short-term investments of $51.9 million and proceeds from the disposal of property and equipment of $0.2 million, partially offset

by purchases of short-term investments of $51.6 million and capital expenditures of $0.3 million.

cash provided by financing activities was $26.0 million for the year ended December 31, 2025, primarily comprised of proceeds of $17.3

million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and proceeds of $8.8 million from the

exercise of stock purchase warrants.

cash provided by financing activities was $104.1 million for the year ended December 31, 2024, primarily comprised of proceeds of $70.2

million in net proceeds from our May 2024 underwritten offering, $15.5 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 credit facility entered into in January 2024.

cash provided by financing activities was $37.1 million for the year ended December 31, 2023, primarily comprised of proceeds of $14.4

million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and net proceeds of $23.0 million from

our July 2023 direct placement offering of common stock.

have historically funded our operations primarily through sales of common stock.

have historically funded our operations primarily through our sale of equity securities, our most recent gain on sale of our PRV, and

strategic collaboration arrangements.

principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our

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restricted cash and short-term investments are sufficient to fund operations through at least the next 12 months from the date of this

report on Form 10-K.

annual report on Form 10-K.

We may need to secure additional funding to carry out all of our planned research and development and potential

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$15.5 million of net proceeds during the year ended December 31, 2024.

Subsequent to December 31, 2024 and through March 11, 2025, we

sold 915,925 shares of our common stock under the ATM Agreement resulting in $4.8 million in net proceeds.

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.

Under the ATM Agreement and as of December 31, 2025, we have remaining

shares of our common stock for an aggregate sales price of up to $51.5 million.

our inception and excluding the gain on sale of our priority review voucher, 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 commercialization

Excluding the gain on sale of our priority review voucher, we have not been profitable since inception and to date have received

limited revenues from the sale of products or licenses.

As a result, we have incurred significant operating losses and negative cash

flows from operations since our inception and anticipate such losses and negative cash flows will continue until ZEVASKYN ® can

provide sufficient revenue for us to be profitable and generate positive cash flow.

may 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.

we raise additional funds by selling additional equity securities, the relative equity ownership of our existing investors will be diluted,

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future capital requirements and adequacy of available funds depend on many factors, including:

successful commercialization of ZEVASKYN ® ;

successful development, regulatory approval and commercialization of our cell and gene therapy and other product candidates;

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lease amounts represent future minimum lease payments under our non-cancelable operating lease agreements.

The minimum lease payments

above do not include any related common area maintenance charges or real estate taxes.

November 12, 2021, we entered into a Settlement Agreement with REGENXBIO to resolve all current disputes between the parties including

the aforementioned AAA arbitration and New York State Supreme Court action.

In accordance with the Settlement Agreement, we agreed to

pay REGENXBIO a total of $30 million, payable as follows:

(1) $20 million payable that was paid in 2021 after execution of the Settlement

Agreement, (2) $5 million on the first anniversary of the effective date of the Settlement Agreement that was paid in 2022, and (3) $5

million upon the earlier of:

(i) the third anniversary of the effective date of the Settlement Agreement or (ii) the closing of a Strategic

Transaction, as defined in the Settlement Agreement.

As of December 31, 2024, we have paid all amounts due under the Settlement Agreement.

addition, we are also party to other license agreements, which include contingent payments.

The total future payments

for our operating lease obligations that had commenced as of December 31, 2025 were $6.2 million, of which $1.0 million is due in the

next twelve months and the remaining payments are due over the terms of the respective leases.

The minimum lease payments above do not

include any related common area maintenance charges or real estate taxes.

addition, we are also party to other license agreements that include contingent payments.

However, contingent payments related to these

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include contingent payments that will become payable if and when certain development, regulatory and commercial milestones are achieved.

During the next 12 months, certain contingent payments could become due upon potential BLA approval and sales of pz-cel or any other

developmental milestones for sub-licensed products related to such license agreements.

During the next 12 months, certain contingent payments could become due upon sales of ZEVASKYN ® or any other developmental

milestones for sub-licensed products related to such license agreements.

Accounting Estimates

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the preparation of our consolidated financial statements.

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.

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 consolidated statement of

operations until the derivative is exercised, expired, reclassified, or otherwise settled.

At September 30, 2024, the conversion feature

in the Company’s loan agreement no longer met the criteria of a derivative liability, and the $1.1 million derivative liability

was reclassified to equity.

account for leases pursuant to ASC 842, Leases (“ASC 842”).

ASC 842 requires the recognition of lease assets and lease

liabilities by lessees for those leases classified as operating leases .

We determine if an arrangement is a lease at inception

or when amended.

Right-of-use lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent

our obligation to make lease payments arising from the lease.

The classification of our leases as operating or finance leases along with

the initial measurement and recognition of the associated right-of-use assets and lease liabilities is performed at the lease commencement

date or when amended.

The measurement of lease liabilities is based on the present value of future lease payments over the lease term.

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease

commencement date in determining the present value of future lease payments.

As we have no external borrowings, the incremental borrowing

rates are determined using information on indicative borrowing rates that would be available to us based on the value, currency and borrowing

terms provided by financial institutions, adjusted for company and market specific factors.

Although we do not expect our estimates of

the incremental borrowing rates to generate material differences within a reasonable range of sensitivities, judgement is involved in

selecting an appropriate rate, and the rate selected for each lease will have an impact on the value of the lease liability and corresponding

right-of-use lease asset in the consolidated balance sheets.

right-of-use asset is based on the measurement of the lease liability and includes any lease payments made prior to or on lease commencement

or lease amendment and excludes lease incentives and initial direct costs incurred, as applicable.

Rent expense for our operating leases

is recognized on a straight-line basis over the lease term.

We do not have any leases classified as finance leases.

leases do not have significant rent escalation, holidays, concessions, material residual value guarantees, material restrictive covenants

or contingent rent provisions.

Our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease

components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as we have elected the

practical expedient to group lease and non-lease components for all leases.

We have elected the practical expedient to exclude short-term

leases from our right-of-use assets and lease liabilities.

leases include one or more options to renew.

The exercise of lease renewal options is typically at our sole discretion;

therefore, the

majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably

certain of exercise.

We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal

period in our lease term.

October 2024, we signed a lease for 16,566 square feet of office space at 6700 Euclid Avenue, Cleveland, Ohio.

Pursuant to the lease

agreement, the lease commences on January 1, 2025 with an initial term through December 30, 2030.

Annual lease payments during the term

of the lease are approximately $0.3 million.

The total lease payments over the duration of the lease term are approximately $1.5 million.

The additional space at the 6700 Euclid Avenue facility will allow us to convert office space at the 6555 Carnegie Avenue facility into

additional manufacturing space to increase pz-cel manufacturing capacity.

As the lease does not commence and we do not have access to

the leased space until January 1, 2025, the impact of this lease agreement is not reflected in our consolidated financial statements

as of December 31, 2024.

June 2023, we terminated one of our operating leases for office space.

The termination resulted in a gain of $1.1 million for the year

ended December 31, 2023, representing the difference between the carry value of the right-of-use assets and the related lease liabilities.

This gain is included in gain on right-of-use lease assets in the consolidated statement of operations and comprehensive loss.

June of 2023, we modified one of our operating leases for office space to add up to 14,032 square feet to our existing facility in Cleveland,

The lease modification resulted in the recognition of $0.4 million of additional right-of-use assets and related lease liabilities

in our consolidated balance sheet during the year ended December 31, 2023.

of Long-Lived Assets

Assets consist of property and equipment, licensed technology, and right-of-use (“ROU”) assets.

We test our long-lived assets

for impairment on an annual basis, or when events and circumstances indicate that the carrying value of an asset or group of assets may

not be fully recoverable.

If indicators are present or changes in circumstance suggest that impairment may exist.

We assess the recoverability

of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future

operating cash flows.

If the carrying amount is not recoverable, we measure the amount of any impairment by comparing the carrying value

of the asset to the present value of the expected future cash flows associated with the use of the asset.

The undiscounted future operating

cash flows require considerable judgement and are sensitive to changes in underlying assumptions such as operating costs related to our

current facilities, headcount requirements and our clinical costs.

As a result, there can be no assurance that the estimates and assumptions

made for purpose of our impairment determinations would prove to be an accurate prediction of the future.

account for revenue under ASC 606, Revenue from Contracts with Customers , (“ASC 606”).

We recognize revenue when our

customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange

for those goods or services.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we

perform the following five steps:

(i) identify the contract(s) with our customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize

revenue when (or as) we satisfy a performance obligation.

licenses that are combined with other performance obligations, we utilize judgment to assess the nature of the combined performance obligation

to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate

method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, if necessary,

adjust the measure of performance and related revenue recognition.

The measure of progress, and therefore periods over which revenue

should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing

FDA approval of ZEVASKYN ® in April 2025, we began commercial marketing and made our first product sale in Q4 2025.

606, Revenue from Contracts with Customers , (“ASC 606”) requires us to make estimates of variable consideration, including

in our contracts, to be included in the transaction price.

Revenue from product sales is recognized at the point in time that the customer

obtains control of the product, which is typically upon the completion of a final quality inspection of the product at the qualified

treatment centers.

There is no obligation for the qualified treatment centers to use ZEVASKYN ® , and we have no contractual

right to receive payment until the final quality inspection of the product at the qualified treatment centers, and transfer of control

is completed.

from product sales is reduced at the time of recognition for payor rebates, co-payment assistance and prompt pay discounts, which are

attributed to various commercial arrangements and government programs.

Our contracts can include the right to receive an outcomes-based rebate and a subsequent treatment discount of ZEVASKYN ®

under certain conditions.

We have determined that the rebate and discount create a material right and we allocate the transaction

consideration to ZEVASKYN ® and the material right on a relative standalone selling price basis.

Transaction consideration

allocated to the material right is deferred and recognized when either (a) the subsequent purchase of ZEVASKYN ® occurs,

or (b) the time period during which a subsequent purchase of ZEVASKYN ® is made, expires.

As of December 31, 2025, our sales contained no material estimates

as the applicable government rebate was known at the time of revenue recognition and no other material rights were present.

and other revenues

enter into license agreements that are within the scope of ASC 606, under which it may exclusively license rights to research, develop,

manufacture and commercialize its product candidates to third parties.

The terms of these arrangements typically include payments of

one or more of the following:

non-refundable, upfront license fees;

reimbursement of certain costs;

customer option exercise fees;

regulatory and commercial milestone payments;

and royalties on net sales of licensed products.

the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement,

we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the

customer is able to use and benefit from the license.

In assessing whether a performance obligation is distinct from the other performance

obligations, we consider factors such as the research, development, manufacturing and commercialization capabilities of the collaboration

partner and the availability of the associated expertise in the general marketplace.

In addition, we consider whether the collaboration

partner can benefit from a performance obligation for its intended purpose without the receipt of the remaining performance obligation,

whether the value of the performance obligation is dependent on the unsatisfied performance obligation, whether there are other vendors

that could provide the remaining performance obligation, and whether it is separately identifiable from the remaining performance obligation.

For licenses that are combined with other performance obligations, we utilize judgment to assess the nature of the combined performance

obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the

appropriate method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period

and, if necessary, adjust the measure of performance and related revenue recognition.

The measure of progress, and thereby periods over

which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development

and licensing agreement.

Such a change could have a material impact on the amount of revenue we record in future periods.

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adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.

and Inventory Purchase Agreements Relating to CLN1 Disease:

August 2020, we entered into sublicense and inventory purchase agreements with Taysha Gene Therapies (“Taysha”) relating

to a potential gene therapy for CLN1 disease.

Under the sublicense agreement, Taysha received worldwide exclusive rights to intellectual

property and know-how relating to the research, development, and manufacture of the potential gene therapy, which we had referred to

Under the inventory purchase agreement, we sold to Taysha certain inventory and other items related to ABO-202.

the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated whether such

functionality can be retained without ongoing activities by us and determined that the license has significant stand-alone functionality.

Furthermore, we have no ongoing activities associated with the license to support or maintain the license’s utility.

Based on this,

we determined that the pattern of transfer of control of the license to Taysha was at a point in time.

transaction price of the contract includes (i) $7.0 million of fixed consideration, (ii) up to $26.0 million of variable consideration

in the form of event-based milestone payments, (iii) up to $30.0 million of variable consideration in the form of sales-based milestone

payments, and (iv) other royalty-based payments based on net sales.

The event-based milestone payments are based on certain development

and regulatory events occurring.

At inception, we evaluated whether the milestone conditions had been achieved and if it was probable

that a significant cumulative revenue reversal would not occur before recognizing the associated revenue and determined that these milestone

payments were not within our control or the licensee’s control, such as regulatory approvals, and were not considered probable

of being achieved until those approvals were received.

Accordingly, at inception, we fully constrained the $26.0 million of event-based

milestone payments until such time that it is probable that significant cumulative revenue reversal would not occur.

The sales-based

milestone payments and other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant

item to which the royalties relate.

We will recognize revenue for these payments at the later of (i) when the related sales occur, or

(ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, we have not recognized any sales-based or royalty revenue resulting from this licensing arrangement.

was no revenue recognized under this agreement during the years ended December 31, 2024 and 2023.

As of December 31, 2024 and 2023, we

have no contract assets or contract liabilities as a result of this transaction.

Agreement Relating to Rett Syndrome:

October 2020, we entered into a sublicense agreement with Taysha for a gene therapy for Rett syndrome and MECP2 gene constructs and regulation

of their expression.

The agreement grants Taysha worldwide exclusive rights to intellectual property developed by scientists at the University

of North Carolina at Chapel Hill, the University of Edinburgh and us, and our know-how relating to the research, development, and manufacture

of the gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression.

assessed the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated

whether such functionality can be retained without ongoing activities by us and determined that the license has significant stand-alone

functionality.

Furthermore, we have no ongoing activities associated with the license to support or maintain the license’s utility.

Based on this, we determined that the pattern of transfer of control of the license to Taysha was at a point in time.

transaction price of the contract includes (i) $3.0 million of fixed consideration, (ii) up to $26.5 million of variable consideration

in the form of event-based milestone payments, (iii) up to $30.0 million of variable consideration in the form of sales-based milestone

payments, and (iv) other royalty-based payments based on net sales.

The event-based milestone payments are based on certain development

and regulatory events occurring.

We evaluated whether the milestone conditions have been achieved and if it is probable that a significant

cumulative revenue reversal would not occur before recognizing the associated revenue.

We determined that these milestone payments are

not within our control or the licensee’s control, such as regulatory approvals, and are not considered probable of being achieved

until those approvals are received.

Accordingly, we have fully constrained the $26.5 million of event-based milestone payments until

such time that it is probable that a significant cumulative revenue reversal would not occur.

The sales-based milestone payments and

other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant item to which the royalties

We will recognize revenue for these payments at the later of (i) when the related sales occur, or (ii) when the performance obligation

to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, we have not recognized any

sales-based or royalty revenue resulting from this licensing arrangement.

this arrangement, we recognized nil and $3.5 million of revenue during the years ended December 31, 2024 and 2023, respectively, which

amount related solely to variable consideration.

As of December 31, 2024 and 2023, we do not have any contract assets or contract liabilities

as a result of this transaction.

Collaborative

analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that

are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such

activities and therefore within the scope of ASC 808, Collaborative Arrangements (“ASC 808”).

This assessment is performed

throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For collaboration

arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed

to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore

within the scope of ASC 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition

method is determined and applied consistently, generally by analogy to ASC 606.

Amounts that are owed to collaboration partners are recognized

as an offset to collaboration revenue as such amounts are incurred by the collaboration partner.

For those elements of the arrangement

that are accounted for pursuant to ASC 606, the Company applies the five-step model described above under ASC 606.

part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses.

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at that time.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a

prepayment of the expense.

In accruing service fees, we estimate the time period over which services will be performed and the level

of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from our estimate,

we adjust the accrual or amount of prepaid expense accordingly.

Although we do not expect our estimates to be materially different from

amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing

of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

we have not made any material adjustments to our prior estimates of accrued expenses.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual

or amount of prepaid expense accordingly.

To date, we have not made any material adjustments to our prior estimates of accrued expenses.

Compensation Expense

account for share-based compensation expense in accordance with ASC 718, Stock Based Compensation .

We have share-based compensation

plans under which incentive and qualified stock options and restricted shares may be granted to employees, directors, and consultants.

We measure the cost of the employee/director/consultant services received in exchange for an award of equity instruments based on the

fair value for employees and directors and vesting date fair value of the award for consultants.

We use the Black-Scholes option pricing

model to determine the fair value of options as of the grant date and the Hull White I lattice model as of any option repricing dates.

The model used to determine the fair value of options includes assumptions for expected volatility, risk-free interest rate, dividend

yield and estimated expected term.

Expected volatility is estimated considering the Company’s own historical volatility.

The risk-free

interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options.

The expected dividend

yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

term is estimated using the “simplified” method, as outlined in SEC Staff Accounting Bulletin No.

107, “Share-Based

Payment.” We use the closing price of our common stock as quoted on Nasdaq to determine the fair value of restricted stock.

account for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures

have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC,

Topic 718, Compensation—Stock Compensation (“ASC 718”), to account for stock-based compensation.

compensation costs related to stock-based awards granted based on the estimated fair value of the awards on the date of grant.

718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the consolidated statements

of operations and comprehensive income based on their grant-date fair values.

Compensation expense for stock options, restricted stock

awards and restricted stock units is recognized on a straight-line basis based on the grant-date fair value over the associated service

period of the award, which is generally the vesting term.

the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of

their measurement date.

We recognize stock-based compensation expense over the requisite service period, which is the vesting period

of the award.

Calculating the fair value of stock-based awards requires that we make assumptions.

We estimate the fair value of its stock

options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including:

(i) the expected

stock price volatility;

(ii) the expected term of the award;

(iii) the risk-free interest rate;

and (iv) expected dividends.

estimate the expected term of stock options using the “simplified” method as prescribed by SEC Staff Accounting Bulletin

107, Share-Based Payments , whereby the expected term equals the arithmetic mean of the vesting term and the original contractual

term of the option.

The risk-free interest rates are based on US Treasury securities with a maturity date commensurate with the expected

term of the associated award.

The Company has never paid and does not expect to pay dividends in the foreseeable future.

accounts for forfeitures as they occur.

Stock-based compensation expense recognized in the financial statements is based on awards for

which service conditions are expected to be satisfied.

option-based compensation expense recognized for the years ended December 31, 2025 and 2024 was $0.3 million and $1.1 million, respectively.

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respectively.

have issued warrants associated with capital raises from time to time.

We determine the accounting and value of any issued warrants in

accordance with ASC 480 , Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging .

The first step is

to determine if the warrants are to be classified as either a liability or equity depending on the warrant terms.

The second step is

to then determine the value of the warrants.

We measure the value of any liability classified warrants on their issuance date based on

their fair value using the Black-Scholes pricing model.

The model used to determine the fair value of these warrants utilizes certain

unobservable inputs and this therefore considered a Level 3 fair value measurement.

Inputs used in the model include assumptions for

expected volatility, risk-free interest rate, dividend yield and estimated expected term.

The liability classified warrants are revalued

on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting

periods recorded in the consolidated statements of operations and comprehensive loss.

Certain inputs used in this Black-Scholes pricing

model may fluctuate in future periods based upon factors that are outside of our control, including a potential change in control.

significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair

value of our warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s

statement of operations.

determine the accounting and value of any issued warrants in accordance with ASC 480 , Distinguishing Liabilities from Equity and

ASC 815, Derivatives and Hedging .

We measure the value of any liability classified warrants on their issuance date based on their

fair value using the Black-Scholes pricing model.

Inputs used in the model include assumptions for expected volatility, risk-free interest

rate, dividend yield and estimated expected term.

Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods

based upon factors that are outside of our control, including a potential change in control.

A significant change in one or more of these

inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liabilities, which could

also result in material non-cash gains or losses being reported in the Company’s statement of operations and comprehensive income

In addition, the inputs we utilized to value our warrant liabilities are highly subjective.

The assumptions

used in calculating the fair value of our warrant liabilities represent our best estimates, but these estimates involve inherent uncertainties

and the application of management judgment.

As a result, if factors change and we use different assumptions, the fair value of the warrant

liabilities may be materially different in the future.

change in fair value of warrant liability recognized for the year ended December 31, 2024 and 2023 resulted in a loss of $0.8 million

and $11.7 million, respectively.

The assumptions used in calculating

the fair value of our warrant liabilities represent our best estimates, but these estimates involve inherent uncertainties and the application

of management judgment.

As a result, if factors change and we use different assumptions, the fair value of the warrant liabilities may

be materially different in the future.

change in fair value of warrant liability recognized for the years ended December 31, 2025 and 2024 resulted in a gain of $6.1 million

and a loss of $0.8 million, respectively.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis