ITEM
1. FINANCIAL STATEMENTS
Abeona
Therapeutics Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
Abeona
Therapeutics Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations and Comprehensive Loss
($
in thousands, except share and per share amounts)
(Unaudited)
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
Abeona
Therapeutics Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity
($
in thousands, except share amounts)
(Unaudited)
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
Abeona
Therapeutics Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
($
in thousands)
(Unaudited)
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
ABEONA
THERAPEUTICS INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 – NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Background
Abeona
Therapeutics Inc. (together with our subsidiaries, “we,” “our,” “Abeona” or the “Company”),
a Delaware corporation, is a clinical-stage biopharmaceutical company developing gene and cell 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. Following a comprehensive portfolio review
in early 2022, we have decided to focus our research and development resources on the VIITAL™ readout while actively pursuing a
potential commercialization partner for EB-101 with the objective of reducing operating expenses and extending our cash runway. As part
of this portfolio prioritization, we have intensified our pursuit of a strategic partnership to take over development activities for
our adeno-associated virus (“AAV”)-based gene therapy ABO-102 for Sanfilippo syndrome type A (“MPS IIIA”) and
we have discontinued development of our AAV-based gene therapy ABO-101 for Sanfilippo syndrome type B (“MPS IIIB”). We plan
to continue development of 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 (“UNC”), and internal AAV vector research programs.
Basis
of Presentation
The
Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated
in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, except as otherwise
disclosed, necessary for the fair presentation of the financial position, results of operations, and changes in financial position for
such periods, have been made. These unaudited interim condensed financial statement results are not necessarily indicative of results
to be expected for the full fiscal year or any future period. Certain information that is normally required by U.S. GAAP has been condensed
or omitted in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Therefore,
these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed
with the SEC on March 31, 2022.
Uses
and Sources of Liquidity
The
unaudited interim condensed consolidated financial statements have been prepared on the going concern basis, which assumes the Company
will have sufficient cash to pay its operating expenses, as and when they become payable, for a period of at least 12 months from the
date the financial report is issued.
As
of March 31, 2022, we had cash, cash equivalents, restricted cash and short-term investments of $37.2 million. For the three months ended
March 31, 2022, we had cash outflows from operations of $13.7 million. We have not generated significant product revenues and have not
achieved profitable operations. There is no assurance that profitable operations will ever be achieved, and, if achieved, could be sustained
on a continuing basis. In addition, development activities, clinical and nonclinical testing, and commercialization of our products will
require significant additional financing.
We
are subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful
discovery and development of product candidates, obtaining the necessary regulatory approval to market our product candidates, raising
additional capital to continue to fund our operations, development of competing drugs and therapies, protection of proprietary technology
and market acceptance of our products. As a result of these and other risks and the related uncertainties, there can be no assurance
of our future success.
Following
a comprehensive portfolio review in early 2022, we have decided to focus our research and development resources on the EB-101 program
with the objective of reducing operating expenses and extending our cash runway. As part of this portfolio prioritization, we have intensified
our pursuit of a strategic partnership to take over development activities for our AAV-based gene therapy ABO-102 for MPS IIIA and we
have discontinued development of our AAV-based gene therapy ABO-101 for MPS IIIB. Based upon these current operating plans, our ability
to access additional financial resources and/or our financial flexibility to further reduce operating expenses if required, we believe
that we have sufficient resources to fund operations through at least the next 12 months from the date of this Quarterly Report
on Form 10-Q. We will need to secure additional funding beyond the next 12 months to carry out all of our planned research and development
activities. If we are unable to obtain additional financing or generate license or product revenue, the lack of liquidity and sufficient
capital resources could have a material adverse effect on our future prospects.
Use
of Estimates
The
preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of
the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates and assumptions.
Summary
of Significant Accounting Policies
There
have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2021 that are of significance, or potential significance, to the Company.
Reclassifications
Certain
comparative figures have been reclassified to conform to the current year presentation. The Company reclassified depreciation and amortization
costs of $0.8 million and $35,000 to research and development and general and administrative expenses, respectively, on the condensed
consolidated statements of operations and comprehensive loss during the three months ended March 31, 2021. The Company also reclassified
certain rent expenses of $0.3 million from general and administrative to research and development expenses on the condensed consolidated
statements of operations and comprehensive loss during the three months ended March 31, 2021. Additionally, the Company also reclassified
$5.0 million of restricted cash from prepaid expenses, other current assets and restricted cash and $0.9 million of restricted cash from
other assets and restricted cash to restricted cash on the condensed consolidated balance sheets as of December 31, 2021.
Net
Loss Per Share
Basic
and diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock. We do not include
the potential impact of dilutive securities in diluted net loss per share, as the impact of these items is anti-dilutive. Potential dilutive
securities result from outstanding restricted stock, stock options, and stock purchase warrants.
The
following table sets forth the potential securities that could potentially dilute basic income/(loss) per share in the
future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the
periods presented:
SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| |
2022 | | |
2021 | |
| |
For the three months ended March 31, | |
| |
2022 | | |
2021 | |
Stock options | |
| 7,101,803 | | |
| 7,091,879 | |
Restricted stock | |
| 1,948,334 | | |
| 2,636,216 | |
Warrants | |
| 44,700,000 | | |
| - | |
Total | |
| 53,750,137 | | |
| 9,798,095 | |
NOTE
2 – SHORT-TERM INVESTMENTS
Short-term
investments consisted of the following marketable securities as of:
SCHEDULE
OF AVAILABLE FOR SALE SHORT-TERM INVESTMENTS
(in thousands) | |
March 31, 2022 | |
| |
Amortized Cost | | |
Gross Unrealized Gain | | |
Gross Unrealized Loss | | |
Fair Value | |
Available-for-sale, short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
$ | 10,986 | | |
$ | 3 | | |
$ | - | | |
$ | 10,989 | |
Total | |
$ | 10,986 | | |
$ | 3 | | |
$ | - | | |
$ | 10,989 | |
| |
December 31, 2021 | |
| |
Amortized Cost | | |
Gross Unrealized Gain | | |
Gross Unrealized Loss | | |
Fair Value | |
Available-for-sale, short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
$ | 12,077 | | |
$ | 9 | | |
$ | - | | |
$ | 12,086 | |
Total | |
$ | 12,077 | | |
$ | 9 | | |
$ | - | | |
$ | 12,086 | |
As
of March 31, 2022, the available-for-sale securities classified as short-term investments mature in one year or less. Unrealized
losses on available-for-sale securities as of March 31, 2022 were not significant and were primarily due to changes in interest rates,
including market credit spreads, and not due to increased credit risks associated with specific securities. None of the short-term investments
have been in a continuous unrealized loss position for more than 12 months. Accordingly, no other-than-temporary impairment was recorded
for the three months ended March 31, 2022.
There
were no significant realized gains or losses recognized on the sale or maturity of available-for-sale investments for the three months
ended March 31, 2022 or 2021.
NOTE
3 – PROPERTY AND EQUIPMENT, NET
Property
and equipment are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follow:
SCHEDULE OF PROPERTY AND EQUIPMENT
(in thousands) | |
Useful lives (years) | |
March 31, 2022 | | |
December 31, 2021 | |
Laboratory equipment | |
5 | |
$ | 9,138 | | |
$ | 9,081 | |
Furniture, software and office equipment | |
3 to 5 | |
| 1,908 | | |
| 1,896 | |
Leasehold improvements | |
Shorter of remaining lease term or useful life | |
| 8,603 | | |
| 8,603 | |
Construction-in-progress | |
| |
| 3,252 | | |
| 3,219 | |
Subtotal | |
| |
| 22,901 | | |
| 22,799 | |
Less: accumulated depreciation | |
| |
| (11,241 | ) | |
| (10,460 | ) |
Less: construction-in-progress impairment | |
| |
| (3,252 | ) | |
| - | |
Property and equipment, net | |
| |
$ | 8,408 | | |
$ | 12,339 | |
Depreciation
expense was $0.8 million for the three months ended March 31, 2022 and 2021, respectively.
On
March 31, 2022, the Company announced that we were pursuing a strategic partner to take over development activities of ABO-102 and that
we were discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the construction-in-progress
which was dedicated to the ABO-101 and ABO-102 programs, had no future value and thus, we recorded an impairment charge of $3.3
million for the three months ended March
31, 2022.
NOTE
4 – LICENSED TECHNOLOGY
On
May 15, 2015, we acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital to the
AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B. The license is
amortized over the life of the license of 20
years. On March 31, 2022,
the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was
discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the remaining value of the
licensed technology had no future value and thus, recorded an impairment charge of $1.4
million for the three months
ended March 31, 2022.
Licensed
technology consists of the following:
SCHEDULE OF LICENSED TECHNOLOGY
(in thousands) | |
March 31, 2022 | | |
December 31, 2021 | |
Licensed technology | |
$ | 2,156 | | |
$ | 2,156 | |
Less accumulated amortization | |
| (801 | ) | |
| (772 | ) |
Less impairment charge | |
| (1,355 | ) | |
| - | |
Licensed technology, net | |
$ | - | | |
$ | 1,384 | |
Amortization
expense on licensed technology was $29,000 for the three months ended March 31, 2022 and 2021, respectively.
NOTE
5 – SETTLEMENT LIABILITY
On
November 12, 2021, we entered into a settlement agreement (“Settlement Agreement”) with our prior licensor, REGENXBIO
Inc. (“REGENXBIO”) to resolve all existing disputes between the parties. In accordance with the Settlement Agreement,
we agreed to pay REGENXBIO a total of $30.0
million, payable as
follows: (1)
$20.0 million paid in November 2021 after execution of the Settlement Agreement, (2) $5.0 million on the first anniversary
of the effective date of the Settlement Agreement, and (3) $5.0 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 March 31, 2022, we recorded the payables due to REGENXBIO in the condensed consolidated balance sheets based on the present
value of the remaining payments due to REGENXBIO under the Settlement Agreement using an interest rate of 9.6%.
The current portion of the payable due in November 2022 is $4.7
million and the long-term
portion due in November 2024 is $3.9
million as of March 31,
2022. As of March 31, 2022, we have recorded $5.0
million of restricted cash
in the balance sheet that serves as collateral for the payment owed to REGENXBIO in November 2022.
NOTE
6 – FAIR VALUE MEASUREMENTS
We
calculate the fair value of our assets and liabilities that qualify as financial instruments and include additional information in the
notes to the consolidated financial statements when the fair value is different than the carrying value of these financial instruments.
The estimated fair value of accounts receivable, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses,
loan payable, payable to licensor and deferred revenue approximate their carrying amounts due to the relatively short maturity of these
instruments.
U.S.
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement
date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
|
● |
Level
1 - Quoted prices in active markets for identical assets or liabilities. |
|
● |
Level
2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data. |
|
● |
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use
significant unobservable inputs. |
We
have segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the
most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in
the table below.
Financial
assets measured at fair value on a recurring and non-recurring basis as of March 31, 2022 and December 31, 2021 are summarized
below:
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING AND NON-RECURRING BASIS
(in thousands) | |
| | |
| | |
| | |
| |
Description | |
Fair Value at
March 31,
2022 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Recurring Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| | | |
| | | |
| | | |
| | |
Money market fund | |
$ | 16,694 | | |
$ | 16,694 | | |
$ | - | | |
$ | - | |
Short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
| 10,989 | | |
| - | | |
| 10,989 | | |
| - | |
Total assets measured at fair value | |
$ | 27,683 | | |
$ | 16,694 | | |
$ | 10,989 | | |
$ | - | |
Description | |
Fair
Value at
December 31, 2021 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | | |
| | | |
| | | |
| | |
Recurring Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| | | |
| | | |
| | | |
| | |
Money market fund | |
$ | 28,590 | | |
$ | 28,590 | | |
$ | - | | |
$ | - | |
Cash equivalents fair value | |
$ | 28,590 | | |
$ | 28,590 | | |
$ | - | | |
$ | - | |
Short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
| 12,086 | | |
| - | | |
| 12,086 | | |
| - | |
Short-term investments fair value | |
| 12,086 | | |
| - | | |
| 12,086 | | |
| - | |
Total recurring assets | |
| 40,676 | | |
| 28,590 | | |
| 12,086 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Non-recurring Assets | |
| | | |
| | | |
| | | |
| | |
Licensed technology, net | |
$ | 1,384 | | |
$ | - | | |
$ | - | | |
$ | 1,384 | |
| |
| | | |
| | | |
| | | |
| | |
Total assets measured at fair value | |
$ | 42,060 | | |
$ | 28,590 | | |
$ | 12,086 | | |
$ | 1,384 | |
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses consisted of the following as of:
SCHEDULE
OF ACCRUED EXPENSES
(in thousands) | |
March 31, 2022 | | |
December 31, 2021 | |
Accrued employee compensation | |
$ | 745 | | |
$ | 1,794 | |
Accrued contracted services and other | |
| 3,461 | | |
| 3,091 | |
Accrued sublicense fee owed to licensor | |
| - | | |
| 700 | |
Accrued expenses | |
$ | 4,206 | | |
$ | 5,585 | |
NOTE
8 – LEASES
We
lease space under operating leases for manufacturing and laboratory facilities in Cleveland, Ohio, as well as administrative offices
in New York, New York. We also lease office space in Madrid, Spain as well as certain office equipment under operating leases, which
have a non-cancelable lease term of less than one year and, therefore, we have elected the practical expedient to exclude these short-term
leases from our right-of-use assets and lease liabilities.
On
March 31, 2022, the Company announced that we were pursuing a strategic partner to take over development activities of ABO-102 and that
we were discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the portion of the lease
which was dedicated to the future facility for the ABO-101 and ABO-102 programs, had no future value and thus, we recorded an impairment
charge of $1.6 million for the three months ended March 31, 2022.
Components
of lease cost are as follows:
SCHEDULE OF COMPONENTS OF LEASE COST
(in thousands) | |
2022 | | |
2021 | |
| |
For the three months ended March 31, | |
(in thousands) | |
2022 | | |
2021 | |
Operating lease cost | |
$ | 472 | | |
$ | 434 | |
Variable lease cost | |
$ | 96 | | |
$ | 135 | |
Short-term lease cost | |
$ | 21 | | |
$ | 5 | |
Maturities
of the Company’s operating lease liabilities, which do not include short-term leases, as of March 31, 2022 are as follows:
SCHEDULE
OF MATURITIES
OF OPERATING LEASE LIABILITIES
Maturity of lease liabilities: | |
(in thousands) | |
2022, remainder | |
$ | 1,364 | |
2023 | |
| 1,834 | |
2024 | |
| 1,879 | |
2025 | |
| 1,896 | |
2026 | |
| 871 | |
Thereafter | |
| 3,662 | |
Total undiscounted operating lease payments | |
| 11,506 | |
Less: imputed interest | |
| 2,411 | |
Present value of operating lease liabilities | |
$ | 9,095 | |
The
weighted-average remaining term of the Company’s operating leases was 84 months and the weighted-average discount rate used to
measure the present value of the Company’s operating lease liabilities was 7.3% as of March 31, 2022.
NOTE
9 – STOCK-BASED COMPENSATION
We
have two stock-based compensation plans: (1) Abeona Therapeutics Inc. 2015 Equity Incentive Plan (the “2015 Incentive Plan”),
which was approved by stockholders on May 7, 2015 and last amended on May 20, 2020 and (2) Abeona Therapeutics Inc. 2005 Equity Incentive
Plan (the “2005 Inventive Plan”), under which no further grants can be made.
The
following table summarizes stock-based compensation expense for the three months ended March 31, 2022 and 2021:
SCHEDULE OF STOCK BASED COMPENSATION
(in thousands) | |
2022 | | |
2021 | |
| |
For the three months ended March 31, | |
(in thousands) | |
2022 | | |
2021 | |
Research and development | |
$ | 372 | | |
$ | 1,155 | |
General and administrative | |
| 490 | | |
| 795 | |
Stock based compensation expense | |
$ | 862 | | |
$ | 1,950 | |
Stock
Options: We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. We
then recognize the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over
the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:
|
● |
Expected
volatility - we estimate the volatility of our share price at the date of grant using a “look-back” period which coincides
with the expected term, defined below. We believe using a “look-back” period which coincides with the expected term is
the most appropriate measure for determining expected volatility. |
|
● |
Expected
term - we estimate the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin No. 107,
“Share-Based Payment.” |
|
● |
Risk-free
interest rate - we estimate the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term
of the options in effect at the time of grant. |
|
● |
Dividends
- we use an expected dividend yield of zero because we have not declared or paid a cash dividend, nor do we have any plans to declare
a dividend. |
The
Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-valuation model utilizing
the following assumptions:
SCHEDULE OF WEIGHTED-AVERAGE ASSUMPTIONS TO ESTIMATE THE FAIR VALUE OF THE OPTIONS GRANTED
| |
2022 | | |
2021 | |
| |
For the three months ended March 31, | |
| |
2022 | | |
2021 | |
Expected volatility | |
| 95 | % | |
| 99 | % |
Expected term | |
| 6.08 years | | |
| 6.08 years | |
Risk-free interest rate | |
| 1.73 | % | |
| 1.00 | % |
Expected dividend yield | |
| 0 | % | |
| 0 | % |
The
following table summarizes stock option activity for the 2015 Incentive Plan during the three months ended March 31, 2022 :
SCHEDULE
OF STOCK OPTIONS ACTIVITY
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted
Average Remaining
Contractual
Term (years) | | |
Aggregate Intrinsic Value (in thousands) | |
Outstanding at December 31, 2021 | |
| 7,854,851 | | |
$ | 1.54 | | |
| 7.63 | | |
$ | - | |
Granted | |
| 104,000 | | |
$ | 0.26 | | |
| - | | |
$ | - | |
Cancelled/forfeited | |
| (937,048 | ) | |
$ | 1.40 | | |
| - | | |
$ | - | |
Exercised | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Outstanding at March 31, 2022 | |
| 7,021,803 | | |
$ | 1.54 | | |
| 7.24 | | |
$ | 6 | |
Exercisable | |
| 3,516,716 | | |
$ | 1.51 | | |
| 5.49 | | |
$ | - | |
Unvested | |
| 3,505,087 | | |
$ | 1.57 | | |
| 8.98 | | |
$ | 6 | |
The
aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair
value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s
common stock. As of March 31, 2022, the total compensation cost related to non-vested option awards not yet recognized is approximately
$5.0 million with a weighted average remaining vesting period of 2.6 years.
The
following table summarizes stock option activity for the 2005 Incentive Plan during the three months ended March 31, 2022 :
SCHEDULE
OF STOCK OPTIONS ACTIVITY
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining
Contractual Term (years) | | |
Aggregate Intrinsic Value (in thousands) | |
Outstanding at December 31, 2021 | |
| 80,000 | | |
$ | 1.28 | | |
| 1.80 | | |
$ | - | |
Cancelled/forfeited | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Exercised | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Outstanding at March 31, 2022 | |
| 80,000 | | |
$ | 1.28 | | |
| 1.54 | | |
$ | - | |
Exercisable | |
| 80,000 | | |
$ | 1.28 | | |
| 1.54 | | |
$ | - | |
Unvested | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Restricted
Stock:
The
following table summarizes restricted stock award activity during the three months ended March 31, 2022:
SCHEDULE
OF RESTRICTED STOCK AWARD ACTIVITY
| |
Number of Awards | | |
Weighted Average Grant Date Fair Value | |
Outstanding at December 31, 2021 | |
| 2,431,515 | | |
$ | 1.86 | |
Granted | |
| 252,000 | | |
$ | 0.28 | |
Cancelled/forfeited | |
| (377,523 | ) | |
$ | 1.58 | |
Vested | |
| (357,658 | ) | |
$ | 2.31 | |
Outstanding at March 31, 2022 | |
| 1,948,334 | | |
$ | 1.63 | |
As
of March 31, 2022, there is approximately $2.8 million of total unrecognized compensation expense related to unvested restricted stock
awards, which is expected to be recognized over a weighted average vesting period of 2.7 years.
NOTE
10 – SUBSEQUENT EVENTS
On
April 29, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional
investors (the “Investors”), pursuant to which the Company agreed to issue and sell, in a private placement (the “Offering”),
1,000,006 shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $0.01 per share (the “Series
A Preferred Stock”), and 250,005 shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $0.01
per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”),
at an offering price of $19.00 per share, representing a 5% original issue discount (“OID”) to the stated value of $20.00
per share, for gross proceeds of approximately $25.0 million in the aggregate for the Offering, before the deduction of discounts, fees
and offering expenses. The shares of Preferred Stock will be convertible, at a conversion price of $0.45 per share (subject in certain
circumstances to adjustments), into shares of the Company’s common stock, $0.01 per share (the “Common Stock”), at
the option of the holders and, in certain circumstances, by the Company. The Purchase Agreement contains customary representations, warranties
and agreements by the Company and customary conditions to closing. The Offering closed on May 2, 2022.
The
Company intends to call a special meeting of stockholders to consider an amendment (the “Amendment”) to the Company’s
Restated Certificate of Incorporation (the “Charter”), to effect a reverse stock split of the outstanding shares of Common
Stock by a ratio to be determined by the Board of Directors of the Company within a range to be specified in the proposal put to the
stockholders for approval of the Amendment (the “Reverse Stock Split”). The Investors have agreed in the Purchase Agreement
to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock until the
Reverse Stock Split, to vote the shares of the Series A Preferred Stock purchased in the Offering in favor of such Amendment and to vote
the shares of the Series B Preferred Stock purchased in the Offering in a manner that “mirrors” the proportions on which
the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series A Preferred Stock are voted on the Reverse
Stock Split. The Reverse Stock Split requires the approval of the majority of the votes associated with our outstanding stock entitled
to vote on the proposal. Because the Series B Preferred Stock will automatically and without further action of the purchaser be voted
in a manner that “mirrors” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that
are not voted) and Series A Preferred Stock are voted on the Reverse Stock Split, abstentions by common stockholders will not have any
effect on the votes cast by the holders of the Series B Preferred Stock.
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
“Cautionary Note Regarding 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 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. Following a comprehensive portfolio review in early 2022, we
have decided to focus our research and development resources on the VIITAL™ readout while actively pursuing a potential commercialization
partner for EB-101 with the objective of reducing operating expenses and extending our cash runway. As part of this portfolio prioritization,
we have intensified our pursuit of a strategic partnership to take over development activities for our adeno-associated virus (“AAV”)-based
gene therapy ABO-102 for Sanfilippo syndrome type A (“MPS IIIA”) and we have discontinued development of our AAV-based gene
therapy ABO-101 for Sanfilippo syndrome type B (“MPS IIIB”).
We
plan to continue to develop 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 third 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. 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 U.S. Food and Drug Administration
(“FDA”), we believe that we have alignment with the FDA on the CMC requirements for EB-101, including characterization and
validation plans.
Preclinical
Pipeline
While
our clinical programs are currently focused on rare diseases, we intend to address larger areas of unmet medical need in the future,
and our preclinical programs are investigating novel AAV capsids in 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 believe we have made significant progress toward measuring efficacy in the preclinical setting. We have
also generated appropriate mouse models, produced recombinant capsids, and started dosing mice in proof-of-concept studies that we hope
will yield data beginning in mid-2022 to support pre-IND meetings with the FDA.
Preferred
Stock Offering
On
April 29, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors
(the “Investors”), pursuant to which we agreed to issue and sell, in a private placement (the “Offering”), 1,000,006
shares of our Series A Convertible Redeemable Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”),
and 250,005 shares of our Series B Convertible Redeemable Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock,”
and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of $19.00 per share, representing
a 5% original issue discount (“OID”) to the stated value of $20.00 per share, for gross proceeds of approximately $25.0 million
in the aggregate for the Offering, before the deduction of discounts, fees and offering expenses. The shares of Preferred Stock will
be convertible, at a conversion price of $0.45 per share (subject in certain circumstances to adjustments), into shares of our common
stock, $0.01 per share (the “Common Stock”), at the option of the holders and, in certain circumstances, by us. The Purchase
Agreement contains customary representations, warranties and agreements by us and customary conditions to closing. The Offering closed
on May 2, 2022.
We
intend to call a special meeting of stockholders to consider an amendment (the “Amendment”) to our Restated Certificate of
Incorporation (the “Charter”), to effect a reverse stock split of the outstanding shares of Common Stock by a ratio to be
determined by our Board of Directors within a range to be specified in the proposal put to the stockholders for approval of the Amendment
(the “Reverse Stock Split”). The Investors have agreed in the Purchase Agreement to not transfer, offer, sell, contract to
sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock until the Reverse Stock Split, to vote the shares
of the Series A Preferred Stock purchased in the Offering in favor of such Amendment and to vote the shares of the Series B Preferred
Stock purchased in the Offering in a manner that “mirrors” the proportions on which the shares of Common Stock (excluding
any shares of Common Stock that are not voted) and Series A Preferred Stock are voted on the Reverse Stock Split. The Reverse Stock Split
requires the approval of the majority of the votes associated with our outstanding stock entitled to vote on the proposal. Because the
Series B Preferred Stock will automatically and without further action of the purchaser be voted in a manner that “mirrors”
the proportions on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series A Preferred
Stock are voted on the Reverse Stock Split, abstentions by common stockholders will not have any effect on the votes cast by the holders
of the Series B Preferred Stock.
RESULTS
OF OPERATIONS
Comparison
of Three Months Ended March 31, 2022 and March 31, 2021
| |
For the three months ended | | |
| | |
| |
| |
March 31, | | |
March 31, | | |
Change | |
($ in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
License and other revenues | |
$ | 346 | | |
$ | - | | |
$ | 346 | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 10,545 | | |
| 8,317 | | |
| 2,228 | | |
| 27 | % |
General and administrative | |
| 4,224 | | |
| 6,280 | | |
| (2,056 | ) | |
| -33 | % |
Licensed technology impairment charge | |
| 1,355 | | |
| - | | |
| 1,355 | | |
| N/A | |
Lease impairment charge | |
| 1,561 | | |
| - | | |
| 1,561 | | |
| N/A | |
Construction-in-progress impairment charge | |
| 3,252 | | |
| - | | |
| 3,252 | | |
| N/A | |
Total expenses | |
| 20,937 | | |
| 14,597 | | |
| 6,340 | | |
| 43 | % |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (20,591 | ) | |
| (14,597 | ) | |
| (5,994 | ) | |
| 41 | % |
| |
| | | |
| | | |
| | | |
| | |
Interest and miscellaneous income | |
| 1 | | |
| 15 | | |
| (14 | ) | |
| -93 | % |
Interest expense | |
| (201 | ) | |
| (1,420 | ) | |
| 1,219 | | |
| -86 | % |
Net loss | |
$ | (20,791 | ) | |
$ | (16,002 | ) | |
$ | (4,789 | ) | |
| 30 | % |
N/A - not applicable or not meaningful | |
| | | |
| | | |
| | | |
| | |
License
and other revenues
License
and other revenues for the three months ended March 31, 2022 was $0.3 million, as compared to nil for the same period of 2021. The revenue
in 2022 consisted mainly of the recognition of deferred revenue related to grants for the MPS IIIA and MPS IIIB development programs.
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, 2022 was $10.5 million, as compared to $8.3 million for the same
period of 2021, an increase of $2.2 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 $2.3 million; |
|
● |
increased salary and related costs of $0.5 million;
and |
|
● |
increased other costs of $0.2 million; partially offset by |
|
● |
decreased stock compensation expenses of $0.8 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 (i.e., 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 $4.2 million for the three months ended March 31, 2022, as compared to $6.3 million for the
same period of 2021, a decrease of $2.1 million. The decrease in expenses was primarily due to:
|
● |
decreased professional fees of $1.9 million; and |
|
● |
decreased non-cash stock-based compensation of $0.3 million; partially offset by |
|
● |
increased other costs of $0.1 million. |
Licensed
technology impairment charge
Licensed
technology impairment charge was $1.4 million for the three months ended March 31, 2022, as compared to nil in the same period of 2021.
The licensed technology was for the MPS IIIA and MPS IIIB 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 an impairment charge of $1.4 million for the
three months ended March 31, 2022.
Lease
impairment charge
Lease
impairment charge was $1.6 million for the three months ended March 31, 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 MPS IIIA and MPS IIIB 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 an impairment
charge of $1.6 million for the three months ended March 31, 2022.
Construction-in-progress
impairment charge
Construction-in-progress
impairment charge was $3.3 million for the three months ended March 31, 2022, as compared to nil in the same period of 2021. The construction-in-progress
was for a facility for the MPS IIIA and MPS IIIB 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 an impairment charge of $3.3 million
for the three months ended March 31, 2022.
Interest
and miscellaneous income
Interest
and miscellaneous income was $1,000 for the three months ended March 31, 2022, as compared to $15,000 in the same period of 2021. The
decrease resulted from lower earnings on short-term investments driven by lower interest rates and a lower average balance of short-term
investments.
Interest
expense
Interest
expense was $0.2 million for the three months ended March 31, 2022, as compared to $1.4 million in the same period of 2021. The decrease
results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO, Inc.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows for the Three Months Ended March 31, 2022 and 2021
| |
For the three months ended March 31, | |
($ in thousands) | |
2022 | | |
2021 | |
Total cash and cash equivalents (used in) /provided by: | |
| | | |
| | |
Operating activities | |
$ | (13,687 | ) | |
$ | (13,585 | ) |
Investing activities | |
| 1,075 | | |
| 9,376 | |
Financing activities | |
| - | | |
| 5,878 | |
Net (decrease)/increase in cash and cash equivalents | |
$ | (12,612 | ) | |
$ | 1,669 | |
Operating
activities
Net
cash used in operating activities was $13.7 million for the three months ended March 31, 2022, primarily comprised of our net loss of
$20.8 million and decrease in operating assets and liabilities of $1.2 million, partially offset by net non-cash charges of $8.3 million.
Net
cash used in operating activities was $13.6 million for the three months ended March 31, 2021, primarily comprised of our net loss of
$16.0 million and decrease in operating assets and liabilities of $0.7 million, partially offset by net non-cash charges of $3.1 million
Investing
activities
Net
cash provided by investing activities was $1.1 million for the three months ended March 31, 2022, primarily comprised of proceeds from
maturities of short-term investments of $8.7 million, partially offset by purchases of short-term investments of $7.5 million and capital
expenditures of $0.1 million.
Net
cash provided by investing activities was $9.4 million for the three months ended March 31, 2021, primarily comprised of proceeds from
maturities of short-term investments of $25.0 million, partially offset by purchases of short-term investments of $15.2 million and capital
expenditures of $0.4 million.
Financing
activities
Net
cash provided by financing activities was $5.9 million for the three months ended March 31, 2021, primarily comprised of proceeds of
$5.2 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 March 31, 2022, our cash resources were $37.2 million. Following a comprehensive portfolio review in early
2022, we have decided to focus our research and development resources on the EB-101 program with the objective of reducing operating
expenses and extending our cash runway. As part of this portfolio prioritization, we have intensified our pursuit of a strategic partnership
to take over development activities for our AAV-based gene therapy ABO-102 for MPS IIIA and we have discontinued development of our AAV-based
gene therapy ABO-101 for MPS IIIB. Based upon these current operating plans, our ability to access additional financial resources and/or
our financial flexibility to further reduce operating expenses if required, we believe that we have sufficient resources to fund operations
through at least the next 12 months from the date of this Quarterly Report on Form 10-Q. We will need to secure additional funding
beyond the next 12 months to carry out all of our planned research and development activities. If we are unable to obtain additional
financing or generate license or product revenue, the lack of liquidity and sufficient capital resources could have a material adverse
effect on our future prospects.
On
August 17, 2018, we entered into an open market sale agreement with Jefferies LLC. Pursuant to the terms of this agreement, we may sell
from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $150 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. On November 19, 2021, we entered into an amendment to the agreement (the “Amendment,”
and as amended, the “ATM Agreement”) in connection with the filing of a new shelf registration statement on Form S-3
(File No. 333-256850) (the “Registration Statement”), filed with the SEC on June 7, 2021 and declared effective by the SEC
on October 22, 2021. The Amendment amends the ATM Agreement to reflect the filing of the new Registration Statement (due to the prior
Form S-3 (File No. 333-224867) expiring in June 2021). We did not sell any shares of our common stock under the ATM Agreement
during the three months ended March 31, 2022. Cumulatively, as of March 31, 2022, we have sold an aggregate of 6,758,744 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 impact to our business, operations, and clinical programs from the COVID-19 pandemic and related effects on the U.S. and global economy; |
|
● |
the successful development and commercialization of our 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, 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.
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.