Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 – NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Background
Abeona
Therapeutics Inc. (together with the Company’s subsidiaries, “Abeona” or the “Company”), a Delaware corporation,
is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases. The Company’s
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. The Company’s development portfolio also features AAV-based
gene therapies designed to treat ophthalmic and other diseases and next-generation AAV-based gene therapies using the novel AIM™
capsid platform that the Company has exclusively licensed from the University of North Carolina at Chapel Hill, and internal AAV vector
research programs.
Reverse
Stock Split
On
June 30, 2022, the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary
of State of the State of Delaware (the “Certificate of Amendment”), to effectuate a reverse stock split of the Company’s
outstanding common stock, par value $0.01 per share (“Common Stock”), at an exchange ratio of 25-to-1 (the “Reverse
Stock Split”). The Reverse Stock Split was effective on July 1, 2022. The number of authorized shares of Common Stock immediately
after the Reverse Stock Split (“New Common Stock”) remains at 200,000,000 shares. All share and per share information has
been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
As
a result of the Reverse Stock Split, every 25 shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse
Stock Split were combined and converted into one share of New Common Stock without any change in the par value per share. No fractional
shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to a fraction of one share
of New Common Stock as a result of the Reverse Stock Split instead received an amount in cash equal to such fraction multiplied by the
closing sale price of Common Stock on the Nasdaq Capital Market on July 1, 2022, as adjusted for the Reverse Stock Split.
Proportionate
adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock
options, restricted stock and warrants outstanding at July 1, 2022, which resulted in a proportional decrease in the number of shares
of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants,
and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants.
In addition, the number of shares reserved for issuance under the Company’s 2015 Equity Incentive Plan were reduced proportionately.
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 consolidated 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”). The December 31, 2021 condensed consolidated balance sheet was derived
from the audited statements, but does not include all disclosures required by U.S. GAAP.
Therefore,
these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated
financial statements and notes thereto included in the Company’s 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 June 30, 2022, the Company had cash, cash equivalents, restricted cash and short-term investments of $26.0 million. For the six months
ended June 30, 2022, the Company had cash outflows from operations of $22.7 million. The Company has not generated significant revenues
and has 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 the Company’s product candidates will require significant additional financing.
The
Company is 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 the Company’s
product candidates, raising additional capital to continue to fund the Company’s operations, development of competing drugs and
therapies, protection of proprietary technology and market acceptance of the Company’s products. As a result of these and other
risks and the related uncertainties, there can be no assurance of the Company’s future success.
The
Company believes that its current cash and cash equivalents, restricted cash and short-term investments are only sufficient to fund its
operating expenses into the second quarter of 2023. However, in order to further advance development and seek potential regulatory approval
of the Company’s investigational EB-101 product for RDEB or to advance any of the Company’s preclinical AAV ophthalmology
assets, the Company would need to secure additional funds through equity or debt offerings, potential upfront payments from potential
commercial partners, potential sale of a priority review voucher, or other potential sources. The Company cannot be certain that additional
funding will be available on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about the
Company’s ability to continue as a going concern within one year from the date of these interim condensed consolidated financial
statements. The interim condensed consolidated financial statements do not contain any adjustments that might result from the resolution
of any of the above uncertainty.
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, other than the adoption of
accounting pronouncements below.
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 $16,000 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 June 30, 2021. The Company reclassified depreciation
and amortization costs of $1.6 million and $32,000 to research and development and general and administrative expenses, respectively,
on the condensed consolidated statements of operations and comprehensive loss during the six months ended June 30, 2021. The Company
also reclassified certain rent expenses of $0.3 million and $0.6 million from general and administrative to research and development
expenses on the condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30,
2021, respectively. 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. The Company
does 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 and six months ended
June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Stock options | |
| 265,411 | | |
| 309,059 | |
Restricted stock | |
| 61,108 | | |
| 128,725 | |
Warrants | |
| 1,788,000 | | |
| — | |
Total | |
| 2,114,519 | | |
| 437,784 | |
Recently
Adopted Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating
the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible
debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless
separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies
the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share
settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments.
The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the condensed consolidated financial statements
upon adoption.
NOTE
2 – SHORT-TERM INVESTMENTS
The
following table provides a summary of the short-term investments (in thousands):
SCHEDULE OF AVAILABLE FOR SALE SHORT-TERM INVESTMENTS
| |
June 30, 2022 | |
| |
Amortized Cost | | |
Gross Unrealized Gain | | |
Gross Unrealized Loss | | |
Fair Value | |
| |
| | |
| | |
| | |
| |
Available-for-sale, short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
$ | 13,970 | | |
| — | | |
| (7 | ) | |
$ | 13,963 | |
Total available-for-sale, short-term investments | |
$ | 13,970 | | |
| — | | |
| (7 | ) | |
$ | 13,963 | |
| |
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 available-for-sale, short-term investments | |
$ | 12,077 | | |
| 9 | | |
| — | | |
$ | 12,086 | |
As
of June 30, 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 June 30, 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 or six months ended June 30, 2022.
There
were no significant realized gains or losses recognized on the sale or maturity of available-for-sale investments for the three or six
months ended June 30, 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 follows (in thousands):
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
Useful lives (years) | |
June 30, 2022 | | |
December 31, 2021 | |
| |
| |
| | |
| |
Laboratory equipment | |
5 | |
$ | 8,619 | | |
$ | 9,081 | |
Furniture, software and office equipment | |
3 to 5 | |
| 1,909 | | |
| 1,896 | |
Leasehold improvements | |
Shorter of remaining lease term or useful life | |
| 8,603 | | |
| 8,603 | |
Construction-in-progress | |
| |
| — | | |
| 3,219 | |
Subtotal | |
| |
| 19,131 | | |
| 22,799 | |
Less: accumulated depreciation | |
| |
| (11,671 | ) | |
| (10,460 | ) |
Total property and equipment, net | |
| |
$ | 7,460 | | |
$ | 12,339 | |
Depreciation
expense was $0.8
million for the three months ended June 30, 2022 and 2021, respectively, and $1.6
million for the six months ended June 30, 2022 and 2021, respectively. During the three and six months ended June 30, 2022, the
Company incurred a loss on disposal of equipment of $0.1
million which is reflected in general and administrative expenses in the condensed consolidated statements of operations
and comprehensive loss.
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 construction-in-progress
that was dedicated to the ABO-101 and ABO-102 programs had no future value, and thus, the Company recorded an impairment charge of $3.3
million for the three months ended March 31, 2022. During the three months ended June 30, 2022, the Company received a $1.5 million refund
from a vendor related to the proposed construction-in-progress and recorded a reduction of the impairment charge of $1.5 million. For
the six months ended June 30, 2022, the net impairment charge recorded was $1.8 million.
NOTE
4 – LICENSED TECHNOLOGY
On
May 15, 2015, the Company 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
nil and $1.4 million for the three and six months ended June 30, 2022, respectively.
The
following table provides a summary of licensed technology (in thousands):
SCHEDULE OF LICENSED TECHNOLOGY
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Licensed technology | |
$ | 2,156 | | |
$ | 2,156 | |
Less accumulated amortization | |
| (801 | ) | |
| (772 | ) |
Less impairment charge | |
| (1,355 | ) | |
| — | |
Total licensed technology, net | |
$ | — | | |
$ | 1,384 | |
Amortization
expense on licensed technology was nil and $29,000 for the three months ended June 30, 2022 and 2021, respectively and $29,000 and $44,000
for the six months ended June 30, 2022 and 2021, respectively.
NOTE
5 – SETTLEMENT LIABILITY
On
November 12, 2021, the Company entered into a settlement agreement (“Settlement Agreement”) with the Company’s prior
licensor REGENXBIO Inc. (“REGENXBIO”) to resolve all existing disputes between the parties. In accordance with the Settlement
Agreement, the Company 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 June 30, 2022, the Company 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 $4.8
million and the long-term portion due in November 2024 is $4.0
million as of June 30, 2022. As of June 30, 2022, the Company recorded $5.0
million of restricted cash in the condensed consolidated balance sheet that serves as collateral for the payment owed to REGENXBIO
in November 2022.
NOTE
6 – FAIR VALUE MEASUREMENTS
The
Company calculates the fair value of the Company’s 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, payables 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. |
The
Company has 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.
The
following table provides a summary of financial assets measured at fair value on a recurring and non-recurring basis as of June 30, 2022
and December 31, 2021 (in thousands):
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING AND NON-RECURRING BASIS
Description | |
Fair Value at June 30, 2022 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| | |
| |
Recurring Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| | | |
| | | |
| | | |
| | |
Money market fund | |
$ | 2,860 | | |
$ | 2,860 | | |
$ | — | | |
$ | — | |
Short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
| 13,963 | | |
| — | | |
| 13,963 | | |
| — | |
Total assets measured at fair value | |
$ | 16,823 | | |
$ | 2,860 | | |
$ | 13,963 | | |
$ | — | |
Description | |
Fair Value at December
31, 2021 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| | |
| |
Recurring Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| | | |
| | | |
| | | |
| | |
Money market fund | |
$ | 28,590 | | |
$ | 28,590 | | |
$ | — | | |
$ | — | |
Short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury securities | |
| 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
The
following table provides a summary of the components of accrued expenses (in thousands):
SCHEDULE OF ACCRUED EXPENSES
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Accrued employee compensation | |
$ | 1,855 | | |
$ | 1,794 | |
Accrued contracted services and other | |
| 3,476 | | |
| 3,091 | |
Accrued sublicense fee owed to licensor | |
| — | | |
| 700 | |
Total accrued expenses | |
$ | 5,331 | | |
$ | 5,585 | |
NOTE
8 – LEASES
The
Company leases space under operating leases for manufacturing and laboratory facilities in Cleveland, Ohio, as well as administrative
offices in New York, New York. The Company also leases 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, the Company has elected the practical expedient
to exclude these short-term leases from the Company’s right-of-use assets and lease liabilities.
On
March 31, 2022, the Company announced that they were pursuing a strategic partner to take over development activities of ABO-102 and
that the Company was 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, the Company
recorded an impairment charge of nil and $1.6 million for the three and six months ended June 30, 2022, respectively.
The
following table provides a summary of the components of lease costs and rent (in thousands):
SCHEDULE OF COMPONENTS OF LEASE COST
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For the three months ended
June 30, | | |
For the six months ended
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Operating lease cost | |
$ | 461 | | |
$ | 434 | | |
$ | 933 | | |
$ | 868 | |
Variable lease cost | |
| 116 | | |
| 104 | | |
| 212 | | |
| 239 | |
Short-term lease cost | |
| 20 | | |
| 5 | | |
| 41 | | |
| 10 | |
Total operating lease costs | |
$ | 597 | | |
$ | 543 | | |
$ | 1,186 | | |
$ | 1,117 | |
Maturities
of the Company’s operating lease liabilities, which do not include short-term leases, as of June 30, 2022 are as follows:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
Maturity of lease liabilities: | |
(in thousands) | |
| |
| |
Remainder of 2022 | |
$ | 892 | |
2023 | |
| 1,835 | |
2024 | |
| 1,877 | |
2025 | |
| 1,547 | |
2026 | |
| 871 | |
Thereafter | |
| 3,663 | |
Total undiscounted operating lease payments | |
| 10,685 | |
Less: imputed interest | |
| 2,150 | |
Present value of operating lease liabilities | |
$ | 8,535 | |
The
weighted-average remaining term of the Company’s operating leases was 82 months and the weighted-average discount rate used to
measure the present value of the Company’s operating lease liabilities was 7.2% as of June 30, 2022.
NOTE
9 – STOCK-BASED COMPENSATION
The
Company has 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 Incentive Plan”), under which no further grants can be made.
The
following table summarizes stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 (in thousands):
SCHEDULE OF STOCK BASED COMPENSATION
| |
For the three months ended
June 30, | | |
For the six months ended
June 30 | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | 540 | | |
$ | 1,092 | | |
$ | 556 | | |
$ | 2,247 | |
General and administrative | |
| 184 | | |
| 1,336 | | |
| 1,030 | | |
| 2,131 | |
Total stock-based compensation expense | |
$ | 724 | | |
$ | 2,428 | | |
$ | 1,586 | | |
$ | 4,378 | |
Stock
Options: The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option valuation
model. The Company 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 – the Company estimates the volatility of the share price at the date of grant using a “look-back” period
which coincides with the expected term, defined below. The Company believes using a “look-back” period which coincides
with the expected term is the most appropriate measure for determining expected volatility. |
|
● |
Expected
term – the Company estimates the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin
No. 107, “Share-Based Payment.” |
|
● |
Risk-free
interest rate – the Company estimates 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
– the Company uses an expected dividend yield of zero because there have been no declared or paid a cash dividend, nor are
there 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
| |
| For the six months ended June 30, | |
| |
| 2022 | | |
| 2021 | |
| |
| | | |
| | |
Expected volatility | |
| 95.1% - 96.0% | | |
| 98.9% -
99.8% | |
Expected term | |
| 6.07 - 6.08 years | | |
| 5.25 - 6.08 years | |
Risk-free interest rate | |
| 1.7% - 3.3% | | |
| 0.9%
- 1.2% | |
Expected dividend yield | |
| — | | |
| — | |
The
following table summarizes stock option activity for the 2015 Incentive Plan during the six months ended June 30, 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 | |
| 314,194 | | |
$ | 38.48 | | |
| 7.63 | | |
$ | — | |
Granted | |
| 7,760 | | |
$ | 5.30 | | |
| — | | |
$ | — | |
Cancelled/forfeited | |
| (56,556 | ) | |
$ | 35.31 | | |
| — | | |
$ | — | |
Exercised | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Outstanding at June 30, 2022 | |
| 265,398 | | |
$ | 38.18 | | |
| 6.69 | | |
$ | 5 | |
Exercisable | |
| 148,066 | | |
$ | 38.28 | | |
| 5.02 | | |
$ | — | |
Unvested | |
| 117,332 | | |
$ | 38.05 | | |
| 8.81 | | |
$ | 5 | |
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 June 30, 2022, the total compensation cost related to non-vested option awards not yet recognized was approximately
$4.0 million with a weighted average remaining vesting period of 2.5 years.
The
following table summarizes stock option activity for the 2005 Incentive Plan during the six months ended June 30, 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 | |
| 3,200 | | |
$ | 32.00 | | |
| 1.80 | | |
$ | — | |
Cancelled/forfeited | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Exercised | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Outstanding at June 30, 2022 | |
| 3,200 | | |
$ | 32.00 | | |
| 1.29 | | |
$ | — | |
Exercisable | |
| 3,200 | | |
$ | 32.00 | | |
| 1.29 | | |
$ | — | |
Unvested | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Restricted
Stock:
The
following table summarizes restricted stock award activity during the six months ended June 30, 2022:
SCHEDULE OF RESTRICTED STOCK AWARD ACTIVITY
| |
Number of
Awards | | |
Weighted Average Grant Date Fair Value | |
| |
| | |
| |
Outstanding at December 31, 2021 | |
| 97,260 | | |
$ | 46.59 | |
Granted | |
| 12,680 | | |
$ | 6.29 | |
Cancelled/forfeited | |
| (27,161 | ) | |
$ | 39.38 | |
Vested | |
| (21,671 | ) | |
$ | 53.07 | |
Outstanding at June 30, 2022 | |
| 61,108 | | |
$ | 39.14 | |
As
of June 30, 2022, there was approximately $2.1 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 2.6 years.
NOTE
10 – EQUITY
Series
A and B Convertible Redeemable Preferred Stock
On
May 2, 2022, the Company consummated an offering with certain institutional investors for the private placement of 1,000,006 shares of
the Company’s Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) and 250,005 shares of
the Company’s Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock” and together with the
Series A Preferred Stock, the “Preferred Stock”). The shares, which have since been redeemed in accordance with their terms
described below, and are thus no longer outstanding as of June 30, 2022, had an aggregated stated value of $25.0 million. Each share
of the Preferred Stock had a purchase price of $19.00, representing an original issue discount of 5% of the stated value. In connection
with this offering, the Company had net proceeds of $22.5 million and recognized a deemed dividend of $3.8 million. In connection with
this transaction, the Company placed $26.3 million into an escrow account for any future redemption which consisted of the gross proceeds
of $25.0 million and the redemption value of $1.3 million.
The
Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common
Stock at a conversion price of $11.25 per
share. The
holders of the Series A Preferred Stock and Series B Preferred Stock had the right to require the Company to redeem their shares of
preferred stock for cash at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder
approval of an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split and 60 days
after the closing of the issuances of the Series A Preferred Stock and Series B Preferred Stock and until 90 days after such
closing. The Company had the option to redeem the Series A Preferred Stock for cash at 105% of the stated value commencing after the
90th day following the closing of the issuance of the Series A Preferred Stock, subject to the holders’ rights to convert the
shares prior to such redemption. As a result, the Preferred Stock was recorded separately from stockholders’ equity
because it was redeemable upon the occurrence of redemption events that were considered not solely withing the Company’s
control. As such, during the three months ended June 30, 2022, the Company recognized approximately $3.8 million
in deemed dividends related to the Preferred Stock in the condensed consolidated statements of operations and comprehensive loss and
the condensed consolidated statements of changes in stockholders’ equity.
On
June 17, 2022, the holders of all 1,000,006 shares of Series A Preferred Stock and 250,005 shares of Series B Preferred Stock exercised
their right to cause the Company to redeem all such shares for $26.3 million, which represented a price equal to 105% of the stated value.
The redemption of these shares was paid out of the escrow account noted above.
Common
Stock and Warrants
Reverse
Stock Split
Effective
July 1, 2022, the Company’s stock underwent a 25:1 Reverse Stock Split. The number of authorized shares of Common Stock immediately
after the Reverse Stock Split (“New Common Stock”) remained at 200,000,000 shares.
Public
Offerings
On
December 21, 2021, the Company closed an underwritten public offering of 1,788,000 post-split shares of common stock at a public offering
price of $9.75 post-split per share and stock purchase warrants to purchase 1,788,000 post-split shares of common stock at an exercise
price of $9.75 post-split. The net proceeds to the Company were approximately $16.0 million, after deducting $1.5 million of underwriting
discounts and commissions and estimated offering expenses payable by the Company.
As
of June 30, 2022, there were 1,788,000 post-split stock purchase warrants outstanding. These stock purchase warrants expire on December
21, 2026. During such time as each warrant is outstanding, the holder of the warrant is entitled to participate in any dividends or other
distribution of assets to holders of shares of common stock. There was no warrant activity during the three or six months ended June
30, 2022.
NOTE
11 – LICENSE AGREEMENT
On
May 16, 2022, the Company and Ultragenyx Pharmaceutical Inc. (“Ultragenyx”) entered into an exclusive license agreement (the
“License Agreement”) for AAV gene therapy ABO-102 for the treatment of Sanfilippo syndrome type A (MPS IIIA) (“ABO-102”).
Under the License Agreement, Ultragenyx will assume responsibility for the ABO-102 program from the Company, with the exclusive right
to develop, manufacture, and commercialize ABO-102 worldwide. Also pursuant to the License Agreement, following regulatory approval,
the Company is eligible to receive tiered royalties from mid-single-digit up to 10% on net sales and up to $30.0 million in commercial
milestone payments. Both forms of consideration comprise the transaction price to which the Company expects to be entitled in exchange
for transferring the related intellectual property and certain, contractually-specified transition services to Ultragenyx. The sales-based
royalty and milestone payments are subject to the royalty recognition constraint. As such, these fees are not recognized as revenue until
the later of: (a) the occurrence of the subsequent sale, and (b) the performance obligation to which they relate has been satisfied.
Additionally,
pursuant to the License Agreement, Ultragenyx will reimburse the Company for certain development and transition costs actually incurred
by the Company. These costs are passed through to Ultragenyx without mark-up. The Company has determined that these costs are not incurred
for the purpose of satisfying any performance obligation under the License Agreement. Accordingly, the reimbursement of these costs is
recognized as a reduction of research and development costs. Such amounts due to the Company from Ultragenyx under the License Agreement
of $1.8 million are recorded as a component of other receivables in the condensed consolidated balance sheets as of June 30, 2022.