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
(Unaudited)
(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 Stockholders’ Equity
(Unaudited)
(In
thousands, except share amounts)
Nine
months ended September 30, 2022 |
|
| |
Convertible
Redeemable Preferred Stock | | |
| | |
| | |
| | |
| | |
Accumulated
| | |
| |
| |
Series
A | | |
Series
B | | |
Common
Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Other
Comprehensive | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
at December 31, 2021 | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
| 5,888,217 | | |
$ | 1,472 | | |
$ | 705,570 | | |
$ | (655,640 | ) | |
$ | (27 | ) | |
$ | 51,375 | |
Stock-based
compensation expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,218 | | |
| — | | |
| — | | |
| 2,218 | |
Issuance
of common stock, net of offering costs under open market sale agreement (ATM) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,038,134 | | |
| 10 | | |
| 4,179 | | |
| — | | |
| — | | |
| 4,189 | |
Issuance
of common stock in connection with restricted share awards, net of cancellations and shares settled for tax witholding settlement | |
| — | | |
| — | | |
| — | | |
| — | | |
| 745,000 | | |
| 3 | | |
| (3 | ) | |
| — | | |
| — | | |
| — | |
Issuance
of Series A and Series B Convertible Redeemable Preferred Stock | |
| 1,000,006 | | |
| 17,974 | | |
| 250,005 | | |
| 4,494 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Deemed
dividends related to Series A and Series B Convertible Redeemable Preferred Stock | |
| — | | |
| 3,026 | | |
| — | | |
| 756 | | |
| — | | |
| — | | |
| (3,782 | ) | |
| — | | |
| — | | |
| (3,782 | ) |
Redemption
of Series A and Series B Convertible Redeemable Preferred Stock | |
| (1,000,006 | ) | |
| (21,000 | ) | |
| (250,005 | ) | |
| (5,250 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Reverse stock-split adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,408 | ) | |
| 1,408 | | |
| — | | |
| — | | |
| — | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (38,570 | ) | |
| — | | |
| (38,570 | ) |
Other
comprehensive loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (17 | ) | |
| (17 | ) |
Balance
at September 30, 2022 | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
| 7,671,351 | | |
$ | 77 | | |
$ | 709,590 | | |
$ | (694,210 | ) | |
$ | (44 | ) | |
$ | 15,413 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
ABEONA
THERAPEUTICS INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Stockholders’ Equity Continued
(Unaudited)
(In
thousands, except share amounts)
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
Three months ended September 30, 2021 |
| |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
Common
Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Other
Comprehensive | | |
Total Stockholde’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance at June 30, 2021 | |
|
4,050,041 | | |
$ |
1,013 | | |
$ |
684,987 | | |
$ |
(601,913 | ) | |
$ |
(1 | ) | |
$ |
84,086 | |
Stock-based compensation expense | |
| — | | |
| — | | |
| 2,537 | | |
| — | | |
| — | | |
| 2,537 | |
Issuance of common stock, net of offering costs under open market sale agreement (ATM) | |
| 790 | | |
| — | | |
| 33 | | |
| — | | |
| — | | |
| 33 | |
Issuance of common stock in connection with the exercise of stock options | |
| 4,878 | | |
| 1 | | |
| 139 | | |
| — | | |
| — | | |
| 140 | |
Issuance of common stock in connection with restricted share awards, net of cancellations | |
| 18,993 | | |
| 5 | | |
| (5 | ) | |
| — | | |
| — | | |
| — | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (7,044 | ) | |
| — | | |
| (7,044 | ) |
Other comprehensive loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (8 | ) | |
| (8 | ) |
Balance at September 30, 2021 | |
| 4,074,702 | | |
$ | 1,019 | | |
$ | 687,691 | | |
$ | (608,957 | ) | |
$ | (9 | ) | |
$ | 79,744 | |
Nine
months ended September 30, 2021 |
| |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
| | |
| | |
Additional | | |
| | |
Other | | |
Total | |
| |
Common
Stock | | |
Paid-in | | |
Accumulated | | |
Comprehensive | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income/(Loss) | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance
at December 31, 2020 | |
| 3,845,267 | | |
$ | 961 | | |
$ | 672,304 | | |
$ | (570,704 | ) | |
$ | (10 | ) | |
$ | 102,551 | |
Stock-based
compensation expense | |
| — | | |
| — | | |
| 6,915 | | |
| — | | |
| — | | |
| 6,915 | |
Issuance
of common stock, net of offering costs under open market sale agreement (ATM) | |
| 123,332 | | |
| 32 | | |
| 7,667 | | |
| — | | |
| — | | |
| 7,699 | |
Issuance
of common stock in connection with the exercise of stock options | |
| 25,227 | | |
| 6 | | |
| 825 | | |
| — | | |
| — | | |
| 831 | |
Issuance
of common stock in connection with restricted share awards, net of cancellations | |
| 80,876 | | |
| 20 | | |
| (20 | ) | |
| — | | |
| — | | |
| — | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| (38,253 | ) | |
| — | | |
| (38,253 | ) |
Other
comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1 | | |
| 1 | |
Balance
at September 30, 2021 | |
| 4,074,702 | | |
$ | 1,019 | | |
$ | 687,691 | | |
$ | (608,957 | ) | |
$ | (9 | ) | |
$ | 79,744 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
ABEONA
THERAPEUTICS INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
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 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, engineered cell therapy currently in development for
recessive dystrophic epidermolysis bullosa (“RDEB”). The Company’s development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other
diseases, 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 September 30, 2022, the Company had cash, cash equivalents, restricted cash and short-term investments of $23.5 million. For the nine
months ended September 30, 2022, the Company had cash outflows from operations of $29.5 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 and protection of proprietary technology. 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 plus the proceeds from the private placement financing on November 3, 2022
(see Note 12) are sufficient resources to fund
operations through at least the next 12 months from the date of this report on Form 10-Q. The Company may need to secure additional
funding to carry out all of its planned research and development activities. If the Company is 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 its 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, 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 September 30, 2021. The Company reclassified
depreciation and amortization costs of $2.4 million and $49,000 to research and development and general and administrative expenses,
respectively, on the condensed consolidated statements of operations and comprehensive loss during the nine months ended September 30,
2021. The Company also reclassified certain rent expenses of $0.3 million and $0.9 million from general and administrative to research
and development expenses on the condensed consolidated statements of operations and comprehensive loss during the three and nine months
ended September 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 attributable to common shareholders 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
| |
For the three and nine months ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | | |
| | |
Stock options | |
| 242,644 | | |
| 310,208 | |
Restricted stock | |
| 821,269 | | |
| 114,209 | |
Warrants | |
| 1,788,000 | | |
| — | |
Total | |
| 2,851,913 | | |
| 424,417 | |
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
| |
September 30, 2022 | |
| |
Amortized Cost | | |
Gross Unrealized Gain | | |
Gross Unrealized Loss | | |
Fair Value | |
| |
| | |
| | |
| | |
| |
Available-for-sale, short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury and federal agency securities | |
$ | 12,445 | | |
| — | | |
| (11 | ) | |
$ | 12,434 | |
Total available-for-sale, short-term investments | |
$ | 12,445 | | |
| — | | |
| (11 | ) | |
$ | 12,434 | |
| |
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 September 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 September 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 nine months ended September 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 nine
months ended September 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) | |
September 30, 2022 | | |
December 31, 2021 | |
| |
| |
| | |
| |
Laboratory equipment | |
5 | |
$ | 8,144 | | |
$ | 9,081 | |
Furniture, software and office equipment | |
3 to 5 | |
| 1,726 | | |
| 1,896 | |
Leasehold improvements | |
Shorter of remaining lease term or useful life | |
| 8,586 | | |
| 8,603 | |
Construction-in-progress | |
| |
| — | | |
| 3,219 | |
Subtotal | |
| |
| 18,456 | | |
| 22,799 | |
Less: accumulated depreciation | |
| |
| (11,850 | ) | |
| (10,460 | ) |
Total property and equipment, net | |
| |
$ | 6,606 | | |
$ | 12,339 | |
Depreciation
expense was $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $2.3 million and
$2.4 million for the nine months ended September 30, 2022 and 2021, respectively. During the three and nine months ended September 30,
2022, the Company incurred a loss on disposal of equipment of $16,000 and $0.1 million, respectively, which is reflected in other income
(expense) 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 recorded an impairment charge of $1.8
million for the nine months ended September 30, 2022.
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 nine months ended September 30, 2022, respectively.
The
following table provides a summary of licensed technology (in thousands):
SCHEDULE OF LICENSED TECHNOLOGY
| |
September 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 September 30, 2022 and 2021, respectively and $29,000 and
$87,000 for the nine months ended September 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 September 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 $4.9 million and the long-term portion due in November 2024 is $4.1 million as of September 30, 2022.
As of September 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 includes
additional information in the notes to the condensed 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 September
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 September 30, 2022 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| | |
| |
Recurring Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| | | |
| | | |
| | | |
| | |
Money market fund | |
$ | 2,312 | | |
$ | 2,312 | | |
$ | — | | |
$ | — | |
Short-term investments | |
| | | |
| | | |
| | | |
| | |
U.S. treasury and federal agency securities | |
| 12,434 | | |
| — | | |
| 12,434 | | |
| — | |
Total assets measured at fair value | |
$ | 14,746 | | |
$ | 2,312 | | |
$ | 12,434 | | |
$ | — | |
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
| |
September 30,
2022 | | |
December 31,
2021 | |
| |
| | |
| |
Accrued employee compensation | |
$ | 2,092 | | |
$ | 1,794 | |
Accrued contracted services and other | |
| 2,029 | | |
| 3,091 | |
Accrued sublicense fee owed to licensor | |
| — | | |
| 700 | |
Total accrued expenses | |
$ | 4,121 | | |
$ | 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 that 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 nine months ended September 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 September 30, | | |
For the nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Operating lease cost | |
$ | 467 | | |
$ | 434 | | |
$ | 1,400 | | |
$ | 1,302 | |
Variable lease cost | |
| 154 | | |
| 105 | | |
| 366 | | |
| 344 | |
Short-term lease cost | |
| 17 | | |
| 13 | | |
| 58 | | |
| 23 | |
Total operating lease costs | |
$ | 638 | | |
$ | 552 | | |
$ | 1,824 | | |
$ | 1,669 | |
Maturities
of the Company’s operating lease liabilities, which do not include short-term leases, as of September 30, 2022 are as follows:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
Maturity of lease liabilities: | |
(in thousands) | |
| |
| |
Remainder of 2022 | |
$ | 446 | |
2023 | |
| 1,829 | |
2024 | |
| 1,872 | |
2025 | |
| 1,631 | |
2026 | |
| 871 | |
Thereafter | |
| 3,662 | |
Total undiscounted operating lease payments | |
| 10,311 | |
Less: imputed interest | |
| 2,017 | |
Present value of operating lease liabilities | |
$ | 8,294 | |
The
weighted-average remaining term of the Company’s operating leases was 79 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 September 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 nine months ended September 30, 2022 and 2021 (in thousands):
SCHEDULE OF STOCK BASED COMPENSATION
| |
For the three months ended September 30, | | |
For the nine months ended September 30 | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | 173 | | |
$ | 688 | | |
$ | 729 | | |
$ | 2,935 | |
General and administrative | |
| 459 | | |
| 1,849 | | |
| 1,489 | | |
| 3,980 | |
Total stock-based compensation expense | |
$ | 632 | | |
$ | 2,537 | | |
$ | 2,218 | | |
$ | 6,915 | |
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 SEC 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 the Company has not declared nor 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 nine months ended September 30, | |
| |
| 2022 | | |
| 2021 | |
| |
| | | |
| | |
Expected volatility | |
| 95.1% - 96.0% | | |
| 91.8%
- 99.8% | |
Expected term | |
| 6.07 - 6.08 years | | |
| 5.25 - 6.08 years | |
Risk-free interest rate | |
| 1.7% - 3.3% | | |
| 0.8%
- 1.2% | |
Expected dividend yield | |
| — | | |
| — | |
The
following table summarizes stock option activity for the 2015 Incentive Plan during the nine months ended September 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 | |
| (82,510 | ) | |
$ | 39.31 | | |
| — | | |
$ | — | |
Exercised | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Outstanding at September 30, 2022 | |
| 239,444 | | |
$ | 37.10 | | |
| 6.71 | | |
$ | — | |
Exercisable | |
| 140,414 | | |
$ | 36.67 | | |
| 5.39 | | |
$ | — | |
Unvested | |
| 99,030 | | |
$ | 37.72 | | |
| 8.58 | | |
$ | — | |
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 September 30, 2022, the total compensation cost related to non-vested option awards not yet recognized was approximately
$3.3 million with a weighted average remaining vesting period of 2.3 years.
The
following table summarizes stock option activity for the 2005 Incentive Plan during the nine months ended September 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 September 30, 2022 | |
| 3,200 | | |
$ | 32.00 | | |
| 1.04 | | |
$ | — | |
Exercisable | |
| 3,200 | | |
$ | 32.00 | | |
| 1.04 | | |
$ | — | |
Unvested | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Restricted
Stock:
The
following table summarizes restricted stock award activity during the nine months ended September 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 | |
| 779,722 | | |
$ | 3.12 | |
Cancelled/forfeited | |
| (30,742 | ) | |
$ | 40.65 | |
Vested | |
| (24,971 | ) | |
$ | 50.66 | |
Outstanding at September 30, 2022 | |
| 821,269 | | |
$ | 5.42 | |
As
of September 30, 2022, there was approximately $4.1 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 3.1 years. The total fair value of restricted
stock awards that vested during the nine months ended September 30, 2022 was $1.3 million.
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 September 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 nine months ended September 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 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 offering expenses payable by the Company.
As
of September 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 nine months ended September
30, 2022.
Open
Market Sale Agreement
On
August 17, 2018 the Company entered into an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”)
pursuant to which, the Company may sell from time to time, through Jefferies LLC, shares of its common stock for an aggregate sales price
of up to $150.0 million. Any sales of shares pursuant to this agreement are made under the Company’s effective “shelf”
registration statement on Form S-3 that is on file with and has been declared effective by the SEC. The Company is currently subject
to General Instruction I.B.6 of Form S-3, as a result of which the amount of funds the Company can raise through primary public offerings
of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value
of the voting and non-voting common equity held by non-affiliates. The Company remains subject to this one-third limitation until such
time as its public float exceeds $75 million. The Company sold 1,038,134 shares of its common stock under the ATM Agreement and received
$4.2 million of net proceeds during the nine months ended September 30, 2022. Subsequent to September 30, 2022, the Company sold an additional 2,440,882 shares of its common stock under the ATM Agreement and received $8.6 million of net proceeds.
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).
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 $0.8 million are recorded as a component of other receivables in the condensed consolidated balance sheet as of September 30, 2022.
NOTE
12 – SUBSEQUENT EVENTS
On November 3, 2022 the Company announced that it has entered into a securities
purchase agreement to sell 7,065,946 shares of its common stock, and, in lieu of shares of common stock, pre-funded warrants exercisable
for 543,933 shares of common stock, and accompanying warrants to purchase 7,609,879 shares of its common stock to a group of new and existing
institutional investors in a private placement. The offering price for each share of common stock and accompanying warrant was $4.60,
and the offering price for each pre-funded warrant and accompanying warrant was $4.59, which equals the offering price per share of the
common stock and accompanying warrant, less the $0.01 per share exercise price of each pre-funded warrant. Each accompanying warrant will
represent the right to purchase one share of the Company’s common stock at an exercise price of $4.75 per share of common stock.
The pre-funded warrants and the accompanying warrants will be exercisable immediately, and will expire five years from the date of issuance.
Gross proceeds of the private placement are expected to be approximately $35.0 million, before deducting placement agent fees and other
expenses.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and accompanying
notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). This discussion and analysis contains forward-looking
statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Forward-Looking
Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual
results may differ materially from those anticipated in these forward-looking statements.
OVERVIEW
Abeona
Therapeutics Inc. (“we,” “our,” “Abeona” or the “Company”) is a clinical-stage biopharmaceutical
company developing cell and gene therapies for life-threatening rare genetic diseases. Our lead clinical program is EB-101, an autologous, engineered cell therapy currently in development for recessive
dystrophic epidermolysis bullosa (“RDEB”).
Our
development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other diseases, 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, Engineered Cell Therapy) for RDEB
On
November 3, 2022, we announced positive topline data from VIITAL™ study. The pivotal Phase 3 VIITAL™ study evaluated the efficacy,
safety and tolerability of EB-101 in 43 large chronic wound pairs in 11 subjects with RDEB. The large chronic wounds randomized and treated
in VIITAL™ measured greater than 20 cm2 of surface area and had remained open for a minimum of six months and a maximum
of 21 years (mean 6.2 years). The co-primary endpoints of the study were: (1) the proportion of RDEB wound sites with greater than
or equal to 50% healing from baseline, comparing randomized treated with matched untreated (control) wound sites at the six-month timepoint,
as determined by direct investigator assessment; and (2) pain reduction associated with wound dressing change assessed by the mean differences
in scores of the Wong-Baker FACES scale between randomized treated and matched untreated (control) wounds at the six-month timepoint.
The VIITAL™ study met its two co-primary
efficacy endpoints demonstrating statistically significant, clinically meaningful improvements in wound healing and pain reduction in
large chronic RDEB wounds. EB-101 was shown to be well-tolerated with no serious treatment-related adverse events observed, consistent
with past clinical experience. There were no deaths or instances of positive replication-competent retrovirus results, and no systemic
immunologic responses were reported during the study, as well as no squamous cell carcinoma at treatment sites after application of EB-101.
Two subjects reported at least one serious adverse event unrelated to EB-101. Four subjects reported related treatment emergent adverse
events, including procedural pain, muscle spasms and pruritis. Infections unrelated to EB-101 were observed in eight patients.
Based on the positive topline
results, we intend to submit a Biologics License Application (“BLA”) for EB-101 to the U.S. Food and Drug Administration
(“FDA”) in the second quarter of 2023. EB-101 has been granted Orphan Drug and Rare Pediatric Disease
(“RPD”) designations by the FDA. Among the potential benefits of Orphan Drug designation are a potential seven years of
market exclusivity following FDA approval, potentially preventing FDA approval of another product deemed to be the same as the
approved product for the same indication, waiver of application fees, and tax credits for qualified clinical testing expenses
conducted after orphan designation is received. A sponsor who receives an approval for a BLA with RPD designation may qualify for a
Priority Review Voucher (“PRV”), subject to final determination by the FDA. A PRV may be used to receive expedited
review of a subsequent marketing application for a different product or sold to another company.
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 BLA filing to the FDA. EB-101 study drug product for all our VIITAL™
study participants has been manufactured at our Cleveland facility and we 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”) in December 2021. Based on feedback from the FDA in a Type-B
meeting in March 2022, we believe that we have alignment with the FDA on significant components of the CMC plan for the BLA submission for EB-101,
including characterization and validation plans.
Ultragenyx
License Agreement
On
May 16, 2022, we entered into an exclusive license agreement (the “License Agreement”) with Ultragenyx Pharmaceutical Inc.
(“Ultragenyx”) for our investigational AAV gene therapy ABO-102 for the treatment of Sanfilippo syndrome type A (“ABO-102”). Under the License Agreement, Ultragenyx will assume responsibility for the ABO-102 program from
us, with the exclusive right to develop, manufacture, and commercialize ABO-102 worldwide. Also pursuant to the License Agreement, following
regulatory approval, we are eligible to receive tiered royalties from mid-single-digit up to 10% on net sales and up to $30.0 million
in commercial milestone payments.
Preclinical
Pipeline
While
our lead clinical program is currently focused on an ultra-rare indication, we intend to address larger areas of unmet medical need in
the future, and our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for five undisclosed ophthalmic
conditions each with estimated U.S. prevalence ranging from 5,000 to 15,000 patients. In 2021, we shared data from studies in non-human
primates that will help to determine optimal routes of administration and we believe we have made significant progress toward measuring
efficacy in the preclinical setting. We have also generated appropriate mouse models, produced research grade vectors, and started dosing
mice in proof-of-concept studies that we hope will support pre-IND meetings with the FDA in early 2023.
Private Placement Financing
On November 3, 2022, we entered into a securities
purchase agreement to sell 7,065,946 shares of our common stock, and, in lieu of shares of common stock, pre-funded warrants exercisable
for 543,933 shares of common stock, and accompanying warrants to purchase 7,609,879 shares of our common stock to a group of new and existing
institutional investors in a private placement. The offering price for each share of common stock and accompanying warrant was $4.60,
and the offering price for each pre-funded warrant and accompanying warrant was $4.59, which equals the offering price per share of the
common stock and accompanying warrant, less the $0.01 per share exercise price of each pre-funded warrant. Each accompanying warrant will
represent the right to purchase one share of the our common stock at an exercise price of $4.75 per share of common stock. The pre-funded
warrants and the accompanying warrants will be exercisable immediately, and will expire five years from the date of issuance. Gross proceeds
of the private placement are expected to be approximately $35.0 million, before deducting placement agent fees and other expenses. We
intend to use the net proceeds from the proposed private placement for development, working capital and general corporate purposes.
Preferred
Stock Offering
On
May 2, 2022, we consummated an offering with certain institutional investors for the private placement of 1,000,006 shares of our
Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) and 250,005 shares of our Series B
Convertible Redeemable Preferred Stock (the “Series B Preferred Stock, and together with the Series A Preferred Stock, 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 September 30, 2022, had an aggregated stated value of $25.0 million. Each share of Preferred Stock
had a purchase price of $19.00, representing an original issue discount of 5% of the stated value. The Preferred Stock was
convertible, at the option of the holders and, in certain circumstances, by us, into shares of Common Stock at a conversion price of
$11.25 per share. The holders of the Preferred Stock had the right to require us to redeem their shares of preferred stock for cash
at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder approval of an amendment to
our Restated Certificate of Incorporation to effect a reverse stock split and 60 days after the closing of the issuances of the
Series A Preferred Stock and Series B Preferred Stock and until 90 days after such closing. We had the option to redeem the Series A
Preferred Stock for cash at 105% of the stated value commencing after the 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. On June 17,
2022, the holders of all 1,000,006 shares of Series A Preferred Stock and all 250,005 shares of Series B Preferred Stock exercised
their right to cause us to redeem all of such shares at a price equal to 105% of the stated value.
Reverse
Stock Split
On
June 30, 2022, we filed a Certificate of Amendment to our Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware to effectuate a reverse stock split of our outstanding common stock, par value
$0.01 per share at an exchange ratio of 25-to-1 (the “Reverse Stock Split”). The Reverse Stock Split was effective on July
1, 2022. The number of authorized shares of our common stock immediately after the Reverse Stock Split remained at 200,000,000 shares.
Open
Market Sale Agreement
We
sold 1,038,134 shares of our common stock under the ATM Agreement (as defined below) and received $4.2 million of net proceeds during
the nine months ended September 30, 2022. Subsequent to September 30, 2022, we sold an additional 2,440,882 shares of our common stock
under the ATM Agreement and received $8.6 million of net proceeds.
Nasdaq
Compliance
On
November 16, 2021, we had received a deficiency letter from the Nasdaq Stock Market (“Nasdaq”) informing that our common
stock was below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing
Rule 5550(a)(2) (the “Bid Price Requirement”) based on the closing bid price of the common stock for the 30 consecutive business
days prior to the date of the notice. Following the effectuation of our Reverse Stock Split on July 19, 2022, we received formal notification
from Nasdaq confirming that we had regained compliance with the Bid Price Requirement.
RESULTS
OF OPERATIONS
Comparison
of Three Months Ended September 30, 2022 and September 30, 2021
| |
For the three months ended | | |
| | |
| |
| |
September 30, | | |
September 30, | | |
Change | |
($ in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
| |
| | |
| | |
| | |
| |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 5,490 | | |
$ | 9,056 | | |
$ | (3,566 | ) | |
| (39 | )% |
General and administrative | |
| 3,890 | | |
| 5,816 | | |
| (1,926 | ) | |
| (33 | )% |
Total expenses | |
| 9,380 | | |
| 14,872 | | |
| (5,492 | ) | |
| (37 | )% |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (9,380 | ) | |
| (14,872 | ) | |
| 5,492 | | |
| (37 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gain on settlement with licensor | |
| — | | |
| 6,743 | | |
| (6,743 | ) | |
| N/A | |
PPP loan payable forgiveness income | |
| — | | |
| 1,758 | | |
| (1,758 | ) | |
| N/A | |
Interest income | |
| 72 | | |
| 7 | | |
| 65 | | |
| 929 | % |
Interest expense | |
| (157 | ) | |
| (683 | ) | |
| 526 | | |
| (77 | )% |
Other income (expense) | |
| (19 | ) | |
| 3 | | |
| (22 | ) | |
| (733 | )% |
Net loss | |
$ | (9,484 | ) | |
$ | (7,044 | ) | |
$ | (2,440 | ) | |
| 35 | % |
N/A
- not applicable or not meaningful
Research
and development
Research
and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical and development costs,
clinical trial costs, manufacturing and manufacturing facility costs, costs associated with regulatory approvals, depreciation on lab
supplies and manufacturing facilities, and consultant-related expenses.
Total
research and development spending for the three months ended September 30, 2022 was $5.5 million, as compared to $9.1 million for the
same period of 2021, a decrease of $3.6 million. The decrease in expenses was primarily due to:
|
● |
decreased
clinical and development work for our cell and gene therapy product candidates and other related costs of $1.4 million which is net
of the $1.2 million pass through costs to Ultragenyx; |
|
● |
decreased
salary and related costs of $0.4 million; and |
|
● |
decreased
non-cash stock compensation expenses of $0.5 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:
|
● |
employee
and consultant-related expenses; |
|
● |
preclinical
and developmental costs; |
|
● |
clinical
trial costs; |
|
● |
the
cost of acquiring and manufacturing clinical trial materials; and |
|
● |
costs
associated with regulatory approvals. |
General
and administrative
General
and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related
costs, professional expenses (e.g., legal expenses) and other general operating expenses not otherwise included in research and development
expenses.
Total
general and administrative expenses were $3.9 million for the three months ended September 30, 2022, as compared to $5.8 million for
the same period of 2021, a decrease of $1.9 million. The decrease in expenses was primarily due to:
|
● |
decreased
professional fees of $0.8 million; |
|
● |
decreased
non-cash stock-based compensation of $1.4 million; and |
|
● |
decreased
other costs of $0.2 million; partially offset by |
|
● |
increased
salary and related costs of $0.5 million. |
Gain
on settlement with licensor
Gain
on settlement with licensor was nil for the three months ended September 30, 2022, as compared to $6.7 million in the same period of
2021. On November 12, 2021, we entered into a Settlement Agreement with REGENXBIO Inc. (“REGENXBIO”) to resolve all
current disputes between us and REGENXBIO (the “Settlement Agreement”). The accounting for the Settlement Agreement
resulted in a $6.7 million gain on settlement with REGENXBIO in the first three months of 2021.
PPP
loan payable forgiveness income
Paycheck Protection Program (“PPP”)
loan payable forgiveness income was nil for the three months ended September 30, 2022 as compared to $1.8 million in the same period
of 2021. In July 2021, we received notice from the Small Business Administration (“SBA”) that our PPP loan had been forgiven so the PPP loan payable was reversed in the
first three months of 2021.
Interest
income
Interest
income was $72,000 for the three months ended September 30, 2022, as compared to $7,000 in the same period of 2021. The increase resulted
from higher earnings on short-term investments driven by higher interest rates partially offset by a lower average balance of short-term
investments.
Interest
expense
Interest
expense was $0.2 million for the three months ended September 30, 2022, as compared to $0.7 million in the same period of 2021. The decrease
results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO.
Other
income (expense)
Other
income (expense) was ($19,000) for the three months ended September 30, 2022, as compared to $3,000 in the same period of 2021. The decrease
results primarily from the loss on disposal of fixed assets.
Comparison
of Nine Months Ended September 30, 2022 and September 30, 2021
| |
For the nine months ended | | |
| | |
| |
| |
September 30, | | |
September 30, | | |
Change | |
($ in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
| |
| | |
| | |
| | |
| |
Revenues: | |
| | | |
| | | |
| | | |
| | |
License and other revenues | |
$ | 1,346 | | |
$ | — | | |
$ | 1,346 | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Royalties | |
| 350 | | |
| — | | |
| 350 | | |
| N/A | |
Research and development | |
| 22,693 | | |
| 25,923 | | |
| (3,230 | ) | |
| (12 | )% |
General and administrative | |
| 11,574 | | |
| 17,261 | | |
| (5,687 | ) | |
| (33 | )% |
Impairment of licensed technology | |
| 1,355 | | |
| — | | |
| 1,355 | | |
| N/A | |
Impairment of right-of-use lease asset | |
| 1,561 | | |
| — | | |
| 1,561 | | |
| N/A | |
Impairment of construction-in-progress | |
| 1,792 | | |
| — | | |
| 1,792 | | |
| N/A | |
Total expenses | |
| 39,325 | | |
| 43,184 | | |
| (3,859 | ) | |
| (9 | )% |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (37,979 | ) | |
| (43,184 | ) | |
| 5,205 | | |
| (12 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gain on settlement with licensor | |
| — | | |
| 6,743 | | |
| (6,743 | ) | |
| N/A | |
PPP loan payable forgiveness income | |
| — | | |
| 1,758 | | |
| (1,758 | ) | |
| N/A | |
Interest income | |
| 103 | | |
| 35 | | |
| 68 | | |
| 194 | % |
Interest expense | |
| (558 | ) | |
| (3,603 | ) | |
| 3,045 | | |
| (85 | )% |
Other expense | |
| (136 | ) | |
| (2 | ) | |
| (134 | ) | |
| 6,700 | % |
Net loss | |
$ | (38,570 | ) | |
$ | (38,253 | ) | |
$ | (317 | ) | |
| 1 | % |
N/A
- not applicable or not meaningful
License
and other revenues
License
and other revenues for the nine months ended September 30, 2022 was $1.3 million, as compared to nil for the same period of 2021. The
revenue in 2022 resulted from a clinical milestone achieved in the second quarter of 2022 under a sublicense agreement we entered into
with Taysha Gene Therapies (“Taysha”)
in October 2020 relating to an investigational AAV-based gene therapy for Rett syndrome, including certain intellectual property
relating to MECP2 gene constructs and regulation of their expression. There was also revenue consisting of the recognition of
deferred revenue related to grants for the ABO-102 and ABO-101 development programs.
Royalties
Total
royalties expenses were $0.4 million for the nine months ended September 30, 2022, as compared to nil for the same period of 2021, an
increase of $0.4 million. The increase in expense was due to royalties owed to our licensors resulting from the $1.0 million milestone
due from Taysha.
Research
and development
Total
research and development spending for the nine months ended September 30, 2022 was $22.7 million, as compared to $25.9 million for the
same period of 2021, a decrease of $3.2 million. The decrease in expenses was primarily due to:
|
● |
decreased
clinical and development work for our cell and gene therapy product candidates and other related costs of $0.8 million which primarily
relates to the license out/discontinuation of our MPSIII programs; |
|
● |
decreased
non-cash stock compensation expenses of $2.2 million; and |
|
● |
decreased
salary and related costs of $0.4 million; partially offset by |
|
● |
increased
other costs of $0.2 million. |
General
and administrative
Total
general and administrative expenses were $11.6 million for the nine months ended September 30, 2022, as compared to $17.3 million for
the same period of 2021, a decrease of $5.7 million. The decrease in expenses was primarily due to:
|
● |
decreased
professional fees of $4.0 million; and |
|
● |
decreased
non-cash stock-based compensation of $2.5 million; partially offset by |
|
● |
increased
salary and related costs of $0.7 million. |
Impairment
of licensed technology
Impairment
of licensed technology was $1.4 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021.
The licensed technology was for the ABO-102 and ABO-101 development programs, which, as a result of our shift in priorities, we determined
the remaining value of the licensed technology had no future value and thus recorded impairment of $1.4 million for the nine months
ended September 30, 2022.
Impairment
of right-of-use lease asset
Impairment
of right-of-use lease asset was $1.6 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021.
The impairment was related to a lease for a future manufacturing facility for the ABO-102 and ABO-101 development programs, which, 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 recorded
impairment of $1.6 million for the nine months ended September 30, 2022.
Impairment
of construction-in-progress
Impairment
of construction-in-progress was $1.8 million for the nine months ended September 30, 2022, as compared to nil in the same period of 2021.
The construction-in-progress was for a facility for the ABO-102 and ABO-101 development programs. As a result of our shift in priorities,
we determined the remaining value of the construction-in-progress facility had no future value and thus recorded impairment of $1.8
million for the nine months ended September 30, 2022.
Gain
on settlement with licensor
Gain
on settlement with licensor was nil for the nine months ended September 30, 2022, as compared to $6.7 million in the same period of 2021.
On November 12, 2021, we entered into a Settlement Agreement with REGENXBIO to resolve all current disputes between us and REGENXBIO.
The accounting for the Settlement Agreement resulted in a $6.7 million gain on settlement with REGENXBIO in the first nine months of
2021.
PPP
loan payable forgiveness income
PPP
loan payable forgiveness income was nil for the nine months ended September 30, 2022 as compared to $1.8 million in the same period of
2021. In July 2021, we received notice from the SBA that our PPP loan had been forgiven so the PPP loan payable was reversed in the first
nine months of 2021.
Interest
income
Interest
income was $103,000 for the nine months ended September 30, 2022, as compared to $35,000 in the same period of 2021. The increase resulted
from higher earnings on short-term investments driven by higher interest rates partially offset by a lower average balance of short-term
investments.
Interest
expense
Interest
expense was $0.6 million for the nine months ended September 30, 2022, as compared to $3.6 million in the same period of 2021. The decrease
results primarily from the resolution of a disputed liability owed to our prior licensor, REGENXBIO.
Other
expense
Other expense was ($136,000) for the nine months ended September 30, 2022, as compared to ($2,000) in the same period of 2021. The
decrease results primarily from the loss on disposal of fixed assets.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows for the Nine months Ended September 30, 2022 and 2021
| |
For the nine months ended September 30, | |
($ in thousands) | |
2022 | | |
2021 | |
| |
| | |
| |
Total cash and cash equivalents (used in)/provided by: | |
| | | |
| | |
Operating activities | |
$ | (29,491 | ) | |
$ | (35,408 | ) |
Investing activities | |
| 1,326 | | |
| 58,063 | |
Financing activities | |
| 407 | | |
| 8,530 | |
Net (decrease) increase in cash and cash equivalents | |
$ | (27,758 | ) | |
$ | 31,185 | |
Operating
activities
Net
cash used in operating activities was $29.5 million for the nine months ended September 30, 2022, primarily comprised of our net loss
of $38.6 million and a decrease in operating assets and liabilities of $1.9 million, partially offset by net non-cash charges of $11.0
million.
Net
cash used in operating activities was $35.4 million for the nine months ended September 30, 2021, primarily comprised of our net loss
of $38.3 million, partially offset by an increase in operating assets and liabilities of $0.9 million and net non-cash charges of $1.9
million.
Investing
activities
Net
cash provided by investing activities was $1.3 million for the nine months ended September 30, 2022, primarily comprised of proceeds
from maturities of short-term investments of $43.7 million and proceeds from disposal of property and equipment of $1.6 million, partially
offset by purchases of short-term investments of $43.9 million and capital expenditures of $0.1 million.
Net
cash provided by investing activities was $58.1 million for the nine months ended September 30, 2021, primarily comprised of proceeds
from maturities of short-term investments of $74.1 million, partially offset by purchases of short-term investments of $15.2 million
and capital expenditures of $0.9 million.
Financing
activities
Net
cash provided by financing activities was $0.4 million for the nine months ended September 30, 2022, primarily comprised of proceeds
of $4.2 million from open market sales of common stock pursuant to the ATM Agreement (as defined below), partially offset by the proceeds
and redemption of our convertible redeemable preferred stock.
Net
cash provided by financing activities was $8.5 million for the nine months ended September 30, 2021, primarily comprised of proceeds
of $7.7 million from open market sales of common stock pursuant to the ATM Agreement and proceeds of $0.8 million from the exercise of
stock options.
We
have historically funded our operations primarily through sales of common stock.
Our
principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our
cash resources. As of September 30, 2022, our cash resources were $23.5 million. We believe that our current cash and cash equivalents,
restricted cash and short-term investments plus the net proceeds from the private placement financing on November
3, 2022 are sufficient resources to fund operations through at least the next 12 months from the date
of this report on Form 10-Q. We may need to secure additional funding to carry out all of our planned research
and development activities. If we are unable to obtain additional financing or generate license or product revenue, the lack of liquidity
and sufficient capital resources could have a material adverse effect on our future prospects.
We
have an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”) pursuant to which, we may sell from
time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $150.0 million. Any sales of shares
pursuant to this agreement are made under our effective “shelf” registration statement on Form S-3 that is on file with and
has been declared effective by the SEC. We are currently subject to General Instruction I.B.6 of Form S-3, as a result of which the amount
of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form
S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. We remain
subject to this one-third limitation until such time our public float exceeds $75 million. We sold 1,038,134 shares of our common stock
under the ATM Agreement and received $4.2 million of net proceeds during the nine months ended September 30, 2022. Subsequent to September
30, 2022, we sold an additional 2,440,882 shares of our common stock under the ATM Agreement and received $8.6 million of net proceeds
Since
our inception, we have incurred negative cash flows from operations and have expended, and expect to continue to expend, substantial
funds to complete our planned product development efforts. We have not been profitable since inception and to date have received limited
revenues from the sale of products. We expect to incur losses for the next several years as we continue to invest in product research
and development, preclinical studies, clinical trials, and regulatory compliance and cannot provide assurance that we will ever be able
to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis, or at all.
If
we raise additional funds by selling additional equity securities, the relative equity ownership of our existing investors will be diluted,
and the new investors could obtain terms more favorable than previous investors. If we raise additional funds through collaborations,
strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable
to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, or terminate our product
development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties
that we would otherwise prefer to develop and market ourselves.
We
are carefully and continually reassessing key business activities and all associated spending decisions. Nonetheless, we are spending
necessary funds on manufacturing activities and preclinical studies and clinical trials of potential products, including research and
development with respect to our acquired and developed technology. Our future capital requirements and adequacy of available funds depend
on many factors, including:
|
● |
the
successful development, regulatory approval and commercialization of our cell and gene therapy and other product
candidates; |
|
● |
the
ability to establish and maintain collaborative arrangements with corporate partners for the research, development, and commercialization
of products; |
|
● |
continued
scientific progress in our research and development programs; |
|
● |
the
magnitude, scope and results of preclinical testing and clinical trials; |
|
● |
the
costs involved in filing, prosecuting, and enforcing patent claims; |
|
● |
the
costs involved in conducting clinical trials; |
|
● |
any
continuing impact to our business, operations, and clinical programs from the COVID-19 pandemic and government actions related thereto; |
|
● |
competing
technological developments; |
|
● |
the
cost of manufacturing and scale-up; |
|
● |
the
ability to establish and maintain effective commercialization arrangements and activities; and |
|
● |
the
successful outcome of our regulatory filings. |
Due
to uncertainties and certain of the risks described above, our ability to successfully commercialize our product candidates, our ability
to obtain applicable regulatory approval to market our product candidates, our ability to obtain necessary additional capital to fund
operations in the future, our ability to successfully manufacture our products and our product candidates in clinical quantities or for
commercial purposes, government regulation to which we are subject, the uncertainty associated with preclinical and clinical testing,
intense competition that we face, 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 a material impact in our results of operations or
financial condition. |
While
we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances,
actual results could differ from those estimates and the differences could be material. For a discussion of the critical accounting estimates
that affect the unaudited condensed consolidated financial statements, see “Critical Accounting Estimates” included in Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
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
See
Note 1 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards not yet
effective or adopted.