ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Abeona Therapeutics Inc. (together with
our subsidiaries, “we”, “our”, “Abeona” or the “Company”) is a Delaware corporation.
We are focused on developing and delivering gene therapy and plasma-based products for severe and life-threatening rare diseases.
Abeona's lead programs are ABO-101 (AAV NAGLU) and ABO-102 (AAV SGSH), adeno-associated virus (AAV)-based gene therapies for Sanfilippo
syndrome (MPS IIIB and IIIA, respectively). We are also developing ABO-201 (AAV CLN3) gene therapy for Juvenile Neuronal Ceroid
Lipofuscinoses (JNCL), also known as juvenile Batten disease, and ABO-301 (AAV FANCC) for Fanconi anemia (FA) disorder using a
novel CRISPR/Cas9-based gene editing approach to gene therapy program for rare blood diseases. In addition, we are also developing
rare plasma protein therapies including PTB-101 SDF Alpha™ (alpha-1 protease inhibitor) for inherited COPD using our proprietary
SDF™ (Salt Diafiltration) ethanol-free process. Our principal executive office is located at 3333 Lee Parkway, Suite 600,
Dallas, Texas 75219. Our website address is
www.abeonatherapeutics.com
.
Recent Developments
On January 11, 2016 we announced initial
regulatory approval for Phase 1/2 gene therapy clinical studies for patients with Sanfilippo syndrome types A and B. The Interministerial
Council of Genetically Modified Organisms has approved the Genetically Modified Organism (GMO) Voluntary Release regulatory filings
for both Phase 1/2 Gene Therapy Clinical Studies to treat patients with ABO-101 (AAV NAGLU) and ABO-102 (AAV SGSH) for patients
with Sanfilippo syndrome type A (MPS IIIA) or type B (MPS IIIB). Additionally, the Comite Etico De Investigacion Clinica de Euskadi
(CEIC-E) has approved the ethical committee regulatory filings for both ABO-101 and ABO-102. Abeona plans to file Clinical Trial
Authorization’s (CTAs) for both programs shortly for the upcoming clinical studies to be conducted at Cruces University Hospital
(Bilbao, Spain).
On February 29, 2016 we announced that
the FDA cleared the Investigational New Drug Application for ABO-102 (AAV-SGSH), a single treatment strategy for Mucopolysaccharidosis
Type IIIA (MPS IIIA). The ABO-102 IND application is now active and enables Nationwide Children’s Hospital (Columbus, OH)
to initiate a Phase 1/2 clinical study designed to assess the safety, tolerability and potential efficacy of ABO-102 in children
with MPS III A.
Product Development Strategy
Abeona is focused on developing and delivering
gene therapy and plasma-based products for severe and life-threatening rare diseases. A rare disease is one that affects fewer
than 200,000 people in the United States. There are nearly 7,000 rare diseases, which may involve chronic illness, disability,
and often, premature death. More than 25 million Americans and 30 million Europeans have one. While rare diseases can affect any
age group, about 50% of people affected are children (15 million), and rare diseases account for 35% of deaths in the first year
of life. These rare diseases are often poorly diagnosed, very complex, and have no treatment or not very effective treatment—over
95% of rare diseases do not have a single FDA or EMA approved drug treatment. However, most rare diseases are often caused by changes
in genes—80% are genetic in origin and can present at any stage of life. We believe emerging insights in genetics and advances
in biotechnology, as well as new approaches and collaboration between researchers, industry, regulators and patient groups, provide
significant opportunities to develop breakthrough treatments for rare diseases.
Developing Next Generation Gene Therapy
Gene therapy is the use of DNA as a potential
therapy to treat a disease. In many disorders, particularly genetic diseases caused by a single genetic defect, gene therapy aims
to treat a disease by delivering the correct copy of DNA into a patient's cells. The healthy, functional copy of the therapeutic
gene then helps the cell function correctly. In gene therapy, DNA that encodes a therapeutic protein is packaged within a "vector",
often a “naked” virus, which is used to transfer the DNA to the inside of cells within the body. Gene therapy can be
delivered by a direct injection, either intravenously (IV) or directly into a specific tissue in the body, where it is taken up
by individual cells. Once inside cells, the correct DNA is expressed by the cell machinery, resulting in the production of missing
or defective protein, which in turn is proposed to treat the patient's underlying disease and can provide long-term benefit.
Abeona is developing next generation adeno-associated virus (AAV) gene therapies. Viruses such as AAV
are utilized because they have evolved a way of encapsulating and delivering one or more genes of the size needed for clinical
application, and can be purified in large quantities at high concentration. Unlike AAV vectors found in nature, the AAV vectors
used by Abeona have been genetically-modified such that they do not replicate. Although the preclinical studies in animal models
of disease demonstrate the promising impact of AAV-mediated gene expression to affected tissues such as the heart, liver and muscle,
our programs use a specific virus that is capable of delivering therapeutic DNA across the blood-brain barrier and into the central
nervous system (CNS) and the somatic system (body), which we believe make them attractive for addressing lysosomal storage diseases
which have severe CNS manifestations of the disease.
Lysosomal storage diseases (LSD) are a
group of rare inborn errors of metabolism resulting from deficiency in normal lysosomal function. These diseases are characterized
by progressive accumulation of storage material within the lysosomes of affected cells, ultimately leading to cellular dysfunction.
Multiple tissues ranging from musculoskeletal and visceral to tissues of the central nervous system are typically involved in disease
pathology. Since the advent of enzyme replacement therapy (ERT) to manage some LSDs, general clinical outcomes have significantly
improved; however, treatment with infused protein is lifelong and continued disease progression is still evident in patients. Thus,
we believe that AAV-based gene therapy may provide a viable alternative or adjunctive therapy to current management strategies
for LSDs.
Our initial programs are focused on LSDs
such as Mucopolysaccharidosis (MPS) IIIA and IIIB. Also known as Sanfilippo syndromes type A and type B, MPS III is a progressive
neuromuscular disease with profound CNS involvement. Our lead product candidates, ABO-101 and ABO-102, have been developed to replace
the damaged, malfunctioning enzymes within target cells with the normal, functioning version. ABO-201 is a similar product, using
an AAV to deliver the correct lysosomal gene that is defective in juvenile neuronal ceroid lipofuscinosis. Delivered via a single
injection, these drugs are expected to be given only once.
ABO-101 for MPS III B and ABO-102
for MPS III A (Sanfilippo syndrome)
MPS type III (Sanfilippo syndrome) is a group of four inherited genetic diseases, described as type A,
B, C or D, which cause enzyme deficiencies that result in the abnormal accumulation of glycosaminoglycans (sugars) in body tissues.
MPS III is a lysosomal storage disease, a group of rare inborn errors of metabolism resulting from deficiency in normal lysosomal
function. The incidence of MPS III (all four types combined) is estimated to be 1 in 70,000 births.
Mucopolysaccharides are long chains of
sugar molecules used in the building of connective tissues in the body. There is a continuous process in the body of replacing
used materials and breaking them down for disposal. Children with MPS III are missing an enzyme called heparan sulfate, which is
essential in breaking down used mucopolysaccharides. The partially broken down mucopolysaccharides remain stored in cells in the
body causing progressive damage. Babies may show little sign of the disease, but as more and more cells become damaged, symptoms
start to appear.
In MPS III, the predominant symptoms occur
due to accumulation within the central nervous system (CNS), including the brain and spinal cord, resulting in cognitive decline,
motor dysfunction, and eventual death. To date, there is no cure for MPS III and treatments are largely supportive.
Abeona is developing next generation AAV-based
gene therapies for MPS III, which will involve a one-time delivery of a normal copy of the defective gene to cells of the CNS with
the goal of reversing the effects of the genetic errors that cause the disease.
After a single dose in Sanfilippo preclinical models, ABO-101 and ABO-102 induced cells in the CNS and
peripheral organs to produce the missing enzymes which helped repair the damage caused to the cells. Preclinical
in vivo
efficacy studies in Sanfilippo syndrome have demonstrated functional benefits that remain for months after treatment. A single
dose of ABO-101 or ABO-102 significantly restored normal cell and organ function, corrected cognitive defects that remained months
after drug administration, increased neuromuscular control and increased the lifespan of animals with MPS III over 100% one year
after treatment compared to untreated control animals. These results are consistent with studies from several laboratories suggesting
AAV treatment could potentially benefit patients with Sanfilippo Syndrome Type A and B. In addition, safety studies conducted in
animal models of Sanfilippo syndromes have demonstrated that delivery of ABO-101 or ABO-102 are well tolerated with minimal side
effects.
ABO-201 for Juvenile Neuronal Ceroid
Lipofuscinoses (JNCL) (or Juvenile Batten Disease (JBD))
ABO-201 (AAV CLN3) is an AAV-based gene therapy which has shown promising preclinical efficacy in delivery
of a normal copy of the defective CLN3 gene to cells of the CNS with the goal of reversing the effects of the genetic errors that
cause JNCL. JNCL is a rare, fatal, autosomal recessive (inherited) disorder of the nervous system that typically begins in children
between 4 and 8 years of age. Often the first noticeable sign of JNCL is vision impairment, which tends to progress rapidly and
eventually result in blindness. As the disease progresses, children experience loss of previously acquired skills (developmental
regression). This progression usually begins with the loss of the ability to speak in complete sentences. Children then lose motor
skills, such as the ability to walk or sit. They also develop movement abnormalities that include rigidity or stiffness, slow or
diminished movements (hypokinesia), and stooped posture. Beginning in mid- to late childhood, affected children may have recurrent
seizures (epilepsy), heart problems, behavioral problems, and difficulty sleeping. Life expectancy is greatly reduced. Most people
with juvenile Batten disease live into their twenties or thirties. As yet, no specific treatment is known that can halt or reverse
the symptoms of JNCL.
JNCL is the most common form of a group
of disorders known as neuronal ceroid lipofuscinoses (NCLs). Collectively, all forms of NCL affect an estimated 2 to 4 in 100,000
live births in the United States. NCLs are more common in Finland, where approximately 1 in 12,500 individuals are affected, as
well as Sweden, other parts of northern Europe, and Newfoundland, Canada.
Most cases of JNCL are caused by mutations in the CLN3 gene, which is the focus of our AAV-based gene
therapy approach. These mutations disrupt the function of cellular structures called lysosomes. Lysosomes are compartments in the
cell that normally digest and recycle different types of molecules. Lysosome malfunction leads to a buildup of fatty substances
called lipopigments and proteins within these cell structures. These accumulations occur in cells throughout the body, but neurons
in the brain seem to be particularly vulnerable to damage. The progressive death of cells, especially in the brain, leads to vision
loss, seizures, and intellectual decline in children with JNCL.
ABO-301 for Fanconi Anemia (FA)
ABO-301 (AAV FANCC) is an AAV-based gene
therapy which has shown promising preclinical efficacy in delivery of a normal copy of the defective gene to cells of the hematopoietic
or blood system with the goal of reversing the effects of the genetic errors that cause Fanconi anemia (FA). FA is a rare (1 in
160,000) pediatric, autosomal recessive (inherited) disease characterized by multiple physical abnormalities, organ defects, bone
marrow failure, and a higher than normal risk of cancer. The average lifespan for people with FA is 20 to 30 years.
The major function of bone marrow is to
produce new blood cells. In FA, a DNA mutation renders the FANCC gene nonfunctional. Loss of FANCC causes skeletal abnormalities
and leads to bone marrow failure. FA patients also have much higher rates of hematological diseases, such as acute myeloid leukemia
(AML) or tumors of the head, neck, skin, gastrointestinal system, or genital tract. The likelihood of developing one of these cancers
in people with FA is between 10 and 30 percent. Aside from bone marrow transplantation (BMT) there are no specific treatments known
that can halt or reverse the symptoms of FA. Repairing fibroblast cells in FA patients with a functional FANCC gene is the focus
of our AAV-based gene therapy approach.
Using a novel CRISPR (clustered, regularly
interspaced short palindromic repeats)-Cas9 (CRISPR associated protein 9) system, researchers used a protein-RNA complex composed
of an enzyme known as Cas9 bound to a guide RNA molecule that has been designed to recognize a particular DNA sequence. The RNA
molecules guide the Cas9 complex to the location in the genome that requires repair. CRISPR-Cas9 uniquely enables surgically efficient
knock-out, knock-down or selective editing of defective genes in the context of their natural promoters, unlocking the potential
to treat both recessive and dominant forms of genetic diseases. Most importantly, this approach has the potential to allow for
more precise gene modification.
Plasma-based Therapeutics using the
SDF™ technology platform
Abeona’s proprietary patented Salt
Diafiltration Process™ (SDF
™
) focuses on ethanol-free extraction of therapeutic biologics from human plasma.
Plasma biologics are biopharmaceutical proteins extracted, purified, and formulated from human blood plasma by the use of biotechnological
processing techniques including precipitation, diafiltration, affinity chromatography, and ion-exchange chromatography. These products
are rendered virus-safe by means of chemical treatment, nanofiltration, and pasteurization. Plasma biologics primarily address
indications arising from genetic deficiencies, which are increasingly being identified by means of newly available rapid and low-cost
diagnostic genetic tests. Examples of plasma biologics include Alpha-1 Antitrypsin (also known as alpha-1 proteinase inhibitor,
A1PI), Intravenous Immune Globulin (IVIG), Anti-Hemophilic Factor VIII (AHF) and Albumin.
Plasma biologics are currently obtained
from human plasma by a fractionation process known as the Cohn Cold Ethanol Fractionation Process (Cohn Process), which was developed
prior to World War II to provide a stable solution of human albumin for the rapid treatment of hemorrhagic shock on the battlefield.
This process employs various concentrations of ethanol combined with adjustments of pH, ionic strength, and temperature to bring
about the necessary separations by precipitation. Ethanol can inactivate many of the plasma proteins.
In contrast to the highly denaturing Cohn
Process, Abeona’s patented SDF method involves a short two-step, ethanol-free salt precipitation process optimized to extract
a wide range of therapeutically useful biologic proteins from human blood plasma. SDF enables the production of higher yields of
these proteins compared with the Cohn Process.
PTB-101 SDF Alpha™ (alpha-1
protease inhibitor) for emphysema or chronic obstructive pulmonary disease (COPD)
due to severe congenital deficiency
of A1PI (alpha-1-antitrypsin deficiency)
Alpha-1 antitrypsin deficiency is a rare
(1 in 1,500 to 3,500) genetic (inherited) autosomal disorder that may cause lung disease from an inability to neutralize the enzyme
neutrophil elastase and liver disease from retained misfolded protein. Alpha-1 antitrypsin deficiency occurs worldwide, but its
prevalence varies by population. Alpha-1 antitrypsin is also known as alpha-1 proteinase inhibitor (A1PI).
About 10% of infants with alpha-1 antitrypsin
deficiency develop liver disease, which often causes yellowing of the skin and whites of the eyes (jaundice). Approximately 15%
of adults with alpha-1 antitrypsin deficiency develop liver damage (cirrhosis) due to the formation of scar tissue in the liver.
Signs of cirrhosis include a swollen abdomen, swollen feet or legs, and jaundice. Individuals with alpha-1 antitrypsin deficiency
are also at risk of developing a type of liver cancer called hepatocellular carcinoma.
Alpha-1 antitrypsin deficiency is inherited
with an autosomal codominant pattern, which means that two different versions of the gene may be active (expressed), and both versions
contribute to the genetic trait. The most common version (allele) of the SERPINA1 gene, called M, produces normal levels of alpha-1
antitrypsin. Most people in the general population have two copies of the M allele (MM) in each cell. Other versions of the SERPINA1
gene lead to reduced levels of alpha-1 antitrypsin. For example, the S allele produces moderately low levels of this protein, and
the Z allele produces very little alpha-1 antitrypsin. Individuals with two copies of the Z allele (ZZ) in each cell are likely
to have alpha-1 antitrypsin deficiency. Those with the SZ combination have an increased risk of developing liver and lung diseases
such as chronic obstructive pulmonary disease (COPD).
It is estimated that about 200,000 individuals
in the United States and Europe have severe alpha-1 antitrypsin deficiency. However, only about 5% of such individuals have been
diagnosed as symptoms caused by this deficiency are very similar to those of asthma and chronic obstructive pulmonary disease (COPD)
from non-genetic causes. Only about 1–2% of COPD patients have severe alpha-1 antitrypsin deficiency. The Global Initiative
for Chronic Obstructive Lung Disease (GOLD) defines COPD as group of airflow-limited diseases including emphysema and chronic bronchitis.
While severe alpha-1 antitrypsin deficiency can lead to or exacerbate all forms of COPD, it is considered to be the dominant cause
of Panacinar Emphysema, a form of emphysema which causes gradual destruction of all lung aveolii.
PTB-101 SDF Alpha™ (alpha1-proteinase
inhibitor) for Alpha-1 Antitrypsin Deficiency (Alpha-1)
Abeona is developing PTB-101 SDF Alpha™
(alpha-1-proteinase inhibitor) for chronic augmentation and maintenance therapy in adults with clinically evident panacinar emphysema
and other forms of COPD due to severe deficiency of alpha-1-proteinase inhibitor.
Polymer Hydrogel Technology (PHT™)
MuGard
®
(mucoadhesive
oral wound rinse) approved for mucositis, stomatitis, aphthous ulcers, and traumatic ulcers
MuGard
®
is our marketed
product for the management of oral mucositis, a frequent side-effect of cancer therapy for which there is no other established
treatment. MuGard, a proprietary nanopolymer formulation, received marketing clearance from the FDA in the US as well as Europe,
China, Australia, New Zealand and Korea. We launched MuGard in the U.S. in 2010 and licensed MuGard for commercialization in the
U.S. to AMAG Pharmaceuticals, Inc. (AMAG) in 2013. We licensed MuGard to RHEI Pharmaceuticals, N.V. (RHEI) for China and other
Southeast Asian countries in 2010; Hanmi Pharmaceutical Co. Ltd. (Hanmi) for South Korea in 2014; and Norgine B.V. (Norgine) for
the European Union, Switzerland, Norway, Iceland, Lichtenstein, Australia and New Zealand in 2014.
ProctiGard™ (mucoadhesive oral
wound rinse) approved for rectal mucositis and radiation proctitis
ProctiGard™ received 510(K) marketing
clearance from the FDA on July 22, 2014 for the treatment of symptomatic management of rectal mucositis. ProctiGard is our product
for the treatment of radiation proctitis, a frequent side effect of radiation treatment to the pelvic region. Radiation proctitis,
or RP, is the inflammation and damage to the lower portion of the colon after exposure to x-rays or ionizing radiation as part
of radiation therapy. RP is most common after treatments for cancer, such as cervical, colon and prostate cancer. RP can be acute,
occurring within weeks of initiation of therapy, or can occur months or years after treatment. We intend to commercialize ProctiGard
in a manner similar to the commercialization of MuGard, which may include confirmatory clinical trials, with the objective of commercialization
in collaboration with marketing partners globally.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily
through public and private sales of common stock, preferred stock, convertible notes and through licensing agreements. Our principal
source of liquidity is cash and cash equivalents. Licensing payments and royalty revenues provided limited funding for operations
during the period ended March 31, 2016. As of March 31, 2016, our cash and cash equivalents were $37,395,000.
As of March 31, 2016, our working capital
was $30,196,000. Our working capital at March 31, 2016 represented a decrease of $8,895,000 as compared to our working capital
of $39,091,000 as of December 31, 2015. The decrease in working capital at March 31, 2016 reflects three months of net operating
costs and changes in current assets and liabilities and the classification of contingent consideration liability ($2,000,000) and
payable to Licensor ($4,000,000) from long-term liabilities to current liabilities.
Net cash used in operating activities for
the three months ended March 31, 2016 was $2,156,000 as compared to $3,163,000 for the same period in 2015, a decrease of $647,000.
The decrease was primarily due a $1.0 million license payment made in the first quarter of 2015 offset by higher research and development
spending in the first quarter of 2016.
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.
We have incurred negative cash flows from
operations since inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our
planned product development efforts. Since inception, our expenses have significantly exceeded revenues, resulting in an accumulated
deficit as of March 31, 2016 of $316,144,000. We 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.
Since our inception, we have devoted our
resources primarily to fund our research and development programs. We have been unprofitable 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.
FIRST QUARTER 2016 COMPARED TO FIRST QUARTER 2015
Our licensing revenue for the first quarter
of 2016 and 2015 was $151,000. We recognize licensing revenue over the period of the performance obligation under our licensing
agreements.
We recorded royalty revenue for MuGard of $84,000 for first quarter of 2016 and $107,000 for the same
period of 2015, a decrease of $23,000. We licensed MuGard to AMAG on June 6, 2013 and currently receive quarterly royalties from
AMAG under our agreement.
Total research and development spending
for the first quarter of 2016 was $1,855,000, as compared to $453,000 for the same period of 2015, an increase of $1,402,000. The
increase in expenses was primarily due to:
|
·
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increased development work on the preparation
of our gene therapy products for clinical trials ($387,000);
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·
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increased salary and related costs ($358,000)
from the hiring of scientific staff;
|
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·
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increased stock based compensation expense
for granted stock options ($323,000) and granted stock ($138,000);
|
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·
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increased rent for our new laboratory
($71,000) and
|
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·
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other net increases in research spending
($125,000).
|
Total general and administrative expenses
were $4,366,000 for the first quarter of 2016, as compared to $1,689,000 for the same period of 2015, an increase of $2,677,000.
The increase in expenses was due primarily to the following:
|
·
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increased stock based compensation expense
for granted stock options ($992,000) and granted stock ($1,755,000);
|
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·
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increased legal fees ($70,000);
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·
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increased in net other general and administrative
expenses ($136,000);
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·
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offset by decreased investor relations
fees ($187,000); and
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offset by lower salary and related costs
($89,000).
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Depreciation and amortization was $174,000
for the first quarter of 2016 as compared to $118,000 for the same period in 2015, an increase of $56,000. We are amortizing the
licenses for SDF Alpha and ABO-101 and ABO-201 over the life of the patents. The increase is due to amortization of licensed technology
$29,000 and depreciation $27,000.
Total operating expenses for the first
quarter of 2016 were $6,395,000 as compared to total operating expenses of $2,260,000 for the same period of 2015, an increase
of $4,135,000 for the reasons listed above.
Interest and miscellaneous income was $618,000
for the first quarter of 2016 as compared to $3,000 for the same period of 2015, an increase of $615,000. Miscellaneous income
is higher in 2016 than for the same period in 2015 due to the change in the fair value of our contingent consideration liability
($591,000) related to the acquisition of Abeona Therapeutics LLC and interest income ($24,000).
Interest and other expense was $2,000 for
the first quarter of 2016 as compared to $1,000 for the same period in 2015.
Net loss for the first quarter of 2016
was $5,544,000, or a $0.17 basic and diluted loss per common share as compared to a net loss of $2,000,000, or a $0.10 basic and
diluted loss per common share, for the same period in 2015, an increased loss of $3,544,000.