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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
Abeona Therapeutics Inc. (together with our
subsidiaries, “we”, “our”, “Abeona” or the “Company”) is a Delaware corporation.
We are a clinical stage biopharmaceutical company developing gene and plasma-based therapies for life-threatening rare genetic
diseases. Our lead programs are ABO-102 (AAV-SGSH) and ABO-101 (AAV-NAGLU), adeno-associated virus (AAV) based gene therapies
for Sanfilippo syndrome (MPS IIIA and IIIB, respectively). We are also developing EB-101 (gene-corrected skin grafts) for recessive
dystrophic epidermolysis bullosa (RDEB), EB-201 for epidermolysis bullosa (EB), ABO-201 (AAV-CLN3) gene therapy for juvenile Batten
disease (JNCL), ABO-202 (AAV-CLN1) gene therapy for treatment of infantile Batten disease (INCL), and ABO-301 (AAV-FANCC) for
Fanconi anemia (FA) disorder and ABO-302 using a novel CRISPR/Cas9-based gene editing approach to gene therapy for rare blood
diseases. In addition, we have a plasma-based protein therapy pipeline, including SDF Alpha™ (alpha-1 protease inhibitor)
for inherited COPD, using our proprietary SDFTM (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
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Recent Developments
On November 1, 2016, we closed an underwritten
public offering of 6,000,000 shares of common stock, at a public offering price of $7.00 per share. The gross proceeds to the Company
were $42,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses payable by
the Company.
On October 25, 2016, we announced that the
U.S. Food and Drug Administration (FDA) granted Fast Track designation for ABO-102, a single intravenous injection of AAV gene
therapy for subjects with MPS IIIA (Sanfilippo syndrome type A).
On October 20, 2016, we announced an update on clinical results through 30 days post-injection for the completed
low-dose cohort (n=3) in the ongoing Phase 1/2 trial for ABO-102 (AAV-SGSH). The ongoing Phase 1/2 study is designed to evaluate
safety and preliminary indications of efficacy of ABO-102 in subjects suffering from Mucopolysaccharidosis Type A (MPS IIIA
or Sanfilippo syndrome type A). Observations 30 days post-injection for the low dose cohort demonstrated:
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ABO-102 was well-tolerated in subjects
injected with the low dose of 5E12 vg/kg ABO-102 with no treatment related adverse events or serious adverse events (SAEs). Following
favorable review of the safety data by the independent Data Safety Monitoring Board (DSMB), enrollment in the high dose cohort
has commenced.
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In the natural history study evaluating
MPS III subjects, urine and cerebral spinal fluid GAG (heparan sulfate or ‘‘HS’’) were significantly elevated
in the subject population as a symptom of disease pathology.
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All subjects in the low-dose cohort experienced
reductions from baseline in both urinary HS and CSF. At 30 days post-injection, urinary HS reduction was 57.6% +/- 8.2%. Reduction
in CSF HS was 25.6% +/- 0.8%, suggesting that ABO-102 crossed the blood brain barrier after intravenous administration.
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The natural history study in 25 subjects
with MPS III (
Truxal et. al., 2016, Mol. Genet. Metab
.) demonstrated that study subjects had increased liver and spleen
volumes averaging 116% and 88%, respectively, at baseline that did not change over a year of follow up.
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All three subjects demonstrated significant
reductions in liver volume (17.7% +/- 1.9%), and spleen volume (17.6% +/- 7.1%) from baseline, as measured by MRI at 30 days post-injection.
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We expect that a more complete analysis of
these data will be presented from the low-dose cohort and initial high-dose cohort at a scientific conference in the first quarter
of 2017. The Data Safety Monitoring Board approved dose escalation of the high-dose cohort in the fourth quarter of 2016.
On October 18, 2016, we announced that the
European Medicines Agency (EMA) Committee for Orphan Medicinal Products has granted Orphan Drug Designation for our lead gene therapy
program ABO-102 for the treatment of patients with Sanfilippo syndrome type A (MPS IIIA).
On October 7, 2016, we announced that preclinical
data supporting clinical trials for ABO-201 (AAV-CLN3), the AAV-based single intravenous gene therapy program for juvenile Batten
disease, (juvenile neuronal ceroid lipofuscinosis, JNCL), were published in the September issue of the Journal of Neuroscience.
Researchers concluded that a single intravenous injection ‘‘led to widespread virus biodistribution in the brain, spinal
cord, and eye’’ that was capable of ‘‘improving motor function, attenuating microglial and astrocyte activation,
and reducing lysosomal pathology, all hallmarks of JNCL’’ at an age when significant lysosomal pathology had already
manifested.
On September 26, 2016, we announced that the
first patient was enrolled in the Phase 2 portion of the clinical trial for EB-101 (gene-corrected skin grafts).
On September 21, 2016, we announced the exclusive
worldwide license of a next-generation gene therapy AAV capsid portfolio from University of North Carolina at Chapel Hill. The
AIM™ vector system is a next generation platform of AAV capsids capable of widespread central nervous system gene transfer
and can be used to confer high transduction efficiency for various therapeutic indications. Studies indicate that AIM vectors can
efficiently and broadly target CNS tissue, and may provide a treatment for patients that have inhibitory antibodies to natural
AAV serotypes. Importantly, the AIM vector system may provide second-generation treatment approaches for patients that have received
a previous AAV injection.
On September 8, 2016, we announced that the
fifth patient was enrolled in the Phase 1/2 clinical trial for EB-101 (gene-corrected skin grafts). The Phase 1/2 clinical trial
with gene-corrected skin grafts has shown promising wound healing and safety in patients with RDEB. Investigators at Stanford are
now expanding enrollment to adolescent patients for the Phase 1/2 trial to determine the safety and efficacy of COL7A1 gene-corrected
grafts on wound healing efficacy. Clinical data on the initial four patients in the Phase 1/2 trial were recently presented at
the opening Plenary Session of the Society for Investigative Dermatology.
On August 9, 2016, we announced, along with
the EB Research Partnership and EB Medical Research Foundation, a collaboration for the development of treatments for recessive
dystrophic epidermolysis bullosa (RDEB). Clinical results for the lead EB program (EB-101) were presented at the opening Plenary
Session of the Society for Investigative Dermatology in May 2016, and Investigators at Stanford are recruiting patients for a Phase
2 clinical trial of EB-101 in adolescents age 13 and older to determine the effect of type VII collagen gene corrective grafts
on wound healing efficacy.
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 — approximately 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), making them attractive for addressing
lysosomal storage diseases which have severe CNS manifestations of the disease.
Lysosomal storage diseases (LSDs) 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,
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. MPS III is also known as Sanfilippo syndromes type A and type B, 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 only given once.
ABO-101 for MPS III B and ABO-102 for
MPS III A (Sanfilippo syndrome)
Mucopolysaccharidosis (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 which is essential in breaking down the 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 (Sanfilippo syndrome), which involves a one-time delivery of a normal copy of the defective gene to
cells of the central nervous system with the aim 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 AB0-101
or AB0-102 are well tolerated with minimal side effects.
ABO-201 for Juvenile Neuronal Ceroid
Lipofuscinoses (JNCL) (or Juvenile Batten Disease (JBD)) and ABO-202 (AAV-CLN1) gene therapy for treatment of infantile Batten
disease (INCL)
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 central
nervous system with the aim 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 the 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 disease.
JNCL disease 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 disease 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 disease.
ABO-202 (AAV9 CLN1) is an AAV-based gene therapy
which has shown promising preclinical efficacy in delivery of a normal copy of the defective CLN1 gene to cells of the central
nervous system with the aim of reversing the effects of the genetic errors that cause an infantile form of Batten disease (also
known as infantile neuronal ceroid lipofuscinosis).
ABO-301 for Fanconi Anemia (FA) and ABO-302
for rare blood diseases using a novel CRISPR/Cas9-based gene editing approach to gene therapy for rare blood diseases
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 aim 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 patient 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 more
precise gene modification.
EB-101 For the Treatment of Recessive
Dystrophic Epidermolysis Bullosa and EB-201 For the Correction of Gene Mutations in Skin Cells (Keratinocytes)
EB-101 (LZRSE-Col7A1 Engineered Autologous
Epidermal Sheets (LEAES)), is an ex vivo gene therapy for the treatment of recessive dystrophic epidermolysis bullosa (RDEB). EB-201
(AAV DJ COL7A1) is a pre-clinical candidate targeting a novel, AAV-mediated gene editing and delivery approach to correct gene
mutations in skin cells (keratinocytes). We entered into an agreement (the ‘‘EB Agreement’’) with EB Research
Partnership (‘‘EBRP’’) and Epidermolysis Bullosa Medical Research Foundation (‘‘EBMRF’’)
to collaborate on gene therapy treatments for EB. The EB Agreement became effective August 3, 2016, on the execution of two licensing
agreements with The Board of Trustees of Leland Stanford Junior University (‘‘Stanford’’) described below.
EBRP and EBMRF have the contractual right to
license from Stanford EB-101 (LZRSE-Col7A1 Engineered Autologous Epidermal Sheets (LEAES)), and authorized us to exercise such
rights and enter into a license with Stanford for such technology, and to perform preclinical development and perform clinical
trials of a gene therapy treatment for Epidermolysis Bullosa based upon such in-licensed technology.
We also entered into a license with Stanford
for the AAV-based gene therapy EB-201 (AAV DJ COL7A1) technology, and we shall perform preclinical development and perform clinical
trials of a gene therapy treatment for EB based upon such in-licensed technology. EB-201 (AAV DJ COL7A1) is a pre-clinical candidate
targeting a novel, AAV-mediated gene editing and delivery approach (known as homologous recombination) to correct gene mutations
in skin cells (keratinocytes) for patients with recessive dystrophic epidermolysis bullosa (RDEB).
Plasma-based Therapeutics using the SDF™
technology platform
Abeona’s proprietary 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 SDFTM 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. SDFTM 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 this number
have been diagnosed as symptoms caused by this deficiency are very similar to 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 aveoli.
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, has received marketing clearance from the FDA in the U.S. 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.
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 September 30, 2016. As of September 30, 2016, our cash and cash equivalents were $31,185,000.
As of September 30, 2016, our working capital
was $25,432,000. Our working capital at September 30, 2016 represented a decrease of $13,659,000 as compared to our working capital
of $39,091,000 as of December 31, 2015. The decrease in working capital at September 30, 2016 reflects nine months of net operating
losses and changes in current assets and liabilities and the reclassification of the payable to Plasma Technologies, LLC ($4,000,000)
from long-term liabilities to current liabilities. The payable to Plasma Technologies, LLC may be paid in cash or stock at our
discretion.
Net cash used in operating activities for the
nine months ended September 30, 2016 was $9,621,000 as compared to $7,546,000 for the same period in 2015, an increase of $2,075,000.
The increase was primarily due to higher research and development spending in the first nine months of 2016 offset by a $1.0 million
license payment made in the first quarter of 2015.
On November 1, 2016, we closed an underwritten
public offering of 6,000,000 shares of common stock, at a public offering price of $7.00 per share. The gross proceeds to the Company
were $42,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses payable by
the Company.
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 September 30, 2016 of $325,471,000. 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.
THIRD QUARTER 2016 COMPARED TO THIRD QUARTER 2015
Our licensing revenue for the third quarter
of each 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 $33,000
for third quarter of 2016 and $134,000 for the same period of 2015, a decrease of $101,000. 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 third quarter of 2016 was $2,745,000, as compared to $1,581,000 for the same period of 2015, an increase of $1,164,000. The
increase in expenses was primarily due to:
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increased development work for the manufactured
product for ABO-102 and other gene therapy products ($1,003,000);
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increased clinical costs for our clinical
trial for ABO-102 and preparation for other clinical trials ($188,000);
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increased salary and related costs ($128,000)
from the hiring of scientific staff;
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other net increases in research spending
($134,000); and
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offset by decreased stock based compensation
expense for granted stock ($213,000) and granted stock options ($76,000).
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Total general and administrative expenses were
$2,391,000 for the third quarter of 2016, as compared to $4,717,000 for the same period of 2015, a decrease of $2,326,000. The
decrease in expenses was due primarily to the following:
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decreased stock based compensation expense
for granted stock expense ($1,438,000) and granted stock options ($307,000);
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decreased investor relations fees ($799,000);
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decreased legal fees ($108,000);
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offset by increased salary and related
costs ($152,000); and
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offset by increased net other general
and administrative expenses ($174,000).
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Depreciation and amortization was $222,000
for the third quarter of 2016 as compared to $151,000 for the same period in 2015, an increase of $71,000. We are amortizing the
licenses for SDF Alpha, ABO-101 and ABO-201, and EB-102 and EB-102 over the life of the patents. The increase is due to amortization
of licensed technology of $38,000 and depreciation of $33,000.
Total operating expenses for the third quarter
of 2016 were $5,358,000 as compared to total operating expenses of $6,449,000 for the same period of 2015, a decrease of $1,091,000
for the reasons listed above.
Interest and miscellaneous income was
$2,551,000 for the third quarter of 2016 as compared to $92,000 for the same period of 2015, an increase of $2,459,000.
Miscellaneous income is higher in third quarter than for the same period in 2015 due to the change in the fair value of our
contingent consideration liability ($2,000,000) related to the acquisition of Abeona Therapeutics LLC, the settlement of an
agreement ($500,000) and less other income ($41,000).
Interest and other expense for the third quarter
of 2016 and 2015 was $1,000 for each period.
Net loss for the third quarter of 2016 was
$2,624,000, or a $0.08 basic and diluted loss per common share as compared to a net loss of $6,073,000, or a $0.19 basic and diluted
loss per common share, for the same period in 2015, a decreased loss of $3,449,000.
NINE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2015
Our licensing revenue for each of the
first nine months of 2016 and 2015 was $452,000. We recognize licensing revenue over the period of the performance obligation
under our licensing agreements.
We recorded royalty revenue for MuGard of $181,000
for the first nine months of 2016 and $373,000 for the same period of 2015, a decrease of $192,000. 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 nine months of 2016 was $7,618,000, as compared to $2,644,000 for the same period of 2015, an increase of $4,974,000.
The increase in expenses was primarily due to:
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increased development work for the manufactured
product for ABO-102 and other gene therapy products ($2,469,000);
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increased clinical costs for our clinical
trial for ABO-102 and preparation for other clinical trials ($440,000);
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increased salary and related costs ($1,091,000)
from the hiring of scientific staff and annual bonus payments;
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increased stock based compensation expense
for granted stock options ($477,000);
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increased travel and entertainment ($216,000);
and
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other net increases in research spending
($281,000).
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Total general and administrative expenses were
$10,487,000 for the first nine months of 2016, as compared to $10,073,000 for the same period of 2015, an increase of $414,000.
The increase in expenses was due primarily to the following:
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increased stock based compensation expense
for granted stock options ($134,000) and granted stock ($1,101,000);
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increased salary and related costs and
annual bonus payments ($467,000);
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increased net other general and administrative
expense ($296,000).
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offset by decreased investor relations
fees ($1,246,000); and
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offset by decreased legal fees ($338,000).
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Depreciation and amortization was $577,000
for the first nine months of 2016 as compared to $401,000 for the same period in 2015, an increase of $176,000. We are amortizing
the licenses for SDF Alpha, ABO-101 and ABO-201, and EB-101 and EB-102 over the life of the patents. The increase is due to amortization
of licensed technology of $82,000 and depreciation of $94,000.
Total operating expenses for the first nine
months of 2016 were $18,682,000 as compared to total operating expenses of $13,118,000 for the same period of 2015, an increase
of $5,564,000 for the reasons listed above.
Interest and miscellaneous income was $3,182,000
for the first nine months of 2016 as compared to $111,000 for the same period of 2015, an increase of $3,071,000. 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
($2,591,000) related to the acquisition of Abeona Therapeutics LLC, settlement of an agreement ($500,000) less other income ($20,000).
Interest and other expense for the first nine
months of 2016 and 2015 was $4,000 for each period.
Net loss for the nine months of 2016 was $14,871,000,
or a $0.45 basic and diluted loss per common share as compared to a net loss of $12,186,000, or a $0.47 basic and diluted loss
per common share, for the same period in 2015, an increased loss of $2,685,000.