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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 therapies for life-threatening rare genetic diseases. Our lead
programs are ABO-102 (AAV-SGSH), an adeno-associated virus (AAV) based gene therapy for Sanfilippo syndrome type A (MPS IIIA),
and EB-101 (LZRSE-Col7A1) (gene-corrected skin transplantations) for recessive dystrophic epidermolysis bullosa (RDEB). We are
also developing ABO-101 (AAV NAGLU), an AAV gene therapy for Sanfilippo syndrome type B (MPS IIIB), EB-201 (AAVDJ-Col7A1) for
epidermolysis bullosa (EB), ABO-201 (AAV-CLN3) gene therapy for juvenile Batten disease (JNCL), ABO-202 (AAV-CLN1) gene therapy
for infantile Batten disease (INCL), 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. 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 November 9, 2017, we announced that
the first patient was enrolled in our ABO-102 (AAV-SGSH) Phase 1/2 clinical trial for MPS-IIIA at the Hospital Clinico Universitario
of Santiago de Compostela, Spain. In conjunction with the initiation of the Spain clinical site, we have established a local subsidiary
to manage clinical trial and regulatory developments in Europe.
On October 19, 2017, we closed an underwritten
public offering of 5,750,000 shares of common stock, at a public offering price of $16.00 per share. The gross proceeds to the
Company were $92,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses payable by
the Company.
On October 16, 2017, we announced
a collaborative agreement between nine Sanfilippo foundations to provide up to approximately $13.85 million of grants to
Abeona in installments for the advancement of the Company’s clinical stage gene therapies for Sanfilippo Syndrome Type
A (MPS IIIA) and Sanfilippo Syndrome Type B (MPS IIIB), subject to the achievement of certain milestones.
On October 11, 2017, we announced enrollment
of our first two patients in an expansion of our Phase 1/2 clinical trial in ABO-102 (AAV-SGSH) for MPS IIIA. While we believe
that the data from this expansion cohort, together with the data generated in this program to date, will allow us to submit a BLA,
we have no assurance to this effect from the FDA.
On October 6, 2017, we announced top-line one
year data from our ABO-102 (AAV-SGSH) MPS IIIA Trial at the Cell & Gene Meeting on the Mesa. Observations demonstrated:
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At one year post-injection, two patients
in Cohort 1 demonstrated reduction of 69.3% +/- 5.7% (P<0.001) in cerebral spinal fluid (CSF) heparan sulfate (HS). One patient
in the Cohort was unable to be accessed due to an adverse event unrelated to the therapy.
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Hepatomegaly — Cohort 1 subjects
demonstrated normalization of liver volumes of 80% (+/- 16.2%) points at one year (P<0.005) post-injection. The natural history
study in 25 subjects with MPS III demonstrated that subjects had increased liver volumes averaging 220% at baseline that was maintained
over a year of follow-up.
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Initial analysis of Cohort 1 patient MRI
data showed evidence of stabilization of the area of deep brain architecture in the thalamus and putamen (P<0.05) at one year
post-administration.
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Cognitive assessments at the 12-month
time point for Cohort 1 showed evidence of stabilization in the Leiter-R non-verbal IQ (n=2) and Vineland (adaptive behavior) (n=3,
P=0.05) scales.
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No serious adverse events related to the
drug were reported in subjects in the cohort receiving ABO-102 (Cohort 1: 5E12 vg/kg) through over 2,000 cumulative follow-up days.
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On September 28, 2017, we announced a collaboration
with Brammer Bio for the commercial translation of ABO-102 (AAV-SGSH).
On October 4, 2017, we announced the dedication
of a commercial gene therapy manufacturing facility in Cleveland, Ohio to support development of advanced gene and cell therapies
for treatment of life-threatening rare diseases.
On August 29, 2017, we announced that the FDA
has granted Orphan Drug Designation for our EB-101 (gene-corrected skin transplantations) program for RDEB.
On July 25, 2017, we announced that Juan Ruiz,
M.D., Ph.D., MBA joined the company as Chief Medical Officer. He will be responsible for leading all clinical development, medical
affairs and related functions.
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 U.S. 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 a severe, life-threating disease. 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% of rare diseases 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 used to treat the patient’s underlying disease and can provide long-term
benefit.
Abeona is developing next-generation 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 CNS 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) III A and IIIB. MPSIII, 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 to a patient.
ABO-101 for MPS III B and ABO-102 for
MPS III A (Sanfilippo syndrome)
MPS 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 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 involves a one-time delivery of a normal copy of the defective gene to cells of the CNS with
the aim of reversing the effects of the genetic errors that cause the disease.
After a single dose in MPS III 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 MPS III 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 MPS III A and B. In addition,
safety studies conducted in animal models of MPS III have demonstrated that delivery of AB0-101 or AB0-102 are well tolerated with
minimal side effects.
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 RDEB. EB-201 (AAVDJ-Col7A1) is a pre-clinical candidate
targeting a novel, AAV-mediated gene editing and delivery approach to correct gene mutations in skin cells for patients with RDEB.
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.
We entered into a license with Stanford effective
August 3, 2016 for the EB-101 (LZRSE-Col7A1 Engineered Autologous Epidermal Sheets (LEAES)) technology, and we have performed certain
preclinical development work and are performing clinical trials of a gene therapy treatment for EB based upon such in-licensed
technology.
We also entered into a license with Stanford
effective August 3, 2016 for the 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.
ABO-201 for juvenile Batten disease (or
Juvenile Neuronal Ceroid Lipofuscinoses) (JNCL) and ABO-202 (AAV-CLN1) gene therapy for treatment of infantile Batten disease (or
Infantile Neuronal Ceroid Lipofuscinoses) (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 CNS 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 loss of previously acquired skills (developmental regression). This regression 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-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 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 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, 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.
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 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. for China and other Southeast Asian countries in 2010; Hanmi
Pharmaceutical Co. Ltd. for South Korea in 2014; and Norgine B.V. for the European Union, Switzerland, Norway, Iceland, Lichtenstein,
Australia and New Zealand in 2014.
LIQUIDITY AND CAPITAL RESOURCES
We have historically 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, 2017. As of September 30, 2017, our cash and
cash equivalents were $56,522,000. As of October 31, 2017, our cash and cash equivalents were $142,618,000.
As of September 30, 2017, our working capital
was $55,756,000. Our working capital at September 30, 2017 represented a decrease of $5,369,000 as compared to our working capital
of $61,125,000 as of December 31, 2016. The decrease in working capital at September 30, 2017 reflects nine months of net operating
costs offset by the $5,000,000 proceeds from the exercise of the $8.00 warrants, the waiver of the $4,000,000 payable we had to
Plasma Technologies, LLC, and other net changes in current assets and liabilities.
On October 19, 2017, we closed an underwritten
public offering of 5,750,000 shares of common stock, at a public offering price of $16.00 per share. The gross proceeds to the
Company were $92,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses payable by
the Company.
On October 16, 2017, we announced
a collaborative agreement between nine Sanfilippo foundations to provide up to approximately $13.85 million of grants to
Abeona in installments for the advancement of the Company’s clinical stage gene therapies for Sanfilippo Syndrome Type
A (MPS IIIA) and Sanfilippo Syndrome Type B (MPS IIIB), subject to the achievement of certain milestones.
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, 2017 of $351,342,000. 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.
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.
THIRD QUARTER 2017 COMPARED TO THIRD QUARTER 2016
Our licensing revenue for the third quarter
of each of 2017 and 2016 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 $68,000
for third quarter of 2017 and $33,000 for the same period of 2016, an increase of $35,000. We licensed MuGard to AMAG and Norgine
and receive quarterly reports under our agreement.
Total research and development spending for
the third quarter of 2017 was $3,277,000, as compared to $2,745,000 for the same period of 2016, an increase of $532,000. The increase
in expenses was primarily due to:
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increased
salary and related costs ($180,000) due to hiring additional scientific staff;
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increased
stock option compensation expense ($112,000);
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increased
travel and entertainment expense ($94,000);
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increased
scientific consulting expense ($84,000); and
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other
net increases in research spending ($62,000).
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Total general and administrative expenses were
$2,166,000 for the third quarter of 2017, as compared to $2,391,000 for the same period of 2016, a decrease of $225,000. The decrease
in expenses was due primarily to the following:
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decreased
stock option compensation expense ($269,000);
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decreased
professional fees ($94,000);
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offset
by increased patent fees ($67,000);
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increased
restricted common stock based compensation expense ($52,000); and
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by
increases in net other general and administrative expenses ($19,000).
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Depreciation and amortization was $138,000
for the third quarter of 2017 as compared to $222,000 for the same period in 2016, a decrease of $84,000. We are amortizing the
licenses for ABO-101 and ABO-201, and EB-102 over the life of the patents and we were amortizing the SDF Alpha license through
May 26, 2017. The decrease is due to amortization of licensed technology of ($96,000) offset by increased depreciation of ($12,000).
Total operating expenses for the third quarter
of 2017 were $5,581,000 as compared to total operating expenses of $5,358,000 for the same period of 2016, an increase of $223,000
for the reasons listed above.
Interest and miscellaneous income was $21,000
for the third quarter of 2017 as compared to $2,551,000 for the same period of 2016, a decrease of $2,530,000. The decrease was
due to the change in the fair value of our contingent consideration liability resulting in miscellaneous income in 2016 ($2,000,000),
the settlement of an agreement resulting in miscellaneous income in 2016 ($500,000) and other income in 2016 ($46,000) offset by
interest income in 2017 ($16,000).
Interest and other expense was $2,000 for the
third quarter of 2017 as compared to $1,000 in the same period of 2016, an increase of $1,000.
Net loss for the third quarter of 2017 was
$5,343,000, or a $0.13 basic and diluted loss per common share as compared to a net loss of $2,624,000, or a $0.08 basic and diluted
loss per common share, for the same period in 2016, an increased loss of $2,719,000.
NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO NINE MONTHS
ENDED SEPTEMEBR 30, 2016
Our licensing revenue for the first nine months
of 2017 and 2016 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 $170,000
for first nine months of 2017 and $181,000 for the same period of 2016, a decrease of $11,000. We licensed MuGard to AMAG and Norgine
and receive quarterly reports under our agreement.
Total research and development spending for
the first nine months of 2017 was $11,283,000, as compared to $7,618,000 for the same period of 2016, an increase of $3,665,000.
The increase in expenses was primarily due to:
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increased
clinical and development work for the manufactured product for ABO-102, EB-101 & ABO-101 and other gene therapy products ($2,804,000);
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increased
salary and related costs ($248,000) due to hiring additional scientific staff;
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increased
scientific consulting expense ($229,000);
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increased
travel and entertainment expense ($194,000); and
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other
net increases in research spending ($190,000).
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Total general and administrative expenses were
$7,830,000 for the first nine months of 2017, as compared to $10,487,000 for the same period of 2016, a decrease of $2,657,000.
The decrease in expenses was due primarily to the following:
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decreased
restricted common stock based compensation expense ($1,941,000) and decreased stock option compensation expense ($480,000);
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decreased
salary and related costs ($338,000);
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decreases
in net other general and administrative expenses ($45,000); and
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offset
by increased patent expenses ($147,000).
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Depreciation and amortization was $595,000
for the first nine months of 2017 as compared to $577,000 for the same period in 2016, an increase of $18,000. We are amortizing
the licenses for ABO-101 and ABO-201, and EB-102 over the life of the patents and SDF Alpha through May 26, 2017. The increase
is due to depreciation of ($45,000) offset by a decrease in amortization of licensed technology of ($27,000).
Total operating expenses for the first nine
months of 2017 were $19,708,000 as compared to total operating expenses of $18,682,000 for the same period of 2016, an increase
of $1,026,000 for the reasons listed above.
Interest and miscellaneous income was $224,000
for the first nine months of 2017 as compared to $3,182,000 for the same period of 2016, a decrease of $2,958,000.
The decrease was due to the change in the fair
value of our contingent consideration liability resulting in miscellaneous income in 2016 ($2,591,000), the settlement of an agreement
resulting in miscellaneous income in 2016 ($500,000) and other income in 2016 ($39,000) and offset by the Plasmatech/Acestor agreement
in 2017 resulting in miscellaneous income ($127,000) and interest income in 2017 ($45,000).
Interest and other expense was $7,000 for the
first nine months of 2017 as compared to $4,000 in the same period of 2016.
Net loss for the first nine months of
2017 was $18,869,000, or a $0.47 basic and diluted loss per common share as compared to a net loss of $14,871,000, or a $0.45
basic and diluted loss per common share, for the same period in 2016, an increased loss of $3,998,000.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
(Topic 606)
(“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s
core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard
defines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates
than under the current guidance. The guidance was originally effective for public entities for interim and annual periods beginning
after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. Early adoption
was originally not permitted. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date
, which delayed the effective date for public entities to annual periods beginning after
December 15, 2017 and for interim periods within those fiscal years. Early adoption of the standard is permitted for annual
periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations
, to clarify the implementation guidance on principal versus agent considerations.
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing
, to clarify various aspects of Topic 606, including the identification of performance obligations and the implementation
of licensing guidance. The Company is currently evaluating the impact that the adoption of ASU 2014-010 will have on its condensed
consolidated financial statements. In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients,
to clarify aspects of Topic 606, including assessing the collectability
criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications
at transition and completed contracts at transition. The Company is in the process of evaluating the impact of this new guidance.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases
for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying
leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase
by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or
on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and
a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of
12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous
leases standard, ASC 840 Leases. The standard is effective for public entities for annual and interim periods beginning after December
15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
OFF-BALANCE SHEET ARRANGEMENTS
None.