Business
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 cell and gene therapies for life-threatening rare genetic diseases.
Our lead programs include EB-101 (gene-corrected skin grafts) for recessive dystrophic epidermolysis bullosa (RDEB), ABO-102 (AAV-SGSH),
an adeno-associated virus (AAV) based gene therapy for Sanfilippo syndrome type A (MPS IIIA) and ABO-101 (AAV NAGLU), an AAV based
gene therapy for Sanfilippo syndrome type B (MPS IIIB). We are also developing ABO-201 (AAV-CLN3) gene therapy for juvenile Batten
disease (JNCL), ABO-202 (AAV-CLN1) for treatment of infantile Batten disease (INCL), EB-201 for epidermolysis bullosa (EB), 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 are developing a proprietary vector platform, AIM™, for next generation product
candidates. Our principal executive office is located at 3333 Lee Parkway, Suite 600, Dallas, Texas 75219. Our website address
is
www.abeonatherapeutics.com
.
Product Development Strategy
Abeona is focused on developing and delivering
gene therapy 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 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 plan to perform preclinical development and 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.
Intellectual Property
We believe that the value of technology
both to us and to our potential corporate partners is established and enhanced by our broad intellectual property positions. Consequently,
we have already been issued and seek to obtain additional U.S. and foreign patent protection for our products, including those
under development and for new discoveries.
Patent applications are filed with the
U.S. Patent and Trademark Office and, when appropriate, with the Paris Convention’s Patent Cooperation Treaty (PCT) Countries
(most major countries in Western Europe and the Far East) for our inventions and prospective products.
We have a strategy of maintaining an ongoing
line of patent continuation applications for each major category of patentable carrier and delivery technology. By this approach,
we are extending the intellectual property protection of our basic targeting technology and initial agents to cover additional
specific carriers and agents, some of which are anticipated to carry the priority dates of the original applications.
Gene Therapy Licensed Patents
We have secured an exclusive license in
the field of use through Nationwide Children’s Hospital to the ABO-101 and ABO-102 patent portfolio for developing treatments
for patients with MPS IIIA and B. This portfolio (13/491,326 and 15/903,861) comprises one patent family: “Products and methods
for delivery of polynucleotides by adeno-associated virus for lysosomal storage disorders.”
Additionally, we have secured FDA Orphan
Drug Designation for both MPS IIIA and B, which will provide 7 years of post-launch market exclusivity for both ABO-101 and ABO-102
in the U.S. ABO-101 and ABO-102 are also eligible for 12 years of Biologics exclusivity upon approval in the U.S. and 10 years
of exclusivity in the European Union upon marketing authorization. We have secured Orphan Drug Status within the EMA for both ABO-101
and ABO-102, which will grant 10 years of post-market exclusivity in the European Union.
We licensed the exclusive rights to
an international patent publication number (WO 2016/100575) which has been filed nationally in Australia, Canada, China, the
European Union, Japan, New Zealand and the United States as well as priority applications (62/092,501 and 62/146,793) from
the UNeMed Corporation. The patents are “Compositions and Methods for the Treatment of Juvenile Neuronal Ceroid
Lipofuscinosis” and “Gene Therapy for Juvenile Batten Disease” for an AAV gene therapy for the treatment of
JNCL.
We licensed patent applications (international
patent publication number WO 2015/179540, which has been filed nationally in Canada, the European Union (and by extension into
Hong Kong), Japan and the United States, as well as priority application, 62/000,590, “Method for Editing a Genetic Sequence”
with an exclusive, field of use, worldwide, agreement with the University of Minnesota for an AAV gene therapy for the treatment
of patients with Fanconi anemia (FA) disorder and other rare blood diseases.
We licensed a patent family
(U.S. Patent No. 9,169,299 and 9,856,469, allowed U.S. application number 14/853,552, and pending application EP 16196258.4) entitled
“AAV Capsid Proteins for Nucleic Acid Transfer” from Stanford with exclusivity for an AAV delivery vector for the
treatment of FA and a rare blood disease platform.
We licensed patent applications (62/274,700
and 62/414,533) and international patent publication number WO 2017/120147 entitled “Gene Therapy for Recessive Dystrophic
Epidermolysis Bullosa using Genetically Corrected Autologous Keratinocytes” from Stanford. This exclusive agreement provides
an exclusive license to this technology for the treatment of RDEB.
We licensed a patent family (international
patent publication number WO 2016/081811) which has been filed nationally in Australia, Brazil, Canada, China, the European Union,
Israel, India, Japan, South Korea, Mexico, New Zealand, the Russian Federation, South Africa and the United States, from The University
of North Carolina at Chapel Hill entitled “AAV Vectors Targeted to the Central Nervous System.” This agreement provides
an exclusive license to the AAV Vector Library for a number of diseases.
We licensed a patent family (U.S. Patents
Nos. 7,588,772, 8,067,014, 8,574,583, and 8,906,387) from Stanford. This agreement provides an exclusive license for the use of
AAV DJ in the EB-201 construct for the treatment of EB.
We licensed a patent application (62/349,411)
entitled “CLN1 Genome Design for AAV Vectors” and international application number PCT/US2017/037118 entitled “Optimized
CLN1 Genes and Expression Cassettes and Their Uses” from The University of North Carolina at Chapel Hill. This agreement
provides an exclusive field of use license for the treatment of INCL.
We are aware of an issued U.S. patent owned
by a third party directed to the AAV9 viral vector and methods for its use. This patent was issued in 2002. We understand that
the owner of this patent grants licenses under the patent from time to time, and we expect that, prior to commercializing our ABO-101,
ABO-102, ABO-201 or ABO-202 product candidates (which utilize the AAV9 vector), we would seek to license this patent. Other licensed
technologies may also require the licensing of additional patents for commercialization.
MuGard patents
For our mucoadhesive liquid technology,
used in MuGard, two U.S. patents have been issued and two European patents have been granted. Two European patents have been granted
and validated in numerous European countries. Patents have also been granted in several other major territories worldwide. Our
mucoadhesive liquid technology patents and applications cover a range of products for a variety of diseases and conditions affecting
the oral cavity, including the management of the various phases of mucositis. MuGard mucoadhesive technology patents expire in
2022.
Government Regulation
We are
subject to extensive regulation by the federal government, principally by the FDA, and, to a lesser extent, by other federal and
state agencies as well as comparable agencies in foreign countries where registration of products will be pursued. Although a number
of our formulations incorporate extensively tested drug substances, because the resulting formulations make claims of enhanced
efficacy and/or improved side effect profiles, they are expected to be classified as new drugs by the FDA.
The Federal
Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern the testing, manufacturing, safety,
labeling, storage, shipping and record keeping of our products. The FDA has the authority to approve or not approve new drug applications
and inspect research, clinical and manufacturing records and facilities.
Among
the requirements for drug approval and testing is that the prospective manufacturer’s facilities and methods conform to the
FDA’s Code of Good Manufacturing Practices regulations, which establishes the minimum requirements for methods to be used
in, and the facilities or controls to be used during, the production process. Such facilities are subject to ongoing FDA inspection
to insure compliance.
The steps
required before a pharmaceutical product may be produced and marketed in the U.S. include preclinical tests, the filing of an Investigational
New Drug (‘‘IND’’) application with the FDA, which must become effective pursuant to FDA regulations before
human clinical trials may commence, numerous phases of clinical testing and the FDA approval of a New Drug Application (NDA) prior
to commercial sale.
Preclinical
tests are conducted in the laboratory, usually involving animals, to evaluate the safety and efficacy of the potential product.
The results of preclinical tests are submitted as part of the IND application and are fully reviewed by the FDA prior to granting
the sponsor permission to commence clinical trials in humans. All trials are conducted under International Conference on Harmonization,
good clinical practice guidelines. All investigator sites and sponsor facilities are subject to FDA inspection to insure compliance.
Clinical trials typically involve a three-phase process. Phase 1 the initial clinical evaluations, consists of administering the
drug and testing for safety and tolerated dosages and in some indications such as cancer and HIV, as preliminary evidence of efficacy
in humans. Phase 2 involves a study to evaluate the effectiveness of the drug for a particular indication and to determine optimal
dosage and dose interval and to identify possible adverse side effects and risks in a larger patient group. When a product is found
safe, and initial efficacy is established in Phase 2, it is then evaluated in Phase 3 clinical trials. Phase 3 trials consist of
expanded multi-location testing for efficacy and safety to evaluate the overall benefit-to-risk index of the investigational drug
in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to the FDA in the form
of an NDA for approval to commence commercial sales.
The process
of forming the requisite testing, data collection, analysis and compilation of an IND and an NDA is labor intensive and costly
and may take a protracted time period. In some cases, tests may have to be redone or new tests instituted to comply with FDA requests.
Review by the FDA may also take considerable time and there is no guarantee that an NDA will be approved. Therefore, we cannot
estimate with any certainty the length of the approval cycle.
We are
also governed by other federal, state and local laws of general applicability, such as laws regulating working conditions, employment
practices, as well as environmental protection.
License Agreements
Gene
therapy license agreements
On May
15, 2015, we acquired Abeona Therapeutics LLC (Abeona Ohio) which had an exclusive license through Nationwide Children’s
Hospital to the ABO-101 and ABO-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and
Type B. This portfolio comprises 1 patent family: “Products and methods for delivery of polynuleotides by adeno-associated
virus for lysosomal storage disorders”. Additionally, Abeona has secured FDA Orphan drug designation for both Sanfilippo
A and B, which will provide 7 years of post-launch market exclusivity for both ABO-101 and ABO-102 in the U.S. Abeona has also
secured Orphan Drug Status within the EMA for both ABO-101 and ABO-102, which will grant 10 years of post-market exclusivity in
the European Union. In addition, Abeona has also received from the FDA the Rare Pediatric Disease Designation from the FDA for
both ABO-101 and ABO-102 and the Fast Track Designation for ABO-102.
On June
5, 2015, we entered into an exclusive, worldwide, licensing agreement with the UNeMed Corporation, the technology transfer and
commercialization office for the University of Nebraska Medical Center (UNMC) in Omaha, Nebraska, for an AAV gene therapy for the
treatment of juvenile Batten disease. We licensed the rights to two patents (62/092,501 and 62/146,793). Under the terms of the
licensing agreement, we paid a license fee of $75,000 and will pay milestone payments on certain milestone events. Commencing with
the first commercial sale of licensed products a royalty will be paid. We also entered into an eighteen month sponsored research
agreement with UNMC focused on additional efficacy studies in October 2015. Additionally, Abeona has secured FDA Orphan drug designation
for both Juvenile Batten disease (CLN3) and Infantile Batten Disease (CLN1), which will provide 7 years of post-launch market exclusivity
for both ABO-201 and ABO-202 in the U.S. Abeona has also secured Orphan Drug Status within the EMA for ABO-201, which will grant
10 years of post-market exclusivity in the European Union.
On June
5, 2015, we entered into an exclusive, worldwide, licensing agreement with the University of Minnesota for an AAV gene therapy
for the treatment of patients with FA disorder and other rare blood diseases. We licensed one patent (62/000,590), Method for Editing
a Genetic Sequence. Under terms of the licensing agreement, we paid a license fee of $80,000, will pay an additional license fee
of $50,000, will pay annual maintenance fees and a royalty fee with the first commercial sale of licensed products.
On
September 17, 2015, we entered into a nonexclusive license agreement with Stanford University for an AAV delivery vector for
the treatment of FA and rare blood disease platform. This license augments the University of Minnesota agreement. We licensed
two patents (U.S. Patent No. 9,169,299 and EPO 12756603.2). Under terms of the licensing agreement, we paid a license fee
of $25,000, will pay annual maintenance fees and a royalty fee with the first commercial sale of licensed
products.
On October
14, 2015, we entered into a sponsored research agreement with UNMC to support ongoing AAV/CLN3 projects in the amount of $215,000.
On August 3, 2016, we announced that 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 Epidermolysis Bullosa (“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 wish to have Abeona exercise
such rights and enter into a license with Stanford for such technology, and perform preclinical development and perform clinical
trials of a gene therapy treatment for EB based upon such in-licensed technology. Abeona will also enter into a license with Stanford
for the AAV-based gene therapy EB-201 (AAV DJ COL7A1) technology, and Abeona will perform preclinical development and perform clinical
trials of a gene therapy treatment for EB based upon such in-licensed technology.
In connection with the EB Agreement Abeona
issued to EBRP and EBMRF an aggregate of 750,000 unregistered shares of Abeona Common Stock, $0.01 par value per share, 375,000
each to EBRP and EBMRF. The offer, sale, and issuance of the shares of Abeona common stock are exempt from registration pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. The recipients of securities under the
EB Agreement agreed that they are acquiring the securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends are to be affixed to the securities to be issued in conjunction with the
EB Agreement. The shares are subject to restrictions on selling, transferring or otherwise disposing of such shares. These restrictions
lapse with respect to an aggregate 250,000 shares on the first anniversary of the issue date; and with respect to an additional
aggregate 500,000 shares on the second anniversary of the issue date. We have an option to acquire an additional license in the
future for an additional amount shares as set forth in the EB Agreement.
On August 3, 2016, we also entered into
two licensing agreements between us and Stanford to develop EB-101 (LZRSE-Col7A1 Engineered Autologous Epidermal Sheets (LEAES))
and EB-201 (AAV DJ COL7A1) and to license the invention “Gene Therapy for Recessive Dystrophic EB using Genetically Corrected
Autologous Keratinocytes.” Under the terms of the licensing agreements, we paid upfront licensing fees in cash, and will
pay annual license maintenance fees and, subject to the achievement of certain milestones, regulatory approval milestone payments,
as well as royalty payments on annual net sales of the licensed product.
Additionally,
Abeona has secured FDA Orphan drug designation for both EB-101, which will provide 7 years of post-launch market exclusivity in
the U.S. Abeona has also secured Orphan Drug Status within the EMA for EB-101, which will grant 10 years of post-market exclusivity
in the European Union. In addition, Abeona has also received from the FDA the Rare Pediatric Disease Designation from the FDA for
EB-101, the Breakthrough Therapy Designation and the Regenerative Medicine Advanced Therapy Designation (“RMAT”).
MuGard license agreements
On June
6, 2013, we entered into an exclusive license agreement with AMAG related to the commercialization of MuGard in the U.S. and its
territories. Under the terms of the licensing agreement, we received an upfront licensing fee of $3.3 million and will receive
a tiered, double-digit royalty on net sales of MuGard in the licensed territories. AMAG also purchased our existing MuGard inventory.
The $3.3 million license fee is accounted for as deferred revenue and is recognized over ten years, which is the life of the license
agreement. The license term expires June 6, 2023. The license can also terminate in the event of breach by either us or AMAG or
by AMAG at any time with 180 days prior notice of termination.
On March
11, 2014, we announced we had entered into an exclusive license agreement with Hanmi related to MuGard commercialization in South
Korea. Under the terms of the agreement, we received an upfront licensing fee and double digit royalties on sales of MuGard in
the licensed territory. The license term expires February 26, 2024. The license can also terminate in the event of breach by either
party or by Hanmi at any time with 180 days prior notice of termination.
On August
7, 2014, we entered into an exclusive license agreement with Norgine, a leading independent European specialty pharmaceutical company,
for the commercialization of MuGard in Europe. Under the terms of the license agreement, we could receive up to $10 million in
milestone payments and an escalating double digit royalty on the net sales of the oral mucositis product, MuGard, in the licensed
territories. Norgine will develop, manufacture, and commercialize MuGard in the European Union, Switzerland, Norway, Iceland and
Lichtenstein. Norgine began a rolling commercial launch of MuGard in 2016.
Competition
The pharmaceutical
and biotechnology industry is characterized by intense competition, rapid product development and technological change. Competition
is intense among manufacturers of prescription pharmaceuticals and other product areas where we may develop and market products
in the future. Most of our potential competitors are large, well established pharmaceutical, chemical or healthcare companies with
considerably greater financial, marketing, sales and technical resources than are available to us. Additionally, many of our potential
competitors have research and development capabilities that may allow such competitors to develop new or improved products that
may compete with our product lines. Our potential products could be rendered obsolete or made uneconomical by the development of
new products to treat the conditions to be addressed by our developments, technological advances affecting the cost of production,
or marketing or pricing actions by one or more of our potential competitors. Our business, financial condition and results of operation
could be materially adversely affected by any one or more of such developments. We cannot assure you that we will be able to compete
successfully against current or future competitors or that competition will not have a material adverse effect on our business,
financial condition and results of operations. Academic institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent protection and may commercialize products on their own
or with the assistance of major health care companies in areas where we are developing product candidates. We are aware of certain
development projects for products to treat or prevent certain diseases targeted by us, and the existence of these potential products
or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely
affect the marketability of products developed by us.
Gene
therapy competition
The gene
therapy industry is highly competitive and driven by several large competitors including Bluebird, Voyager, RegenXbio, Spark, Dimension,
Avalanche, uniQure, and Lysogene.
MuGard
competition
ActoGeniX
N.V., Alder Biopharmaceuticals, Inc., Applied Protein Sciences, LLC, Avaxia Biologics, Inc., BioAlliance Pharma S.A., BMG Pharma
s.r.l., Camurus AB, DARA BioSciences, Inc., Galera Therapeutics, Inc. Jazz Pharmaceuticals, Maya Biotech Ltd., NephRx, Piramal
Healthcare Ltd., Soligenix, Inc. and Synedgen are developing products to treat mucositis that may compete with our mucoadhesive
liquid technology. Products that are marketed to treat mucositis include Caphosol by Jazz Pharmaceuticals, Gelclair by DARA BioSciences,
Inc., Episil by Camurus AB, and Kepivance by Biovitrum.
Many
of these competitors have greater financial and other resources, including larger research and development, marketing and manufacturing
organizations. As a result, our competitors may successfully develop technologies and drugs that are more effective or less costly
than any that we are developing or which would render our technology and future products obsolete and noncompetitive.
In addition,
some of our competitors have greater experience than we do in conducting preclinical and clinical trials and obtaining FDA and
other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals for drug candidates
more rapidly than we do. Companies that complete clinical trials, obtain required regulatory agency approvals and commence commercial
sale of their drugs before their competitors may achieve a significant competitive advantage. Drugs resulting from our research
and development efforts or from our joint efforts with collaborative partners therefore may not be commercially competitive with
our competitors’ existing products or products under development.
In the
area of advanced drug delivery, which is the focus of our early stage research and development activities, a number of companies
are developing or evaluating enhanced drug delivery systems. We expect that technological developments will occur at a rapid rate
and that competition is likely to intensify as various alternative delivery system technologies achieve similar if not identical
advantages.
Even
if our products are fully developed and receive required regulatory approval, of which there can be no assurance, we believe that
our products can only compete successfully if marketed by a company having expertise and a strong presence in the therapeutic area.
Consequently, we do not currently plan to establish an internal marketing organization. By forming strategic alliances with major
and regional pharmaceutical companies, management believes that our development risks should be minimized and that the technology
potentially could be more rapidly developed and successfully introduced into the marketplace.
Other Key Developments
On February 12, 2018, we announced that
the FDA granted Orphan Drug Designation (ODD) to our ABO-202 program (AAV-CLN1), an AAV-based gene therapy for the treatment of
infantile Batten disease.
ABO-202, developed with Steven Gray, Ph.D.
and the support of The Saoirse Foundation, Taylor's Tale, Garrett the Grand Batten Fighter, Hayden's Batten Disease Foundation,
and the Batten Disease Support and Research Association, is anticipated to enter clinical trials in 2018.
The preclinical data for ABO-202 were presented
at the WORLDSymposium for Lysosomal Diseases held in San Diego, California from February 5-9, 2018. Key findings included:
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CLN1 mice recapitulate the major features of the human disease manifestations;
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The data demonstrate that a single intrathecal (IT) injection of self-complementary adeno-associated
virus 9 (scAAV9) encoding the human CLN1 gene to CLN1 mice at 1 week and 1 month (pre-symptomatic) significantly increased
their survival, improved behavior and reduced motor deficits;
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Higher IT doses further improved these observations, suggesting that methods increasing CNS exposure
may be beneficial and provided some survival and behavioral benefit to symptomatic INCL mice; and
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A combination approach delivering ABO-202 by both intravenous and intrathecal routes of administration
further increased survival efficacy 50% and improved potential treatment options for older animals with advanced disease manifestations.
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On February 8, 2018 we announced updated
clinical data from the ongoing Phase 1/2 trial for ABO-102 (AAV-SGSH), the Company’s investigational gene therapy for the
treatment of Sanfilippo syndrome Type A (MPS IIIA), a rare autosomal-recessive lysosomal storage disease. The results demonstrate
robust and durable clinical effects achieved throughout various time points post-administration. To date, 10 patients have been
dosed with a single intravenous injection of ABO-102. Results were reported during the WORLDSymposium.
In the trial, subjects received a single intravenous injection
of ABO-102 to facilitate systemic delivery of a corrective copy of the gene associated with onset and progression of MPS IIIA. Subjects
were evaluated at multiple time points post-injection for safety assessments and signals of biopotency and clinical activity.
On February 7, 2018 we reported preliminary
30-Day safety and biopotency signals from the first patient dosed in the Company’s ongoing Phase 1/2 trial for ABO-101, a
gene therapy treatment for patients with MPS IIIB (Sanfilippo syndrome Type B), enrolling at Nationwide Children’s Hospital
in Columbus, Ohio. The ABO-101 therapy involves a single intravenous injection of AAV gene therapy for subjects with MPS IIIB,
a rare autosomal recessive disease causing neurocognitive decline, speech and mobility loss, and premature death. Abeona plans
to enroll a total of three patients in Cohort 1 (2E13 vg/kg) before dose-escalating to the Cohort 2 dose (5E13 vg/kg).
The Phase 1/2 study is designed to evaluate
safety and preliminary indications of efficacy of ABO-101 in subjects suffering from MPS IIIB. In the first patient treated in
Cohort 1:
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ABO-101, at a systemic dose of 2E13 vg/kg, is well-tolerated, with no treatment related adverse
events or serious adverse events (SAEs) through 30 days of follow up.
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Early biopotency signals include significant heparan sulfate (HS) reductions observed in cerebral
spinal fluid (50%), urine (69%), plasma (60%) and urinary total glycosaminoglycan (GAG) (67%);
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50% decline in CSF heparan sulfate from baseline supports previous AAV9 clinical observations that
ABO-101 crossed the blood brain barrier after intravenous administration;
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Normalized NAGLU enzyme activity observed represented by a greater than 300-fold increase over
baseline at 30 days post administration.
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Subjects in the Phase 1/2 trial receive a single, intravenous
injection of ABO-101, which uses an AAV vector to introduce a corrective copy of the NAGLU gene associated with MPS IIIB disease.
Subjects will be evaluated at multiple time points over the initial 30 days post-injection for safety assessments and initial signals
of biopotency. Results in the first patient dosed with ABO-101 suggest strong CNS and broader systemic distribution, with
the potential to reduce levels of glycosaminoglycans (GAGs) that represent the lysosomal storage pathology central to MPS IIIB
disease progression.
On January 29, 2018 we announced that the FDA has granted the
Regenerative Medicine Advanced Therapy (RMAT) designation to EB-101, the Company’s gene-corrected autologous cell therapy
product for patients with recessive dystrophic epidermolysis bullosa (RDEB).
On December 20, 2017 we announced that
the first patient in a Phase 1/2 clinical trial for ABO-101 (AAV-NAGLU), a single treatment gene therapy for patients with Sanfilippo
syndrome type B (MPS IIIB), has been dosed at Nationwide Children’s Hospital, Columbus, Ohio.
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 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 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 September 28, 2017, we announced a collaboration
with Brammer Bio for the commercial translation of ABO-102 (AAV-SGSH).
Corporate Information
Our principal executive office is located
at 3333 Lee Parkway, Suite 600, Dallas, Texas 75219. Our telephone number in Dallas is (214) 665-9495. We also have offices in
New York at 1330 Avenue of the Americas, Suite #33A, New York, NY 10019. Our telephone number in New York is (646) 813-4708. We
also have offices and laboratory in Ohio at 6555 Carnegie Ave., 4
th
Floor, Cleveland, OH 44103. Our phone number in
Cleveland is (216) 282-8145.
We were incorporated in Wyoming in 1974
as Chemex Corporation, and in 1983 we changed our name to Chemex Pharmaceuticals, Inc. We changed our state of incorporation from
Wyoming to Delaware on June 30, 1989. In 1996 we merged with Access Pharmaceuticals, Inc., a private Texas corporation, and changed
our name to Access Pharmaceuticals, Inc. On October 24, 2014 we changed our name to PlasmaTech Biopharmaceuticals, Inc. On May
15, 2015 we acquired Abeona Therapeutics LLC and on June 19, 2015 we changed our name to Abeona Therapeutics Inc.
Suppliers
Some materials used by us are specialized.
We obtain materials from several suppliers based in different countries around the world. If materials are unavailable from one
supplier we generally have alternate suppliers available.
Employees
As of March 16, 2018, we had 42 full-time
employees, 20 of whom have advanced scientific degrees. We have never experienced employment-related work stoppages and consider
that we maintain good relations with our personnel. In addition, to complement our internal expertise, we have contracts with scientific
consultants, contract research organizations and university research laboratories that specialize in various aspects of drug development
including clinical development, regulatory affairs, toxicology, process scale-up and preclinical testing.
Web Availability
We make available free of charge through
our website,
www.abeonatherapeutics.com
, our annual reports on Form 10-K and other reports that we file with the Securities
and Exchange Commission as well as certain of our corporate governance policies, including the charters for the audit, compensation
and nominating and corporate governance committees of the Board of Directors (the “Board”) and our code of ethics,
corporate governance guidelines and whistleblower policy. We will also provide to any person without charge, upon request, a copy
of any of the foregoing materials. Any such request must be made in writing to us at: Abeona Therapeutics Inc. c/o Investor Relations,
3333 Lee Parkway, Suite 600, Dallas, TX 75219.
Risks Relating to our Business and Industry
We have experienced a history of losses,
we expect to incur future losses and we may be unable to obtain necessary additional capital to fund operations in the future.
We have recorded minimal revenue to date
and have incurred an accumulated deficit of approximately $359.8 million through December 31, 2017 and $332.5 million through December
31, 2016. Net loss allocable to common stockholders for the year ended December 31, 2017 was $27.3 million and the net loss for
the year ended December 31, 2016 was $21.9 million. Our losses have resulted principally from costs incurred in research and development
activities related to our efforts to develop clinical drug candidates, from losses due to derivatives and from the associated administrative
costs. We expect to incur additional operating losses over the next several years. We also expect cumulative losses to increase
if we expand research and development efforts and preclinical and clinical trials.
We require substantial capital for our
development programs and operating expenses, to pursue regulatory clearances and to prosecute and defend our intellectual property
rights. We will need to raise substantial additional capital to support our ongoing and planned operations.
If we raise additional funds by issuing
equity securities, further dilution to existing stockholders will result and future investors may be granted rights superior to
those of existing stockholders. If adequate funds are not available to us through additional equity offerings, we may be required
to delay, reduce the scope of or eliminate one or more of our research and development programs or to obtain funds by entering
into arrangements with collaborative partners or others that require us to issue additional equity securities or to relinquish
rights to certain technologies or drug candidates that we would not otherwise issue or relinquish in order to continue independent
operations.
We do not have significant operating
revenue and may never attain profitability.
To date, we have funded our operations
primarily through private sales of common stock, preferred stock and convertible notes as well as public offerings of our common
stock. Contract research payments and licensing fees from corporate alliances and mergers have also provided funding for our operations.
Our ability to achieve significant revenue or profitability depends upon our licensees ability to successfully market MuGard in
North America, Europe, Australia, New Zealand, Korea and China or to complete the development of our drug candidates, to develop
and obtain patent protection and regulatory approvals for our drug candidates and to manufacture and commercialize the resulting
drugs. We are not expecting any significant revenues in the short-term from our products or product candidates. Furthermore, we
may not be able to ever successfully identify, develop, commercialize, patent, manufacture, obtain required regulatory approvals
and market any additional products. Moreover, even if we do identify, develop, commercialize, patent, manufacture, and obtain required
regulatory approvals to market additional products, we may not generate revenues or royalties from commercial sales of these products
for a significant number of years, if at all. Therefore, our proposed operations are subject to all the risks inherent in the establishment
of a new business enterprise. In the next few years, our revenues may be limited to minimal product sales and royalties, and any
amounts that we receive under strategic partnerships and research or drug development collaborations that we may establish and,
as a result, we may be unable to achieve or maintain profitability in the future or to achieve significant revenues in order to
fund our operations.
We may not successfully commercialize
our drug candidates.
Our drug candidates are subject to the
risks of failure inherent in the development of pharmaceutical products based on new technologies, and our failure to develop safe
commercially viable drugs would severely limit our ability to become profitable or to achieve significant revenues. We may be unable
to successfully commercialize our drug candidates because:
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some or all of our drug candidates may be found to be unsafe or ineffective or otherwise fail to
meet applicable regulatory standards or receive necessary regulatory clearances;
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our drug candidates, if safe and effective, may be too difficult to develop into commercially viable
drugs;
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it may be difficult to manufacture or market our drug candidates on a large scale;
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proprietary rights of third parties may preclude us from marketing our drug candidates; and
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third parties may market superior or equivalent drugs.
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The success of our research and development
activities, upon which we primarily focus, is uncertain.
Our primary focus is on our research and
development activities and the commercialization of compounds covered by proprietary biopharmaceutical patents and patent applications.
Research and development activities, by their nature, preclude definitive statements as to the time required and costs involved
in reaching certain objectives. Actual research and development costs, therefore, could significantly exceed budgeted amounts and
estimated time frames may require significant extension. Cost overruns, unanticipated regulatory delays or demands, unexpected
adverse side effects or insufficient therapeutic efficacy will prevent or substantially slow our research and development effort
and our business could ultimately suffer. We anticipate that we will remain principally engaged in research and development activities
for an indeterminate, but substantial, period of time.
We may be unable to successfully develop,
market, or commercialize our products or our product candidates without establishing new relationships and maintaining current
relationships and our ability to successfully commercialize, and market our product candidates could be limited if a number of
these existing relationships are terminated.
Our strategy for the research, development
and commercialization of our potential pharmaceutical products may require us to enter into various arrangements with corporate
and academic collaborators, licensors, licensees and others, in addition to our existing relationships with other parties. Specifically,
we may seek to joint venture, sublicense or enter other marketing arrangements with parties that have an established marketing
capability or we may choose to pursue the commercialization of such products on our own. We may, however, be unable to establish
such additional collaborative arrangements, license agreements, or marketing agreements as we may deem necessary to develop, commercialize
and market our potential pharmaceutical products on acceptable terms. Furthermore, if we maintain and establish arrangements or
relationships with third parties, our business may depend upon the successful performance by these third parties of their responsibilities
under those arrangements and relationships.
We may be unable to successfully manufacture
our products and our product candidates in clinical quantities or for commercial purposes without the assistance of contract manufacturers,
which may be difficult for us to obtain and maintain.
We have limited experience in the manufacture
of pharmaceutical products in clinical quantities or for commercial purposes and we may not be able to manufacture any new pharmaceutical
products that we may develop. As a result, we have established, and in the future intend to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical trials and for the manufacture, packaging, labeling
and distribution of finished pharmaceutical products if any of our potential products are approved for commercialization. If we
are unable to contract for a sufficient supply of our potential pharmaceutical or biopharmaceutical products on acceptable terms,
our preclinical and human clinical testing schedule may be delayed, resulting in the delay of our clinical programs and submission
of product candidates for regulatory approval. This may cause our business to suffer if there are delays or difficulties in establishing
relationships with manufacturers to produce, package, label and distribute our finished pharmaceutical or biopharmaceutical or
other medical products, if any. Moreover, US contract manufacturers that we may use must adhere to current Good Manufacturing Practices,
as required by the FDA. In this regard, the FDA will not issue a pre-market approval or product and establishment licenses, where
applicable, to a manufacturing facility for the products until the manufacturing facility passes a pre-approval plant inspection.
If we are unable to obtain or retain third party manufacturing on commercially acceptable terms, we may not be able to commercialize
our products as planned. Our potential dependence upon third parties for the manufacture of our products may adversely affect our
ability to generate profits or acceptable profit margins and our ability to develop and deliver such products on a timely and competitive
basis.
We rely on third parties
to conduct our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully
carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain
regulatory approval for or commercialize our drug candidates and our business, financial condition and results of operations could
be substantially harmed.
We have relied upon and plan to continue
to rely upon third-parties, including contract research organizations, medical institutions, clinical investigators and contract
laboratories to monitor and manage data for our licensed ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility
for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol,
legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities.
We and our vendors are required to comply with current requirements on good manufacturing practices, or cGMP, good clinical practices,
or GCP, and good laboratory practice, or GLP, which are a collection of laws and regulations enforced by the FDA, EMA or comparable
foreign authorities for all of our drug candidates in clinical development.
Regulatory authorities enforce these regulations
through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical
trial sites, and other contractors. If we or any of our vendors fails to comply with applicable regulations, the data generated
in our preclinical studies and clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign authorities may
require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot
assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical
trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP
regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development
and regulatory approval processes.
If any of our relationships with these
third parties, medical institutions, clinical investigators or contract laboratories terminate, we may not be able to enter into
arrangements with alternative contract research organizations on commercially reasonable terms, or at all. In addition, our contract
research organizations are not our employees, and except for remedies available to us under our agreements with such contract research
organizations, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical
programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need
to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols,
regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able
to obtain regulatory approval for or successfully commercialize our drug candidates.
Contract research organizations may also
generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial
prospects for our drug candidates could be materially and adversely affected, our costs could increase, and our ability to generate
revenue could be delayed.
Switching or adding additional contract
research organizations, medical institutions, clinical investigators or contract laboratories involves additional cost and requires
management time and focus. In addition, there is a natural transition period when a new contract research organization commences
work replacing a previous contract research organization. As a result, delays occur, which can materially impact our ability to
meet our desired clinical development timelines. Though we carefully manage our relationships with our contract research organizations,
there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges
will not have a material adverse effect on our business, financial condition or results of operations.
We are subject to extensive governmental
regulation which increases our cost of doing business and may affect our ability to commercialize any new products that we may
develop.
The FDA and comparable agencies in foreign
countries impose substantial requirements upon the introduction of pharmaceutical products through lengthy and detailed laboratory,
preclinical and clinical testing procedures and other costly and time-consuming procedures to establish safety and efficacy. All
of our drugs and drug candidates require receipt and maintenance of governmental approvals for commercialization. Preclinical and
clinical trials and manufacturing of our drug candidates will be subject to the rigorous testing and approval processes of the
FDA and corresponding foreign regulatory authorities. Satisfaction of these requirements typically takes a significant number of
years and can vary substantially based upon the type, complexity and novelty of the product.
Due to the time-consuming and uncertain
nature of the drug candidate development process and the governmental approval process described above, we cannot assure you when
we, independently or with our collaborative partners, might submit a New Drug Application, or NDA, for FDA or other regulatory
review. Further, our ability to commence and/or complete development projects will be subject to our ability to raise enough funds
to pay for the development costs of these projects. Government regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of our potential drugs for a considerable or indefinite period of time, impose
costly procedural requirements upon our activities and furnish a competitive advantage to larger companies or companies more experienced
in regulatory affairs. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our
ability to generate significant revenues from commercial sales.
Our drug candidates may not receive FDA
or other regulatory approvals on a timely basis or at all. Moreover, if regulatory approval of a drug candidate is granted, such
approval may impose limitations on the indicated use for which such drug may be marketed. Even if we obtain initial regulatory
approvals for our drug candidates, our drugs and our manufacturing facilities would be subject to continual review and periodic
inspection, and later discovery of previously unknown problems with a drug, manufacturer or facility may result in restrictions
on the marketing or manufacture of such drug, including withdrawal of the drug from the market. The FDA and other regulatory authorities
stringently apply regulatory standards and failure to comply with regulatory standards can, among other things, result in fines,
denial or withdrawal of regulatory approvals, product recalls or seizures, operating restrictions and criminal prosecution.
The uncertainty associated with preclinical
and clinical testing may affect our ability to successfully commercialize new products.
Before we can obtain regulatory approvals
for the commercial sale of any of our potential drugs, the drug candidates will be subject to extensive preclinical and clinical
trials to demonstrate their safety and efficacy in humans. Preclinical or clinical trials of future drug candidates may not demonstrate
the safety and efficacy to the extent necessary to obtain regulatory approvals and our drug candidates could result in injury or
death to patients in our clinical trials. In this regard, for example, adverse side effects can occur during the clinical testing
of a new drug on humans which may delay ultimate FDA approval or even lead it to terminate our efforts to develop the drug for
commercial use. Companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after
demonstrating promising results in earlier trials, including injury or death. The failure to adequately demonstrate the safety
and efficacy of a drug candidate under development could delay or prevent regulatory approval of the drug candidate. A delay or
failure to receive regulatory approval for any of our drug candidates could prevent us from successfully commercializing such candidates
and we could incur substantial additional expenses in our attempt to further develop such candidates and obtain future regulatory
approval.
We may incur substantial product liability
expenses due to the use or misuse of our products for which we may be unable to obtain insurance coverage.
Our business exposes us to potential liability
risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. These risks will expand with respect
to our drug candidates, if any, that receive regulatory approval for commercial sale and we may face substantial liability for
damages in the event of adverse side effects, including injury or death, or product defects identified with any of our products
that are used in clinical tests or marketed to the public. Product liability insurance for the biotechnology industry is generally
expensive, if available at all, and as a result, we may be unable to obtain insurance coverage at acceptable costs or in a sufficient
amount in the future, if at all. We may be unable to satisfy any claims for which we may be held liable as a result of the use
or misuse of products which we developed, manufactured or sold and any such product liability claim could adversely affect our
business, operating results or financial condition.
Intense competition may limit our ability
to successfully develop and market commercial products.
The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological change. Our competitors in the U.S. and elsewhere
are numerous and include, among others, major multinational pharmaceutical and chemical companies, specialized biotechnology firms
and universities and other research institutions. Many of our competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing organizations. As a result, our competitors may successfully
develop technologies and drugs that are more effective or less costly than any that we are developing or which would render our
technology and future products obsolete and noncompetitive.
In addition, some of our competitors have
greater experience than we do in conducting preclinical and clinical trials and obtaining FDA and other regulatory approvals. Accordingly,
our competitors may succeed in obtaining FDA or other regulatory approvals for drug candidates more rapidly than we can. Companies
that complete clinical trials, obtain required regulatory agency approvals and commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage. Drugs resulting from our research and development efforts or from
our joint efforts with collaborative partners therefore may not be commercially competitive with our competitors’ existing
products or products under development.
Our ability to successfully develop
and commercialize our drug candidates will substantially depend upon the availability of reimbursement funds for the costs of the
resulting drugs and related treatments.
Market acceptance and sales of our product
candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage
as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance
organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly
for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement
will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the
demand for, or the price of, our products. We have not commenced efforts to have our product candidates reimbursed by government
or third party payors. If coverage and reimbursement are not available or are available only at limited levels, we may not be able
to commercialize our products. In recent years, officials have made numerous proposals to change the health care system in the
U.S. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing
of drugs to government control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing
of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits
or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to
generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and
the trend towards managed health care in the U.S., third-party payors are increasingly attempting to contain health care costs
by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements
and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has
granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse
patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.
The market may not accept any pharmaceutical
products that we develop.
The drugs that we are attempting to develop
may compete with a number of well-established drugs manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any drugs developed by us will depend on a number of factors, including the establishment and demonstration
of the clinical efficacy and safety of our drug candidates, the potential advantage of our drug candidates over existing therapies
and the reimbursement policies of government and third-party payers. Physicians, patients or the medical community in general may
not accept or use any drugs that we may develop independently or with our collaborative partners and if they do not, our business
could suffer.
Healthcare reform measures could hinder
or prevent our product candidates’ commercial success.
The U.S. government and other governments
have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the
pricing of healthcare products and services in the U.S. or internationally and the amount of reimbursement available from governmental
agencies or other third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed
care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability
to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
New laws, regulations and judicial decisions,
or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery
or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise
our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging
due to several reasons, including policies advanced by the current executive administration in the U.S., new healthcare legislation
or fiscal challenges faced by government health administration authorities. Specifically, in both the U.S. and some foreign jurisdictions,
there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our
ability to sell our products profitably.
For example, in March 2010, President Obama
signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA.
This law will substantially change the way healthcare is financed by both government health plans and private insurers, and significantly
impact the pharmaceutical industry. The PPACA contains a number of provisions that are expected to impact our business and operations
in ways that may negatively affect our potential revenues in the future. For example, the PPACA imposes a non-deductible excise
tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs which we believe
will increase the cost of our products. In addition, as part of the PPACA’s provisions closing a funding gap that currently
exists in the Medicare Part D prescription drug program (commonly known as the ‘‘donut hole’’), we will
be required to provide a discount on branded prescription drugs equal to 50% of the government-negotiated price, for drugs provided
to certain beneficiaries who fall within the donut hole. Similarly, PPACA increases the level of Medicaid rebates payable by manufacturers
of brand-name drugs from 15.1% to 23.1% and requires collection of rebates for drugs paid by Medicaid managed care organizations.
The PPACA also includes significant changes to the 340B drug discount program including expansion of the list of eligible covered
entities that may purchase drugs under the program. At the same time, the expansion in eligibility for health insurance benefits
created under PPACA is expected to increase the number of patients with insurance coverage who may receive our products. While
it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business,
they could have a material adverse effect on our business and financial condition.
Congress periodically adopts legislation
like the PPACA and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that modifies Medicare reimbursement
and coverage policies pertaining to prescription drugs. Implementation of these laws is subject to ongoing revision through regulatory
and sub regulatory policies. Congress also may consider additional changes to Medicare policies, potentially including Medicare
prescription drug policies, as part of ongoing budget negotiations. While the scope of any such legislation is uncertain at this
time, there can be no assurances that future legislation or regulations will not decrease the coverage and price that we may receive
for our proposed products. Other third-party payors are increasingly challenging the prices charged for medical products and services.
It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and
private payors. Our proposed products may not be considered cost-effective, and coverage and reimbursement may not be available
or sufficient to allow us to sell our proposed products on a profitable basis. Further federal and state proposals and health care
reforms are likely which could limit the prices that can be charged for the product candidates that we develop and may further
limit our commercial opportunities. Our results of operations could be materially adversely affected by proposed healthcare reforms,
by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts
that private insurers will pay and by other health care reforms that may be enacted or adopted in the future. In September 2007,
the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including
the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance
with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in
delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance
with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.
Our business could suffer if we lose
the services of, or fail to attract, key personnel.
We are highly dependent upon the efforts
of our senior management, including our Executive Chairman, Principal Executive Officer, and board member, Steven H. Rouhandeh;
our President and Chief Executive Officer, and board member, Timothy J. Miller; our Chief Operating Officer, Jeffrey B. Davis;
and our Chief Accounting Officer, Stephen B. Thompson. The loss of the services of these individuals could delay or prevent the
achievement of our research, development, marketing, or product commercialization objectives. We do not have employment contracts
with our other key personnel. We do not maintain any ‘key-man’ insurance policies on any of our key employees and we
do not intend to obtain such insurance. In addition, due to the specialized scientific nature of our business, we are highly dependent
upon our ability to attract and retain qualified scientific and technical personnel and consultants. In view of the stage of our
development and our research and development programs, we have restricted our hiring to research scientists, consultants and a
small administrative staff and we have made only limited investments in manufacturing, production, sales or regulatory compliance
resources. There is intense competition among major pharmaceutical and chemical companies, specialized biotechnology firms and
universities and other research institutions for qualified personnel in the areas of our activities, however, and we may be unsuccessful
in attracting and retaining these personnel.
Trends toward managed health care and
downward price pressures on medical products and services may limit our ability to profitably sell any drugs that we may develop.
Lower prices for pharmaceutical products
may result from:
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third-party-payers’ increasing challenges to the prices charged for medical products and
services;
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the trend toward managed health care in the U.S. and the concurrent growth of HMOs and similar
organizations that can control or significantly influence the purchase of healthcare services and products; and
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legislative proposals to reform healthcare or reduce government insurance programs.
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The cost containment measures that healthcare
providers are instituting, including practice protocols and guidelines and clinical pathways, and the effect of any healthcare
reform, could limit our ability to profitably sell any drugs that we may successfully develop. Moreover, any future legislation
or regulation, if any, relating to the healthcare industry or third-party coverage and reimbursement, may cause our business to
suffer.
Security breaches and other disruptions
could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business,
we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers
and business partners, as well as personally identifiable information of clinical trial participants and employees. Similarly,
our business partners and third party providers possess certain of our sensitive data. The secure maintenance of this information
is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure
may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could
compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access,
disclosure or other loss of information, including our data being breached at our business partners or third-party providers, could
result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations,
and damage our reputation which could adversely affect our business.
Risks Related to our Intellectual Property
It is difficult and costly to protect
our proprietary rights, and we may not be able to ensure protection of such rights.
Our commercial success will depend in part
on obtaining and maintaining patent protection and trade secret protection of our product candidates, and the methods used to manufacture
them, as well as successfully defending these patents against third-party challenges. We will only be able to protect our product
candidates from unauthorized making, using, selling and offering to sell or importation by third parties to the extent that we
have rights under valid and enforceable patents or trade secrets that cover these activities. The patent positions of pharmaceutical
and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles
remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in
the U.S. The biotechnology patent situation outside the U.S. is even more uncertain. Changes in either the patent laws or in interpretations
of patent laws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict
the breadth of claims that may be allowed or enforced in our issued patents or in third-party patents.
The degree of future protection for our
proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or
permit us to gain or keep our competitive advantage. For example:
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others may be able to produce compounds or molecules that are competitive with our product candidates
but that are not covered by the claims of our patents;
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we may not have been the first to make the inventions covered by our pending patent applications;
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we may not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents and it is
possible that our issued patents could be narrowed in scope, invalidated, held to be unenforceable, or circumvented;
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we may not develop additional proprietary technologies that are patentable; or
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the patents of others may have an adverse effect on our business; or others may be able to misappropriate
our trade secrets.
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We also may rely on trade secrets to protect
our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult
to protect. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that
a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable.
In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may
independently develop equivalent knowledge, methods and know-how.
We may incur substantial costs as a
result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect
our rights to, or use, our technology.
If we choose to go to court to stop someone
else from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that these
patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time
and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that
the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the
inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other
party on the ground that such other party’s activities do not infringe our rights to these patents.
Furthermore, a third party may claim that
we are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal
operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results
of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we
are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there
is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The biotechnology
industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents
cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or
methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we
may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing
evidence to overcome the presumption of validity enjoyed by issued patents. Because some patent applications in the U.S. may be
maintained in secrecy until the patents are issued, patent applications in the U.S. and many foreign jurisdictions are typically
not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries,
we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending
applications or that we were the first to invent the technology. Our competitors have filed, and may in the future file, patent
applications covering technology similar to ours. Any such patent application may have priority over our patent applications and
could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent
application on inventions similar to ours, we may have to participate in an interference proceeding declared by the PTO, to determine
priority of invention in the U.S. The costs of these proceedings could be substantial, and it is possible that such efforts would
be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.
Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect
on our ability to raise the funds necessary to continue our operations.
Future litigation, including product
liability claims, private securities litigation, stockholder derivative suits and contract litigation, may adversely affect our
financial condition and results of operations or liquidity.
The development, manufacture and marketing
of pharmaceutical products of the types that we produce entail an inherent risk of product liability claims. A number of factors
could result in an unsafe condition or injury to a patient with respect to these or other products that we manufacture or sell,
including inadequate disclosure of product-related risks or product-related information. In addition, we may be the subject of
litigation involving contract disputes, stockholder derivative suites or private securities litigation. The outcome of litigation,
particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery
of very large or indeterminate amounts, including not only actual damages, but also punitive damages. The magnitude of the potential
losses relating to these lawsuits may remain unknown for substantial periods of time. In addition, the cost to defend against any
future litigation may be significant. Product liability claims, securities and commercial litigation and other litigation in the
future, regardless of the outcome, could have a material adverse effect on our financial condition, results of operations or liquidity.
We may not be successful in protecting
our intellectual property and proprietary rights.
Our success depends, in part, on our ability
to obtain U.S. and foreign patent protection for our drug candidates and processes, preserve our trade secrets and operate our
business without infringing the proprietary rights of third parties. Legal standards relating to the validity of patents covering
pharmaceutical and biotechnological inventions and the scope of claims made under such patents are still developing and there is
no consistent policy regarding the breadth of claims allowed in biotechnology patents. The patent position of a biotechnology firm
is highly uncertain and involves complex legal and factual questions. We cannot assure you that any existing or future patents
issued to, or licensed by, us will not subsequently be challenged, infringed upon, invalidated or circumvented by others. We cannot
assure you that any patents will be issued from any of the patent applications owned by, or licensed to, us. Furthermore, any rights
that we may have under issued patents may not provide us with significant protection against competitive products or otherwise
be commercially viable.
Patents may have been granted to third
parties or may be granted covering products or processes that are necessary or useful to the development of our drug candidates.
If our drug candidates or processes are found to infringe upon the patents or otherwise impermissibly utilize the intellectual
property of others, our development, manufacture and sale of such drug candidates could be severely restricted or prohibited. In
such event, we may be required to obtain licenses from third parties to utilize the patents or proprietary rights of others. We
cannot assure you that we will be able to obtain such licenses on acceptable terms, if at all. If we become involved in litigation
regarding our intellectual property rights or the intellectual property rights of others, the potential cost of such litigation,
regardless of the strength of our legal position, and the potential damages that we could be required to pay could be substantial.
Our products could infringe on the intellectual
property rights of others, and we may be required to license technology from third parties in the future in order to market our
products.
Companies in the biotechnology and pharmaceutical
industries steadfastly pursue and protect intellectual property rights. This can result in considerable and costly litigation to
determine the validity of patents and claims by third parties of infringement of patents or other intellectual property. Our gene
therapy products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents
or inventions or other proprietary rights in technology necessary for our business. We have or may be required to obtain licenses
from other companies to use such proprietary rights. We may be unable to obtain licenses to use such proprietary rights.
Furthermore, should we violate the terms of a license, that license could be cancelled. Our ability to achieve profitability and
positive cash flow may be negatively affected by our inability to procure such a license, the cancellation of any such license,
any new license fees arising out of any new license, or any increases in license fees we currently pay. Periodically companies
inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If
we are forced to defend against infringement claims, we may face costly litigation and diversion of technical and management personnel,
even if the allegations of infringement are unwarranted. In addition, as a result of potential infringement claims, we may be required
to obtain one or more licenses from other companies to use the infringed technology, and the license fees we pay may negatively
affect our ability to achieve profitability and positive cash flow. If there is a successful claim of infringement against us and
we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business,
and our ability to grow revenue and achieve profitability and positive cash flow, could be adversely affected.
We
are aware of an issued U.S. patent owned by a third party directed to the AAV9 viral vector and methods for its use. This patent
was issued in 2002. We understand that the owner of this patent grants licenses under the patent from time to time, and we expect
that, prior to commercializing our ABO-101 or ABO-102 product candidates (which utilize the AAV9 vector), we would seek to license
this patent. There can be no assurance that we will be successful in licensing this patent or that any such patent would be on
favorable terms to us. Other licensed technologies may also require the licensing of additional patents for commercialization.
We are substantially
dependent on technologies we license from Nationwide Children’s Hospital for ABO-101 and ABO-102, and if we lose the license
to such technologies or the applicable license is terminated for any reason, our ability to develop ABO-101 and ABO-102 would be
harmed, and our business, financial condition and results of operations would be materially and adversely affected.
Our business
is substantially dependent upon technology licensed from Nationwide Children’s Hospital. Pursuant to the Nationwide Children’s
Hospital License Agreement, we have been granted exclusive rights for the intellectual property for ABO-101 and ABO-102
.
All of the intellectual property related to our ABO-101 and ABO-102 is currently owned by Nationwide
Children’s Hospital, and we have the rights to use such intellectual property pursuant to the Nationwide Children’s
Hospital License Agreement. Therefore, our ability to develop and commercialize our drug candidates depends entirely on the effectiveness
and continuation of the Nationwide Children’s Hospital agreement. If we lose the right to license any of these key compounds,
our ability to develop existing and new drug candidates would be harmed.
Nationwide Children’s
Hospital has the right to terminate the Nationwide Children’s Hospital License Agreement under certain circumstances, including,
but not limited to: (1) in the event of our insolvency or bankruptcy, (2) written notice with at least six months’
notice, or (3) if we default on certain of our material obligations and fail to cure the default within a specified period of time.
Risks Related to our Common Stock
The market price of our common stock
may be volatile and adversely affected by several factors.
The market price of our common stock could
fluctuate significantly in response to various factors and events, including:
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our ability to integrate operations, technology, products and services;
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our ability to execute our business plan;
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operating results below expectations;
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announcements concerning product development results, including clinical trial results, or intellectual
property rights of others;
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litigation or public concern about the safety of our potential products;
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our issuance of additional securities, including debt or equity or a combination thereof, which
will be necessary to fund our operating expenses;
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announcements of technological innovations or new products by us or our competitors;
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loss of any strategic relationship;
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industry developments, including, without limitation, changes in healthcare policies or practices
or third-party reimbursement policies; economic and other external factors;
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period-to-period fluctuations in our financial results; and
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whether an active trading market in our common stock develops and is maintained.
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In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the
past and do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the value of
our common stock.
We have never paid cash dividends on our
common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends
on our capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such
time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because
a return on your investment will only occur if the common stock price appreciates.
Our quarterly operating results may
fluctuate significantly.
We expect our operating results to be subject
to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
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variations in the level of expenses related to our development programs;
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addition or termination of clinical trials;
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any intellectual property infringement lawsuit in which we may become involved;
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regulatory developments affecting our product candidates; and
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our execution of any collaborative, licensing or similar arrangements, and the timing of payments
we may make or receive under these arrangements.
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If our quarterly operating results fall
below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore,
any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially.
Provisions of our charter documents
could discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and
making it difficult to remove, management.
Provisions of our Certificate of Incorporation
and By-laws may make it more difficult for a third party to acquire control of us, even if a change in control would benefit our
stockholders. In particular, shares of our preferred stock may be issued in the future without further stockholder approval and
upon such terms and conditions, and having such rights, privileges and preferences, as our Board of Directors may determine, including,
for example, rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may
be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance
of our preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes,
could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain
investors might be willing to pay in the future for shares of our common stock and discourage these investors from acquiring a
majority of our common stock. Further, the existence of these corporate governance provisions could have the effect of entrenching
management and making it more difficult to change our management.
Failure to achieve and maintain effective
internal controls could have a material adverse effect on our business.
Effective internal controls are necessary
for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be harmed.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Based on our evaluation, our management
concluded that there is no material weakness in our internal control over financial reporting for the year ended December 31, 2017
based on the criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
While we continue to evaluate and improve
our internal controls, we cannot be certain that these measures will ensure adequate controls over our financial processes and
reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting obligations. Failure to achieve and maintain an effective
internal control environment could cause investors to lose confidence in our reported financial information, which could have a
material adverse effect on our stock price. Failure to comply with Section 404 could also potentially subject us to sanctions or
investigations by the Securities and Exchange Commission (“SEC”) or other regulatory authorities.
There can be no assurance that we will
be able to comply with continued listing standards of the NASDAQ Capital Market.
We cannot assure you that we will be able
to continue to comply with the minimum bid price and the other standards that we are required to meet in order to maintain a listing
of our common stock on the NASDAQ Capital Market. Our failure to continue to meet these requirements may result in our common stock
being delisted from the NASDAQ Capital Market.
Our ability to use our net operating
loss carry forwards may be subject to limitation.
Generally, a change of more than 50% in
the ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for U.S. federal income
tax purposes. An ownership change may limit our ability to use our net operating loss carryforwards attributable to the period
prior to the change. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards
to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax
liability for us. At December 31, 2017, we had net operating loss carryforwards aggregating approximately $238.2 million.
Ownership of our shares is concentrated
in the hands of a few investors which could limit the ability of our other stockholders to influence the direction of the Company.
As calculated by SEC rules of beneficial
ownership, SCO Capital Partners LLC and affiliates beneficially owned approximately 29.7% of our common stock as of March 15, 2018.
Accordingly, they collectively have the ability to significantly influence or determine the election of all of our directors or
the outcome of most corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances
their best interests and not necessarily those of our other stockholders.