Abeona Therapeutics Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “Annual Report”). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

Abeona is a commercial-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases. On April 28, 2025, the U.S. Food and Drug Administration (“FDA”) approved ZEVASKYN™ (prademagene zamikeracel) gene-modified cellular sheets, also known as pz-cel, as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with RDEB, a serious and debilitating genetic skin disease. There is no cure for RDEB, and ZEVASKYN™ is the only FDA-approved product to treat RDEB wounds with a single application. In connection with the FDA approval of ZEVASKYN™, Abeona received a Rare Pediatric Disease Priority Review Voucher (“PRV”). ZEVASKYN™ has been granted Orphan Drug and Rare Pediatric Disease (“RPD”) designations by the FDA and Orphan Drug Designation by the European Medicines Agency (“EMA”).

We established a current Good Manufacturing Practices (“cGMP”) commercial facility in Cleveland, Ohio for manufacturing ZEVASKYN™ drug product to support our commercial launch. ZEVASKYN™ will be made available beginning in the third quarter of 2025 through ZEVASKYN™ Qualified Treatment Centers (“QTCs”). The QTCs are well-recognized epidermolysis bullosa treatment centers with cell and gene therapy experience, situated across the U.S. to ensure patients nationwide have access to this important treatment.

Our development portfolio also features adeno-associated virus (“AAV”) based gene therapies designed to treat ophthalmic diseases with high unmet need using novel AIM™ capsids exclusively licensed from the University of North Carolina at Chapel Hill and developed internally through our AAV vector research programs. Abeona’s novel, next-generation AAV capsids are being evaluated to improve tropism profiles for a variety of devastating diseases.

Preclinical Pipeline

Our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for serious genetic eye diseases, including ABO-504 for Stargardt disease, ABO-503 for X-linked retinoschisis (“XLRS”) and ABO-505 for autosomal dominant optic atrophy (“ADOA”). We completed pre-Investigational New Drug Application (“pre-IND”) meetings with the FDA regarding the preclinical development plans and regulatory requirements to support first-in-human trials.

Recent Updates

Sale of Priority Review Voucher

On May 9, 2025, we entered into a definitive asset purchase agreement to sell its Rare Pediatric Disease Priority Review Voucher (“PRV”) for gross proceeds of $155 million upon the closing of the transaction. We were awarded the PRV following the FDA approval of ZEVASKYN™ on April 28, 2025. The transaction is subject to customary closing conditions, including expiration of the applicable waiting period under the Hart-Scott Rodino (“HSR”) Antitrust Improvements Act.

First Qualified Treatment Center Activation

On May 14, 2025, we announced that Ann & Robert H. Lurie Children’s Hospital of Chicago (“Lurie Children’s”) is now activated as the first QTC for ZEVASKYN™. Lurie Children’s has completed QTC start-up activities enabling it to begin patient identification for scheduling of ZEVASKYN treatment. Treatments are expected to begin in the third quarter of 2025.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2025 and March 31, 2024

($ in thousands)

Research and development

Research and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical and development costs, clinical trial costs, manufacturing and manufacturing facility costs, costs associated with regulatory approvals, depreciation on lab supplies and manufacturing facilities, and consultant-related expenses.

Total research and development spending for the three months ended March 31, 2025 was $9.9 million, as compared to $7.2 million for the same period of 2024, an increase of $2.7 million. The increase in expenses was primarily due to a $1.1 million increase in salaries and $0.3 million in non-cash stock-based compensation costs due to increased headcount related to scale up of manufacturing capacity in preparation for the planned launch of ZEVASKYN™ and $0.9 million in pre-clinical development work.

We expect our research and development activities to continue as we work towards advancing our product candidates towards potential regulatory approval, reflecting costs associated with the following:

• employee and consultant-related expenses;
• preclinical and developmental costs;
• clinical trial costs;
• the cost of acquiring and manufacturing clinical trial materials; and
• costs associated with regulatory approvals.

General and administrative

General and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related costs, professional fees (e.g., legal expenses), costs for planned commercial launch and other general operating expenses not otherwise included in research and development expenses.

Total general and administrative expenses were $9.8 million for the three months ended March 31, 2025, as compared to $7.1 million for the same period of 2024, an increase of $2.7 million. The increase in expenses was primarily due to:

• increased salary and related costs of $1.4 million;
• increased non-cash stock-based compensation of $0.8 million; and
• increased other costs such as professional fees, rent, and recruiting of $0.5 million.

Interest income

Interest income was $1.3 million for the three months ended March 31, 2025, as compared to $0.8 million in the same period of 2024. The increase resulted from higher earnings on short-term investments driven by increased average short-term investment balances.

Interest expense

Interest expense was $1.0 million for the three months ended March 31, 2025 and 2024. Interest expense is due to the credit facility entered into by the Company in January 2024.

Change in fair value of warrant and derivative liabilities

The change in fair value of warrant liabilities was a gain of $7.2 million for the three months ended March 31, 2025. We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. The gain in the fair value of warrant liabilities was primarily due to the decrease in our stock price year over the year and a shorter term.

The change in fair value of warrant and derivative liabilities was a loss of $17.3 million for the three months ended March 31, 2024. In 2024, we issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. In addition, the conversion feature in our loan agreement was required to be classified as a liability through September 30, 2024 and was valued at fair market value at each reporting period during the nine-month period ending September 30, 2024. The change in the fair value of warrant and derivative liabilities was primarily due to the increase in our stock price year as of March 31, 2024 compared to December 31, 2023.

Other income

Other income was $0.1 million for the three months ended March 31, 2025, as compared to $0.2 million in the same period of 2024. Other income includes sublease income and saw a minor reduction period over period.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows for the Three Months Ended March 31, 2025 and 2024

($ in thousands)

Operating activities

Net cash used in operating activities was $18.4 million for the three months ended March 31, 2025, primarily comprised of our net loss of $12.0 million and decreases in operating assets and liabilities of $3.4 million and net non-cash charges of $3.0 million. Non-cash charges consisted primarily of $7.2 million of gain as a result of the change in fair value of warrant and derivative liabilities, $2.7 million of stock-based compensation and $0.5 million of depreciation and amortization.

Net cash used in operating activities was $14.5 million for the three months ended March 31, 2024, primarily comprised of our net loss of $31.6 million and decreases in operating assets and liabilities of $2.8 million and net non-cash charges of $19.9 million. Non-cash charges consisted primarily of $17.3 million of the change in fair value of warrant and derivative liabilities, $1.5 million of stock-based compensation and $0.5 million of depreciation and amortization.

Investing activities

Net cash provided by investing activities was $4.2 million for the three months ended March 31, 2025, primarily comprised of proceeds from maturities of short-term investments of $54.2 million, offset by purchases of short-term investments of $48.6 million and capital expenditures of $1.4 million.

Net cash used in investing activities was $7.8 million for the three months ended March 31, 2024, primarily comprised of proceeds from maturities of short-term investments of $22.3 million, offset by purchases of short-term investments of $29.3 million and capital expenditures of $0.7 million.

Financing activities

Net cash provided by financing activities was $6.8 million for the three months ended March 31, 2025, primarily comprised of proceeds of $6.8 million from open market sales of common stock pursuant to the ATM Agreement (as defined below).

Net cash provided by financing activities was $25.4 million for the three months ended March 31, 2024, primarily comprised of proceeds of $6.4 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and net proceeds of $19.0 million from our January 2024 Loan Agreement.

We have historically funded our operations primarily through sales of common stock.

Our principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our cash resources. As of March 31, 2025, our cash resources were $84.5 million. We believe that our current cash and cash equivalents, restricted cash and short-term investments in addition to the $10.5 million in net proceeds from our subsequent sale of common stock under the ATM and the gross proceeds of $155 million upon the closing of our definite asset purchase agreement to sell our PRV, are sufficient to fund operations through at least the next 12 months from the date of this report on Form 10-Q. We may need to secure additional funding to carry out all of our planned research and development and potential commercialization activities. If we are unable to obtain additional financing or generate license or product revenue, the lack of liquidity and sufficient capital resources could have a material adverse effect on our future prospects.

We have an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”) pursuant to which, we may sell from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $75.0 million. Any sales of shares pursuant to this agreement are made under our effective “shelf” registration statement on Form S-3 that is on file with and has been declared effective by the SEC. We sold 1,312,283 shares of our common stock under the ATM Agreement and received $6.8 million of net proceeds during the three months ended March 31, 2025. We sold 889,315 shares of our common stock under the ATM Agreement and received $6.4 million of net proceeds during the three months ended March 31, 2024. Subsequent to March 31, 2025 and through April 28, 2025, we sold 2,198,606 shares of our common stock under the ATM Agreement resulting in $10.5 million in net proceeds.

Since our inception, we have incurred negative cash flows from operations and have expended, and expect to continue to expend, substantial funds to complete our planned product development and commercialization efforts. We have not been profitable since inception and to date have received limited revenues from the sale of products or licenses. As a result, we have incurred significant operating losses and negative cash flows from operations since our inception and anticipates such losses and negative cash flows will continue until ZEVASKYN™ can provide sufficient revenue for us to be profitable and cash flow generating.

We may incur losses for the next several years as we continue to invest in commercialization, product research and development, preclinical studies, clinical trials, and regulatory compliance and cannot provide assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis, or at all.

If we raise additional funds by selling additional equity securities, the relative equity ownership of our existing investors will be diluted, and the new investors could obtain terms more favorable than previous investors. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Our future capital requirements and adequacy of available funds depend on many factors, including:

• the successful development, regulatory approval and commercialization of our cell and gene therapy and other product candidates;
• the ability to establish and maintain collaborative arrangements with corporate partners for the research, development, and commercialization of products;
• continued scientific progress in our research and development programs;
• the magnitude, scope and results of preclinical testing and clinical trials;
• the costs involved in filing, prosecuting, and enforcing patent claims;
• the costs involved in conducting clinical trials;
• competing technological developments;
• the cost of manufacturing and scale-up;
• the ability to establish and maintain effective commercialization arrangements and activities; and
• the successful outcome of our regulatory filings.

Due to uncertainties and certain of the risks described above, our ability to successfully commercialize our product candidates, our ability to obtain applicable regulatory approval to market our product candidates, our ability to obtain necessary additional capital to fund operations in the future, our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes, government regulation to which we are subject, the uncertainty associated with preclinical and clinical testing, intense competition that we face, the potential necessity of licensing technology from third parties and protection of our intellectual property, it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence. If we are unable to timely complete a particular project, our research and development efforts could be delayed or reduced, our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations, as discussed in the risks above.

We plan to continue our policy of investing any available funds in suitable certificates of deposit, money market funds, government securities and investment-grade, interest-bearing securities. We do not invest in derivative financial instruments.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

• it requires assumptions to be made that were uncertain at the time the estimate was made, and
• changes in the estimate or different estimates that could have been selected could have a material impact in our results of operations or financial condition.

While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material. For a discussion of the critical accounting estimates that affect the unaudited condensed consolidated financial statements, see “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of our significant accounting policies.

Recently Issued Accounting Standards Not Yet Effective or Adopted

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards not yet effective or adopted.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management and consultants, including the Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls and Procedures”), as of March 31, 2025, as such term is defined in Rules 13a-15I and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Conclusion of Evaluation — Based on this Disclosure Controls and Procedures evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our Disclosure Controls and Procedures as of March 31, 2025 were effective.

Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business and financial results are subject to numerous risks and uncertainties. As a result, the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 should be carefully considered. There have been no material changes in the assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2024 except as set forth below.

We recently received approval to market our first product, ZEVASKYN™, and will begin commercial sales, which make it difficult to assess our future viability.

We are a commercial-stage biopharmaceutical company. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. On April 28, 2025, the United States Food and Drug Administration (“FDA”) approved our Biologics License Application (“BLA”) for ZEVASKYN™ for treatment of wounds in adult and pediatric patients with recessive dystrophic epidermolysis bullosa (“RDEB”), a series and debilitating genetic skin disease. To date we have not recorded any revenue from ZEVASKYN™ and recorded minimal other revenue and may recognize minimal revenue in the foreseeable future. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Disruptions at FDA and other government agencies, such as those that may be caused by funding shortages, could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. Disruptions at FDA and other agencies may also increase the time necessary to meet with and provide feedback to entities developing drug products, review and/or approve our submissions, conduct inspections, issue regulatory guidance, or otherwise authorize our actions requiring regulatory approval, which would adversely affect our business. In addition, government funding of FDA and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable. For example, the executive branch recently established the Department of Government Efficiency (“DOGE”), which implemented a federal government hiring freeze and large scale layoffs of current federal employees and also announced additional efforts to reduce federal government employee headcount and the size of the federal government. It is unclear how these executive actions or other potential actions by the executive branch will impact the regulatory authorities that oversee our business. These budgetary pressures may reduce FDA’s ability to perform its responsibilities. If a significant reduction in FDA’s workforce occurs, FDA’s budget is significantly reduced, or there are other disruptions at FDA and other agencies, more time may be necessary for biological products, or biologics, or modifications to approved biologics to be reviewed and/or approved by necessary government agencies, which could increase our costs and would adversely affect our business. In addition, if a prolonged government shutdown occurs, it could significantly impact the ability of FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. For example, over the last several years, the United States government has shut down several times and certain regulatory agencies, such as FDA, have had to furlough critical FDA employees and stop critical activities. Additionally, Congress may introduce and ultimately pass healthcare related legislation that could impact the drug approval process.

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 be certain when we, independently or with our collaborative partners, might submit a BLA 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.

Further, the current federal administration has announced that it is looking for opportunities to improve efficiency and identify fraud and ineffective use of resources at government agencies, including through the DOGE, This includes government agencies we may interact with like the FDA. There is a possibility that changes will be made at the FDA, and other governmental agencies that we may interact with, and that these changes could have a material adverse impact on our business.