Business Context and Reporting Period
Company: Abeona Therapeutics Inc. (formerly PlasmaTech Biopharmaceuticals, Inc.)
Reporting Period: Quarterly report (Form 10-Q) for the period ended June 30, 2015.
Business Overview: An emerging biopharmaceutical company focused on developing gene therapy and plasma-based products for severe, life-threatening rare diseases. Key programs include ABO-101/102 for Sanfilippo syndrome, ABO-201 for Juvenile Batten disease, ABO-301 for Fanconi anemia, and PTB-101 SDF Alpha for Alpha-1 Antitrypsin deficiency. The company also markets MuGard and ProctiGard for mucositis treatment.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 |
|---|---|---|
| Total Revenues | $282,000 | $540,000 |
| Net Loss (Common Stockholders) | $(4,113,000) | $(6,113,000) |
| Loss Per Share (Basic & Diluted) | $(0.16) | $(0.27) |
| Research & Development Expenses | $610,000 | $1,063,000 |
| General & Administrative Expenses | $3,667,000 | $5,356,000 |
| Cash and Cash Equivalents (End of Period) | $30,410,000 | |
| Working Capital | $29,042,000 | |
| Accumulated Deficit | $(302,187,000) |
Liquidity: The company funded operations through public/private stock sales and warrant exercises. Cash used in operating activities for the six months ended June 30, 2015, was $5,034,000, while cash provided by financing activities was $23,938,000.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased to $282,000 in Q2 2015 from $247,000 in Q2 2014, driven by a $35,000 increase in MuGard royalties.
- Expense Increases: Operating expenses rose significantly to $4,409,000 in Q2 2015 from $950,000 in Q2 2014.
- R&D: Increased by $529,000 due to development work on A1PI and rehiring of scientific staff.
- G&A: Increased by $2,799,000, primarily due to stock-based compensation ($1,572,000), legal fees, and new license expenses.
- Net Loss Improvement: Net loss allocable to common stockholders decreased to $4,113,000 in Q2 2015 from $13,233,000 in Q2 2014. The prior year loss included a $11,693,000 loss on the change in fair value of a derivative liability related to preferred stock, which was converted in December 2014.
- Balance Sheet: Total assets increased to $76,925,000 from $16,582,000 at year-end 2014, largely due to the acquisition of Abeona Therapeutics LLC (Goodwill of $38,955,000) and cash inflows from financing.
Outlook, Risks, and Unusual Items
- Recent Financing (Subsequent Event): On July 31, 2015, the company closed a $15.5 million direct placement of common stock at $5.50 per share. During Q2, it also raised $4.6 million via warrant exercises.
- Acquisition: Completed the acquisition of Abeona Therapeutics LLC on May 15, 2015, issuing ~3.98 million shares plus potential $9 million in performance milestones.
- Licensing Activity: Secured exclusive worldwide rights to gene therapies for Fanconi anemia (University of Minnesota) and Juvenile Batten disease (UNeMed) in June 2015.
- Legal Proceedings: A class action lawsuit (Schmidt v. Genaera) involving Abeona directors remains pending. The Third Circuit Court of Appeals reversed a dismissal in 2014, remanding the case. Oral argument on a motion to dismiss the Second Amended Complaint is scheduled for September 30, 2015.
- Internal Controls: Management identified a material weakness in internal control over financial reporting related to the lack of segregation of duties in the accounting function. This weakness has not been remediated as of June 30, 2015.
- Profitability Risk: The company expects to continue incurring losses for the next several years as it invests in R&D and clinical trials. There is no assurance it will achieve profitability.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $30.4 million cash balance (plus the subsequent $15.5 million raise) to fund clinical trials for lead programs (ABO-101/102) through 2016.
- Legal Exposure: Monitor the outcome of the Schmidt v. Genaera litigation scheduled for September 2015, specifically regarding potential punitive damages or rescission claims.
- Internal Controls: Assess the timeline and plan for remediation of the material weakness in financial reporting controls.
- Dilution: Review the impact of recent equity issuances (April, May, and July 2015) on existing shareholder ownership percentages.
- Acquisition Milestones: Track the progress of the Abeona Ohio acquisition milestones, which could result in up to $9 million in additional cash or stock payments.