Abeona Therapeutics Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Abeona is a clinical-stage gene and cell therapy company; it reported no product revenue and continued to fund research and development primarily from cash, investments, equity financing and grants.
Financial results and liquidity
- Revenue: $0, versus $531,000 in Q1 2018 ($481,000 foundation revenue and $50,000 royalties).
- Expenses: $19.1 million, up from $11.2 million. R&D was $11.7 million, up $3.5 million, primarily from clinical and development work and added scientific staff. General and administrative expense was $5.7 million, up $2.8 million. Depreciation and amortization was $1.7 million, up $1.5 million, primarily due to the REGENXBIO license.
- Loss: Operating loss was $19.1 million; net loss was $18.6 million, or $0.39 per share, compared with a $10.5 million net loss, or $0.22 per share, in Q1 2018. Profitability and positive margins are not applicable given the company’s losses and lack of revenue.
- Cash flow: Operating activities used $15.1 million, versus $4.1 million in Q1 2018. Capital expenditures were $1.2 million. Investing activities provided $22.8 million, including $24.0 million from investment maturities. Cash, cash equivalents and restricted cash ended the quarter at $27.0 million.
- Liquidity: Cash, cash equivalents and short-term investments totaled $68.3 million, down from $85.0 million at December 31, 2018. Working capital was $50.3 million, down from $68.5 million.
- Liabilities: Total liabilities were $48.3 million. These included $30.0 million payable to REGENXBIO ($10.0 million current and $20.0 million long-term) and $8.6 million of operating lease liabilities. The filing reports no conventional borrowing debt.
Material changes and business developments
- Net loss increased by $8.0 million year over year as revenue fell to zero and operating expenses rose.
- Operating cash use increased by $11.0 million year over year. The company attributed higher costs to development activity, staffing and professional fees, among other items.
- Abeona adopted the new lease accounting standard on January 1, 2019, recording approximately $8.9 million of right-of-use assets and lease liabilities; management said the adoption had an immaterial effect on net assets.
- The company’s clinical-stage programs include EB-101 for RDEB and ABO-102 and ABO-101 for Sanfilippo syndromes. It also described earlier-stage programs for Batten disease, cystic fibrosis and retinal diseases.
- Under its REGENXBIO license, Abeona had a guaranteed $20 million upfront payment, with $10 million paid and $10 million due by November 4, 2019. The agreement also provides for annual fees, some guaranteed, potential commercial milestones and royalties.
Outlook, risks and contingencies
- Management said available resources were sufficient for the foreseeable future, while describing a program intended to secure liquidity through at least the end of 2020. Potential measures include equity financing, out-licensing, deferring or eliminating spending, restructuring or asset sales. The filing does not provide a firm cash-runway estimate.
- Abeona expects continued losses and substantial R&D spending for several years and gave no specific revenue or earnings guidance. It cautioned that financing may be needed; equity issuance could dilute shareholders, while collaborations or licenses could require giving up valuable rights.
- Key risks include clinical and regulatory uncertainty, manufacturing and scale-up, the need for additional capital, competition, intellectual property protection and commercialization prospects. Management reported no material change in its risk-factor assessment from the 2018 Form 10-K.
- A stockholder derivative action concerning director compensation was subject to a settlement approved by final judgment on May 2, 2019. A separate dispute with EB Research Partnership and EBMRF over trading restrictions on shares was in arbitration; a decision was expected on or before May 20, 2019.
- The company corrected previously reported Q1 2018 results for an ASC 606 adoption error: foundation revenue was reduced by $2.067 million, with corresponding increases in operating and net loss and a $0.04 increase in diluted loss per share.
Important facts for investors to verify
- Whether the liquidity program and any planned financing can support operations and development spending through the stated horizon.
- Subsequent cash burn, capital requirements and any use of the $150 million Jefferies at-the-market sale agreement; no shares were sold under it in Q1 2019.
- Clinical, regulatory and manufacturing progress for EB-101, ABO-102 and ABO-101, including timelines and funding needs.
- Payment obligations and future fees under the REGENXBIO license, along with the outcome and financial implications of the EBRP/EBMRF arbitration.
- Comparability of Q1 2018 figures, which were adjusted for the disclosed ASC 606 error.