Abeona Therapeutics Inc. (ABEO) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Abeona Therapeutics Second Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ms. Andre’a Lucca. Thank you. You may begin.

Thank you. Good morning and welcome everyone. On the call today are Dr. Timothy J. Miller, President and CEO; and Jeff Davis, COO of Abeona Therapeutics. Dr. Miller will begin the call with an overview of the second quarter and more recent highlights and developments at Abeona. After, Jeff will provide additional comments on the quarter, a brief overview of summary financials and provide a snapshot of our financial position and review the upcoming investor conference calendar. Following that, we will open the floor to few questions. Before I turn the call over to them, I need to remind our listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Federal Securities laws. Information contained in the forward-looking statements is based on current expectations and is subject to change and actual results may differ materially from forward-looking statements. Some of the factors that could cause actual results to differ are discussed in the reports filed with the SEC. These documents are available on our website at www.abeonatherapeutics.com. With that said, it is now my pleasure to introduce Dr. Timothy J. Miller. Tim, you have the floor.

Thanks, Andre’a, and thanks for everyone for joining us for our second quarter earnings call. Just to help remind some of the new folks on the call today, Abeona is developing rare disease gene therapies and plasma protein treatments for patients with rare diseases. We previously reported we have a focus in diseases that affect the central nervous system, particularly lysosomal storage diseases such as Sanfilippo syndromes and Batten disease. These programs were initially licensed at Nationwide Children's, Hospital which has a long history in AAV, particularly gene therapy and a history of other successful biotechnology gene therapy company. And our Batten disease program also comes out of the University of Nebraska Medical Center. Both of these use very similar strategy, using adeno-associated virus that’s delivered by intravenous injections that treats the whole body of the disease, just to refresh. We’re working on these lysosomal storage diseases. The lysosome is essentially the garbage factory of the cell. It’s responsible for chewing up a lot of the different sugars and proteins to make metabolize for the cell, children that are born with these inherited autosomal recessive genetic disorders have a deficit in the enzymes and specific sugar metabolism pathways and unfortunately can’t break down these sugars. So our therapeutic strategy is to give these AAV – the genetically modified AAV viruses to basically replace the enzyme that’s been deficient so that these sugars can then be broken down. Pre-clinical data in these programs have demonstrated complete correction of the survival deficits. Keeping in mind that 70% of these children are not – do not reach the age of 18 particularly in Sanfilippo syndrome and there are no approved therapies on the market currently. So when we looked at the original pre-clinical data that demonstrated complete correction of the survival deficits, normalization of the muscular and cognitive functions, we’re very excited by the process. I think as the market has shown in the past two or three years, there’s been a broad level of excitement around the promise of these AAV gene therapies and hope that they offer potential treatments and therapies for more people affected with these rare diseases. In support of our clinical development programs, it's important to note that we have with our partnering hospital a Natural History study that was conducted. I'll focus just for a few minutes on why we think that this is important to bring up on an earnings call. As we have two clinical programs now for Sanfilippo syndromes type A and type B, also known as mucopolysaccharidosis disease type III, this Natural History study was conducted in 25 patients to 1 year of follow up evaluations. The Natural History study – and the manuscript has been submitted and it’s currently under review. This will evaluate the outcome measures for the clinical trial for both ABO-102 and 101, our clinical programs. It’s an important part of the clinical development plan as we hope to enroll 15 to 33 patients globally with three sites in the United States, Spain and Australia in an effort to accelerate the global access to these obviously much needed therapies for these kids. As a reminder, there are no proof therapies for treatment for Sanfilippo syndrome. And as importantly recent failures in some other enzyme replacement trials have really demonstrated that without that sufficient efficacies there are fewer treatment options for patients with these rare diseases. So now there is an additional focus on the promise of AAV gene therapies in what they may be able to offer. Beyond having the Natural History study [indiscernible] validate a lot of the outcome assessments by the instruments needed to evaluate whether these gene therapy treatments are potentially going to provide benefit. We measured; the hospital measured the early stages of biopotency as well as cognitive learning functions, muscular functions through the Natural History study. As far as some of the recent operating highlights, we have announced – we did announce on May 17 that we did treat the first patients in the Phase 1/2 trial for ABO-102, single treatment gene therapy for patients at Nationwide Children's Hospital and then later announced that we did receive in May the IND allowance for ABO-101 for MPS IIIB also at Nationwide Children's Hospital. And we’re very pleased to announce on August 2 an early but initial update on subjects enrolled in this trial, at the time we had enrolled 2 subjects and through 30 days of follow-up appointments that treatments have been well tolerated with no safety concerns identified. And we did see some early encouraging signs of biopotency with reductions in urinary and CSF GAG, specifically heparan sulfate. So heparan sulfate, you’re going to hear this throughout our talks throughout the next two years and do some other programs that are out there. It is a focus on how you assess early biopotency, which is a measurement of GAG, so GAG central glycosaminoglycans specifically in MPS IIIA and IIIB, the sugar that’s involved with the heparan sulfate, for example MPS VII which is [indiscernible] sulfate. So when you look around in this space and you see people trying to report measurements of biopotency, it’s really a reduction in urinary heparan sulfate for us and so we saw some of that as well as potential disease-modifying effects in the liver and spleen. So we also announced on August 4 that we had received the European regulatory approval from the AEMPS for a Phase 1/2 trial to be conducted at Cruces Hospital in Bilbao, Spain. This is opening our second clinical site for ABO-102. Again, as a reminder, for the global development plan, our thoughts have been to try and enroll six to nine patients in the US and then in Spain and also in Australia in an effort to again try to accumulate 15 to 30 patients worth of data in an effort to go directly to commercialization. And we believe that with some of the early signs in biopotency that we’re seeing as well as the Natural History study and the data that’s provided us, we are on a good path to see potential signs in the next six to 12 months and look forward to reporting that data. On August 9, we announced a collaboration with EB Research Partnership and EB Medical Research Foundation and Stanford University for the development of treatments for recessive dystrophic epidermolysis bullosa, although it’s known as RDEB. Clinical results for the lead program, EB-101, were recently presented at the opening Plenary Session of the Society for Investigative Dermatology in May 2016, and Investigators at Stanford are currently recruiting patients for a Phase 2 clinical trial of EB-101 in adolescents age 13 and older to determine the effect of type VII collagen gene corrective grafts on wound healing efficacy. So in one of the – as a gene therapy and rare disease company, obviously have been looking around in this space for programs that we feel fits within our warehouse. We thought that epidermolysis bullosa or EB which is also known as butterfly skin, there are probably one of the worst diseases that I personally have seen, these children, when they have a injury to the skin and an injury being something as simple as bumping up against a sharp edged results in skin blistering and falling off. So again, the skin in the largest organ in the body and when having a lot of your skin fall off is clearly a devastating disorder. So epidermolysis bullosa is a devastating genetic skin disorder that impacts children and again these are skin blisters and erosions all over the body. RDEB is the most chronic or most severe form of this chronic skin blistering disease and they have these open and painful wounds that sometimes stay open for years. They have joint contractures, esophageal strictures, their joints will start to fuse or to fingers and toes bringing abrasions and certainly a shortened life span. Patients with RDEB lack a functional type VII collagen owing to mutations in the COL7A1 gene that encodes for collagen VII or C7. C7 is the main component of anchoring fibrils that attach the skin basically to the underlying structure. These patients suffer intense pain with again fewer or no effective treatments to reduce the severity of the symptoms. Along with the life-threatening infectious complications associated with this disorder, there are many individuals who will develop an aggressive form of squamous cell carcinoma. Our lead product, EB-101 has been shown in a Phase 1 trial to have significant benefits for the four patients in which we’re originally reported. So to talk just a moment, again, we thought that this was a very excellent gene therapy that we thought made a lot of sense for us to bring in, again as a rare disease company. The fact that it’s a late-stage clinical program is certainly very attractive to us, but really it came back to our core mission around trying to help patients with rate disease, trying to be champions of developing gene therapy programs where there are no approved treatments. So Phase 1 data around this was very compelling. Again, the risk for kids, each kid received six skin grafts at three months [indiscernible] showed a significant amount of wound healing as defined by 75% healing over baseline. And again, just to recall, sometimes these are wounds that these kids have lived with as an open wound for years. And when we talk about wounds, we’re not talking about a small scratch. We're talking about something that could be the size of your palm on a child’s back or forearm or shoulder that has been open and has been bandaged for again potentially years. The benefits were maintained through six months, again with about 70% showing significant healing in skin biopsy that came from the graft they had showed robust collagen expression [indiscernible] normal in appearance. So this is very good and the grafts of course were very well tolerated. And so now we're moving to a Phase 2 trial at the end of 2016 and into 2017 with Stanford University. As a comparable, this is certainly similar to other programs that have recently been improved, again showing a gene corrected stem cell, it’s the word we’re looking forward to having move forward into Phase 2 trials. One of the reasons again these kids have – with wounds that have been open for years, these costs can be upwards of $100,000 or more in bandages, so a horrible disease that we are happy to have helping and other gene therapy for. So as we look to the second half of 2016, and again having three clinical stage programs in MPS IIIA, IIIB and epidermolysis bullosa, we believe that the company is well positioned as a leader in the gene therapy space and to provide more benefits for our patients and our shareholders with these gene therapies. With that, I will turn it over to Jeff Davis to talk a bit about our quarterly financials.

Thanks, Tim. Before I get into the financials, I’ll just provide a little bit of an update on our plasma protein activities. For those on the call that are unfamiliar with our plasma program, Abeona in-licensed a new patented process by which therapeutic proteins are extracted and purified from human blood plasma. This is a very specialized segment of the drug business, but it's large and growing. Estimates for the global market for human blood protein drugs is roughly $18 billion annually and growing at rates estimated to be greater than 8% to 10%. So it's a significant market opportunity and it's growing significantly as well. The market for these human-derived plasma protein drugs has developed over the past 75 years using a system developed in the 1940s by a doctor named Edwin Cohn and the process is known by the Cohn cold fractionation process name. And it's a process that uses alcohol to precipitate out these various proteins and in that market there's only been sort of modest improvements over time to increase the yield from that process. But in late 2014, Abeona licensed a process we call Salt Diafiltration or SDF, which eliminates the use of alcohol and instead uses salt, in our case sodium citrate, to precipitate out the proteins and because we focus on the high-value high-margin proteins first namely IVIG or intravenous immunoglobulins and Alpha-1 protease inhibitor, A1PI, we’re able to increase manufacturing yield significantly on these two products. And in the past 18 months we've worked with two separate contract manufacturing organizations. We've been able to confirm that our manufacturing yields on A1PI are in the order of a 100% or a 10X improvement, while producing one of the most pure A1PIs relative to those that are commercially marketed today. Additionally, we believe we can increase IVIG yields by 20% to 25% and that's also very significant given that the IVIG component is roughly half of that $15 billion global market. On the development side, we continue to work with our outside contract manufacturing organization on scale up of our first protein which is SDF Alpha or our version of a human-derived alpha-1 protease inhibitor. Additionally, we remain in dialogue with the FDA to finalize the registration pathway forward for that program. And in the past that these programs have included Phase 4 requirements as well. I think lastly in the plasma space we have been engaged in some partnering discussions as well. We believe our SDF process is unique with respect to the upstream salt precipitations and Diafiltration steps and that our process is less degrading to the protein. So our discussions include the potential for licensing our process in any number of ways, including by different geographic regions or by individual proteins. And so shifting a little bit to the second quarter summary results, we listed some of those in our press release this week. We also filed our Form 10-Q after the close on Monday, so that's publicly available. Our cash and cash equivalents and marketable securities as of June 30, 2016 was $34.3 million compared to $37.4 million as of the end of the first quarter on March 31. Our net cash used in operating activities for the six months ending June 30, 2016 was $5.6 million, so a little less than $1 million per month, as compared to $5 million in the same period in 2015. With respect to our burn rate, I will note that we don't – while we do expect our cash burn to increase modestly, we’re working in rare diseases and orphan indications and so these trials are small in terms of number of patients, they're not lengthy. So we believe we're well fixed for cash. We also have, as Tim mentioned and you've probably heard in the past we both in our Sanfilippo programs and now in our new EB programs, we work closely with the patient advocacy groups and we have, for example, a number of different grants in these programs, actually in three of our programs from foundations to assist in the development of these technologies, manufacturing and what have you. So we believe we're well fixed for catch. Revenues in the quarter were $214,000 for the second quarter of 2016 compared with $282,000 in the same period last year. That consisted both the combination of royalties from marketed product, MuGard, as well as recognition of deferred revenues related to upfront payments from license agreements. Our loss per share was $0.20 for the second quarter of 2016 compared to $0.16 for the comparable period in 2015. So the full financials are available as I said on EDGAR.sec.gov, I assume there is probably also a link on our website which wasn't mentioned earlier, it’s www.abeonatherapeutics.com. Before I turn it back, I will just mention that the conference schedule [as is the Casey's days] for the fall appears very busy. I believe we will be at four investment banking/retail/institutional investor like conferences throughout the month of September, including Rodman and Aegis and Ladenburg and we have additionally coming up some more industry-related scientific conferences, including the Cell and Gene Meeting on the Mesa at October and others that will occur later. So I’ll refer you to our website for a list of upcoming events and conferences. And I think I'll stop it there and turn it back to either Matt or Andre'a for some Q&A.

[Operator Instructions] Our first question comes from Jason McCarthy from Maxim Group.

For 102, can you just walk us through what the timeline to the next data point is? You have two patients treated, I believe the third entry that is soon to be treated, when can we see more data from those patients? That's the first question. And when do you expect to enroll the first patient in Spain and then in Australia?

So as this is as with most gene therapy trials either serial enrollments and with early stage, if you’re looking at safety first, so the principal investigator, there's – we had a safety time point in between patients for review and so the next time – to answer your first question, the next time I think we'll be reporting some of the data will probably be early in the fourth quarter. We would see data from the low dose cohort through a certain time point, 30, 60 days, something around that end. For the first patient in Spain and in Australia, with the approval in Spain, we’re trying to finish on some of the – really most of the paperwork that goes with that and getting ready for chemical site prep in Bilbao. In Australia, we are still on the regulatory process there and looking forward to – again working with our site in Adelaide, we probably anticipate that again would be very similar to the Spanish site in time, Q4, early Q1.

And for 101, I would assume you're going to run a similar sized study, maybe you can give us an update on when do you expect that study to start? Would you be using the same trial sites that you're using now and would you also be in Spain and Australia as well?

So for 101, it's very similar, almost the exact same design, six to nine patients in the US, six to nine patients in Spain at the same site and six to nine patients in Australia also at the same site. So many of those processes are going in parallel with 102 from the perspective of again working with the regulatory agencies in the clinical sites. So again one of the benefits of having gone through the process with 102 with both the clinical site in the US and the clinical site in Spain and Australia, there's a certain level of acceleration that you can do simply because IRBs and regulatory bodies are more familiar with the programs, specifically with the safety data as well as the efficacy data and manufacturing. So we’re certainly able to leverage both of those as we look to our global enrollment plan.

And just the last question, one of the – in the RDEB study, they did show great data, you’re moving to Phase 2, how many patients would be in the Phase 2? And what is going to be the cost to Abeona to participate or co-develop this gene therapy? And if you can just answer a question about the gene therapy itself, is it the same SC AAV IX vector or you’re going to use a different vector that they'd been using previously?

For EB-101, you were saying?

Right.

That’s a retrovirus correction into the [indiscernible] so it's a permanent correction into the skin grafts. So you don't see that type of potential trend in expression which would be something more relevant because the skin is a rapidly dividing organ. So we’re looking for a permanent cure or permanent correction in those skin cells, it’s an autologous graft, right. So very similar to us, for example, I mean that’s probably the most direct comparable for this type of therapy. And that’s looking at six patients, 10 patients in the Phase 2, and again as we look to – Stanford is already recruiting. We did have five patients in the Phase 1 and six adolescents in the Phase 2, looking for a total package of around 10, 11, 12 patients for a potential going for BLA. So again, with very few if any therapies for EB in development, we’re certainly familiar with some of the ones in other space. As again as a wound healing sheet that’s been retrovirally corrected certainly has a lot of a promise. There are over 2,500 RDEB or recessive dystrophic EB patients in the United States. So it's certainly a very viable patient population as well from a market standpoint in the rare disease space. And there is a reset mania in the EU and so we’re looking very much forward to moving this for the Phase 2 as best as we can.

Our next question comes from George Zavoico from JonesTrading.

Following up on the RDEB question, could you describe a little bit the logistics? I understand it’s an autologous skin graft, but these are patients that have very fragile skin, so you're basically creating an injury on the patient to get the skin and then treating with skin and then putting it back on to the patient not necessarily in the same place where you harvested the skin, but where the blister is, so I mean – and are you doing as like one patch at a time or multiple patches? What are some of the logistics that you’re including in the trial?

A good question George on the logistics. So what happens is the patients come in and they have a lot of open wounds, so what we do is we take a punch biopsy to collect and grow their keratinocyte. So rather than provide some form of injection or multiple levels of injection under the skin, what we do is we take a punch biopsy, we separate out the keratinocytes and then grow them into multiple large sheets. And then those are – so those are retrovirally corrected with again a retrovirus for the whole 71 and then as those sheets are essentially applied to the wounded areas, so we're not creating any wound, George, we're actually putting a – or be considered a divided area of an already existing wound and then putting the skin graft, this retrovirally corrected skin graft on top of the wound. So the graft, really they're not debris, but the wounds are divided and then the grafts are put on top of these already existing wounds. And then the patients are – they're basically mobilized for a short period of time while the graft takes and then they're removed out. When you're looking at these wounds that – again these wounds haven't been healing for, some of them have had wounds for years, it's really amazing that a lot of these skin grafts take and then heal.

So the punch biopsy is really like what less than a centimeter?

I can’t remember the exact size of it, but it is what would be considered a rather standard punch biopsy and it’s only to the dermis, you don't need to go into the muscle for something like that. So it’s not very invasive.

So from one punch biopsy, how many square centimeters can you grow out a graft, I’m just wondering how much coverage you can get out of one skin biopsy?

I believe we – so they grow up a bunch and they freeze them down. So they're actually able to keep continuing graft. We grow up eight sheets at a time, we grow eight sheets and they're about 4X6 inches. And then six of those sheets are applied in the clinical trial, two is a backup plan. So when you think of a 4X6 sheet, I mean, that’s how big some of these wounds are.

I mean, just growing them and it results from a punch biopsy, that's a lot of cell divisions. And so I guess the retroviral vector – the gene therapies are applied very early into the punched biopsy, so that when it goes into the sheet you don't have to use as much vector. So you save with your product that way, right?

That’s correct. The retroviral correction happens early in the expansion process and so again you see unified clowns moving forward. And one of the things – you know we wanted to see was how stable that is and then again what type of expression that continued and these were – the edges of the sheets were punched biopsied at six months and still seeing robust VII expression at the thermal epidermal junction by antibodies. So again seeing robust expression through the missing protein for months after the sheet abide.

So in the trial, is each patient going to undergo like a single graft replacement, because I’m wondering, like you said, these patients are pretty fragile and you need to do is bump up against something or even a square edge or even maybe – even depending on their clothes sometimes, they rub it the wrong way, you get a blister, are these patients going to be multiply treated especially since you just said that some of these cells are frozen, so you can grow out as many sheets as you want, basically setting up a cell bank for each patient?

The nice thing about this, George, is that the sheets themselves – those areas that have been corrected with these grafts, they’re tougher because [indiscernible]. And to your point, these patients could receive multiple skin grafts over their lifetime again because we have their cells, they are autologous and so you’d essentially think of these almost like big band aid once there is a wound, so yes.

But within the trial follow up period, treatment follow up, they're only going to be one graft, is that right?

They're going to get six grafts at the time that they're treated.

Oh, each patient gets six grafts, okay. And what's the follow up period?

I believe it’s two years.

So would you able to go to the regulatory agency before that follow up period is over or do you have to wait at least through to follow up of all patients in the trial?

That’s going to depend on the data, as with all of them, George. You’d imagine that after – and all of these gene therapy trials, it’s strong positive data throughout a chronic time period of six to 12 months, certainly if the data is strong, that’s what we'd evaluate.

One question for Jeff about the plasma proteins, it sounds like you're making progress, can you provide any guidance on when you might be able to go to the regulatory agencies for approval?

Well, I think it's tough to say right now. We are in a dialogue with them now about what is going to be required for both the clinical pathway and potential Phase 4 requirements. We continue to work with the contract manufacturer on scale up. Obviously we're not going to start a trial until we have agreement on an acceptable clinical pathway. So it's a little bit squishy right now, but obviously we're pushing ahead with all of it with speed.

Thank you. I would now like to turn the floor back over to management for any closing comments.

I just wanted to thank everyone for joining our call today. It's a really exciting time for Abeona. We’ve been building value for our shareholders as well as our patients. Now as a clinical stage company, we look forward to reporting more progress as the third quarter comes so close to. Thank you.

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.