Abeona Therapeutics Inc. (ABEO) Q1 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Abeona Therapeutics First Quarter 2020 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I will now introduce your host for today's conference, Greg Gin, Vice President of Investor Relations at Abeona. Please go ahead, sir.

Thank you, operator. Good morning and welcome, everyone. Today's call will be held by João Siffert, our Chief Executive Officer. Following João's remarks, our Chief Accounting Officer, Ed Carr, will review our financials. 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 these 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 may be found in the company's annual reports on Form 10-K and quarterly reports on Form 10-Q filed by the company with the Securities and Exchange Commission. These documents are available on our website, www.abeonatherapeutics.com. With that said, it's now my pleasure to introduce you to Dr. João Siffert. João, you have the floor.

Thank you, Greg, and thank you all for joining us in today's call to discuss our first quarter 2020 business highlights. First, I'd like to introduce and welcome Greg as our new Vice President, Investor Relations. In this role, he will be responsible for all aspects of Abeona's Investor Relations program, along with the involvement in wider communication programs in supporting the company's business activities. Greg brings more than 25 years of investor relations, communications and capital markets experience with small and mid-cap biotechnology and specialty pharmaceutical companies developing novel treatments for orphan diseases in areas of high unmet medical need. Immediately prior to joining Abeona, Greg was Head of Investor Relations at Affimed, an immuno-oncology company, where he was responsible for their Global Investor Relations program. We're excited to have him join our leadership team and look forward to leveraging his expertise and our relationships and communication with key stakeholders. We're also pleased to announce the appointment of Dr. Dan Rudin as Vice President of Clinical Development with focus on the EB-101 program. Dan has substantial research and development experience in rare diseases, has led several clinical development programs and supported multiple product approvals. We're excited to have both Greg and Dan join our leadership team and look forward to their respective contributions to support Abeona's future growth. We also recently made key appointments to bring 2 experienced industry leaders to our Board of Directors. In April, we announced the appointments of Dr. Brian Pereira as Executive Chairman and Ms. Shawn Tomasello as an independent board member. Brian is a seasoned biopharmaceutical and health care leader with experience in financing and growing companies including the clinical development and commercialization of innovative drug products. He currently serves as President and CEO of Visterra and previously served as the President and CEO of AMAG Pharmaceuticals. Shawn has held commercial and strategic leadership roles in several biotechnology and pharmaceutical companies, including serving as Chief Commercial Officer at the cell therapy pioneer Kite Pharma, which was acquired by Gilead Sciences. She brings broad sales and marketing expertise, which makes her ideally suited to advise Abeona on plans to commercialize our gene and cell therapy products. As part of the Board transition and pursuant to the agreement that we entered into related to Great Point Partners' participation in our underwritten public offering in December 2019, Former Executive Chairman, Steven Rouhandeh, remains as Director; and Richard Van Duyne and Mark Alvino have resigned from the Board. We're grateful to Dick and Mark for their service. Moving to business updates. I'll provide perspective on how we have responded to the unprecedented challenges posed by the COVID-19 pandemic. The number one priority remains the safety of our employees, patients and their families. At the same time, we're focused on continuing to support our business operations. Our team has adapted well to the new work arrangements, and we are currently operating with limited disruption. We continue to assess our business continuity plans and employee support measures as well as recommendations from local and national government and health agencies as we determine the appropriate time to resume full operations. From a clinical operations perspective, COVID-19 is causing significant disruption to the global health care system and the conduct of clinical trials. Given prioritization of care for COVID-19 patients, travel restrictions and concerns about the exposure to the virus, we have experienced a slowing in enrollment in our clinical trials. We continue to work closely with our trial sites to support patient enrollment, minimize disruptions in study activity, while ensuring patient safety. Regarding manufacturing, we foresee no immediate impact on our supply chain and have minimized downtime at our fully integrated quality and manufacturing facilities. We have taken the opportunity to complete maintenance work during the past few weeks and plan to be fully operational in early June, ready to support the clinical trials. From a corporate standpoint, we have continued to focus our efforts on core projects, while scaling back nonessential activities to conserve our financial resources starting in early March. We believe these coordinated actions will help us emerge from this crisis in a strong operational position, while maintaining our financial flexibility beyond the current phase of the pandemic. I'm proud of the commitment and dedication of our team and our partners during these challenging times and remain confident in the promise of Abeona to bring gene and cell therapy products to patients with severe and life-threatening rare diseases. Now moving on to brief updates on our clinical programs. In the first quarter, we achieved an important milestone for Abeona, treating the first patient in the VITAL Study, our ongoing Phase III trial evaluating EB-101 for recessive dystrophic epidermolysis bullosa or RDEB. The first patient is doing well, and the investigators are conducting virtual follow-up visits to ensure continued safety assessments and monitoring wound healing. An additional 10 patients have already been prescreened for the study, and we plan to schedule treatment for those patients as soon as it's allowed. We look forward to providing updates over the coming months. As a reminder, RDEB is a debilitating and rare genetic skin disorder caused by mutations in Collagen VII gene, leading to defects in the anchoring fibrils that attach the dermis to the epidermis of the skin. Patients with RDEB face a lifelong struggle of fragile skin and -- that easily tears and blisters, and most patients develop large wounds that remain unhealed, often covering a significant portion of their body. There are no approved treatments for RDEB and patients rely solely on palliative measures that include expensive and time-consuming wound care. Care of these open wounds is very painful, and patients often turn to opioids to help them make it more tolerable. EB-101 is an autologous, gene-corrected cell therapy that restores normal function in Collagen VII to keratinocytes and their progenitors and is delivered through gene-corrected keratinocyte sheets that are transplanted onto open wounds. Based on robust efficacy data from a Phase I/IIa study, we believe EB-101 is uniquely positioned to safely provide durable healing for most challenging large and chronic RDEB wounds. Briefly, the VITAL Study is a 6-month randomized clinical trial, which assesses EB-101 in 10 to 15 RDEB patients with approximately 30 wound sites treated in total. The primary outcome measure will be wound healing, comparing treated with untreated wound sites on the same patients. Other endpoints will include measurements of pain, including dressing changes, measurements of function and quality of life and of safety and tolerability. We anticipate the completion of the enrollment of the VITAL Study will likely be delayed until late 2020, depending on how soon we can resume study activities. Moving to the Transpher A study, our ongoing 2-year open-label dose escalation Phase I/II global clinical trial, assessing ABO-102 gene therapy for patients with MPS IIIA. MPS IIIA, also known as Sanfilippo syndrome type A is a rare lysosomal storage disease, primarily affected by -- affecting the central nervous system. It has no approved treatments. Just days ago, we enrolled the 15th patient in the study, who is the ninth patient treated in Cohort 3. Enrollment of this patient during the pandemic underscores the urgent need to treat children with Sanfilippo syndrome as early as possible. We have a growing body of evidence supporting the potential of ABO-102 to preserve neurodevelopment for patients who are treated early in life. Positive interim data from the Transpher A study presented at WORLDSymposium in February, showed that MPS III patients younger than 30 months treated with ABO-102 and dose Cohort 3 continued to show neurocognitive development 18 months to 2 years after treatment. We also have observed sustained and dose-related reductions in disease biomarkers, which demonstrate the biologic activity of ABO-102. During the upcoming virtual ASGCT meeting, Dr. Kevin Flanigan and his colleagues at Nationwide Children's Hospital will present additional data showing sustained reduction in disease-related biomarkers, providing clear evidence of the systemic and central nervous system effect in patients with MPS IIIA. In addition to reduction of CSF levels of heparan sulfate, he will also present data showing a sustained post-treatment reduction of CSF levels of gangliosides, which are thought to be markers of brain damage. Investigators have also reported that ABO-102 continues to be well tolerated to date. The presentation will be available on our website on May 13. In terms of the current status of Transpher A operations, we're assessing safety and certain other endpoints virtually and plan to treat other previously screened patients as soon as feasible. We continue to engage regulators in the U.S. and the European Union, but many interactions and responses have been delayed due to the COVID pandemic. We will provide a regulatory update as soon as possible based on available feedback. Let's turn to our Transpher B study now. This is our ongoing 2-year open-label study evaluating escalating doses of ABO-101 gene therapy for patients with MPS IIIB or Sanfilippo Type B and other rare devastating and fatal lysosomal disorder disease with no approved treatment. The main objectives of Transpher B are assessing safety and neurodevelopment progress. In April, we enrolled the ninth patient in the study, who is the second patient treated in the high-dose Cohort #3. We're encouraged by the data from the first 2 cohorts that demonstrate improvement in multiple disease-specific biomarkers in patients with MPS IIIB and remain hopeful that these biologic effects will translate into improved patient outcomes. At ASGCT, Dr. Maria Jose de Castro will present biomarker data, including a reduction in CSF levels of heparan sulfate, providing clear evidence of a systemic and central nervous system effect of ABO-102. The full presentation will be available to download on May 13. Similar to the IIIA program, investigators are conducting follow-up assessments and assessments for certain other endpoints virtually. In recent months, it became clear to us that our AAV9 licensing agreement with REGENXBIO no longer met our business imperatives as it was negotiated. We engaged in good faith discussions with REGENXBIO to restructure the agreement, but could not reach a mutually beneficial agreement. We concluded that allowing the licenses to terminate was the best path forward for Abeona, for our programs and for our stakeholders. We remain fully committed to our gene therapy programs in Sanfilippo syndrome and Batten disease, and now have greater financial flexibility to advance them. We will continue to share updates as available. To briefly touch upon our financial position, we believe that our prudent use of cash positions us well to ensure the continuity of our key clinical programs. Our underwritten public offering in December of $103.5 million in gross proceeds significantly strengthened our financial position and provided necessary resources to execute on our lead programs. Before I turn over to Ed Carr, our Chief Accounting Officer, I'd like to thank the entire team at Abeona as well as our partners and the investigators who have risen to meet the challenges we're facing during these unprecedented times. Their dedication enable us to continue working toward a mission of finding cures for patients desperately in need of treatment options. With that, I'll turn the call over to Ed Carr, Chief Accounting Officer. Ed?

Thank you, João. I'd like to remind everyone that we have recently filed the Form 10-Q, where you can get all the specific details on our financial results. In summary, our cash, cash equivalents and marketable securities as of March 31, 2020, were $116 million compared to $129 million as of December 31, 2019. The decrease in cash of $13 million was driven by R&D expenses across our programs, along with supporting administrative costs. The net loss was $0.52 per share for the first quarter of 2020 compared to $0.39 per share in the comparable period in 2019. The increase in the loss per share results primarily from the noncash impairment charge on the termination of the REGENXBIO licenses of $32.9 million or $0.36 per share. That's the summary of financials. And with that, I will turn it back over to João.

Thank you, Ed. In summary, despite the challenges of the COVID-19 pandemic, we had an excellent start to the year for Abeona with the treatment of the first patient in our pivotal Phase III trial study for EB-101 in RDEB. It is important to remind ourselves that this milestone reflects the success of concerted efforts by the manufacturing, quality, research and clinical teams over the past several years of diligent work. In addition, data from ongoing MPS III therapy programs showed that treatment with ABO-102 safely preserved neurocognitive skills in children with MPS IIIA. In parallel, our MPS IIIB programs advanced to a third treatment cohort and initial data from the study showed that ABO-101 safely improved disease-specific biomarkers. Additional patients will be scheduled for treatment in our MPS III programs as soon as feasible. With a robust pipeline supported by a fully integrated manufacturing operation as well as new leadership in place, we look forward to emerging from the pandemic well positioned to execute on our 2020 goals. I will now turn it over to the operator for Q&A. Thank you.

[Operator Instructions] Your first question is from Maurice Raycroft with Jefferies.

First one is just on AAV9, right? Can you remind what the IP expiration is and provide any more perspective into implications given the rights back to REGENX and potential strategies for commercialization?

So as I mentioned -- thanks, Maury. As I mentioned, we're fully committed to developing of these programs. As you know, of course, these programs will continue in development. At some point, we'll -- we continue to engage with REGENXBIO in the future to see if we can find a business arrangement for these licenses. As we know, and of course, this is predicated on other aspects that will continue to evolve, the licenses for AAV9 vary depending on territory, best of our knowledge is 2024 for Europe and 2026 for the U.S. But of course, this has to be confirmed with the IP attorneys.

Got it. And just a quick question on RDEB. I guess outside of the COVID-19 delay for RDEB, what do you need to see to decide to dose the patient number 2? And just wondering if the second site on the East Coast has been activated?

Yes. So second site has not yet been activated related to COVID-19, but we continue to progress the contract negotiations and the review of the protocol. So that will resume as soon as I think things are more in order in the health care system. Similarly for the Stanford site, they're ready to go as soon as it's practical from the standpoint of logistics of travel. Patients often will travel to the site from other states and the medical center feels comfortable bringing in patients who are not related to the pandemic. So essentially, it's just largely predicated on patient safety, both from the traveling standpoint and also the ability to the medical center to provide care for study patients. Otherwise, we would be set to provide product -- clinical trial product starting in June.

Got it. So they're satisfied with what they're seeing with the first patient. And if patients were safe to come in amidst the COVID-19 issues, they would dose that second patient then?

Correct. We would have been prepared had not been for COVID-19. Of course, I can't rewrite history, but the second patient would have been treated right now.

Got it. Okay. And then your press release highlights you have 18 months to 2 years follow-up in your younger MPS patients. Just wondering how much follow-up do KOLs need to see to be convinced that the patients are benefiting from the gene therapy? And can you comment on how much follow-up we'll see at ASGCT for these patients?

Yes. So 2 separate questions. So in terms of the follow-up, the cognitive assessments require the patients be seen at the clinic for the assessment. So since patients have not come back for regular follow-ups, they are being followed virtually for purposes of safety, and some of the endpoints can be done remotely. But for cognition, we haven't updated the data yet. We will as soon as the patients can return to the clinic. So much of the updates will be on continued response in biomarkers, including some new data on ganglioside reduction. As for the magnitude of effect and the duration of follow-up, it depends a bit on the age of the patient. If you were to treat a patient very early in life, at age 2 years, they may still -- even if they are responding to treatment, they may still not be completely differentiated from the natural history of progression, in part because of the general age patients with Sanfilippo tend to have a reasonably indistinguishable development early in life. But as soon as their second year -- third year, they start to show more conspicuous delay and they generally plateau at -- before age 3. So if you add, let's say, 2 years to a 1-year-old child, by the time they are 3 years that they remain on track with their neurocognitive development. At that time, will become pretty clear that they are having a different trajectory than a child with MPS III who were not treated. And I think that KOLs follows the same notion. Of course, it's not sort of a formulaic here, but if the progression of the cognitive development continues to track much past 3 years, this is not something that is seen in children with Sanfilippo syndrome. And we'll continue to follow-up with these patients -- yes. Just to answer your earlier question, these patients will come in -- the 2 patients who have 18 months post-treatment will come in for a 2-year follow-up in the coming months. And the patient who had a 2-year data point will continue to be followed probably come in for the 2.5-year data readout later this year. So we should have updates, assuming operations resume reasonably soon.

Your next question is from Kennen MacKay with RBC Capital Markets.

Yes. Maybe just going back to MPS IIIA. Wondering sort of what you see as the most significant signals of efficacy in the WORLD data that have been presented recently. And really, what we should be focused on it at ASGCT, especially as it relates to the newest cohort of younger patients to be treated there? Will we have enough follow-up to really have any perspective on neurocognitive development there?

The neurocognitive data -- Kennen, thanks for your question. The neurocognitive data presented at the WORLD is the same as we have for the neurocognitive data being presented at ASGCT, largely, in part because we haven't been able to assess these patients in the clinic. So Bayley and Mullen scales need to be done by neuropsychologists in real-life to interact with the patient and so forth. So this would not be updated. What's updated, of course, is longer safety data, longer biomarker data, including significant reductions in CSF levels of heparan sulfate, which is the main substrate of the enzyme that is defective in the lysosomal children with MPS IIIA. And these data show basically that the effect of this product has remained sustained over time, which is important, durability. And also, we are adding additional data points, datasets on measurement of gangliosides. These are also intracellular molecules that are believed in brain degeneration -- they exist also in the body, but in the cerebrospinal fluid they are basically indicating brain damage. So a reduction in these gangliosides, and this has been described in literature as thought to also gain a reduction in the neuropathology following ABO-102 treatment. So these data are new.

Your next question is from Mani Foroohar with SVB Leerink.

So as we think about the -- what would have been $28 million this year cash outflow regarding the AAV9 licensure, how should we think about that in terms of thinking about the company's balance sheet strength, cash flow position runway? Is that -- should we think about the time line of that being changed? Should we think about the probability being changed? And can you comment a little bit on the state of negotiations, if any, with REGENX? Or should we think of this as essentially a terminated contract -- [ trade to come to you ] at this point?

So -- and I'll let Ed chime in later, too. Regarding the -- as you know, we don't provide guidance, but we have announced previously, and that remains true, that we have cash well into 2021. And we expect cash to last and 2 meaningful milestones for the company, including completion of the enrollment of the EB-101 program. Of course, time lines are a bit delayed given the COVID interruptions. But otherwise, this is still true in terms of completion of enrollment. So we continue to be in a strong cash position. We have been able to rapidly focus on essential activities during the COVID-19 to really preserve cash, while keeping our programs ready to resume full speed as soon as we can. So in that sense, I think that we've been able to sort of navigate the uncertainty here over the past several months effectively. As for our negotiations with REGENX, obviously, we can't comment on the future. But, of course -- but we have engaged in the good faith negotiations with REGENX. And this is, of course, is a business matter that we'll continue to address going forward.

Great. As a follow-up, you did report noncash impairment charge, largely just an accounting exercise for a value of that license on your balance sheet, and you mentioned that, that has been subject to a recurring accounting test as is expected. Can you help me understand what exactly was being tested? Is it the value of the license to that IP? Does it reflect on an evaluation of some accounting metrics regarding future value of cash flows, probability of IP being upheld, durability of IP? Just what exactly was tested and impaired?

Yes. It's a good question. And I think Ed Carr will be best equipped to answer.

[indiscernible] balance sheet. So yes, it's an accounting exercise. The value at that time, which is going to be -- when you consider historical cost basis was the guaranteed payments, which was $40 million. So we hung up an intangible asset in our balance sheet, which was being amortized over what we view as the reasonably expected life, which was somewhere around 8 years. So the test is simply comparing that value, the historical cost value to what the current value would be. And a license that's been terminated has no value at this time. So it's pretty simple, actually. It's just the value -- entire value that was -- the amortized value that was left on the balance sheet needed to be recorded as a noncash impairment charge through the P&L. Does that help?

Yes. And I presume that, that noncash impairment then proceeds to flow into NOLs for future use.

Sure. Sure. Yes. Yes.

I am showing no further questions at this time. I would now like to turn the conference back to Greg Gin for closing remarks.

Thank you, operator. Before I turn the call back to João for any closing remarks, I just want to apologize to all of our participants today for the delay to the start of today's call and the technical challenges. I would like to note that the call was recorded, so a replay and archived webcast will be available on the Events page of our website. João, any closing remarks?

Yes. Just thank you, everyone. Again, apologies for the technical glitches, and thank you for joining us today for the earnings call. And be safe, everyone.