Earnings Call Transcript - ABEO Q1 2020

Operator, Operator

Good day, and welcome to the Abeona Therapeutics First Quarter 2020 Financial Results and Business Update Conference Call. As a reminder, today's conference is being recorded.

Gregory Gin, Vice President of Investor Relations

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.

Joao Siffert, CEO

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 involvement in wider communication programs in support of 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 a 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 two 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 healthcare 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 healthcare system and the conduct of clinical trials. Given the prioritization of care for COVID-19 patients, travel restrictions, and concerns about 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 the 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 with fragile skin 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 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 the 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 that 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 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 the 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 diseases with no approved treatment. The main objectives of Transpher B are to assess 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 two 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 enables us to continue working toward our 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?

Edward Carr, Chief Accounting Officer

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.

Joao Siffert, CEO

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, Operator

Your first question is from Maurice Raycroft with Jefferies.

Maurice Raycroft, Analyst

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

Joao Siffert, CEO

So as I mentioned, we're fully committed to the development of these programs. These programs will continue in development. At some point, we will continue to engage with REGENXBIO in the future to explore a business arrangement for these licenses. The licenses for AAV9 vary depending on territory; to the best of our knowledge, they are set to expire in 2024 for Europe and 2026 for the U.S. However, this still needs to be confirmed with the IP attorneys.

Maurice Raycroft, Analyst

Got it. And just a quick question on RDEB. 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?

Joao Siffert, CEO

Yes. The 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 healthcare 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 largely predicated on patient safety, both from the traveling standpoint and also the ability of the medical center to provide care for study patients. Otherwise, we would be set to provide clinical trial product starting in June.

Maurice Raycroft, Analyst

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?

Joao Siffert, CEO

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

Maurice Raycroft, Analyst

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?

Joao Siffert, CEO

Yes. So there are two separate questions. Regarding the follow-up, cognitive assessments require patients to visit the clinic. Since patients haven't returned for regular visits, they are being monitored virtually for safety, and some endpoints can be assessed remotely. However, we haven't updated the data on cognition yet. We will once patients can return to the clinic. Much of the updates will center on ongoing responses in biomarkers, including new data on ganglioside reduction. As for the effect size and follow-up duration, it varies based on the patient's age. Treating a patient early in life, around age 2, means they may respond to treatment but not fully diverge from their natural progression, as children with Sanfilippo often have similar developmental patterns early on. Around their second or third year, they typically start to show more noticeable delays and usually plateau before age 3. For example, if a 1-year-old child receives treatment, by age 3 they could continue to follow their neurocognitive development trajectory. At that point, it will be evident that their progress is different from a child with untreated MPS III. Key Opinion Leaders seem to share this understanding. Of course, it's not purely formulaic; if cognitive development continues to lag significantly past age 3, that would be atypical for children with Sanfilippo syndrome. We will keep following these patients. Regarding your earlier question, the two patients who are 18 months post-treatment will come in for a 2-year follow-up in the coming months. The patient with a 2-year data point will also continue to be followed and is likely to have a 2.5-year data readout later this year. We anticipate updates as operations resume soon.

Operator, Operator

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

Kennen MacKay, Analyst

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 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?

Joao Siffert, CEO

The neurocognitive data presented at the WORLD is the same as what we have for the neurocognitive data being presented at ASGCT, mainly because we have not yet been able to assess these patients in the clinic. The Bayley and Mullen scales need to be administered by neuropsychologists in real life to interact with the patient effectively. Thus, this information has not been updated. However, what has been updated is the longer safety data and longer biomarker data, which includes significant reductions in CSF levels of heparan sulfate, the main substrate of the enzyme that is defective in lysosomal children with MPS IIIA. This data demonstrates that the effect of this product has remained sustained over time, which is crucial for durability. Additionally, we are including new datasets on the measurement of gangliosides, which are intracellular molecules believed to be involved in brain degeneration. They are also present in the body, but in the cerebrospinal fluid, they indicate brain damage. A reduction in these gangliosides, as described in literature, suggests a decrease in neuropathology following ABO-102 treatment. Thus, these data are new.

Operator, Operator

Your next question is from Mani Foroohar with SVB Leerink.

Mani Foroohar, Analyst

As we consider the $28 million cash outflow for the AAV9 licensure this year, how should we evaluate its impact on the company's balance sheet, cash flow position, and runway? Should we anticipate changes in the timeline or probability of this matter? Additionally, could you provide insights on the current status of negotiations, if any, with REGENX? Or should we regard this as a terminated contract?

Joao Siffert, CEO

So I'll let Ed chime in later. As you know, we don’t provide guidance, but we have previously announced, and it remains true, that we have cash well into 2021. We expect the cash to last and support two significant milestones for the company, including the completion of enrollment in the EB-101 program. Of course, timelines are a bit delayed due to COVID interruptions. However, this is still true regarding the completion of enrollment. We continue to maintain a strong cash position. We have quickly focused on essential activities during COVID-19 to preserve cash while keeping our programs ready to resume at full speed as soon as possible. In that context, I believe we have effectively navigated the uncertainty over the past several months. Regarding our negotiations with REGENX, we cannot comment on the future, but we have engaged in good faith negotiations with REGENX. This is a business matter that we will continue to address moving forward.

Mani Foroohar, Analyst

Great. As a follow-up, you did report a 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?

Joao Siffert, CEO

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

Edward Carr, Chief Accounting Officer

It's an accounting exercise regarding the evaluation of our balance sheet. The value at that time, considering historical cost basis, was the guaranteed payments of $40 million. We recorded an intangible asset on our balance sheet, which was being amortized over what we believe to be its reasonably expected life of about 8 years. The process involves comparing the historical cost value to the current value. Since the license has been terminated, it holds no value now. Thus, the entire remaining amortized value on the balance sheet needed to be recorded as a noncash impairment charge through the profit and loss statement. Does that clarify things?

Mani Foroohar, Analyst

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

Edward Carr, Chief Accounting Officer

Sure. Sure. Yes. Yes.

Operator, Operator

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

Gregory Gin, Vice President of Investor Relations

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?

Joao Siffert, CEO

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.