Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the "Annual Report"). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under "Forward-Looking Statements," "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

Abeona is a commercial-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases. On April 28, 2025, the U.S. Food and Drug Administration ("FDA") approved ZEVASKYN™ (prademagene zamikeracel) gene-modified cellular sheets, also known as pz-cel, as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with recessive dystrophic epidermolysis bullosa ("RDEB"), a serious and debilitating genetic skin disease. There is no cure for RDEB, and ZEVASKYN™ is the only FDA-approved product to treat RDEB wounds with a single application.

In connection with the FDA approval of ZEVASKYN™, Abeona received a Rare Pediatric Disease Priority Review Voucher ("PRV"). ZEVASKYN™ has been granted Orphan Drug and Rare Pediatric Disease designations by the FDA and Orphan Drug Designation by the European Medicines Agency ("EMA"). On May 9, 2025, we entered into a definitive asset purchase agreement to sell our PRV for gross proceeds of $155.0 million. The transaction closed on June 27, 2025 and we received $155.0 million in gross proceeds from the sale of the PRV.

We established a current Good Manufacturing Practices ("cGMP") commercial facility in Cleveland, Ohio for manufacturing ZEVASKYN™ drug product to support our commercial launch. ZEVASKYN™ will be made available beginning in the third quarter of 2025 through ZEVASKYN™ Qualified Treatment Centers ("QTCs"). The QTCs are well-recognized epidermolysis bullosa treatment centers with cell and gene therapy experience, situated across the U.S. to ensure patients nationwide have access to this important treatment. On May 14, 2025, Ann & Robert H. Lurie Children's Hospital of Chicago ("Lurie Children's") was activated as the first QTC for ZEVASKYN™. Lurie Children's has completed QTC start-up activities enabling it to begin patient identification for scheduling of ZEVASKYN™ treatment. Treatments are expected to begin in the third quarter of 2025.

Our development portfolio also features adeno-associated virus ("AAV") based gene therapies designed to treat ophthalmic diseases with high unmet need using novel AIM™ capsids. Abeona's novel, next-generation AAV capsids are being evaluated to improve tropism profiles for a variety of devastating diseases.

Preclinical Pipeline

Our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for serious genetic eye diseases, including ABO-504 for Stargardt disease, ABO-503 for X-linked retinoschisis ("XLRS") and ABO-505 for autosomal dominant optic atrophy ("ADOA"). We completed pre-Investigational New Drug Application ("pre-IND") meetings with the FDA regarding the preclinical development plans and regulatory requirements to support first-in-human trials.

Recent Updates

In June 2025, a third-party exercised its option for $0.4 million to license certain of our AAV capsids. This worldwide, non-exclusive license is pursuant to the agreement between Abeona and the third party, announced in July 2024, to evaluate the therapeutic potential of AAV204.

On July 15, 2025, we announced the activation of the newest QTC for ZEVASKYN™ at Lucile Packard Children's Hospital Stanford. As a result, RDEB patients will be able to access ZEVASKYN™ at both Lucile Packard Children's Hospital Stanford and Lurie Children's Hospital of Chicago.

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2025 and June 30, 2024

		For the three months ended June 30,								Change
($ in thousands)		2025				2024				$				%
Revenues:
License and other revenues		$	400			$	-			$	400				100	%
Expenses:
Royalties			100				-				100				100	%
Research and development			5,943				9,218				(3,275	)			(36	)%
Selling, general and administrative			17,149				8,646				8,503				98	%
Total expenses			23,192				17,864				5,328				30	%
Loss from operations			(22,792	)			(17,864	)			(4,928	)			28	%
Interest income			1,027				1,191				(164	)			(14	)%
Interest expense			(957	)			(1,072	)			115				(11	)%
Change in fair value of warrant and derivative liabilities			(5,388	)			24,927				(30,315	)			(122	)%
Gain from sale of priority review voucher, net			152,366				-				152,366				100	%
Other income			89				224				(135	)			(60	)%
Income before income taxes			124,345				7,406				116,939				1,579	%
Income tax expense			15,512				-				15,512				100	%
Net income		$	108,833			$	7,406			$	101,427				1,370	%

License and other revenues

License and other revenues for the three months ended June 30, 2025 was $0.4 million as compared to nil for the same period of 2024. The revenue in 2025 of $0.4 million consists of revenue resulting from a third party exercising its option to license certain of our AAV capsids.

Royalties

Total royalty expense for the three months ended June 30, 2025 was $0.1 million as compared to nil for the same period of 2024. The increase in expense was due to royalties owed to the University of North Carolina at Chapel Hill resulting from the milestones due from the exercise of an option by a third party to license certain of our AAV capsids.

Research and development

Research and development expenses include, but are not limited to, payroll and personnel expense, preclinical lab supplies, preclinical and development costs, clinical trial costs, preclinical manufacturing and manufacturing facility costs, costs associated with regulatory approvals, preclinical depreciation on lab supplies and manufacturing facilities, and preclinical consultant-related expenses.

Total research and development spending for the three months ended June 30, 2025 was $5.9 million, as compared to $9.2 million for the same period of 2024, a decrease of $3.3 million. The reduction in expenses was primarily due to $1.4 million of costs capitalized into inventory and $4.9 million of costs such as engineering runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN™ in April of 2025. Excluding this, total costs would have increased by $3.0 million due to $1.7 million increase in salaries and non-cash stock-based compensation costs due to increased headcount related to scale up of manufacturing capacity in preparation for the planned launch of ZEVASKYN™ and $1.3 million in pre-clinical development work.

We expect our research and development activities to continue as we work towards advancing other product candidates towards potential regulatory approval, reflecting costs associated with the following:

	●	employee and consultant-related expenses;
	●	preclinical and developmental costs;
	●	clinical trial costs;
	●	the cost of acquiring and manufacturing clinical trial materials; and
	●	costs associated with regulatory approvals.

Selling, general and administrative

Selling, general and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related costs, professional fees (e.g., legal expenses), selling and other costs for planned commercial launch and other general operating expenses not otherwise included in research and development expenses.

Total selling, general and administrative expenses were $17.1 million for the three months ended June 30, 2025, as compared to $8.6 million for the same period of 2024, an increase of $8.5 million. The increase in expenses was primarily due to approximately $4.9 million of costs such as engineering runs and other production costs that are no longer considered research and development due to FDA approval in April of 2025. Excluding these costs, the increase in expenses of $3.7 million was primarily due to:

	●	increased salary and related costs of $1.2 million;
	●	increased non-cash stock-based compensation of $1.0 million; and
	●	increased other costs such as professional fees, rent, and recruiting of $1.5 million.

Interest income

Interest income was $1.0 million for the three months ended June 30, 2025, as compared to $1.2 million in the same period of 2024. The decrease resulted from lower earnings on short-term investments driven by decreased average short-term investment balances.

Interest expense

Interest expense was $1.0 million for the three months ended June 30, 2025 compared to $1.1 million in the same period of 2024. Interest expense is due to the credit facility entered into by the Company in January 2024.

Change in fair value of warrant and derivative liabilities

The change in fair value of warrant liabilities was a loss of $5.4 million for the three months ended June 30, 2025. We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. The loss in the fair value of warrant liabilities was primarily due to the increase in our stock price year over year and a shorter term of the outstanding warrants.

The change in fair value of warrant and derivative liabilities was a gain of $24.9 million for the three months ended June 30, 2024. We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. In addition, the conversion feature in our loan agreement is required to be classified as a liability and valued at fair market value at each reporting period. The gain in the fair value of warrant and derivative liabilities was primarily due to the decrease in our stock price over the year and a reduced term of each of the warrants and derivative liabilities.

Gain from sale of priority review voucher, net

In May 2025, we sold our PRV awarded to us following the FDA approval of ZEVASKYN™. We received gross proceeds of $155.0 million during the three months ended June 30, 2025 and recognized a gain the PRV sale of $152.4 million, net of transaction costs of $2.6 million, as it did not have a carrying value at the time of sale.

Other income

Other income was $0.1 million for the three months ended June 30, 2025, as compared to $0.2 million in the same period of 2024. Other income includes sublease income, which had a minor reduction period over period.

Income tax expense

We recorded a current income tax expense of $15.5 million for the three months ended June 30, 2025. We did not record an income tax expense for the three months ended June 30, 2024 as we generated sufficient tax losses, after consideration of discrete items. The current income tax expense for the three months ended June 30, 2025 was driven by pre-tax income from the gain on sale of the PRV, resulting in $14.6 million of federal income tax expense and $0.9 million of state income tax expense. We are currently evaluating the impact of the One Big Beautiful Bill Act on future periods; however, we expect that the favorable changes from the new law will significantly reduce current tax due for 2025. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.

Comparison of Six Months Ended June 30, 2025 and June 30, 2024

		For the six months ended June 30,								Change
($ in thousands)		2025				2024				$				%
Revenues:
License and other revenues		$	400			$	-			$	400				100	%
Expenses:
Royalties			100				-				100				100	%
Research and development			15,884				16,425				(541	)			(3	)%
Selling, general and administrative			26,935				15,769				11,166				71	%
Total expenses			42,919				32,194				10,725				33	%
Loss from operations			(42,519	)			(32,194	)			(10,325	)			32	%
Interest income			2,337				2,034				303				15	%
Interest expense			(1,955	)			(2,024	)			69				(3	)%
Change in fair value of warrant and derivative liabilities			1,857				7,626				(5,769	)			(76	)%
Gain from sale of priority review voucher, net			152,366				-				152,366				100	%
Other income			230				386				(156	)			(40	)%
Income (loss) before income taxes			112,316				(24,172	)			136,488				(565	)%
Income tax expense			15,512				-				15,512				100	%
Net income (loss)		$	96,804			$	(24,172	)		$	120,976				(500	)%

License and other revenues

License and other revenues for the six months ended June 30, 2024 was $0.4 million as compared to nil for the same period of 2024. The revenue in 2025 of $0.4 million consists of revenue resulting from a third party exercising its option to license certain of our AAV capsids.

Royalties

Total royalty expense for the six months ended June 30, 2025 was $0.1 million as compared to nil for the same period of 2024. The increase in expense was due to royalties owed to the University of North Carolina at Chapel Hill resulting from the milestones due from the exercise of an option by a third party to license certain of our AAV capsids.

Research and development

Total research and development spending for the six months ended June 30, 2025 was $15.9 million, as compared to $16.4 million for the same period of 2024, a decrease of $0.5 million. The reduction in expenses was primarily due to $1.4 million of costs capitalized into inventory and $4.9 million of costs such as engineering runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN™ in April of 2025. Excluding this, total costs would have increased by $5.8 million due to $3.0 million increase in salaries and non-cash stock-based compensation costs due to increased headcount related to scale up of manufacturing capacity in preparation for the planned launch of ZEVASKYN™ and $2.8 million in pre-clinical development work.

We expect our research and development activities to continue as we work towards advancing our product candidates towards potential regulatory approval, reflecting costs associated with the following:

	●	employee and consultant-related expenses;
	●	preclinical and developmental costs;
	●	clinical trial costs;
	●	the cost of acquiring and manufacturing clinical trial materials; and
	●	costs associated with regulatory approvals.

Selling, general and administrative

Selling, general and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related costs, professional fees (e.g., legal expenses), selling and other costs for planned commercial launch and other general operating expenses not otherwise included in research and development expenses.

Total general and administrative expenses were $26.9 million for the six months ended June 30, 2025, as compared to $15.8 million for the same period of 2024, an increase of $11.1 million. The increase in expenses was primarily due to approximately $4.9 million of costs such as engineering runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN™ in April of 2025.

Excluding these costs, the increase in expenses of $6.2 million was primarily due to:

	●	increased salary and related costs of $2.6 million;
	●	increased non-cash stock-based compensation of $1.9 million; and
	●	increased other costs such as professional fees, rent, and recruiting of $1.7 million.

Interest income

Interest income was $2.3 million for the six months ended June 30, 2025, as compared to $2.0 million in the same period of 2024. The increase resulted from higher earnings on short-term investments driven by increased average short-term investment balances.

Interest expense

Interest expense was $2.0 million for the six months ended June 30, 2025 and 2024. Interest expense is due to the credit facility entered into by the Company in January 2024.

Change in fair value of warrant and derivative liabilities

The change in fair value of warrant liabilities was a gain of $1.9 million for the six months ended June 30, 2025. We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. The gain in the fair value of warrant liabilities was primarily due to the shorter term period over period.

The change in fair value of warrant and derivative liabilities was a gain of $7.6 million for the six months ended June 30, 2024. In 2024, we issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. In addition, the conversion feature in our loan agreement was required to be classified as a liability through September 30, 2024 and was valued at fair market value at each reporting period during the nine-month period ending September 30, 2024. The change in the fair value of warrant and derivative liabilities was primarily due to the decrease in our stock price year as of June 30, 2024 compared to December 31, 2023.

Gain from sale of priority review voucher, net

In May, 2025, we sold our PRV awarded to us following the FDA approval of ZEVASKYN™. We received gross proceeds of $155.0 million during the six months ended June 30, 2025 and recognized a gain from the PRV sale of $152.4 million, net of transaction costs of $2.6 million, as it did not have a carrying value at the time of sale.

Other income

Other income was $0.2 million for the six months ended June 30, 2025, as compared to $0.4 million in the same period of 2024. Other income includes sublease income, which had a minor reduction period over period.

Income tax expense

We recorded a current income tax expense of $15.5 million for the six months ended June 30, 2025. We did not record an income tax expense for the six months ended June 30, 2024 as we generated sufficient tax losses, after consideration of discrete items. The current income tax expense for the six months ended June 30, 2025 was driven by pre-tax income from the gain on sale of the PRV, resulting in $14.6 million of federal income tax expense and $0.9 million of state income tax expense. We are currently evaluating the impact of the One Big Beautiful Bill Act on future periods; however, we expect that the favorable changes from the new law will significantly reduce current tax due for 2025. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows for the Six Months Ended June 30, 2025 and 2024

		For the six months ended June 30,
($ in thousands)		2025				2024
Total cash, cash equivalents and restricted cash provided by (used in):
Operating activities		$	(37,186	)		$	(27,222	)
Investing activities			160,101				(51,949	)
Financing activities			17,263				99,124
Net increase in cash, cash equivalents and restricted cash		$	140,178			$	19,953

Operating activities

Net cash used in operating activities was $37.2 million for the six months ended June 30, 2025, primarily comprised of our net income of $96.8 million and increases in operating assets and liabilities of $12.4 million offset by net non-cash charges of $146.2 million. Non-cash charges consisted primarily of $152.4 million gain on sale of priority review voucher for which the cash proceeds are recorded in investing activities, $1.9 million of gain as a result of the change in fair value of warrant and derivative liabilities, $5.5 million of stock-based compensation and $1.1 million of depreciation and amortization.

Net cash used in operating activities was $27.2 million for the six months ended June 30, 2024, primarily comprised of our net loss of $24.2 million and decreases in operating assets and liabilities of $0.4 million and net non-cash charges of $2.6 million. Non-cash charges consisted primarily of $(7.6) million of the change in fair value of warrant and derivative liabilities, $2.9 million of stock-based compensation and $1.0 million of depreciation and amortization.

Investing activities

Net cash provided by investing activities was $160.1 million for the six months ended June 30, 2025, primarily comprised of net proceeds from sale of priority review voucher of $152.4 million, proceeds from maturities of short-term investments of $80.5 million, offset by purchases of short-term investments of $68.5 million and capital expenditures of $4.3 million.

Net cash used in investing activities was $51.9 million for the six months ended June 30, 2024, primarily comprised of proceeds from maturities of short-term investments of $39.4 million, offset by purchases of short-term investments of $89.9 million and capital expenditures of $1.4 million.

Financing activities

Net cash provided by financing activities was $17.3 million for the six months ended June 30, 2025, primarily comprised of proceeds of $17.3 million from open market sales of common stock pursuant to the ATM Agreement (as defined below).

Net cash provided by financing activities was $99.1 million for the six months ended June 30, 2024, primarily comprised of $70.2 million in net proceeds from sales of common stock, $10.0 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and net proceeds of $19.0 million from our January 2024 Loan Agreement.

We have historically funded our operations primarily through our sale of equity securities, our most recent gain on sale of our PRV, and strategic collaboration arrangements.

Our principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our cash resources. As of June 30, 2025, our cash resources were $225.9 million, which include the $155.0 million in gross proceeds from the sale of our priority review voucher. We believe that our current cash and cash equivalents, restricted cash and short-term investments are sufficient to fund operations through at least the next 12 months from the date of this report on Form 10-Q. We may need to secure additional funding to carry out all of our planned research and development and potential commercialization activities. If we are unable to obtain additional financing or generate license or product revenue, the lack of liquidity and sufficient capital resources could have a material adverse effect on our future prospects.

We have an open market sale agreement with Jefferies LLC (as amended, the "ATM Agreement") pursuant to which, we may sell from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $75.0 million. Any sales of shares pursuant to this agreement are made under our effective "shelf" registration statement on Form S-3 that is on file with and has been declared effective by the SEC. We sold 3,510,889 shares of our common stock under the ATM Agreement and received $17.3 million of net proceeds during the six months ended June 30, 2025. We sold 1,902,376 shares of our common stock under the ATM Agreement and received $10.0 million of net proceeds during the six months ended June 30, 2024.Under the ATM Agreement and as of June 30, 2025, we have remaining shares of our common stock for an aggregate sales price of up to $51.5 million.

Since our inception and excluding the gain on sale of our priority review voucher, we have incurred negative cash flows from operations and have expended, and expect to continue to expend, substantial funds to complete our planned product development and commercialization efforts. Excluding the gain on sale of our priority review voucher, we have not been profitable since inception and to date have received limited revenues from the sale of products or licenses. As a result, we have incurred significant operating losses and negative cash flows from operations since our inception and anticipate such losses and negative cash flows will continue until ZEVASKYN™ can provide sufficient revenue for us to be profitable and cash flow generating.

We may incur losses for the next several years as we continue to invest in commercialization, product research and development, preclinical studies, clinical trials, and regulatory compliance and cannot provide assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis, or at all.

If we raise additional funds by selling additional equity securities, the relative equity ownership of our existing investors will be diluted, and the new investors could obtain terms more favorable than previous investors. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Our future capital requirements and adequacy of available funds depend on many factors, including:

	●	the successful commercialization of ZEVASKYN™;
	●	the successful development, regulatory approval and commercialization of our cell and gene therapy and other product candidates;
	●	the ability to establish and maintain collaborative arrangements with corporate partners for the research, development, and commercialization of products;
	●	continued scientific progress in our research and development programs;
	●	the magnitude, scope and results of preclinical testing and clinical trials;
	●	the costs involved in filing, prosecuting, and enforcing patent claims;
	●	the costs involved in conducting clinical trials;
	●	competing technological developments;
	●	the cost of manufacturing and scale-up;
	●	the ability to establish and maintain effective commercialization arrangements and activities; and
	●	the successful outcome of our regulatory filings.

Due to uncertainties and certain of the risks described above, under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence. If we are unable to timely complete a particular project, our research and development efforts could be delayed or reduced, our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations, as discussed in the risks above.

We plan to continue our policy of investing any available funds in suitable certificates of deposit, money market funds, government securities and investment-grade, interest-bearing securities. We do not invest in derivative financial instruments.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

	●	it requires assumptions to be made that were uncertain at the time the estimate was made, and
	●	changes in the estimate or different estimates that could have been selected could have a material impact in our results of operations or financial condition.

While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material. For a discussion of the critical accounting estimates that affect the unaudited condensed consolidated financial statements, see "Critical Accounting Estimates" included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of our significant accounting policies.

Recently Issued Accounting Standards Not Yet Effective or Adopted

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards not yet effective or adopted.