Abeona Therapeutics (ABEO)

[stockguard]

Abeona Therapeutics: Speculative Buy After Financing

Summary
Shares have lost half their value since our first look at this gene therapy story in 2016.

A crisis of confidence in management and lack of timely execution in the clinic brought the valuation down to lows recently seen in Q4.

A highly dilutive offering occurred at a low price point, but there is a silver lining given participation of Great Point Partners and shakeup of the board of directors.

Lead program EB-101 in RDEB was given the green light to proceed into phase 3, and a look at prior data plus the low bar set suggests a high probability of success.

Data for MPS III programs is also promising, and there is long-term value in the AIM platform. Abeona Therapeutics is a Speculative Buy.

Shares of Abeona Therapeutics (ABEO) have lost half of their value since we uncovered this intriguing gene therapy story back in 2016, highlighting promising early data for ABO-102 in Sanfilippo B syndrome and also for EB-101 in RDEB (recessive dystrophic epidermolysis bullosa). My last update was in early 2018, as shortly after we turned negative on this name, it became apparent that management was failing to execute in the clinic in a timely manner.

Recently, the name popped up on my radar after the company finally got a long-awaited green light from the FDA for its phase 3 VIITAL trial evaluating EB-101 in RDEB (clinical hold removed submission of transport stability data). The primary endpoint is going to be the proportion of wounds showing at least 50% healing at month 3 compared to untreated wounds on the same patient, a very low and achieveable bar to my eyes (long-time readers know I am a fan of assets with a clear path to market).

On the other hand, shares took a dive after a highly dilutive $90 million offering was announced, consisting of a mix of common shares at $2.50 per share and pre-funded warrants at $2.4999 per warrant. While this kind of dilution was absolutely atrocious at first glance, I did find it interesting that well-known institutional investor Great Point Partners acquired $31 million of the offering along with the right to nominate and replace two directors (including new chairman of the board).

Perhaps this was the change the company finally needed to turn the page on its troubled past and start moving forward at a more efficient pace. Thus, I decided to revisit.

Figure 1: ABEO daily advanced chart


(Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see a sickening decline during Q2 and Q3, with the stock bottoming at $2 level in September. September's spike was due primarily to the company's announcement of "exploring strategic alternatives," which in hindsight appears quite sketchy considering it instead chose to access funding via dilutive offering a few months later. In December, the stock began to run up after a series of positive news developments, but gapped down after the secondary was announced. The recent bounce in share price is encouraging, but the burden of proof is on management to actually deliver on key initiatives going forward.

Q3 Update
For the third quarter, the company reported cash and equivalents of $47.9 million (does not include proceeds from $90 million secondary offering). Net cash used in operating activities was $18.3 million, while research & development expenses fell to $10.9 million from $13.2 million in the same period in 2018. General and administrative expenses fell slightly to $4.7 million.

Figure 2: Pipeline


(Source: Corporate presentation)

Regarding program updates, we are reminded for lead asset EB-101 that the phase 3 VIITAL clinical trial protocol with updated PRO assessments was submitted to the FDA (along with retrovirus comparability protocol and the requested transport stability data related to September's clinical hold letter). Clinical results continued to be impressive, with phase 1/2 data showing that three years after treatment with EB-101, most RDEB patients experienced sustained wound healing (80% or 16 of 20 wounds achieving ≥50% healing, and 70% achieving ≥75%). As you can imagine, this data contrasted sharply with prospectively selected control wounds, with 1 of 6 having over 50% healing). 50% or greater wound healing was associated with no pain and no itch, compared with presence of pain in 53% (20/38) and itch in 61% (23/38) of wound sites at baseline. Safety profile was solid as well, with no serious treatment-related adverse events observed during the 3-year observation period.

Figure 3: Impressive data from early-stage study bodes well for odds of success in pivotal study, low hurdle to overcome



(Source: Corporate presentation)

On the conference call, management stated again touched on the above data for EB-101 and then moved onto ABO-102 (AAV-SGSH) in MPSIIIA. The goal here with a one-time infusion is to correct the underlying deficiency of the SGSH enzyme to prevent the toxic accumulation of heparin sulfate (which often lead to such symptoms as loss of speech & vision, cognitive decline, seizures, behavioral abnormalities, etc.). Consider that 70% of MPS III kids do not reach age 18. We are reminded that interim data of 3 young children treated at the highest dose cohort suggested that preservation of neurocognitive development can be achieved when these patients are treated at an early enough stage. More patients are being screened for the study, and we can expect an update when they are treated. An update will also be provided on regulatory pathway after meeting with FDA and EMA agencies (expect the news in Q1).

Figure 4: Change in Mullen Developmental Age post treatment as compared to natural history


(Source: Corporate presentation)

As for ABT-002 for MPSIIIB, a 2-year, open-label study continues to make progress with 6 patients treated across 2 dose cohorts (showed it's well tolerated with up to 23 months of follow-up for first patient enrolled). Early data is showing improvement in biomarkers and reduction of liver volume of similar magnitude to the MPSIIIA program.

As for preclinical assets that haven't received much attention yet, data presented at European Society of Gene and Cell Therapy highlighted the company's library of novel AIM AAV capsids, including presentations showing increased evasion to neutralizing antibodies, improved AAV capsids for intramuscular delivery, delivery to the retina via intravitreal administration and improved PNS tropism for treating Pompe disease via IV administration.

An Eventful December
On December 9th, Abeona Therapeutics announced that it received the go-ahead from the FDA to move forward with the pivotal phase 3 VIITAL study evaluating EB-101 in RDEB patients. The company is guiding for initiation of the study in Q1 2020.

On December 20th, the company's ABO-102 program for MPS IIIA was granted the coveted PRIME designation by the EMA (equivalent to Breakthrough Therapy designation in US). With more support for the program in the form of interaction and early dialogue, prospects of getting this one across the finish line continue to appear brighter.

As for the disastrous pricing of the secondary offering (over 26.9 million shares at a price point of $2.50 per share plus pre-funded warrants to purchase over 9 million shares of common stock, doesn't include underwriter option), the bright side is the $90 million received plus participation from Great Point Partners along with a shakeup of the board of directors as mentioned above.

Final Thoughts
To conclude, with the highly dilutive financing out of the way and gene therapy stocks currently receiving a well-deserved boost in the past quarter due to impressive buyout premiums (think Audentes Therapeutics (BOLD)) and license deals (Sarepta Therapeutics' (SRPT) ex-US DMD deal just recently), I wouldn't be surprised to see the share price recover in 2020 as clinical progress is made across multiple lead assets. To be fair, there are a number of companies going after the DEB space, including Krystal Biotech (KRYS), which has risen by 475% since my initial recommendation and for good reason given advantages in cost and convenience of administration for products based on its STAR-D platform. Likewise, other approaches to treat MPSIII are being employed, including Orchard Therapeutics' (ORTX) ex-vivo gene therapy candidates OTL-201 and OTL-202, as well as Sarepta Therapeutics' and Lysogene's LYS-SAF302.

With a caveat for competition in lead indications targeted and noting significant long-term potential for Abeona's next-generation AAV AIM platform, Abeona Therapeutics is a Speculative Buy. Readers who are interested in the story and have done their due diligence should take advantage of any near-term dips to initiate a pilot position or add to one's stake.

Risks include further setbacks in the clinic or postponed timelines, additional clinical hold or otherwise negative FDA action, disappointing clinical data and competition for certain indications (backed by companies with much more by way of resources). Another financing is not expected until 2H 2020 or later. When the RDEB program reaches commercialization stage, this will be quite the hurdle as well given complicated manufacturing and logistics (the company claims to currently have capacity to treat 120 patients, with plans to expand and support up to 500 patients annually one year after launch).

As for downside cushion and elements of derisking, to my eyes, data for lead programs looks quite promising in indications that are very well-characterized, and the bar is set low, as these patients have no approved therapeutic options.

For our purposes in ROTY, I will continue monitoring progress of the company's clinical assets to determine if it's worthy of entry for us at some point in 2020. I still consider it to be on the speculative side given previous lack of value creation and execution on the part of management, but I'm optimistic that the recent financing (and especially board shakeup) might be the start of a turnaround.

Author's Note: I greatly appreciate you taking the time to read my work and hope you found it useful. Consider clicking "Follow" next to my name to receive future updates and look forward to your thoughts in the Comments section below.

Disclosure: I am/we are long KRYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Commentary presented is NOT individualized investment advice. Opinions offered here are NOT personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. I reserve the right to make investment decisions on behalf of myself and affiliates regarding any security without notification except where it is required by law. Keep in mind that any opinion or position disclosed on this platform is subject to change at any moment as the thesis evolves. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account.

https://seekingalpha.com/article/4314055-abeona-therapeutics-speculative-buy-after-financing