The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Form 10-K.
Abeona is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases. Our lead clinical program is EB-101, an autologous, gene-corrected cell therapy for recessive dystrophic epidermolysis bullosa ("RDEB"), which is currently in the pivotal Phase 3 VIITAL™ clinical trial. Following a comprehensive portfolio review in early 2022, we have decided to focus our research and development resources on the VIITAL™ readout while actively pursuing a potential commercialization partner for EB-101 with the objective of reducing operating expenses and extending our cash runway. As part of this portfolio prioritization, we have intensified our pursuit of a strategic partnership to take over development activities for our adeno-associated virus ("AAV")-based gene therapy ABO-102 for Sanfilippo syndrome type A ("MPS IIIA") and we have discontinued development of our AAV-based gene therapy ABO-101 for Sanfilippo syndrome type B ("MPS IIIB"). We plan to continue to develop AAV-based gene therapies designed to treat ophthalmic and other diseases and next-generation AAV-based gene therapies using the novel AIM™ capsid platform that we have exclusively licensed from the
University of North Carolina at Chapel Hill, and internal AAV vector research programs.
MANAGEMENT REVIEW OF MAIN ACTIVITIES IN 2021
In 2021, we continued our mission of providing novel cell and gene therapies to patients who currently have no approved treatment options as we continued to advance the EB-101 pivotal study toward completion to support a
U.S.Biologics License Application (BLA) submission. At the same time, we continued to make steady progress with other preclinical programs. Here is a recap of our recent accomplishments.
EB-101 (autologous gene-edited cell therapy) for RDEB
In 2021, we continued to enroll patients in our pivotal Phase 3 VIITAL™ study for our investigational product for recessive dystrophic epidermolysis bullosa (RDEB), EB-101. Under the study protocol, the enrollment target is approximately 36 randomized large chronic wounds. To increase patient enrollment, we activated a second clinical trial site in the VIITAL™ study. We achieved target enrollment in the first quarter of 2022. We anticipate topline data readout in the third quarter of 2022. We are focusing our research and development resources on the VIITAL™ readout while actively pursuing a potential commercialization partner. We are optimistic about EB-101's potential based on updated Phase 1/2a results presented at various medical congresses. We have continued to prepare our cGMP commercial facility in
Cleveland, Ohiofor manufacturing EB-101 drug product to support our planned BLA filing. EB-101 study drug product for all our VIITAL study participants has been manufactured at our Clevelandfacility and we have now completed of the update to Module 3 of the Investigational New Drug Application describing the in-house production of both retroviral vector and the final drug product. Based on feedback from the FDA, we believe that we have alignment with the FDA on the CMC requirements for EB-101, including characterization and validation plans.
ABO-102 (AAV-based gene therapy) for MPS IIIA
As part of our portfolio prioritization in early 2022, we have intensified our pursuit of a strategic partnership to take over development activities for ABO-102. As part of the
FDA'sfeedback on the Statistical Analysis Plan in January 2022, the FDA recommended that all participants be followed to an age of at least 60 months, which would shift timing of the neurocognitive outcomes data readout to late-2024/early-2025, as compared to our prior projection of the second quarter of 2023.
ABO-101 (AAV-based gene therapy) for MPS IIIB
In 2021, we halted recruitment in our ABO-101 study and in
65 Preclinical Pipeline While our clinical programs are currently focused on rare diseases, we intend to address larger areas of unmet medical need in the future, and our preclinical programs are investigating novel AAV capsids in five undisclosed ophthalmic conditions each with estimated
U.S.prevalence ranging from 5,000 to 15,000 patients. In 2021, we shared data from studies in non-human primates that will help to determine optimal routes of administration and believe we have made significant progress toward measuring efficacy in the preclinical setting. We have also generated appropriate mouse models, produced recombinant capsids, and started dosing mice in proof-of-concept studies that we hope will yield data beginning in mid-2022 to support pre-IND meetings with the FDA.
IMPACT OF THE COVID-19 PANDEMIC ON OUR BUSINESS
We continue to monitor the impact of the COVID-19 pandemic on our business and take appropriate actions to manage our spending activities and preserve our cash resources. While there have been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of vaccine adoption or roll-out globally or the efficacy of such vaccines, including against variants that emerge, and we do not yet know how businesses and our partners will operate in a post COVID-19 environment. While we are unable to determine or predict the extent, duration or scope of the overall impact the COVID-19 pandemic will have on our business, operations, financial condition or liquidity, we believe it is important to keep our stakeholders informed about how our response to COVID-19 is progressing and how our operations and financial condition may change. The extent of the impact of the COVID-19 pandemic on our business, operations, and clinical trials continues to evolve and will depend on certain developments, including: (i) the duration of the declared health emergencies; (ii) future actions taken by governmental authorities and regulators with respect to the pandemic, including reinstituting state and local lockdowns; (iii) the impact on our partners, collaborators, and suppliers; and (iv) actions being taken by us in response to this crisis. We remain dedicated to communicating regularly and openly with our stakeholders as more information becomes available, including updates on material changes to prior guidance as we continue to follow applicable government, regulatory and institutional guidelines. 66 RESULTS OF OPERATIONS
Comparison of completed exercises
For the years ended December 31, Change 2021 2020 $ % Revenues: License and other revenues
$ 3,000,000 $ 10,000,000 $ (7,000,000 )-70 % Total revenues 3,000,000 10,000,000 (7,000,000 ) -70 % Expenses:
Research and development 34,325,000 30,139,000 4,186,000 14 % General and administrative 22,795,000 23,779,000 (984,000 ) -4 % Depreciation and amortization 3,250,000 4,586,000 (1,336,000 ) -29 % Goodwill impairment charge 32,466,000 -
32,466,000 N/A Licensed technology impairment charge - 32,916,000 (32,916,000 ) -100 % Total expenses 92,836,000 91,420,000 1,416,000 2 % Loss from operations (89,836,000 ) (81,420,000 ) 8,416,000 -10 % Gain on settlement with licensor 6,743,000 - 6,743,000 N/A PPP loan payable forgiveness income 1,758,000 - 1,758,000 N/A Interest and miscellaneous income 69,000 1,301,000 (1,232,000 ) -95 % Interest and other expense (3,670,000 ) (4,115,000 )
445,000 -11 % Net loss
$ (84,936,000 ) $ (84,234,000 ) $ (702,000 )1 %
N/A – not applicable or not significant.
License and other revenues License and other revenues for the year ended
December 31, 2021were $3.0 million, as compared to $10.0 millionfor the same period of 2020. The revenue in 2021 resulted from a clinical milestone achieved in December 2021under a sublicense agreement we entered into with Taysha Gene Therapies ("Taysha") in August 2020for ABO-202, an AAV gene therapy for CLN1 disease (also known as infantile Batten disease). The revenue in 2020 resulted from (i) the aforementioned sublicense agreement with Taysha along with an inventory purchase agreement we entered into with Taysha in August 2020for ABO-202 and (ii) a sublicense agreement we entered into with Taysha in October 2020for a gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression. The sublicense agreements grant to Taysha worldwide exclusive rights to intellectual property developed by scientists at the University of North Carolina at Chapel Hill, the University of Edinburghand us, and our know-how relating to the research, development and manufacture of the gene therapies
for CLN1 and Rett syndrome.
The sublicense agreements for CLN1 and Rett include additional event-based milestone payments, sales-based milestone payments and other royalty-based payments based on net sales. We will recognize revenue for these payments at the later of (i) when the related event or sales occur, or (ii) when the performance obligation has been satisfied. Research and development
Research and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical, and development cost, clinical trial expense, manufacturing, regulatory, and consulting. The cost of materials and equipment or facilities that are acquired for research and development activities and that have alternative future uses are capitalized when acquired.
Total research and development expenses for the year ended
? increased clinical and development work for our cell and gene therapy product
candidates and other related costs of
? increase in salary and related costs of
? increase in other costs of
We expect our research and development activities to continue as we attempt to advance our product candidates towards potential regulatory approval reflecting costs associated with the following:
? employee and consultant expenses;
? preclinical and development costs;
? the costs of clinical trials;
? the cost of acquiring and manufacturing clinical trial materials; and
? costs associated with regulatory approvals.
General and administrative General and administrative expenses primarily consist of personnel, contract personnel, personnel-related expenses to support our administrative and operating activities, facility costs and professional expenses (i.e., legal expenses) and investor relations fees. We expect our general and administrative costs to continue as we seek potential regulatory approval and potential commercialization of our product candidates. Total general and administrative expenses were
$22.8 millionfor the year ended December 31, 2021, as compared to $23.8 millionfor the same period of 2020, a decrease of $1.0 million. The decrease in expenses was primarily due to:
? reduction in salary and related costs of
million due to the reduction in general and administrative staff in 2021; partially
? increase in non-cash stock-based compensation of
? increase in professional fees
? increase in other costs of
Depreciation and amortization
Depreciation and amortization was
$3.3 millionfor the year ended December 31, 2021, as compared to $4.6 millionfor the same period in 2020, a decrease of $1.3 million. The decrease was driven by decreased amortization expense of $1.3 millionon licensed technology in 2021, as compared to 2020, due to the write-off of the REGENXBIO licensed technology in the first quarter of 2020. Goodwillimpairment charge Goodwillimpairment charge was $32.5 millionfor the year ended December 31, 2021, as compared to nil in the same period of 2020. As of year-end 2021, the carrying value of our net assets was determined to exceed the fair value of our net assets, and therefore, we recorded a goodwill impairment charge of $32.5 million.
Licensed Technology Depreciation Charges
Our license agreement with REGENXBIO terminated on
May 2, 2020. Since our impairment testing indicated that the carrying value of the license agreement with REGENXBIO exceeded its fair value, we recorded a $32.9 millionnon-cash impairment charge during the year ended December 31, 2020.
Gain on settlement with licensor
Gain on settlement with licensor was
$6.7 millionfor the year ended December 31, 2021, as compared to nil in the same period of 2020. On November 12, 2021, we entered into a Settlement Agreement with REGENXBIO to resolve all current disputes between the parties. As of December 31, 2021, we have recorded the payable to licensor in the balance sheet based on the present value of the remaining payments due to REGENXBIO under the Settlement Agreement. The accounting for the Settlement Agreement resulted in a $6.7 milliongain on settlement with REGENXBIO during the year ended December 31, 2021.
PPP loan forgiveness income
Paycheck Protection Program ("PPP") loan payable forgiveness income was
$1.8 millionfor the year ended December 31, 2021, as compared to nil in the same period of 2020. In July 2021, we received notice from the SBA that our PPP loan had been forgiven so the PPP loan payable was reversed during the year ended December 31, 2021.
Interest and miscellaneous income
Interest and miscellaneous income was
$0.1 millionfor the year ended December 31, 2021, as compared to $1.3 millionof the same period in 2020. The decrease resulted from lower earnings on short-term investments driven by lower interest rates and a lower average balance of short-term investments. Interest and other expense
Interest and other expenses were
Net loss for the year ended
basic and diluted loss per common share compared to a net loss of
Cash and capital resources
We have historically funded our operations primarily through sales of common stock. The COVID-19 pandemic has negatively affected the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption could negatively affect our business, financial condition, and access to sources of liquidity. Our principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments. As of
December 31, 2021and 2020, our cash resources were $50.9 millionand $96.0 million, respectively. Following a comprehensive portfolio review in early 2022, we have decided to focus our research and development resources on the EB-101 program with the objective of reducing operating expenses and extending our cash runway. As part of this portfolio prioritization, we have intensified our pursuit of a strategic partnership to take over development activities for our AAV-based gene therapy ABO-102 for MPS IIIAand we have discontinued development of our AAV-based gene therapy ABO-101 for MPS IIIB. Based upon these current operating plans, our ability to access additional financial resources and/or our financial flexibility to further reduce operating expenses if required, we believe that we have sufficient resources to fund operations through at least the next 12 months from the date of this report on Form 10-K. We will need to secure additional funding beyond the next 12 months to carry out all of our planned research and development 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. 68 For the years ended December 31, 2021 2020 Total cash, cash equivalents and restricted cash (used in) /provided by: Operating activities $ (65,665,000 ) $ (35,019,000 )Investing activities 66,062,000 (83,714,000 ) Financing activities 24,861,000 1,936,000 Net increase/(decrease) in cash, cash equivalents and restricted cash $ 25,258,000 $ (116,797,000 )Operating activities
Net cash used in operating activities was
Net cash used in operating activities was
Investing activities Net cash provided by investing activities was
$66.1 millionfor the year ended December 31, 2021, primarily comprised of proceeds from maturities of short-term investments of $90.4 million, partially offset by purchases of short-term investments of $20.2 millionand capital expenditures of $4.1 million. Net cash used in investing activities was $83.7 millionfor the year ended December 31, 2020, primarily comprised of purchases of short-term investments of $170.5 millionand capital expenditures of $1.3 million, partially offset by proceeds from maturities of short-term investments of $88.1 million. Financing activities Net cash provided by financing activities was $24.9 millionfor the year ended December 31, 2021, primarily comprised of proceeds of $17.4 millionfrom the issuance of common stock and warrants in a public offering, proceeds of $8.0 millionfrom open market sales of common stock pursuant to the ATM Agreement (as defined below) and proceeds of $0.8 millionfrom the exercise of stock options, partially offset by the payment of offering costs in a public offering of $1.5 million. Net cash provided by financing activities was $1.9 millionfor the year ended December 31, 2020, primarily comprised of proceeds from loan payable of $1.7 millionand proceeds from the exercise of stock options of $0.2 million. 2021 Equity Offerings In an underwritten public offering consummated on December 21, 2021, we issued (1) 44,700,000 shares of common stock at $0.39per share and (2) warrants to purchase 44,700,000 shares of common stock with an exercise price of $0.39per warrant. The gross proceeds to us were approximately $17.5 million, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. On August 17, 2018, we entered into an open market sale agreement with Jefferies LLC(the "ATM Agreement"). Pursuant to the terms of the ATM Agreement, we are able to sell from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $150 million. Any sales of shares pursuant to the ATM Agreement are made under an effective "shelf" registration statement on Form S-3 that is on file with and has been declared effective by the SEC. On November 19, 2021, we entered into an amendment to the ATM Agreement (the "Amendment") in connection with the filing of a new shelf registration statement on Form S-3 (File No. 333-256850) (the "Registration Statement"), filed with the Securities and Exchange Commission(the "SEC") on June 7, 2021and declared effective by the SECon October 22, 2021. The Amendment amends the ATM Agreement to reflect the filing of the new Registration Statement (due to the prior Form S-3 (File No. 333-224867) expiring in June 2021). We sold 3,671,794 shares of our common stock under the ATM Agreement and received $8.1 millionof net proceeds during the year ended December 31, 2021. Cumulatively, as of December 31, 2021, we have sold an aggregate of 6,758,744 shares of our common stock under the ATM Agreement and received $25.0 millionof net proceeds.
Payments under a settlement agreement with REGENXBIO
As discussed above in Item 3. Legal Proceedings, we entered into the Settlement Agreement with REGENXBIO on
November 12, 2021. Pursuant to the Settlement Agreement, we paid $20.0 millionto REGENXBIO in November 2021, and are required to pay (i) $5.0 millionon the first anniversary of the effective date of the Settlement Agreement and (ii) $5.0 millionon the earlier of (a) the third anniversary of the effective date of the Settlement Agreement, or (b) the closing of a Strategic Transaction, as defined in the Settlement Agreement. Since our inception, 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 efforts. We have not been profitable since inception and to date have received limited revenues from the sale of products. We expect to incur losses for the next several years as we continue to invest in 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. 69 We are carefully and continually reassessing key business activities and all associated spending decisions. Nonetheless, we are spending necessary funds on manufacturing activities and preclinical studies and clinical trials of potential products, including research and development with respect to our acquired and developed technology. Our future capital requirements and adequacy of available funds depend on many factors, including:
? the impact on our business, operations and clinical programs of COVID-19
pandemic and the related effects on the
? the successful development and commercialization of our cell and gene therapy
and other product candidates;
? the ability to establish and maintain collaborative agreements with companies
partners for product research, development and commercialization;
? the pursuit of scientific progress in our research and development programs;
? the size, scope and results of preclinical trials and clinical trials;
? costs related to the filing, prosecution and enforcement of patent claims;
? costs related to conducting clinical trials;
? competing technological developments;
? the cost of manufacturing and scaling;
? the ability to establish and maintain effective marketing arrangements
and activities; and
? the success of our regulatory filings.
Due to uncertainties and certain of the risks described above, including those relating to the COVID-19 pandemic, our ability to successfully commercialize our product candidates, our ability to obtain applicable regulatory approval to market our product candidates, our ability to obtain necessary additional capital to fund operations in the future, our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes, government regulation to which we are subject, the uncertainty associated with preclinical and clinical testing, intense competition that we face, market acceptance of our products, the potential necessity of licensing technology from third parties and protection of our intellectual property, 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 available funds in appropriate certificates of deposit, money market funds, government securities and investment grade interest bearing securities. We do not invest in financial derivative instruments.
70 Contractual Obligations
The following table summarizes our main contractual obligations as of the payment due date by period at
Payments Due by Period Less than 1 year 1 to 3 years 4 to 5 years After 5 years Total Operating leases
$ 1,818,000 $ 3,713,000 $ 2,767,000 $ 3,663,000 $ 11,961,000
Payable to licensor 5,000,000 5,000,000 -
- 10,000,000 We enter into agreements in the normal course of business with clinical research organizations for clinical trials and clinical manufacturing organizations for supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. These contractual obligations are cancelable at any time by us, generally upon prior written notice to the vendor, and are thus not included in the contractual obligations table.
Operating lease amounts represent future minimum payments under our non-cancellable operating leases. The above minimum rental payments do not include common area maintenance fees or property taxes.
As noted above, on
November 12, 2021, we entered into a Settlement Agreement with REGENXBIO to resolve all current disputes between the parties including the aforementioned AAAarbitration and New York State Supreme Courtaction. In accordance with the Settlement Agreement, we agreed to pay REGENXBIO a total of $30 million, payable as follows: (1) $20 millionpayable that was paid in 2021 after execution of the Settlement Agreement, (2) $5 millionon the first anniversary of the effective date of the Settlement Agreement, and (3) $5 millionupon the earlier of: (i) the third anniversary of the effective date of the Settlement Agreement or (ii) the closing of a Strategic Transaction, as defined in the Settlement Agreement. As of December 31, 2021, we have recorded the payable to licensor in the contractual obligations as the two remaining payments due to REGENXBIO under the Settlement Agreement. In addition, we are also party to other license agreements, which include contingent payments. However, contingent payments related to these license agreements are not disclosed as the satisfaction of these contingent payments is uncertain as of December 31, 2021and, if satisfied, the timing of payment for these amounts was not reasonably estimable as of December 31, 2021. Commitments related to the license agreements include contingent payments that will become payable if and when certain development, regulatory and commercial milestones are achieved. During the next 12 months, we do not expect to make milestone payments related to such license agreements. Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the
U.S.requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In applying our accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As one might expect, the actual results or outcomes are often different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. 71 Leases Effective January 1, 2019, we adopted the provisions of ASU 2016-02, Leases, as amended ("ASC 842"). ASC 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the previous guidance of ASC 840, Leases. We determine if an arrangement is a lease at inception or when amended. Right-of-use lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The classification of our leases as operating or finance leases along with the initial measurement and recognition of the associated right-of-use assets and lease liabilities is performed at the lease commencement date or when amended. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The right-of-use asset is based on the measurement of the lease liability and includes any lease payments made prior to or on lease commencement or lease amendment and excludes lease incentives and initial direct costs incurred, as applicable. Rent expense for our operating leases is recognized on a straight-line basis over the lease term. We do not have any leases classified as finance leases.
Our leases do not have significant rent escalation, holidays, concessions, material residual value guarantees, material restrictive covenants or contingent rent provisions. Our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. We have elected the practical expedient to exclude short-term leases from our right-of-use assets and lease liabilities. Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. Licensed Technology We maintain licensed technology on our consolidated balance sheet until either the licensed technology agreement underlying it is completed or the asset becomes impaired. When we determine that an asset has become impaired or we abandon a project, we write down the carrying value of the related intangible asset to its fair value and take an impairment charge in the period in which the impairment occurs.
Generally, licensed technology is amortized over the life of the patent or the agreement. We test our intangible assets for impairment on an annual basis, or more frequently if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug. In connection with each annual impairment assessment and any interim impairment assessment, we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on our consolidated balance sheet.
We have reviewed the status of our discussions with REGENXBIO in
In 2021, we have not compromised any licensed technology.
In accordance with ASC 350 - Intangibles -
Goodwilland Other, we test goodwill for impairment on an annual basis and in the interim if events and circumstances indicate that goodwill may be impaired. The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the entity. If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed. The quantitative analysis involves comparison of the fair value of the entity with its carrying value. The valuation of an entity requires judgment. In making these judgments, we evaluate the financial health of our business. Decreases in the value of our common stock could cause the carrying value of the entity to exceed its fair value. If the carrying amount of the entity exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill. If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a noncash impairment charge that could have a material impact on the financial results. We experienced a steep decline in our share price during the year ended December 31, 2021. We performed our annual goodwill impairment tested as of year-end 2021 and determined that the carrying value of our net assets exceeded fair value using our market capitalization as a proxy for fair value. In accordance with ASC 350, we recognized an impairment loss for that excess of carrying value over fair value but limited to the total amount of goodwill recorded on our consolidated balance sheet. As a result, we recorded a goodwill impairment charge of $32.5 millionduring the year ended December 31, 2021.
We performed our annual goodwill impairment test at the end of 2020 and determined that the fair value of our net assets exceeded the carrying value. Accordingly, we have not impaired goodwill during the year
Revenue Recognition Effective
January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, as amended ("ASC 606"). Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with our customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. Sublicense and Inventory Purchase Agreements Relating to CLN1 Disease: In August 2020, we entered into sublicense and inventory purchase agreements with Taysha Gene Therapies ("Taysha") relating to a potential gene therapy for CLN1 disease. Under the sublicense agreement, Taysha received worldwide exclusive rights to intellectual property and know-how relating to the research, development, and manufacture of the potential gene therapy, which we had referred to as ABO-202. Under the inventory purchase agreement, we sold to Taysha certain inventory and other items related to ABO-202. We assessed these contracts at contract inception and determined that, under ASC 606, the two contracts would be combined and accounted for as a single contract, with a single performance obligation. We assessed the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated whether such functionality can be retained without ongoing activities by us and determined that the license has significant stand-alone functionality. Furthermore, we have no ongoing activities associated with the license to support or maintain the license's utility. Based on this, we determined that the pattern of transfer of control of the license to Taysha was at a point in time. 73 The transaction price of the contract includes (i) $7.0 millionof fixed consideration, (ii) up to $26.0 millionof variable consideration in the form of event-based milestone payments, (iii) up to $30.0 millionof variable consideration in the form of sales-based milestone payments, and (iv) other royalty-based payments based on net sales. The event-based milestone payments are based on certain development and regulatory events occurring. At inception, we evaluated whether the milestone conditions had been achieved and if it was probable that a significant revenue reversal would not occur before recognizing the associated revenue and determined that these milestone payments were not within our control or the licensee's control, such as regulatory approvals, and were not considered probable of being achieved until those approvals were received. Accordingly, at inception, we fully constrained the $26.0 millionof event-based milestone payments until such time that it is probable that significant revenue reversal would not occur. The sales-based milestone payments and other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant item to which the royalties relate. We will recognize revenue for these payments at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any sales-based or royalty revenue resulting from this licensing arrangement. Under this arrangement, we recognized $7.0 millionof revenue during the year ended December 31, 2020, which amount related solely to fixed consideration. During the year ended December 31, 2021, Taysha achieved an event-based milestone payment and, accordingly, we recognized $3.0 millionof revenue. As of December 31, 2021, we have a contract asset for $3.0 millionbut do not have any contract liabilities as a result of this transaction. We collected the $3.0 millionof cash in January 2022in full satisfaction of the contract asset. Sublicense Agreement Relating to Rett Syndrome: In October 2020, we entered into a sublicense agreement with Taysha for a gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression. The agreement grants Taysha worldwide exclusive rights to intellectual property developed by scientists at the University of North Carolina at Chapel Hill, the University of Edinburghand us, and our know-how relating to the research, development, and manufacture of the gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression. We assessed the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated whether such functionality can be retained without ongoing activities by us and determined that the license has significant stand-alone functionality. Furthermore, we have no ongoing activities associated with the license to support or maintain the license's utility. Based on this, we determined that the pattern of transfer of control of the license to Taysha was at a point in time. The transaction price of the contract includes (i) $3.0 millionof fixed consideration, (ii) up to $26.5 millionof variable consideration in the form of event-based milestone payments, (iii) up to $30.0 millionof variable consideration in the form of sales-based milestone payments, and (iv) other royalty-based payments based on net sales. The event-based milestone payments are based on certain development and regulatory events occurring. We evaluated whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue. We determined that these milestone payments are not within our control or the licensee's control, such as regulatory approvals, and are not considered probable of being achieved until those approvals are received. Accordingly, we have fully constrained the $26.5 millionof event-based milestone payments until such time that it is probable that significant revenue reversal would not occur. The sales-based milestone payments and other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant item to which the royalties relate. We will recognize revenue for these payments at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any sales-based or royalty revenue resulting from this licensing arrangement. Under this arrangement, we recognized $3.0 millionof revenue during the year ended December 31, 2020, which amount related solely to fixed consideration. We did not recognize any related revenue during the year ended December 31, 2021. As of December 31, 2021, we do not have any contract assets or contract liabilities as a result of this transaction. 74 Foundation Revenues: Foundation revenues relate to a collaborative agreement between nine Sanfilippo foundations to provide up to approximately $13.9 millionof grants to Abeona in installments for the advancement of our clinical stage gene therapies for MPS IIIA and MPS IIIB, subject to the achievement of certain milestones. We have assessed the ASC 606-10-25-27 criteria used to determine whether foundation revenue should be recognized over time and determined that our performance does not create an asset with an alternative use to the foundations and we have an enforceable right to payment for performance completed to date. We determined that the input method based on costs incurred in accordance with ASC 606-10-55-20 would be the most appropriate method for measuring progress. As a result, we have concluded that cash received upfront from the foundations should be deferred on the balance sheet until the costs of the activities as outlined in the manufacturing and clinical work plan are incurred by installment as outlined in the agreement with the foundations. Effectively, this matches the revenue up to the costs incurred by installment. Should the aggregate cash received exceed the costs incurred by installment, the excess of aggregate cash over costs will be deferred. We have foundation revenue of $0.3 millionrecorded as deferred revenue on the balance sheet as of December 31, 2021and 2020. In 2021 and 2020, we did not record any foundation revenues since no milestones were achieved.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-based compensation expense
We account for share-based compensation expense in accordance with ASC 718, Stock Based Compensation. We have two share-based compensation plans under which incentive and qualified stock options and restricted shares may be granted to employees, directors, and consultants. We measure the cost of the employee/director/consultant services received in exchange for an award of equity instruments based on the fair value for employees and directors and vesting date fair value of the award for consultants. We use the Black-Scholes option pricing model to determine the fair value of options as of the grant date and the Hull White I lattice model as of any option repricing dates. The models used to determine the fair value of options includes assumptions for expected volatility, risk-free interest rate, dividend yield and estimated expected term. We use the closing price of our common stock as quoted on Nasdaq to determine the fair value of restricted stock. We account for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise. Stock option-based compensation expense recognized for the years ended
December 31, 2021and 2020 was approximately $5.3 millionand $5.9 million, respectively. Restricted stock-based compensation expense recognized for the years ended December 31, 2021and 2020 was approximately $3.7 millionand $2.3 million, respectively.
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