Quarterly Report for Quarter Ending March 31, 2026 (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, 2025 (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

We are a commercial-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases. On April 28, 2025, the FDA approved ZEVASKYN^® (prademagene zamikeracel) gene-modified cellular sheets, as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with 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. ZEVASKYN^® was granted Orphan Drug and Rare Pediatric Disease designations by the FDA.

ZEVASKYN^® is manufactured at our cGMP manufacturing facility in Cleveland, Ohio, and is made available through ZEVASKYN^® qualified treatment centers.

Recent Developments

Qualified Treatment Center Activations

On April 2, 2026, we announced activation of NewYork-Presbyterian/Columbia University Irving Medical Center in New York City as another qualified treatment center for the administration of ZEVASKYN^®.

On May 11, 2026, we announced activation of Children's Hospital of Philadelphia as the newest qualified treatment center for the administration of ZEVASKYN^®. This represents the sixth available qualified treatment center for the administration of ZEVASKYN^®.

Pipeline Update

Building on our proven end-to-end competency in engineered cell therapy, we will focus our development efforts on the development of ABO-701, a recently licensed radically novel engineered T-cell therapy, targeting Prostate-Specific Membrane Antigen ("PSMA") to treat prostate cancer. PSMA is a validated target for advanced prostate cancer, which is a leading cause of cancer mortality, with more than 30,000 deaths annually in the U.S. despite multiple approved therapies and recent advances in the field.

ABO-701 is an autologous engineered T-cell product that carries a Synthetic Immune Receptor ("SIR-T™") designed to overcome the limitations of CAR and TCR approaches. The SIR-T™ platform underlying ABO-701 was developed in the laboratory of Preet M. Chaudhary, M.D., Ph.D., Professor of Medicine and Chief of Jane Ann Nohl Division of Hematology and Center for the Study of Blood Diseases at University of Southern California ("USC") Keck School of Medicine and Director of USC Blood and Marrow Transplant and Cell Therapy Program. The patents covering the SIR-T™ platform are owned by Angeles Therapeutics, Inc. In pre-clinical studies, ABO-701 has demonstrated durable tumor control in mouse models and modest levels of cytokine release - a profile that has been elusive to other engineered cell therapies in the solid tumors.

We expect to file an Investigational New Drug ("IND") application and commence first-in-human studies with ABO-701 in the second half of 2027 while engaging a contract development and manufacturing organization for supply readiness in the meantime. This development plan and timing allow us to maintain our focus on commercializing ZEVASKYN^®.

As part of our portfolio optimization, we have deprioritized our in-house ophthalmology programs.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2026 and March 31, 2025

		For the three months ended March 31,								Change
($ in thousands)		2026				2025				$				%
Revenues:
Product revenue, net		$	8,720			$	-			$	8,720				100	%
Costs and expenses:
Cost of sales			2,696				-				2,696				100	%
Research and development			9,555				9,941				(386	)			(4	)%
Selling, general and administrative			19,502				9,786				9,716				99	%
Total costs and expenses			31,753				19,727				12,026				61	%
Loss from operations			(23,033	)			(19,727	)			(3,306	)			17	%
Interest income			1,354				1,310				44				3	%
Interest expense			(830	)			(998	)			168				(17	)%
Change in fair value of warrant liabilities			5,386				7,245				(1,859	)			(26	)%
Other income, net			50				141				(91	)			(65	)%
Loss before income taxes			(17,073	)			(12,029	)			(5,044	)			42	%
Income tax expense			2				-				2				100	%
Net loss		$	(17,075	)		$	(12,029	)		$	(5,046	)			42	%

Product revenue, net

Product revenue, net, resulting from the sale of ZEVASKYN^®, for the three months ended March 31, 2026 was $8.7 million. There was no product revenue for the three months ended March 31, 2025 as the approval by the FDA for ZEVASKYN^® did not occur until April of 2025.

Cost of sales

Cost of sales during the three months ended March 31, 2026 was $2.7 million and primarily includes costs associated with the commercial sale of ZEVASKYN^® including royalties due to our licensor, Stanford. There was no cost of sales in the same period of 2025, as ZEVASKYN^® was approved by the FDA in April 2025.

Research and development

Research and development expenses include, but are not limited to, payroll and personnel expenses, 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 March 31, 2026 was $9.6 million, as compared to $9.9 million for the same period of 2025, a decrease of $0.3 million. In March 2026, we entered a license and joint development agreement related to PSMA SIR-T™ which included an upfront payment of $7.0 million that was included in research and development expenses. Excluding this transaction, research and development spending decreased $7.4 million. The reduction in expenses was primarily due to costs capitalized into inventory and engineering runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN^® in April of 2025.

We expect our research and development activities to increase 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;
	●	development and regulatory milestones associated with licensing agreements;
	●	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 company reporting related costs, professional fees (e.g., legal expenses), selling and commercialization costs and other general operating expenses not otherwise included in research and development expenses. We expect our selling, general, and administrative costs to continue to increase as we expand our commercialization of ZEVASKYN^® and pursue development of other product candidates.

Total selling, general and administrative expenses were $19.5 million for the three months ended March 31, 2026, as compared to $9.8 million for the same period of 2025, an increase of $9.7 million. The increase in expenses was primarily due to increases in salaries and stock-based compensation of $5.4 million due to new hires, $1.9 million of costs related to engineering runs with the remainder due to other commercial costs related to our continued commercialization efforts upon FDA approval in April of 2025.

Interest income

Interest income was $1.4 million for the three months ended March 31, 2026, as compared to $1.3 million in the same period of 2025. The increase resulted from higher earnings on short-term investments driven by increased average short-term investment balances.

Interest expense

Interest expense was $0.8 million for the three months ended March 31, 2026 compared to $1.0 million in the same period of 2025. Interest expense was due to the credit facility entered into by the Company in January 2024 and decreased as a result of the July 2025 Loan Agreement Amendment plus a reduction of the principal loan amount due to payments made in 2026.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities was a gain of $5.4 million for the three months ended March 31, 2026. 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 decrease in our stock price over the quarter and a shorter term of the outstanding warrants.

The change in fair value of warrant liabilities was a gain of $7.2 million for the three months ended March 31, 2025. The gain in the fair value of warrant liabilities was primarily due to the decrease in our stock price year over the year and a shorter term.

Other income, net

Other income, net was $50,000 for the three months ended March 31, 2026, as compared to $141,000 in the same period of 2025. The decrease was primarily a result of realized losses on foreign currency related to various vendors that we pay in foreign currency during the three months ended March 31, 2026.

Income tax expense

We recorded a current income tax expense of $2,000 for the three months ended March 31, 2026. We did not record an income tax expense for the three months ended March 31, 2025 as we generated sufficient tax losses, after consideration of discrete items.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows for the Three Months Ended March 31, 2026 and 2025

		For the three months ended March 31,
($ in thousands)		2026				2025
Total cash, cash equivalents and restricted cash (used in) provided by:
Operating activities		$	(19,804	)		$	(18,402	)
Investing activities			4,963				4,213
Financing activities			(2,222	)			6,768
Net decrease in cash, cash equivalents and restricted cash		$	(17,063	)		$	(7,421	)

Operating activities

Net cash used in operating activities was $19.8 million for the three months ended March 31, 2026, primarily comprised of our net loss of $17.1 million and decreases in operating assets and liabilities of $1.4 million and net non-cash charges of $1.3 million. Non-cash charges consisted primarily of $5.4 million of gain as a result of the change in fair value of warrant liabilities, $3.0 million of stock-based compensation and $0.7 million of depreciation and amortization.

Net cash used in operating activities was $18.4 million for the three months ended March 31, 2025, primarily comprised of our net loss of $12.0 million and decreases in operating assets and liabilities of $3.4 million and net non-cash charges of $3.0 million. Non-cash charges consisted primarily of $7.2 million of gain as a result of the change in fair value of warrant liabilities, $2.7 million of stock-based compensation and $0.5 million of depreciation and amortization.

Investing activities

Net cash provided by investing activities was $5.0 million for the three months ended March 31, 2026, primarily comprised of proceeds from maturities of short-term investments of $24.9 million, offset by purchases of short-term investments of $19.0 million and capital expenditures of $0.9 million.

Net cash provided by investing activities was $4.2 million for the three months ended March 31, 2025, primarily comprised of proceeds from maturities of short-term investments of $54.2 million, offset by purchases of short-term investments of $48.6 million and capital expenditures of $1.4 million.

Financing activities

Net cash used in financing activities was $2.2 million for the three months ended March 31, 2026, comprised of $2.2 million in payments on our long-term debt.

Net cash provided by financing activities was $6.8 million for the three months ended March 31, 2025, primarily comprised of proceeds of $6.8 million from open market sales of common stock pursuant to the ATM Agreement (as defined below).

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 March 31, 2026, our cash resources were $168.3 million. 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 1,312,283 shares of our common stock under the ATM Agreement and received $6.8 million of net proceeds during the three months ended March 31, 2025. There were no sales of our common stock under the ATM agreement during the three months ended March 31, 2026. Under the ATM Agreement and as of March 31, 2026, 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 assure 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.