ABEONA THERAPEUTICS INC. (ABEO)

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 serious diseases. Abeona’s ZEVASKYN® (“prademagene zamikeracel”)
is the first and only autologous cell-based gene therapy for the treatment of wounds in adults and pediatric patients with recessive dystrophic
epidermolysis bullosa (“RDEB”). Our fully integrated cell and gene therapy cGMP manufacturing facility in Cleveland, Ohio
serves as the manufacturing site for ZEVASKYN commercial production. Our development portfolio features ABO-701 (“PSMA-SIR-T™”),
a potentially first-in-class engineered T-cell therapy targeting PSMA, engineered to overcome the core failures of cell therapies in solid
tumors.

Recent
Developments

Qualified
Treatment Center Activations

On
July 21, 2026, we announced activation of Cincinnati Children’s as the newest qualified treatment center for the administration
of ZEVASKYN. This represents the seventh available qualified treatment center for the administration of ZEVASKYN.

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RESULTS
OF OPERATIONS

Comparison
of Three Months Ended June 30, 2026 and June 30, 2025

Product
revenue, net

Product
revenue, net, resulting from the sale of ZEVASKYN, for the three months ended June 30, 2026 was $11.4 million. There
was no product revenue for the three months ended June 30, 2025 as the approval by the FDA for ZEVASKYN occurred in
April of 2025 and we recorded our first sale in December of 2025.

License and other revenues

License and other revenues for the three months ended
June 30, 2026 was nil as compared to $0.4 million for the same period of 2025. 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.

Cost
of sales

Cost
of sales during the three months ended June 30, 2026 was $4.2 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 and we recorded our first sale in December of 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 June 30, 2026 was $5.0 million, as compared to $5.9 million for the same
period of 2025, a decrease of $0.9 million. The reduction in expenses was primarily due to costs capitalized into inventory and other
production costs that are no longer considered research and development due to FDA approval of ZEVASKYN in April of 2025.

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

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.

Total
selling, general and administrative expenses were $15.8 million for the three months ended June 30, 2026, as compared to $17.1 million
for the same period of 2025, a decrease of $1.3 million. The decrease in expenses was primarily due to $0.9 million of costs that were allocated to costs of sales related to overhead costs
and a reduction in recruiting costs of $0.4 million as we had fewer increases in new employees.

Interest
income

Interest
income was $1.4 million for the three months ended June 30, 2026, as compared to $1.0 million in the same period of 2025. The increase
resulted from increased average short-term investment balances.

Interest
expense

Interest
expense was $0.7 million for the three months ended June 30, 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 principal payments made in 2026.

Change
in fair value of warrant liabilities

The
change in fair value of warrant liabilities was a loss of $7.2 million for the three months ended June 30, 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 loss in the
fair value of warrant liabilities was primarily due to the increase in our stock price over the quarter offset by a shorter term of the
outstanding warrants.

The
change in fair value of warrant liabilities was a loss of $5.4 million for the three months ended June 30, 2025. The loss in the
fair value of warrant liabilities was primarily due to the increase in our stock price year over year offset by a shorter term of the
outstanding warrants.

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 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
(loss) income, net

Other
(loss) income, net consisted of a loss of $6,000 for the three months ended June 30, 2026, as compared to income of $89,000 in the same
period of 2025. The decrease was primarily a result of not having sublease income in 2026. The sublease of our New York office ended in
September of 2025.

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Income
tax expense

We
did not record an income tax expense for the three months ended June 30, 2026 as we generated sufficient tax losses, after consideration
of discrete items.

We
recorded a current income tax expense of $15.5 million for the three months ended June 30, 2025. 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 priority review voucher, resulting in $14.6 million of federal
income tax expense and $0.9 million of state income tax expense. This was subsequently reduced in the third quarter of 2025 as a result
of the favorable impact of the One Big Beautiful Bill Act, enacted on July 4, 2025. The legislation restored immediate expensing of domestic
R&D expenditures, reinstated 100% bonus depreciation, and provided more favorable rules for determining the limitation on business
interest expense, which collectively reduced the Company’s taxable income and resulting income tax expense for the year ended December
31, 2025.

Comparison
of Six Months Ended June 30, 2026 and June 30, 2025

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ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You
should read the following discussion and analysis together with our consolidated financial statements and related notes included in this
Form 10-K. 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 Form
10-K, 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, also known as ZEVASKYN®,
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 current cGMP manufacturing facility in Cleveland, Ohio, and is made available through ZEVASKYN®
qualified treatment centers.

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.

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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
Developments

Since we resumed manufacturing operations in mid-January
after a planned facility shutdown, a patient treatment has been completed, multiple biopsies have been collected for scheduled ZEVASKYN®
treatments in the coming weeks, and additional biopsies are scheduled.

RESULTS
OF OPERATIONS

Comparison
of Years Ended December 31, 2025 and December 31, 2024

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Product
revenue, net

On
April 28, 2025, the FDA approved ZEVASKYN® as the first and only autologous cell-based gene therapy for the treatment
of wounds in adult and pediatric patients with RDEB. Product revenue, net, resulting from the sale of ZEVASKYN®, for the
year ended December 31, 2025 was $2.4 million. On December 8, 2025, we announced the first commercial patient treatment with FDA-approved
ZEVASKYN® at Lucile Packard Children’s Hospital Stanford in Palo Alto, CA. There was no product revenue for the
year ended December 31, 2024 as the approval by the FDA for ZEVASKYN® did not occur until 2025.

License
and other revenues

License
and other revenues for the year ended December 31, 2025 was $3.4 million as compared to nil for the same period of 2024. The revenue
in 2025 consists primarily of revenue resulting from achieving a clinical development milestone under a sublicense agreement
we entered into with Taysha in October 2020 relating to an investigational AAV-based gene therapy for Rett syndrome. Additionally
in 2025, we also recorded $0.4 million resulting from a third party exercising its option to license certain of our AAV capsids. There
was no license or other revenue in 2024 as no clinical development milestones were met in 2024.

Cost
of sales

Cost
of sales during the year ended December 31, 2025 was $1.5 million and primarily includes costs associated with the first commercial
patient treatment with FDA-approved ZEVASKYN® in December of 2025 and costs associated with the August 2025
production of a full batch of ZEVASKYN® that could not be released due to technical issues that arose in implementing
the rapid sterility lot release assay that was mandated by the FDA during BLA review. There was no cost of sales in the same period
of 2024, as ZEVASKYN® was approved by the FDA in April 2025.

Royalties

Total
royalty expenses were $1.9 million for the year ended December 31, 2025, as compared to nil for the same period of 2024. The increase
in was primarily due to royalties owed to our licensors resulting from the milestone due from Taysha related to Rett syndrome.

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 year ended December 31, 2025 was $26.8 million, as compared to $34.4 million for the same period
of 2024, a decrease of $7.6 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 continue as we work towards advancing our product candidates towards potential regulatory
approval, reflecting costs associated with the following:

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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 commercial launch 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 advance other product candidates
toward potential regulatory approval.

Total
selling, general and administrative expenses were $65.0 million for the year ended December 31, 2025, as compared to $29.9 million
for the same period of 2024, an increase of $35.1 million. The increase in expenses was primarily due to increases in commercial
costs of $2.3 million, related to our continued commercialization efforts, increases in salaries and stock-based compensation of
$18.6 million due to new hires, and $4.8 million of costs related to engineering runs with the remainder due to other
commercial costs upon FDA approval in April of 2025.

Interest
income

Interest
income was $5.6 million for the year ended December 31, 2025, as compared to $4.2 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 $3.7 million for the year ended December 31, 2025, as compared to $4.2 million in the same period of 2024. Interest expense
was due to the credit facility we entered into in January 2024 and decreased as a result of the July 2025 amendment to the credit facility
reducing the interest rate for the senior secured term loan thereunder from 13.5% to 11.75%.

Change
in fair value of warrant and derivative liabilities

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
change in fair value of warrant liabilities resulted in a gain of $6.1 million for the year ended December 31, 2025. The gain in the fair value
of warrant liabilities was primarily due to the decrease in our stock price as of December 31, 2025 compared to December 31, 2024 and
to the shorter expected term period over period.

The
change in fair value of warrant and derivative liabilities was a loss of $0.8 million for the year ended December 31, 2024. The loss
on the fair value of warrant and derivative liabilities was primarily due to the increase in our stock price year over the year offset
by a reduced term of each of the warrants and derivative liabilities. At September 30, 2024, the conversion feature in our loan agreement
no longer met the criteria of a derivative liability, and the derivative liability was reclassified to equity.

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 year ended December 31, 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, net

Other
income, net was $0.4 million for the year ended December 31, 2025, as compared to $1.2 million in the same period of 2024. The change
was primarily a result of the refundable job creation tax credit of $0.5 million received in 2024 that was not received in 2025.

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Income
tax expense

We
recorded a current income tax expense of $0.1 million for the year ended December 31, 2025. We did not record an income tax expense for
the year ended December 31, 2024 as we generated sufficient tax losses, after consideration of discrete items. The current income tax
expense for the year ended December

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