The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Lion Biotechnologies, Inc. (the “Company,”
“we,” “us” or “our”) is a biotechnology company focused on developing and commercializing adoptive
cell therapy (ACT) using autologous tumor infiltrating lymphocytes (TIL) for the treatment of metastatic melanoma and other solid
cancers. ACT utilizes T-cells harvested from a patient to treat cancer in that patient. TIL, a kind of anti-tumor T-cells that
are naturally present in a patient’s tumors, are collected from individual patient tumor samples. The TIL are then activated
and expanded ex vivo and then infused back into the patient to fight their tumor cells.
Basis of Presentation of Unaudited Condensed Financial
Information
The unaudited condensed financial statements
of the Company for the three months ended March 31, 2016 and 2015 have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form
10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation
of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2015 was derived from the audited
financial statements included in the Company's financial statements as of and for the year ended December 31, 2015 included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March
11, 2016. These financial statements should be read in conjunction with that report.
Liquidity
We are currently engaged in the development
of therapeutics to fight cancer, we do not have any commercial products and have not yet generated any revenues from our biopharmaceutical
business. We currently do not anticipate that we will generate any revenues during 2016 from the sale or licensing of any products.
As shown in the accompanying condensed financial statements, we have incurred a net loss of $6.9 million for the three months ended
March 31, 2016 and used $4.6 million of cash in our operating activities during the three months ended March 31, 2016. As of March
31, 2016, we had $99.2 million of cash, money market funds, and short-term investments on hand, stockholders’ equity of $98.9
million and had working capital of $97.5 million.
During 2016, we expect to further ramp
up our clinical operations and research activities, which will increase the amount of cash we will use. Specifically, our budget
for 2016 includes increased spending on Phase II clinical trials, research and development activities, higher payroll expenses
as we increase our professional and scientific staff, as well as ongoing payments under our Cooperative Research and Development
Agreement (CRADA) with the National Cancer Institute (NCI). We estimate that we will spend between $30- $35 million in cash during
2016. Based on the funds we had available on March 31, 2016, we believe that we have sufficient capital to fund our anticipated
operating expenses for at least 12 months.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Short-term Investments
The Company’s short-term investments
represent available for sale securities and are recorded at fair value and unrealized gains and losses are recorded within accumulated
other comprehensive income (loss). The estimated fair value of the available for sale securities is determined based on quoted
market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization
of premium and accretion of discount to maturity. The Company evaluates securities with unrealized losses to determine whether
such losses, if any, are other than temporary.
Loss per Share
Basic earnings (loss) per share is computed
by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding
during the period. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from
the time they vest. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders
by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average
number of common shares outstanding from the date they are granted until which time they vest, unless they are antidilutive. For
the three month ended March 31, 2016, and 2015, the calculations of basic and diluted loss per share are the same because inclusion
of potential dilutive securities in the computation would have an anti-dilutive effect due to the net losses.
At March 31, 2016 and 2015, the dilutive
impact of outstanding stock options for 3,367,129 and 1,907,877 shares, respectively; outstanding warrants for 7,202,216 shares;
and preferred stock that can convert into 847,000 shares of our common stock, have been excluded because their impact on the loss
per share is anti-dilutive.
Fair Value Measurements
Under FASB ASC 820, Fair Value Measurements
and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction
between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available,
fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices
or parameters are not available, valuation models are applied.
Assets and liabilities recorded at fair
value in our financial statements are categorized based upon the level of judgment associated with the inputs used to measure their
fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of
these assets and liabilities, are as follows:
Level 1—Inputs are unadjusted,
quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for
the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
The fair valued assets we hold that are
generally included under this Level 1 are money market securities where fair value is based on publicly quoted prices.
Level 2—Are inputs, other than
quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation
with market data at the reporting date and for the duration of the instrument’s anticipated life.
The fair valued assets we hold that are
generally assessed under Level 2 are corporate bonds and commercial paper. We utilize third party pricing services in developing
fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including
benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes from external pricing
service providers and other on-line quotation systems to verify the fair value of investments provided by our third party pricing
service providers. We review independent auditor’s reports from our third party pricing service providers particularly regarding
the controls over pricing and valuation of financial instruments and ensure that our internal controls address certain control
deficiencies, if any, and complementary user entity controls are in place.
Level 3—Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and
which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
We do not have fair valued assets classified
under Level 3.
The Company believes the carrying amount
of its financial instruments (consisting of cash and cash equivalents, and accounts payable and accrued expenses) approximates
fair value due to the short-term nature of such instruments.
Fair Value on a Recurring Basis
Financial assets measured at fair value
on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in
thousands):
|
|
|
Assets at Fair Value as of March 31, 2016
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
Corporate debt securities
|
|
$
|
-
|
|
|
$
|
60,251
|
|
|
$
|
-
|
|
|
$
|
60,251
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
60,251
|
|
|
$
|
-
|
|
|
$
|
60,251
|
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Corporate debt securities
|
|
$
|
-
|
|
|
$
|
70,113
|
|
|
$
|
-
|
|
|
$
|
70,113
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
70,113
|
|
|
$
|
-
|
|
|
$
|
90,058
|
|
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates include valuation of available-for-sale
investments, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred tax
assets, and the assumptions made in valuing stock instruments issued for services.
Stock-Based Compensation
The Company periodically grants stock options
and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company
accounts for stock option grants to employees based on the authoritative guidance provided by the Financial Accounting Standards
Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts
for stock option grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board
where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee
stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances
where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based
compensation charge is recorded in the period of the measurement date.
The fair value of the Company's common
stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded
based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used
in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
The Company issues restricted shares of
its common stock for share-based compensation programs. The Company measures the compensation cost with respect to restricted shares
to employees based upon the estimated fair value of the equity instruments at the date of the grant, and is recognized as expense
over the period which an employee is required to provide services in exchange for the award.
|
Total stock-based compensation expense related to all of our stock-based awards was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Research and development
|
|
$
|
585
|
|
|
$
|
387
|
|
|
General and administrative
|
|
|
1,194
|
|
|
|
1,080
|
|
|
Total stock-based compensation expense
|
|
$
|
1,779
|
|
|
$
|
1,467
|
|
Concentrations
Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of cash.
The Company maintains cash balances at
one bank. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institution
that holds the Company’s cash is financially sound and, accordingly, minimal credit risk exists. As of March 31, 2016 and
2015, the Company’s cash balances were in excess of insured limits maintained at the bank.
Recent Accounting Pronouncements
In January 2016, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement
of Financial Assets and Financial Liabilities. The new guidance will impact the accounting for equity investments, financial liabilities
under the fair value option, and the presentation and disclosure requirements for financial instruments. All equity investments
in unconsolidated entities (other than those accounted for under the equity method of accounting) will generally be measured at
fair value with changes in fair value recognized through earnings. There will no longer be an available-for-sale classification
for equity securities with readily determinable fair values in which changes in fair value are currently reported in other comprehensive
income. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses
on available-for-sale debt securities. In general, the new guidance will require modified retrospective application to all outstanding
instruments, with a cumulative effect adjustment recorded to opening retained earnings. This guidance will be effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted commencing
January 1, 2017. We are currently evaluating the expected impact that the standard could have on our financial statements and related
disclosures.
In February 2016, the FASB issued Accounting
Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease
liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating
the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
Reclassifications
In presenting the Company’s statement
of operations for the three months ended March 31, 2015, the Company has reclassified $0.3 million, of stock-based compensation
that was previously reflected as general and administrative expenses to research and development expenses. The reclassification
relates to stock-based compensation attributable to individuals working in the Company’s research and development activities,
and had no impact on total costs and expenses, or on net loss.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did
not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
financial statements.
NOTE 3. CASH, MONEY MARKET FUNDS,
AND SHORT-TERM INVESTMENTS
Cash, money market funds, and short-term
investments consist of the following (in thousands):
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Checking and savings accounts (reported as cash and cash equivalents)
|
|
$
|
8,943
|
|
|
$
|
13,642
|
|
|
Money market funds
|
|
|
29,972
|
|
|
|
19,945
|
|
|
Corporate debt securities (reported as short-term investments)
|
|
|
60,251
|
|
|
|
70,113
|
|
|
|
|
$
|
99,166
|
|
|
$
|
103,700
|
|
Money market funds and short-term investments
include the following securities with gross unrealized gains and losses (in thousands):
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
March 31, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Money market funds
|
|
$
|
29,972
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,972
|
|
|
Corporate debt securities
|
|
|
60,183
|
|
|
|
68
|
|
|
|
-
|
|
|
|
60,251
|
|
|
Total
|
|
$
|
90,155
|
|
|
$
|
68
|
|
|
$
|
-
|
|
|
$
|
90,223
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
December 31, 2015
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Money market funds
|
|
$
|
19,945
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,945
|
|
|
Corporate debt securities
|
|
|
70,065
|
|
|
|
48
|
|
|
|
-
|
|
|
|
70,113
|
|
|
Total
|
|
$
|
90,010
|
|
|
$
|
48
|
|
|
$
|
-
|
|
|
$
|
90,058
|
|
As of March 31, 2016, the contractual maturities
of our money market funds and short-term investments were (in thousands):
|
|
|
|
Within One
|
|
|
|
|
|
Year
|
|
|
Money market funds
|
|
$
|
29,972
|
|
|
Corporate debt securities
|
|
|
60,251
|
|
|
|
|
$
|
90,223
|
|
At March 31, 2016, the Company’s
short-term investments were invested in short-term fixed income debt securities and notes of domestic and foreign high credit issuers
and in money market funds. The Company’s investment policy limits investments to certain types of instruments such
as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as
well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. At March 31,
2016, the Company’s short-term investments totaled $60.3 million, of which 50% were invested in notes of five companies,
44% were invested in notes of other domestic issuers, and 6% were invested in notes of foreign issuers. The average maturity
of these notes was 85 days. At March 31, 2016 the Company’s money-market funds totaled approximately $30 million and
were invested in a single, no-load money market fund.
NOTE 4. STOCKHOLDERS’
EQUITY
During 2016, certain employees authorized
the Company to cancel 41,193 vested shares to satisfy withholding requirements related to such vesting. The cancellation
is recorded as a reduction to shares outstanding. Additionally, shares of restricted stock granted above are subject to forfeiture
to the Company or other restrictions that will lapse in accordance with a vesting schedule determined by our Board.
The following table summarizes restricted
common stock activity:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Non-vested shares, January 1, 2016
|
|
|
321,252
|
|
|
$
|
6.96
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(73,126
|
)
|
|
|
6.40
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Non-vested shares, March 31, 2016
|
|
|
248,126
|
|
|
$
|
7.13
|
|
NOTE 5. STOCK
OPTIONS AND WARRANTS
Stock Options
A summary of the status of stock options
at March 31, 2016, and the changes during the three months then ended, is presented in the following table:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
|
Option
|
|
|
Price
|
|
|
Life
|
|
|
(in thousands)
|
|
|
Outstanding at January 1, 2016
|
|
|
2,693,237
|
|
|
$
|
8.12
|
|
|
|
8.02
|
|
|
$
|
2,347
|
|
|
Granted
|
|
|
986,422
|
|
|
|
5.02
|
|
|
|
9.9
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired/Forfeited
|
|
|
(312,530
|
)
|
|
|
8.01
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at March 31, 2016
|
|
|
3,367,129
|
|
|
$
|
7.15
|
|
|
|
8.87
|
|
|
$
|
185
|
|
|
Exercisable at March 31, 2016
|
|
|
1,151,221
|
|
|
$
|
8.26
|
|
|
|
7.82
|
|
|
$
|
24
|
|
During the three months ended March 31,
2016, the Company granted options to purchase 986,422 shares of common stock to new employees and directors of the Company. The
stock options generally vest between one and three years. The fair value of these options was determined to be $4.8 million using
the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 194%, (ii) discount rate of 1.78%,
(iii) zero expected dividend yield, and (iv) expected life of 6 years.
During the period ended March 31, 2016
and 2015, the Company recorded compensation costs of $1.5 million and $1.0 million, respectively, relating to the vesting of stock
options. As of March 31, 2016, the aggregate value of unvested options was $12.8 million, which will continue to be amortized as
compensation cost as the options vest over terms ranging from nine months to three years, as applicable.
NOTE 6. LICENSE
AND COMMITMENTS
National Institutes of Health and the National Cancer
Institute
Cooperative Research and Development Agreement
Effective August 5, 2011, the Company signed
a Cooperative Research and Development Agreement (CRADA) with the National Institutes of Health and the National Cancer Institute
(NCI). Under the terms of the five-year cooperative research and development agreement, the Company will work with Dr. Steven A.
Rosenberg, M.D., Ph.D., chief of NCI’s Surgery Branch, to develop adoptive cell immunotherapies that are designed to destroy
metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.
On January 22, 2015, the Company executed
an amendment (the “Amendment”) to the CRADA to include four new indications. As amended, in addition to metastatic
melanoma, the CRADA now also includes the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative
breast, and HPV-associated cancers. Under the Amendment, the NCI also has agreed to provide the Company with samples of all tumors
covered by the Amendment for performing studies related to improving TIL selection and/or TIL scale-out production and process
development. Although the CRADA has a five year term, either party to the CRADA has the right to terminate the CRADA upon 60 days’
notice to the other party.
Development and Manufacture TIL
Effective October 5, 2011, the Company
entered into a Patent License Agreement with the National Institutes of Health, an agency of the United States Public Health Service
within the Department of Health and Human Services (“NIH”), which License Agreement was subsequently amended on February
9, 2015 and October 2, 2015. Pursuant to the License Agreement as amended, NIH granted to the Company an exclusive worldwide right
and license to develop and manufacture certain proprietary autologous tumor infiltrating lymphocyte adoptive cell therapy products
for the treatment of metastatic melanoma, ovarian cancer, breast cancer, and colorectal cancer. The License Agreement requires
the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single digits and subject to certain
annual minimum royalty payments), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments
on the achievement of certain clinical and regulatory milestones for each of the various indications and other direct costs incurred
by NIH pursuant to the agreement.
Exclusive Patent License Agreement
On February 10, 2015, the Company entered
into an exclusive Patent License Agreement with the NIH under which the Company received an exclusive, world-wide license to the
NIH’s rights in and to two patent-pending technologies related to methods for improving tumor-infiltrating lymphocytes for
adoptive cell therapy. The licensed technologies relate to the more potent and efficient production of TIL from melanoma tumors
by selecting for T-cell populations that express various inhibitory receptors. Unless terminated sooner, the license shall remain
in effect until the last licensed patent right expires.
In consideration for the exclusive rights
granted under the exclusive Patent License Agreement, the Company agreed to pay the NIH a non-refundable upfront licensing fee
which was recognized as research and development expense during the year ended December 31, 2015. The Company also agreed to pay
customary royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of revenues
from sublicensing arrangements, and lump sum benchmark payments upon the successful completion of the Company’s first Phase
2 clinical study, the successful completion of the Company’s first Phase 3 clinical study, the receipt of the first FDA approval
or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of
a licensed product or process in the United States, and the first commercial sale of a licensed product or process in any foreign
country. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution
of the patent applications and patents covered by the License.
H. Lee Moffitt Cancer Center
Research Collaboration Agreement
In September, 2014, we entered into a research
collaboration agreement with the H. Lee Moffitt Cancer Center and Research Institute, Inc. to jointly engage in transitional research
and development of adoptive tumor-infiltrating lymphocyte cell therapy with improved anti-tumor properties and process.
Exclusive License Agreement
The Company entered into an Exclusive License
Agreement (the “Moffitt License Agreement”), effective as of June 28, 2014, with the H. Lee Moffitt Cancer Center and
Research Institute, Inc. (“Moffitt”) under which the Company received an exclusive, world-wide license to Moffitt’s
rights in and to two patent-pending technologies related to methods for improving tumor-infiltrating lymphocytes for adoptive cell
therapy. Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last patent related
to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt License Agreement,
the Company paid an upfront licensing fee which was recognized as research and development expense during 2014. A patent issuance
fee will also be payable under the Moffitt License Agreement, upon the issuance of the first U.S. patent covering the subject technology.
In addition, the Company agreed to pay milestone license fees upon completion of specified milestones, customary royalties based
on a specified percentage of net sales (which percentage is in the low single digits) and sublicensing payments, as applicable,
and annual minimum royalties beginning with the first sale of products based on the licensed technologies, which minimum royalties
will be credited against the percentage royalty payments otherwise payable in that year. The Company will also be responsible for
all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered by
the Moffitt License Agreement related to the treatment of any cancers in the United States, Europe and Japan and in other countries
selected that the Company and Moffitt agreed to.
During the three months ended March 31,
2016 and 2015, the Company recognized $0.8 million and $0.5 million respectively, of expenses related to its license agreements.
The amounts were recorded as part of research and development expenses in the statements of operations. Additionally, during the
three months ended March 31, 2016, there were no net sales subject to certain annual minimum royalty payments or sales that would
require us to pay a percentage of revenues from sublicensing arrangements. In addition, there were no benchmarks or milestones
achieved that would require payment under the lump sum benchmark royalty payments on the achievement of certain clinical regulatory
milestones for each of the various indications.
Aggregate guaranteed commitments for 2016,
under all of the Company’s license and research agreements, are approximately $2.1 million.
Tampa Lease
In December 2014, the Company commenced
a five-year non-cancellable operating lease with the University of South Florida Research Foundation for an approximately 5,200
square foot facility located in Tampa, Florida. The facility is part of the University of South Florida research park and is used
as the Company’s research and development facilities. The monthly base rent for this facility during the first year of the
lease was $10,443 and will increase by 3% annually. The Company has the option to extend the lease term of this facility for an
additional five-year period on the same terms and conditions, except that the base rent for the renewal term will be increased
in accordance with the applicable consumer price index.
The minimum lease payments are as follows
(in thousands):
|
Year
|
|
Amount
|
|
|
2016 (remaining)
|
|
$
|
114
|
|
|
2017
|
|
|
157
|
|
|
2018
|
|
|
162
|
|
|
2019
|
|
|
167
|
|
|
|
|
$
|
638
|
|
NOTE 7. LEGAL
PROCEEDINGS
SEC Settlement
. As previously disclosed,
on April 23, 2014 we received a subpoena from the SEC that stated that the staff of the SEC was conducting an investigation then
designated as In the Matter of Galena Biopharma, Inc. File No. HO 12346 (now known as In the Matter of Certain Stock Promotions)
and that the subpoena was issued to the Company as part of the foregoing investigation. The SEC’s subpoena and accompanying
letter did not indicate whether we were, or were not, under investigation. We produced documents in response to the subpoena and
have since fully cooperated with the SEC’s investigation.
We have recently been informed by the Staff
of the SEC that the SEC’s investigation, in part, involves the conduct of our former Chief Executive Officer, Manish singh,
during the period between September 2013 and April 2014. We understand that, as it pertains to the Company’s former Chief
Executive Officer, the investigation has focused on the failure by authors of certain articles about the Company to disclose that
they were compensated by one of our former investor relations firms. We understand that it is the position of the SEC Staff that
the conduct of our former Chief Executive Officer with respect to these articles may be imputed to the Company.
In order to resolve this matter, we have
agreed with the Staff of the SEC to a proposed settlement framework under which we would consent to the entry of an order requiring
that we cease and desist from any future violations of certain provisions of the federal securities laws, without admitting or
denying any allegations. We are currently discussing with the Staff of the SEC whether the proposed settlement will involve the
payment of a financial penalty. Because we do not yet know whether a financial penalty will be part of the proposed settlement
and, if so, the amount of the financial penalty, we have not accrued a liability related to this matter. The proposed settlement
is contingent upon reaching agreement with the Staff of the SEC on a complete set of settlement terms and approval by the Commissioners
of the SEC, neither of which can be assured.
Solomon Capital, LLC.
On April 8,
2016, a lawsuit titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff against Lion Biotechnologies,
Inc. was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff against the company in the
Supreme Court of the State of New York County of New York (index no. 651881/2016). The plaintiffs allege that, between June and
November 2012 they provided us with $52,850 and that they advanced and paid on our behalf an additional $170,000. The complaint
further alleges that we agreed to (i) provide them with promissory notes totaling $222,850, plus interest, (ii) issue a total of
111,425 shares to the plaintiffs (before the 1-for-100 reverse stock effected in September 2013), and (iii) allow the plaintiffs
to convert the foregoing funds into our securities in the next transaction. The plaintiffs allege that they should have been able
to convert their advances and payments into shares of our common stock in the restructuring and reorganization that we effected
in May 2013. Based on the foregoing, the plaintiffs allege causes for breach of contract and unjust enrichment and demand judgment
against us in an unspecified amount exceeding $1,500,000, plus interest and attorneys’ fees. We have begun our investigation
of the allegations made by the plaintiffs and intend to vigorously defend this matter.