ITEM 1. FINANCIAL STATEMENTS
GALENA BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
34,709
|
|
|
$
|
29,730
|
|
Restricted cash
|
401
|
|
|
401
|
|
Litigation settlement insurance recovery
|
1,700
|
|
|
21,700
|
|
Prepaid expenses and other current assets
|
1,051
|
|
|
1,398
|
|
Current assets of discontinued operations, net
|
88
|
|
|
392
|
|
Total current assets
|
37,949
|
|
|
53,621
|
|
Equipment and furnishings, net
|
299
|
|
|
335
|
|
In-process research and development
|
12,864
|
|
|
12,864
|
|
GALE-401 rights
|
9,255
|
|
|
9,255
|
|
Goodwill
|
5,898
|
|
|
5,898
|
|
Deposits and other assets
|
100
|
|
|
171
|
|
Total assets
|
$
|
66,365
|
|
|
$
|
82,144
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
1,019
|
|
|
$
|
1,597
|
|
Accrued expenses and other current liabilities
|
4,042
|
|
|
5,292
|
|
Litigation settlement payable
|
5,000
|
|
|
25,000
|
|
Fair value of warrants potentially settleable in cash
|
23,934
|
|
|
14,518
|
|
Current portion of long-term debt
|
3,740
|
|
|
4,739
|
|
Current liabilities of discontinued operations
|
4,487
|
|
|
5,925
|
|
Total current liabilities
|
42,222
|
|
|
57,071
|
|
Deferred tax liability
|
5,418
|
|
|
5,418
|
|
Contingent purchase price consideration
|
6,312
|
|
|
6,142
|
|
Total liabilities
|
53,952
|
|
|
68,631
|
|
Commitments and contingencies
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding
|
—
|
|
|
—
|
|
Common stock, $0.0001 par value; 275,000,000 shares authorized, 182,512,117 shares issued and 181,837,117 shares outstanding at March 31, 2016; 275,000,000 shares authorized, 162,581,753 shares issued and 161,906,753 shares outstanding at December 31, 2015
|
18
|
|
|
15
|
|
Additional paid-in capital
|
312,120
|
|
|
296,730
|
|
Accumulated deficit
|
(295,876
|
)
|
|
(279,383
|
)
|
Less treasury shares at cost, 675,000 shares
|
(3,849
|
)
|
|
(3,849
|
)
|
Total stockholders’ equity
|
12,413
|
|
|
13,513
|
|
Total liabilities and stockholders’ equity
|
$
|
66,365
|
|
|
$
|
82,144
|
|
See accompanying notes to condensed consolidated financial statements.
GALENA BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Operating expenses:
|
|
|
|
Research and development
|
$
|
5,443
|
|
|
$
|
5,825
|
|
General and administrative
|
3,525
|
|
|
3,087
|
|
Total operating expenses
|
8,968
|
|
|
8,912
|
|
Operating loss
|
(8,968
|
)
|
|
(8,912
|
)
|
Change in fair value of warrants potentially settleable in cash
|
(3,873
|
)
|
|
1,152
|
|
Interest income (expense), net
|
(91
|
)
|
|
(225
|
)
|
Other expense
|
(170
|
)
|
|
(321
|
)
|
Total non-operating income (expense), net
|
(4,134
|
)
|
|
606
|
|
Loss from continuing operations
|
(13,102
|
)
|
|
(8,306
|
)
|
Loss from discontinued operations
|
(3,391
|
)
|
|
(2,231
|
)
|
Net loss
|
$
|
(16,493
|
)
|
|
$
|
(10,537
|
)
|
|
|
|
|
Net loss per common share:
|
|
|
|
Basic and diluted net loss per share, continuing operations
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
Basic and diluted net loss per share, discontinued operations
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Basic and diluted net loss per share
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Weighted-average common shares outstanding: basic and diluted
|
179,372,320
|
|
|
136,054,864
|
|
See accompanying notes to condensed consolidated financial statements.
GALENA BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Treasury Stock
|
|
Total
|
|
Shares Issued
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
162,581,753
|
|
|
$
|
15
|
|
|
$
|
296,730
|
|
|
$
|
(279,383
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
13,513
|
|
Issuance of common stock
|
19,772,727
|
|
|
3
|
|
|
20,186
|
|
|
—
|
|
|
—
|
|
|
20,189
|
|
Common stock warrants issued in connection with January 2016 common stock offering
|
—
|
|
|
—
|
|
|
(5,590
|
)
|
|
—
|
|
|
—
|
|
|
(5,590
|
)
|
Issuance of common stock upon exercise of warrants
|
50,665
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
Issuance of common stock in connection with employee stock purchase plan
|
67,017
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
78
|
|
Stock-based compensation for directors and employees
|
—
|
|
|
—
|
|
|
656
|
|
|
—
|
|
|
—
|
|
|
656
|
|
Exercise of stock options
|
39,955
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,493
|
)
|
|
—
|
|
|
(16,493
|
)
|
Balance at March 31, 2016
|
182,512,117
|
|
|
$
|
18
|
|
|
$
|
312,120
|
|
|
$
|
(295,876
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
12,413
|
|
See accompanying notes to condensed consolidated financial statements.
GALENA BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Cash flows from continuing operating activities:
|
|
|
|
Net loss from continuing operations
|
$
|
(13,102
|
)
|
|
$
|
(8,306
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization expense
|
73
|
|
|
98
|
|
Non-cash stock-based compensation
|
656
|
|
|
371
|
|
Change in fair value of common stock warrants
|
3,872
|
|
|
(1,151
|
)
|
Change in fair value of contingent consideration
|
170
|
|
|
321
|
|
Changes in operating assets and liabilities:
|
|
|
|
Prepaid expenses and other assets
|
418
|
|
|
30
|
|
Litigation settlement insurance recovery
|
20,000
|
|
|
—
|
|
Litigation settlement payable
|
(20,000
|
)
|
|
—
|
|
Accounts payable
|
(578
|
)
|
|
25
|
|
Accrued expenses and other current liabilities
|
(1,250
|
)
|
|
(1,885
|
)
|
Net cash used in continuing operating activities
|
(9,741
|
)
|
|
(10,497
|
)
|
Cash flows from discontinued operating activities:
|
|
|
|
Net loss from discontinued operations
|
(3,391
|
)
|
|
(2,231
|
)
|
Changes in operating assets and liabilities attributable to discontinued operations
|
(84
|
)
|
|
1,172
|
|
Net cash used in discontinued operating activities
|
(3,475
|
)
|
|
(1,059
|
)
|
Net cash used in operating activities
|
(13,216
|
)
|
|
(11,556
|
)
|
Cash flows from investing activities:
|
|
|
|
Cash paid for purchase of equipment and furnishings
|
(6
|
)
|
|
(18
|
)
|
Net cash used in continuing investing activities
|
(6
|
)
|
|
(18
|
)
|
Selling costs paid for sale of commercial assets
|
(1,050
|
)
|
|
—
|
|
Cash paid for commercial assets
|
—
|
|
|
(500
|
)
|
Net cash used in discontinued investing activities
|
(1,050
|
)
|
—
|
|
(500
|
)
|
Net cash used in investing activities
|
(1,056
|
)
|
|
(518
|
)
|
Cash flows from financing activities:
|
|
|
|
Net proceeds from issuance of common stock
|
20,189
|
|
|
42,121
|
|
Net proceeds from exercise of stock options
|
14
|
|
|
—
|
|
Proceeds from common stock issued in connection with ESPP
|
78
|
|
|
110
|
|
Principle payments on long-term debt
|
(1,030
|
)
|
|
(947
|
)
|
Net cash provided by financing activities
|
19,251
|
|
|
41,284
|
|
Net increase in cash and cash equivalents
|
4,979
|
|
|
29,210
|
|
Cash and cash equivalents at the beginning of period
|
29,730
|
|
|
23,650
|
|
Cash and cash equivalents at end of period
|
$
|
34,709
|
|
|
$
|
52,860
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash received during the periods for interest
|
$
|
21
|
|
|
$
|
2
|
|
Cash paid during the periods for interest
|
$
|
112
|
|
|
$
|
166
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
Fair value of warrants issued in connection with common stock recorded as cost of equity
|
$
|
5,590
|
|
|
$
|
10,296
|
|
Reclassification of warrant liabilities upon exercise
|
$
|
46
|
|
|
$
|
—
|
|
See accompanying notes to condensed consolidated financial statements.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business and Basis of Presentation
Overview
Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “Company”) is a biopharmaceutical company committed to the development and commercialization of targeted oncology therapeutics that address major unmet medical needs. Galena’s development portfolio is focused primarily on addressing the rapidly growing patient populations of cancer survivors by harnessing the power of the immune system to prevent cancer recurrence. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including novel cancer immunotherapy programs led by NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. NeuVax is currently in a pivotal, Phase 3 breast cancer clinical trial with several concurrent Phase 2 trials ongoing both as a single agent and in combination with other therapies. GALE-301 is in a Phase 2a clinical trial in ovarian and endometrial cancers and in a Phase 1b clinical trial given sequentially with GALE-302.
We are seeking to build value for shareholders through pursuit of the following objectives:
|
|
•
|
Develop novel cancer immunotherapies to address unmet medical needs through the use of peptide-based vaccines targeting well-established tumor antigens. One of our key strategies is to target the adjuvant setting in patients with higher risk of recurrence, who had their primary treatment for cancer and have no evidence of disease, and are more likely to benefit from treatment via immunotherapy. Our immunotherapy programs are currently targeting two key areas: secondary prevention intended to significantly decrease the risk of disease recurrence in breast, gastric, and ovarian cancers; and primary prevention intended to cease or delay ductal carcinoma
in situ
(DCIS) from becoming invasive breast cancer.
|
|
|
•
|
Expand our development pipeline by enhancing the clinical and geographic footprint of our technologies. We intend to accomplish this through the initiation of new clinical trials and potentially through acquisition of additional oncology programs.
|
|
|
•
|
Leverage partnerships and collaborations, as well as investigator-sponsored trial arrangements, to maximize the scope of potential clinical opportunities in a cost effective and efficient manner.
|
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Basis of Presentation and Significant Accounting Policies
The accompanying consolidated financial statements included herein have been prepared by Galena pursuant to the generally accepted accounting principles (GAAP). Unless the context otherwise indicates, references in these notes to the “Company,” “we,” “us” or “our” refer (i) to Galena, our wholly owned subsidiaries, Apthera, Inc., or “Apthera,” and our wholly owned subsidiary, Mills Pharmaceuticals, LLC or "Mills."
Discontinued Operations -
As described in Note 12, during the quarter ended September 30, 2015 the Company met the relevant criteria for reporting the commercial operations as held for sale and in discontinued operations, pursuant to FASB Topic 205-20, Presentation of Financial Statements - Discontinued Operations, and FASB Topic 360, Property, Plant, and Equipment. During the quarter ended December 31, 2015, the Company completed the sale of the commercial products and the related assets.
Uses of Estimates in Preparation of Financial Statements
— The preparation of these consolidated 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 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 materially from those estimates.
Principles of Consolidation
— The consolidated financial statements include the accounts of Galena and its wholly owned subsidiaries. All material intercompany accounts have been eliminated in consolidation.
Reclassifications
— Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on net loss per share. The Company has recast the financial information for the three months ended March 31, 2015 to reflect the Company's commercial business as discontinued operations in the accompanying financial statements as the commercial business was divested in the fourth quarter of 2015.
Cash and Cash Equivalents
— The Company considers all highly liquid debt instruments with an original maturity of
90
days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and demand deposits.
Restricted Cash
— Restricted cash consists of certificates of deposit on hand with the Company’s financial institutions as collateral for its corporate credit cards.
Fair Value of Financial Instruments
— The carrying amounts reported in the balance sheet for cash equivalents, accounts receivable, accounts payable, and capital leases approximate their fair values due to their short-term nature and market rates of interest.
Equipment and Furnishings
— Equipment and furnishings are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally
three
to
five
years) of the related assets.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Goodwill and Intangible Assets
— Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level, or more frequently if events and circumstances indicate impairment may have occurred. Factors the Company considers important that could trigger an interim review for impairment include, but are not limited to, the following:
•
Significant changes in the manner of its use of acquired assets or the strategy for its overall business;
•
Significant negative industry or economic trends;
•
Significant decline in stock price for a sustained period; and
•
Significant decline in market capitalization relative to net book value.
Goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment. If it is determined that impairment is more likely than not, the Company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit. If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment. Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.
Intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The Company’s policy is to identify and record impairment losses, if necessary, on intangible assets when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts.
The Company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, as well as assets not considered to be indefinite-lived, and has determined that there has been no impairment to these assets as of
March 31, 2016
.
Acquisitions and In-Licensing —
For all in-licensed products and technologies, we perform an analysis to determine whether we hold a variable interest or a controlling financial interest in a variable interest entity. On the basis of our interpretations and conclusions, we determine whether the acquisition falls under the purview of variable interest entity accounting and if so, consider the necessity to consolidate the acquisition. As of
March 31, 2016
, we determined there were no variable interest entities required to be consolidated.
We also perform an analysis to determine if the assets and liabilities acquired in an acquisition qualify as a "business." The excess of the purchase price over the fair value of the net assets acquired can only be recognized as goodwill in a business combination. The Company completes its valuation analysis no later than twelve months from the date of the acquisition.
Contingent Purchase Price Consideration
— Contingent consideration in business combinations is recorded at the estimated fair value as of the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period with any adjustments in fair value included in our consolidated statement of comprehensive loss.
Patents and Patent Application Costs
— Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Litigation Settlement Payable and Insurance Recoveries
— There can be a significant time lag between the time that legal fees are incurred and the insurance reimbursement available to offset the related costs. The legal costs are recorded in the period they are incurred, and the insurance recoveries for those costs are recorded in the period when the insurance reimbursement is deemed probable.
Share-based Compensation
— The Company follows the provisions of the FASB ASC Topic 718, “
Compensation — Stock Compensation”
(“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including stock options and warrants. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.
For stock options and warrants granted as consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50 (“ASC 505-50”), “
Equity Based Payments to Non- Employees
.” Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, is re-measured using the fair value of the Company’s common stock and the non-cash compensation recognized during the period is adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
Research and Development Expenses
— Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead related to our research and development departments, and clinical trial expenses.
Clinical trial expenses include direct costs associated with contract research organizations (CROs), as well as patient-related costs at sites at which our trials are being conducted. Direct costs associated with our CROs are generally payable on a time and materials basis, or when certain enrollment and monitoring milestones are achieved. Expense related to a milestone is recognized in the period in which the milestone is achieved or in which we determine that it is more likely than not that it will be achieved.
The invoicing from clinical trial sites can lag several months. We accrue these site costs based on our estimate of upfront set-up costs upon the screening of the first patient at each site, and the patient related costs based on our knowledge of patient enrollment status at each site.
Income Taxes
— The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASB ASC 740-10, “
Accounting for Income Taxes” (“ASC 740-10”).
These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.
ASC 740-10
requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit. The recognition and measurement of benefits related to the Company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and the Company’s assumptions or changes in the company’s assumptions in future periods are recorded in the period they become known.
There was no income tax expense or benefit for the three month periods ended
March 31, 2016
and 2015. We continue to maintain a full valuation allowance against our net deferred tax assets.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Concentrations of Credit Risk
— Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances in several accounts with two banks, which at times are in excess of federally insured limits. As of
March 31, 2016
, the Company’s cash equivalents were invested in money market mutual funds. The Company’s investment policy does not allow investment in any debt securities rated less than “investment grade” by national ratings services. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company maintains significant cash and cash equivalents at two financial institutions that are in excess of federally insured limits.
Comprehensive Loss
— Comprehensive loss consists of our net loss, with no other comprehensive income items for the periods presented.
Effect of Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
(ASU 2016-02). ASU 2016-02 provides accounting guidance for both lessee and lessor accounting models. Among other things, lessees will recognize a right-of-use asset and a lease liability for leases with a duration of greater than one year. For income statement purposes, ASU 2016-02 will require leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. The new standard will be effective for us on January 1, 2019 and will be adopted using a modified retrospective approach which will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, however, we anticipate recognition of additional assets and corresponding liabilities related to leases on our balance sheet.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation-Stock Compensation
(ASU 2016-09). ASU 2016-09 changes several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, employee tax withholding, calculation of shares for use in diluted earnings per share, and classification on the statement of cash flows. The new standard will be effective for us on January 1, 2017. Early adoption is available. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
2. Fair Value Measurements
The Company follows ASC 820,
Fair Value Measurements and Disclosures
, (“ASC 820”) for the Company’s financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are defined as follows:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
The Company categorized its cash equivalents as Level 1. The valuations for Level 1 were determined based on a “market approach” using quoted prices in active markets for identical assets. Valuation of these assets does not require a significant degree of judgment. The Company categorized its warrants potentially settleable in cash as Level 2 inputs. The warrants are measured at market value on a recurring basis and are being marked to market each quarter-end until they are completely settled. The warrants are valued using an appropriate pricing model, using assumptions consistent with our application of ASC 718. The contingent purchase price consideration is categorized as Level 3 inputs and is measured at its estimated fair value on a recurring basis and is adjusted at each quarter-end until it is completely settled. The contingent purchase price consideration is valued based on the expected timing of milestones, the expected probability of success for each milestone and discount rates based on a corporate debt interest rate index publicly issued.
The following tables present information about our assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
March 31, 2016
|
|
Quoted Prices In
Active Markets
(Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
32,029
|
|
|
$
|
32,029
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets measured and recorded at fair value
|
$
|
32,029
|
|
|
$
|
32,029
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Warrants potentially settleable in cash
|
$
|
23,934
|
|
|
$
|
—
|
|
|
$
|
23,934
|
|
|
$
|
—
|
|
Contingent purchase price consideration
|
6,312
|
|
|
—
|
|
|
—
|
|
|
6,312
|
|
Total liabilities measured and recorded at fair value
|
$
|
30,246
|
|
|
$
|
—
|
|
|
$
|
23,934
|
|
|
$
|
6,312
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
December 31, 2015
|
|
Quoted Prices In
Active Markets
(Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
29,171
|
|
|
$
|
29,171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets measured and recorded at fair value
|
$
|
29,171
|
|
|
$
|
29,171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Warrants potentially settleable in cash
|
$
|
14,518
|
|
|
$
|
—
|
|
|
$
|
14,518
|
|
|
$
|
—
|
|
Contingent purchase price consideration
|
6,142
|
|
|
—
|
|
|
—
|
|
|
6,142
|
|
Total liabilities measured and recorded at fair value
|
$
|
20,660
|
|
|
$
|
—
|
|
|
$
|
14,518
|
|
|
$
|
6,142
|
|
The Company did not transfer any financial instruments into or out of Level 3 classification during the three months ended
March 31, 2016
and 2015. A reconciliation of the beginning and ending Level 3 liabilities for the three months ended
March 31, 2016
is as follows (in thousands):
|
|
|
|
|
|
Fair Value
Measurements
Using Significant
Unobservable
Inputs
(Level 3)
|
Balance, January 1, 2016
|
$
|
6,142
|
|
Change in the estimated fair value of the contingent purchase price consideration
|
170
|
|
Balance at March 31, 2016
|
$
|
6,312
|
|
The fair value of the contingent purchase price consideration is measured at the end of each reporting period using Level 3 inputs in a probability-weighted, discounted cash-outflow model. The significant unobservable assumptions include the probability of achieving each milestone, the date we expect to reach the milestone, and a determination of present value factors used to discount future expected cash outflows.
3. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Clinical trial costs
|
$
|
2,437
|
|
|
$
|
3,294
|
|
Professional fees
|
942
|
|
|
435
|
|
Compensation and related benefits
|
642
|
|
|
1,535
|
|
Interest expense
|
21
|
|
|
28
|
|
Accrued expenses and other current liabilities
|
$
|
4,042
|
|
|
$
|
5,292
|
|
4. Long-term Debt
On May 8, 2013 we entered into a loan and security agreement with Oxford Finance LLC, as collateral agent, and related lenders under which we borrowed the first tranche of
$10 million
(the "Loan"). The Loan payment terms include
12
months of interest-only payments at the fixed coupon rate of
8.45%
, followed by
30
months of amortization of principal and interest until maturity in November 2016. In connection with the Loan, we paid the lender a
1%
cash facility fee and a
5.5%
cash final payment and granted to the lenders
seven
-year warrants to purchase up to
182,186
shares of our common stock at an exercise price of
$2.47
, which equaled a
20
-day average market price of our common stock prior to the date of the grant.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. Legal Proceedings, Commitments and Contingencies
Legal Proceedings
On December 3, 2015, we agreed in principle to resolve and settle the consolidated shareholder derivative action,
In re Galena Biopharma, Inc. Derivative Litigation
, Civil Action No. 3:14-cv-00382-SI, currently pending in the United States District Court for the District of Oregon against us and certain of our current and former officers and directors. On April 21, 2016, the District Court of Oregon held the final approval hearing of the settlement with the derivative plaintiffs after which the District Court continued the final approval hearing until June 23, 2016 and requested the parties submit additional briefing by June 9, 2016 on the fee request by the derivative plaintiffs’ attorneys.
On December 3, 2015, we also agreed in principal to resolve and settle the securities putative class action lawsuit,
In re Galena Biopharma, Inc. Securities Litigation
, Civil Action No. 3:14-cv-00367-SI, pending against us, certain of our current and former officers and directors and other defendants in the United States District Court for the District of Oregon. The District Court has set the final approval hearing of such settlement for June 23, 2016.
As of March 31, 2016 our insurance carriers paid
$20 million
with the remaining
$1.7 million
paid in April 2016. The Company expects to pay
$2.3 million
in cash and
$1 million
in common stock in June 2016.
The litigation settlements are summarized as follow (in thousands)
|
|
|
|
|
|
Amount
|
Class action settlement
|
$
|
20,000
|
|
Derivative settlement
|
5,000
|
|
Total settlements
|
$
|
25,000
|
|
|
|
Paid by the insurance carriers
|
$
|
20,000
|
|
Payable by the insurance carriers
|
1,700
|
|
Payable by the company in cash
|
2,300
|
|
Payable by the company in common stock
|
1,000
|
|
Total settlements payable
|
$
|
25,000
|
|
Commitments
The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales.
These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give the Company the discretion to unilaterally terminate development of the product, which the Company might do for clinical, business or other reasons, which would allow the Company to avoid making the contingent payments.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The Company applies the disclosure provisions FASB ASC Topic 460 (“ASC 460”), “
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
”, to its agreements that contain guarantee or indemnification clauses. The Company provides (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims and (ii) indemnifications of varying scope and size to officers and directors against third party claims arising from the services they provide to us. These indemnifications give rise only to the disclosure provisions of ASC 460. To date, the Company has not incurred costs as a result of these obligations and does not expect to incur material costs in the future. Accordingly, the Company has not accrued any liabilities in its financial statements related to these indemnifications.
6. Stockholders’ Equity
Preferred Stock
— The Company has authorized up to
5,000,000
shares of preferred stock,
$0.0001
par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s Board of Directors upon its issuance. To date, the Company has not issued any preferred shares.
Common Stock
— The Company has authorized up to
275,000,000
shares of common stock,
$0.0001
par value per share, for issuance.
November 2014 Purchase Agreement with Lincoln Park Capital, LLC -
On November 18, 2014, the Company entered into a purchase agreement with Lincoln Park Capital, LLC (LPC), pursuant to which the Company has the right to sell to LPC up to
$50 million
in shares of the Company's common stock, subject to certain limitations and conditions over the
36
month term of the purchase agreement. Pursuant to the purchase agreement, LPC initially purchased
2.5 million
shares of the Company's common stock at
$2.00
per share and the Company issued
631,221
shares of common stock to LPC as a commitment fee, which was recorded as a cost of capital. As a result of this initial issuance, the Company received initial net proceeds of
$4.9 million
, after deducting commissions and other offering expenses. In addition to LPC’s initial purchase of our common stock under the purchase agreement, during the first quarter of 2015, we received net proceeds of
$4.4 million
from LPC’s subsequent purchases of a total of
2.7 million
shares of our common stock, excluding the commitment fee shares. There were no sales of our common stock under the LPC purchase agreement during the three months ended March 31, 2016.
At Market Issuance Sales Agreements
- On May 24, 2013 the Company entered into At Market Issuance Sales Agreements (ATM) with FBR & Co. (formerly MLV & Co. LLC) and Maxim Group LLC (the Agents). From time to time during the term of the ATM, we may issue and sell through the Agents, shares of our common stock, and the Agents collect a fee equal to
3%
of the gross proceeds from the sale of shares, up to a total limit of
$20 million
in gross proceeds. The ATM is available to the Company until it is terminated by the Agents or the Company. During the first quarter of 2015, we received
$2.3 million
in net proceeds from the sale of
1.4 million
shares of our common stock through the ATM. There were no sales of our common stock under the ATM during the three months ended March 31, 2016.
March 2015 Underwritten Public Offering
- On March 18, 2015 the Company closed an underwritten public offering of
24,358,974
units at a price to the public of
$1.56
per unit for gross proceeds of
$38 million
(the "March 2015 Offering"). Each unit consists of one share of common stock, and a warrant to purchase
0.50
of a share of common stock at an exercise price of
$2.08
per share. The March 2015 Offering included an over-allotment option for the underwriters to purchase an additional
3,653,846
shares of common stock and/or warrants to purchase up to
1,826,923
shares of common stock. On March 18, 2015, the underwriters exercised their over-allotment option to purchase warrants to purchase an aggregate of
1,826,923
shares of common stock. On April 10, 2015, the underwriters exercised their over-allotment option to purchase
3,653,846
shares of common stock for additional net proceeds of
$5.4 million
. The total net proceeds of the March 2015 Offering, including the exercise of the over-allotment option to purchase the warrants, were
$40.8 million
, after deducting underwriting discounts and commissions and offering expenses payable by the Company.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
January 2016 Underwritten Public Offering
- On January 12, 2016 the Company closed an underwritten public offering of
19,772,727
units at a price to the public of
$1.10
per unit for gross proceeds of
$21.8 million
(the January 2016 Offering"). Each unit consists of one share of common stock, and a warrant to purchase
0.60
of a share of common stock at an exercise price of
$1.42
per share. The January 2016 Offering included an over-allotment option for the underwriters to purchase an additional
2,965,909
shares of common stock and/or warrants to purchase up to
1,779,545
shares of common stock. On January 12, 2016, the underwriters exercised their over-allotment option to purchase warrants to purchase an aggregate of
1,779,545
shares of common stock. The underwriters did not exercise their over-allotment option to purchase
2,965,909
shares of our common stock. The total net proceeds of the January 2016 Offering, including the exercise of the over-allotment option to purchase the warrants, were
$20.2 million
, after deducting underwriting discounts and commissions and offering expense paid by the Company.
Shares of common stock for future issuance are reserved for as follows (in thousands):
|
|
|
|
|
As of March 31, 2016
|
Warrants outstanding
|
35,775
|
|
Stock options outstanding
|
12,001
|
|
Options reserved for future issuance under the Company’s 2007 Incentive Plan
|
9,399
|
|
Shares reserved for future issuance under the Employee Stock Purchase Plan
|
461
|
|
Total reserved for future issuance
|
57,636
|
|
7. Warrants
The following is a summary of warrant activity for the three months ended
March 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2016 Warrants
|
|
March 2015 Warrants
|
|
September
2013
Warrants
|
|
December
2012
Warrants
|
|
Other Equity Financing Warrants
|
|
Consultant
and Oxford Warrants
|
|
Total
|
Outstanding, January 1, 2016
|
—
|
|
|
14,006
|
|
|
3,973
|
|
|
3,031
|
|
|
816
|
|
|
482
|
|
|
22,308
|
|
Issued
|
13,643
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,643
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(145
|
)
|
|
—
|
|
|
(145
|
)
|
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
(31
|
)
|
Outstanding, March 31, 2016
|
13,643
|
|
|
14,006
|
|
|
3,973
|
|
|
3,031
|
|
|
640
|
|
|
482
|
|
|
35,775
|
|
Expiration
|
January 2021
|
|
March 2020
|
|
September 2018
|
|
December 2017
|
|
Varies 2016-2017
|
|
Varies 2014-2020
|
|
|
Warrants consist of warrants potentially settleable in cash, which are liability-classified warrants, and equity-classified warrants.
Warrants classified as liabilities
Liability-classified warrants consist of warrants to purchase common stock issued in connection with equity financings in January 2016, March 2015, September 2013, December 2012, April 2011, March 2011, and March 2010. These warrants are potentially settleable in cash and were determined not to be indexed to our common stock.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of comprehensive loss as other income (expense). The fair value of the warrants is estimated using an appropriate pricing model with the following inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
January 2016 Warrants
|
|
March 2015 Warrants
|
|
September
2013
Warrants
|
|
December
2012
Warrants
|
|
April 2011
Warrants
|
|
March
2010
Warrants
|
Strike price
|
$
|
1.42
|
|
|
$
|
2.08
|
|
|
$
|
2.50
|
|
|
$
|
1.75
|
|
|
$
|
0.65
|
|
|
$
|
1.92
|
|
Expected term (years)
|
4.77
|
|
|
3.97
|
|
|
2.47
|
|
|
1.73
|
|
|
1.06
|
|
|
0.50
|
|
Volatility %
|
77.91
|
%
|
|
78.82
|
%
|
|
79.51
|
%
|
|
75.03
|
%
|
|
83.64
|
%
|
|
75.90
|
%
|
Risk-free rate %
|
1.17
|
%
|
|
1.03
|
%
|
|
0.80
|
%
|
|
0.69
|
%
|
|
0.60
|
%
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
March 2015 Warrants
|
|
September
2013
Warrants
|
|
December
2012
Warrants
|
|
April 2011
Warrants
|
|
March
2011
Warrants*
|
|
March
2010
Warrants
|
Strike price
|
$
|
2.08
|
|
|
$
|
2.50
|
|
|
$
|
1.83
|
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
|
$
|
2.02
|
|
Expected term (years)
|
4.22
|
|
|
2.72
|
|
|
1.98
|
|
|
1.31
|
|
|
0.18
|
|
|
1.00
|
|
Volatility %
|
75.85
|
%
|
|
74.70
|
%
|
|
76.37
|
%
|
|
65.60
|
%
|
|
47.98
|
%
|
|
71.41
|
%
|
Risk-free rate %
|
1.58
|
%
|
|
1.24
|
%
|
|
1.05
|
%
|
|
0.77
|
%
|
|
—
|
%
|
|
—
|
%
|
*Note the March 2011 warrants expired in March 2016. The March 2010 warrants do not expire until September 2016.
The expected volatility assumptions are based on the Company's implied volatility in combination with the implied volatilities of similar publicly traded entities. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero coupon rates in effect at the time of valuation. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.
The changes in fair value of the warrant liability for the three months ended
March 31, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2016 Warrants
|
|
March 2015 Warrants
|
|
September
2013
Warrants
|
|
December
2012
Warrants
|
|
April 2011
Warrants
|
|
Other Equity Financing Warrants
|
|
Total
|
Warrant liability, January 1, 2016
|
$
|
—
|
|
|
$
|
10,337
|
|
|
$
|
1,933
|
|
|
$
|
1,565
|
|
|
$
|
537
|
|
|
$
|
146
|
|
|
$
|
14,518
|
|
Fair value of warrants issued
|
5,590
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,590
|
|
Fair value of warrants exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46
|
)
|
|
(46
|
)
|
Change in fair value of warrants
|
5,686
|
|
|
(1,134
|
)
|
|
(231
|
)
|
|
(305
|
)
|
|
(48
|
)
|
|
(96
|
)
|
|
3,872
|
|
Warrant liability, March 31, 2016
|
$
|
11,276
|
|
|
$
|
9,203
|
|
|
$
|
1,702
|
|
|
$
|
1,260
|
|
|
$
|
489
|
|
|
$
|
4
|
|
|
$
|
23,934
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Warrants classified as equity
Equity-classified warrants consist of warrants issued in connection with consulting services provided to us. Additionally, on May 8, 2013 as a part of our Loan financing, we granted Oxford Financial LLC warrants to purchase up to
182,186
shares of common stock at an exercise price of
$2.47
, which equaled to the
20
-day average market price of our common stock prior to the date of the grant. The warrants were valued using an appropriate pricing model. The fair value assumptions for the grant included a volatility of
75.34%
, expected term of
seven
years, risk-free rate of
1.20%
, and a dividend rate of
0.00%
. The fair value of the warrants granted was
$1.93
per share. These warrants are recorded in equity at fair value upon issuance, and not as liabilities, and are not subject to adjustment to fair value in subsequent reporting periods.
8. Stock-Based Compensation
Options to Purchase Shares of Common Stock
— The Company follows the provisions ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.
For stock options and warrants granted in consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC Topic 505-50. Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, is re-measured using the fair value of the Company’s common stock and the non-cash compensation recognized during the period is adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options and warrants are fully vested.
The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of comprehensive loss for the three months ended
March 31, 2016
and 2015, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Research and development
|
$
|
127
|
|
|
$
|
77
|
|
General and administrative
|
529
|
|
|
294
|
|
Total stock-based compensation from continuing operations
|
$
|
656
|
|
|
$
|
371
|
|
The Company uses the Black-Scholes option-pricing model and the following weighted-average assumptions to determine the fair value of all its stock options granted:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Risk free interest rate
|
1.41
|
%
|
|
1.41
|
%
|
Volatility
|
75.24
|
%
|
|
74.62
|
%
|
Expected lives (years)
|
6.25
|
|
|
6.25
|
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The weighted-average fair value of options granted during the three months ended
March 31, 2016
was
$0.56
per share. The weighted-average fair value of options granted during the three months ended March 31, 2015 was
$1.16
per share.
The Company’s expected common stock price volatility assumption is based upon the Company's own implied volatility in combination with the implied volatility of a basket of comparable companies. The expected life assumptions for employee grants were based upon the simplified method provided for under ASC 718-10, which averages the contractual term of the Company’s options of
ten years
with the average vesting term of
four years
for an average of
six years
. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption is zero, because the Company has never paid cash dividends and presently has no intention to do so. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. The Company has estimated an annualized forfeiture rate of
15%
for options granted to its employees,
8%
for options granted to senior management and zero for non-employee directors. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.
As of
March 31, 2016
, there was
$4,266,000
of unrecognized compensation cost related to outstanding options that is expected to be recognized as a component of the Company’s operating expenses over a weighted-average period of
2.87
years.
As of
March 31, 2016
, an aggregate of
26,500,000
shares of common stock were reserved for issuance under the Company’s 2007 Incentive Plan, including
12,001,000
shares subject to outstanding common stock options granted under the plan and
9,399,000
shares available for future grants. The administrator of the plan determines the times when an option may become exercisable. Vesting periods of options granted to date have not exceeded
four years
. The options will expire, unless previously exercised, no later than
ten years
from the grant date.
The following table summarizes option activity of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number of
Shares
(In Thousands)
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
(In Thousands)
|
Outstanding at January 1, 2016
|
13,262
|
|
|
$
|
2.58
|
|
|
|
|
Granted
|
105
|
|
|
0.84
|
|
|
|
|
Exercised
|
(40
|
)
|
|
0.87
|
|
|
$
|
10
|
|
Cancelled
|
(1,326
|
)
|
|
2.37
|
|
|
$
|
25
|
|
Outstanding at March 31, 2016
|
12,001
|
|
|
$
|
2.59
|
|
|
$
|
421
|
|
Options exercisable at March 31, 2016
|
7,152
|
|
|
$
|
3.19
|
|
|
$
|
366
|
|
The aggregate intrinsic values of outstanding and exercisable options at
March 31, 2016
were calculated based on the closing price of the Company’s common stock as reported on The NASDAQ Capital Market on
March 31, 2016
of
$1.36
per share. The aggregate intrinsic value equals the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.
9. Other Expense
Other expense is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Change in fair value of the contingent purchase price liability
|
$
|
(170
|
)
|
|
$
|
(321
|
)
|
Total other expense
|
$
|
(170
|
)
|
|
$
|
(321
|
)
|
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
10. Net Loss Per Share
The company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260 “
Earnings per Share.”
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants.
The following table sets forth the potentially dilutive common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Warrants to purchase common stock
|
35,775
|
|
|
22,546
|
|
Options to purchase common stock
|
12,001
|
|
|
10,683
|
|
Total
|
47,776
|
|
|
33,229
|
|
11. License Agreements
As part of its business, the company enters into licensing agreements with third parties that often require milestone and royalty payments based on the progress of the licensed assets through development and commercial stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency, and the company may be required to make royalty payments based upon a percentage of net sales of the product. The expenditures required under these arrangements in any period may be material and are likely to fluctuate from period to period.
These arrangements sometimes permit the company to unilaterally terminate development of the product and thereby avoid future contingent payments; however, the company is unlikely to cease development if the compound successfully achieves clinical testing objectives.
In conjunction with the acquisition of NeuVax
TM
, the company acquired rights and assumed obligations under a license agreement among Apthera and The University of Texas M. D. Anderson Cancer Center (“MDACC”) and The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. (“HJF”) which grants exclusive worldwide rights to a U.S. patent covering the nelipepimut-S peptide and several U.S. and foreign patents and patent applications covering methods of using the peptide as a vaccine. Under the terms of this license, we are required to pay an annual maintenance fee of
$200,000
, a milestone payment of
$200,000
upon commencing the Phase 3 PRESENT trial of NeuVax and other clinical milestone payments, as well as royalty payments based on sales of NeuVax or other therapeutic products developed from the licensed technologies.
Effective April 30, 2009, we entered into a license agreement with Kwangdong Pharmaceutical Co, Ltd (Kwangdong). Under the agreement, we granted Kwangdong exclusive rights to seek marketing approval in The Republic of Korea (South Korea) for our NeuVax product candidate for the treatment of breast cancer following its approval by the FDA or the European Medicines Agency, and to market, sell and distribute NeuVax in South Korea assuming such approval is obtained.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Effective December 3, 2012, we entered into a license and supply agreement with ABIC Marketing Limited, a subsidiary of Teva Pharmaceuticals (“ABIC”), under which we granted ABIC exclusive rights to seek marketing approval in Israel for our NeuVax product candidate for intradermal injection for the treatment of breast cancer following its approval by the FDA or the European Medicines Agency, and to market, sell and distribute NeuVax in Israel assuming such approval is obtained. ABIC’s rights also include a right of first refusal in Israel for all future indications for which NeuVax may be approved. Under the license and supply agreement, ABIC will assume responsibility for regulatory registration of NeuVax in Israel, provide financial support for local development, and commercialize the product in the region in exchange for making royalty payments to us based on future sales of NeuVax. ABIC also agrees in the license and supply agreement to purchase from us all supplies of NeuVax at a price determined according to a specified formula.
Effective January 14, 2014, we entered into a strategic development and commercialization partnership with Dr. Reddy’s Laboratories Ltd. (“Dr. Reddy’s”), under which we licensed commercial rights in India to Dr. Reddy’s for NeuVax in breast and gastric cancers. Under the agreement, Dr. Reddy’s will lead the Phase 2 development of NeuVax in India in gastric cancer, significantly expanding the potential patient population addressable with NeuVax.
On January 12, 2014, we acquired worldwide rights to anagrelide controlled release (CR) formulation, which we renamed GALE-401, through our acquisition of Mills Pharmaceuticals, LLC ("Mills") and Mills became a wholly owned subsidiary. GALE-401 contains the active ingredient anagrelide, an FDA-approved product that has been in use since the late 1990s for the treatment of essential thrombocythemia (ET). Mills holds an exclusive license to develop and commercialize anagrelide CR formulation, pursuant to a license agreement with BioVascular, Inc. Under the terms of the license agreement, Mills has agreed to pay BioVascular, Inc. a mid-to-low single digit royalty on net revenue from the sale of licensed products as well as future cash milestone payments based on the achievement of specified regulatory milestones. Mills is also responsible for patent prosecution and maintenance.
On March 18, 2013, we acquired Abstral
®
(fentanyl) sublingual tablets for sale and distribution in the United States from Orexo AB (ORX.ST), a specialty pharmaceutical company based in Sweden. Abstral has been approved by the U.S. Food and Drug Administration (FDA) and is a transmucosal immediate-release fentanyl (TIRF) product.
Under our agreement with Orexo, we assumed responsibility for the U.S. commercialization of Abstral and for all regulatory and reporting matters in the U.S. We also agreed to establish and maintain through 2015 a specified minimum commercial field force to market, sell and distribute Abstral and to use commercially reasonable efforts to reach the specified sales milestones. Orexo is entitled to reacquire the U.S. rights to Abstral from us for no consideration if we breach our obligations to establish and maintain the requisite sales force throughout the marketing period. We launched U.S. commercial sales of Abstral in the fourth quarter of 2013.
In exchange for the U.S. rights to Abstral, (1) we paid Orexo
$10 million
in March 2013 and a
$5 million
milestone payment in cash in October 2013 upon the approval by the FDA of a specified U.S. manufacturer of Abstral; and (2) we agreed to pay to Orexo: (a)
three
one-time future cash milestone payments based on our net sales of Abstral; and (b) a low double-digit royalty on future net sales. No further milestone or royalty payments will be due after the date on which all claims of the last remaining licensed patents expire (currently
2019
) or become invalidated by a governmental agency.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
On November 19, 2015, Galena Biopharma, Inc. (the “Company”) and Sentynl Therapeutics Inc., a Delaware corporation (“Sentynl”), entered into and closed upon an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to Sentynl and Sentynl agreed to purchase from the Company, certain assets of the Company related to and including its Abstral
®
(fentanyl) sublingual tablets product (“Abstral”). The assets sold and assigned to Sentynl pursuant to the Purchase Agreement included all of the Company’s rights and interests in the Asset Purchase Agreement by and between the Company and Orexo AB (“Orexo”) dated March 15, 2013, and the License Agreement by and between the Company and Orexo dated March 18, 2013 (collectively, the “Orexo Agreements”). The Company’s future obligations under the Orexo Agreements were assumed by Sentynl pursuant to such assignment. The Purchase Agreement further provides that the Company will continue to be responsible for any pre-closing liabilities and obligations related to Abstral, as well for certain channel liabilities related to Abstral for a period of time post-closing. In connection with the transactions contemplated by the Purchase Agreement, the Company assigned to Sentynl all of its rights to and interests in the Orexo Agreements. In connection with such assignment, Orexo released the Company from any future liabilities and obligations under the Orexo Agreements.
The total potential consideration payable to the Company under the Purchase Agreement is
$12 million
, comprised of an
$8 million
upfront payment and up to an aggregate of
$4 million
, consisting of two one-time payments based on Sentynl's achievement of "net sales" of Abstral in amounts ranging from
$25 million
to
$35 million
.
On July 17, 2014, we entered into a definitive license and supply agreement with MonoSol Rx, LLC (MonoSol) for the U.S. commercial rights to Zuplenz
®
(ondansetron) Oral Soluble Film, an FDA approved product in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting (CINV), radiotherapy-induced nausea and vomiting (RINV), and post-operative nausea and vomiting (PONV). Zuplenz is also approved for pediatric patients with moderately emetogenic CINV. In exchange for the U.S. rights to Zuplenz, in connection with the effectiveness of the license and transfer to us of the New Drug Application (NDA) for Zuplenz, we paid MonoSol a total of
$5 million
in cash and shares of our common stock. In addition to these payments, we agreed to pay MonoSol
$0.5 million
upon the earlier of (a) the occurrence of a specified managed care milestone and (b) December 31, 2014, (ii)
$0.25 million
within
30 days
after MonoSol’s payment of applicable fees relating to the notice of allowance by the United States Patent and Trademark Office of a U.S. patent with composition claims covering Zuplenz that extend beyond
2028
, (iii) future cash milestone payments of up to an aggregate of
$16.5 million
, consisting of
six
one-time payments based on our achievement of "net sales" of Zuplenz in amounts ranging from
$20 million
to
$100 million
, and (iv) a double-digit royalty on future “net sales.”
Under the terms of the license agreement, we assumed responsibility for the commercialization of Zuplenz and for all regulatory and reporting matters in the U.S. We also agreed in the license and supply agreement to use our best commercial efforts to begin commercializing Zuplenz in the U.S. on or before December 31, 2014 in accordance with a joint commercialization plan to be established by the company and MonoSol. We also agreed that, until net sales of Zuplenz exceed a specified minimum amount or a competing product has been approved by the FDA and is placed into the market for sale, we will maintain a specified minimum number of field sales force personnel on specified terms.
On December 17, 2015, Galena Biopharma, Inc. (the “Company”) and Midatech Pharma PLC, a public limited company organized under the laws of England and Wales (“Midatech”), entered into an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to Midatech and Midatech agreed to purchase from the Company, certain assets of the Company related to and including its Zuplenz
®
(ondansetron) Oral Soluble Film (“Zuplenz”). The assets to be sold and assigned to Midatech pursuant to the Purchase Agreement include all of the Company’s rights and interests in the License and Supply Agreement by and between the Company and MonoSol Rx, LLC (“MonoSol”) dated July 17, 2014 (the “MonoSol License”). The Company’s future obligations under the MonoSol agreement will be assumed by Midatech pursuant to such assignment. The Purchase Agreement further provides that the Company will continue to be responsible for any pre-closing liabilities and obligations related to Zuplenz, as well for certain channel liabilities related to Zuplenz for a period of time post-closing. The transaction was completed on December 24, 2015.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The total potential consideration payable to the Company under the Purchase Agreement is
$29.75 million
, comprised of an
$3.75 million
upfront payment upon the closing and up to an aggregate of
$26 million
, consisting of four one-time payments based on Midatech's achievement of "net sales" of Zuplenz in amounts ranging from
$12 million
to
$70 million
.
Through a separate agreement with MonoSol entered into on December 16, 2015 (the “MonoSol License Amendment”), (i) the Company and MonSol agreed to amend the MonoSol License in order to reduce the number of field representatives that the Company is required to maintain with respect to Zuplenz, and (ii) the Company paid MonoSol
$900,000
of the upfront fee payable to the Company under the Purchase Agreement and
20%
of any future milestone payments received by the Company under the Purchase Agreement.
On December 24, 2015, the Company and Midatech closed upon the Purchase Agreement. In connection with the closing of the transactions contemplated by the Purchase Agreement, the Company assigned to Midatech all of its rights to and interests in the Company’s License and Supply Agreement, dated July 17, 2014 (the “MonoSol License”). As a result of such assignment, Midatech assumed all of the Company’s obligations under the MonoSol License.
12. Discontinued Operations, Assets Held for Sale
As part of the Company's strategic objective to focus its resources on its development pipeline, our management and Board of Directors decided and committed to pursue a plan to sell or otherwise divest the Company’s commercial business during the third quarter of 2015. The Company’s commercial business was comprised of two products: Abstral
®
(fentanyl) Sublingual Tablets and Zuplenz
®
(ondansetron) Oral Soluble Film. Both products were sold in the fourth quarter of 2015.
The Company entered into an agreement with a third party firm to assist the company with the divestiture of its commercial operations including identifying potential acquirers. Pursuant to the terms of the agreement, the Company paid a success fee to the third party firm in an amount of
$900,000
and agreed to pay
5%
of realized future revenue and payment streams.
The Company entered into compensatory arrangements related to the divestiture of our commercial business with certain members of commercial management. Under the terms of these arrangements, the Company paid a retention fee to the three employees in a combined total amount equal to
$352,000
or
3%
of cash consideration received as upfront payment in the transactions. These employees also received severance payments equal to one month’s salary for between four and seven months. In addition to these compensatory agreements loss from discontinued operations includes one-time termination benefits provided to employees who were part of the commercial business and did not accept employment opportunities at the companies which purchased Abstral and Zuplenz.
The following table describes the net proceeds from the sale and the assets and liabilities sold, net of selling costs (in thousands):
|
|
|
|
|
|
|
|
|
|
Sale of Abstral and related assets on November 19, 2015
|
|
Sale of Zuplenz and related assets on December 24, 2015
|
Net proceeds from sales
|
|
|
|
Total consideration
|
$
|
8,348
|
|
|
$
|
3,750
|
|
Less selling costs*
|
(815
|
)
|
|
(1,050
|
)
|
Proceeds from sale, net of selling costs
|
$
|
7,533
|
|
|
$
|
2,700
|
|
*Selling costs related to the sale of Zuplenz and related assets were included in accrued liabilities as of December 31, 2015 and were paid in the first quarter of 2016. All other amounts were received or paid in the fourth quarter of 2015.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
In addition to the upfront proceeds received from the sale of Abstral and Zuplenz and their related assets, the Company is eligible to receive up to
$30 million
in future milestone payments based on future net revenue of the products. The additional consideration will be recognized in the period that the net revenue milestones are achieved.
The following table presents a reconciliation of the carrying amounts of assets and liabilities of the commercial operations to assets held for sale, net in the balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Carrying amounts of assets included as part of discontinued operations:
|
Accounts receivable, net
|
$
|
88
|
|
|
$
|
392
|
|
Total current assets of discontinued operations, net
|
88
|
|
|
392
|
|
|
|
|
|
Carrying amounts of liabilities included as part of discontinued operations:
|
Accounts payable
|
$
|
1,236
|
|
|
$
|
1,491
|
|
Accrued expenses and other current liabilities
|
3,251
|
|
|
4,434
|
|
Total current liabilities of discontinued operations
|
$
|
4,487
|
|
|
$
|
5,925
|
|
The following table represents the components attributable to the commercial operations that are presented in the consolidated statement of comprehensive loss as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Net revenue
|
$
|
—
|
|
|
$
|
2,750
|
|
Additional channel obligations
|
(1,010
|
)
|
|
—
|
|
Cost of revenue
|
—
|
|
|
(393
|
)
|
Amortization of certain acquired intangible assets
|
—
|
|
|
(146
|
)
|
Research and development
|
—
|
|
|
(85
|
)
|
Selling, general, and administrative
|
(2,381
|
)
|
|
(4,340
|
)
|
Non-operating income (expense)
|
—
|
|
|
(17
|
)
|
Impairment charge from classification as assets held for sale
|
—
|
|
|
—
|
|
Loss from discontinued operations
|
$
|
(3,391
|
)
|
|
$
|
(2,231
|
)
|
Additional Channel Obligations included in discontinued operations in the first quarter of 2016 is comprised of larger than anticipated rebates of Abstral sales that we are responsible for through the end of the first quarter of 2016. The increase in rebates was driven by larger than expected volumes through these rebate channels and additional price protection provisions. The increase in rebates was partially offset by lower than expect patient assistance program reimbursement.
Selling, general and administrative expense
included in discontinued operations consists of all other expenses of our commercial operations that are required in order to market and sell our marketed products. These expenses include all personnel related costs, marketing, data, consulting, legal, consulting, and other outsider services necessary to support the commercial operations. Despite no longer having a sales and marketing team or commercial products during the first quarter of 2016 we incurred
$2.4 million
in selling, general, and administrative expense in discontinued operations.
$2.1 million
related to legal expenses from external counsel associated with document production for the subpoenas related to the sales and marketing practices of Abstral. These legal proceedings are further disclosed in Part II., Item 1.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following table presents significant operating non-cash items and capital expenditures related to discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
March 31, 2015
|
Depreciation and amortization
|
$
|
—
|
|
|
$
|
20
|
|
Stock-based compensation
|
$
|
—
|
|
|
$
|
256
|
|
Purchases of property and equipment
|
$
|
—
|
|
|
$
|
(34
|
)
|
Cash paid for acquisition of Zuplenz rights
|
$
|
—
|
|
|
$
|
(500
|
)
|
13. Subsequent Events
The Company evaluated all events or transactions that occurred after
March 31, 2016
up through the date these financial statements were issued. Other than as disclosed elsewhere in the notes to the condensed consolidated financial statements and below, the Company did not have any material recognizable or unrecognizable subsequent events.
On May 10, 2016, the Company entered into a Securities Purchase Agreement, with certain purchasers pursuant to which the Company sold, at a
6.375%
original issue discount, a total of
$25,530,000
Senior Secured Debentures (the “Debentures”) and warrants to purchase up to
2.0 million
shares of the Company's common stock. Net proceeds to the Company from sale of the Debentures, after payment of commissions and legal fees, were approximately
$23,400,000
. The Debentures mature November 10, 2018, and accrue interest at
9%
per year and contain no conversion features to shares of our common stock. The Company intends to use the net proceeds from this offering to fund our Phase 3 PRESENT study of NeuVax and other clinical trials of its product candidates, payoff the
$3.1 million
of principal and accrued interest of its loan with Oxford Finance, LLC and to augment its working capital and for general corporate purposes.
The Debentures carry an interest only period of six months following which the holder shall have the rights, at its option, to require the Company to redeem up to
$1,100,000
of the outstanding principal amount of these Debentures. Interest is payable at the end of each month based on the outstanding principal. The Company is required to promptly, but in any event no more than three trading days after the Holder delivers a redemption notice to the Company, pay the applicable redemption amount in cash or, at the Company’s election and subject to certain conditions, in shares of the Company's common stock. If the Company elects to pay the redemption amount in shares of its common stock, then the shares will be delivered at the lesser of A)
7.5%
discount to the average of the 3 lowest volume weighted average prices over the prior 20 trading days or B) a 7
.5%
discount to the prior trading day’s volume weighted average price. The Company may only opt for payment in shares of common stock if certain equity conditions are met.
If the interim analysis of the PRESENT Trial results in a discontinuation of the study, the holder has the right to require the Company to prepay in cash all, or any portion, of the outstanding principal amount of this Debenture funded in cash by the holder on the closing date, plus all accrued and unpaid interest. If the holder elects such prepayment of the Debentures, then the number of shares subject to the warrants issued to the holder will be reduced in proportion to the percentage of principal required and accrued interest to be prepaid by the Company. The Purchaser received 1 million warrants upon the closing on the sale of the Debentures at an exercise price of
$1.51
, maturing
5
years from issuance. Additionally, the Purchasers will receive
1 million
warrants unless the Company's public company announcement of the interim analysis expected at the end of the second quarter of 2016 conducted by the Independent Data Monitoring Committee of the PRESENT Trial recommends the Company not proceed with the continuation of such clinical trial and the Debentures are prepaid in full.
GALENA BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The Company’s obligations under the Debentures can be accelerated in the event the Company undergoes a change in control and other customary events of default. In the event of default and acceleration of the Company’s obligations, the Company would be required to pay all amounts of principal and interest then outstanding under the Debentures in cash. The Company’s obligations under the Debentures are secured under a Security Agreement by a senior lien on all of the Company’s assets, including all of the Company’s interests in its consolidated subsidiaries. The Company must also maintain a minimum of
$24.0 million
in cash through the date of the public announcement of the interim analysis of the PRESENT Trial. If the trial is not discontinued as a result of the interim analysis then the minimum cash requirement is reduced to
$12.0 million
.
Armentum Partners, LLC (the “Placement Agent”) acted as the placement agent in the offering of the Debentures and the Company agreed to pay the Placement Agent a fee equal to
2%
of the funds received from the sale of the Debentures. The Company paid half of the placement fee upon funding with the remaining payable unless the Company prepays the loan, or any portion, of all outstanding principal amounts of the Debentures if the PRESENT trial is discontinued for certain specified reasons.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this
section
, "Galena," “we,” “our,” “ours” and “us” refer to Galena Biopharma, Inc. and its consolidated subsidiaries, Apthera, Inc., or “Apthera,” and Mills Pharmaceuticals, LLC, or "Mills."
This management’s discussion and analysis of financial condition as of March 31, 2016 and results of operations for the three months ended March 31, 2016 and 2015, respectively, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Amended Annual Report on Form 10-K for the year ended December 31, 2015 which was filed with the SEC on March 11, 2016.
The discussion and analysis below includes certain forward-looking statements related to the development of our products in the U.S., our future financial condition and results of operations and potential for profitability, the sufficiency of our cash resources, our ability to obtain additional equity or debt financing, possible partnering or other strategic opportunities for the development of our products, as well as other statements related to the progress and timing of our product commercialization and development activities, present or future licensing, collaborative or financing arrangements or that otherwise relate to future periods, which are all forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements represent, among other things, the expectations, beliefs, plans and objectives of management and/or assumptions underlying or judgments concerning the future financial performance and other matters discussed in this document. The words “may,” “will,” “should,” “plan,” “believe,” “estimate,” “intend,” “anticipate,” “project,” and “expect” and similar expressions are intended to connote forward-looking statements. All forward-looking statements involve certain risks, including the uncertainties and other factors described in our Amended Annual Report on Form 10-K for the year ended December 31, 2015 that could cause our actual commercialization efforts, development activities, financial condition and results of operations, and business prospects and opportunities to differ materially from these expressed in, or implied by, those forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise forward-looking statements.
Overview
Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “Company”) is a biopharmaceutical company committed to the development and commercialization of targeted oncology therapeutics that address major unmet medical needs. Galena’s development portfolio is focused primarily on addressing the rapidly growing patient populations of cancer survivors by harnessing the power of the immune system to prevent cancer recurrence. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including novel cancer immunotherapy programs led by NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. NeuVax is currently in a pivotal, Phase 3 breast cancer clinical trial with several concurrent Phase 2 trials ongoing both as a single agent and in combination with other therapies. GALE-301 is in a Phase 2a clinical trial in ovarian and endometrial cancers and in a Phase 1b clinical trial given sequentially with GALE-302.
We are seeking to build value for shareholders through pursuit of the following objectives:
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•
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Develop novel cancer immunotherapies to address unmet medical needs through the use of peptide-based vaccines targeting well-established tumor antigens. One of our key strategies is to target the adjuvant setting in patients with higher risk of recurrence, who had their primary treatment for cancer and have no evidence of disease, and are more likely to benefit from treatment via immunotherapy. Our immunotherapy programs are currently targeting two key areas: secondary prevention intended to significantly decrease the risk of disease recurrence in breast, gastric, and ovarian cancers; and primary prevention intended to cease or delay ductal carcinoma
in situ
(DCIS) from becoming invasive breast cancer.
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•
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Expand our development pipeline by enhancing the clinical and geographic footprint of our technologies. We intend to accomplish this through the initiation of new clinical trials and potentially through acquisition of additional oncology programs.
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•
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Leverage partnerships and collaborations, as well as investigator-sponsored trial arrangements, to maximize the scope of potential clinical opportunities in a cost effective and efficient manner.
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The chart below summarizes the current status of our clinical development pipeline
:
Novel Cancer Immunotherapies
Our targeted cancer immunotherapy approach is currently based upon two key areas: preventing secondary recurrence of cancer, which is becoming increasingly important as the number of cancer survivors continues to grow; and, primary prevention intended to address a tumor known as ductal carcinoma
in situ
(DCIS) from becoming invasive breast cancer. Once a patient’s tumor becomes metastatic, the outcome is often fatal, making the prevention of recurrence a potentially critical component of overall patient care. Our programs primarily target patients in the adjuvant (after-surgery) setting who have relatively healthy immune systems, but may still have residual disease. Minimal residual disease, or single cancer cells (occult cancer cells) or micrometastasis, that are undetectable by current radiographic scanning technologies, can result in disease recurrence, metastasis and/or death.
Our therapies utilize an immunodominant peptide combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF, Leukine), and work by harnessing the patient’s own immune system to seek out and attack any residual cancer cells. Using peptide immunogens has many potential clinical advantages, including a favorable safety profile compared to more toxic, less tolerable therapies such as chemotherapies and checkpoint inhibitors. Our technology also has the potential to evoke long-lasting, durable protection through activation of the immune system and is administered via a convenient, intradermal mode of delivery. We are currently engaged in multiple clinical trials with NeuVax™ (nelipepimut-S), GALE-301, and GALE-302, targeting the prevention of recurrence in breast, gastric, endometrial and ovarian cancers.
NeuVax™ (nelipepimut-S)
NeuVax™ (nelipepimut-S), our lead product candidate, is a cancer immunotherapy targeting human epidermal growth factor receptor (HER2) expressing cancers. NeuVax is the immunodominant nonapeptide derived from the extracellular domain of the HER2 protein, a well-established and validated target for therapeutic intervention in breast and gastric carcinomas. The NeuVax vaccine is combined with GM-CSF for injection under the skin, or intradermal administration. Data has shown that an increased presence of circulating tumor cells (CTCs) may predict Disease Free Survival (DFS) and Overall Survival (OS) suggesting a presence of isolated micrometastases, not detectable clinically, but, over time, can lead to recurrence, most often in distant sites. After binding to the specific HLA molecules on antigen presenting cells, the nelipepimut-S sequence stimulates specific cytotoxic T lymphocyte (CTLs), causing significant clonal expansion. These activated CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading.
Breast Cancer
:
A
ccording to the National Cancer Institute (NCI), over 230,000 women in the U.S. are diagnosed with breast cancer annually. While improved diagnostics and targeted therapies have decreased breast cancer mortality in the U.S., metastatic breast cancer remains incurable. Approximately 75% to 80% of breast cancer patients have tissue test positive for some increased amount of the HER2 receptor, which is associated with disease progression and decreased survival. Only approximately 20% to 30% of all breast cancer patients-those with HER2 immunohistochemistry (IHC) 3+ disease, or IHC 2+ and fluorescence in situ hybridization (FISH) amplified-have a HER2 directed, approved treatment option available after their initial standard of care. This leaves the majority of breast cancer patients with low-to-intermediate HER2 expression (IHC 1+/2+) ineligible for therapy and without an effective targeted treatment option to prevent cancer recurrence.
We have multiple trials currently ongoing with NeuVax. For our pivotal, Phase 3 PRESENT (
P
revention of
R
ecurrence in
E
arly-
S
tage, Node- Positive Breast Cancer with Low to Intermediate HER2
E
xpression with
NeuVax T
reatment) trial, NeuVax is targeting the 50,000-60,000 female breast cancer patients annually diagnosed in the U.S. who are at a higher risk of their breast cancer recurring, which we refer to as “disease recurrence,” after achieving “no evidence of disease” (NED) status, (or becoming a “survivor”) with standard-of-care therapy (surgery, chemotherapy, radiation). These high-risk patients have a particular molecular signature and disease status: HER2 IHC 1+/2+ (oncoprotein associated with aggressive tumor growth), node positive (disease present in the axillary lymph nodes prior to surgery), and are HLA A2 and/or A3 positive (human leukocyte antigen from A2/A3 patients who have the same loci of genes which represents approximately 65% of the population). Up to 25% of resectable, node-positive breast cancer patients, having no radiographic evidence of disease following surgery and adjuvant chemo/radiation therapy, are expected to relapse within three years following diagnosis. The prognosis upon recurrence is very poor. These cancer patients presumably still had isolated, undetected tumor CTCs that led to a recurrence of cancer in the breast (local recurrence) or in another location (metastatic disease). In addition to our Phase 3 trial, we currently have two additional Phase 2 breast cancer trials ongoing with NeuVax in combination with trastuzumab (Herceptin
®
; Genentech/Roche) targeting the prevention of recurrence in expanded indications. The Phase 3 PRESENT trial is fully enrolled and has achieve its 70th qualifying DFS event, thereby triggering a pre-planned interim analysis. The interim analysis will be performed by an Independent Data Safety Monitoring Committee (IDMC). The IDMC will evaluate the safety of NeuVax for all patients enrolled, perform a futility analysis, and provide its recommendation on continuing the trial. We anticipate reaching this next milestone in the PRESENT trial at the end of the second quarter of 2016.
We also recently announced our intent to initiate a Phase 2 trial with NeuVax as a single agent in patients with ductal carcinoma
in situ
(DCIS) in collaboration with the NCI, potentially positioning NeuVax as a treatment for earlier stage disease. The trial will have an immunological endpoint evaluating NeuVax peptide-specific cytotoxic T lymphocyte (CTL; CD8+ T-cell) response in vaccinated patients. DCIS is defined by the NCI as a noninvasive condition in which abnormal cells are found in the lining of a breast duct, and is the most common type of breast cancer. The abnormal cells have not spread outside the duct to other tissues in the breast. In some cases, DCIS may become invasive cancer and spread to other tissues, and at this time, there is no way to know which lesions could become invasive. Current treatment options for DCIS include breast- conserving surgery and radiation therapy with or without tamoxifen, breast-conserving surgery without radiation therapy, or total mastectomy with or without tamoxifen. According to the American Cancer Society, in 2015 there were over 60,000 diagnoses of DCIS.
Gastric Cancer
: According to the NCI, gastric (stomach) cancer is a disease in which malignant (cancer) cells form in the lining of the stomach. Almost all gastric cancers are adenocarcinomas (cancers that begin in cells that make and release mucus and other fluids). Other types of gastric cancer are gastrointestinal carcinoid tumors, gastrointestinal stromal tumors, and lymphomas. Infection with bacteria called Helicobacter pylori (H. pylori) is a common cause of gastric cancer and age, diet, and stomach disease can affect the risk of developing gastric cancer. Gastric cancer is often diagnosed at an advanced stage because there are no early signs or symptoms. Gastric, or stomach cancer, is the second-most common cancer among males and third-most common among females in Asia and worldwide with over 63,000 new cases a year in India, where an initial clinical trial of NeuVax will be run. Overexpression of the HER2 receptor occurs in approximately 20% of gastric and gastro-esophageal junction adenocarcinomas, predominantly those of the intestinal type. Overall, without regard to the stage of cancer, only approximately 28% of patients with stomach cancer live at least five years following diagnosis and new adjuvant treatments are needed to prevent disease recurrence.
We currently have a number of ongoing or planned clinical trials designed to expand the clinical and geographical footprint of NeuVax:
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•
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Phase 3 Ongoing: Our Phase 3 PRESENT (
P
revention of
R
ecurrence in
E
arly-
S
tage, Node-Positive Breast Cancer with Low to Intermediate HER2
E
xpression with
NeuVax T
reatment) study targeted enrollment of 700 HER2 1+/2+ patients who are node-positive and HLA A2 or A3 positive. The trial is being conducted under a Special Protocol Assessment (SPA) granted by the U.S. Food and Drug Administration (FDA). The multinational, multicenter, randomized, double-blinded PRESENT trial is ongoing in North America, Western and Eastern Europe, and Israel. The trial is fully enrolled with 758 patients and it recently achieved 70 events which triggers the pre-planned interim analysis scheduled to take place late in the second quarter of this year.
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Phase 2b Ongoing: A randomized, multicenter, investigator-sponsored, 300 patient Phase 2b clinical trial is enrolling HER2 1+/2+ node-positive and high-risk node-negative breast cancer patients who are HLA A2, A3, A24 and/or A26 positive to study NeuVax in combination with trastuzumab in the adjuvant setting. This investigator sponsored trial (IST) is co-funded by Genentech/Roche (providing both trastuzumab and monetary support) and Galena (providing NeuVax and monetary support).
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•
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Phase 2 Ongoing: An IST is also ongoing to study NeuVax in combination with trastuzumab in node positive and negative HER2 IHC 3+ patients or HER2 gene-amplified breast cancer patients who are HLA A2 and/or HLA A3 positive and are determined to be at high-risk for recurrence. The study plans to enroll 100 women. Partial funding for this trial comes from the Department of Defense (DoD) through the Congressionally Directed Medical Research Program via legislation known as the Defense Appropriations Act. The grant was awarded under a Breast Cancer Research Program with the Breakthrough Award given to the lead investigator for the trial.
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Phase 2 Planned: A clinical trial, entitled, VADIS: Phase 2 trial of the Nelipepimut-S Peptide
VA
ccine in Women with
D
C
IS
of the Breast is expected to initiate in Q2 2016. The Phase 2 trial will be a single-blind, double arm, randomized, controlled trial in pre- or post-menopausal patients with DCIS who are HLA-A2 positive with HER2 expression of IHC 1+, 2+, or 3+. VADIS will be co-funded by and run in collaboration with the National Cancer Institute (NCI).
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Phase 2 Planned: A Phase 2 clinical trial in patients with gastric cancer is expected to initiate in 2016. The trial will be run in India by our partner, Dr. Reddy’s Laboratories, Ltd., as part of our NeuVax commercialization agreement in that region with Dr. Reddy’s.
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GALE-301 and GALE-302
Our second immunotherapy franchise targets folate binding protein (FBP) receptor-alpha. FBP is a well-validated therapeutic target that is highly over-expressed in ovarian, endometrial and breast cancers, and is the source of immunogenic peptides that can stimulate cytotoxic T lymphocytes (CTLs) to recognize and destroy FBP-expressing cancer cells. Current treatments after surgery for these diseases are principally with platinum based chemotherapeutic agents. These patients suffer a high recurrence rate and most relapse with an extremely poor prognosis. GALE-301 and GALE-302 are immunogenic peptides that consist of a peptide derived from FBP combined with GM-CSF for the prevention of cancer recurrence in the adjuvant setting. GALE-301 is the E39 peptide, while GALE-302 is an attenuated version of this peptide, known as E39’. Two trials are ongoing with our FBP peptides: the GALE-301 Phase 2a portion of the Phase 1/2a clinical trial is ongoing in ovarian and endometrial adenocarcinomas, and the GALE-301 plus GALE-302 Phase 1b clinical trial is ongoing in breast and ovarian cancers.
Ovarian Cancer
: According to the NCI Surveillance, Epidemiology, and End Results (SEER) Program, new cases of ovarian cancer occur at an annual rate of 11.9 per 100,000 women in the United States, with an estimated 22,280 cases for 2016. Although ovarian cancer represents about 1.3% of all cancers, it represents about 2.4% of all cancer deaths, or an estimated 14,180 deaths in 2015. Approximately 1.3% of women will be diagnosed with ovarian cancer at some point during their lifetime (2010 - 2012 data). The prevalence of ovarian cancer in the U.S. is about 192,000 women, and the five-year survivorship for women with ovarian cancer is 45.6%. Due to the lack of specific symptoms, the majority of ovarian cancer patients are diagnosed at later stages of the disease, with an estimated 80% of women presenting with advanced-stage (III or IV) disease. These patients have their tumors routinely surgically debulked to minimal residual disease, and then are treated with platinum- and/or taxane-based chemotherapy. While many patients respond to this treatment regimen and become clinically free-of-disease, the majority of these patients will relapse. Depending upon their level of residual disease, the risk for recurrence after completion of primary therapy is approximately 70%. Unfortunately for these women, once the disease recurs, treatment options are limited and the disease is most likely incurable.
According to the NCI SEER Program, new cases of endometrial cancer occur at an annual rate of 25.1 per 100,000 women in the U.S., with an estimated 54,870 cases for 2015. Although endometrial cancer represents about 3.3% of all cancers, it represents about 1.7% of all cancer deaths, or an estimated 10,170 deaths in 2015. Approximately 2.8% of women will be diagnosed with endometrial cancer at some point during their lifetime (2010 - 2012 data). The prevalence of endometrial cancer in the U.S. is about 620,000 women, and the five-year survivorship for women with endometrial cancer is 81.7%.
Hematology
GALE-401 (anagrelide controlled release (CR))
GALE-401 contains the active ingredient anagrelide, an FDA-approved product, for the treatment of patients with myeloproliferative neoplasms (MPNs) to lower abnormally elevated platelet levels. The currently available immediate release (IR) version of anagrelide causes adverse events that are believed to be dose and plasma concentration dependent. These adverse events may limit the use of the IR version of the drug. Therefore, reducing the maximum concentration (C
max
) is hypothesized to reduce the side effects, but preserve efficacy, potentially allowing a broader use of the drug.
Multiple Phase 1 studies in 98 healthy subjects have shown GALE-401 reduces the C
max
of anagrelide following oral administration, appears to be well tolerated at the doses administered, and to be capable of reducing platelet levels. The Phase 1 program provided the desired PK/PD (pharmacokinetic/pharmacodynamic) profile to enable the initiation of the ongoing Phase 2 proof-of-concept trial. The Phase 2, open label, single arm, proof-of-concept trial enrolled 18 patients in the United States for the treatment of thrombocytosis, or elevated platelet counts in patients with MPNs. Final safety and efficacy data from this pilot Phase 2 trial were presented in December 2015 and demonstrated a prolonged clinical benefit with a potentially improved safety profile. The Phase 2 trial remains ongoing and we plan to submit a final Phase 2 manuscript at the end of 2016. We continue to review our data and are analyzing the treatment landscape for MPNs, with a current focus on Essential Thrombocythemia where we see an unmet medical need in patients who are intolerant to the current standard of
care. We are planning to meet with the FDA later this year to discuss our Phase 2 data, our development opportunities in MPN patients, and confirmation of the 505(b)2 regulatory pathway for approval.
Myeloproliferative neoplasms:
MPNs are a closely related group of hematological malignancies in which the bone marrow cells that produce the body’s blood cells develop and function abnormally. The main MPNs are ET, Polycythemia Vera (PV), Primary Myelofibrosis (PMF), and Chronic Myelogenous Leukemia (CML), all of which are associated with high platelet counts. ET is an acquired disease of the bone marrow and is associated with vascular complications including thrombosis and bleeding events. The MPNs are progressive blood cancers that can strike anyone at any age and for which there is no known cure.
Intellectual Property
Patents and other intellectual property rights are crucial to our success. It is our policy to protect our intellectual property rights through available means, including filing and prosecuting patent applications in the U.S. and other countries, protecting trade secrets, and utilizing regulatory protections such as data exclusivity. We also include restrictions regarding use and disclosure of our proprietary information in our contracts with third parties, and utilize customary confidentiality agreements with our employees, consultants, clinical investigators and scientific advisors to protect our confidential information and know-how. Together with our licensors, we also rely on trade secrets to protect our combined technology especially where we do not believe patent protection is appropriate or obtainable. It is our policy to operate without infringing on, or misappropriating, the proprietary rights of others. The following chart summarizes our intellectual property rights:
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Drug Candidate
|
Indication
|
Scope
|
Estimated
Exclusivity
Period
|
NeuVax™ (nelipepimut-S)
|
Breast cancer recurrence
|
Pending and/or issued
|
2028
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NeuVax™ (nelipepimut-S)
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Gastric
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Pending and/or issued
|
2028
|
NeuVax™ (nelipepimut-S)
|
DCIS
|
Pending and/or issued
|
2028
|
NeuVax™ in combination with trastuzumab
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Breast cancer
|
Pending and/or issued
|
2026
|
NeuVax™ in combination with other compounds
|
Breast cancer
|
Pending and/or issued
|
2037
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GALE-301 & GALE-302
|
Breast, ovarian and endometrial cancer
|
Pending and/or issued
|
2035
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GALE-401 (Anagrelide Controlled Release)
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Platelet Lowering
|
Pending and/or issued
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2029
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Recent Operational Developments (in reverse chronological order)
Appointment of Mary Ann Gray, Ph.D. to Board of Directors
Effective April 25, 2016, the Board increased the number of directors from eight to nine directors and appointed Mary Ann Gray, Ph.D. as a Class III director. Dr. Gray will be listed in Galena’s 2016 Proxy Statement as a nominee for election at our 2016 Annual Meeting of Stockholders. Dr. Gray is President of Gray Strategic Advisors, LLC, which provides strategic advice to both public and private biotechnology companies. Previously, she spent three and a half years with the Federated Kaufmann Fund focusing on both public and private healthcare investments. Prior, Dr. Gray was a sell-side biotechnology analyst for nine years. Earlier in her career, Dr. Gray held scientific positions at Schering Plough and NeoRx, managed pre-clinical toxicology studies for the National Cancer Institute through Battelle Memorial Institute, and worked in a hospital laboratory. Dr. Gray currently serves on the board of directors of several publicly traded biotechnology companies: Acadia Pharmaceuticals
,
TetraLogic, Inc.
,
Juniper Pharmaceuticals, Senomyx, Inc. Previously, Dr. Gray also served on the boards of Dyax Corp., GTC Biotherapeutics, Inc., Telik, and Apthera, Inc. (private). Dr. Gray has a Ph.D. in Pharmacology from the University of Vermont where she focused on novel chemotherapeutic agents for the treatment of cancer, and she received her B.S. in biology from the University of South Carolina. She completed her postdoctoral work at Northwestern University Medical School and Yale University School of Medicine.
Settlement of Derivative and Class Action Litigation
On February 4 and 16, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlements we had previously reported we had reached in
In re Galena Biopharma, Inc. Derivative Litigation,
Civil Action No. 3:14-cv-00382-SI and in
In re Galena Biopharma, Inc. Securities Litigation
, Civil Action No. 3:14-cv-00367-SI, respectively. The Court had set the final approval hearings for April 21, 2016 in
In re Galena Biopharma, Inc. Derivative Litigation
and June 23, 2016 in
In re Galena Biopharma, Inc. Securities Litigation.
On April 21, 2016, the Court continued the final approval hearing in
In re Galena Biopharma, Inc. Derivative Litigation t
o June 23, 2016 for further argument on the fee request by the derivative plaintiffs’ attorneys.
Presented GALE-301/GALE-302 Clinical Booster Data
On April 19, 2016 data from the booster phase of the Company’s GALE-301/GALE-302 Phase 1/2a clinical trial was presented at the American Association for Cancer Research (AACR) Annual Meeting. The poster, entitled, “
Comparing an attenuated booster (E39’) vs. E39 booster to potentiate the clinical benefit of the folate binding protein (FBP)-derived vaccine (E39 + GM-CSF) in a phase I/IIa trial to prevent recurrence in endometrial (EC) and ovarian cancer (OC) patients,”
randomized patients to two different boosters: E39 (GALE-301), versus E39’ (GALE-302). The purpose of the study was to evaluate the immune responses and determine which booster, if either, would provide a sustained immune response and potentially longer disease free survival (DFS) rates. The use of the wildtype peptide (GALE-301/E39) demonstrated the same tolerable safety profile as the attenuated peptide (GALE-302/E39’) with only Grade 1 local reactions and minimal Grade 2 toxicities. Importantly, the percentage of patients who received two booster inoculations and remained disease free was significantly better in the drug treatment arm, versus the control arm (p=0.02), regardless of which booster was used.
PRESENT Trial Achieved 70
th
Qualifying Disease Free Survival Event
On March 29, 2016 we announced that the 70th qualifying disease free survival (DFS) event was achieved in the NeuVax™ (nelipepimut-S) Phase 3, PRESENT (
P
revention of
R
ecurrence in
E
arly-
S
tage, Node Positive Breast Cancer with Low to Intermediate HER2
E
xpression with
NeuVax
T
reatment) clinical trial. Based on clinical and radiological data, 70 qualifying DFS events were confirmed by the trial’s independent Endpoint Adjudication Committee (EAC), comprised of two oncologists and one radiologist with expertise in the conduct of clinical trials in breast cancer. For the PRESENT trial, a qualifying DFS event is defined as: a recurrence of the primary breast cancer, either locally in the breast, regionally in the lymph nodes, or distantly as metastatic disease; an occurrence of another cancer; or, death from any cause. All qualifying DFS events are confirmed by the EAC.
Announced a Notice of Allowance of a U.S. Patent for NeuVax
On February 8, 2016, we announced the United States Patent Office issued a Notice of Allowance for an additional U.S. patent application covering multiple uses of NeuVax™ (nelipepimut-S): inducing and maintaining an immune response to HER2 expressing tumor cells in patients in clinical remission with a tumor having a fluorescence in situ hybridization (FISH) rating of less than about 2.0 (FISH <2.0); inducing and sustaining a cytotoxic T-lymphocyte (CTL) response to HER2 in patients in clinical remission from a tumor with a FISH rating of less than about 2.0 (FISH < 2.0); reducing risk of cancer recurrence in patients in clinical remission from a tumor with a FISH rating of less than about 2.0 (FISH < 2.0); and preventing bone only recurrence of a HER2 expressing cancer. This patent will expand both the protection and the potential population of cancer patients NeuVax may address. Once issued, the patent will expire in 2028, not including any patent term extensions.
Presented Observational Study Data in Gastric Cancer Patients at the ASCO 2016 Gastrointestinal Cancers Symposium
On January 21, 2016, we presented data from an observational study in gastric cancer patients at the American Society of Clinical Oncology (ASCO) 2016 Gastrointestinal Cancers Symposium. The study was conducted by our partner, Dr. Reddy’s Laboratories Ltd, who will conduct a Phase 2 clinical trial of NeuVax in gastric cancer patients in India. The poster, entitled, “An observational study evaluating the expression of HER2 (1+, 2+, and 3+) with HLA A2+/A3+ in gastric adenocarcinoma patients” showed that approximately 25% of the patients met the projected clinical protocol population of all levels of expression of HER2 and HLA A2+ and/or A3+ as defined for the planned NeuVax Phase 2 clinical trial. Results indicate an acceptable potential for enrollment rate, given the high incidence of gastric cancer in this population, and will inform the screen failure rate in the planned Phase 2 clinical study.
Closed Public Offering and Debt Financing
On January 12, 2016, we closed the previously announced underwritten public offering of common stock and warrants. The net proceeds to us were approximately $20.2 million.
On May 10, 2016, we closed on a Securities Purchase Agreement, with certain purchasers pursuant to which the Company sold, at a 6.375% original issue discount, a total of $25.5 million Senior Secured Debentures. The net proceeds to us were approximately $23.4 million
Results of Operations for the Three Months Ended
March 31, 2016
and 2015
For the three months ended
March 31, 2016
, our net loss was
$16.5 million
compared with a net loss of
$10.5 million
for the three months ended
March 31, 2015
. Loss from continuing operations for the three months ended
March 31, 2016
was
$13.1 million
compared with a loss from continuing operations of
$8.3 million
for the three months ended
March 31, 2015
, which was primarily driven by a non-cash net change in our warrant liability of $5.0 million from a $1.1 million gain in the first quarter of 2015 to a $3.9 million loss in the first quarter of 2016.
During the third quarter of 2015, the Company completed its strategic review and concluded to solely focus its resources on its clinical development pipeline and our management and Board of Directors committed to pursue a plan to sell or otherwise divest the Company’s commercial business. These actions caused the Company to meet the relevant criteria for reporting the Company’s commercial business as discontinued operations. Discontinued operations for the three months ended
March 31, 2016
and 2015 is comprised of the revenue, expenses, gains and losses of our commercial business. Our loss from discontinued operations for the three months
March 31, 2016
was $3.4 million compared with a loss from discontinued operations of $2.2 million for the three months ended March 31, 2015.
Further analysis of the changes and trends in our operating results are discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
% Change
|
Operating loss
|
$
|
(8,968
|
)
|
|
$
|
(8,912
|
)
|
|
(1
|
)%
|
Non-operating income (expense)
|
(4,134
|
)
|
|
606
|
|
|
(782
|
)%
|
Loss from discontinued operations
|
(3,391
|
)
|
|
(2,231
|
)
|
|
(52
|
)%
|
Net loss
|
$
|
(16,493
|
)
|
|
$
|
(10,537
|
)
|
|
(57
|
)%
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
Basic and diluted net loss per share, continuing operations
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
(17
|
)%
|
Basic and diluted net loss per share, discontinued operations
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
—
|
%
|
Basic net loss per share
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
|
(13
|
)%
|
Research and Development Expense
Research and development expense consists primarily of clinical trial expenses, compensation-related costs for our employees dedicated to research and development activities, and licensing fees and patent prosecution costs. Research and development expense for the three months ended
March 31, 2016
and
2015
, respectively, was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
% Change
|
Research and development expense
|
$
|
5,443
|
|
|
$
|
5,825
|
|
|
(7
|
)%
|
The majority of our research and development expenses relate to our pivotal Phase 3 PRESENT clinical trial using NeuVax as a HER2 directed cancer immunotherapy under evaluation to prevent breast cancer recurrence after standard of care treatment. The trial costs are more significant during the recruitment and enrollment phase. We established more than 140 sites in 13 counties and screened over 3,300 patients in order to enroll qualifying patients who currently have no available treatment options to maintain their disease-free status after their standard of care. Once the patient is enrolled, they enter the monitoring phase, which lasts the later of three years of treatment or an event (recurrence or death). On April 14, 2015 we announced the completion of over-enrollment in the PRESENT trial of 758 patients, which was 7.7% higher than called for under our FDA-approved Special Protocol Assessment.
The decrease of 7% for the three months ended
March 31, 2016
compared to the three months ended
March 31, 2015
in research and development expense was primarily due to the decrease in enrollment efforts surrounding our Phase 3 PRESENT clinical trial. The completion of over-enrollment in April 2015 reduced expenses related to the trial as we enter the monitoring phase and we continue toward our expected interim analysis in the second quarter of 2016 and final endpoint in 2018. The decrease in recruitment and enrollment expenses related to the Phase 3 PRESENT clinical trial were partially offset by recruitment, enrollment, and monitoring expenses in our other ongoing or planned clinical trials. We expect 2016 research and development expenses to increase as we continue to expand our clinical pipeline and the hiring of additional headcount for quality, safety, data management, clinical operations, and regulatory affairs as our clinical trials progress and approach their respective endpoints and as we begin preparations towards filing our biologics license application (BLA) for NeuVax.
General and Administrative Expense
General and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. General and administrative expense for the three months ended
March 31, 2016
and
2015
, respectively, was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
% Change
|
General and administrative expense
|
$
|
3,525
|
|
|
$
|
3,087
|
|
|
14
|
%
|
The 14% increase in selling, general, and administrative expense for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was driven by an increase of $0.2 million in stock based compensation and additional personnel expenses including recruitment fees for two new directors for our Board and replacing our chief financial officer. These additional expenses were partially offset by a reduction in legal expenses due to the settlement of our class action and derivative litigation announced during the fourth quarter of 2015.
Non-Operating Income
Non-operating income for the three months ended
March 31, 2016
and
2015
, respectively, was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
% Change
|
Change in fair value of warrants potentially settleable in cash
|
$
|
(3,873
|
)
|
|
$
|
1,152
|
|
|
(436
|
)%
|
Interest income (expense), net
|
(91
|
)
|
|
(225
|
)
|
|
(60
|
)%
|
Other expense
|
(170
|
)
|
|
(321
|
)
|
|
(47
|
)%
|
Total non-operating income (expense), net
|
$
|
(4,134
|
)
|
|
$
|
606
|
|
|
(782
|
)%
|
The increase in our net non-operating expense during the three months ended
March 31, 2016
compared to the three months ended
March 31, 2015
was primarily due to an increase in the change in fair value of warrants accounted for as liabilities associated with our underwritten public offering in January 2016. The warrants were initially valued on January 12, 2016 when the financing closed at a stock price of $0.81 and revalued as of March 31, 2016 based on our closing stock price of $1.36, or an increase of 68%. The increase in the stock price over this period resulted in the warrant liability for the January 2016 warrants to increase from an initial valuation of $5.6 million to a valuation of $11.3 million at March 31, 2016, or a loss of $5.7 million. The loss on the January 2016 warrants was partially offset by a gain of $1.8 million related to change in fair value of our other warrants accounted for as liabilities associated with our previous underwritten public offerings. Management believes the adjustments to our warrant liability may not always accurately reflect the operating, economic activities or operating obligations undertaken by the Company.
Income Taxes
For the three months ended
March 31, 2016
and 2015, there was no income tax benefit or expense recognized.
Discontinued Operations
During the quarter ended September 30, 2015, we completed a strategic review of our commercial business and operations, and as a result of that review we sold the assets of our commercial business during the fourth quarter of 2015. We believe this disposition allows us to focus our resources on our valuable and expanding clinical development programs and maximize the value of these assets to our shareholders.
The following table represents the components attributable to the commercial operations that are presented in the condensed consolidated statements of comprehensive loss as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Net revenue
|
$
|
—
|
|
|
$
|
2,750
|
|
Additional channel obligations
|
$
|
(1,050
|
)
|
|
—
|
|
Cost of revenue
|
—
|
|
|
(393
|
)
|
Amortization of certain acquired intangible assets
|
—
|
|
|
(146
|
)
|
Research and development
|
—
|
|
|
(85
|
)
|
Selling, general, and administrative
|
(2,381
|
)
|
|
(4,340
|
)
|
Loss from discontinued operations
|
$
|
(3,391
|
)
|
|
$
|
(2,231
|
)
|
Discontinued operations are comprised of net revenue, cost of revenue, and expenses attributable to our commercial operations, which were sold in the fourth quarter of 2015.
•
Net Revenue
included in discontinued operations comprises revenue from the sale of Abstral, which was provided by our commercial operations.
•
Additional Channel Obligations
included in discontinued operations in the first quarter of 2016 is comprised of larger than anticipated rebates of Abstral sales that we are responsible for through the end of the first quarter of 2016. The increase in rebates was driven by larger than expected volumes through these rebate channels and additional price protection provisions. The increase in rebates was partially offset by lower than expect patient assistance program reimbursement.
•
Cost of revenue
included in discontinued operations consists of direct products costs and related overhead, Abstral royalties based on net revenue, inventory obsolescence, and other direct costs.
•
Research and development expense
included in discontinued operations consists of expenses related to our Abstral RELIEF trial and other product stability costs.
•
Selling, general and administrative expense
included in discontinued operations consists of all other expenses of our commercial operations that are required in order to market and sell our marketed products. These expenses include all personnel related costs, marketing, data, consulting, legal, consulting, and other outsider services necessary to support the commercial operations. Despite no longer having a sales and marketing team or commercial products during the first quarter of 2016 we incurred $2.4 million in selling, general, and administrative expense in discontinued operations. $2.1 million related to legal expenses from external counsel associated with document production for the subpoenas related to the sales and marketing practices of Abstral. We expect the second quarter of 2016 to incur similar legal expenses and wind down during the second half of the year. These legal proceedings are further disclosed in Part II., Item 1.
Liquidity and Capital Resources
We had cash and cash equivalents of approximately
$34.7 million
as of
March 31, 2016
, compared with
$29.7 million
as of December 31, 2015.
The increase of approximately
$5.0 million
in our cash and cash equivalents from December 31, 2015 to
March 31, 2016
was attributable primarily to $20.2 million in net proceeds from issuance of common stock and warrants to purchase common stock, partially offset by $13.2 million used in operating activities, $1.1 million in selling expenses paid related to the sale of our commercial products in the fourth quarter of 2015, and $1.0 million in payments on long-term debt.
On January 12, 2016, we closed an underwritten public offering of 19,772,727 units at a price to the public of $1.10 per unit for gross proceeds of $21.8 million (the January 2016 Offering"). Each unit consists of one share of common stock, and a warrant to purchase 0.60 of a share of common stock at an exercise price of $1.42 per share. The January 2016 Offering included an over-allotment option for the underwriters to purchase an additional 2,965,909 shares of common stock and/or warrants to purchase up to 1,779,545 shares of common stock. On January 12, 2016, the underwriters exercised their over-allotment option to purchase warrants to purchase an aggregate of 1,779,545 shares of common stock. The underwriters did not exercise their over-allotment option to purchase 2,965,909 shares of our common stock. The total net proceeds of the January 2016 Offering, including the exercise of the over-allotment option to purchase the warrants, were $20.2 million, after deducting underwriting discounts and commissions and offering expense paid by the company.
On May 10, 2016, the Company entered into a Securities Purchase Agreement, with certain purchasers pursuant to which the Company sold, at a 6.375% original issue discount, a total of $25.5 million Senior Secured Debentures (the “Debentures”) and warrants to purchase up to 2.0 million shares of the Company's common stock. Net proceeds to the Company from sale of the Debentures, after payment of commissions and legal fees, were approximately $23.4 million. The Debentures mature November 10, 2018, and accrue interest at 9% per year and contain no conversion features to shares of our common stock. The Debentures carry an interest only period of six months following which the holder shall have the rights, at its option, to require the Company to redeem up to $1,100,000 of the outstanding principal amount of this Debenture. Interest is payable at the end of each month based on the outstanding principal.The Company can pay the applicable redemption amount in cash or, at the Company’s election and subject to certain conditions, in shares of the Company's common stock.
If the interim analysis of the PRESENT Trial results in a discontinuation of the study, the holder has the right to require the Company to prepay in cash all, or any portion, of the outstanding principal amount of this Debenture funded in cash by the Holder on the closing date, plus all accrued and unpaid interest. If the holder elects such prepayment of the Debenture, then the number of shares subject to the warrants issued to the holder will be reduced in proportion to the percentage of principal required to be prepaid by the Company. The Company must maintain a minimum of $24.0 million in cash through the date of the public announcement of the interim analysis of the PRESENT Trial. If the trial is not discontinued as a result of the interim analysis then the minimum cash requirement is reduced to $12.0 million.
We expect to continue to incur operating losses as we continue to advance our product candidates through the drug development and the regulatory process. In the absence of revenue, our potential sources of operational funding are proceeds from the sale of equity, funded research and development payments, debt financing arrangements, and payments received under partnership and collaborative agreements.
We believe that our existing cash and cash equivalents, funding available under an amended LPC purchase agreement, ATM and other instruments, should be sufficient to fund our operations for at least one year. This projection is based on our current planned operations, and subject to changes in our plans, uncertainties inherent in our business, and the need to seek to replenish our existing cash and cash equivalents sooner than we project and in greater amounts that we had projected. There is no guarantee that any debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or to be acquired by another company.