The accompanying notes are an integral part of these condensed
financial statements.
The accompanying notes are an integral
part of these condensed financial statements.
The accompanying notes are an integral
part of these condensed financial statements.
The accompanying notes are an integral
part of these condensed financial statements.
The accompanying notes are an integral
part of these condensed financial statements.
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Lion Biotechnologies, Inc. (the “Company,”
“we,” “us” or “our”) is a biotechnology company focused on developing and commercializing
adoptive cell therapy (ACT) using autologous tumor infiltrating lymphocytes (TIL) for the treatment of metastatic melanoma and
other solid cancers. ACT utilizes T-cells harvested from a patient to treat cancer in that patient. TIL, a kind of anti-tumor
T-cells that are naturally present in a patient’s tumors, are collected from individual patient tumor samples. The TIL are
then activated and expanded ex vivo and then infused back into the patient to fight their tumor cells.
Basis of Presentation of Unaudited Condensed Financial
Information
The unaudited condensed financial statements
of the Company for the three and six months ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting
on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation
of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2015 was derived from the audited
financial statements included in the Company's financial statements as of and for the year ended December 31, 2015 included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March
11, 2016. These financial statements should be read in conjunction with that report.
Liquidity
We are currently engaged in the development
of therapeutics to fight cancer, we do not have any commercial products and have not yet generated any revenues from our biopharmaceutical
business. We currently do not anticipate that we will generate any revenues during 2016 from the sale or licensing of any products.
As shown in the accompanying condensed financial statements, we have incurred a net loss of $18.4 million for the six months ended
June 30, 2016 and used $8.3 million of cash in our operating activities during the six months ended June 30, 2016. As of June
30, 2016, we had $191.6 million of cash, money market funds, and short-term investments on hand, stockholders’ equity of
$188.9 million and had working capital of $187.7 million.
During 2016, we expect to further
ramp up our clinical operations and research activities, which will increase the amount of cash we will use. Specifically,
our budget for 2016 includes increased spending on clinical trials, research and development activities, higher payroll
expenses as we increase our professional and scientific staff, as well as anticipated ongoing payments under our Cooperative
Research and Development Agreement (CRADA) with the National Cancer Institute (NCI). Based on the funds we had available on
June 30, 2016, we believe that we have sufficient capital to fund our anticipated operating expenses for at least 12 months
from the date of filing this quarterly report.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Short-term Investments
The Company’s short-term investments
represent available for sale securities and are recorded at fair value and unrealized gains and losses are recorded within accumulated
other comprehensive income (loss). The estimated fair value of the available for sale securities is determined based on quoted
market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization
of premium and accretion of discount to maturity. The Company evaluates securities with unrealized losses to determine whether
such losses, if any, are other than temporary.
Loss per Share
Basic earnings (loss) per share is computed
by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding
during the period. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from
the time they vest. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders
by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average
number of common shares outstanding from the date they are granted until which time they vest, unless they are antidilutive. For
the six month ended June 30, 2016, and 2015, the calculations of basic and diluted loss per share are the same because inclusion
of potential dilutive securities in the computation would have an anti-dilutive effect due to the net losses.
At June 30, 2016 and 2015, the dilutive
impact of outstanding stock options for 4,270,989 and 2,238,877 shares, respectively; outstanding warrants for 6,953,716 and 11,427,764
shares, respectively; and preferred stock that can convert into 847,000 and 2,847,000 shares of our common stock, respectively,
have been excluded because their impact on the loss per share is anti-dilutive.
Fair Value Measurements
Under FASB ASC 820, Fair Value Measurements
and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction
between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available,
fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices
or parameters are not available, valuation models are applied.
Assets and liabilities recorded at fair
value in our financial statements are categorized based upon the level of judgment associated with the inputs used to measure
their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation
of these assets and liabilities, are as follows:
Level 1—Inputs are unadjusted,
quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for
the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
The fair valued assets we hold that are
generally included under this Level 1 are money market securities where fair value is based on publicly quoted prices.
Level 2—Are inputs, other than
quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation
with market data at the reporting date and for the duration of the instrument’s anticipated life.
The fair valued assets we hold that are
generally assessed under Level 2 are corporate bonds and commercial paper. We utilize third party pricing services in developing
fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including
benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes from external pricing
service providers and other on-line quotation systems to verify the fair value of investments provided by our third party pricing
service providers. We review independent auditor’s reports from our third party pricing service providers particularly regarding
the controls over pricing and valuation of financial instruments and ensure that our internal controls address certain control
deficiencies, if any, and complementary user entity controls are in place.
Level 3—Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and
which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the
reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to
the model.
We do not have fair valued assets classified
under Level 3.
The Company believes the carrying amount
of its financial instruments (consisting of cash and cash equivalents, money market fund and accounts payable and accrued expenses)
approximates fair value due to the short-term nature of such instruments.
Fair Value on a Recurring Basis
Financial assets measured at fair value
on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in
thousands):
|
|
Assets at Fair Value as of June
30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Corporate debt securities
|
|
$
|
-
|
|
|
$
|
70,602
|
|
|
$
|
-
|
|
|
$
|
70,602
|
|
Total
|
|
$
|
-
|
|
|
$
|
70,602
|
|
|
$
|
-
|
|
|
$
|
70,602
|
|
|
|
Assets at Fair Value as of December
31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Corporate debt securities
|
|
$
|
-
|
|
|
$
|
70,113
|
|
|
$
|
-
|
|
|
$
|
70,113
|
|
Total
|
|
$
|
-
|
|
|
$
|
70,113
|
|
|
$
|
-
|
|
|
$
|
70,113
|
|
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates include valuation of available-for-sale investments, accounting for potential
liabilities, the valuation allowance associated with the Company’s deferred tax assets, and the assumptions made in valuing
stock instruments issued for services.
Stock-Based Compensation
The Company periodically grants stock
options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered.
The Company accounts for stock option grants to employees based on the authoritative guidance provided by the Financial Accounting
Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company
accounts for stock option grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards
Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a
performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain
circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and
the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's common
stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is
recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions
used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
The Company issues restricted shares of
its common stock for share-based compensation programs. The Company measures the compensation cost with respect to restricted
shares to employees based upon the estimated fair value of the equity instruments at the date of the grant, and is recognized
as expense over the period which an employee is required to provide services in exchange for the award.
Total stock-based compensation expense
related to all of our stock-based awards was as follows (in thousands):
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
593
|
|
|
$
|
809
|
|
|
$
|
1,178
|
|
|
$
|
1,584
|
|
General and administrative
|
|
|
4,764
|
|
|
|
1,114
|
|
|
|
5,958
|
|
|
|
1,805
|
|
Total stock-based compensation expense
|
|
$
|
5,357
|
|
|
$
|
1,923
|
|
|
$
|
7,136
|
|
|
$
|
3,389
|
|
Concentrations
Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of cash.
The Company maintains cash balances at
one bank. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institution
that holds the Company’s cash is financially sound and, accordingly, minimal credit risk exists. As of June 30, 2016 and
2015, the Company’s cash balances were in excess of insured limits maintained at the bank.
Preferred Stock
The Company applies the accounting standards
for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred
shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable
preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as
temporary equity. At all other times, preferred shares are classified as stockholders’ equity.
Convertible Instruments
The Company applies the accounting standards
for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion
options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for
them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which
(i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date
based on current fair value, with the changes in fair value reported in results of operations.
Conversion options that contain variable
settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities
at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host
instrument.
The Company also records, when necessary,
deemed dividends for the intrinsic value of the conversion options embedded in preferred stock based upon the difference between
the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded
in the preferred stock.
Reclassifications
Certain amounts in prior periods have
been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported
net loss.
Recent Accounting Pronouncements
In January 2016, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement
of Financial Assets and Financial Liabilities. The new guidance will impact the accounting for equity investments, financial liabilities
under the fair value option, and the presentation and disclosure requirements for financial instruments. All equity investments
in unconsolidated entities (other than those accounted for under the equity method of accounting) will generally be measured at
fair value with changes in fair value recognized through earnings. There will no longer be an available-for-sale classification
for equity securities with readily determinable fair values in which changes in fair value are currently reported in other comprehensive
income. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses
on available-for-sale debt securities. In general, the new guidance will require modified retrospective application to all outstanding
instruments, with a cumulative effect adjustment recorded to opening retained earnings. This guidance will be effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted commencing
January 1, 2017. We are currently evaluating the expected impact that the standard could have on our financial statements and
related disclosures.
In February 2016, the FASB issued Accounting
Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease
liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating
the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the
Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present
or future consolidated financial statements.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did
not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
financial statements.
NOTE 3. CASH, MONEY MARKET FUNDS, AND SHORT-TERM INVESTMENTS
Cash, money market funds, and short-term
investments consist of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Checking and savings accounts (reported as cash and cash equivalents)
|
|
$
|
101,222
|
|
|
$
|
13,642
|
|
Money market funds
|
|
|
19,744
|
|
|
|
19,945
|
|
Corporate debt securities (reported as short-term investments)
|
|
|
70,602
|
|
|
|
70,113
|
|
|
|
$
|
191,568
|
|
|
$
|
103,700
|
|
Money market funds and short-term investments
include the following securities with gross unrealized gains and losses (in thousands):
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
June 30, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
19,744
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,744
|
|
Corporate debt securities
|
|
|
70,524
|
|
|
|
78
|
|
|
|
-
|
|
|
|
70,602
|
|
Total
|
|
$
|
90,268
|
|
|
$
|
78
|
|
|
$
|
-
|
|
|
$
|
90,346
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2015
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
19,945
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,945
|
|
Corporate debt securities
|
|
|
70,065
|
|
|
|
48
|
|
|
|
-
|
|
|
|
70,113
|
|
Total
|
|
$
|
90,010
|
|
|
$
|
48
|
|
|
$
|
-
|
|
|
$
|
90,058
|
|
As of June 30, 2016, the contractual maturities
of our money market funds and short-term investments were (in thousands):
|
|
Within One
|
|
|
|
Year
|
|
Money market funds
|
|
$
|
19,744
|
|
Corporate debt securities
|
|
|
70,602
|
|
|
|
$
|
90,346
|
|
At June 30, 2016, the Company’s
short-term investments were invested in short-term fixed income debt securities and notes of domestic and foreign high credit
issuers and in money market funds. The Company’s investment policy limits investments to certain types of instruments
such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies
as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. At June
30, 2016, the Company’s short-term investments totaled $70.6 million, of which 53% were invested in notes of five companies,
80% were invested in notes of other domestic issuers, and 20% were invested in notes of foreign issuers. The average maturity
of these notes was 114 days. At June 30, 2016 the Company’s money-market funds totaled approximately $19.7 million
and were invested in a single, no-load money market fund.
NOTE 4. STOCKHOLDERS’ EQUITY
Series B Preferred Stock
In June 2016, the Company created a new
class of Preferred Stock designated as Series B Preferred Stock. The rights of the Series B Preferred are set forth
in the Certificate of Designation of Preferences and Rights of Series B Preferred Stock (the “Series B Certificate
of Designation”). A total of 11,500,000 shares of Series B Preferred are authorized for issuance under the Certificate of
Designation. The shares of Series B Preferred have a stated value of $4.75 per share and, if stockholder approval of the conversion
feature is obtained, will be convertible into shares of common stock at an initial conversion price of $4.75 per share.
Holders of the Series B Preferred are
entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of our Series A Preferred
or other securities. So long as any Series B Preferred remains outstanding, the Company may not redeem, purchase or otherwise
acquire any material amount of our Series A Preferred or other securities.
Private Placement
On June 2, 2016, the Company entered into
a securities purchase agreement with various institutional and individual accredited investors to raise gross proceeds of $100
million in a private placement (the “Private Placement”). On June 7, 2016, the Company completed the Private Placement.
In the Private Placement, the Company issued (i) 9,684,000 shares of its common stock and (ii) 11,368,633 shares of
its new Series B Preferred Stock (the “Series B Preferred”). The shares of common stock and Series B
Preferred were sold for $4.75 per share. The shares of Series B Preferred are not currently convertible into common stock and,
except as required by law, are non-voting. On July 7, 2016 the Company filed a proxy statement with the SEC with respect to a
stockholders meeting to be held on August 16, 2016 at which the stockholders will be asked to vote on a proposal to permit the
Series B Preferred to become convertible into shares of the Company’s common stock and to permit the issuance of shares
of common stock upon such conversion. If the requisite stockholder approval is obtained, the Series B Preferred will be convertible
into shares of common stock at an initial conversion price of $4.75 per share. The Company will account for the conversion feature
associated with the Series B Preferred Stock if and when stockholder approval is received and the conversion feature is no longer
contingent.
The Company received net proceeds of approximately
$95.7 million from the Private Placement, after paying placement agent fees and estimated offering expenses.
On June 2, 2016, in connection with the
Purchase Agreement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”)
with the investors pursuant to which the Company agreed to file with the Securities and Exchange Commission, or the SEC, within
30 days of the closing of the private placement under the Purchase Agreement, a registration statement covering the resale by
the investors of the shares of common stock purchased by them. The Company also agreed in the Registration Rights Agreement to
file with the SEC within 30 days of any stockholders meeting approving the conversion feature of the Series B Preferred Stock,
a registration statement covering the resale of the shares of our common stock issuable upon conversion of their shares of Series
B Preferred Stock by the holders of shares of Series B Preferred Stock. The Company also agreed to use its best efforts to have
the respective registration statements declared effective as soon as practicable upon filing, but in any event within 90 days
after filing. The Registration Rights Agreement provides, among other things, that in the event (i) the Company does not file
either registration statement within the prescribed time period, (ii) the SEC does not declare effective either registration statement
within the prescribed time period or (iii) either registration statement ceases to be effective under certain circumstances, the
Company will pay to the holders on the occurrence of each such event and for each 30-day period thereafter until the applicable
event is cured, an amount in cash equal to 1% of the aggregate amount invested (or outstanding, as specified in greater detail
in the Registration Rights Agreement) by the holders under the Purchase Agreement for each 30-day period (prorated for any period
of less than 30 days) during which such registration statement was not effective. The Company filed the registration statement
under Form S-1 on July 1, 2016 to fulfill certain of its contractual obligations to the investors in the Private Placement under
a registration rights agreement it entered into pursuant to the Securities Purchase Agreement.
Common stock with vesting terms
During 2016, certain employees authorized the Company to cancel
98,381 vested shares to satisfy withholding requirements related to such vesting. The cancellation is recorded as a reduction
to shares outstanding. Additionally, shares of restricted stock granted below are subject to forfeiture to the Company or
other restrictions that will lapse in accordance with a vesting schedule determined by our Board.
The following table summarizes restricted
common stock activity:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested shares, January 1, 2016
|
|
|
321,252
|
|
|
$
|
6.96
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
(182,501
|
)
|
|
|
6.21
|
|
Forfeited
|
|
|
(40,001
|
)
|
|
|
|
|
Non-vested shares, June 30, 2016
|
|
|
98,750
|
|
|
$
|
8.14
|
|
Restricted Stock Units
On June 1, 2016, we entered into a restricted
stock unit agreement with the Company’s new Chief Executive Officer pursuant to which we granted her 550,000 non-transferrable
restricted stock units at fair market value of $5.87 per share as an inducement of employment pursuant to the exception to The
NASDAQ Global Market rules that generally require stockholder approval of equity incentive plans. The 550,000 restricted
stock units will vest in installments as follows: (i) 137,500 restricted stock units will vest upon the first anniversary of the
effective date of her employment agreement; (ii) 275,000 restricted stock units will vest upon the satisfaction of certain clinical
trial milestones; and (iii) 137,500 restricted stock units will vest in equal monthly installments over the 36-month period following
the first anniversary of the effective date of her employment, provided that Dr. Fardis has been continuously employed with the
Company as of such vesting dates.
NOTE 5. STOCK
OPTIONS AND WARRANTS
Stock Options
A summary of the status of stock options
at June 30, 2016, and the changes during the six months then ended, is presented in the following table:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Option
|
|
|
Price
|
|
|
Life
|
|
|
(in thousands)
|
|
Outstanding at January 1, 2016
|
|
|
2,693,237
|
|
|
$
|
8.12
|
|
|
|
8.02
|
|
|
$
|
2,347
|
|
Granted
|
|
|
2,264,983
|
|
|
|
5.71
|
|
|
|
9.9
|
|
|
|
5,417
|
|
Exercised
|
|
|
(37,066
|
)
|
|
|
6.40
|
|
|
|
-
|
|
|
|
-
|
|
Expired/Forfeited
|
|
|
(650,165
|
)
|
|
|
8.44
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2016
|
|
|
4,270,989
|
|
|
$
|
6.75
|
|
|
|
9.06
|
|
|
$
|
7,688
|
|
Exercisable at June 30, 2016
|
|
|
1,865,205
|
|
|
$
|
7.19
|
|
|
|
8.38
|
|
|
$
|
3,228
|
|
During the six months ended June 30, 2016,
the Company granted options to purchase 2,264,983 shares of common stock to employees of the Company. The stock options generally
vest between one and three years. The fair value of these options was determined to be $12.7 million using the Black-Scholes option
pricing model based on the following assumptions: (i) volatility rate of 199%, (ii) discount rate of 1.37%, (iii) zero expected
dividend yield, and (iv) expected life of 6 years.
During the six months ended June 30, 2016
and 2015, the Company recorded compensation costs of $6.1 million and $2.3 million, respectively, and for the three months ended
June 30, 2016 and 2015, the Company recorded compensation costs of $4.5 million and $1.3 million, relating to the vesting of stock
options. As of June 30, 2016, the aggregate value of unvested options was $13.7 million, which will continue to be amortized as
compensation cost as the options vest over terms ranging from nine months to three years, as applicable.
Warrants
A summary of the status of stock warrants
at June 30, 2016, and the changes during the six months then ended, is presented in the following table:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
|
|
|
(in thousands)
|
|
Outstanding at January 1, 2016
|
|
|
7,202,216
|
|
|
$
|
2.51
|
|
|
|
3.3
years
|
|
|
$
|
37,596
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(248,500
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at June 30, 2016
|
|
|
6,953,716
|
|
|
$
|
2.51
|
|
|
|
2.7
years
|
|
|
$
|
40,332
|
|
During the six months ended June 30, 2016, the Company received
$0.6 million in cash from the exercise of 248,500 warrants for the purchase of an equal number of shares of its common stock.
NOTE 6. LICENSE AND COMMITMENTS
National Institutes of Health and the National Cancer
Institute
Cooperative Research and Development Agreement
Effective August 5, 2011, the Company
signed a Cooperative Research and Development Agreement (CRADA) with the National Institutes of Health and the National Cancer
Institute (NCI). Under the terms of the five-year cooperative research and development agreement, the Company will work with Dr.
Steven A. Rosenberg, M.D., Ph.D., chief of NCI’s Surgery Branch, to develop adoptive cell immunotherapies that are designed
to destroy metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.
On January 22, 2015, the Company
executed an amendment (the “Amendment”) to the CRADA to include four new indications. As amended, in addition to
metastatic melanoma, the CRADA now also includes the development of TIL therapy for the treatment of patients with bladder,
lung, triple-negative breast, and HPV-associated cancers. Under the Amendment, the NCI also has agreed to provide the Company
with samples of all tumors covered by the Amendment for performing studies related to improving TIL selection and/or TIL
scale-out production and process development. The CRADA expired on August 5, 2016 and the NCI and the Company are finalizing
the terms of an amendment to extend the term of the CRADA for another five year period
.
Development and Manufacture TIL
Effective October 5, 2011, the Company
entered into a Patent License Agreement with the National Institutes of Health, an agency of the United States Public Health Service
within the Department of Health and Human Services (“NIH”), which License Agreement was subsequently amended on February
9, 2015 and October 2, 2015. Pursuant to the License Agreement as amended, NIH granted to the Company an exclusive worldwide right
and license to develop and manufacture certain proprietary autologous tumor infiltrating lymphocyte adoptive cell therapy products
for the treatment of metastatic melanoma, ovarian cancer, breast cancer, and colorectal cancer. The License Agreement requires
the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single digits and subject to certain
annual minimum royalty payments), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments
on the achievement of certain clinical and regulatory milestones for each of the various indications and other direct costs incurred
by NIH pursuant to the agreement.
Exclusive Patent License Agreement
On February 10, 2015, the Company entered
into an exclusive Patent License Agreement with the NIH under which the Company received an exclusive, world-wide license to the
NIH’s rights in and to two patent-pending technologies related to methods for improving tumor-infiltrating lymphocytes for
adoptive cell therapy. The licensed technologies relate to the more potent and efficient production of TIL from melanoma tumors
by selecting for T-cell populations that express various inhibitory receptors. Unless terminated sooner, the license shall remain
in effect until the last licensed patent right expires.
In consideration for the exclusive rights
granted under the exclusive Patent License Agreement, the Company agreed to pay the NIH a non-refundable upfront licensing fee
which was recognized as research and development expense during the year ended December 31, 2015. The Company also agreed to pay
customary royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of revenues
from sublicensing arrangements, and lump sum benchmark payments upon the successful completion of the Company’s first Phase
2 clinical study, the successful completion of the Company’s first Phase 3 clinical study, the receipt of the first FDA
approval or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial
sale of a licensed product or process in the United States, and the first commercial sale of a licensed product or process in
any foreign country. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and
prosecution of the patent applications and patents covered by the License.
H. Lee Moffitt Cancer Center
Research Collaboration Agreement
In September, 2014, the Company entered
into a research collaboration agreement with the H. Lee Moffitt Cancer Center and Research Institute, Inc. to jointly engage in
transitional research and development of adoptive tumor-infiltrating lymphocyte cell therapy with improved anti-tumor properties
and process.
Exclusive License Agreement
The Company entered into an Exclusive
License Agreement (the “Moffitt License Agreement”), effective as of June 28, 2014, with the H. Lee Moffitt Cancer
Center and Research Institute, Inc. (“Moffitt”) under which the Company received an exclusive, world-wide license
to Moffitt’s rights in and to two patent-pending technologies related to methods for improving tumor-infiltrating lymphocytes
for adoptive cell therapy. Unless earlier terminated, the term of the license extends until the earlier of the expiration of the
last patent related to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt License Agreement,
the Company paid an upfront licensing fee which was recognized as research and development expense during 2014. A patent issuance
fee will also be payable under the Moffitt License Agreement, upon the issuance of the first U.S. patent covering the subject
technology. In addition, the Company agreed to pay milestone license fees upon completion of specified milestones, customary royalties
based on a specified percentage of net sales (which percentage is in the low single digits) and sublicensing payments, as applicable,
and annual minimum royalties beginning with the first sale of products based on the licensed technologies, which minimum royalties
will be credited against the percentage royalty payments otherwise payable in that year. The Company will also be responsible
for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered
by the Moffitt License Agreement related to the treatment of any cancers in the United States, Europe and Japan and in other countries
selected that the Company and Moffitt agreed to.
During the six months ended June 30, 2016
and 2015, the Company recognized $0.9 million and $1.4 million respectively, of expenses related to its license agreements. The
amounts were recorded as part of research and development expenses in the statements of operations. Additionally, during the six
months ended June 30, 2016, there were no net sales subject to certain annual minimum royalty payments or sales that would require
us to pay a percentage of revenues from sublicensing arrangements. In addition, there were no benchmarks or milestones achieved
that would require payment under the lump sum benchmark royalty payments on the achievement of certain clinical regulatory milestones
for each of the various indications.
Aggregate guaranteed commitments for the
remainder of 2016, under all of the Company’s license and research agreements, are approximately $1.7 million.
Lease Obligations
In December 2014, the Company commenced
a five-year non-cancellable operating lease with the University of South Florida Research Foundation for an approximately 5,200
square foot facility located in Tampa, Florida. The facility is part of the University of South Florida research park and is used
as the Company’s research and development facilities. The monthly base rent for this facility during the first year of the
lease was $10,443 and will increase by 3% annually. The Company has the option to extend the lease term of this facility for an
additional five-year period on the same terms and conditions, except that the base rent for the renewal term will be increased
in accordance with the applicable consumer price index.
On August 4, 2016, the Company entered
into an agreement to lease 8,733 square feet in San Carlos, California. The term of the lease is 54 months subsequent to the commencement
date, and total expected rental payments under the lease are expected to be $2.1 million.
The minimum lease payments are as follows
(in thousands):
Year
|
|
Amount
|
|
2016 (remaining)
|
|
$
|
76
|
|
2017
|
|
|
610
|
|
2018
|
|
|
628
|
|
2019
|
|
|
647
|
|
2020
|
|
|
495
|
|
2021
|
|
|
169
|
|
|
|
$
|
2,625
|
|
NOTE 7. LEGAL PROCEEDINGS
SEC Settlement.
As previously disclosed,
on April 23, 2014 the Company received a subpoena from the SEC that stated that the staff of the SEC was conducting an investigation
then designated as In the Matter of Galena Biopharma, Inc. File No. HO 12346 (now known as In the Matter of Certain Stock Promotions)
and that the subpoena was issued to the Company as part of the foregoing investigation. The SEC’s subpoena and accompanying
letter did not indicate whether the Company was, or was not, under investigation. The Company produced documents in response to
the subpoena and have since fully cooperated with the SEC’s investigation.
The Company has recently been informed
by the Staff of the SEC that the SEC’s investigation, in part, involves the conduct of The Company’s former Chief
Executive Officer, Manish Singh, during the period between September 2013 and April 2014. As the Company understands, as it pertains
to the Company’s former Chief Executive Officer, the investigation has focused on the failure by authors of certain articles
about the Company to disclose that they were compensated by one of our former investor relations firms. The Company understands
that it is the position of the SEC Staff that the conduct of the former Chief Executive Officer with respect to these articles
may be imputed to the Company.
In order to resolve this matter, the Company
has agreed with the Staff of the SEC to a proposed settlement framework under which it would consent to the entry of an order
requiring that it cease and desist from any future violations of certain provisions of the federal securities laws, without admitting
or denying any allegations, and agree to a financial penalty. The Company is currently discussing with the Staff of the SEC the
amount of the financial penalty that it would pay as part of this settlement. The Company does not anticipate that the amount
of this penalty will have a material impact on its cash position. The proposed settlement is contingent upon reaching agreement
with the Staff of the SEC on a complete set of settlement terms and approval by the Commissioners of the SEC, neither of which
can be assured.
Solomon Capital, LLC.
On April
8, 2016, a lawsuit titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff against Lion Biotechnologies,
Inc. was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff against the Company in
the Supreme Court of the State of New York County of New York (index no. 651881/2016). The plaintiffs allege that, between June
and November 2012 they provided to the Company $52,850 and that they advanced and paid on our behalf an additional $170,000. The
complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $222,850, plus interest,
(ii) issue a total of 111,425 shares to the plaintiffs (before the 1-for-100 reverse split of our common stock effected in September
2013), and (iii) allow the plaintiffs to convert the foregoing funds into our securities in the next transaction. The plaintiffs
allege that they should have been able to convert their advances and payments into shares of the Company’s common stock
in the Restructuring that it effected in May 2013. Based on the foregoing, the plaintiffs allege causes for breach of contract
and unjust enrichment and demand judgment against the Company in an unspecified amount exceeding $1,500,000, plus interest and
attorneys’ fees.
On June 3, 2016, the Company filed an
answer and counterclaims in the lawsuit. In its counterclaims, the Company alleges that the plaintiffs misrepresented their
qualifications to assist it in fundraising and that they failed to disclose that they were under investigation for securities
laws violations. The Company is seeking damages in an amount exceeding $500,000 and an order rescinding any and all agreements
that the plaintiffs contend entitled them to obtain stock in the Company. The Company’s investigation of the allegations
made by the plaintiffs is ongoing and it intends to vigorously defend the complaint and pursue its counterclaims.
NOTE 8. CONTINENGIES
During
the second quarter of 2016, 128,500 warrants were exercised into shares of common stock that were previously sold under an ineffective
Form S-3. The Company believes that any claims brought against it would not result in a material impact to the Company’s
financial position or results of operations. The Company has not accrued a loss for a potential claim associated with this matter
as it is unable to estimate any at this time. In January 2014, the SEC declared effective a registration statement that we filed
to cover the resale of shares issued and sold (or to be issued and sold) by certain selling stockholders. On March 11, 2016, that
registration statement (and the prospectus contained therein) became ineligible for future use, and selling stockholders could
no longer sell any shares of our common stock in open market transactions by means of that prospectus. We believe that certain
stockholders did sell up to 128,500 shares of our common stock in open market transactions in May 2016 by means of the ineffective
registration statement/prospectus. Accordingly, those sales were not made in accordance with Sections 5 and 10(a)(3) of the Securities
Act, and the purchasers of those shares may have rescission rights (if they still own the shares) or claims for damages (if they
no longer own the shares). The amount of any such liability is uncertain and as such, an accrual for any potential loss has not
been made.