ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this annual report. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of indicators of forward-looking statements and specific important factors that could cause actual results to differ materially from those contained in forward-looking statements, see “Risk Factors” under Part I — Item 1A of this annual report. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section should be read and interpreted in light of such factors. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this annual report.
You may have difficulty evaluating our business, because we completed a partial spin off of RXi on April 26, 2012. Since the partial spin-off, our financial statements no longer reflected the consolidated financial condition and results of operations of RXi, and we have accounted for our partial ownership of RXi based on the cost method of accounting. In addition, during the quarter ended September 30, 2015 the Company completed a strategic review of the Company's commercial business including the ongoing sale, distribution and marketing of our two commercial products, Abstral
®
(fentanyl) Sublingual Tablets and Zuplenz
®
(ondansetron) Oral Soluble Film (our “commercial business” asset group). As a result of the review, we made a determination to sell or otherwise dispose of our commercial business, which was completed during the quarter ended December 31, 2015. These actions caused the Company to meet the relevant criteria for reporting the Company's commercial business as held for sale and in discontinued operations. For these reasons, the historical consolidated financial information included in this annual report does not necessarily reflect the financial condition, results of operations or cash flows that we will achieve in the future.
Overview
Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “Company”) is a biopharmaceutical company developing hematology and oncology therapeutics that address unmet medical needs. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including our hematology asset, GALE-401, and our novel cancer immunotherapy programs including NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. GALE-401 is a controlled release version of the approved drug anagrelide for the treatment of elevated platelets in patients with myeloproliferative neoplasms. GALE- 401 has completed a Phase 2 clinical trial and the asset is ready to advance into a pivotal trial in patients with essential thrombocythemia (ET). NeuVax is currently in multiple investigator-sponsored Phase 2 clinical trials in breast cancer. GALE-301 and GALE-302 have completed early stage trials in ovarian, endometrial and breast cancers.
We are seeking to build value for shareholders through pursuit of the following objectives:
|
|
•
|
Develop hematology and oncology assets through clinical development with a focus in areas of unmet medical need. Our hematology asset is targeting the treatment of patients with ET to reduce elevated platelet counts. 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 prevent ductal carcinoma
in situ
(DCIS) from becoming invasive breast cancer.
|
|
|
•
|
Evaluating strategic alternatives that may include continuing to advance the clinical programs as a stand-alone entity, a sale of the company, a business combination, merger or reverse merger, and a license or other disposition of corporate assets of the company.
|
|
|
•
|
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.
|
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of our financial statements requires management to make estimates, allocations and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of goodwill and long-lived assets, accrued liabilities, net revenue, and certain expenses. Our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources are based on historical experience and on other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. Additionally, the financial information included here may not necessarily reflect the financial position, operating results, changes in our invested equity and cash flows in the future.
Our significant accounting policies are summarized in the notes to our consolidated financial statements. We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements.
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.
Stock-Based Compensation
We follow the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors, and consultants, 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 granted as consideration for services rendered by non-employees, we recognize 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 grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of our common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options 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.
The fair value of each option grant is estimated using the Black-Scholes option-pricing model, with the following weighted average assumptions to determine the fair value of all its stock options granted:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Risk free interest rate
|
|
1.54
|
%
|
|
1.67
|
%
|
Volatility
|
|
101.13
|
%
|
|
73.97
|
%
|
Expected lives (years)
|
|
6.04
|
|
|
6.16
|
|
Expected dividend yield
|
|
0.00
|
%
|
|
0.00
|
%
|
The Company’s expected common stock price volatility assumption is based upon the volatility of a basket of companies that we consider comparable to us. 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 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 terms of the options. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates.
The Company has an estimated annualized forfeiture rate of 15.0% for options granted to employees, and 8.0% for options granted to senior management and no forfeiture rate for 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.
Derivative Financial Instruments
During the normal course of business, from time to time, we issue warrants and options to vendors as consideration to perform services. We may also issue warrants as part of a debt or equity financing. We do not enter into any derivative contracts for speculative purposes.
We recognize all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. During the years ended December 31, 2016 and 2015, we issued warrants to purchase approximately 1,382,159 and 700,320 shares of common stock, respectively, in connection with equity transactions. In accordance with ASC Topic 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Stock” (“ASC 815-40”), the fair value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to us in certain events, as defined, and the warrants are determined not to be indexed to the Company’s own stock.
The derivative liabilities are remeasured each period end to the estimated fair value. The fair value of our derivative liabilities is estimated using the appropriate pricing model, with the following assumptions used for the initial measurement of warrants granted:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Risk free interest rate
|
|
1.77%
|
|
1.41%
|
Volatility
|
|
119.08%
|
|
73.41%
|
Expected lives (years)
|
|
5
|
|
5
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
The Company’s expected common stock price volatility assumption is based upon the volatility of a basket of companies that we consider comparable to us. The expected life assumptions for the warrants are estimated to coincide with the contractual terms of the warrants.
Business Combinations and Asset Purchases
We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Some of the items, including property and equipment, other intangible assets, certain accrued liabilities and other reserves require a degree of management judgment. Certain estimates may change as additional information becomes available. Management finalizes the purchase price allocation within 12 months of the acquisition date as certain initial accounting estimates are resolved.
Goodwill, Other Intangible Assets and Impairment of Long-Lived Assets
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 (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). 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 product rights 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 of those assets.
The Company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of
December 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
December 31, 2016
, we determined there were no variable interest entities required to be consolidated.
The Company met the relevant criteria for reporting the commercial operations as held for sale as of September 30, 2015, and as a result, assessed the commercial asset group for impairment pursuant to ASC Topic 360,
Property, Plant, and Equipment.
The net carrying value of the commercial asset group was compared to its fair value as of September 30, 2015. The Company determined that the fair value using a risk adjusted net present value of deal consideration received from bids from potential acquirers. The Company determined that the carrying value exceeded its fair value and as a result recorded an $8.1 million impairment charge on assets classified as held for sale in the quarterly period ended September 30, 2015.
Refer to Note 12 of the notes to the consolidated financial statements for further information regarding the acquisition of Abstral U.S. rights and Note 15 as to our reporting the commercial operations as held for sale and in discontinued operations.
Valuation of Contingent Purchase Price Consideration
Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company (earnout). Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, are reflected in income or expense in the consolidated statements of comprehensive loss. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.
Legal Fees 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.
Discontinued Operations
We met the relevant criteria for reporting our commercial business as held for sale and in discontinued operations in the accompanying financial statements as of December 31, 2016 and 2015 and for the three years ended December 31, 2016, pursuant to FASB ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, and FASB ASC Topic 360, Property, Plant, and Equipment.
Results of Operations for the Years Ended
December 31, 2016
, 2015 and 2014
For the year ended December 31, 2016, our net loss was
$23.5 million
compared with net losses of
$63.9 million
and
$36.6 million
for the years ended December 31, 2015 and 2014, respectively. The
$40.4 million
decrease in net loss from 2015 to 2016 was primarily driven by a
$25.4 million
increase in non-operating income and
$12.5 million
decrease in loss from discontinued operations. The loss from discontinued operations for the year ended December 31, 2015 includes an $8.1 million impairment charge recognized in the third quarter of 2015 and $4.5 million in the loss on the sale of the commercial assets. The
$27.3 million
increase in net loss from 2014 to 2015 was primarily driven by a
$16.6 million
increase in loss from discontinued operations, which includes the one time impairment charge and loss on the sale of commercial assets in 2015. In addition, 2015 had an increase of
$20.0 million
in non-operating expense and a
$9.7 million
decrease in operating loss compared to 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
Operating loss
|
$
|
(31,867
|
)
|
|
$
|
(34,220
|
)
|
|
$
|
(43,900
|
)
|
|
(7
|
)%
|
|
(22
|
)%
|
Non-operating income (expense)
|
21,009
|
|
|
(4,371
|
)
|
|
15,616
|
|
|
N/A
|
|
|
N/A
|
|
Income tax
|
(243
|
)
|
|
(365
|
)
|
|
—
|
|
|
(33
|
)%
|
|
N/A
|
|
Loss from discontinued operations
|
(12,448
|
)
|
|
(24,946
|
)
|
|
(8,322
|
)
|
|
(50
|
)%
|
|
200
|
%
|
Net loss
|
$
|
(23,549
|
)
|
|
$
|
(63,902
|
)
|
|
$
|
(36,606
|
)
|
|
(63
|
)%
|
|
75
|
%
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share, continuing operations
|
$
|
(1.11
|
)
|
|
$
|
(5.02
|
)
|
|
$
|
(4.74
|
)
|
|
(78
|
)%
|
|
6
|
%
|
Basic and diluted net loss per share, discontinued operations
|
$
|
(1.25
|
)
|
|
$
|
(3.21
|
)
|
|
$
|
(1.39
|
)
|
|
(61
|
)%
|
|
131
|
%
|
Basic and diluted net loss per share
|
$
|
(2.36
|
)
|
|
$
|
(8.23
|
)
|
|
$
|
(6.13
|
)
|
|
(71
|
)%
|
|
34
|
%
|
Further analysis of the changes and trends in our operating results are discussed below.
Research and Development Expense
Research and development expense consists primarily of clinical trial expenses and compensation-related costs for our employees dedicated to research and development activities, compensation paid to our Scientific Advisory Board (“SAB”) members, and licensing fees and patent prosecution costs. Research and development expense for the years ended
December 31, 2016
,
2015
, and 2014 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
% Change
|
|
2015
|
|
2014
|
|
% Change
|
Research and development expense
|
$
|
19,860
|
|
|
$
|
23,611
|
|
|
(16
|
)%
|
|
$
|
23,611
|
|
|
$
|
27,674
|
|
|
(15
|
)%
|
The majority of our research and development expenses to date relate to our 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 were 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 was enrolled, they received vaccination and were to be monitored for a minimum of three years for recurrence of breast cancer, development of other cancers, 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 in research and development expense of
16%
for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily due to the decrease in enrollment efforts surrounding the Phase 3 PRESENT clinical trial, and ultimately the closing of that trial in the third quarter of 2016 as a result of the recommendation from the IDMC that the trial was futile. The decrease was partially offset by additional consulting expenses incurred in connection with the investigation of the PRESENT trial data to attempt to determine the cause of the futility conclusion.
The completion of over-enrollment in April 2015 reduced expenses related to the trial as we entered the monitoring phase and continued toward our interim safety and futility analysis on June 24, 2016, which resulted in the stopping and eventual closing of the Phase 3 PRESENT trial in the third quarter of 2016. 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.
On January 31, 2017, we announced that we are evaluating strategic alternatives for the Company focused on maximizing stockholder value. Potential strategic alternatives that may be explored or evaluated as part of this review include continuing to advance the clinical programs as a stand-alone entity, a sale of the company, a business combination, merger or reverse merger, and a license or other disposition of corporate assets of the company. There is no set timetable for this process and there can be no assurance that this process will result in a transaction. While the Company evaluates its strategic alternatives, we anticipate our research and development expenses to be driven by our two ongoing Phase 2 clinical trials of NeuVax in combination with trastuzumab for the prevention of recurrence of breast cancer and our Phase 2 clinical trial of NeuVax in patients with Ductal Carcinoma
in
Situ. We are evaluating the appropriate time to commence the GALE-401 Phase 3 trial and anticipate making a definitive determination in the second half of 2017.
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 years ended
December 31, 2016
and
2015
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
% Change
|
General and administrative expense
|
$
|
12,007
|
|
|
$
|
10,609
|
|
|
13
|
%
|
The year-over-year increase was primarily related to $0.8 million of additional legal expenses related to reaching an agreement in principle for a proposed settlement that would resolve an investigation by the staff of the SEC, $0.4 million increase in non-cash stock-based compensation, and $0.4 million increase in outside services. These increases were partially offset by a $0.3 million decrease in insurance related expenses.
Selling, general and administrative expense for the years ended
December 31, 2015
and
2014
was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2015
|
|
2014
|
|
% Change
|
General and administrative expense
|
$
|
10,609
|
|
|
$
|
16,226
|
|
|
(35
|
)%
|
The year-over-year decrease was significantly impacted by the reduction in legal expenses related to the ongoing litigation and proceedings described in Part I, Item 3 of this report, which were approximately $7 million in 2014. We exceeded the retention (deductible) under our insurance policy during the third quarter of 2014, and therefore realized insurance recoveries of $2 million that partially offset these fees. In 2015, excluding legal expenses associated with the litigation settlement, the majority of the legal expenses incurred were paid by our insurance carriers. In addition to a reduction in legal expenses, non-cash stock-based compensation decreased $3.3 million from 2014 to 2015.
Non-Operating Income (Expense)
Non-operating income (expense) for the year ended
December 31, 2016
and
2015
was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
$ Change
|
Non-operating income (expense):
|
|
|
|
|
|
|
Litigation settlement
|
|
$
|
(2,750
|
)
|
|
$
|
(5,282
|
)
|
|
$
|
2,532
|
|
Change in fair value of warrants potentially settleable in cash
|
|
22,220
|
|
|
1,162
|
|
|
21,058
|
|
Interest expense, net
|
|
(3,508
|
)
|
|
(760
|
)
|
|
(2,748
|
)
|
Change in fair value of the contingent purchase price liability
|
|
5,047
|
|
|
509
|
|
|
4,538
|
|
Total non-operating income (expense), net
|
|
$
|
21,009
|
|
|
$
|
(4,371
|
)
|
|
$
|
25,380
|
|
The increase to our non-operating income in 2016 was primarily due to a
$21.1 million
increase in the non-cash gain on our fair value of warrants accounted for as liabilities. The decrease in the estimated fair value of our warrant liabilities was primarily due to the decrease in our common stock price, which declined 93% in 2016. In addition to the decrease in the fair value of warrants, our contingent purchase price consideration related to the approval of NeuVax also decreased by $4.5 million from 2015 to 2016. The interim analysis of the Phase 3 PRESENT clinical trial and subsequent close down of the trial triggered an intangible asset and goodwill impairment analysis of the carrying amount and the fair value was determined to exceed the carrying amount based on the other ongoing and planned trials with NeuVax. The contingent purchase price consideration is fair valued at each reporting period and the lower probability and extended time line for approval were updated to align with the valuation performed of NeuVax and significantly decreased the fair value which are the two largest variables impacting the liability.
The gains recognized from the changes in the fair values of our warrant liability and contingent purchase price liability were partially offset by $2.8 million in litigation settlements and $3.5 million of interest expense. The litigation settlements in 2016 are comprised of $1.8 million of opt-out cases from our class action settlement that was settled in 2015 and $1.0 million related to the proposed settlement framework with the SEC. The increase of $2.7 million of interest expense was driven by the interest on our debenture, including amortization of discounts and debt issuance costs.
Non-operating income (expense) for the year ended
December 31, 2015
and
2014
was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2015
|
|
2014
|
|
$ Change
|
Non-operating income (expense):
|
|
|
|
|
|
|
Litigation settlement
|
|
$
|
(5,282
|
)
|
|
$
|
—
|
|
|
$
|
(5,282
|
)
|
Change in fair value of warrants potentially settleable in cash
|
|
$
|
1,162
|
|
|
$
|
16,556
|
|
|
$
|
(15,394
|
)
|
Interest income (expense), net
|
|
(760
|
)
|
|
(1,110
|
)
|
|
350
|
|
Change in fair value of the contingent purchase price liability
|
|
509
|
|
|
170
|
|
|
339
|
|
Total non-operating income (expense), net
|
|
$
|
(4,371
|
)
|
|
$
|
15,616
|
|
|
$
|
(19,987
|
)
|
The increase to our non-operating expense in 2015 was primarily due to a $15.4 million decrease in the non-cash gain of the fair value of our warrants accounted for as liabilities. The $1.2 million non-cash gain on the fair value of our warrant liabilities in 2015 was primarily due to a 3% decrease in our common stock price, which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities. The $16.6 million non-cash gain on the fair value of our warrant liabilities was in 2014 was primarily due to a 70% decrease in our common stock price.
In addition to the change in our warrant liability, on December 4, 2015 we announced the settlement of the
In re Galena Biopharma, Inc. Derivative Litigation
and
In re Galena Biopharma, Inc. Securities Litigation
. The majority of the $20.0 million settlement payment for settlement of
In re Galena Biopharma, Inc. Securities Litigation
was covered by the Company's insurance carriers and $3.3 million was paid by the Company through a combination of $2.3 million in cash and $1.0 million in shares of the Company's common stock. In addition, to obtain the agreement of the insurance carriers to fund most of the settlement, we also agreed to pay all outstanding defense attorney fees going forward with respect to this litigation and opt out securities litigation amounting to about $2.0 million.
Income Taxes
For the years ended December 31, 2016 and 2015, we recognized income tax expenses of $0.2 million and $0.4 million, respectively. There was no income tax expense or benefit during the year ended December 31, 2014. We continue to maintain a full valuation allowance against our net deferred tax assets.
Loss from 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. Our loss from discontinued operations for the year ended December 31, 2016 was
$12.4 million
compared with losses from discontinued operations of
$24.9 million
and
$8.3 million
for the years ended December 31, 2015 and 2014, respectively.
The following table represents the components attributable to the commercial business in 2016, 2015 and 2014 that are presented in the consolidated statements of comprehensive loss as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net revenue
|
$
|
—
|
|
|
$
|
9,734
|
|
|
$
|
9,319
|
|
Additional channel obligations
|
(2,886
|
)
|
|
—
|
|
|
—
|
|
Cost of revenue
|
—
|
|
|
(1,780
|
)
|
|
(1,403
|
)
|
Amortization of certain acquired intangible assets
|
—
|
|
|
(921
|
)
|
|
(440
|
)
|
Research and development
|
—
|
|
|
(355
|
)
|
|
(680
|
)
|
Selling, general, and administrative
|
(9,562
|
)
|
|
(17,655
|
)
|
|
(15,118
|
)
|
Impairment charge from classification as held for sale
|
—
|
|
|
(8,071
|
)
|
|
—
|
|
Loss on sale of commercial business assets
|
—
|
|
|
(4,549
|
)
|
|
—
|
|
Severance and exit costs
|
—
|
|
|
(1,349
|
)
|
|
—
|
|
Loss from discontinued operations
|
$
|
(12,448
|
)
|
|
$
|
(24,946
|
)
|
|
$
|
(8,322
|
)
|
The 2016, 2015 and 2014 discontinued operations are comprised of the net revenue, cost of revenue, and expenses attributable to our commercial operations, which we 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 were 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. The additional channel obligations for the year ended December 31, 2016 relate to adjusted Medicaid billings from previous quarters since the first quarter of 2014 and additional returns received.
•
Cost of revenue
included in discontinued operations consists of direct product 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 were required in order to market and sell our marketed products. These expenses include all personnel related costs, marketing, data, consulting, legal, consulting, and other outside services necessary to support the commercial operations. During 2016 we incurred $9.2 million related to legal expenses from external counsel associated with an internal and government investigation, and from cooperating, and document production for the subpoenas related to the sales and marketing practices of Abstral. These legal proceedings are further disclosed in Part I, Item 3.
•
Impairment charge from classification as held for sale
included in discontinued operations consists of impairment recognized from determining that the carrying value exceeds the fair value of the assets.
•
Loss on sale of commercial business assets
included in discontinued operations consists of the calculation of the gain or loss recognized upon the sale of the company's commercial products, Abstral and Zuplenz, and their related assets.
•
Severance and exit costs
included in discontinued operations consists of one-time termination benefits provided to employees that were part of the commercial business and did not accept employment opportunities at the companies who purchased Abstral and Zuplenz. In addition to severance costs there are costs included to terminate contracts prior to their contractual term with no economic benefit to the Company.
Liquidity and Capital Resources
We had cash and cash equivalents of approximately
$18.1 million
as of
December 31, 2016
, compared with
$29.7 million
as of December 31, 2015.
The decrease of approximately
$11.6 million
in cash and cash equivalents from December 31, 2015 to
December 31, 2016
was attributable to
$44.9 million
net cash used in operating activities and
$5.6 million
principal payments on long-term debt. The decrease was partially offset by
$33.5 million
net proceeds received from the sale of common stock.
On February 13, 2017, the Company closed an underwritten public offering of 17,000,000 units at a price to the public of $1.00 per unit for gross proceeds of $17.0 million ("February 2017 Offering"). Each unit consists of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $1.10 per share. The net proceeds of the February 2017 Offering were $15.5 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company.
In addition to the proceeds from the February 2017 Offering, in January and February 2017 the holder of the Debenture redeemed $3.95 million of outstanding principal that was satisfied by the Company with 3,518,663 shares of our common stock. As a result of the redemptions, the Company was able to transfer $3.95 million out of restricted cash and cash equivalents and into unrestricted cash and cash equivalents to be used to fund the Company's ongoing operations. The outstanding principal balance on the Debenture as of March 15, 2017 is $13,617,702 and is maintained by the Company as restricted cash.
In addition to the funds raised through underwritten public offerings and the debenture, we maintain a purchase agreement with Lincoln Park Capital LLC (LPC) and At Market Issuance Sales Agreements (ATM) with future availability of $2.0 million and $19.1 million, respectively subject to certain terms and conditions. We may also continue to use the ATM, or other instruments, in order to fund our operations going forward.
On January 31, 2017, the Company announced that it is in the process of evaluating strategic alternatives focused on maximizing stockholder value. Potential strategic alternatives that may be explored or evaluated as part of this review include continuing to advance the clinical programs as a stand-alone entity, a sale of the company, a business combination, merger or reverse merger, and a license or other disposition of corporate assets of the company. There is no set timetable for this process and there can be no assurance that this process will result in a transaction. While the Company evaluates its strategic alternatives, Galena’s investigator-sponsored immunotherapy trials will remain ongoing. With the confirmation from the FDA that the GALE-401 development program is appropriate for a New Drug Application (NDA) filing using the 505(b)(2) regulatory pathway in patients with ET who are intolerant or resistant to hydroxyurea, we have developed a clear path forward for GALE-401 in the treatment of ET. Subject to completing the manufacturing of the new formulation and the internal work to prepare the Phase 3 trial for initiation, the Company is evaluating the appropriate time to commence enrollment of the GALE-401 trial and anticipates making a definitive determination in the second half of 2017. The Company has focused on reducing expenditures in order to preserve liquidity while pursuing a strategic alternative.
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 from the date of issuance of the Company's consolidated financial statements. This projection is based on our current limited operations and estimates of legal expenses associated with the ongoing government investigation and legal matters pending against the company, and is subject to changes in our operating plans, resolutions of such government investigation and legal matters, uncertainties inherent in our business, strategic alternatives outcomes, 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.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the year ended December 31, 2016 and 2015 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
Cash flows from continuing operations:
|
|
|
|
Cash flows used in continuing operating activities
|
$
|
(33,230
|
)
|
|
$
|
(38,802
|
)
|
Cash flows used in continuing investing activities
|
(6
|
)
|
|
(354
|
)
|
Cash flows provided by continuing financing activities
|
34,324
|
|
|
43,845
|
|
Total cash flows provided by continuing operations
|
1,088
|
|
|
4,689
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
Cash flows used in discontinued operating activities
|
(11,685
|
)
|
|
(9,358
|
)
|
Cash flows provided by (used in) discontinued investing activities
|
(1,050
|
)
|
—
|
|
10,749
|
|
Total cash flows provided by (used in) discontinued operations
|
(12,735
|
)
|
|
1,391
|
|
|
|
|
|
Total cash flows:
|
|
|
|
Cash flows used in operating activities
|
(44,915
|
)
|
|
(48,160
|
)
|
Cash flows provided by (used in) investing activities
|
(1,056
|
)
|
|
10,395
|
|
Cash flows provided by financing activities
|
34,324
|
|
|
43,845
|
|
Total increase (decrease) in cash and cash equivalents
|
$
|
(11,647
|
)
|
|
$
|
6,080
|
|
Net Cash Flow from Operating Activities
Net cash used in operating activities was approximately $
44.9 million
for the year ended
December 31, 2016
, compared with
$48.2 million
for the year ended
December 31, 2015
. The decrease of approximately
$3.2 million
resulted primarily from a decrease in cash used in our continuing operations of $5.6 million associated with reduced research and development spend from the discontinuation of the Phase 3 PRESENT trial. The increase was partially offset by a
$2.3 million
increase in cash used in discontinued operations primarily driven by legal expenses from external counsel associated with an internal and government investigation, and cooperating and document production for the subpoenas related to the sales and marketing practices of Abstral.
Net Cash Flow from Investing Activities
Net cash used by investing activities was
$1.1 million
for the year ended
December 31, 2016
, compared with net cash provided by investing activities of
$10.4 million
for the year ended
December 31, 2015
. The sale of our commercial business assets in the fourth quarter of 2015 resulted in the receipt of $11.3 million partially offset by purchases of property and equipment. The sale of the commercial business assets in 2015 resulted in $1.1 million of payments for selling costs paid in the first quarter of 2016 that were incurred from the sale of commercial assets.
Net Cash Flow from Financing Activities
Net cash provided by financing activities was
$34.3 million
for the year ended
December 31, 2016
, compared with
$43.8 million
for the year ended
December 31, 2015
. In 2016, we received proceeds of
$33.5 million
from the issuance of common stock and $0.3 million from the exercise of common stock options and warrants, and $5.8 million unrestricted net proceeds from our debenture, partially offset by $5.6 million in principal payments on long-term debt. In 2015, we received proceeds of $47.4 million from the issuance of common stock, partially offset by $3.9 million in principal payments on long-term debt.
Contractual Obligations
The following table sets forth our contractual obligations as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
Less than 1 Year
|
|
1 to 3 Years
|
|
3 to 5 Years
|
|
Total
|
Long-term debt
(1)
|
|
$
|
16,397
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,397
|
|
Cancelable license agreements
(2)
|
|
1,391
|
|
|
700
|
|
|
7,700
|
|
|
9,791
|
|
Non-cancelable employment agreements
(2)
|
|
1,601
|
|
|
—
|
|
|
—
|
|
|
1,601
|
|
Non-cancelable operating leases
(2)
|
|
241
|
|
|
497
|
|
|
236
|
|
|
974
|
|
Total
|
|
$
|
19,630
|
|
|
$
|
1,197
|
|
|
$
|
7,936
|
|
|
$
|
28,763
|
|
(1)
Long-term debt payments presented are comprised of principal and interest payments. See Note 5 of the notes to the consolidated financial statements for additional information on our long-term debt.
(2)
See Note 6 of the notes to the consolidated financial statements for additional information on the referenced contractual obligations.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements other than operating leases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GALENA BIOPHARMA, INC.
FORM 10-K — FISCAL YEAR ENDED DECEMBER 31, 2016
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Galena Biopharma, Inc.
We have audited the accompanying consolidated balance sheets of Galena Biopharma, Inc. (the Company), as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. We also have audited the Company's internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Galena Biopharma, Inc., as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Galena Biopharma, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Moss Adams LLP
San Francisco, California
March 15, 2017
GALENA BIOPHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
18,083
|
|
|
$
|
29,730
|
|
Restricted cash and cash equivalents
|
18,022
|
|
|
401
|
|
Litigation settlement insurance recovery
|
—
|
|
|
21,700
|
|
Prepaid expenses and other current assets
|
581
|
|
|
1,398
|
|
Current assets of discontinued operations
|
813
|
|
|
392
|
|
Total current assets
|
37,499
|
|
|
53,621
|
|
Equipment and furnishings, net
|
199
|
|
|
335
|
|
GALE-401 rights
|
9,255
|
|
|
9,255
|
|
In-process research and development
|
12,864
|
|
|
12,864
|
|
Goodwill
|
5,898
|
|
|
5,898
|
|
Deposits and other assets
|
96
|
|
|
171
|
|
Total assets
|
$
|
65,811
|
|
|
$
|
82,144
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
840
|
|
|
$
|
1,597
|
|
Accrued expenses and other current liabilities
|
4,292
|
|
|
5,292
|
|
Litigation settlement payable
|
950
|
|
|
25,000
|
|
Fair value of warrants potentially settleable in cash
|
1,860
|
|
|
14,518
|
|
Current portion of long-term debt
|
16,397
|
|
|
4,739
|
|
Current liabilities of discontinued operations
|
6,059
|
|
|
5,925
|
|
Total current liabilities
|
30,398
|
|
|
57,071
|
|
Deferred tax liability
|
5,661
|
|
|
5,418
|
|
Contingent purchase price consideration
|
1,095
|
|
|
6,142
|
|
Total liabilities
|
37,154
|
|
|
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; 350,000,000 shares authorized, 15,224,223 shares issued and 15,190,473 shares outstanding at December 31, 2016; 275,000,000 shares authorized, 8,129,087 shares issued and 8,095,337 shares outstanding at December 31, 2015
|
15
|
|
|
15
|
|
Additional paid-in capital
|
335,423
|
|
|
296,730
|
|
Accumulated deficit
|
(302,932
|
)
|
|
(279,383
|
)
|
Less treasury shares at cost, 33,750 shares
|
(3,849
|
)
|
|
(3,849
|
)
|
Total stockholders’ equity
|
28,657
|
|
|
13,513
|
|
Total liabilities and stockholders’ equity
|
$
|
65,811
|
|
|
$
|
82,144
|
|
S
ee accompanying notes to consolidated financial statements.
GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
$
|
19,860
|
|
|
$
|
23,611
|
|
|
$
|
27,674
|
|
General and administrative
|
12,007
|
|
|
10,609
|
|
|
16,226
|
|
Total operating expenses
|
31,867
|
|
|
34,220
|
|
|
43,900
|
|
Operating loss
|
(31,867
|
)
|
|
(34,220
|
)
|
|
(43,900
|
)
|
Non-operating income (expense):
|
|
|
|
|
|
Litigation settlement
|
(2,750
|
)
|
|
(5,282
|
)
|
|
—
|
|
Change in fair value of warrants potentially settleable in cash
|
22,220
|
|
|
1,162
|
|
|
16,556
|
|
Interest expense, net
|
(3,508
|
)
|
|
(760
|
)
|
|
(1,110
|
)
|
Change in fair value of the contingent purchase price liability
|
5,047
|
|
|
509
|
|
|
170
|
|
Total non-operating income (expense), net
|
21,009
|
|
|
(4,371
|
)
|
|
15,616
|
|
Loss from continuing operations before income taxes
|
(10,858
|
)
|
|
(38,591
|
)
|
|
(28,284
|
)
|
Income tax expense
|
243
|
|
|
365
|
|
|
—
|
|
Loss from continuing operations
|
(11,101
|
)
|
|
(38,956
|
)
|
|
(28,284
|
)
|
Loss from discontinued operations
|
(12,448
|
)
|
|
(24,946
|
)
|
|
(8,322
|
)
|
Net loss
|
$
|
(23,549
|
)
|
|
$
|
(63,902
|
)
|
|
$
|
(36,606
|
)
|
Net loss per common share:
|
|
|
|
|
|
Basic and diluted per share, continuing operations
|
$
|
(1.11
|
)
|
|
$
|
(5.02
|
)
|
|
$
|
(4.74
|
)
|
Basic and diluted loss per share, discontinued operations
|
$
|
(1.25
|
)
|
|
$
|
(3.21
|
)
|
|
$
|
(1.39
|
)
|
Basic and diluted net loss per share
|
$
|
(2.36
|
)
|
|
$
|
(8.23
|
)
|
|
$
|
(6.13
|
)
|
Weighted-average common shares outstanding: basic and diluted
|
9,958,802
|
|
|
7,763,236
|
|
|
5,969,418
|
|
See accompanying notes to consolidated financial statements.
GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Treasury Stock
|
|
Total
|
|
Shares Issued
|
|
Amount
|
|
|
|
|
Balance at December 31, 2013
|
5,505,035
|
|
|
$
|
10
|
|
|
$
|
188,600
|
|
|
$
|
(178,875
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
5,886
|
|
Issuance of common stock
|
331,650
|
|
|
1
|
|
|
10,704
|
|
|
—
|
|
|
—
|
|
|
10,705
|
|
Issuance of common stock under milestone achievement
|
219,061
|
|
|
—
|
|
|
9,340
|
|
|
—
|
|
|
—
|
|
|
9,340
|
|
Issuance of common stock upon exercise of warrants
|
273,351
|
|
|
1
|
|
|
37,741
|
|
|
—
|
|
|
—
|
|
|
37,742
|
|
Issuance of common stock in connection with employee stock purchase plan
|
5,732
|
|
|
—
|
|
|
263
|
|
|
—
|
|
|
—
|
|
|
263
|
|
Stock based compensation for directors and employees
|
—
|
|
|
—
|
|
|
5,253
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
Stock based compensation for services
|
—
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
—
|
|
|
134
|
|
Exercise of stock options
|
172,488
|
|
|
—
|
|
|
4,342
|
|
|
—
|
|
|
—
|
|
|
4,342
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,606
|
)
|
|
—
|
|
|
(36,606
|
)
|
Balance at December 31, 2014
|
6,507,317
|
|
|
$
|
12
|
|
|
$
|
256,377
|
|
|
$
|
(215,481
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
37,059
|
|
Issuance of common stock
|
1,607,934
|
|
|
3
|
|
|
47,413
|
|
|
—
|
|
|
—
|
|
|
47,416
|
|
Common stock warrants issued in connection with March 2015 common stock offering
|
—
|
|
|
—
|
|
|
(10,296
|
)
|
|
—
|
|
|
—
|
|
|
(10,296
|
)
|
Issuance of common stock in connection with employee stock purchase plan
|
11,566
|
|
|
—
|
|
|
309
|
|
|
—
|
|
|
—
|
|
|
309
|
|
Stock based compensation for directors and employees
|
—
|
|
|
—
|
|
|
2,896
|
|
|
—
|
|
|
—
|
|
|
2,896
|
|
Exercise of stock options
|
2,270
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(63,902
|
)
|
|
—
|
|
|
(63,902
|
)
|
Balance at December 31, 2015
|
8,129,087
|
|
|
$
|
15
|
|
|
$
|
296,730
|
|
|
$
|
(279,383
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
13,513
|
|
Issuance of common stock
|
2,872,803
|
|
|
—
|
|
|
33,534
|
|
|
—
|
|
|
—
|
|
|
33,534
|
|
Common stock warrants issued in connection with common stock offerings
|
—
|
|
|
—
|
|
|
(9,886
|
)
|
|
—
|
|
|
—
|
|
|
(9,886
|
)
|
Issuance of common stock to satisfy principal and interest on long-term debt
|
3,981,208
|
|
|
—
|
|
|
8,079
|
|
|
—
|
|
|
—
|
|
|
8,079
|
|
Common stock warrants issued in connection with debt financing
|
—
|
|
|
—
|
|
|
1,139
|
|
|
—
|
|
|
—
|
|
|
1,139
|
|
Issuance of common stock in connection with settlement of litigation
|
206,903
|
|
|
—
|
|
|
557
|
|
|
—
|
|
|
—
|
|
|
557
|
|
Issuance of common stock upon exercise of warrants
|
20,403
|
|
|
—
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
95
|
|
Issuance of common stock in connection with employee stock purchase plan
|
5,477
|
|
|
—
|
|
|
2,650
|
|
|
—
|
|
|
—
|
|
|
2,650
|
|
Stock based compensation for directors and employees
|
—
|
|
|
—
|
|
|
2,264
|
|
|
—
|
|
|
—
|
|
|
2,264
|
|
Exercise of stock options
|
8,342
|
|
|
—
|
|
|
261
|
|
|
—
|
|
|
—
|
|
|
261
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,549
|
)
|
|
—
|
|
|
(23,549
|
)
|
Balance at December 31, 2016
|
15,224,223
|
|
|
$
|
15
|
|
|
$
|
335,423
|
|
|
$
|
(302,932
|
)
|
|
$
|
(3,849
|
)
|
|
$
|
28,657
|
|
See accompanying notes to consolidated financial statements.
GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Cash flows from operating activities:
|
|
|
|
|
|
Cash flows from continuing operating activities:
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(11,101
|
)
|
|
$
|
(38,956
|
)
|
|
$
|
(28,284
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation
|
142
|
|
|
107
|
|
|
86
|
|
Non-cash accretion of debt issuance costs
|
3,054
|
|
|
248
|
|
|
276
|
|
Deferred taxes
|
243
|
|
|
365
|
|
|
—
|
|
Non-cash stock-based compensation
|
2,264
|
|
|
1,931
|
|
|
4,666
|
|
Litigation settlement payable in common stock
|
2,650
|
|
—
|
|
1,000
|
|
|
—
|
|
Change in fair value of common stock warrants
|
(22,220
|
)
|
|
(1,161
|
)
|
|
(16,556
|
)
|
Change in fair value of contingent consideration
|
(5,047
|
)
|
|
(509
|
)
|
|
(170
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Prepaid expenses and other assets
|
892
|
|
|
(245
|
)
|
|
(1,078
|
)
|
Litigation settlement insurance recovery
|
21,700
|
|
|
(21,700
|
)
|
|
—
|
|
Litigation settlement payable
|
(25,000
|
)
|
|
24,000
|
|
|
—
|
|
Accounts payable
|
(757
|
)
|
|
(289
|
)
|
|
(21
|
)
|
Accrued expenses and other current liabilities
|
(50
|
)
|
|
(3,593
|
)
|
|
4,044
|
|
Net cash used in continuing operating activities
|
(33,230
|
)
|
|
(38,802
|
)
|
|
(37,037
|
)
|
Cash flows from discontinued operating activities:
|
|
|
|
|
|
Net loss from discontinued operations
|
(12,448
|
)
|
|
(24,946
|
)
|
|
(8,322
|
)
|
Loss on sale of commercial assets
|
—
|
|
|
4,549
|
|
|
—
|
|
Impairment charge from classification of assets held for sale
|
—
|
|
|
8,071
|
|
|
—
|
|
Changes in operating assets and liabilities attributable to discontinued operations
|
763
|
|
|
2,968
|
|
|
2,490
|
|
Net cash used in discontinued operating activities
|
(11,685
|
)
|
|
(9,358
|
)
|
|
(5,832
|
)
|
Net cash used in operating activities
|
(44,915
|
)
|
|
(48,160
|
)
|
|
(42,869
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
Change in restricted cash
|
—
|
|
|
(201
|
)
|
|
—
|
|
Cash paid for acquisition of GALE-401
|
—
|
|
|
—
|
|
|
(2,415
|
)
|
Cash paid for purchase of equipment and furnishings
|
(6
|
)
|
|
(153
|
)
|
|
(57
|
)
|
Net cash provided by (used in) continuing investing activities
|
(6
|
)
|
|
(354
|
)
|
|
(2,472
|
)
|
Net proceeds received from sale of commercial assets (selling costs paid)
|
(1,050
|
)
|
|
11,283
|
|
|
—
|
|
Cash paid for commercial assets
|
—
|
|
|
(534
|
)
|
|
(3,056
|
)
|
Net cash provided by (used in) discontinued investing activities
|
(1,050
|
)
|
—
|
|
10,749
|
|
—
|
|
(3,056
|
)
|
Net cash provided by (used in) investing activities
|
(1,056
|
)
|
|
10,395
|
|
|
(5,528
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
33,534
|
|
|
47,416
|
|
|
10,704
|
|
Net proceeds from exercise of stock options
|
261
|
|
|
31
|
|
|
4,342
|
|
Proceeds from exercise of warrants
|
233
|
|
|
—
|
|
|
10,717
|
|
Proceeds from common stock issued in connection with ESPP
|
95
|
|
|
309
|
|
|
263
|
|
Net proceeds from issuance of long-term debt
|
23,401
|
|
|
—
|
|
|
—
|
|
Minimum cash covenant on long-term debt
|
(17,621
|
)
|
|
—
|
|
|
—
|
|
Principal payments on long-term debt
|
(5,579
|
)
|
|
(3,911
|
)
|
|
(1,766
|
)
|
Net cash provided by financing activities
|
34,324
|
|
|
43,845
|
|
|
24,260
|
|
Net increase (decrease) in cash and cash equivalents
|
(11,647
|
)
|
|
6,080
|
|
|
(24,137
|
)
|
Cash and cash equivalents at the beginning of period
|
29,730
|
|
|
23,650
|
|
|
47,787
|
|
Cash and cash equivalents at end of period
|
$
|
18,083
|
|
|
$
|
29,730
|
|
|
$
|
23,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash received during the periods for interest
|
$
|
117
|
|
|
$
|
18
|
|
|
$
|
15
|
|
Cash paid during the periods for interest
|
$
|
636
|
|
|
$
|
541
|
|
|
$
|
800
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
Fair value of warrants issued in connection with common stock recorded as cost of equity
|
$
|
9,886
|
|
|
$
|
10,296
|
|
|
$
|
—
|
|
Fair value of warrants issued in connection with long-term debt recorded as debt issuance costs
|
$
|
1,139
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Principal and interest repaid through issuance of common stock
|
$
|
8,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reclassification of warrant liabilities upon exercise
|
$
|
324
|
|
|
$
|
—
|
|
|
$
|
27,026
|
|
Issuance of common stock in settlement of GALE-401 milestone
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,840
|
|
Fair value of shares issued to acquire Zuplenz rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,500
|
|
Future obligations for Zuplenz rights included in accrued expenses
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,716
|
|
See accompanying notes to consolidated financial statements.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Overview
Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “Company”) is a biopharmaceutical company developing hematology and oncology therapeutics that address unmet medical needs. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including our hematology asset, GALE-401, and our novel cancer immunotherapy programs including NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. GALE-401 is a controlled release version of the approved drug anagrelide for the treatment of elevated platelets in patients with myeloproliferative neoplasms. GALE- 401 has completed a Phase 2 clinical trial and the asset is ready to advance into a pivotal trial in patients with essential thrombocythemia (ET). NeuVax is currently in multiple investigator-sponsored Phase 2 clinical trials in breast cancer. GALE-301 and GALE-302 have completed early stage trials in ovarian, endometrial and breast cancers.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 subsidiary, Apthera, Inc., or “Apthera,” and our wholly owned subsidiary, Mills Pharmaceuticals, Inc. or "Mills."
Management's Plans
- We had cash and cash equivalents of approximately $18.1 million as of December 31, 2016, compared with $29.7 million as of December 31, 2015. 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.
On February 13, 2017, the Company closed an underwritten public offering of 17,000,000 units at a price to the public of $1.00 per unit for gross proceeds of $17.0 million ("February 2017 Offering"). Each unit consists of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $1.10 per share. The net proceeds of the February 2017 Offering were $15.5 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company.
In addition to the proceeds from the February 2017 Offering, in January and February 2017 the holder of the Debenture redeemed $3.95 million of outstanding principal that was satisfied by the Company with 3,518,663 shares of our common stock. As a result of the redemptions, the Company was able to transfer $3.95 million out of restricted cash and cash equivalents and into unrestricted cash and cash equivalents to be used to fund the Company's ongoing operations. The outstanding principal balance on the Debenture as of March 15, 2017 is $13,617,702 and is maintained by the Company as restricted cash.
In addition to the funds raised through underwritten public offerings and the debenture, we maintain a purchase agreement with Lincoln Park Capital LLC (LPC) and At Market Issuance Sales Agreements (ATM) with future availability of $2.0 million and $19.1 million, respectively subject to certain terms and conditions. We may also continue to use the ATM, or other instruments, in order to fund our operations going forward.
On January 31, 2017, the Company announced that it is in the process of evaluating strategic alternatives focused on maximizing stockholder value. Potential strategic alternatives that may be explored or evaluated as part of this review include continuing to advance the clinical programs as a stand-alone entity, a sale of the company, a business combination, merger or reverse merger, and a license or other disposition of corporate assets of the company. There is no set timetable for this process and there can be no assurance that this process will result in a transaction. While the Company evaluates its strategic alternatives, Galena’s investigator-sponsored immunotherapy trials will remain ongoing. With the confirmation from the FDA that the GALE-401 development program is appropriate for a New Drug Application (NDA) filing using the 505(b)(2) regulatory pathway in patients with ET who are intolerant or resistant to hydroxyurea, we have developed a clear path forward for GALE-401 in the treatment of ET. Subject to completing the manufacturing of the new formulation and the internal work to prepare the Phase 3 trial for initiation, the Company is evaluating the appropriate time to commence enrollment of the GALE-401 trial and anticipates making a definitive determination in the second half of 2017. The Company has focused on reducing expenditures in order to preserve liquidity while pursuing a strategic alternative.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 from the date of issuance of the Company's consolidated financial statements. This projection is based on our current limited operations and estimates of legal expenses associated with the ongoing government investigation and legal matters pending against the company, and is subject to changes in our operating plans, resolutions of such government investigation and legal matters, uncertainties inherent in our business, strategic alternatives outcomes, 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.
Reverse Stock-Split
- On November 11, 2016 the Company effected a 1:20 reverse stock split of the Company's outstanding shares of common stock, outstanding stock options to purchase shares of our common stock and warrants to purchase shares of common stock. In addition, the number of shares of common stock and number of shares of common stock subject to stock options or similar rights authorized under the Company’s equity incentive plan and employee stock purchase plan were proportionately adjusted for the reverse stock-split. Further, the per share exercise price under such plans were proportionately adjusted for the reverse stock-split. These consolidated financial statements give retroactive effect to such reverse stock-split and all share and per share amounts have been adjusted accordingly.
Discontinued Operations -
As described in Note 15, 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. The Company generally considers assets to be held for sale when (i) the transaction has been approved by the board of directors or management vested with authority to approve the transaction, (ii) the assets are available for immediate sale in their present condition, (iii) the company has initiated an active program to locate a buyer and other actions required to complete the plan to sell the assets, (iv) consummation of the transaction is probable, (v) the assets are being actively marketed for sale at a price that is reasonable in relation to the current fair value, and (vi) the transaction is expected to qualify for recognition as a completed sale, within one year. Following the classification of property and equipment for sale, the Company discontinues depreciating the asset and writes down the asset to the lower of the carrying value or fair market value, if needed. 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.
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 the minimum cash covenant as required by the debenture certificates of deposit on hand with the Company’s financial institutions as collateral for its corporate credit cards.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fair Value of Financial Instruments
— The carrying amounts reported in the balance sheet for cash equivalents, marketable securities, 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 for equipment and furniture) of the related assets.
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 (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). 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 product rights 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 of those assets.
The company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of
December 31, 2016
.
Contingent Purchase Price Consideration
— Contingent consideration is recorded at the estimated fair value as of the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period with any adjustments in fair value included in our consolidated statement of comprehensive loss.
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
December 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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
Legal Fees 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, will be re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be 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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
For the years ended
December 31, 2016
and 2015, we recognized income tax of
$243,000
and
$365,000
, respectively. There was
no
income tax expense or benefit for the year ended December 31, 2014. We continue to maintain a full valuation allowance against our net deferred tax assets.
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
December 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. As of
December 31, 2016
, we had approximately
$17,583,000
in interest-bearing accounts above federally insured limits.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
2. Recently Issued Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
, or ASU 2014-15. ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The Company has adopted this ASU.
In April 2015, the FASB issued ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, ASU 2015-03 requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. ASU 2015-03 must be applied retrospectively. The Company adopted this ASU on January 1, 2016. There was no impact to the Company’s consolidated financial statements upon adoption.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
or ASU 2015-17.
ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. Previous guidance required deferred tax liabilities and assets to be separated into current and noncurrent amounts on the balance sheet. The guidance will become effective for us beginning in the first quarter of 2017 and may be applied either prospectively or retrospectively. Early adoption is permitted. At the time of adoption, we will reclassify current deferred tax amounts on our Consolidated Balance Sheets as noncurrent. The Company adopted this ASU on January 1, 2017. There was no impact to the Company’s consolidated financial statements upon adoption.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments
, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019 and early adoption is not permitted. The Company does not believe the adoption of the new financial instruments standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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 currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update 2016-09,
Compensation-Stock Compensation
. ASU 2016-09 includes several areas of simplification to stock compensation including simplifications to the accounting for income taxes, classification of excess tax benefits on the Statement of Cash Flows and forfeitures. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016. An entity that elects early adoption must adopt all of the amendments in the same period. The Company adopted this ASU on January 1, 2017. There was no impact to the Company’s consolidated financial statements upon adoption..
In August 2016, the Financial Accounting Standards Board issued ASU No. 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force." The objective of ASU No. 2016-15 is to provide specific guidance on eight cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are still evaluating the effect of this update.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In November 2016, the FASB issued ASU No. 2016-18,
Restricted cash
, amending the presentation of restricted cash within the statement of cash flows. The new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash flows. The ASU is effective retrospectively for reporting periods beginning after December 15, 2017, with early adoption permitted. We are evaluating the effect of this update.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. 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 and marketable securities as Level 1 inputs. 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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
16,192
|
|
|
$
|
16,192
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash equivalents
|
17,622
|
|
|
17,622
|
|
|
—
|
|
|
—
|
|
Total assets measured and recorded at fair value
|
$
|
33,814
|
|
|
$
|
33,814
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Warrants potentially settleable in cash
|
$
|
1,860
|
|
|
$
|
—
|
|
|
$
|
1,860
|
|
|
$
|
—
|
|
Contingent purchase price consideration
|
1,095
|
|
|
—
|
|
|
—
|
|
|
1,095
|
|
Total liabilities measured and recorded at fair value
|
$
|
2,955
|
|
|
$
|
—
|
|
|
$
|
1,860
|
|
|
$
|
1,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
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
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The company has not transferred any financial instruments into or out of Level 3 classification during the years ended
December 31, 2016
or 2015. A reconciliation of the beginning and ending Level 3 liabilities for the years ended
December 31, 2016
and 2015 is as follows (in thousands):
|
|
|
|
|
|
Fair Value
Measurements
Using Significant
Unobservable
Inputs
(Level 3)
|
Balance, January 1, 2015
|
$
|
6,651
|
|
Change in the estimated fair value of the contingent purchase price consideration
|
(509
|
)
|
Balance, December 31, 2015
|
6,142
|
|
Change in the estimated fair value of the contingent purchase price consideration
|
(5,047
|
)
|
Balance at December 31, 2016
|
$
|
1,095
|
|
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. The decrease in the estimated fair value of the contingent purchase price consideration during 2016 reflects a lowering of the probability and lengthening of the timeline for the potential approval of NeuVax, as these assumptions are now based principally on our Phase 2 combination trial with trastuzumab whereas previously, the valuation was based on our Phase 3 PRESENT trial, which was deemed futile by the Independent Data Monitoring Committee ("IDMC") in June 2016 and subsequently closed.
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Clinical development expense
|
$
|
3,088
|
|
|
$
|
3,294
|
|
Professional fees
|
229
|
|
|
435
|
|
Compensation and related benefits
|
975
|
|
|
1,535
|
|
Interest expense
|
—
|
|
|
28
|
|
Accrued expenses and other current liabilities
|
$
|
4,292
|
|
|
$
|
5,292
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. 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
("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 lender
seven
-year warrants to purchase up to
9,109
shares of our common stock at an exercise price of
$49.4
. On May 10, 2016, the Company prepaid the outstanding principal amount and cash final payment.
On May 10, 2016, the Company entered into a Securities Purchase Agreement ("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 Debenture (“Debenture”) and warrants to purchase up to
50,000
shares of the Company's common stock. Net proceeds to the Company from sale of the Debenture, after payment of commissions and legal fees, were approximately
$23.4 million
The Debenture matures November 10, 2018, accrues interest at
9%
per year, and does not contain any conversion features into shares of our common stock. On August 22, 2016, the Company, the purchasers and certain other parties entered into an amendment agreement, which provides for the amendment and restatement of the Debenture, an amendment to the terms of the Series A Common Stock Purchase Warrant issued by the Company to the purchasers pursuant to the terms of the Purchase Agreement, and certain other terms and conditions, as summarized below.
On December 14, 2016, the Company and the holder entered into a waiver (the “Waiver”) that amended the Securities Purchase Agreement dated May 10, 2016 between the Company and the holder, as amended on August 22, 2016 (the “SPA”). The Waiver provides that solely with respect to the calendar months of December 2016, January 2017, February 2017 and March 2017 (collectively, the “Specified Months”), the holder waives, subject to certain delineated exceptions, the requirement of paragraph (i) of the definition of “Equity Conditions” set forth in Section 1 of the Debenture, thereby continuing to allow the Company to deliver shares of its Common Stock in respect to a portion of its amortization obligation under the Debenture. Furthermore, the waiver sets out a Monthly Allowance for each Specified Month equal to
$1,500,000
and required the Company to withdraw all cash and/or cash equivalents in excess of eighteen million five hundred thousand dollars (
$18,500,000
) from certain accounts and deposit such funds into an account in a form acceptable to the holder, such that the Company requires the prior written consent of the holder for certain withdrawals. The Waiver also grants the holder special redemption rights depending upon the price of our common stock, including the right to redeem the debenture.
The Debenture carries an interest only period of
six
months, following which interest is due monthly and payable in cash or stock at the election of the Company. Interest deferred during the interest only period is added to and considered principal. Following the interest only period, the Company has the right under the Debenture, commencing November 10, 2016, to pay the monthly redemption amount of the outstanding balance in cash, shares of the Company's common stock or a combination thereof, if certain conditions are met. The maximum monthly redemption amount was increased from
$1,100,000
to
$1,500,000
under the amended Debenture; provided, that if the trading price of the Company’s common stock is at least
$8.00
per share (as adjusted for stock splits, combinations or similar events) during such calendar month, then such maximum monthly redemption amount may be increased to
$2,200,000
at the holder's election and if the Company has already elected to satisfy such monthly redemptions in shares of common stock. In addition, notwithstanding the foregoing limitations on the monthly redemption amount, the holder may elect up to
three
times in any 12-month period to increase the maximum monthly redemption to
$2,500,000
.
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. The Company, at its option, may also force the holder to redeem up to double the monthly redemption principal amount of the Debenture but not less than the monthly payment.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The holder received
50,000
warrants upon the closing on the sale of the Debenture at an exercise price of
$30.20
, maturing
5 years
from issuance, and in accordance with the terms of the amendment agreement, the exercise price of the warrant was reduced to
$8.60
per share. Additionally, the holder received
50,000
warrants upon the Company's public company announcement of the interim analysis on June 29, 2016 at an exercise price of
$8.60
.
The amendment agreement provides that, following November 10, 2016, the holder may elect to convert any portion of the outstanding balance into shares of common stock at a fixed price of
$12.00
per share (as adjusted for stock splits, combinations or similar events).
The Company’s obligations under the Debenture 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 Debenture in cash. The Company’s obligations under the Debenture 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. Under the subsidiary guarantee agreement, each subsidiary guarantees the performance of the Company of the Purchase Agreement, Debenture and related agreements. The Company must also maintain as a compensating cash balance, the lesser of a minimum of
$18.5 million
in cash or the outstanding principal and accrued and unpaid interest, which such amount is included in restricted cash as of December 31, 2016. The holder of the Debenture has the right, at any time and from time to time, to require the Company to prepay the lesser of
$18.5 million
plus accrued and unpaid interest or the outstanding principal and accrued and unpaid interest.
As of December 31, 2016 the outstanding principal balance of the Debenture was
$17,621,702
. The current portion of long-term debt of
$16,397,030
is net of unamortized discounts and debt issuance costs of
$1,224,672
. In January and February 2017, the holder of the Debenture redeemed
$3,950,000
of principal, which the Company satisfied with
3,541,077
shares of our common stock. The outstanding principal balance as of March 15, 2017 is
$13,671,702
.
Armentum Partners, LLC (“Placement Agent”) acted as the placement agent in the offering of the Debenture and the Company paid the Placement Agent a fee equal to
2%
of the funds received from the sale of the Debenture. The Company paid half of the placement fee upon funding and paid the other half during the third quarter of 2016
.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. Legal Proceedings, Commitments and Contingencies
Legal Proceedings
On June 24, 2016, the U.S. District Court for the District of Oregon entered a final order and judgment in
In re Galena Biopharma, Inc. Derivative Litigation
, granting final approval to the settlement awarding attorney’s fees of
$4.5 million
plus costs, which was paid by our insurance carriers. The settlement included a payment of
$15 million
in cash by our insurance carriers, which we used to fund a portion of the class action settlement, and cancellation of
60,000
outstanding director stock options. The settlement also required that we adopt and implement certain corporate governance measures. The settlement did not include any admission of wrongdoing or liability on the part of us or the individual defendants and included a full release of us and the current and former officers and directors in connection with the allegations made in the consolidated federal derivative actions and state court derivative actions.
On June 24, 2016, the U.S. District Court for the District of Oregon entered a final order and partial judgment in
In re Galena Biopharma, Inc. Securities Litigation
, granting final approval of the settlement awarding attorney’s fees of
$4.5 million
plus costs, which was paid out of the settlement funds. The settlement agreement provided for a payment of
$20 million
to the class and the dismissal of all claims against us and the other defendants in connection with the consolidated federal securities class actions. Of the
$20 million
settlement payment to the class,
$16.7 million
was paid by our insurance carriers and
$3.3 million
was paid by us through a combination of
$2.3 million
in cash and
$1 million
in shares of our common stock (
24,002
shares) issued by us on July 6, 2016. In addition to the
$3.3 million
settlement payment, the company paid
$2.0 million
in December 2015 in attorney fees outstanding as a condition of the settlement.
In July 2016, we resolved claims brought by shareholders that relate to the securities litigation mentioned above in one case for
$150,000
plus
$150,000
in shares (
14,563
shares) of our common stock, and in another case for
$1.5 million
in shares of our common stock (
168,337
shares). The shares issued in connection with such settlements are included in the secondary offering filed on July 25, 2016. The settlements did not include any admission of wrongdoing or liability on the part of us or any of the current or former directors and officers and included a full release of us and the current and former directors and officers in connection with the allegations made. We are not aware of any other claims made by shareholders who have opted out of the securities litigation.
On October 13, 2016, we filed a complaint in the Circuit Court for the County of Multnomah for the State of Oregon against Aon Risk Insurance Services West, Inc. where we are seeking attorney's fees, costs and expenses incurred by us related to our coverage dispute with a certain insurer and for amounts we were required to contribute to the settlements of
In re Galena Biopharma, Inc. Derivative Litigation
and
In re Galena Biopharma, Inc. Securities Litigation
as a direct result of certain insurer's failure to pay its full policy limits of liability and other relief. We are currently engaged in written discovery.
On February 13, 2017, a putative shareholder securities class action complaint was filed in the U.S. District Court for the District of New Jersey entitled,
Miller v. Galena Biopharma, Inc., et al
. On February 15, 2017, a putative shareholder securities class action complaint was filed in the U.S. District Court for the District of New Jersey entitled,
Kattuah v Galena Biopharma, Inc., et al
. Within the time allowed under the federal rules and statutes, the Company and the other defendants, former and current officers, will respond to the complaints through an appropriate pleading or motion.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
A federal investigation of
two
of the high-prescribing physicians for Abstral (former commercial product) has resulted in the criminal prosecution of the two physicians for alleged violations of the federal False Claims Act and other federal statutes. The criminal trial began in January 2017 and is ongoing. We received a trial subpoena for documents in connection with that investigation and we have been in contact with the U.S. Attorney’s Office for the Southern District of Alabama (SDAL), which is handling the criminal trial, and are cooperating in the production of documents. On April 28, 2016, a second superseding indictment was filed in the criminal case, which added additional information about the defendant physicians and provided information regarding the facts and circumstances involving a rebate agreement between the Company and the defendant physicians’ pharmacy as well as their ownership of our stock. The criminal trial
,
which began on January 4, 2017, concluded with a jury verdict on February 23, 2017 finding these physicians guilty on
19
of
20
counts; sentencing is scheduled for May 2017. At the end of the SDAL case
,
SDAL dismissed count
18
of the indictment charging that the physicians conspired, through the C&R Pharmacy, to receive illegal kickbacks in exchange for prescribing Abstral. Though certain former employees received trial subpoenas to appear at the trial and provide oral testimony, only
one
former employee testified at the trial. We agreed to reimburse those former employees’ attorney’s fees. To our knowledge, we were not a target or subject of that investigation.
There are also federal and state investigations of a company that has a product that competes with Abstral in the same therapeutic class, and we have learned that the FDA and other governmental agencies are investigating our Abstral promotion practices. On December 16, 2015, we received a subpoena issued by the U.S. Attorney’s Office for the District of New Jersey requesting the production of a broad range of documents pertaining to our marketing and promotional practices for Abstral, the commercial product we sold in the fourth quarter of 2015. We have been in contact with the U.S. Attorney’s Office for the District of New Jersey and the Department of Justice, and we have come to understand that the investigation being undertaken is a criminal investigation in addition to a civil investigation that could ultimately involve the Company as well as one or more former employees. Pursuant to the Company’s charter, we are currently reimbursing certain former employees’ attorney’s fees with respect to the investigation. We are cooperating with the civil and criminal investigation, and through our outside counsel we have begun preliminary discussions with the government aimed at the ultimate resolution of the investigation regarding the Company.
On December 22, 2016, the Company and its former CEO reached an agreement in principle to a proposed settlement that would resolve an investigation by the staff of the Securities and Exchange Commission (SEC) involving conduct in the period 2012-2014 regarding the commissioning of internet publications by outside promotional firms. Under the terms of the proposed settlement framework, the Company and the former CEO would consent to the entry of an administrative order requiring that we and the former CEO cease and desist from any future violations of Sections 5(a), 5(b), 5(c), 17(a), and 17(b) of the Securities Act of 1933, as amended, and Section 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934, as amended, and various rules thereunder, without admitting or denying the findings in the order. Based upon the proposed settlement framework, the Company will make a
$200,000
penalty payment. In addition to other remedies, the proposed settlement framework would require the former CEO to make a disgorgement and prejudgment interest payment as well as a penalty payment to the Commission. To address the issues raised by the SEC staff’s investigation, in addition to previous governance enhancements we have implemented, we have voluntarily undertaken to implement a number of remedial actions relating to securities offerings and our interactions with investor relations and public relations firms. The proposed settlement is subject to approval by the Commission and would acknowledge our cooperation in the investigation and confirm our voluntary undertaking to continue that cooperation. If the Commission does not approve the settlement, we may need to enter into further discussions with the SEC staff to resolve the investigated matters on different terms and conditions. As a result, there can be no assurance as to the final terms of any resolution including its financial impact or any future adjustment to the financial statements. In response to an indemnification claim by the former CEO, a special committee of our Board of Directors has determined that we are required under Delaware law to indemnify our former CEO for the disgorgement and prejudgment interest payment of approximately
$750,000
that he would be required to pay if and when the settlement is approved by the Commission. Any penalty payment that the former CEO will be required to make in connection with this matter (
$600,000
under the proposed settlement framework) will be the responsibility of the former CEO.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The litigation settlements are summarized as follows (in thousands):
|
|
|
|
|
|
Amount
|
Class action settlement in 2015
|
$
|
20,000
|
|
Derivative settlement in 2015
|
5,000
|
|
Shareholders securities litigation settlements in 2016
|
1,800
|
|
SEC settlement in 2016
|
950
|
|
Total settlements
|
$
|
27,750
|
|
|
|
Payable by the Company in cash as of December 31, 2016
|
$
|
950
|
|
Paid by the insurance carriers in 2016
|
21,700
|
|
Paid by the Company in cash in 2016
|
2,450
|
|
Paid by the Company in common stock in 2016
|
2,650
|
|
Total settlements
|
$
|
27,750
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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. Because of the contingent nature of these payments, they are not included in the table of contractual obligations shown below.
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 would allow the Company to avoid making the contingent payments; however, the Company is unlikely to cease development if the compound successfully achieves clinical testing objectives. The Company’s contractual obligations that may require future cash payments as of December 31, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
(1)
|
|
Non-Cancelable
Employment
Agreements
(2)
|
|
Subtotal
|
|
Cancelable
License
Agreements
(3)
|
|
Total
|
2017
|
$
|
241
|
|
|
$
|
1,601
|
|
|
$
|
1,842
|
|
|
$
|
1,391
|
|
|
$
|
3,233
|
|
2018
|
246
|
|
|
—
|
|
|
246
|
|
|
350
|
|
|
596
|
|
2019
|
251
|
|
|
—
|
|
|
251
|
|
|
350
|
|
|
601
|
|
2020
|
236
|
|
|
—
|
|
|
236
|
|
|
7,350
|
|
|
7,586
|
|
2021 and thereafter
|
—
|
|
|
—
|
|
|
—
|
|
|
8,815
|
|
|
8,815
|
|
Total
|
$
|
974
|
|
|
$
|
1,601
|
|
|
$
|
2,575
|
|
|
$
|
18,256
|
|
|
$
|
20,831
|
|
|
|
(1)
|
Operating leases are primarily facility and equipment related obligations with third party vendors. Operating lease expenses during the years ended December 31, 2016, 2015, and 2014 were approximately
$291,000
,
$116,000
and
$72,000
, respectively.
|
|
|
(2)
|
Employment agreement obligations include management contracts, as well as scientific advisory board member compensation agreements. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the discretion of the Compensation Committee, as well as for minimum bonuses that are payable.
|
|
|
(3)
|
License agreements generally relate to the company’s obligations with The Board of Regents, University of Texas M.D. Anderson Cancer Center and the Henry M. Jackson Foundation for our oncology therapies and the obligations with Biovascular Inc. and Mills Pharma for our GALE-401 asset. The company continually assesses the progress of its licensed technology and the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. In the event these licenses are terminated,
no
amounts will be due.
|
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. In 2016, the Company has incurred
$750,000
as a result of these obligations as a result of its obligation to its former CEO as noted above. Accordingly, the Company has accrued this liability in its financial statements related to these indemnifications.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. 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, privileges and restrictions, including voting rights, dividend 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
350,000,000
shares of common stock,
$0.0001
par value per share, for issuance.
Issuances of common stock are as follows:
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
125,000
shares of the Company's common stock at
$40.00
per share and the Company issued
31,561
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 the LPC’s initial purchase of our common stock under the purchase agreement, during 2014, we received net proceeds of
$8.5 million
from LPC’s subsequent purchases of a total of
230,000
shares of our common stock, excluding the commitment fee shares. During the years ended December 31, 2016 and 2015 we received
$0.8 million
and
$4.4 million
by issuing
150,000
and
135,000
shares of our common stock, respectively. On February 6, 2017, Purchase Agreement was amended to the total value of common stock that the Company may sell to LPC from
$55,000,000
to
$15,600,000
.
At-The-Market Issuance Sales Agreements
- On May 24, 2013 the Company entered into At-The-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 years ended December 31, 2016 and 2015 we received
$0.9 million
and
$2.3 million
by issuing
334,000
and
72,000
shares of our common stock. During the year ended December 31, 2014, we received
$2.3 million
in net proceeds from the sale of
70,000
shares of our common stock through the ATM. On December 4, 2015 we replenished the ATM limit up to
$20 million
in gross proceeds available for future sales of our common stock.
March 2015 Underwritten Public Offering
- On March 18, 2015 the Company closed an underwritten public offering of
1,217,948
units at a price to the public of $
31.20
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
$41.60
per share. The March 2015 Offering included an over-allotment option for the underwriters to purchase an additional
182,692
shares of common stock and/or warrants to purchase up to
91,346
shares of common stock. On March 18, 2015, the underwriters exercised their over-allotment option to purchase warrants to purchase an aggregate of
91,346
shares of common stock. On April 10, 2015, the underwriters exercised their over-allotment option to purchase
182,692
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 CONSOLIDATED FINANCIAL STATEMENTS - Continued
January 2016 Underwritten Public Offering
- On January 12, 2016 the Company closed an underwritten public offering of
988,636
units at a price to the public of
$22.00
per unit for gross proceeds of
$21.8 million
("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
$28.40
per share. The January 2016 Offering included an over-allotment option for the underwriters to purchase an additional
148,295
shares of common stock and/or warrants to purchase up to
88,977
shares of common stock. On January 12, 2016, the underwriters exercised their over-allotment option to purchase warrants to purchase an aggregate of
88,977
shares of common stock. The underwriters did not exercise their over-allotment option to purchase
148,295
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 expenses paid by the Company.
July 2016 Registered Direct Offering
- On July 13, 2016, we closed the sale to certain institutional investors of
1,400,000
shares of common stock at a purchase price per share of
$9.00
in a registered direct offering, and warrants to purchase up to
700,000
shares of common stock with an exercise price of
$13.00
per share in a concurrent private placement. The warrants are initially exercisable
six
months and
one
day following issuance and have a term of
five
years from the date of issuance. The net proceeds to Galena after deducting placement agent fees and estimated offering expenses were approximately
$11.7 million
.
February 2017 Underwritten Public Offering
- On February 13, 2017, the Company closed an underwritten public offering of
17,000,000
shares of common stock and warrants to purchase
17,000,000
shares of common stock priced at
$1.00
per share and accompanying warrant ("February 2017 Offering"). The warrants are immediately exercisable with a strike price of
$1.10
and will expire on the fifth anniversary of the date of issuance. The shares of common stock and the warrants will be issued separately and will be separately transferable immediately upon issuance
.
The net proceeds of the February 2017 Offering were
$15.5 million
, after deducting underwriting discounts and commissions and offering expenses paid by the Company.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. Warrants
The following is a summary of warrant activity for the years ended
December 31, 2016
and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Issuance
|
Outstanding, December 31, 2015
|
|
Granted
|
|
Exercised
|
|
Expired
|
|
Outstanding, December 31, 2016
|
|
Expiration
|
July 2016
|
—
|
|
|
700
|
|
|
—
|
|
|
—
|
|
|
700
|
|
|
January 2022
|
January 2016
|
—
|
|
|
682
|
|
|
—
|
|
|
—
|
|
|
682
|
|
|
January 2021
|
March 2015
|
700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
700
|
|
|
March 2020
|
September 2013
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
September 2018
|
December 2012
|
152
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
December 2017
|
April 2011
|
31
|
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
13
|
|
|
April 2017
|
March 2011
|
9
|
|
|
—
|
|
|
(1
|
)
|
|
(8
|
)
|
|
—
|
|
|
March 2016
|
March 2010
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
March 2016
|
Other
|
24
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
124
|
|
|
November 2021
|
|
1,116
|
|
|
1,482
|
|
|
(19
|
)
|
|
(9
|
)
|
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Issuance
|
Outstanding, January 1, 2015
|
|
Granted
|
|
Exercised
|
|
Expired
|
|
Outstanding, December 31, 2015
|
|
Expiration
|
March 2015
|
—
|
|
|
700
|
|
|
—
|
|
|
—
|
|
|
700
|
|
|
March 2020
|
September 2013
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
September 2018
|
December 2012
|
152
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
December 2017
|
April 2011
|
31
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
April 2017
|
March 2011
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
March 2016
|
March 2010
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
March 2016
|
Other
|
36
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
24
|
|
|
November 2021
|
|
428
|
|
|
700
|
|
|
—
|
|
|
(12
|
)
|
|
1,116
|
|
|
|
Warrants consist of warrants potentially settleable in cash, which are liability-classified warrants, and equity-classified warrants.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Warrants classified as liabilities
Liability-classified warrants consist of warrants to purchase common stock issued in connection with equity financings in July 2016, January 2016, March 2015, September 2013, December 2012, April 2011, March 2011, March 2010 and August 2009. These warrants are potentially settleable in cash and were determined not to be indexed to our common stock.
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 consolidated statement of operations as other income (expense). The fair value of the warrants is estimated using an appropriate pricing model with the following inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Warrant Issuance
|
Outstanding
|
|
Strike price
|
|
Expected term
|
|
Volatility %
|
|
Risk-free rate %
|
July 2016
|
700
|
|
|
$
|
13.00
|
|
|
4.54
|
|
117.82
|
%
|
|
1.82
|
%
|
January 2016
|
682
|
|
|
$
|
28.40
|
|
|
4.03
|
|
120.38
|
%
|
|
1.71
|
%
|
March 2015
|
700
|
|
|
$
|
41.60
|
|
|
3.22
|
|
131.46
|
%
|
|
1.52
|
%
|
September 2013
|
199
|
|
|
$
|
50.00
|
|
|
1.72
|
|
164.01
|
%
|
|
1.10
|
%
|
December 2012
|
152
|
|
|
$
|
31.60
|
|
|
0.98
|
|
204.55
|
%
|
|
0.84
|
%
|
April 2011
|
13
|
|
|
$
|
13.00
|
|
|
0.31
|
|
103.79
|
%
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Warrant Issuance
|
Outstanding
|
|
Strike price
|
|
Expected term
|
|
Volatility %
|
|
Risk-free rate %
|
March 2015
|
700
|
|
|
$
|
41.60
|
|
|
4.22
|
|
75.85
|
%
|
|
1.58
|
%
|
September 2013
|
199
|
|
|
$
|
50.00
|
|
|
2.72
|
|
74.70
|
%
|
|
1.24
|
%
|
December 2012
|
152
|
|
|
$
|
31.60
|
|
|
1.98
|
|
76.37
|
%
|
|
1.05
|
%
|
April 2011
|
31
|
|
|
$
|
13.00
|
|
|
1.31
|
|
65.60
|
%
|
|
0.77
|
%
|
March 2011
|
9
|
|
|
$
|
13.00
|
|
|
0.18
|
|
47.98
|
%
|
|
—
|
%
|
March 2010
|
1
|
|
|
$
|
40.04
|
|
|
0.24
|
|
71.41
|
%
|
|
—
|
%
|
The Company’s expected volatility is based on a combination of 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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The changes in fair value of the warrant liability for the years ended
December 31, 2016
and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Issuance
|
Warrant liability, December 31, 2015
|
|
Fair value of warrants granted
|
|
Fair value of warrants exercised
|
|
Change in fair value of warrants
|
|
Warrant liability, December 31, 2016
|
July 2016
|
$
|
—
|
|
|
$
|
4,296
|
|
|
$
|
—
|
|
|
$
|
(3,543
|
)
|
|
$
|
753
|
|
January 2016
|
—
|
|
|
5,590
|
|
|
—
|
|
|
(5,061
|
)
|
|
529
|
|
March 2015
|
10,337
|
|
|
—
|
|
|
—
|
|
|
(9,905
|
)
|
|
432
|
|
September 2013
|
1,933
|
|
|
—
|
|
|
—
|
|
|
(1,852
|
)
|
|
81
|
|
December 2012
|
1,565
|
|
|
—
|
|
|
—
|
|
|
(1,500
|
)
|
|
65
|
|
April 2011
|
537
|
|
|
—
|
|
|
(278
|
)
|
|
(259
|
)
|
|
—
|
|
March 2011
|
144
|
|
|
—
|
|
|
(46
|
)
|
|
(98
|
)
|
|
—
|
|
March 2010
|
2
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
$
|
14,518
|
|
|
$
|
9,886
|
|
|
$
|
(324
|
)
|
|
$
|
(22,220
|
)
|
|
$
|
1,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Issuance
|
Warrant liability, January 1, 2015
|
|
Fair value of warrants granted
|
|
Fair value of warrants exercised
|
|
Change in fair value of warrants
|
|
Warrant liability, December 31, 2015
|
March 2015
|
—
|
|
|
10,296
|
|
|
—
|
|
|
41
|
|
|
10,337
|
|
September 2013
|
2,560
|
|
|
—
|
|
|
—
|
|
|
(627
|
)
|
|
1,933
|
|
December 2012
|
2,027
|
|
|
—
|
|
|
—
|
|
|
(462
|
)
|
|
1,565
|
|
April 2011
|
625
|
|
|
—
|
|
|
—
|
|
|
(88
|
)
|
|
537
|
|
March 2011
|
144
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144
|
|
March 2010
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
5,358
|
|
|
10,296
|
|
|
—
|
|
|
(1,136
|
)
|
|
14,518
|
|
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
9,109
shares of common stock at an exercise price of
$49.40
per share, which equaled the
20
-day average market price of our common stock prior to the date of the grant. The warrants were valued using the Black Scholes 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
$38.60
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.
In 2016, we issued
100,000
to the holder of the Debenture. The holder received
50,000
warrants upon the closing on the sale of the Debenture at an exercise price of
$30.20
, maturing
5
years from issuance, and in accordance with the terms of the amendment agreement, the exercise price of the warrant was reduced to
$8.60
per share. The fair value assumptions for the grant included a volatility of
77.13%
, expected term of
5.5
years, risk free rate of
1.26%
, and a dividend rate of
0.00%
. Additionally, the holder received
50,000
warrants upon the Company's public company announcement of the interim analysis on June 29, 2016 at an exercise price of
$8.60
. The fair value assumptions for the grant included a volatility of
106.63%
, expected term of
5.5
years, risk free rate of
1.35%
, and a dividend rate of
0.00%
. In addition to the warrants issued to the holder of the debenture we have
15,000
outstanding warrants issued to service providers with a weighted average exercise price of
$79.40
as of December 31, 2016 and 2015. 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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
9. 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 and consultants, 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 being re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be 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 Consolidated Statements of Comprehensive Loss for the years ended
December 31, 2016
, 2015, and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Research and development
|
$
|
298
|
|
|
$
|
350
|
|
|
$
|
484
|
|
General and administrative
|
1,966
|
|
|
1,591
|
|
|
4,903
|
|
Total stock-based compensation
|
$
|
2,264
|
|
|
$
|
1,941
|
|
|
$
|
5,387
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Risk free interest rate
|
1.47
|
%
|
|
1.67
|
%
|
|
2.01
|
%
|
Volatility
|
102.62
|
%
|
|
73.97
|
%
|
|
79.37
|
%
|
Expected lives (years)
|
5.93
|
|
|
6.16
|
|
|
6.16
|
|
Expected dividend yield
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
The weighted-average fair value of options granted during the years ended
December 31, 2016
and 2015 was
$6.09
and
$21.40
per share, respectively.
The Company’s expected common stock price volatility assumption is based upon the 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 of paying cash dividends in the future. 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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
As of
December 31, 2016
, there was
$2,295,000
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
2.30
years.
As of
December 31, 2016
, an aggregate of
1,325,000
shares of common stock were reserved for issuance under the Company’s 2016 Incentive Plan, including
561,000
shares subject to outstanding common stock options granted under the plan and
501,000
shares available for future grants. On July 14, 2016, shareholders approved the 2016 Incentive Plan. The 2016 Incentive Plan replaced the 2007 Incentive Plan that expired on February 23, 2017. 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 generally 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
|
Outstanding at December 31, 2015
|
663
|
|
|
$
|
51.60
|
|
Granted
|
146
|
|
|
9.40
|
|
Exercised
|
(8
|
)
|
|
31.44
|
|
Cancelled
|
(240
|
)
|
|
50.28
|
|
Outstanding at December 31, 2016
|
561
|
|
|
$
|
41.50
|
|
Options exercisable at December 31, 2016
|
329
|
|
|
$
|
56.06
|
|
The weighted average remaining contractual life of options outstanding as of December 31, 2016, 2015, and 2014 was
7.02
,
7.63
, and
7.35
years, respectively. The weighted average remaining contractual life of options exercisable as of December 31, 2016, 2015, and 2014 was
5.52
,
6.20
, and
6.51
years, respectively.
The aggregate intrinsic value of outstanding options as of December 31, 2016, 2015, and 2014 was
$0
,
$539,000
, and
$610,000
, respectively. The aggregate intrinsic value of exercisable options as of December 31, 2016, 2015, and 2014 was
$0
,
$518,000
, and
$509,000
, respectively. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company's common stock and the exercise price of the underlying options.
The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014 was
$56,000
,
$37,000
, and
$13,429,000
respectively.
Employee Stock Purchase Plan
— The Company also has an employee stock purchase plan (“ESPP”) which allows employees to contribute up to
15%
of their cash earnings, subject to certain maximums, to be used to purchase shares of our common stock on each semi-annual purchase date. The purchase price is equal to
85%
of the market value per share on either the first or last day of the semi-annual period, whichever is lower. Our ESPP is non-compensatory pursuant to the provisions of generally accepted accounting principles for share-based compensation expense. The ESPP contains an “evergreen provision” with annual increases in the number of shares available for issuance on the first day of each year through January 1, 2015 equal to the lesser of: (a)
12,500
shares increased on each anniversary of the adoption of the Plan by
1%
of the total shares of stock then outstanding and (b)
50,000
shares. As of December 31, 2016, an aggregate of
20,930
shares of common stock were authorized and available for future issuance under the ESPP. The Company has issued
29,070
shares under the ESPP through December 31, 2016.
Restricted Stock Units
— In addition to options to purchase shares of common stock, the Company may grant restricted stock units (“RSU”) as part of its compensation package. If granted, each RSU would be granted at the fair market value of the Company's common stock on the date of grant. Vesting is determined on a grant-by-grant basis. There were no RSUs outstanding as of December 21, 2016 and 2015.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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):
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Warrants to purchase common stock
|
2,570
|
|
|
1,115
|
|
Options to purchase common stock
|
561
|
|
|
663
|
|
Total
|
3,131
|
|
|
1,778
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11. Income Taxes
The components of federal and state income tax expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
—
|
|
|
—
|
|
|
—
|
|
Total current
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred expense
|
|
|
|
|
|
|
Federal
|
|
210
|
|
|
332
|
|
|
—
|
|
State
|
|
33
|
|
|
33
|
|
|
—
|
|
Total deferred
|
|
243
|
|
|
365
|
|
|
—
|
|
Total income tax expense
|
|
$
|
243
|
|
|
$
|
365
|
|
|
$
|
—
|
|
The components of net deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Net operating loss carryforwards
|
|
$
|
97,168
|
|
|
$
|
75,221
|
|
Tax credit carryforwards
|
|
4,083
|
|
|
3,866
|
|
Stock based compensation
|
|
5,757
|
|
|
5,050
|
|
Other
|
|
58
|
|
|
1,430
|
|
Licensing deduction deferral
|
|
10,263
|
|
|
9,910
|
|
Gross deferred tax assets
|
|
117,329
|
|
|
95,477
|
|
Valuation allowance
|
|
(117,329
|
)
|
|
(95,477
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The components of net deferred tax liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
In-process research and development not subject to future amortization for tax purposes
|
|
$
|
5,661
|
|
|
$
|
5,418
|
|
Gross deferred tax liability
|
|
$
|
5,661
|
|
|
$
|
5,418
|
|
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The provision for income taxes differs from the provision computed by applying the federal statutory rate to net loss before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Expected federal income tax benefit
|
|
$
|
(7,977
|
)
|
|
$
|
(21,603
|
)
|
|
$
|
(12,447
|
)
|
State income taxes after credits
|
|
(1,575
|
)
|
|
(2,375
|
)
|
|
(1,283
|
)
|
Unrealized gain on marketable securities
|
|
—
|
|
|
—
|
|
|
—
|
|
Changes in warrant value
|
|
(8,728
|
)
|
|
(456
|
)
|
|
(6,503
|
)
|
Stock compensation
|
|
(1,782
|
)
|
|
508
|
|
|
3,996
|
|
Effect of change in valuation allowance
|
|
21,852
|
|
|
24,029
|
|
|
17,275
|
|
Income tax credits
|
|
(217
|
)
|
|
(276
|
)
|
|
(42
|
)
|
Other
|
|
(1,330
|
)
|
|
538
|
|
|
(996
|
)
|
|
|
$
|
243
|
|
|
$
|
365
|
|
|
$
|
—
|
|
The Company has incurred net operating losses from inception. At December 31, 2016, the Company had domestic federal and state net operating loss carryforwards of approximately
$251.5 million
and
$200.0 million
, respectively, available to reduce future taxable income, which expire at various dates beginning in 2016 through
2036
. The Company also had federal and state research and development tax credit carryforwards of approximately
$2.6 million
and
$2.5 million
, respectively, available to reduce future tax liabilities and which expire at various dates beginning in
2023
through
2035
. The income tax expense for the year ended December 31, 2016 relates to indefinite lived deferred tax liabilities.
At December 31, 2016, approximately
$1.4 million
of the Company's net operating loss carryforwards were generated as a result of deductions related to the exercises of stock options. If utilized, this portion of the Company's carryforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets.
Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable.
Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a
100%
deferred income tax valuation allowance has been recorded against these assets. The valuation allowance increased by
$21.8 million
and
$24.2 million
for the years ended December 31, 2015 and 2014, respectively.
The Company files income tax returns in the U.S. federal, Massachusetts, Colorado, California, Connecticut, Georgia, Oregon, and Texas jurisdictions. The Company is subject to tax examinations for the 2012 tax year and beyond. The Company does not believe there will be any material changes in its unrecognized tax positions over the next
12 months
. The Company has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
12. 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 asset 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, 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
, clinical milestone payments including
$200,000
upon commencement of the Phase 3 PRESENT trial of NeuVax and royalty payments based on sales of NeuVax or other therapeutic products developed from the licensed technologies.
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.
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
.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 myleoproliferative neoplasms (MPNs). 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. We are responsible for patent prosecution and maintenance.
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.
The total potential consideration payable to the Company under the Purchase Agreement is
$29.75 million
, comprised of a
$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 agreed to pay 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.
13. Related Party Transactions
From 2011 to 2016, the Company retained TroyGould PC as outside corporate counsel. Sanford J. Hillsberg, the Chairman of Galena, is a senior lawyer with TroyGould PC. The Company incurred
$209,000
,
$577,000
, and
$533,000
for services provided by TroyGould PC during the years ended December 31, 2016, 2015, and 2014, respectively. At December 31, 2015, Galena owed
$20,000
to TroyGould PC. There was no payable to TroyGould PC as of December 31, 2016.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14. Employee Benefit Plan
The Company sponsors a 401(k) retirement savings plan (the “Plan”). Participation in the Plan is available to full-time employees who meet eligibility requirements. Eligible employees may defer a portion of their salary as defined by Internal Revenue Service regulations. The Company may make matching contributions on behalf of all participants in the 401(k) Plan in an amount determined by the Company’s Board of Directors. The Company may also make additional discretionary profit sharing contributions in amounts as determined by the Board of Directors, subject to statutory limitations. Matching and profit-sharing contributions, if any, are subject to a vesting schedule; all other contributions are at all times fully vested. The Company intends the 401(k) Plan, and the accompanying trust, to qualify under Sections 401(k) and 501 of the Internal Revenue Code so that contributions by employees to the 401(k) Plan, and income earned (if any) on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that the Company will be able to deduct its contributions, if any, when made. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of a number of investment options. The Company made matching contributions totaling
$108,000
for the year ended December 31, 2016. For the years ended December 31, 2015 and 2014, the Company made matching contributions totaling
$115,000
and
$70,000
, respectively
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
15. Discontinued Operations
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. As described in Note 14, both products were sold in the fourth quarter of 2015.
The Company met the relevant criteria for reporting the commercial business as held for sale and in discontinued operations in the accompanying financial statements pursuant to FASB Topic 205-20, Presentation of Financial Statements--Discontinued Operations, and FASB Topic 360, Property, Plant, and Equipment. The Company assessed the commercial business net asset group for impairment pursuant to FASB Topic 360, as discussed in Note 1, determining that the carrying value exceeded the fair value of the assets, therefore the Company recorded a
$8.1 million
impairment charge as of September 30, 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, in the event the Company successfully completed a divestiture through the sale of its commercial operations to a third-party, the Company paid a success fee to the third party firm in an amount of
$0.9 million
, reimbursement for reasonable out-of-pocket expenses 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, if the Company met certain sales and margin numbers in the fourth quarter of 2015 and successfully completed a divestiture through sale of its commercial operations to a third-party, 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 will also receive 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 that were part of the commercial business and did not accept employment opportunities at the companies who 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
|
|
*Note selling costs related to the sale of Zuplenz and related assets are included in accrued liabilities and were paid in the first quarter of 2016.
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.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents a reconciliation of the carrying amounts of assets and liabilities of the commercial operations to assets held for sale in the balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Carrying amounts of assets included as part of discontinued operations:
|
Accounts receivable
|
$
|
813
|
|
|
$
|
392
|
|
Total current assets of discontinued operations
|
$
|
813
|
|
|
$
|
392
|
|
|
|
|
|
Carrying amounts of liabilities included as part of discontinued operations:
|
Accounts payable
|
$
|
3,115
|
|
|
$
|
1,491
|
|
Accrued expenses and other current liabilities
|
2,944
|
|
|
4,434
|
|
Total current liabilities of discontinued operations
|
$
|
6,059
|
|
|
$
|
5,925
|
|
The following table represents the components attributable to the commercial business in 2016, 2015, and 2014 that are presented in the consolidated statements of comprehensive loss as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net revenue
|
$
|
—
|
|
|
$
|
9,734
|
|
|
$
|
9,319
|
|
Cost of revenue
|
—
|
|
|
(1,780
|
)
|
|
(1,403
|
)
|
Additional channel obligations
|
(2,886
|
)
|
|
—
|
|
|
—
|
|
Amortization of certain acquired intangible assets
|
—
|
|
|
(921
|
)
|
|
(440
|
)
|
Research and development
|
—
|
|
|
(355
|
)
|
|
(680
|
)
|
Selling, general, and administrative
|
(9,562
|
)
|
|
(17,655
|
)
|
|
(15,118
|
)
|
Impairment charge form classification as held for sale
|
—
|
|
|
(8,071
|
)
|
|
—
|
|
Loss on sale of commercial business assets
|
—
|
|
|
(4,549
|
)
|
|
—
|
|
Severance and exit costs
|
—
|
|
|
(1,349
|
)
|
|
—
|
|
Loss from discontinued operations
|
$
|
(12,448
|
)
|
|
$
|
(24,946
|
)
|
|
$
|
(8,322
|
)
|
Additional channel obligations included in discontinued operations in 2016 is comprised of larger than anticipated rebates of Abstral sales for which we were responsible 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 over which the Company has no control and was partially offset by lower than expected patient assistance program reimbursement.
Selling, general and administrative expense
included in discontinued operations consists of all other expenses of our commercial operations that were required in order to market and sell our marketed products prior to our sales of the rights to these commercial products. These expenses include all personnel related costs, marketing, data, consulting, legal, and other outside services necessary to support the commercial operations. During the year ended December 31, 2016 we incurred
$9.2 million
related to legal fees from external counsel associated with document production for the subpoenas related to the sales and marketing practices of Abstral. See Note 6 for further disclosures related to these legal proceedings.
GALENA BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
16. Selected Quarterly Financial Data (Unaudited)
The following amounts are in thousands, except per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
2016
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,493
|
)
|
|
$
|
5,389
|
|
|
$
|
(6,929
|
)
|
|
$
|
(5,516
|
)
|
Net income (loss) per share, basic and diluted
|
|
$
|
(1.84
|
)
|
|
$
|
0.59
|
|
|
$
|
(0.66
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
2,750
|
|
|
$
|
3,382
|
|
|
$
|
2,166
|
|
|
$
|
1,436
|
|
Gross profit on net revenue
|
|
$
|
2,357
|
|
|
$
|
2,914
|
|
|
$
|
1,454
|
|
|
$
|
1,229
|
|
Net loss
|
|
$
|
(10,537
|
)
|
|
$
|
(15,660
|
)
|
|
$
|
(18,026
|
)
|
|
$
|
(19,678
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(1.55
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(2.23
|
)
|
|
$
|
(2.51
|
)
|
17. Subsequent Events
The Company evaluated all events or transactions that occurred after December 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, the Company did not have any material recognizable or unrecognizable subsequent events.