The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Lion Biotechnologies, Inc. (the “Company,” “we,”
“us” or “our”) is a biotechnology company focused on developing and commercializing adoptive cell therapy
(ACT) using autologous tumor infiltrating lymphocytes (TIL) for the treatment of metastatic melanoma and other solid tumor cancers.
ACT utilizes T-cells harvested from a patient to treat cancer in that patient. TIL, tumor infiltrating lymphocytes, are naturally
present in a patient’s tumors, are collected from individual patient tumor samples. The TIL are then extracted from the tumor
tissue and expanded ex vivo and then infused back into the patient to fight their tumor. The Company was originally incorporated
under the laws of the state of Nevada on September 17, 2007. Until March 2010, we were an inactive company known as Freight Management
Corp. On March 15, 2010, we changed our name to Genesis Biopharma, Inc., and in 2011 we commenced our current business. On September
26, 2013, we changed our name to Lion Biotechnologies, Inc.
Basis of Presentation of Unaudited Condensed Consolidated
Financial Information
The unaudited condensed consolidated financial
statements of the Company for the three months ended March 31, 2017 and 2016 have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements
for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by GAAP
for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations.
Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance
sheet information as of December 31, 2016 was derived from the audited financial statements included in the Company's financial
statements as of and for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission (the “SEC”) on March 8, 2017. These financial statements should be read in conjunction
with that report.
Liquidity
The Company is currently engaged in the development of therapeutics
to fight cancer. We do not have any commercial products and have not yet generated any revenues from our biopharmaceutical business.
We currently do not anticipate that we will generate any revenues during 2017 from the sale or licensing of any products. As shown
in the accompanying financial statements, we have incurred a net loss of $20.7 million for the three months ended March 31, 2017
and used $18.8 million of cash in our operating activities during the three months ended March 31, 2017. As of March 31, 2017,
we had $147.2 million of cash and cash equivalents and short-term investments.
The Company expects to further increase its research and development
activities, which will increase the amount of cash used during 2017. Specifically, we expect increased spending on clinical trials,
research and development activities, higher payroll expenses as we increase our professional and scientific staff and continued
and expansion of manufacturing activities. Based on the funds we have available; we believe that we have sufficient capital to
fund our anticipated operating expenses for at least 12 months from the date that these financial statements are issued.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Short-term Investments
The Company's short-term investments are classified as “available-for-sale”.
The Company includes these investments in current assets and carries them at fair value. Unrealized gains and losses on available-for-sale
securities are included in accumulated other comprehensive income. The amortized cost of debt securities is adjusted for the
amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Gains
and losses on securities sold are recorded based on the specific identification method and are included in interest income in the
statement of operations. We have not incurred any realized gains or losses from sales of securities to date.
Loss per Share
Basic net loss per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number
of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that
would have been outstanding if the potentially dilutive securities had been issued.
At March 31, 2017 and 2016, the following outstanding common stock
equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
6,748,302
|
|
|
|
3,367,129
|
|
Warrants
|
|
|
6,503,716
|
|
|
|
7,202,216
|
|
Series A Convertible Preferred*
|
|
|
847,000
|
|
|
|
847,000
|
|
Series B Convertible Preferred*
|
|
|
7,946,673
|
|
|
|
-
|
|
Restricted stock awards
|
|
|
5,000
|
|
|
|
248,126
|
|
Restricted stock units
|
|
|
550,000
|
|
|
|
-
|
|
|
|
|
22,600,691
|
|
|
|
11,664,471
|
|
* on an as-converted basis
The dilutive effect of potentially dilutive
securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock
method, an increase in the fair market value of the Company's common stock can result in a greater dilutive effect from potentially
dilutive securities.
Fair Value Measurements
Under Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, fair value is defined as the price
at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the
principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices
or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models
are applied.
Assets and liabilities recorded at fair value in our financial statements
are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels
directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are
as follows:
Level 1—Inputs are unadjusted, quoted prices in active
markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur
in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Are inputs, other than quoted prices included
in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data
at the reporting date and for the duration of the instrument’s anticipated life.
The fair valued assets we hold that are generally assessed under
Level 2 are corporate bonds and commercial paper. We utilize third party pricing services in developing fair value measurements
where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields,
reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes from external pricing service providers
and other on-line quotation systems to verify the fair value of investments provided by our third party pricing service providers.
We review independent auditor’s reports from our third party pricing service providers particularly regarding the controls
over pricing and valuation of financial instruments and ensure that our internal controls address certain control deficiencies,
if any, and complementary user entity controls are in place.
Level 3—Unobservable inputs that are supported by little
or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s
best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given
to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
We do not have fair valued assets classified under Level 3.
Financial assets measured at fair value on
a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in thousands):
|
|
Assets at Fair Value as of March 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Commercial paper
|
|
$
|
-
|
|
|
$
|
21,699
|
|
|
$
|
-
|
|
|
$
|
21,699
|
|
Corporate debt securities
|
|
|
-
|
|
|
|
15,901
|
|
|
|
-
|
|
|
|
15,901
|
|
US Government agency securities
|
|
|
-
|
|
|
|
2,498
|
|
|
|
-
|
|
|
|
2,498
|
|
Total
|
|
$
|
-
|
|
|
$
|
40,098
|
|
|
$
|
-
|
|
|
$
|
40,098
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Commercial paper
|
|
$
|
-
|
|
|
$
|
29,178
|
|
|
$
|
-
|
|
|
$
|
29,178
|
|
Corporate debt securities
|
|
|
-
|
|
|
|
26,578
|
|
|
|
-
|
|
|
|
26,578
|
|
US Government agency securities
|
|
|
-
|
|
|
|
3,997
|
|
|
|
-
|
|
|
|
3,997
|
|
Total
|
|
$
|
-
|
|
|
$
|
59,753
|
|
|
$
|
-
|
|
|
$
|
59,753
|
|
Use of Estimates
The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include valuation
of short-term investments, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred
tax assets, and the assumptions made in valuing stock instruments issued for services.
Principles of Consolidation
The accompanying condensed consolidated
financial statements include the accounts of Lion Biotechnologies, Inc. and its wholly-owned subsidiary, Lion Biotechnologies GmbH.
All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's
condensed consolidated operations.
Stock-Based Compensation
The Company periodically grants stock options and warrants to employees
and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option
grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date
of grant and recognized over the vesting period. The Company accounts for stock option grants to non-employees in accordance with
the authoritative guidance of the FASB where the value of the stock compensation is determined based upon the measurement date
at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn
the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period
on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option
grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's common stock option grants is estimated
using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility,
expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived
from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing
model could materially affect compensation expense recorded in future periods.
The Company has in the past issued restricted shares of its common
stock for share-based compensation programs. The Company measures the compensation cost with respect to restricted shares issued
to employees based upon the estimated fair value of the equity instruments at the date of the grant, and is recognized as expense
over the period which an employee is required to provide services in exchange for the award.
The fair value of restricted stock units is based on the closing
price of the Company’s common stock on the grant date.
Total stock-based compensation expense related
to all our stock-based awards was recorded on the statements of operations as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,387
|
|
|
$
|
585
|
|
General and administrative
|
|
|
1,909
|
|
|
|
1,194
|
|
Total stock-based compensation expense
|
|
$
|
3,296
|
|
|
$
|
1,779
|
|
Total stock-based compensation broken down
based on each individual instrument was as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock option expense
|
|
$
|
2,654
|
|
|
$
|
1,483
|
|
Restricted stock award expense
|
|
|
13
|
|
|
|
296
|
|
Restricted stock unit expense
|
|
|
629
|
|
|
|
-
|
|
Total stock-based compensation expense
|
|
$
|
3,296
|
|
|
$
|
1,779
|
|
Preferred Stock
The Company applies the accounting standards
for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred
shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable
preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as
temporary equity. At all other times, preferred shares are classified as stockholders’ equity.
Convertible Instruments
The Company applies the accounting standards
for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion
options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for
them as free standing derivative financial instruments per certain criteria. The criteria includes circumstances in which (i) the
economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract
is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value
reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would
be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current
fair value, with the changes in fair value reported in results of operations.
Conversion options that contain variable settlement features such
as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices
more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.
The Company also records, when necessary, deemed
dividends for the intrinsic value of the conversion options embedded in preferred stock based upon the difference between the fair
value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the
preferred stock.
Recent Accounting Standards
Accounting standards that have been issued
or proposed by Financial Accounting Standards Board (“FASB”), SEC and/or other standard-setting bodies that do not
require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements
upon adoption.
Subsequent Events
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated
financial statements.
Reclassifications
Certain amounts within the statements of cash flows for the prior
periods have been reclassified to conform with the current period presentation. These reclassifications had no impact on the Company's
previously reported financial position or cash flows for any of the periods presented.
NOTE 3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents and short-term investments
consist of the following (in thousands):
|
|
March 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Cash - Demand deposits
|
|
$
|
56,787
|
|
|
$
|
76,071
|
|
Cash equivalents - money market funds
|
|
|
50,312
|
|
|
|
30,646
|
|
Cash and cash equivalents total
|
|
$
|
107,099
|
|
|
$
|
106,717
|
|
|
|
March 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Commercial paper
|
|
$
|
21,699
|
|
|
$
|
29,178
|
|
Corporate debt securities
|
|
|
15,901
|
|
|
|
26,578
|
|
US Government agency securities
|
|
|
2,498
|
|
|
|
3,997
|
|
Short-term investments total
|
|
$
|
40,098
|
|
|
$
|
59,753
|
|
Money market funds and short-term investments include the following
securities with gross unrealized gains and losses (in thousands):
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
As of March 31, 2017
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
50,312
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
50,312
|
|
Commercial paper
|
|
|
21,682
|
|
|
|
17
|
|
|
|
-
|
|
|
|
21,699
|
|
Corporate debt securities
|
|
|
15,915
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
15,901
|
|
US Government agency securities
|
|
|
2,499
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
2,498
|
|
Total
|
|
$
|
90,408
|
|
|
$
|
17
|
|
|
$
|
(15
|
)
|
|
$
|
90,410
|
|
Unrealized gains and losses are included in Accumulated other comprehensive
income.
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
As of December 31, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
30,646
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,646
|
|
Commercial paper
|
|
|
29,118
|
|
|
|
60
|
|
|
|
-
|
|
|
|
29,178
|
|
Corporate debt securities
|
|
|
26,606
|
|
|
|
1
|
|
|
|
(29
|
)
|
|
|
26,578
|
|
US Government agency securities
|
|
|
4,000
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
3,997
|
|
Total
|
|
$
|
90,370
|
|
|
$
|
61
|
|
|
$
|
(32
|
)
|
|
$
|
90,399
|
|
At March 31, 2017, the Company's short-term
investments had the following remaining contractual maturities (in thousands):
|
|
Amortized Cost
|
|
|
Estimated Fair Value
|
|
Less than one year
|
|
$
|
40,096
|
|
|
$
|
40,098
|
|
The Company’s investment policy limits
investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the
U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration
by type and issuer.
NOTE 4. BALANCE SHEET COMPONENTS
Property and equipment, net consists of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Lab equipment
|
|
$
|
2,698
|
|
|
$
|
2,405
|
|
Leasehold improvements
|
|
|
1,704
|
|
|
|
1,381
|
|
Computer equipment
|
|
|
255
|
|
|
|
245
|
|
Office furniture and equipment
|
|
|
174
|
|
|
|
148
|
|
Construction in progress
|
|
|
267
|
|
|
|
276
|
|
Total Property and equipment, cost
|
|
|
5,098
|
|
|
|
4,455
|
|
Less: Accumulated depreciation and amortization
|
|
|
(2,302
|
)
|
|
|
(2,081
|
)
|
Property and equipment, net
|
|
$
|
2,796
|
|
|
$
|
2,374
|
|
Accrued liabilities consist of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued payroll and employee related expenses
|
|
$
|
1,054
|
|
|
$
|
1,581
|
|
Legal and related services
|
|
|
860
|
|
|
|
927
|
|
Clinical related
|
|
|
500
|
|
|
|
614
|
|
Manufacturing related
|
|
|
289
|
|
|
|
437
|
|
Deferred rent
|
|
|
512
|
|
|
|
422
|
|
Accrued other
|
|
|
114
|
|
|
|
124
|
|
Accrued expenses
|
|
$
|
3,329
|
|
|
$
|
4,105
|
|
NOTE 5. STOCKHOLDERS’ EQUITY
Preferred stock
The Company’s articles of incorporation authorize the issuance
of up to 50,000,000 shares of “blank check” preferred stock. At March 31, 2017 and December 31, 2016, 17,000 shares
have been designated as the Series A Convertible Preferred Stock and 11,500,000 designated as Series B Convertible Preferred Stock.
Series A Convertible Preferred Stock
A total of 17,000 shares of Series A Convertible Preferred Stock
(“Series A Preferred Stock”) have been authorized for issuance under the Certificate of Designation of Preferences
and Rights of Series A Convertible Preferred Stock. The shares of Series A Preferred Stock have a stated value of $1,000 per share
and are initially convertible into shares of common stock at a price of $2.00 per share, subject to adjustment.
The Series A Preferred Stock may, at the option of each investor,
be converted into fully paid and non-assessable shares of common stock. The holders of shares of Series A Preferred Stock do not
have the right to vote on matters that come before stockholders. In the event of any dissolution or winding up of the Company,
proceeds shall be paid pari passu among the holders of the shares of common stock and preferred stock, pro rata based on the number
of shares held by each holder. The Company may not declare, pay or set aside any dividends on shares of capital stock of the Company
(other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A Preferred
Stock shall first receive an equal dividend on each outstanding share of Series A Preferred Stock. The common shares issued were
determined on a formula basis of 500 common shares for each share of Series A Preferred Stock converted. During the three months
ended March 31, 2017 and 2016, no Series A Preferred stock was converted into common stock, respectively.
Series B Preferred Stock
In June 2016, the Company created a new class of Preferred Stock
designated as Series B Convertible Preferred Stock (the “Series B Preferred”). The rights of the Series B Preferred
are set forth in the Certificate of Designation of Rights, Preferences and Privileges of Series B Preferred Stock (the “Series B
Certificate of Designation”). A total of 11,500,000 shares of Series B Preferred are authorized for issuance under the Series
B Certificate of Designation. The shares of Series B Preferred have a stated value of $4.75 per share and are convertible into
shares of common stock at an initial conversion price of $4.75 per share.
Holders of the Series B Preferred are entitled to dividends on an
as-if-converted basis in the same form as any dividends actually paid on shares of the Company’s Series A Preferred Stock
or the Company’s common stock. So long as any Series B Preferred remains outstanding, the Company may not redeem, purchase
or otherwise acquire any material amount of our Series A Preferred Stock or any junior securities.
During the three months ended March 31, 2017,
no Series B Preferred was converted into common stock and 7,946,673 shares of Series B Preferred Stock remained outstanding at
March 31, 2017.
Warrants
The following table summarizes the Company’s stock warrant
activity for the three months ended March 31, 2017:
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at January 1, 2017
|
|
|
6,566,216
|
|
|
$
|
2.51
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(62,500
|
)
|
|
|
2.50
|
|
Expired/Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2017
|
|
|
6,503,716
|
|
|
$
|
2.51
|
|
The warrants have a weighted average remaining life of 1.6 years
at March 31, 2017.
NOTE 6. STOCK BASED COMPENSATION
Stock Plans
On September 19, 2014, the Company’s Board of Directors adopted
the Lion Biotechnologies, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by our stockholders
at the annual meeting of stockholders held in November 2014. The 2014 Plan as approved by the stockholders authorized the issuance
up to an aggregate of 2,350,000 shares of common stock. On April 10, 2015, the Board amended the 2014 Plan to increase the total
number of shares that can be issued under the 2014 Plan by 1,650,000 from 2,350,000 shares to 4,000,000 shares. The increase in
shares available for issuance under the 2014 Plan was approved by stockholders on June 12, 2015.
On August 16, 2016, the stockholders approved the increase the total
number of shares that can be issued under the 2014 Plan by 5,000,000 from 4,000,000 shares to 9,000,000 shares. At March 31, 2017,
2,656,835 shares were available for grant under the Company’s 2014 plan.
Restricted Stock Units
On June 1, 2016, the Company entered into a restricted stock unit
agreement with the Company’s new Chief Executive Officer (Maria Fardis, Ph.D.) pursuant to which the Company granted Dr.
Fardis 550,000 non-transferrable restricted stock units at fair market value of $5.87 per share as an inducement of employment
pursuant to the exception to The NASDAQ Global Market rules that generally require stockholder approval of equity incentive plans.
The 550,000 restricted stock units will vest in installments as follows: (i) 137,500 restricted stock units will vest upon the
first anniversary of the effective date of Dr. Fardis’ employment agreement; (ii) 275,000 restricted stock units will vest
upon the satisfaction of certain clinical trial milestones; and (iii) 137,500 restricted stock units will vest in equal monthly
installments over the 36-month period following the first anniversary of the effective date of Dr. Fardis’ employment, provided
that Dr. Fardis has been continuously employed with the Company as of such vesting dates. On April 3, 2017, 137,500 restricted
stock units with performance criteria vested based on the performance criteria having been met.
Stock-based compensation expense for restricted stock units is measured
based on the closing fair market value of the Company's common stock on the date of grant. For the three months ended March 31,
2017, the Company recognized $0.6 million of expense.
As of March 31, 2017, there is $1.1 million of
total unrecognized compensation expense related to the restricted stock units to be recognized over a weighted average period of 2.4 years.
Stock Options
The following table summarizes the Company’s stock options
activity for the three months ended March 31, 2017:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding at January 1, 2017
|
|
|
6,233,150
|
|
|
$
|
7.24
|
|
Granted
|
|
|
851,000
|
|
|
|
7.47
|
|
Exercised
|
|
|
(40,257
|
)
|
|
|
5.75
|
|
Expired/Forfeited
|
|
|
(295,591
|
)
|
|
|
5.46
|
|
Outstanding at March 31, 2017
|
|
|
6,748,302
|
|
|
$
|
7.34
|
|
During the three months ended March 31, 2017 and 2016, the Company
recorded compensation costs of $2.7 million and $1.5 million, respectively, and is recognized as expense in the accompanying condensed
consolidated statements of operations. As of March 31, 2017, there was $25.6 million of total unrecognized
compensation expense related to the options to be recognized over a weighted average period of 2.0 years.
Restricted Common Stock Awards
The following table summarizes the Company’s restricted common
stock awards activity for the three months ended March 31, 2017:
|
|
|
|
|
Weighted Average
|
|
|
|
Number
|
|
|
Grant Date
|
|
|
|
of Shares
|
|
|
Fair Value
|
|
Non-vested shares, January 1, 2017
|
|
|
7,084
|
|
|
$
|
6.48
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(2,084
|
)
|
|
|
6.53
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, March 31, 2017
|
|
|
5,000
|
|
|
$
|
6.46
|
|
During the three months ended March 31, 2017 and 2016, the Company
recorded compensation costs of $0.0 million and $0.3 million, respectively, and is recognized as expense in the accompanying consolidated
statements of operations. As of March 31, 2017, the amount of unvested compensation related to the unvested outstanding shares
of restricted common stock was $34,000 which will be recorded as expense in over a weighted average life of 0.40 years.
NOTE 7. AGREEMENTS
National Institutes of Health (NIH) and the National Cancer Institute
(NCI)
Cooperative Research and Development Agreement (CRADA)
In August 2011, the Company signed a five-year CRADA with the NCI
to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic melanoma
cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, the Company executed an amendment (the “Amendment”)
to the CRADA to include four new indications. As amended, in addition to metastatic melanoma, the CRADA included the development
of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and HPV-associated cancers.
In August 2016, the NCI and the Company entered into a second amendment
to the CRADA. The principal changes effected by the second amendment included (i) extending the term of the CRADA by another five
years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a stand-alone therapy or in combination
with FDA-licensed products and commercially available reagents routinely used for adoptive cell therapy. The parties will continue
the development of improved methods for the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma,
bladder, lung, breast, and HPV-associated cancers.
Pursuant to the terms of the CRADA, we are currently required to
make quarterly payments of $0.5 million to the NCI for support of research activities. To the extent we license patent rights relating
to a TIL-based product candidate, we will be responsible for all patent-related expenses and fees, past and future, relating to
the TIL-based product candidate. In addition, we will be required to supply certain test articles, including TIL, grown and processed
under cGMP conditions, suitable for use in clinical trials, where we hold the IND for such clinical trial. The extended CRADA has
a five-year term expiring in August 2021. The Company or the NCI may unilaterally terminate the CRADA for any reason or for no
reason at any time by providing written notice at least 60 days before the desired termination date. During the three months ended
March 31, 2017 and 2016, the Company recorded costs associated with the CRADA of $0.5 million and $0.5 million, respectively, as
research and development expenses.
Patent License Agreement Related to the Development and Manufacture
of TIL
Effective October 5, 2011, the Company entered into a Patent License
Agreement with the National Institutes of Health, an agency of the United States Public Health Service within the Department of
Health and Human Services (NIH), which Patent License Agreement was subsequently amended on February 9, 2015 and October 2, 2015.
Pursuant to the License Agreement as amended, the NIH granted the Company licenses, including exclusive, co-exclusive, and non-exclusive
licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte adoptive cell therapy products for the treatment
of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. The Patent License Agreement requires the Company to pay
royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of revenues from sublicensing
arrangements, and lump sum benchmark royalty payments on the achievement of certain clinical and regulatory milestones for each
of the various indications and other direct costs incurred by the NIH pursuant to the agreement.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, the Company entered into an Exclusive Patent
License Agreement with the NIH under which the Company received an exclusive license to the NIH’s rights to patent-pending
technologies related to methods for improving adoptive cell therapy through more potent and efficient production of TIL from melanoma
tumors by selecting for T-cell populations that express various inhibitory receptors. Unless terminated sooner, the license shall
remain in effect until the last licensed patent right expires.
In consideration for the exclusive rights granted
under the Exclusive Patent License Agreement, the Company agreed to pay the NIH a non-refundable upfront licensing fee in the amount
of $0.8 million. The Company also agreed to pay customary royalties based on a percentage of net sales of a licensed product (which
percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark payments
upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval or foreign
equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed
product or process in the United States, and the first commercial sale of a licensed product or process in any foreign country.
The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution of the
patent applications and patents covered by the License. During the three months ended March 31, 2017 and 2016, the Company recorded
costs of $0.0 million and $0.0 million, respectively, as research and development expenses.
H. Lee Moffitt Cancer Center
Research Collaboration Agreement with Moffitt
In September 2014, we entered into a research
collaboration agreement with Moffitt to jointly engage in transitional research and development of adoptive tumor-infiltrating
lymphocyte cell therapy with improved anti-tumor properties and process.
In December 2016, we entered into a new three-year Sponsored Research
Agreement with Moffitt. At the same time, we entered into a Clinical Grant Agreement with Moffitt to support an ongoing clinical
trial at Moffitt that combines TIL therapy with Opdivo® (nivolumab) for the treatment of patients with metastatic melanoma.
Exclusive License Agreement with Moffitt
The Company entered into a license agreement with Moffitt (the “Moffitt
License Agreement”), effective as of June 28, 2014, under which the Company received a world-wide license to Moffitt’s
rights to patent-pending technologies related to methods for improving tumor-infiltrating lymphocytes for adoptive cell therapy.
Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last patent related to the
licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt License Agreement, the Company paid an upfront
licensing fee in the amount of $0.1 million. A patent issuance fee will also be payable under the Moffitt License Agreement, upon
the issuance of the first U.S. patent covering the subject technology. In addition, the Company agreed to pay milestone license
fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which percentage
is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale
of products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments
otherwise payable in that year. The Company will also be responsible for all costs associated with the preparation, filing, maintenance
and prosecution of the patent applications and patents covered by the Moffitt License Agreement related to the treatment of any
cancers in the United States, Europe and Japan and in other countries selected that the Company and Moffitt agreed to. During the
three months ended March 31, 2017 and 2016, the Company recorded costs of $0.6 million and $0.4 million, respectively, as research
and development expenses related to the agreements the Company has with Moffit.
PolyBioCept, AB and Karolinska University Hospital
PolyBioCept, AB - Exclusive and Co-Exclusive License Agreement
On September 14, 2016, the Company entered into an Exclusive
and Co-Exclusive License Agreement (the “PolyBioCept Agreement”) with PolyBioCept AB, a corporation organized under
the laws of Sweden (“PolyBioCept”). PolyBioCept has filed two patent applications with claims related to a cytokine
cocktail for use in expansion of lymphocytes. Under the PolyBioCept Agreement, the Company received the exclusive right and license
to PolyBioCept’s intellectual property to develop, manufacture, market and genetically engineer tumor infiltrating lymphocytes
(TIL) produced by expansion, selection and enrichment using a cytokine cocktail. The Company also received a co-exclusive license
(with PolyBioCept) to develop, manufacture and market genetically engineered TIL under the same intellectual property. The licenses
are for the use in all cancers and are worldwide in scope, with the exception that the uses in melanoma are not included for certain
countries of the former Soviet Union.
The Company paid PolyBioCept a total of
$2.5 million as an up-front exclusive license payment. The Company will also have to make additional milestone payments to PolyBioCept
under the PolyBioCept Agreement if, and when, (i) certain product development milestones are achieved, (ii) certain regulatory
approvals have been obtained from the U.S. Food and Drug Administration (FDA) and/or the European Medicines Agency (EMA), and (iii)
certain product sales targets are achieved. The milestone payments will be payable both in cash (U.S. dollars) and in shares of
the Company’s common stock. If all of the foregoing product development, regulatory approval and sales milestone payments
are met, the Company will have to pay PolyBioCept an additional $8.7 million and will have to issue to PolyBioCept a total 2,219,376
shares of unregistered common stock. In addition to these potential payments, the Company will reimburse PolyBioCept up to $0.2
million in expenses related to the transfer of know-how and will pay PolyBioCept $0.1 million as a clinical trials management fee.
The Company also separately engaged PolyBioCept as a consultant to provide certain product development and research related services
in a one-year agreement for up to $0.2 million, subject to the consent of the Karolinska Institute to the services to be performed
by its employees thereunder. The PolyBioCept Agreement has an initial term of 30 years, and may be extended for additional five-year
periods. During the three months ended March 31, 2017 and 2016, the Company recorded costs of $0.2 million and $0.0 million, respectively,
as research and development expenses.
Karolinska University Hospital - Clinical Trials Agreement
In connection with the execution of the PolyBioCept Agreement,
the Company also (i) entered into a clinical trials agreement with the Karolinska University Hospital to conduct clinical trials
in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii) agreed to enter into a sponsored research
agreement with the Karolinska Institute for the research of the cytokine cocktail in additional indications. The Company agreed
to enter into the sponsored research agreement within 90 days after the date of the PolyBioCept Agreement. Failure to do so will
give PolyBioCept the right to terminate the PolyBioCept Agreement (and to return $2.2 million of the payments it received). The
Company will pay the Karolinska an additional $2.6 million in connection with these other related agreements. In 2016 the Company
paid Karolinska University Hospital $1.6 million under this agreement to conduct the clinical trials, the $1.6 million payment
has been capitalized and will be expensed in accordance with the Company’s Research and Development Expense significant accounting
practices. During the three months ended March 31, 2017, the Company recorded costs of $0.2 million, as research and development
expenses.
Medimmune
In December 2015, the Company entered into a collaboration to
conduct clinical and preclinical research in immuno-oncology with MedImmune, the global biologics research and development arm
of AstraZeneca. Under the terms of the agreement, the Company will fund and conduct two Phase 2a clinical trials combining MedImmune's
investigational PD-L1 inhibitor durvalumab with TIL for the treatment of patients with metastatic melanoma, and head and neck cancer.
MedImmune will supply durvalumab for the clinical trials. The purpose of the studies is to establish a dosing regimen for this
combination therapy and assess its safety and efficacy.
Preclinical research under the agreement will focus on identifying
and evaluating therapeutically effective combinations of MedImmune's checkpoint antibodies, using TIL as an in vitro model
of the tumor microenvironment. The research will be funded by MedImmune and conducted by the Company.
NOTE 8. LEGAL PROCEEDINGS
SEC Settlement/Class Action Lawsuits.
We previously disclosed that the Securities and Exchange Commission (“SEC”) was conducting an investigation (initially
designated as “
In the Matter of Galena Biopharma, Inc.
” File No. HO 12346 and later known as “
In the
Matter of Certain Stock Promotions
”) and that we were a part of that investigation. The SEC’s investigation, in
part, involved the conduct of our former Chief Executive Officer, Manish Singh, during the period between September 2013 and April
2014, and the failure by authors of certain articles about this company to disclose that they were compensated by one of our former
investor relations firms.
On April 10, 2017, the SEC announced settlements
with us and with other public companies and unrelated parties in the
In the Matter of Certain Stock Promotion
investigation.
Our settlement with the SEC is consistent with our previous disclosures (including in our Form 10-K that we filed with the SEC
on March 9, 2017), and consisted of the following: (i) We agreed, without admitting or denying the findings by the SEC, to the
entry of an administrative order that requires us to cease and desist from committing or causing any violations and any future
violations of Sections 5(b), 17(a), and 17(b) of the Securities Act of 1933, and of Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 thereunder, and (ii) we agreed to pay $100,000 as a civil money penalty. We also agreed to adopt certain
internal controls with respect to our investor relations/public relations activities.
On April 14 2017, a purported shareholder
filed a class action complaint in the United States District Court, Northern District of California for violation of Federal securities
laws (
Leonard DeSilvio v. Lion Biotechnologies, Inc. Manish Singh, Michael Handelman and Elma Hawkins, case no: 3:17cv2086
)
against our company and three of our former officers and directors. On April 19, 2017, a second class action complaint
(Amra
Kuc vs. Lion Biotechnologies, Inc. Manish Singh, Michael Handelman and Elma Hawkins, case no: 3:17cv2086
) was filed in the
same court. Both complaints allege, among other things, that the defendants violated the federal securities laws by making materially
false and misleading statements, or failed to make disclosures, in certain of our Form 10-K and Form 10-Q periodic filings regarding
the actions taken by Manish Singh and our former investor relations firm.
We intend to vigorously defend against the
foregoing complaints. Based on the very early stage of the litigation, it is not possible to estimate the amount or range of possible
loss that might result from an adverse judgment or a settlement of these matters.
Solomon Capital, LLC.
On April 8, 2016,
a lawsuit titled
Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff against Lion Biotechnologies,
Inc.
was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff against the Company
in the Supreme Court of the State of New York County of New York (index no. 651881/2016). The plaintiffs allege that, between June
and November 2012 they provided to the Company $0.1 million and that they advanced and paid on our behalf an additional $0.2 million.
The complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $0.2 million, plus interest,
(ii) issue a total of 111,425 shares to the plaintiffs (before the 1-for-100 reverse split of our common stock effected in September
2013), and (iii) allow the plaintiffs to convert the foregoing funds into our securities in the next transaction. The plaintiffs
allege that they should have been able to convert their advances and payments into shares of the Company’s common stock in
the restructuring that was effected in May 2013. Based on the foregoing, the plaintiffs allege causes for breach of contract and
unjust enrichment and demand judgment against the Company in an unspecified amount exceeding $1.5 million, plus interest and attorneys’
fees.
On June 3, 2016, the Company filed an answer
and counterclaims in the lawsuit. In its counterclaims, the Company alleges that the plaintiffs misrepresented their qualifications
to assist it in fundraising and that they failed to disclose that they were under investigation for securities laws violations.
The Company is seeking damages in an amount exceeding $0.5 million and an order rescinding any and all agreements that the plaintiffs
contend entitled them to obtain stock in the Company. The Company’s investigation of the allegations made by the plaintiffs
is ongoing and it intends to vigorously defend the complaint and pursue its counterclaims.
On April 19, 2017, the Court granted plaintiffs’
counsel’s motion to withdraw from the case. The Court stayed the case for 45 days to give plaintiffs an opportunity to find
new attorneys. The Court’s order further stated that, should the plaintiffs fail to obtain new counsel, the Company may seek
a dismissal of the claims of the corporate plaintiff, Solomon Capital LLC, and the remaining individual plaintiffs will be deemed
to represent themselves in the action.
Other Matters.
During the second quarter of 2016, warrants
representing 128,500 shares were exercised. The 128,500 shares of common stock had previously been registered for re-sale. However,
we believe that these 128,500 warrant shares were sold by the holders in open market transactions in May 2016 at a time when the
registration statement was ineffective. Accordingly, those sales were not made in accordance with Sections 5 and 10(a)(3) of the
Securities Act, and the purchasers of those shares may have rescission rights (if they still own the shares) or claims for damages
(if they no longer own the shares). The amount of any such liability is uncertain and as such, an accrual for any potential loss
has not been made. The Company believes that any claims brought against it would not result in a material impact to the Company’s
financial position or results of operations. The Company has not accrued a loss for a potential claim associated with this matter
as it is unable to estimate any at this time.
The Company may be involved, from time
to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties
and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that
it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company
believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or
other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that
would have a material adverse effect on the Company’s financial position, results of operations or cash flows.
NOTE 9. COMMITMENTS AND CONTINENGIES
Facilities Leases
Tampa Lease
In December 2014, the Company commenced a five-year non-cancellable
operating lease with the University of South Florida Research Foundation for a 5,115 square foot facility located in Tampa, Florida.
The facility is part of the University of South Florida research park and is used as the Company’s research and development
facilities. The Company has the option to extend the lease term of this facility for an additional five-year period on the same
terms and conditions, except that the base rent for the renewal term will be increased in accordance with the applicable consumer
price index.
In April 2015, the Company amended the
original lease agreement to increase the rentable space to 6,043 square feet. In September 2016, the Company further increased
the rentable space to 8,673 square feet. The per square foot cost and term of the lease were unchanged.
San Carlos Lease
On August 4, 2016, the Company entered into an agreement to
lease 8,733 square feet in San Carlos, California. The term of the lease is 54 months subsequent to the commencement date, and
total expected rental payments under the lease are expected to be $2.1 million.
New York Lease
The Company leases office space in New
York for a monthly rental of approximately $18,000 a month through July 2017.
The Company recognizes rental expense on
the facilities on a straight-line basis over the lease term. Differences between the straight-line rent expense and rent payments
are classified as deferred rent liability on the balance sheet. As of March 31, 2017, the Company's future minimum lease
payments under non-cancelable operating leases are as follows (in thousands):
Year
|
|
Operating
Lease
Commitments
|
|
2017 (remaining nine months)
|
|
$
|
581
|
|
2018
|
|
|
699
|
|
2019
|
|
|
700
|
|
2020
|
|
|
495
|
|
2021
|
|
|
169
|
|
|
|
$
|
2,644
|
|
Rent expense for the three months ended March 31,
2017 and 2016 was $0.2 million and $0.1 million, respectively.
NOTE 10. RELATED PARTY TRANSACTIONS
Sanford J. Hillsberg, one of the Company’s directors,
is an attorney at TroyGould PC. TroyGould PC rendered and continues to render legal services to the Company. The Company paid TroyGould
PC $0.2 million, and $0.1 million during three months ended March 31, 2017 and 2016, respectively. Mr. Hillsberg did not directly
provide any legal services to the Company during the periods noted. As of March 31, 2017, the Company had $0.1 million in liabilities
owing to TroyGould PC related to legal services.
NOTE 11. SUBSEQUENT
EVENTS
Strategic Alliance Agreement
On April 17, 2017, the Company entered into a Strategic Alliance
Agreement (the “SAA”) with M.D. Anderson Cancer Center (“M.D. Anderson”) under which the Company and M.D.
Anderson agreed to conduct clinical and preclinical research studies. The Company agreed in the SAA to provide total funding not
to exceed approximately $14.2 million for the performance of the multi-year studies under the SAA. In return, we will acquire all
rights to inventions resulting from the studies and have been granted a non-exclusive, sub-licensable, royalty-free, and perpetual
license to specified background intellectual property of M.D. Anderson reasonably necessary to exploit, including the commercialization
of, any invention. We have also been granted certain rights in clinical data generated by M.D. Anderson outside of the clinical
trials to be performed under the SAA. The SAA’s term shall continue in effect until the later of the fourth anniversary of
the SAA or the completion or termination of the research and receipt by us of all deliverables due from M.D. Anderson thereunder.