The selling stockholders may offer and
sell any of the shares from time to time in a number of different ways and at varying prices, and may engage a broker, dealer or
underwriter to sell the shares. Information regarding the selling stockholders and the times and manner in which they may offer
and sell the shares under this prospectus is provided under “Selling Stockholders” and “Plan of Distribution”
in the prospectus dated August 5, 2020. See “Plan of Distribution” beginning on page 95 of the prospectus for more
information about how the selling stockholders may sell or otherwise dispose of the shares of common stock being registered pursuant
to the prospectus.
We are filing this prospectus supplement
to supplement and amend the information previously included in the prospectus with the information contained in our Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2020 (the “Quarterly Report”) filed with the Securities and
Exchange Commission on November 10, 2020. Accordingly, we have attached our Quarterly Report to this prospectus supplement. You
should read this prospectus supplement together with the prospectus and any prior prospectus supplements thereto, each to be delivered
with this prospectus supplement.
Our common stock is quoted on the Nasdaq
Capital Market under the symbol “HGEN”. We completed a l-for-5 reverse stock split on September 11, 2020. Share and
per share information in the prospectus has not been recast to give effect to the completion of the reverse stock split; information
in the Quarterly Report gives effect to the reverse stock split. On November 10, 2020, the last reported sale of our common stock
on the Nasdaq Capital Market was $8.59 per share.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act:
If an emerging growth company, indicate by check mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court. Yes x No o
Description of the Business
The Company was incorporated on March 15,
2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc.
Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc. During February
2018, the Company completed the restructuring transactions announced in December 2017 and continued its transformation into a clinical-stage
biopharmaceutical company by further developing its clinical stage portfolio of immuno-oncology and immunology monoclonal
antibodies.
The Company is focusing its efforts on the
development of its lead product candidate, lenzilumab™, its
proprietary Humaneered® (“Humaneered”) anti-human granulocyte-macrophage colony-stimulating factor (“GM-CSF”)
monoclonal antibody. Lenzilumab is a monoclonal antibody that has been demonstrated in animal models to neutralize GM-CSF, a cytokine
that the Company believes is of critical importance in the hyperinflammatory cascade, sometimes referred to as cytokine release
syndrome (“CRS”) or cytokine storm, associated with COVID-19, chimeric antigen receptor T-cell (“CAR-T”)
therapy and acute Graft versus Host Disease (“GvHD”) associated with bone marrow transplants. GM-CSF neutralization
with lenzilumab has been shown to reduce downstream inflammatory cytokines, prevent CRS and reduce its associated neurologic toxicities
in-vivo in validated preclinical human xenograft models (Blood. 2019 Feb 14;133(7):697-709).
Lenzilumab is currently in a phase 3, multicenter,
double-blind, placebo-controlled registrational trial for hospitalized, hypoxic patients with COVID-19 pneumonia. Based on discussions
with the U.S. Food and Drug Administration (“FDA”), including a recent Type B meeting, the Company believes that the
phase 3 trial could lead to a potential filing of an Emergency Use Authorization (“EUA”) application if data warrant
such a filing. If the EUA were filed and granted, the Company could begin commercialization. The Company also intends to file a
Biologics License Application (“BLA”) in 2021. Based on the discussion with FDA, the Company understands that a BLA
will require the Company to generate and present more clinical data than would be required to support an EUA.
The Company recently announced that lenzilumab
will be included in the ACTIV-5 “Big Effect Trial” (ACTIV-5/BET). This study is sponsored by the National Institutes
of Health (“NIH”). ACTIV-5/BET is designed to determine whether certain approved therapies or investigational drugs
in late-stage clinical development show promise against COVID-19 and, therefore, merit advancement into larger clinical trials.
ACTIV-5/BET, which is expected to enroll at as many as 40 US sites, will evaluate lenzilumab with remdesivir, compared to placebo
and remdesivir, in hospitalized COVID-19 patients, with approximately 100 patients expected to be assigned to each study arm. The
Company is providing lenzilumab for the study, which is fully funded by NIH.
Lenzilumab is also being studied in a multicenter
phase 1b/2 potential registrational trial as a sequenced therapy with Yescarta® (axicabtagene ciloleucel) to reduce CRS and
neurotoxicity in patients with relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”). This trial is being
conducted in partnership with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”), which markets Yescarta. The Company
is also in the final planning stages for a Phase 2/3 trial for lenzilumab to treat patients who have undergone allogeneic hematopoietic
stem cell therapy (“HSCT”) who are at high risk for acute GvHD. The trial is expected to be conducted by the IMPACT
Partnership, a collection of 23 stem cell transplant centers located in the United Kingdom.
The Company’s proprietary, patented
Humaneered technology platform is a method for converting existing antibodies (typically murine) into engineered, high-affinity
human antibodies designed for therapeutic use, particularly with acute and chronic conditions. The Company has developed or in-licensed
targets or research antibodies, typically from academic institutions, and then applied its Humaneered technology to produce them.
Lenzilumab and the Company’s other two product candidates, ifabotuzumab and HGEN005, are Humaneered monoclonal antibodies.
The Company’s Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and
have a high affinity for their target but low immunogenicity. The Company believes its Humaneered antibodies offer additional advantages,
such as lower likelihood to induce an inappropriate immune response or infusion related reaction, high potency, and a slow off-rate.
See Management’s Discussion and Analysis
of Financial Condition and Results of Operations in Item 2 of this Quarterly Report on Form 10-Q for additional information regarding
the business.
Liquidity and Going Concern
The Condensed Consolidated Financial Statements
for the three and nine months ended September 30, 2020 were prepared on the basis of a going concern, which contemplates that the
Company will be able to realize assets and discharge liabilities in the normal course of business. However, the Company has
incurred net losses since its inception and has negative operating cash flows. These conditions raised substantial doubt about
the Company’s ability to continue as a going concern as described in the Company’s historical Condensed Consolidated
Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in its Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
Following completion of its underwritten
public offering in September 2020, as of September 30, 2020, the Company had cash and cash equivalents of $91.5 million (see Note
6). Accordingly, the Company re-evaluated its potential going concern disclosure requirements in accordance with ASC 205-40-50
as of September 30, 2020. Upon completion of this evaluation, the Company has concluded that its existing cash and cash equivalents
have alleviated that prior substantial doubt about the Company’s ability to continue as a going concern.
The Company believes that its cash and cash
equivalents will be sufficient to fund its planned operations and capital expenditure requirements for at least 12 months. This
evaluation is based on relevant conditions and events that are currently known or reasonably knowable. As a result, the Company
could deplete its available capital resources sooner than it currently expects, and a delay in obtaining or failure to obtain an
EUA could further constrain its cash resources. The Company has based these estimates on assumptions that may prove to be wrong,
and its operating projections, including its projected net revenue following the potential receipt of an EUA for lenzilumab in
COVID-19 patients, may change as a result of many factors currently unknown to it. If the Company is unable to raise additional
capital when needed or on acceptable terms, it would be forced to delay, reduce or eliminate its research and development programs
and commercialization efforts. Alternatively, the Company might raise funds through strategic collaborations, public or private
financings or other arrangements. Such funding, if needed, may not be available on favorable terms, or at all. The financial statements
included herein do not include any adjustments that might result from the outcome of these uncertainties.
Basis of Presentation
The accompanying interim unaudited Condensed
Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements and
include all adjustments necessary for the presentation of the Company’s condensed consolidated financial position, results
of operations and cash flows for the periods presented. The Condensed Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company
will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments
in the normal course of business. The December 31, 2019 Condensed Consolidated Balance Sheet was derived from the audited financial
statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative
of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period. The accompanying
unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements
and the related notes thereto included in the Company’s 2019 Form 10-K.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported
in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.
The Company believes judgment is involved in determining the valuation of the fair value-based measurement of stock-based compensation
and warrant valuations. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events
and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those
differences could be material to the Condensed Consolidated Financial Statements.
Certain prior year amounts have been reclassified
to conform to the current year presentation. Such reclassifications had no effect on prior years’ Net loss or Stockholders’
equity (deficit).
Effective 4:30 p.m. Eastern Time on September
11, 2020 (the “Effective Time”), the Company amended its charter to effect a reverse stock split at a ratio of 1-for-5
(the “Split Ratio”). No fractional shares were issued in connection with the reverse stock split. Stockholders of record
otherwise entitled to receive fractional shares of common stock received cash (without interest or deduction) in lieu of such fractional
share interests.
The reverse stock split reduced the total
number of shares of the Company’s common stock outstanding as of the Effective Time from approximately 210.9 million shares
to approximately 42.2 million shares. The par value per share and other terms of the Company’s common stock were not affected
by the reverse stock split, and the number of authorized shares of the Company’s common stock remains at 225,000,000.
The reverse stock split resulted in a proportionate
adjustment in the number of shares reserved for issuance under the Humanigen, Inc. 2020 Omnibus Incentive Compensation Plan (the
“2020 Equity Plan”), such that a total of 7,000,000 shares of the Company’s common stock were reserved for issuance
under the 2020 Equity Plan following the Effective Time. In addition, proportionate adjustments were made to the number of shares
covered by, and the exercise price applicable to, each outstanding stock option award under the Humanigen, Inc. 2012 Equity Incentive
Plan (the “2012 Equity Plan”) and outstanding warrants issued by the Company, in each case to give effect to the Split
Ratio and the reverse stock split.
The reverse stock split was accounted for
retroactively and is reflected in our common stock, stock option and warrant activity as of and during the year ended December
31, 2019 and the periods ended September 30, 2020 and 2019. Unless stated otherwise, all share data in this Quarterly Report on
Form 10-Q have been adjusted, as appropriate, to reflect the reverse stock split.
2. Summary of Significant Accounting Policies
There have been no material changes in the
Company’s significant accounting policies since those previously disclosed in the 2019 Form 10-K.
3. Potentially Dilutive Securities
The Company’s potentially dilutive
securities, which include stock options and warrants, have been excluded from the computation of diluted net loss per common share
as the effect of including those securities would be to reduce the net loss per common share and be antidilutive. Therefore, the
denominator used to calculate both basic and diluted net loss per common share is the same in each period presented.
The following outstanding potentially dilutive
securities have been excluded from the computations of diluted net loss per common share:
|
|
As of September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
3,528,642
|
|
|
|
3,027,875
|
|
Warrants to purchase common stock
|
|
|
76,238
|
|
|
|
66,239
|
|
|
|
|
3,604,880
|
|
|
|
3,094,114
|
|
4. Debt
Notes Payable to Vendors
On June 30, 2016, the Company issued promissory
notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Company’s
Plan of Reorganization (the “Plan”) filed with the United States Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy Case”) which became effective June 30, 2016,
at which time the Company emerged from its Chapter 11 bankruptcy proceedings. The notes were unsecured, accrued interest at 10%
per annum and became due and payable in full, including principal and accrued interest on June 30, 2019. In July and August, 2019,
following the receipt of proceeds from the 2019 Bridge Notes, the Company used approximately $0.5 million of the proceeds to retire
a portion of these notes, including accrued interest. After giving effect to these payments, the aggregate principal amount and
accrued but unpaid interest on these notes approximated $1.1 million as of December 31, 2019 and the Company had accrued $0.3 million
in interest expense. In June and July 2020, the Company used the proceeds from the Private Placement (as defined below) to repay
the remaining outstanding principal including accrued and unpaid interest on these notes and the notes were extinguished. As of
September 30, 2020, all the notes have been repaid.
Advance Notes
In June, July and August, 2018 the Company
received an aggregate of $0.9 million of proceeds from advances made to the Company (the “Advance Notes”) by four different
lenders including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval Holdings, Ltd. (“Cheval”),
an affiliate of Black Horse Capital, L.P. (“BHC”), the Company’s controlling stockholder at the time; and Ronald
Barliant, a director of the Company. The Advance Notes accrued interest at a rate of 7% per year, compounded annually.
In accordance with their terms, on May 30,
2019, in connection with the Company’s announcement of the Collaboration Agreement with Kite, the lenders converted the amounts
due under the Advance Notes into the Company’s common stock at the conversion price of $2.25 per share. The Company issued
a total of 435,924 shares of common stock in connection with the conversion.
2018 Convertible Notes
Commencing September 19, 2018, the Company
delivered a series of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans
made to the Company by six different lenders, including an affiliate of BHC, the Company’s controlling stockholder at the
time. The 2018 Notes accrued interest at a rate of 7% per annum and, in general, were set to mature twenty-four months from the
date the 2018 Notes were signed. The Company used the proceeds from the 2018 Notes for working capital.
The 2018 Notes were convertible into equity
securities of the Company in three different scenarios, including if the Company sold its equity securities on or before the date
of repayment of the 2018 Notes in any financing transaction that resulted in gross proceeds to the Company of less than $10 million
(a “Non-Qualified Financing”). In connection with a Non-Qualified Financing, the noteholders were able to convert their
remaining 2018 Notes into either (i) such equity securities as the noteholder would acquire if the principal and accrued but unpaid
interest thereon (the “Conversion Amount”) were invested directly in the financing on the same terms and conditions
as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $2.25 per
share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring
subsequent to the date of the Notes).
The Company’s sales of shares pursuant
to the ELOC Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”) constituted a Non-Qualified Financing. Commencing
on April 2, 2020, the holders of the 2018 Notes notified the Company of their exercise of their conversion rights under the 2018
Notes. See “2019 Convertible Notes” for additional information regarding the conversion of 2018 Notes by the holders.
As of December 31, 2019, the Company had
accrued $0.2 million in interest related to these promissory notes. Interest expense recorded during the three and nine months
ended September 30, 2020 was approximately $0 and $817 thousand, respectively.
2019 Convertible Notes
Commencing on April
23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Notes” and together with the 2018
Notes, the “Convertible Notes”) evidencing an aggregate of $1.3 million of loans made to the Company. The 2019 Notes
accrued interest at a rate of 7.5% per annum and, in general, were set to mature twenty-four months from the date the 2019 Notes
were signed. The Company used the proceeds from the 2019 Notes for working capital.
The 2019 Notes were convertible into equity
securities of the Company in four different scenarios, including if the Company sold its equity securities on or before the date
of repayment of the 2019 Notes in any financing transaction that resulted in gross proceeds to the Company of less than $10 million
(a “Non-Qualified Financing”). In connection with a Non-Qualified Financing, the noteholders were able to convert their
remaining 2019 Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested
directly in the financing on the same terms and conditions as given to the financing investors in the Non-Qualified Financing,
or (ii) common stock at a conversion price equal to $6.25 per share (subject to ratable adjustment for any stock split, stock dividend,
stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).
The Company’s
sales of shares pursuant to the ELOC Purchase Agreement with LPC constituted a Non-Qualified Financing. Commencing on April 2,
2020, holders of the Convertible Notes, including Cheval, an affiliate of BHC, the Company’s controlling stockholder at the
time, notified the Company of their exercise of their conversion rights under the Convertible Notes. Pursuant to the exemption
from registration afforded by Section 3(a)(9) under the Securities Act, the Company issued an aggregate of 2,397,915 shares of
its common stock upon the conversion of $4.3 million in aggregate principal and interest on the Convertible Notes that were converted,
which obligations were retired. Of these, the Company issued 316,666 shares to Cheval. Dr. Dale Chappell, who was serving as the
Company’s ex-officio chief scientific officer at the time and currently serves as its Chief Scientific Officer, controls
BHC and reports beneficial ownership of all shares held by it and its affiliates, including Cheval. After giving effect to the
shares issued upon such conversions, no convertible notes issued in 2018 or 2019 were outstanding as of September 30, 2020.
As of December 31, 2019, the Company had
accrued $0.1 million in interest related to the 2019 Notes. Interest expense related to the 2019 Notes, recorded during the three
and nine months ended September 30, 2020, was approximately $0 and $219 thousand, respectively.
The Advance Notes, the 2018 Notes and the
2019 Notes had an optional voluntary conversion feature in which the holder could convert the notes in the Company’s common
stock at maturity at a conversion rate of $2.25 per share for the Advance Notes and the 2018 Notes and at a conversion rate of
$6.25 for the 2019 Notes. The intrinsic value of this beneficial conversion feature was $1.8 million upon the issuance of the Advance
Notes, the 2018 Notes and the 2019 Notes and was recorded as additional paid-in capital and as a debt discount which is accreted
to interest expense over the term of the Advance Notes and Notes. Interest expense includes debt discount amortization of $0 and
$785 thousand for the three and nine months ended September 30, 2020, respectively.
The Company evaluated the embedded features
within the Advance Notes, the 2018 Notes and the 2019 Notes to determine if the embedded features are required to be bifurcated
and recognized as derivative instruments. The Company determined that the Advance Notes, the 2018 Notes and the 2019 Notes contain
contingent beneficial conversion features (“CBCF”) that allow or require the holder to convert the Advance Notes, the
2018 Notes and the 2019 Notes, as applicable, to Company common stock at a conversion rate of $2.25 per share for the Advance Notes
and the 2018 Notes and $6.25 for the 2019 Notes, but did not contain embedded features requiring bifurcation and recognition as
derivative instruments. Upon the occurrence of a CBCF that results in conversion of the Advance Notes, the 2018 Notes or the 2019
Notes to Company common stock, the remaining unamortized discount will be charged to interest expense. Upon conversion of the Advance
Notes on May 30, 2019, the remaining unamortized discount was charged to interest expense. Upon the conversion of the Convertible
Notes in April 2020, the remaining related unamortized discount was charged to interest expense.
2020 Convertible Redeemable Notes
On
March 13, 2020 and March 19, 2020 (the “Issuance Dates”), the Company delivered two convertible redeemable promissory
notes (the “2020 Notes”) evidencing loans with an aggregate principal amount of $518,333 made to the Company.
The
2020 Notes accrued interest at a rate of 7.0% per annum and were set to mature on March 13, 2021 and March 19, 2021, respectively.
The 2020 Notes contained an original issue discount of $33,000 and $18,833, respectively. The Company used the proceeds from the
2020 Notes for working capital.
The
notes could be redeemed by the Company at any time before the 270th day following issuance, at a redemption price equal
to the principal and accrued but unpaid interest on the notes to the date of redemption, plus a premium that increases on day 61
and day 121 from the issuance date. Accordingly, the notes were repaid in June 2020 with proceeds from the Private Placement, and
the notes were extinguished.
The Company evaluated the embedded features
within the 2020 Notes and determined that the embedded features are required to be bifurcated and recognized as stand-alone derivative
instruments. The variable-share settlement features within the 2020 Notes qualify as redemption features and meet the net settlement
criterion for qualification as a stand-alone derivative. In determining the fair value of the bifurcated derivative, the Company
evaluated the likelihood of conversion of the 2020 Notes to Company stock. As the Company believed it would have adequate
funding prior to the six month anniversary of the 2020 Notes, the first conversion option for the holders of the 2020 Notes, and
it had the intent to either begin making amortizing payments or to pay off the 2020 Notes in their entirety prior to that date,
the fair value was determined to be $0. The original issue discount was accreted to Interest
expense and the remaining balance was charged to Interest expense upon payoff.
Interest expense related to the 2020 Notes,
recorded during the three and nine months ended September 30, 2020, was approximately $0 and $165 thousand, respectively.
Interest
expense includes the original issue discount amortization of approximately $0 and $52 thousand for the three and nine months ended
September 30, 2020, respectively.
Bridge Notes
On June 28, 2019, the Company issued three
short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to
the Company by three parties: Cheval , an affiliate of BHC, the Company’s controlling stockholder at the time, lent
$750,000; Nomis Bay LTD, the Company’s second largest stockholder, lent $750,000; and Dr. Cameron Durrant, the Company’s
Chief Executive Officer and Chairman of the Board of Directors (the “Board”), lent $200,000. The proceeds from the
June Bridge Notes were used to satisfy a portion of the unsecured obligations incurred in connection with the Company’s emergence
from bankruptcy in 2016 and for working capital and general corporate purposes. Of the $1.7 million in proceeds received, $950,000
was received on June 28, 2019 and was recorded as Advance notes in the Condensed Consolidated Balance Sheet as of June 30, 2019.
The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.
The June Bridge Notes accrued interest at
a rate of 7.0% per annum and after giving effect to multiple extensions, were set to mature on December 31, 2020. The June Bridge
Notes could become due and payable at such earlier time as the Company raised more than $3,000,000 in a bona fide financing transaction
or upon a change in control. Accordingly, the June Bridge Notes were repaid in June 2020 with proceeds from the Private Placement,
and the June Bridge Notes were extinguished.
On November 12, 2019, the Company issued
two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019
Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company by two parties: Cheval, an affiliate of BHC,
our controlling stockholder at the time, lent $250,000; and Dr. Cameron Durrant, our
Chief Executive Officer and Chairman of our Board, lent $100,000. The proceeds from the November Bridge Notes were used
for working capital and general corporate purposes.
The November Bridge Notes ranked on par
with the June Bridge Notes and possessed other terms and conditions substantially consistent with those notes. The November Bridge
Notes accrued interest at a rate of 7.0% per annum and after giving effect to multiple extensions, were set to mature on December
31, 2020. The November Bridge Notes could become due and payable at such earlier time as the Company raised more than $3,000,000
in a bona fide financing transaction or upon a change in control. Accordingly, the November Bridge Notes were repaid in June 2020
with proceeds from the Private Placement.
In April 2020, the Company issued two short-term,
secured bridge notes (the “April Bridge Notes” and together with the June Bridge Notes and the November Bridge Notes,
the “Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company: Cheval, an affiliate of BHC,
the Company’s controlling stockholder at the time, loaned $100,000, and Nomis Bay, the Company’s second largest stockholder,
loaned $250,000. The proceeds from the April Bridge Notes were used for working capital and general corporate purposes.
The April Bridge Notes ranked on par with
the June Bridge Notes and the November Bridge Notes and possessed other terms and conditions substantially consistent with them.
The notes accrued interest at a rate of 7.0% per annum and were set to mature on December 31, 2020. The April Bridge Notes could
become due and payable at such earlier time as the Company raised more than $10,000,000 in a bona fide financing transaction or
upon a change in control. Accordingly, these April Bridge Notes were repaid in June 2020 with proceeds from the Private Placement,
and these bridge notes were extinguished.
The Bridge Notes were secured by a lien
on substantially all the Company’s assets, which liens have been released.
Interest expense related to the Bridge Notes,
recorded during the three and nine months ended September 30, 2020, was approximately $0 and $66 thousand, respectively.
5. Commitments and Contingencies
Contractual Obligations and Commitments
As of September 30, 2020, other than the
retirement and conversion of certain debt described in Note 4 and the license agreements described in Note 7, there were no material
changes to the Company’s contractual obligations from those set forth in the 2019 Form 10-K.
Guarantees and Indemnifications
The Company has certain agreements with
service providers with which it does business that contain indemnification provisions pursuant to which the Company typically agrees
to indemnify the party against certain types of third-party claims. The Company accrues for known indemnification issues when a
loss is probable and can be reasonably estimated. The Company would also accrue for estimated incurred but unidentified indemnification
issues based on historical activity. As the Company has not incurred any indemnification losses to date, there were no accruals
for, or expenses related to, indemnification issues for any period presented.
6. Stockholders’ Equity
Reverse Stock Split
Effective as of 4:30 p.m. Eastern Time on
September 11, 2020 (the “Effective Time”), the Company amended its charter to effect a reverse stock split at a ratio
of 1-for-5 (the “Split Ratio”). No fractional shares were issued in connection with the reverse stock split. Stockholders
of record otherwise entitled to receive fractional shares of common stock received cash (without interest or deduction) in lieu
of such fractional share interests.
The reverse stock split reduced the total
number of shares of the Company’s common stock outstanding as of the Effective Time from approximately 210.9 million shares
to approximately 42.2 million shares. The par value per share and other terms of the Company’s common stock were not affected
by the reverse stock split, and the number of authorized shares of the Company’s common stock remains at 225,000,000.
The reverse stock split resulted in a proportionate
adjustment in the number of shares reserved for issuance under the 2020 Equity Plan, such that a total of 7,000,000 shares of the
Company’s common stock were reserved for issuance under the 2020 Equity Plan following the Effective Time. In addition, proportionate
adjustments were made to the number of shares covered by, and the exercise price applicable to, each outstanding stock option award
under the 2012 Equity Plan and outstanding warrants issued by the Company, in each case to give effect to the Split Ratio and the
reverse stock split.
The reverse stock split was accounted for
retroactively and is reflected in our common stock, stock option and warrant activity as of and during the period ended December
31, 2019 and the periods ended September 30, 2020 and 2019. Unless stated otherwise, all share data in this Quarterly Report on
Form 10-Q have been adjusted, as appropriate, to reflect the reverse stock split.
Lincoln Park Capital Purchase Agreement
On November 8, 2019, the Company entered
into a purchase agreement (the “ELOC Purchase Agreement”) and a registration rights agreement with LPC, pursuant to
which the Company had the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value
per share (the “Common Stock”), subject to certain limitations and conditions set forth in the ELOC Purchase Agreement.
In connection with the signing of the ELOC
Purchase Agreement on November 8, 2019, the Company issued 141,318 shares of its common stock to LPC. The issuance of the shares
was recorded as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’ equity
(deficit).
During the months of December 2019 and January
2020, the Company issued a total of 140,000 shares for aggregate proceeds of $0.3 million under the ELOC Purchase Agreement.
On June 2, 2020, following completion of
the Private Placement described below, the Company notified LPC of its decision to terminate the ELOC Purchase Agreement. The termination
of the ELOC Purchase Agreement became effective on June 3, 2020.
2020 Private Placement
On June 1, 2020, the Company entered into
a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”)
to complete a private placement of our common stock (the “Private Placement”). The closing of the Private Placement
occurred on June 2, 2020 (the “Closing Date”). At the closing, the Company issued and sold 16,505,743 shares of its
common stock (the “Shares”) at a purchase price of $4.35 per share, for aggregate gross proceeds of approximately $71.8
million. The Company used a portion of the proceeds to retire certain indebtedness, as further described in Note 4 - Debt. See
Note 9 for information regarding two complaints filed against us in connection with the Private Placement.
On the Closing Date, the Company and the
Investors also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which
the Company agreed to prepare and file a registration statement (the “Resale Registration Statement”) for the resale
of the Shares with the Securities and Exchange Commission (the “SEC”).
Subject to certain limitations and an overall
cap, the Company may be required to pay liquidated damages to the investors at a rate of 2% of the invested capital for each occurrence
(and continuation for 30 consecutive days thereafter) of a breach by the Company of certain of its obligations under the Registration
Rights Agreement.
The Purchase Agreement also required that
the Company use its commercially reasonable efforts to achieve a listing of the Common Stock on a national securities exchange,
subject to certain limitations set forth in the Purchase Agreement. On July 6, 2020, the Company applied to have its common stock
approved for listing on the Nasdaq Capital Market. On September 18, 2020, the Company’s common stock commenced trading on
the Nasdaq Capital Market under the symbol “HGEN.”
2020 Underwritten Public Offering
On September 17,
2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with J.P. Morgan Securities
LLC and Jefferies LLC, as representatives of the several underwriters, in connection with the public offering of 8,000,000 of the
Company’s shares of common stock. Pursuant to the Underwriting Agreement, the Company granted the underwriters a 30-day option
to purchase an additional 1,200,000 shares of common stock, which option was exercised
in full by the underwriters on September 18, 2020.
As a result of
the pricing of the public offering, the Company’s common stock commenced trading on the Nasdaq Capital Market under the symbol
“HGEN.”
The aggregate
gross proceeds from the sale of the full 9,200,000 shares in the offering were approximately $78.2 million. The Company expects
to use the proceeds from the offering to support its manufacturing, production and commercial preparation activities relating to
lenzilumab as a potential therapy for COVID-19 patients and for working capital and other general corporate purposes.
2020 Equity Plan
On July 27, 2020, the Board unanimously
approved, and recommended that the Company’s stockholders approve, the 2020 Equity Plan, to ensure that the Board and its
compensation committee (the “Compensation Committee”) will be able to make the types of awards, and covering the number
of shares, as necessary to meet the Company’s compensatory needs. On July 29, 2020, the 2020 Equity Plan was approved by
the holders of approximately 63% of the Company’s outstanding shares of common stock on that date. The 2020 Equity Plan became
effective on September 11, 2020 following the Effective Time of the reverse stock split.
Immediately following the Effective Time,
a total of 7,000,000 shares of the Company’s common stock were reserved for issuance under the 2020 Equity Plan. The Board
or Compensation Committee may grant the following types of awards under the 2020 Equity Plan: stock options, stock appreciation
rights, restricted stock, stock awards, restricted stock units, performance shares, performance units, cash-based awards and substitute
awards. The 2020 Equity Plan will remain in effect until the tenth anniversary of its effective date, unless terminated earlier
by the Board.
2012 Equity Plan
The 2020 Equity Plan replaced the 2012 Equity
Plan, under which no further grants will be made. However, any outstanding awards under the 2012 Equity Plan will continue in accordance
with the terms of the 2012 Equity Plan and any award agreement executed in connection with such outstanding awards. At the Effective
Time of the reverse stock split, proportionate adjustments were made to the number of shares covered by, and the exercise price
applicable to, each outstanding stock option award under the 2012 Equity Plan to give effect to the Split Ratio and the reverse
stock split.
Under the 2012 Equity Plan, the Company
could grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants,
and other service providers. For options, the per share exercise price could not be less than the fair market value of a Company
common share on the date of grant. Awards generally vest and become exercisable over three to four years and expire 10 years from
the date of grant. Options generally become exercisable as they vest following the date of grant.
A summary of stock option activity for the
nine months ended September 30, 2020 under all the Company’s options plans is as follows:
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2020
|
|
|
3,176,336
|
|
|
$
|
4.73
|
|
Granted
|
|
|
781,657
|
|
|
|
6.59
|
|
Exercised
|
|
|
(429,330
|
)
|
|
|
(3.55
|
)
|
Cancelled (expired)
|
|
|
(21
|
)
|
|
|
(58.40
|
)
|
Outstanding at September 30, 2020
|
|
|
3,528,642
|
|
|
$
|
5.30
|
|
The weighted average fair value of options
granted during the nine months ended September 30, 2020 was $5.13 per share.
The
Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption
terms for the nine months ended September 30, 2020:
|
Nine Months Ended
|
|
September 30, 2020
|
Exercise price
|
$1.90 - $10.64
|
Market value
|
$1.90 - $10.64
|
Expected term
|
5 - 6 years
|
Expected volatility
|
94.6% - 103.7%
|
Risk-free interest rate
|
0.28% - 1.57%
|
Expected dividend yield
|
- %
|
Stock-Based Compensation
The Company recorded stock-based compensation expense in the
Condensed Consolidated Statements of Operations as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
General and administrative
|
|
$
|
909
|
|
|
$
|
419
|
|
|
$
|
1,415
|
|
|
$
|
1,813
|
|
Research and development
|
|
|
103
|
|
|
$
|
32
|
|
|
|
219
|
|
|
|
64
|
|
Total stock-based compensation
|
|
$
|
1,012
|
|
|
$
|
451
|
|
|
$
|
1,634
|
|
|
$
|
1,877
|
|
At September 30, 2020, the Company had $3.8
million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options
that will be recognized over a weighted-average period of 2.4 years.
7. License and Collaboration Agreements
Kite Agreement
On May 30, 2019, the Company entered into
a collaboration agreement (the “Kite Agreement”) with Kite Pharmaceuticals, Inc., pursuant to which the Company and
Kite are conducting a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory
B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). The primary objective of the study is to determine
the effect of lenzilumab on the safety of Yescarta.
Pursuant to the Kite Agreement, the Company
shall supply lenzilumab to the collaboration for use in the study and will contribute up to approximately $8.0 million towards
the out-of-pocket costs of the study, depending on the number of patients enrolled into the study. During the month of September
2020, the Company paid $2.0 million to Kite towards its contribution for the study, which payment was recorded as Research and
development expense in the three months ended September 30, 2020.
Mayo Agreement
On June 19, 2019 the
Company entered into an exclusive worldwide license agreement (the “Mayo Agreement”) with the Mayo Foundation for Medical
Education and Research (“Mayo”) for certain technologies used to create CAR-T cells lacking GM-CSF expression through
various gene-editing tools including CRISPR-Cas9 (GM-CSF knock-out). The license covers various patent applications and know-how
developed by Mayo in collaboration with the Company. These licensed technologies complement and broaden the Company’s position
in the GM-CSF neutralization space and expand the Company’s discovery platform aimed at improving CAR-T to include gene-edited
CAR-T cells.
Pursuant to the Mayo
Agreement, the Company agreed to pay $200,000 to Mayo within six months of the effective date, or upon completion of a qualified
financing, whichever is earlier. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement
of certain regulatory and commercialization milestones. The initial payment was recorded as Research and development expense in
June 2019. The Company paid the initial payment in June 2020 subsequent to the closing of the Private Placement.
Zurich Agreement
On July 19, 2019 the
Company entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich
(“UZH”) for technology used to prevent or treat Graft versus Host Disease (“GvHD”) through GM-CSF neutralization.
The Zurich Agreement covers various patent applications filed by UZH which complement and broaden the Company’s position
in the application of GM-CSF and expands the Company’s development platform to include improving allogeneic Hematopoietic
Stem Cell Transplantation (“HSCT”).
Pursuant to the Zurich
Agreement, the Company paid $100,000 to UZH in July 2019. The Zurich Agreement also requires the payment of annual maintenance
fees and milestones and royalties upon the achievement of certain regulatory and commercialization milestones. The license payment
of $100,000 was recorded as Research and development expense in July 2019.
Clinical Trial Agreement with the National Institute of Allergy
and Infectious Diseases
On July 24, 2020,
the Company entered into a clinical trial agreement (the “Clinical Trial Agreement”) with the National Institute of
Allergy and Infectious Diseases (“NIAID”), part of NIH, which is part of the United States Government Department of
Health and Human Services, as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the Clinical Trial
Agreement, lenzilumab will be an agent to be evaluated in NIAID-sponsored Accelerating COVID-19 Therapeutic Interventions and Vaccines
(ACTIV)-5 and Big Effect Trial (“BET”), referred to as ACTIV-5/BET, in hospitalized patients with COVID-19.
The NIH created
the Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV) public-private partnership and selected lenzilumab to
be evaluated in its ACTIV-5/BET, which will compare lenzilumab with Gilead’s investigational antiviral, remdesivir, versus
placebo plus remdesivir in hospitalized COVID-19 patients. The trial is expected to enroll 100 patients in each arm of the study
with an interim analysis for efficacy after 50 patients have been enrolled in each arm.
Pursuant to the Clinical Trial Agreement,
NIAID will serve as sponsor and will be responsible for funding, supervising and overseeing ACTIV-5/BET. The Company will be responsible
for providing lenzilumab to NIAID without charge and in quantities to ensure a sufficient supply of lenzilumab. The Clinical Trial
Agreement imposes additional obligations on the Company that are reasonable and customary for clinical trial agreements of this
nature, including in respect of compliance with data privacy laws and potential indemnification obligations.
8. Savant Arrangements
On June 30, 2016 the Company and Savant
Neglected Diseases, LLC (“Savant”) entered into an Agreement for the Manufacture, Development and Commercialization
of Benznidazole for Human Use (the “MDC Agreement”), pursuant to which the Company acquired certain worldwide rights
relating to benznidazole (the “Compound”).
In addition, on the Effective Date the Company
and Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company granted
Savant a continuing senior security interest in the assets and rights acquired by the Company pursuant to the MDC Agreement and
certain future assets developed from those acquired assets.
On the effective date, the Company issued
to Savant a five-year warrant (the “Warrant”) to purchase 40,000 shares of the Company’s Common Stock, at an
exercise price of $11.25 per share, subject to adjustment. As of June 30, 2020, the Warrant was exercisable for 20,000 shares at
an exercise price of $11.25 per share. On July 20, 2020, the Company issued to Savant a total of 10,909 shares of its common stock
pursuant to a “net exercise” of the Warrant by Savant. The Warrant is not expected to vest or become exercisable for
any additional shares of the Company’s common stock.
As a result of the FDA granting accelerated
and conditional approval of a benznidazole therapy manufactured by a competitor for the treatment of Chagas disease and awarding
such competitor a neglected tropical disease PRV in August 2017, the Company ceased development of benznidazole and re-evaluated
the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.
In July 2017, the Company commenced litigation
against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement. Savant has asserted counterclaims
for breaches of contract under the MDC Agreement and the Security Agreement. The dispute primarily concerns the Company’s
right under the MDC Agreement to offset certain costs incurred by the Company in excess of the agreed upon budget against payments
due Savant. See Note 9, below, for more information regarding the Savant litigation. The aggregate cost overages as of June 30,
2017 that the Company asserts are Savant’s responsibility total approximately $3.4 million, net of a $0.5 million deductible.
The Company asserts that it is entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such
that as of June 30, 2017, Savant owed the Company approximately $1.4 million. As of June 30, 2019, the cost overages totaled $4.1
million such that Savant owed the Company approximately $2.1 million in cost overages. Such cost overages have been charged to
Research and development expense as incurred. Recovery of such cost overages, if any, will be recorded as a reduction of Research
and development expense in the period received.
The $2.0 million in milestone payments due
Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2020 and
December 31, 2019.
9. Litigation
Savant Litigation
On July 10, 2017, the Company filed a complaint
against Savant in the Superior Court for the State of Delaware, New Castle County (the “Delaware Court”). KaloBios
Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. The Company asserted breach of contract
and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 8 - “Savant Arrangements”
for more information about the MDC Agreement. The Company alleges that Savant has breached its MDC Agreement obligations to pay
cost overages that exceed a budgetary threshold as well as other related MDC Agreement representations and obligations. In the
litigation, the Company has alleged that as of June 30, 2017, Savant was responsible for aggregate cost overages of approximately
$3.4 million, net of a $0.5 million deductible under the MDC. The Company asserts that it is entitled to offset $2.0 million in
milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant owed the Company approximately $1.4
million.
On July 12, 2017, Savant removed the case
to the Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July
2016. In re KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). On July 27, 2017, Savant filed an Answer
and Counterclaims. Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming
that the Company breached its obligations to pay the milestone payments and other related representations and obligations. On August
1, 2017, the Company moved to remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure
notice to the Company, demanding that it provide the Collateral as defined in the Security Agreement for inspection and possession
on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the
“TRO”) and Preliminary Injunction in the Bankruptcy Court on August 4, 2017. Savant responded on August 7, 2017. On
August 7, 2017, the Bankruptcy Court granted the Company’s motion for a TRO, entering an order prohibiting Savant from collecting
on or selling the Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies
under the MDC Agreement or the Security Agreement. On August 9, 2017, the parties have stipulated to continue the provisions of
the TRO in full force and effect until further order of the appropriate court, which the Bankruptcy Court signed that same day
(the “Stipulated Order”).
On January 22, 2018, Savant wrote to the
Bankruptcy Court requesting dissolution of the TRO and the Stipulated Order. On January 29, 2018, the Bankruptcy Court granted
the Motion to Remand and denied Savant’s request to dissolve the TRO and Stipulated Order, ordering that any request to dissolve
the TRO and Stipulated Order be made to the Delaware Court.
On February 13, 2018 Savant made a letter
request to the Delaware Court to dissolve the TRO and Stipulated Order. Also, on February 13, 2018, the Company filed its Answer
and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 the Company filed a letter opposition to Savant’s
request to dissolve the TRO and Stipulated Order and requesting a status conference. A hearing on Savant’s request to dissolve
the TRO and Stipulated Order was held before the Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request
to dissolve the TRO and Stipulated order, which remain in effect.
On April 11, 2018, the Company advised the
Delaware Court that it would meet and confer with Savant regarding a proposed case management order and date for trial. On April
26, 2018 the Delaware Court so-ordered a proposed case management order submitted by the Company and Savant. The schedule in the
case management order was modified by stipulation on August 24, 2018.
On April 8, 2019, the Company moved to compel
Savant to produce documents in response to the Company’s document requests. The parties thereafter agreed to a discovery
schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other.
On June 4, 2019, Savant filed a complaint
against the Company and Madison in the Delaware Court of Chancery (the “Chancery Action”) seeking to “recover
as damages that amounts owed to it under the MDC Agreement, and to reclaim Savant’s intellectual property,” among other
things. Savant also requested leave to move to dismiss the Company’s complaint on the grounds that the Company’s
transfer of assets to Madison was champertous. On June 10, 2019, the Company requested by letter that the Superior Court
hold a contempt hearing because the Chancery Action violated the TRO entered by the Bankruptcy Court, the terms of which have been
extended by stipulation of the parties. On June 18, 2019, the Superior Court held a telephonic status conference. The
parties agreed that the Chancery Action should be consolidated with the Superior Court action, after which the Superior Court would
address the parties’ motions.
On July 22, 2019, the Company moved for
contempt against Savant. Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied
the Company’s motion for contempt.
On July 23, 2019, Savant moved for summary
judgment on the issue of champerty. The Company filed its response and cross-motion for summary judgment on August 27, 2019.
Savant filed its reply on September 10, 2019 and the Company filed its cross-reply on September 20, 2019. The motion is fully
briefed and was argued at a hearing on February 3, 2020. The court has not yet ruled on the motion.
On July 26, 2019, the Company moved to modify
the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted.
In subsequent orders, the discovery schedule was further extended until the end of June 2020.
On July 30, 2019, the Company filed a motion
to dismiss Savant’s Chancery Action. Savant filed an amended complaint on September 4, 2019, and the Company filed
its opening brief in support of its motion to dismiss on October 11, 2019. That motion is fully briefed and was argued at
a hearing on February 3, 2020. The court has not yet ruled on the motion.
On August 19, 2019, Savant moved to dismiss
the Company’s amended Superior Court complaint. On September 27, 2019, the Company filed an opposition to Savant’s
motion and, in the alternative, requested leave to file a second amended complaint against Savant. Savant consented to the
filing of the second amended complaint and withdrew their motion to dismiss. Savant filed a partial motion to dismiss against
a co-defendant on October 30, 2019. That motion is fully briefed and was argued at a hearing on February 3, 2020. At the
February 3, 2020 hearing, the Court reserved judgment on the parties’ reciprocal motions.
On May 22, 2020, upon the request of the
parties, the Superior Court stayed both Delaware actions until July 29, 2020.
On June 30, 2020, Savant exercised 20,000
warrants in a cashless exercise resulting in 10,909 shares being issued to Savant.
On July 24, 2020, the parties submitted
a joint status report in the Delaware actions. The parties also requested a status conference with the Court to discuss moving
the trial from October 2020 to some later time.
On August 20, 2020, the Court held the requested
status conference and ordered that a consolidated trial for the Superior Court Action and Chancery Action would be held in April
2021. The parties subsequently agreed to a five-day trial starting on April 12, 2021.
On October 7, 2020, Savant moved for leave
to amend its complaint in the Chancery Action to add a claim for breach of contract related to its exercise of 20,000 warrants.
Savant claims that the Company’s issuance of 10,909 shares was insufficient under the warrant.
Private Placement Litigation
On June 15, 2020, a
complaint was filed against Humanigen and Dr. Durrant in the Commercial Division of the Supreme Court of the State of New York.
The case caption is Alliance Texas Holdings, LLC et al. v. Humanigen, Inc. et al., Index No. 652490/2020 (“Alliance
Texas Holdings Case”). The plaintiffs in the Alliance Texas Holdings Case comprise a group of 17 prospective investors introduced
to Humanigen by Noble Capital Markets, Inc. (“Noble”), which had been engaged as a non-exclusive placement agent in
connection with the Private Placement. The plaintiffs had indicated interest in purchasing shares of common stock in the Private
Placement but, due to the strength of demand for shares from other prospective investors introduced to the company by J.P. Morgan
Securities LLC, the lead placement agent for the Private Placement, the plaintiffs were not allocated any investment amount. The
plaintiffs allege that the Company and Dr. Durrant breached a contractual obligation to deliver shares of common stock to the plaintiffs.
The plaintiffs seek to recover for losses due to alleged fraudulent misstatements and the Company’s failure to deliver shares
to them, and seek equitable relief in the form of specific performance. The Defendants filed a Motion to Dismiss the Complaint
in the Alliance Texas Holdings Case on July 24, 2020. The Parties completed briefing on the Motion to Dismiss on September 4, 2020.
The Motion to Dismiss is currently being considered by the court.
On June 19, 2020, Noble
filed a separate complaint against Humanigen in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County,
Florida, also arising from the Private Placement. On July 13, 2020, the Defendants removed Noble’s complaint to United States
District Court for the Southern District of Florida. The case caption is Noble Capital Markets, Inc. v. Humanigen, Inc.,
Case No. 9:20-CV-81131-WPD (the “Noble Case”). Noble’s complaint alleges that Humanigen breached the terms of
its engagement letters with Noble by refusing to pay it the sales commissions it would have earned had its prospective investors
received the entire allocation of shares sought in the Private Placement, as opposed to the $4 million of shares actually allocated
to Noble and its clients. Noble is seeking payment in full of the commission, damages for Humanigen’s alleged tortious interference
with Noble’s business relationship with the investors it introduced to Humanigen, but which were not allocated shares in
the Private Placement, and attorneys’ fees. The Defendants filed a Motion to Dismiss Counts II-V of the Complaint in the
Noble Case on July 20, 2020. The Parties completed briefing on the Motion to Dismiss on August 26, 2020. The Motion to Dismiss
is currently being considered by the court.
The Company believes
that the claims made in each complaint are without merit, and it is prepared to defend itself vigorously.
10. Subsequent Events
On October 5, 2020, the Company’s
Compensation Committee determined that the Company had achieved or exceeded the original fiscal year 2020 performance criteria
and objectives, previously established in connection with the Company’s 2020 annual incentive plan. As a result, the Board
(with Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer, abstaining) unanimously approved the acceleration
of the payout of a portion of Dr. Durrant’s fiscal year 2020 bonus. Dr. Durrant will remain eligible to receive additional
payouts under the 2020 annual incentive plan to the extent the Board determines that the Company has achieved certain additional
and stretch goals for 2020.
Based on the Company’s achievement
of certain pre-established fiscal year 2020 performance criteria and objectives, Dr. Durrant was awarded a fiscal year 2020 bonus
of $1,512,000, with 50% of such bonus being paid in cash and 50% being awarded in stock options. The options were fully vested
on the grant date.
On
October 13, 2020 the Company announced that the National Institute of Allergy and Infectious Diseases (NIAID), part of NIH, launched its
ACTIV-5 "Big Effect Trial" (ACTIV-5/BET), designed to determine whether certain approved therapies or investigational
drugs in late-stage clinical development show promise against COVID-19 and, therefore, merit advancement into larger clinical trials.
ACTIV-5/BET, which is expected to enroll at as many as 40 US sites, will evaluate lenzilumab with remdesivir, compared to placebo
and remdesivir, in hospitalized COVID-19 patients with approximately 100 patients expected to be assigned to each study arm. Humanigen
is providing lenzilumab for the study, which is fully funded by NIH.
On October 29, 2020, the Company entered
into an amended and restated employment agreement (the “New Agreement”) with Dr. Durrant. The New Agreement replaces
Dr. Durrant’s previous employment agreement with the Company (the “Prior Agreement”).
Consistent with the terms of the Prior Agreement,
the New Agreement provides that Dr. Durrant’s annual base salary will remain at $600,000 and he will remain eligible for
an annual bonus targeted at 60% of his base salary, with Dr. Durrant’s base salary and target bonus subject to review by
the Board in connection with its regular review of the Company’s executive compensation program. The New Agreement provides
for a term ending December 31, 2021, with such term extending automatically for successive one year terms thereafter unless either
Dr. Durrant or the Company gives six months prior notice of non-renewal.
Under the New Agreement, Dr. Durrant is
entitled to receive certain benefits upon termination of employment under certain circumstances. If the Company terminates Dr.
Durrant’s employment for any reason other than “Cause”, or if Dr. Durrant resigns for “Good Reason”
(each as such term is defined in the New Agreement), Dr. Durrant will receive a lump sum payment equal to the sum of (i) his then-current
annual salary and (ii) the amount of the annual bonus earned by Dr. Durrant for the year prior to the year of termination.
The New Agreement additionally provides
that if Dr. Durrant resigns for Good Reason or the Company terminates his employment other than for Cause within the three month
period prior to or the two year period following a change in control (as such term is defined in the New Agreement), the Company
must pay or cause its successor to pay Dr. Durrant a lump sum cash payment equal to two times (a) his annual salary plus (b) the
aggregate bonus received by Dr. Durrant for the year immediately preceding the change in control. In addition, upon such a resignation
or termination, Dr. Durrant will also be entitled to be reimbursed for certain monthly health plan continuation premiums for up
to 18 months, and all outstanding stock options held by Dr. Durrant will immediately vest and become exercisable.
On
November 3, 2020, the Company entered into a License Agreement (the “License Agreement”) with KPM Tech Co., Ltd. (“KPM
Tech”) and its affiliate, Telcon RF Pharmaceutical, Inc. (together with KPM Tech, the “Licensee”). Pursuant to
the License Agreement, among other things, the Company granted the Licensee a license under certain patents and other intellectual
property to develop and commercialize the Company’s lead product candidate, lenzilumab, for treatment of COVID-19 pneumonia,
in South Korea and the Philippines, subject to certain reservations and limitations. The Licensee will be responsible for gaining
regulatory approval for, and subsequent commercialization of, lenzilumab in those territories.
As
consideration for the license, the Licensee has agreed to pay the Company (i) an up-front license fee of $6.0 million,
payable promptly following the execution of the License Agreement, (ii) up to an aggregate of $14.0 million in two payments
based on achievement by the Company of two specified milestones in the US, and (iii) subsequent to the receipt by the
Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea and the
Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that the
Company will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost plus basis from an existing or future
manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.
On
November 5, 2020, the Company and the Department of Defense
(DoD) Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND or JPEO) entered
into a Cooperative Research and Development Agreement (“CRADA”) in collaboration with the Biomedical Advanced Research
and Development Authority (BARDA), part of the Office of the Assistant Secretary for Preparedness and Response (ASPR) at the U.S.
Department of Health and Human Services (HHS), in support of Operation Warp Speed (“OWS”), to assist in the development
of lenzilumab in advance of a potential Emergency Use Authorization (“EUA”) for COVID-19.
Pursuant
to the CRADA, the Company will be provided access to a full-scale, integrated team of OWS manufacturing, and regulatory subject
matter experts, leading decision makers and statistical support in anticipation of applying for EUA and subsequently a Biologics
License Application (“BLA”), for lenzilumab as a potential treatment for COVID-19. The CRADA also provides that OWS
regulatory experts will work with the Company on U.S. Food and Drug Administration (FDA) communications, meetings and regulatory
filings. The CRADA aims to support the ongoing lenzilumab Phase 3 clinical trials, focusing on efficiently generating an EUA and
BLA submission. In addition to providing access under EUA, a goal of the CRADA is to ensure lenzilumab receives the benefits provided
by Public Law 115-92.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
You should read the following discussion
and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report
on Form 10-Q and our 2019 Form 10-K for the fiscal year ended December 31, 2019. This Quarterly Report on Form 10-Q contains
statements that discuss future events or expectations, projections of results of operations or financial condition, trends in our
business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify
“forward-looking statements” by words like “may,” “will,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,”
“potential” or “continue” or the negative of those words and other comparable words. These statements may
relate to, among other things, our expectations regarding the scope, progress, expansion, and costs of researching, developing
and commercializing our product candidates; our opportunity to benefit from various regulatory incentives; expectations for our
financial results, revenue, operating expenses and other financial measures in future periods; and the adequacy of our sources
of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements. Among the factors that
could cause actual results to differ materially are the factors discussed under “Risk Factors” in our most recent Annual
Report on Form 10-K, and each subsequently filed Quarterly Report on Form 10-Q. Some additional
factors that could cause actual results to differ include:
|
·
|
the evolution of scientific discovery around the coronavirus, COVID-19 and the lung dysfunction resulting in some patients
may indicate that cytokine storm is caused by or results from something other than elevated GM-CSF levels;
|
|
·
|
the enrollment, timing and results of our Phase III trial of lenzilumab for the prevention and treatment of cytokine
storm in COVID-19 pneumonia;
|
|
·
|
the enrollment, timing and results of the ACTIV-5/BET sponsored by NIH for the use of lenzilumab and remdesivir in
COVID-19 patients;
|
|
·
|
the possibility that FDA might not grant an EUA for lenzilumab or, if one were granted, that its duration might be shorter
than anticipated or the EUA might be conditioned to a greater degree than anticipated;
|
|
·
|
the duration and impact of COVID-19;
|
|
·
|
our ability to research, develop and commercialize our product candidates, including our ability to do so before our competitors
develop and receive FDA approval for treatments or vaccines for COVID-19;
|
|
·
|
our ability to execute our strategy and business plan focused on developing our proprietary monoclonal antibody portfolio
and our GM-CSF knockout gene-editing CAR-T platform;
|
|
·
|
our ability to attract and retain other collaborators with development, regulatory and commercialization expertise to pursue
the other initiatives in our development pipeline;
|
|
·
|
our ability to successfully pursue the Kite collaboration;
|
|
·
|
the initiation and successful completion of the GvHD study in the UK with the IMPACT Partnership;
|
|
·
|
our ability to attain the additional financing we will need to pursue our development initiatives, reserve and fund sufficient
manufacturing capacity and commercialize our product candidates on favorable terms or at all;
|
|
·
|
our ability to successfully maintain the listing of our common stock on the Nasdaq Capital Market;
|
|
·
|
the timing of the initiation, enrollment and completion of planned clinical trials;
|
|
·
|
our ability to timely source adequate supply of our development and if approved, commercial products from third-party manufacturers
on which we depend;
|
|
·
|
the potential, if any, for future development of any of our present or future products;
|
|
·
|
increasing levels of market acceptance of CAR-T therapies and stem cell transplants and the development of a market for
lenzilumab in these therapies;
|
|
·
|
our ability to successfully progress, partner or complete further development of our programs;
|
|
·
|
the potential timing and outcomes of development, preclinical and clinical studies of lenzilumab, ifabotuzumab, HGEN005,
any of our CAR-T projects and the uncertainties inherent in development, preclinical and clinical testing;
|
|
·
|
our ability to identify and develop additional uses for our products;
|
|
·
|
our ability to attain market exclusivity and/or to obtain, maintain, protect and enforce our intellectual property and to
operate our business without infringing, misappropriating or otherwise violating, the intellectual property rights of others;
|
|
·
|
the outcome of pending, threatened or future litigation;
|
|
·
|
acquisitions or in-licensing transactions that we may pursue may fail to perform as expected;
|
|
·
|
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions;
|
|
·
|
limitations and/or warnings in the label of an approved product candidate or one that is granted an EUA;
|
|
·
|
changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the
various regulatory incentives, or the imposition of regulations that affect our products;
|
|
·
|
the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the
best interests of our stockholders; and
|
|
·
|
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.
|
These are only some of the factors that
may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors
that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Risk Factors”
in Item 1A of Part I of our 2019 Form 10-K. You should review these risk factors for a more complete understanding of the risks
associated with an investment in our securities. However, we operate in a competitive and rapidly changing environment and new
risks and uncertainties emerge, are identified or become apparent from time to time. It is not possible for us to predict all risks
and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. You should be aware
that the forward-looking statements contained in this Form 10-Q are based on our current views and assumptions. We undertake no
obligation to revise or update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the
date hereof or to reflect new information or the occurrence of unanticipated events, except as required by law.
Overview
We were incorporated on March 15, 2000 in
California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. Effective
August 7, 2017, we changed our legal name to Humanigen, Inc. During February 2018, we completed
the financial restructuring transactions announced in December 2017 and continued our transformation into a clinical-stage biopharmaceutical
company by further developing our clinical stage portfolio of immuno-oncology and immunology monoclonal antibodies.
We are focusing our efforts on the development
of our lead product candidate, lenzilumab™, our proprietary Humaneered® (“Humaneered”) anti-human granulocyte-macrophage
colony-stimulating factor (“GM-CSF”) monoclonal antibody. Lenzilumab is a monoclonal antibody that has been demonstrated
in animal models to neutralize GM-CSF, a cytokine that we believe is of critical importance in the hyperinflammatory cascade, sometimes
referred to as cytokine release syndrome (“CRS”) or cytokine storm, associated with COVID-19, chimeric antigen receptor
T-cell (“CAR-T”) therapy and acute Graft versus Host Disease (“GvHD”) associated with bone marrow transplants.
GM-CSF neutralization with lenzilumab has been shown to reduce downstream inflammatory cytokines, prevent CRS and reduce its associated
neurologic toxicities in-vivo in validated preclinical human xenograft models (Blood. 2019 Feb 14;133(7):697-709).
Lenzilumab is currently in a phase 3, multi-center,
double-blind, placebo-controlled registrational trial for hospitalized, hypoxic patients with COVID-19 pneumonia. Based on our
discussions with FDA, including a recent type B meeting, we believe that the phase 3 trial could lead to a potential filing of
an Emergency Use Authorization (“EUA”) application if data warrant such a filing. If the EUA were filed and granted,
we could begin commercialization. We also intend to file a Biologics license application (“BLA”) in 2021. Based on
discussions with FDA, we understand that a BLA will require us to generate and present more clinical data than would be required
to support an EUA.
We recently announced the results of an
interim analysis of Phase 3 data of lenzilumab in patients hospitalized with COVID-19. This interim analysis suggested that lenzilumab
had a clinically meaningful impact on patient recovery, with an estimated 37 percent more recoveries observed in the lenzilumab
arm of the randomized, placebo-controlled, double-blinded study versus current standard of care (SOC). Based on the interim analysis
the data safety monitoring board (DSMB) recommended increasing the target number of events (recoveries) from 257 to 402 to maintain
the power of the study at 90 percent. The adaptive trial design only allows for the addition of patients if interim data are in
the “promising zone” (i.e., achieving or surpassing an average improvement in recoveries of 29 percent (hazard ratio
(HR) >1.29) through day 28). The company remains blinded to the data and based on the recommended number of events,
the HR was calculated to be 1.37, an average of 37 percent more recoveries observed in the lenzilumab arm compared to the control
arm. At the recommendation of the DSMB, we plan to increase enrollment to achieve 402 events (approximately 515 patients). The
next interim analysis for efficacy is planned when the study reaches 75 percent events (302 events) which will require approximately
390 patients to be enrolled in the trial. We intend to file for EUA in the first quarter of 2021 either following interim data
at 75 percent or at study completion. This Phase 3 trial is enrolling at sites across the U.S. and Latin America. Current enrollment
stands at 300 patients.
We recently announced that lenzilumab will
be included in the ACTIV-5 “Big Effect Trial” (ACTIV-5/BET). This study is sponsored by the National Institutes of
Health (“NIH”). ACTIV-5/BET is designed to determine whether certain approved therapies or investigational drugs in
late-stage clinical development show promise against COVID-19 and, therefore, merit advancement into larger clinical trials. ACTIV-5/BET,
which is expected to enroll at as many as 40 US sites, will evaluate lenzilumab with remdesivir, compared to placebo and remdesivir,
in hospitalized COVID-19 patients, with approximately 100 patients expected to be assigned to each study arm. We are providing
lenzilumab for the study, which is fully funded by NIH.
Lenzilumab is also being studied in a multicenter
phase 1b/2 potential registrational trial as a sequenced therapy with Yescarta® (axicabtagene ciloleucel) to reduce CRS and
neurotoxicity in patients with relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”). This trial is being
conducted in partnership with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”), which markets Yescarta. We are
also in the final planning stages for a Phase 2/3 trial for lenzilumab to treat patients who have undergone allogeneic hematopoietic
stem cell therapy (“HSCT”) who are at high risk for acute GvHD. The trial is expected to be conducted by the IMPACT
Partnership, a collection of 23 stem cell transplant centers located in the United Kingdom.
Our proprietary, patented Humaneered technology
platform is a method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed
for therapeutic use, particularly with acute and chronic conditions. We have developed or in-licensed targets or research antibodies,
typically from academic institutions, and then applied our Humaneered technology to produce them. Lenzilumab and our other two
product candidates, ifabotuzumab and HGEN005, are Humaneered monoclonal antibodies. Our Humaneered antibodies are closer to human
antibodies than chimeric or conventionally humanized antibodies and have a high affinity for their target but low immunogenicity.
We believe our Humaneered antibodies offer additional advantages, such as lower likelihood to induce an inappropriate immune response
or infusion related reactions, high potency, and a slow off-rate.
Effective as of 4:30
p.m. Eastern Time on September 11, 2020 (the “Effective Time”), we amended our charter to effect a reverse stock split
at a ratio of 1-for-5. At the Effective Time, each holder of our common stock had its ownership adjusted to reflect ownership of
one share of common stock for every five shares of common stock held immediately prior to the Effective Time. No fractional shares
were issued in connection with the reverse stock split. Stockholders of record otherwise entitled to receive fractional shares
of common stock received cash (without interest or deduction) in lieu of such fractional share interests.
The par value per share and other terms
of our common stock were not affected by the reverse stock split, and the number of authorized shares of our common stock will
remain at 225,000,000. The reverse stock split reduced the total number of shares of our common stock outstanding as of the Effective
Time from approximately 210.9 million shares to approximately 42.2 million shares. Following the Effective Time, the CUSIP number
for our common stock changed to 444863203. Unless stated otherwise, all share numbers and share price figures in this Quarterly
Report on Form 10-Q have been adjusted, as appropriate, to reflect the reverse stock split.
Our Pipeline
In addition to our
programs with lenzilumab, we are also exploring the effectiveness of our GM-CSF neutralization technologies (either through the
use of lenzilumab as a neutralizing antibody, or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging,
and immunotherapy treatments to break the efficacy/toxicity linkage including the prevention and/or treatment of GvHD while preserving
graft-versus-leukemia (“GvL”) benefits in patients undergoing allogeneic hematopoietic stem cell therapy (“HSCT”).
In this context, GvHD is akin to cytokine storm and we believe this to be a similar mechanism and driven by elevated GM-CSF levels.
We believe that we
have built a strong intellectual property position in the area of GM-CSF neutralization through multiple approaches and mechanisms,
as they pertain to COVID-19, CAR-T, GvHD and multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions
which may be driven by GM-CSF.
Our clinical-stage
pipeline also comprises a further Phase 1 study which is almost fully enrolled with ifabotuzumab in glioblastoma multiforme (“GBM”)
and potentially other solid cancers and an additional Phase 2 study in CMML. We also have a focus on creating safer and more effective
CAR-T therapies in hematologic malignancies and solid tumors via three key modalities:
|
·
|
Combining FDA-approved and development stage CAR-T therapies with lenzilumab;
|
|
·
|
Creating next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies; and
|
|
·
|
Exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of
lenzilumab as a neutralizing antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy
treatments, including allogeneic HSCT.
|
These product candidates
are in the early stage of development and will require substantial time, resources, research and development, and regulatory approval
prior to commercialization. Furthermore, none of these product candidates have been approved for marketing and it may be years
before such approval is granted, if at all. Our current pipeline is depicted below:
Lenzilumab in COVID-19
Phase 3 top-line data readout expected
Q1 2021
Clinical-Stage Pipeline: Non COVID-19
1 Phase III may not be necessary for approval in ZUMA-19;
precedent is CAR-Ts to date have been approved on Phase II data
2 UK
3 US, EU, Australia
4 Australia
As of September 30, 2020, the Company had
cash and cash equivalents of $91.4 million. We believe that the net proceeds from our recent underwritten public offering will
be sufficient to fund our planned operations and capital expenditure requirements for at least 12 months. This evaluation is based
on relevant conditions and events that are currently known or reasonably knowable. As a result, we could deplete our available
capital resources sooner than we currently expect, and a delay in obtaining or failure to obtain an EUA could further constrain
our cash resources. We have based these estimates on assumptions that may prove to be wrong, and our operating projections, including
our projected net revenue following the potential receipt of an EUA for lenzilumab in COVID-19 patients, may change as a result
of many factors currently unknown to us. If we are unable to raise additional capital when needed or on acceptable terms, we would
be forced to delay, reduce, or eliminate our research and development programs and commercialization efforts. Alternatively, we
might raise funds through strategic collaborations, public or private financings or other arrangements. Such funding, if needed,
may not be available on favorable terms, or at all. The financial statements included herein do not include any adjustments that
might result from the outcome of this uncertainty.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial
statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures
reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Our management
believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value-based measurement
of stock-based compensation, accruals and warrant valuations. Our management evaluates estimates and assumptions as facts and circumstances
dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates
and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements. If our assumptions
change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse
effect on our statements of operations, liquidity and financial condition.
Until December 31, 2018, we qualified as
an emerging growth company (“EGC”) under the JOBS Act. Emerging growth companies can delay adopting new or revised
accounting standards until such time as those standards apply to private companies. We elected to avail ourselves of this exemption
from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards
as other smaller reporting companies that are not emerging growth companies.
We ceased to be considered as an EGC as
of December 31, 2018. Accordingly, we are required to adopt new accounting standards on the same timeline as other smaller reporting
companies.
There were no significant and material changes
in our critical accounting policies and use of estimates during the three months ended September 30, 2020, as compared to those
disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical
Accounting Policies and Use of Estimates” in our 2019 Form 10-K, filed with the SEC on March 16, 2020.
Results of Operations
General
We have not generated net income from operations
for any periods presented. At September 30, 2020, we had an accumulated deficit of $342.1
million primarily as a result of research and development and general and administrative expenses. While we may in the
future generate revenue from a variety of sources, including license fees, milestone payments, and research and development payments
in connection with strategic partnerships, our product candidates may never be successfully developed or commercialized and we
may therefore never realize revenue from any product sales, particularly because most of our product candidates are at an early
stage of development. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future,
and there can be no assurance that we will ever generate significant revenue or profits.
Research and Development Expenses
Conducting research and development is central
to our business model. We expense both internal and external research and development costs as incurred. We track external research
and development costs incurred by project for each of our clinical programs. Our external research and development costs consist
primarily of:
|
·
|
expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct
our clinical trials and a substantial portion of our pre-clinical activities;
|
|
·
|
the cost of acquiring and manufacturing clinical trial and other materials; and
|
|
·
|
other costs associated with development activities, including additional studies.
|
Other research and development costs consist
primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees (such
as workers compensation and health insurance premiums), stock-based compensation charges, travel costs, lab supplies, overhead
expenses such as rent and utilities, and external costs not allocated to one of our clinical programs. Internal research and development
costs generally benefit multiple projects and are not separately tracked per project.
The following table shows our total research
and development expenses for the three and nine months ended September 30, 2020 and 2019:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
External Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lenzilumab
|
|
$
|
21,979
|
|
|
$
|
401
|
|
|
$
|
43,331
|
|
|
$
|
1,680
|
|
Ifabotuzumab
|
|
|
29
|
|
|
|
20
|
|
|
|
79
|
|
|
|
74
|
|
Internal costs
|
|
|
408
|
|
|
|
128
|
|
|
|
808
|
|
|
|
388
|
|
Total research and development
|
|
$
|
22,416
|
|
|
$
|
549
|
|
|
$
|
44,218
|
|
|
$
|
2,142
|
|
General and Administrative Expenses
General and administrative expenses consist
principally of personnel-related costs, professional fees for legal and patent expenses, consulting, audit and tax services, investor
and public relations costs, rent and other general operating expenses not otherwise included in research and development.
Comparison of Three Months Ended September 30, 2020 and
2019
|
|
Three Months Ended September 30,
|
|
|
Increase/ (Decrease)
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
22,416
|
|
|
$
|
549
|
|
|
$
|
21,867
|
|
|
|
3,983
|
|
Selling, general and administrative
|
|
|
8,331
|
|
|
|
1,497
|
|
|
|
6,834
|
|
|
|
457
|
|
Loss from operations
|
|
|
(30,747
|
)
|
|
|
(2,046
|
)
|
|
|
28,701
|
|
|
|
1,403
|
|
Interest expense
|
|
|
(3
|
)
|
|
|
(343
|
)
|
|
|
(340
|
)
|
|
|
(99
|
)
|
Other expense, net
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
100
|
|
Net loss
|
|
$
|
(30,751
|
)
|
|
$
|
(2,389
|
)
|
|
$
|
28,362
|
|
|
|
1,187
|
|
Research and development expenses increased
$21.9 million from $0.5 million for the three months ended September 30, 2019 to $22.4 million for the three months ended September
30, 2020. The increase is primarily due to increased clinical trial and clinical material manufacturing costs related to the clinical
trial in COVID-19. We expect our development costs to continue to increase in the remaining three months of 2020 as a result of
securing manufacturing capacity, the production of lenzilumab and the enrollment of patients in the clinical trials for COVID-19
and CAR-T therapy.
Selling, general and administrative expenses
increased $6.8 million from $1.5 million for the three months ended September 30, 2019 to $8.3 million for the three months ended
September 30, 2020. The increase is primarily due to increased compensation costs of $2.1 million, related to the hiring of a new
Chief Operating Officer and Chief Financial Officer and a new Chief Accounting and Administrative Officer, as well as an increase
in bonus costs for our Chief Executive Officer, an increase in public and investor relations expense of $3.5 million, which amount
includes the issuance of warrants with a fair value of $1.9 million to certain third party consultants, and an increase in legal
fees of $0.6 million, incurred in connection with financing preparations and other corporate actions taken. In the third quarter
of 2020, we have also incurred $0.6 million in commercial operations expense related to the hiring of a Chief Commercial Officer
and the retention of consultants as we prepare for a potential commercial launch under an EUA in COVID-19. While we expect our
overall general and administrative costs to decrease in the remaining three months of 2020 as compared to the third quarter, we
expect that we will continue to scale our support operations in connection with the ongoing clinical trials of lenzilumab in COVID-19
and will increase our commercial operations spending in preparation for potential commercialization under an EUA.
Interest expense decreased $0.3 million
to $0.0 million for the three months ended September 30, 2020, reflecting the payoff of substantially all of our debt with proceeds
from the Private Placement in June 2020, while during the three months ended September 30, 2019, we were paying interest on outstanding
debt.
Comparison of Nine Months Ended September 30, 2020 and
2019
|
|
Nine Months Ended September 30,
|
|
|
Increase/ (Decrease)
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
44,218
|
|
|
$
|
2,142
|
|
|
$
|
42,076
|
|
|
|
1,964
|
|
Selling, general and administrative
|
|
|
11,685
|
|
|
|
5,122
|
|
|
|
6,563
|
|
|
|
128
|
|
Loss from operations
|
|
|
(55,903
|
)
|
|
|
(7,264
|
)
|
|
|
48,639
|
|
|
|
670
|
|
Interest expense
|
|
|
(1,336
|
)
|
|
|
(1,003
|
)
|
|
|
333
|
|
|
|
33
|
|
Other expense, net
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(57,240
|
)
|
|
$
|
(8,268
|
)
|
|
$
|
48,972
|
|
|
|
592
|
|
Research and development expenses increased
$42.1 million from $2.1 million for the nine months ended September 30, 2019 to $44.2 million for the nine months ended September
30, 2020. The increase is primarily due to higher enrollment in the clinical trial in COVID-19, increased manufacturing costs for
clinical supplies of lenzilumab and reservation fees and the expansion of manufacturing capacity including the addition of contract
manufacturing organizations (CMOs) in anticipation of potential commercialization. We expect our development costs to continue
to increase in the remaining three months of 2020 as a result of securing additional manufacturing capacity, progressing Chemistry,
Manufacturing and Controls (“CMC”) work and continued enrollment of patients in the clinical trials for COVID-19 and
CAR-T therapy.
Selling, general and administrative expenses
increased $6.6 million from $5.1 million for the nine months ended September 30, 2019 to $11.7 million for the nine months ended
September 30, 2020. The increase is primarily due to increased compensation costs of $1.3 million, related to the hiring of a new
Chief Operating Officer and Chief financial Officer and a new Chief Accounting and Administrative Officer, as well as an increase
in bonus accruals, an increase in public and investor relations expense of $3.6 million, which amount includes the issuance of
warrants with a fair value of $1.9 million to certain third party consultants, an increase in legal fees of $0.8 million, primarily
incurred in connection with preparation to uplist on Nasdaq and other corporate actions taken and an increase of consulting costs
of $0.3 million. We have also incurred $0.6 million in commercial operations expense related to the hiring of a Chief Commercial
Officer and the retention of consultants as we prepare for commercial launch under an EUA in COVID-19. While we expect our overall
general and administrative costs to decrease in the remaining three months of 2020, we expect that we will continue to scale our
support operations in connection with the ongoing clinical trials of lenzilumab in COVID-19 and will increase our commercial operations
spending in preparation for potential commercialization under an EUA.
Interest expense increased $0.3 million
from $1.0 million recognized for the nine months ended September 30, 2019 to $1.3 million for the nine months ended September 30,
2020. The increase is primarily due to the payoffs of the 2020 Convertible Notes in June 2020 and the conversions of the 2018 and
2019 Convertible Notes in April 2020 and the accretion of the remaining original issue discounts, beneficial conversion factors
and prepayment premiums related thereto.
Other expense, net was essentially unchanged
for the nine months ended September 30, 2020 as compared to the same period in 2019.
Liquidity and Capital Resources
Since our inception, we have financed our
operations primarily through proceeds from the public offerings of our common stock, private placements of our common and preferred
stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against
lines of credit. At September 30, 2020, we had cash and cash equivalents of $91.5 million.
The following table sets forth the primary
sources and uses of cash and cash equivalents for each of the periods presented below:
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(46,158
|
)
|
|
$
|
(3,452
|
)
|
Investing activities
|
|
$
|
(20
|
)
|
|
$
|
-
|
|
Financing activities
|
|
|
137,465
|
|
|
|
2,795
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
$
|
91,287
|
|
|
$
|
(657
|
)
|
Net cash used in operating activities was
$46.2 million and $3.5 million for the nine months ended September 30, 2020 and 2019, respectively. Cash used in operating activities
of $46.2 million for the nine months ended September 30, 2020 primarily related to our net loss of $57.2 million, adjusted for
non-cash items, such as $1.6 million in stock-based compensation, a net increase in operating assets and liabilities of $9.1 million
and other non-cash items of $0.3 million.
Net cash used in operating activities
of $3.5 million for the nine months ended September 30, 2019 primarily related to our net loss of $8.3 million, adjusted
for non-cash items, such as $1.9 million in stock-based compensation, a net increase in operating assets and liabilities of $2.7
million and net increases in other non-cash items of $0.2 million.
Net cash used in investing activities was
$20 thousand and $0 for the nine months ended September 30, 2020 and 2019, respectively. Cash used in investing activities for
the nine months ended September 30, 2020 consisted of the purchase of website domain names for future use.
Net cash provided by financing activities
was $137.5 million for the nine months ended September 30, 2020 and consists primarily of $67.0 million received from the issuance
of common stock in the 2020 Private Placement (defined below) in June 2020, $72.7 million received from the issuance of common
stock in the 2020 Underwritten Offering in September 2020, $0.5 million received from the issuance of the 2020 Convertible Notes,
$0.6 million received from the exercise of stock options, $0.3 million received from the issuance of the 2020 Bridge Notes and
$0.1 million received from the issuance of common stock under the Purchase Agreement with LPC, offset by $0.5 million for the payoff
of the 2020 Convertible Notes, $2.4 million for the payoff of the 2019 and 2020 Bridge Notes and $0.8 million for the payoff of
the Notes payable to Vendors.
Equity Line of Credit
On November 8, 2019, we entered into the
ELOC Purchase Agreement and a registration rights agreement with LPC, pursuant to which we had the right to sell to LPC up to $20,000,000
in shares of our common stock, subject to certain limitations and conditions set forth in the ELOC Purchase Agreement. On June
2, 2020, we notified LPC of our decision to terminate the ELOC Purchase Agreement. The termination of the ELOC Purchase Agreement
became effective on June 3, 2020.
2020 Private Placement
On June 1, 2020, we entered into a securities
purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) to complete
a private placement of our common stock (the “Private Placement”). The closing of the Private Placement occurred on
June 2, 2020 (the “Closing Date”). At the closing, we issued and sold 16,505,743 shares of our common stock (the “Shares”)
at a purchase price of $4.35 per share, for aggregate gross proceeds of approximately $71.8 million. We used a portion of the proceeds
to retire the following indebtedness:
|
·
|
the outstanding principal amount and accrued and unpaid interest on the Company’s convertible promissory notes issued
in March 2020, which approximated $0.6 million, were repaid in full, and the notes were extinguished;
|
|
·
|
the outstanding principal and accrued and unpaid interest, amounting to approximately $2.5 million, on short-term, secured
bridge loans made to the Company in 2019 and 2020 were repaid in full and the related liens were released; and
|
|
·
|
the remaining outstanding principal and accrued and unpaid interest, amounting to approximately $1.1 million, on certain notes
payable to vendors in accordance with the Plan.
|
We expect to use the remaining proceeds
from the Private Placement to fund our Phase 3 study of lenzilumab in COVID-19, to secure manufacturing capacity, to progress
Chemistry, Manufacturing and Controls (“CMC”) work, to prepare for commercialization in the event of approval of lenzilumab
for use in COVID-19 patients, our collaboration with Kite and other development programs, as well as for working capital and other
general corporate purposes. See Note 9 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly
Report on Form 10-Q for material information regarding two complaints recently filed against us in connection with the Private
Placement.
On the Closing Date, we also entered into
a registration rights agreement with the Investors (the “Registration Rights Agreement”) pursuant to which we agreed
to prepare and file a registration statement (the “Resale Registration Statement”) for the resale of the Shares with
the SEC.
Subject to certain
limitations and an overall cap, we may be required to pay liquidated damages to the investors at a rate of 2% of the invested
capital for each occurrence (and continuation for 30 consecutive days thereafter) of a breach by the Company of certain of its
obligations under the Registration Rights Agreement.
The Purchase Agreement
also required that we use commercially reasonable efforts to achieve a listing of our common stock on a national securities
exchange, subject to certain limitations set forth in the Purchase Agreement. On July 6, 2020, we filed an application to list
our common stock on the Nasdaq Capital Market. The application for listing was approved and
the stock began trading on the Nasdaq Capital Market on September 18, 2020 under the symbol “HGEN”.
2020 Underwritten Public Offering
On September 17,
2020, we entered into an underwriting agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and
Jefferies LLC, as representatives of the several underwriters, in connection with the public offering of 8,000,000 of the Company’s
shares of common stock, par value $0.001 per share. Pursuant to the Underwriting Agreement, we granted the underwriters a 30-day
option to purchase an additional 1,200,000 shares of common stock, which option was
exercised in full by the underwriters on September 18, 2020.
As a result of
the pricing of the public offering, our common stock commenced trading on the Nasdaq Capital Market under the symbol “HGEN.”
The aggregate
gross proceeds from the sale of the full 9,200,000 shares in the offering were approximately $78.2 million. We expect to use the
proceeds from the offering to support our manufacturing, production and commercial preparation activities relating to lenzilumab
as a potential therapy for COVID-19 patients and for working capital and other general corporate purposes.
We believe that
the net proceeds from our recent underwritten public offering will be sufficient to fund our planned operations and capital expenditure
requirements for at least 12 months. This evaluation is based on relevant conditions and events that are currently known or reasonably
knowable. As a result, we could deplete our available capital resources sooner than we currently expect, and a delay in obtaining
or failure to obtain an EUA could further constrain our cash resources. We have based these estimates on assumptions that may prove
to be wrong, and our operating projections, including our projected net revenue following the potential receipt of an EUA for lenzilumab
in COVID-19 patients, may change as a result of many factors currently unknown to us. If we are unable to raise additional capital
when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our research and development programs and
commercialization efforts.
We expect we will need to obtain additional
financing to fund our future operations, including for the development, manufacturing, distribution and commercialization of lenzilumab
for patients with COVID-19 pneumonia and other indications including CRS and GvHD and our other product candidates. We may need
to obtain additional financing to conduct additional trials for the approval of our product candidates if requested by regulatory
authorities in the US and other countries, and to complete the development of any additional product candidates we own or might
acquire. Moreover, our fixed expenses such as salaries, committed payments to our contract manufacturers, and other contractual
commitments, including those to our clinical research organization for the Phase 3 COVID study and for our other research and clinical
collaborations, are substantial and are expected to increase in the future. Our need to raise funds will depend on a number of
factors, including our ability to establish additional relationships for the manufacture of lenzilumab and our ability to commence
commercialization and begin generating revenues from product sales if lenzilumab were to be issued an EUA and eventually approval
under a BLA.
Until we can generate a sufficient amount
of revenue, we may finance future cash needs through public or private equity offerings, license agreements, grant financing and
support from governmental agencies, convertible debt, other debt financings, collaborations, strategic alliances and marketing,
supply, distribution or licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable
to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more
of our research or development programs, our commercialization efforts or our manufacturing commitments and capacity. We may seek
to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. In addition, if we raise additional funds through collaborations, strategic alliances or marketing,
supply, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet
arrangements, such as structured finance, special purpose entities or variable interest entities.
|
Item 4.
|
Controls and Procedures
|
From June 2019 to July 31, 2020, Dr. Cameron
Durrant, our Chief Executive Officer, acted, on an interim basis, as the Company’s principal financial officer. In the quarter
ended September 30, 2020, we announced the appointment of (1) Timothy Morris as our Chief Operating Officer and Chief Financial
Officer, and (2) David L. Tousley as our Chief Accounting and Administrative Officer, Corporate Secretary and Treasurer.
Management’s Evaluation of our Disclosure Controls
and Procedures
“Disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange
Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
Disclosure controls and procedures include,
without limitation, those designed to ensure that this information is accumulated and communicated to our management to allow timely
decisions regarding required disclosure. Management, including our Chief Executive Officer, our Chief Financial Officer, and our
Chief Accounting Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report. Based upon the evaluation and remediation of the material weakness previously identified in our 2019 Annual
Report on Form 10-K discussed below, our Chief Executive Officer and our Chief Financial Officer, with the assistance of our Chief
Accounting Officer, concluded that the disclosure controls and procedures were effective as of September 30, 2020 to ensure that
information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed,
summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief
Executive Officer, as appropriate to allow timely discussion regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act). Our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer assessed the effectiveness of our internal
control over financial reporting as of September 30, 2020. In making this assessment, our Chief Executive Officer, Chief Financial
Officer and our Chief Accounting Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO, in Internal Control—Integrated Framework. Based on that assessment and using the COSO criteria,
our Chief Executive Officer and Chief Financial Officer, with the assistance of our Chief Accounting Officer, concluded that, as
of September 30, 2020, our internal control over financial reporting was effective because of the remediation of the material weakness
described below.
A material weakness is defined as “a
deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on
a timely basis.”
The ineffectiveness of our internal control
over financial reporting at December 31, 2019, as described in our Annual Report on Form 10-K, was due to an insufficient degree
of segregation of duties among our accounting and financial reporting personnel. To remediate the material weakness described above,
we developed and implemented a remediation plan during the third quarter of 2020 which included modifying our internal processes
to ensure a proper segregation of duties and oversight through the appointment of (1) Timothy Morris as our Chief Operating Officer
and Chief Financial Officer, effective August 1, 2020, and (2) David L. Tousley as our Chief Accounting and Administrative Officer,
Corporate Secretary and Treasurer, effective July 6, 2020, as well as (3) the engagement of an accounting consultant to our accounting
and finance team to allow for separate preparation and review of the financial statements, related footnote disclosures, reconciliations
and other account analyses.
Inherent Limitations of Controls
Management does not expect that our disclosure
controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies
or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Risks related to the COVID-19 Pandemic and its Effect on
our Business
The fluid and unpredictable nature of the COVID-19 pandemic,
which began in late 2019 and has spread worldwide, may affect our ability to conduct our Phase 3 trial of lenzilumab for the prevention
and treatment of cytokine storm in COVID-19 pneumonia and the clinical trial with Kite, delay the initiation of planned and future
clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In addition, this
pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which
could result in adverse effects on our business and operations.
In December 2019, an outbreak of the respiratory
illness COVID-19 caused by a strain of novel coronavirus, SARS-Cov-2, was first reported in China. The COVID-19 outbreak has spread
worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, strict travel
restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response have had a
significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have
been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services
and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the
outbreak and its effects on our business and operations are uncertain.
We and our third-party contract research
organizations (“CROs”) and clinical sites may experience disruptions in supply of product candidates and/or procuring
items that are essential for our research and development activities, including raw materials used in the manufacturing of
our product candidates, medical and laboratory supplies used in our clinical trials or preclinical studies or animals that are
used for preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the outbreak.
While these delays have not materially impacted our overall manufacturing supply chain operations to date, and we continue to explore
back up or alternative sources of supply, any future disruption in the supply chain from the recent COVID-19 outbreak, or
any potential future outbreak could have a material adverse impact on our clinical trial plans and business operations.
Additionally, we have enrolled, and will
seek to enroll, patients in our clinical trials at sites located in many areas affected by COVID-19 and, as a result, our trials
may be impacted. In addition, even if sites are actively recruiting, we may face difficulties recruiting or retaining patients
in our ongoing and planned clinical trials if patients are affected by the virus or are fearful of visiting or traveling to our
clinical trial sites because of the outbreak. Prolonged delays or closure to enrollment in our trials or patient discontinuations
could have a material adverse impact on our clinical trial plans and timelines, including our Phase 3 trial of lenzilumab for the
prevention and treatment of cytokine storm in COVID-19 pneumonia.
In addition, our ability to collect all
data requested of patients enrolled in our clinical trials during this pandemic is being impacted to varying degrees by COVID-19.
Clinical trial data collection generally continues for each of our clinical trials, but at a slower pace, and in some instances,
we encounter disruption of collection of complete study data. This could have a material adverse impact on our data analysis.
The response to the COVID-19 pandemic may
redirect resources with respect to regulatory and intellectual property matters in a way that would adversely impact our ability
to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings
and approvals due to measures intended to limit in-person interactions.
Any negative impact that the COVID-19 outbreak
has on the ability of our suppliers to provide materials for our product candidates or on recruiting or retaining patients in our
clinical trials or our ability to collect patient data could cause costly delays to clinical trial activities, which could adversely
affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses,
and have a material adverse effect on our financial results. Furthermore, any negative impact that the outbreak has on the ability
of our CROs to deliver data sets and execute on experimentation could cause substantial delays for our discovery activities and
materially impact our ability to fuel our pipeline with new product candidates.
Any negative impact that the COVID-19 pandemic
has on recruiting or retaining patients in our clinical trials, obtaining complete clinical trial data or on the ability of our
suppliers to provide materials for our product candidates could cause additional delays to clinical trial and developmental activities,
which could materially and adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates,
increase our operating expenses, affect our ability to raise additional capital, and have a material adverse effect on our financial
results.
The COVID-19 pandemic has already caused
significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to
raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock.
Moreover, the pandemic has also significantly impacted economies worldwide, which could result in adverse effects on our business
and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business. It has the potential
to adversely affect our business, financial condition, results of operations, and prospects.
Risks related to our Liquidity and Financial Condition
We will need to obtain additional financing to fund our
operations and, if we are unable to obtain such financing, we may be unable to complete the development and commercialization of
our product candidates.
We believe that
the Company’s cash and cash equivalents will be sufficient to fund our planned operations and capital expenditure requirements
for at least 12 months. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable.
As a result, we could deplete our available capital resources sooner than we currently expect, and a delay in obtaining or failure
to obtain an EUA could further constrain our cash resources. We have based these estimates on assumptions that may prove to be
wrong, and our operating projections, including our projected net revenue following the potential receipt of an EUA for lenzilumab
in COVID-19 patients, may change as a result of many factors currently unknown to us.
We expect we will need to obtain additional
financing to fund our future operations, including for the development, manufacturing, distribution and commercialization of lenzilumab
for patients with COVID-19 pneumonia and other indications including CRS and GvHD and our other product candidates. We may need
to obtain additional financing to conduct additional trials for the approval of our product candidates if requested by regulatory
authorities in the US and other countries, and to complete the development of any additional product candidates we own or might
acquire. Moreover, our fixed expenses such as salaries, committed payments to our contract manufacturers, and other contractual
commitments, including those to our clinical research organization (CRO) for the Phase 3 COVID study and for our other research
and clinical collaborations, are substantial and are expected to increase in the future. Our need to raise funds will depend on
a number of factors, including our ability to establish additional relationships for the manufacture of lenzilumab and our ability
to commence commercialization and begin generating revenues from product sales if lenzilumab were to be issued an EUA and eventually
approval under a BLA.
Until we can generate a sufficient amount
of revenue, we may finance future cash needs through public or private equity offerings, license agreements, grant financing and
support from governmental agencies, convertible debt, other debt financings, collaborations, strategic alliances and marketing,
supply, distribution or licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable
to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more
of our research or development programs, our commercialization efforts or our manufacturing commitments and capacity. We may seek
to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. In addition, if we raise additional funds through collaborations, strategic alliances or marketing,
supply, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
Risks Related to the Development, Manufacturing, Distribution
of, and Commercialization Efforts for, Lenzilumab and our Other Product Candidates
If our competitors develop and receive FDA approval for
treatments or vaccines for COVID-19, our commercial opportunity may be reduced or eliminated.
On October 22, 2020, FDA approved remdesivir
for use in adult and certain pediatric patients for the treatment of COVID-19 requiring hospitalization. There are numerous other
companies working on therapies to treat COVID-19 and/or vaccines to prevent or treat COVID-19. If additional competing therapies
are approved, and/or a safe, efficacious, accessible preventative vaccine is approved, such approval could have a material adverse
impact on our ability to commercialize lenzilumab as a therapy for COVID-19. The speed at which all parties are acting to create
and test many treatments and vaccines for COVID-19 is unusual, and evolving or changing plans or priorities within the FDA and
other branches of the U.S. government involved in the fight against the pandemic, including changes based on new knowledge of COVID-19
and how the disease affects the human body, may significantly affect the regulatory timeline for lenzilumab. In addition, there
are numerous clinical trial programs in progress for COVID-19 therapies which are all competing for largely the same patient population
for enrollment. This problem is exacerbated by changing rates of infection and spread, which make it challenging to ensure we have
active centers for our Phase 3 trial in areas with sufficient potential patient populations. These challenges may adversely impact
our ability to recruit patients into our clinical trial, delaying our enrollment and impacting our ability to file for an EUA and/or
a BLA, which filings could be significantly delayed or not occur at all if a direct competitor gains approval before we do. Results
from clinical testing may raise new questions and require us to redesign proposed clinical trials. Many of our competitors and
potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater
financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have
formed collaborations with large, established companies to support the research, development and commercialization of products
that may be competitive with ours.
We may experience delays in commencing or conducting our
clinical trials, in receiving data from third parties or in the continuation or completion of clinical testing, which could result
in increased costs to us, delay our ability to generate product candidate revenue or, ultimately, render us unable to complete
the development and commercialization of our product candidates.
We have product candidates in clinical development
and preclinical development. The risk of failure for each of our product candidates is high. It is impossible to predict when or
if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing
approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct
extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Before we can initiate clinical trials in
the United States for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of
an IND application, along with other information including information about product candidate chemistry, manufacturing, and controls
and our proposed clinical trial protocol. For our programs already underway, we are required to report or provide information to
appropriate regulatory authorities in order to continue with our testing programs. If we are unable to make timely regulatory submissions
for any of our programs, it will delay our plans for our clinical trials. If those third parties do not make the required data
available to us, we will likely have to identify and contract with another third party, and/or develop all necessary preclinical
and clinical data on our own, which will lead to significant delays and increase development costs of the product candidate. In
addition, FDA may require us to conduct additional preclinical testing for any product candidate before it allows us to initiate
clinical testing under any IND application, which may lead to additional delays and increase the costs of our preclinical development.
Moreover, despite the presence of an active IND application for a product candidate, clinical trials can be delayed for a variety
of reasons, including delays in:
|
·
|
identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;
|
|
·
|
identifying, recruiting, and training suitable clinical investigators;
|
|
·
|
reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms
of which can be subject to extensive negotiation, may be subject to modification from time to time, and may vary significantly
among different CROs and trial sites;
|
|
·
|
obtaining and maintaining sufficient quantities of a product candidate for use in clinical trials, either as a result of transferring
the manufacturing of a product candidate to another site or manufacturer, deferring ordering or production of product in order
to conserve resources or mitigate risk, having product in inventory become no longer suitable for use in humans, or other reasons
that reduce or delay availability of drug supply;
|
|
·
|
obtaining and maintaining Institutional Review Board (“IRB”) or ethics committee approval to conduct a clinical
trial at an existing or prospective site;
|
|
·
|
retaining or replacing participants who have initiated a clinical trial but may withdraw due to adverse events from the therapy,
insufficient efficacy, fatigue with the clinical trial process, or personal issues;
|
|
·
|
developing any companion diagnostic necessary to ensure the study enrolls the target population;
|
|
·
|
being required by the FDA to add more patients or sites or to conduct additional trials; or
|
|
·
|
the FDA placing a clinical trial on hold.
|
Once a clinical trial has begun, recruitment
and enrollment of subjects may be slower than we anticipate. Numerous companies and institutions are conducting clinical studies
in similar patient populations which can result in competition for qualified patients. In addition, clinical trials will take longer
than we anticipate if we are required, or believe it is necessary, to enroll additional subjects than originally planned. Clinical
trials may also be delayed as a result of ambiguous or negative interim results. Further, a clinical trial may be suspended or
terminated by us, an IRB, an ethics committee, or a data safety monitoring committee overseeing the clinical trial, any of our
clinical trial sites with respect to that site, or FDA or other regulatory authorities, due to a number of factors, including:
|
·
|
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
|
|
·
|
inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities;
|
|
·
|
inability to provide timely supply of drug product;
|
|
·
|
unforeseen safety issues, known safety issues that occur at a greater frequency or severity than we anticipate, or any determination
that the clinical trial presents unacceptable health risks; or
|
|
·
|
lack of adequate funding to continue the clinical trial or unforeseen significant incremental costs related to the trial.
|
Additionally, if any future development
partners do not develop the licensed product candidates in the time and manner that we expect, or at all, the clinical development
efforts related to these licensed product candidates could be delayed or terminated. In addition, our ability to enforce our partners’
obligations under any future collaboration efforts may be limited due to time and resource constraints, competing corporate priorities
of our future partners, and other factors.
Any delays in the commencement of our clinical
trials may delay or preclude our ability to further develop or pursue regulatory approval for our product candidates. Changes in
U.S. and foreign regulatory requirements and guidance also may occur and we may need to amend clinical trial protocols to reflect
these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect
the costs, timing, and likelihood of a successful completion of a clinical trial.
If we are required to conduct additional
clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully
complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or
are only modestly positive or if there are safety concerns, we may:
|
·
|
be delayed in obtaining marketing approval for our product candidates;
|
|
·
|
not obtain marketing approval at all;
|
|
·
|
obtain approval for indications or patient populations that are not as broad as intended or desired;
|
|
·
|
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
|
|
·
|
be subject to additional post-marketing testing requirements; or
|
|
·
|
have the product removed from the market after obtaining marketing approval.
|
Our product development costs will also
increase if we experience delays in testing or in obtaining marketing approvals. We do not know whether any of our preclinical
studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. We
may also determine to change the design or protocol of one or more of our clinical trials, including to add additional arms or
patient populations, which could result in increased costs and expenses and/or delays. If we or any future development partners
experience delays in the completion of, or if we or any future development partners must terminate, any clinical trial of any product
candidate our ability to obtain regulatory approval for that product candidate will be delayed and the commercial prospects, if
any, for the product candidate may suffer as a result. Significant preclinical study or clinical trial delays also could shorten
any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring
products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business
and results of operations. In addition, many of these factors may also ultimately lead to the denial of regulatory approval of
a product candidate.
The results of preclinical studies and early clinical
trials are not always predictive of future results. Any product candidate we or any future development partners advance into clinical
trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Drug development has substantial inherent
risk. We or any future development partners will be required to demonstrate through adequate and well-controlled clinical trials
that our product candidates are effective, with a favorable benefit-risk profile, for use in their target populations for their
intended indications before we can seek regulatory approvals for their commercial sale. Drug development is a long, expensive and
uncertain process, and delay or failure can occur at any stage of development, including after commencement of any of our clinical
trials. Success in early clinical trials does not mean that later clinical trials will be successful because product candidates
in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial
clinical testing. Furthermore, our future trials will need to demonstrate sufficient safety and efficacy for approval by regulatory
authorities in larger patient populations. Companies frequently suffer significant setbacks in advanced clinical trials, even after
earlier clinical trials have shown promising results. In addition, only a small percentage of drugs under development result in
the submission of an NDA or BLA to FDA and even fewer are approved for commercialization.
In addition, serious adverse or undesirable
side effects may emerge or be identified during later stages of development that were not observed in earlier stages. If our product
candidates, either alone or in combination with other therapeutics, are associated with serious adverse events or undesirable side
effects or unacceptable drug-drug interactions in clinical trials or have characteristics that are unexpected in clinical trials
or preclinical testing, we may need to abandon their development or limit development to more narrow uses or subpopulations in
which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable
from a risk-benefit perspective. In pharmaceutical development, many compounds that initially show promise in early-stage or clinical
testing are later found to cause side effects that prevent further development of the compound. In addition, if third parties manufacture
or use our product candidates without our permission, and generate adverse events or unacceptable side effects, this could also
have an adverse impact on our development efforts.
Unacceptable adverse events caused by any
of our product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay, or
halt clinical trials and could result in the denial of regulatory approval by FDA or other regulatory authorities for any or all
targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product
candidate and generating revenue from its sale. We have not yet successfully completed testing of any of our product candidates
for the treatment of the indications for which we intend to seek approval in humans, and we currently do not know the extent of
adverse events, if any, that will be observed in individuals who receive any of our product candidates. If any of our product candidates
cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product
candidates.
We face risks related to the development, manufacturing
and distribution of lenzilumab as a treatment for COVID-19, which has not been granted an EUA or approved by FDA and has not been
proven through a randomized double-blind placebo clinical trial to be safe or effective for any use.
We are currently enrolling patients in a
phase 3 multi-center, randomized, placebo-controlled, double-blinded, clinical trial of lenzilumab as a potential treatment for
COVID-19 pneumonia. However, there is no assurance of favorable results from our on-going clinical trial, or future clinical trials
including the NIH sponsored ACTIV-5/BET, or that our on-going phase 3 clinical trial will be completed in the currently anticipated
timeline or at all. The incidence of COVID-19 in the communities where the Phase 3 trial participants reside will vary across different
locations. If the overall incidence of clinical deterioration of patients with COVID-19 in the lenzilumab COVID-19 Phase 3 trial
is low, it may be difficult for this study to demonstrate differences between participants in the study who receive placebo and
those who receive lenzilumab.
It is also possible that FDA and other regulatory
authorities may not grant an EUA or subsequently approve lenzilumab for the treatment of COVID-19 pneumonia, or that any such EUA
or approval, if granted, may have significant limitations on its use. The successful development and widespread uptake of a safe,
effective, scalable and affordable vaccine also could have a negative impact on the demand for lenzilumab over the long term, even
if an EUA or approval were issued. As a result, we may never successfully commercialize lenzilumab in COVID-19 or realize a return
on our significant investment in the development, supply, and commercialization of lenzilumab for this purpose.
Furthermore, even if an EUA were granted
to permit lenzilumab to be commercialized for use in the treatment of COVID-19 pneumonia, the authorization would be temporary
and might be expressly conditioned or limited by FDA. An EUA does not take the place of the formal BLA submission, review and approval
process. While there are ongoing clinical trials to evaluate the safety clinical profile and the efficacy of lenzilumab, there
is no assurance of favorable results from any ongoing or future clinical trials, or that one or more of such trials will be completed
in the currently anticipated timelines or at all. It is also possible that FDA and other regulatory authorities may not approve
lenzilumab for the treatment of COVID-19, or that any marketing approvals, if granted, may have significant limitations on its
use. Further, we may make a strategic decision to discontinue development of lenzilumab in this indication if other parties are
successful in developing a more effective treatment for COVID-19. As a result, we may never successfully commercialize lenzilumab
for use in COVID-19 patients.
Manufacturing problems at our third-party manufacturers
and corporate partners could cause inventory shortages and delay or impair our ability to obtain an EUA or BLA or other regulatory
approval or delay shipments of lenzilumab for commercial use, which may adversely affect our results of operations.
We believe that our ability to obtain an
EUA and, ultimately, a BLA to permit lenzilumab to be used commercially for patients with COVID-19 pneumonia depends at least in
part on our ability to demonstrate to FDA that we will be able to scale the manufacturing to produce a sufficient quantity of dosages
to begin to address the potential demand for the product. We have contracted and expect to continue to contract with third-party
manufacturer or corporate partners to produce lenzilumab. We depend on these third parties to perform the manufacturing of lenzilumab
effectively, timely, and in compliance with Good Manufacturing Practices (“GMP”), which are extensive regulations governing
manufacturing processes, stability testing, record keeping and quality standards as defined by FDA. Similar regulations are in
effect in other jurisdictions.
Our complete reliance on third-party manufacturers
and corporate partners to produce lenzilumab subjects us to additional risks, including the possible breach of the manufacturing
agreement by the third party, the possible cancellation, delay or modification of contracted manufacturing slots by the third party,
or the termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition,
in an effort to increase the availability of needed medical products, vaccinations or related therapies in response to the COVID-19
pandemic, governments may require our third-party manufacturers or our suppliers to allocate manufacturing capacity (for example
pursuant to the U.S Defense Production Act) in a way that adversely affects our ability to obtain regulatory approval for and to
commercialize our product candidates. Accordingly, the inability to manage our manufacturing capacity could delay our ability to
generate revenues from sales of lenzilumab.
Our third-party manufacturers and corporate
partners are independent entities subject to their own unique operational and financial risks that are out of our control. If we
or any of these third-party manufacturers or corporate partners fail to perform as required, this could cause delays in our clinical
trials and applications for regulatory approval. Further, we may have to pay the costs of manufacturing any batch that fails to
pass quality inspection or meet regulatory approval. In addition, we, our third-party manufacturers and our corporate partners
may only be able to produce some of our products at one or a limited number of facilities and, therefore, we have limited manufacturing
capacity for certain products, and we may not be able to locate additional or replacement facilities on a reasonable basis or at
all. Our sales of such products could also be adversely impacted by our reliance on such limited number of facilities. To the extent
these risks materialize and affect their performance obligations to us, our financial results may be adversely affected.
In addition, the process of manufacturing
biologics is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation
of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production
yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products
or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended
period of time to investigate and remedy the contamination. If we were to encounter any of these difficulties, our ability to manufacture
and sell any products that may be authorized or approved for commercial use could be impaired, which could have an adverse effect
on our business.
We may not be able to obtain materials or supplies necessary
to conduct clinical trials or, following requisite regulatory authorizations or approvals, to manufacture and sell our products,
which could limit our ability to generate revenues.
We need access to certain supplies and products
to conduct our clinical trials and, if an EUA or BLA or other approval were to be received, to manufacture and sell our products.
If we are unable to purchase sufficient quantities of these materials or find suitable alternative materials in a timely manner,
our development efforts for our product candidates may be delayed or our ability to manufacture our products could be limited,
which could limit our ability to generate revenues.
Suppliers of key components and materials
must be named in the BLA or other marketing authorization application filed with the regulatory authority for any product candidate
for which we are seeking marketing approval, and significant delays can occur if the qualification of a new supplier is required.
Even after a manufacturer is qualified by the regulatory authority, the manufacturer must continue to expend time, money and effort
in the area of production and quality control to ensure full compliance with GMP. Manufacturers are subject to regular periodic
inspections by regulatory authorities following initial approval. If, as a result of these inspections, a regulatory authority
determines that the equipment, facilities, laboratories or processes do not comply with applicable regulations and conditions of
product approval, the regulatory authority may suspend the manufacturing operations. If the manufacturing operations of any of
the single suppliers for our products are suspended, we may be unable to generate sufficient quantities of commercial or clinical
supplies of product to meet market demand, which could in turn decrease our revenues and harm our business. In addition, if deliveries
of materials from our suppliers were interrupted for any reason, we may be unable to supply our product candidates in development
for clinical trials or ship them to customers, if authorized or approved for commercial use. In addition, some of our products
and the materials that we utilize in our operations are manufactured at only one facility, which we may not be able to replace
in a timely manner and on commercially reasonable terms, or at all. Problems with any of the single suppliers we depend on, including
in the event of a disaster, such as an earthquake, equipment failure or other difficulty, may negatively impact our development
and commercialization efforts.
A significant portion of the raw materials
and intermediates used to manufacture our product candidates are supplied by third-party manufacturers and corporate partners outside
of the United States. As a result, any political or economic factors in a specific country or region, including any changes in
or interpretations of trade regulations, compliance requirements or tax legislation, that would limit or prevent third parties
outside of the United States from supplying these materials could adversely affect our ability conduct our pending or contemplated
clinical trials.
If we were to encounter any of these difficulties,
our ability to conduct clinical trials on product candidates and to manufacture and sell any products that may be authorized or
approved for commercial use could be impaired, which could have an adverse effect on our business.
Interim, “top-line” or preliminary data from
our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject
to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose
preliminary or “top-line” data from our clinical trials, which is based on a preliminary analysis of then-available
top-line data, and the results and related findings and conclusions are subject to change following a full analyses of all data
related to the particular trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of
data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results
that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results,
once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures
that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line
data should be viewed with caution until the final data are available. We may also disclose interim data from our clinical trials.
Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially
change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim
data and final data could significantly harm our business prospects. Further, disclosure of preliminary or interim data by us or
by our competitors could result in volatility in the price of shares of our common stock.
Further, others, including regulatory agencies,
may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance
of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular
product candidate or product and our business in general. In addition, the information we choose to publicly disclose regarding
a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with
what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine
not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise
regarding a particular drug, product candidate or our business. If the top-line data that we report differ from actual results,
or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize
in our current or any our future product candidate, our business, operating results, prospects or financial condition may be harmed.
Our inability to accurately predict demand for lenzilumab
makes it difficult for us to accurately forecast any sales and may cause our forecasts to fluctuate, and could adversely affect
our stock price.
We may be unable to accurately predict demand
for lenzilumab, or other products if approved, as demand depends on a number of factors, including approved vaccines, competing
drug products and other treatments that may be developed for COVID-19 and other illnesses and conditions. If lenzilumab is commercialized,
we may be unsuccessful in estimating user demand and may not be effective in matching inventory levels and locations to actual
end user demand, in particular if the COVID-19 outbreak is effectively contained or the risk of coronavirus infection is significantly
diminished. In addition, adverse changes in economic conditions, increased competition, including through a potential vaccine or
other therapeutic, or other factors may cause hospitals or other users or distributors of lenzilumab to reduce inventories of our
products, which would reduce their orders for lenzilumab, even if end user demand has not changed. As a result, even if lenzilumab
receives an EUA or BLA approval for use in COVID-19 patients, our revenues may be difficult to predict and vulnerable to extreme
fluctuations.
We may experience significant
volatility in the market price of our common stock following announcements and releases regarding our ongoing development of lenzilumab as
a potential COVID-19 therapy.
Biopharmaceutical
companies that are developing potential therapeutics and vaccines to combat COVID-19, including our company, have experienced
significant volatility in the price of their securities upon publication of preclinical and clinical data as well as news about
their development programs. Since our initial announcement of our plans to develop lenzilumab as a therapy for COVID-19 patients,
our common stock has experienced wide variations in daily trading volume and price movements. We expect that over the coming months
we may make public several additional data and clinical updates with respect to lenzilumab and our commercialization efforts
for lenzilumab. We cannot predict public reaction or the impact on the market price of our common stock once further announcements
regarding lenzilumab or developments from our on-going clinical trial are announced. Given the attention being paid to the COVID-19 pandemic
and the public scrutiny of COVID-19 development announcements and data releases to date, we expect that any public announcements
we make in the coming months regarding the ongoing development of lenzilumab will attract significant attention and scrutiny
and that, as a result, the price of our common stock may be particularly volatile during this time.
There can be no assurance that
lenzilumab, even if approved, would ever become profitable, due to government interest and public perception regarding a vaccine
and treatments for COVID-19 related complications.
As a result of
the emergency situations in many countries, there is a heightened risk that a COVID-19 therapy or other treatments for
COVID-19 pneumonia and symptoms may be subject to adverse governmental actions in certain countries, including intellectual property
expropriation, compulsory licenses, strict price controls or other actions. Additionally, we may need to, or we may be required
by governmental or non-governmental authorities to, set aside specific quantities of doses of lenzilumab for designated
purposes or geographic areas. We may face challenges related to the allocation of supply of lenzilumab, particularly with respect
to geographic distribution. Thus, even if lenzilumab is approved, such governmental actions may limit our ability to recoup our
current and future expenses incurred to develop and commercialize lenzilumab.
Furthermore,
public sentiment regarding commercialization of a COVID-19 therapy or other treatment may limit or negate our ability to generate
revenues from sales of lenzilumab. Given that COVID-19 has been designated as a pandemic and represents an urgent public
health crisis, we are likely to face significant public attention and scrutiny over any future business models and pricing decisions
with respect to lenzilumab. If we are unable to successfully manage these risks, we could face significant reputational harm,
which could negatively affect the price of our common stock.
The regulatory pathway for lenzilumab
is highly dynamic and continues to evolve and may result in unexpected or unforeseen challenges.
To date, lenzilumab
has moved rapidly through the regulatory review process of FDA and certain foreign regulatory authorities. The speed at which all
parties are acting to create and test many therapeutics and vaccines for COVID-19 is unusual, and evolving or changing plans
or priorities within FDA and foreign regulatory authorities, including changes based on new knowledge of COVID-19 and
how the disease affects the human body, may significantly affect the regulatory timeline for lenzilumab. Results from clinical
testing may raise new questions and require us to redesign proposed clinical trials, including revising proposed endpoints or adding
new clinical trial sites or cohorts of subjects.
For example, FDA
on June 30, 2020 adopted guidance outlining the FDA’s current recommendations regarding the data needed to facilitate clinical
development and licensure of vaccines to prevent COVID-19. Although we intend to design any future clinical trials for lenzilumab
in accordance with FDA and other applicable regulatory guidance, we cannot be certain that, as the regulatory pathway continues
to evolve, we will be able to complete a clinical trial in accordance with FDA’s guidance and regulations then in effect.
A failure to complete a clinical trial in accordance with guidance and regulations then in effect could impair our ability to obtain
approval for lenzilumab, which may adversely affect our operating results, reputation and ability to raise capital and enter into
or maintain collaborations to advance lenzilumab.
Additionally,
FDA has the authority to grant an EUA to allow unapproved medical products to be used in an emergency to diagnose, treat, or prevent
serious or life-threatening diseases or conditions when there are no adequate, approved, and available alternatives. If we are
granted an EUA for lenzilumab, we would be able to commercialize lenzilumab prior to FDA approval. However, FDA may revoke an
EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, and we cannot
predict how long, if ever, an EUA would remain in place. Such revocation could adversely impact our business in a variety of ways,
including if lenzilumab is not yet approved by FDA and if we and our manufacturing partners have invested in the supply chain
to provide lenzilumab under an EUA.
Even if Emergency Use Authorization
or regulatory approval is received for lenzilumab, the later discovery of previously unknown problems associated with the use of
lenzilumab may result in restrictions, including withdrawal of the product from the market, and lead to significant liabilities
and reputational damage.
Because the path
to marketing approval of any vaccine for COVID-19, or drug used to treat COVID-19 pneumonia or other symptoms is unclear, lenzilumab
may be widely used and in circulation in the United States or another country prior to our receipt of marketing approval. Unexpected
safety issues, including any that we have not yet observed in our Phase 3 clinical trial for lenzilumab, could lead to significant
reputational damage to us and our platforms going forward and other issues, including delays in our other programs, the need for re-design of
our clinical trial and the need for significant additional financial resources.
We also may be
restricted or prohibited from marketing or manufacturing lenzilumab, even after obtaining product approval, if previously unknown
problems with lenzilumab or its manufacture are subsequently discovered. We cannot provide assurance that newly discovered or developed
safety issues will not arise following regulatory approval. With the use of any drug product or treatment by a wide patient population,
serious adverse events may occur from time to time that did not arise in the clinical trials of the product or that initially appeared
to be unrelated to the vaccine itself and only with the collection of subsequent information were found to be causally related
to the product. Any such safety issues could cause us to suspend or cease marketing of our approved products, possibly subject
us to substantial liabilities, and adversely affect our ability to generate revenue and our financial condition.
We face risks associated with clinical operations abroad,
which may adversely affect our financial condition and results of operations.
The Brazilian Health Regulatory Agency,
Anvisa, has granted us permission to expand our Phase 3 study of lenzilumab in patients with COVID-19 in Brazil and we are taking
actions to enroll patients and open clinical sites in that country. In addition, the Mexican regulatory agency, COFEPRIS, has granted
us permission to expand the Phase 3 study of lenzilumab in patients with COVID-19 in Mexico, expanding the strategic global reach
of this program. Partners also are conducting or planning to conduct clinical trials involving lenzilumab in Australia and potentially
other countries in patients with COVID-19 and other indications. We have not received any authorization or approval to sell lenzilumab
in any country but would expect to commence commercial operations, through a partner or on our own, once any such authorization
or approval were received. Operations abroad are accompanied by certain financial, political, economic and other risks, including
those listed below:
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Foreign Currency Exchange: Operations internationally may subject us to risks related to foreign currency exchange risks as
we make payments, or incur obligations, denominated in foreign currencies. We cannot predict future fluctuations in the foreign
currency exchange rates of the U.S. dollar. If the U.S. dollar appreciates significantly against certain currencies and our practices
do not sufficiently offset the effects of such appreciation, our results of operations would be adversely affected, and our stock
price may decline.
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Anti-Bribery: We are subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws that will govern
our international operations with respect to payments to government officials. Our international operations would be heavily regulated
and require significant interaction with foreign officials. In certain circumstances, strict compliance with anti-bribery laws
may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state
controlled, in a manner that is different than local custom. In addition, despite our efforts, our policies and procedures may
not protect us from reckless or criminal acts committed by persons who act on our behalf. Enforcement activities under anti-bribery
laws could subject us to administrative and legal proceedings and actions, which could result in civil and criminal sanctions,
including monetary penalties and exclusion from health care programs.
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Other risks inherent in conducting foreign operations include:
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International operations, including any use of third-party manufacturers, distributors, CROs and collaboration arrangements
outside the United States, expose us to increased risk of theft of our intellectual property and other proprietary technology,
particularly in jurisdictions with less robust intellectual property protections than the United States, as well as restrictive
government actions against our intellectual property and other foreign assets such as nationalization, expropriation or the imposition
of compulsory licenses.
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We may be subject to protective economic policies taken by foreign governments, such as trade protection measures and import
and export licensing requirements, which may result in the imposition of trade sanctions or similar restrictions by the United
States or other governments.
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Our foreign operations, third-party manufacturers, CROs or strategic partners could be subject to business interruptions for
which we or they may be uninsured or inadequately insured.
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Our operations may also be adversely affected if there is political instability or disruption in any other geographic region
where we may have operations, which could impact our ability to do business in those areas.
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If we were to encounter any of these risks,
our foreign operations may be adversely affected, which could have an adverse effect on our overall business and results of operations.
Risks Related to Our Common Stock
A significant portion of our total outstanding shares
are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly,
even if our business is doing well.
Sales of a substantial number of shares
of our common stock in the public market or the perception in the market that the holders of a large number of shares intend to
sell shares, could depress the market price of our common stock and
could impair our future ability to obtain capital, especially through an offering of equity securities. In addition, pursuant
to a resale registration statement that was declared effective in August 2020, up to 16,515,716 shares of common stock may be resold
in the public market in the future by the selling stockholders named in the prospectus. Moreover, holders of a substantial number
of shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering
their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
We also have registered or plan to register
all shares of common stock that we may issue under our equity compensation plans or that are issuable upon exercise of outstanding
options. These shares can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable
to affiliates. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market,
the market price of our common stock could decline.
Further, certain shares of our common stock
that are currently outstanding but have not been registered for resale may currently be sold under Rule 144 under the Securities
Act or the Securities Act. Sales of a substantial number of these shares in the public market, or the perception that those sales
may occur, could cause the market price of our common stock to decline.
Our executive officers, directors and principal stockholders,
if they choose to act together, will continue to have the ability to significantly influence all matters submitted to stockholders
for approval, and this concentration of ownership may contribute to volatility in our stock price.
We have a relatively small public float
due to the ownership percentage of our executive officers and directors, and greater than 5% stockholders. Our directors, executive
officers, and the other holders of more than 5% of our common stock together with their affiliates beneficially owned approximately
58.7% of our common stock as of September 30, 2020.
Some of these persons or entities may have
interests that are different from our other stockholders, which could prevent or discourage unsolicited acquisition proposals or
offers for our common stock that may be in the best interest of our other stockholders. This may also adversely affect the trading
price of our common stock because investors may perceive disadvantages in owning stock in companies with a significant concentration
of ownership.
As a result of our small public float, our
common stock may be less liquid, experience reduced daily trading volume and have greater stock price volatility than the common
stock of companies with broader public ownership. In addition, the trading of a relatively small volume of shares of our common
stock may result in significant volatility in our stock price. If and to the extent ownership of our common stock becomes more
concentrated, whether due to increased ownership by our directors and executive officers or other principal stockholders, or other
factors, our public float would further decrease, which in turn would likely result in increased stock price volatility.
Additionally, because a large amount of
our stock is closely held, we may experience low trading volume or large fluctuations in share price and volume due to sales by
our principal stockholders. If our existing stockholders, particularly our directors, executive officers and the holders of more
than 5% of our common stock, or their affiliates or associates, sell substantial amounts of our common stock in the public market,
or are perceived by the public market as intending to sell substantial amounts of our common stock, the trading price of our common
stock could decline significantly.
In connection with our recent underwritten
public offering, our directors, executive officers, and their affiliates, which collectively beneficially owned approximately 37.5%
of our common stock as of September 14, 2020, entered into lock-up agreements pursuant to which they have agreed to, among other
things, not sell their shares of common stock or any securities convertible into or exercisable or exchangeable for common stock
until 90 days after the completion of such offering. Such lock-up restrictions may be waived, with or without notice, and at the
sole discretion of J.P. Morgan Securities LLC and Jefferies LLC. In addition, another beneficial owner previously entered into
a similar lock-up agreement, covering approximately 14.2% of our outstanding common stock, which will expire on or about November
28, 2020. The lock-up restriction in that agreement may be waived, with or without notice, at the sole discretion of J.P. Morgan
Securities LLC. Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such
sales may occur, or early release of restrictions in the lock-up agreements, could cause the market price of our common stock to
fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.
Despite our listing on the Nasdaq Capital Market, there
can be no assurance that an active trading market for our common stock will develop or be sustained, and the Nasdaq Capital Market
may subsequently delist our common stock if we fail to comply with ongoing listing standards.
On September 18, 2020, our common stock
commenced trading on the Nasdaq Capital Market under the symbol “HGEN.” The Nasdaq Capital Market’s rules for
listed companies will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis
in order to continue the listing of our common stock. To satisfy the initial listing standards for the Nasdaq Capital Market, we
have had to execute a reverse stock split. In addition to specific listing and maintenance standards, the Nasdaq Capital Market
has broad discretionary authority over the continued listing of securities, which it could exercise with respect to the listing
of our common stock.
As a listed company, we are required to
meet the continued listing requirements applicable to all Nasdaq Capital Market companies. If we fail to meet those standards,
as applied by Nasdaq in its discretion, our common stock may be subject to delisting. We intend to take all commercially reasonable
actions to maintain our Nasdaq listing. If our common stock is delisted in the future, it is not likely that we will be able to
list our common stock on another national securities exchange and, as a result, we expect our securities would be quoted on an
over-the-counter market; however, if this were to occur, our stockholders could face significant material adverse consequences,
including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities.
In addition, in the event of such delisting, we could experience a decreased ability to issue additional securities and obtain
additional financing in the future.
The National Securities Markets Improvement
Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which
are referred to as “covered securities.” Because our common stock is listed on Nasdaq, our common stock qualifies as
covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal
statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent
activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer
listed on Nasdaq, our securities would not qualify as covered securities under the statute, and we would be subject to regulation
in each state in which we offer our securities.
Further, there can be no assurance that
an active trading market for our common stock will develop or be sustained despite our listing on the Nasdaq Capital Market.
Additional Risks Related to Our Business and Industry
Future acquisitions of and investments in new businesses
could impact our business and financial condition.
From time to time, we may acquire or invest
in businesses or partnerships that we believe could complement our business and drug candidates. The pursuit of such acquisitions
or investments may divert the attention of management and cause us to incur various expenses, regardless of whether the acquisition
or investment is ultimately completed. In addition, acquisitions and investments may not perform as expected and we may be unable
to realize the expected benefits, synergies or developments that we may initially anticipate. Further, if we are able to successfully
identify and acquire additional businesses, we may not be able to successfully integrate the acquired personnel or operations,
or effectively manage the combined business following the acquisition, any of which could harm our business and financial condition.
In addition, to the extent we finance any
acquisition or investment in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with shares
of our common or preferred stock, it could be dilutive to our current stockholders. To the extent we finance any acquisition or
investment with the proceeds from the incurrence of debt, this would increase our level of indebtedness and could negatively affect
our liquidity, credit rating and restrict our operations. Moreover, we may face contingent liabilities in connection with any acquisitions
or investments.
Currently pending, threatened or future litigation or
governmental proceedings or inquiries could result in material adverse consequences, including judgments or settlements.
We are, or may from time to time become,
involved in lawsuits and other legal or governmental proceedings. See Note 9 to the Condensed Consolidated Financial Statements
included in Item 1 of this Quarterly Report on Form 10-Q for information regarding currently pending litigation that could have
a material impact on the Company. Many of these matters raise complicated factual and legal issues and are subject to uncertainties
and complexities, all of which make the matters costly to address. The timing of the final resolutions to any such lawsuits, inquiries,
and other legal proceedings is uncertain.
Additionally, the possible outcomes or resolutions
to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely
affecting our consolidated financial condition, results of operations and cash flows. Any judgment against us, the entry into any
settlement agreement, or the imposition of any fine could have a material adverse effect on our consolidated financial condition,
results of operations and cash flows.
Changes in laws or regulations relating to data privacy
and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations
relating to data privacy and security, could have a material adverse effect on our reputation, results of operations, financial
condition and cash flows.
We are, and may increasingly become, subject
to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions
in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly
changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable
future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction,
and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial
condition, results of operations or prospects.
In the United States, various federal and
state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission,
have adopted, or are considering adopting, laws and regulations concerning personal information and data security. In particular,
regulations promulgated pursuant to the Health Insurance Portability and accountability Act of 1996 (“HIPAA”) establish
privacy and security standards that limit the use and disclosure of protected health information and require the implementation
of safeguards to protect the privacy, integrity and availability of protected health information. Determining whether protected
health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex
and may be subject to changing interpretation. If we fail to comply with applicable HIPAA privacy and security standards, we could
face civil and criminal penalties. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions
or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will
be interpreted, enforced or applied to our operations.
Certain state laws may be more stringent
or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other
state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California
Consumer Privacy Act (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies
that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies
to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including
the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well
as a private right of action for certain data breaches that result in the loss of personal information. This private right of action
may increase the likelihood of, and risks associated with, data breach litigation.
Internationally, laws, regulations and standards
in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal
information. For example, the E.U. General Data Protection Regulation (“GDPR”), which became effective in May 2018,
greatly increased the European Commission’s jurisdictional reach of its laws and adds a broad array of requirements for handling
personal data. EU member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds
to and/or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing
to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of the EU member states governing
the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose,
transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent
and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area, security
breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of
up to 4% of global annual revenue or €20 million, whichever is greater.
All of these evolving compliance and operational
requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies,
training associates and engaging consultants, which are likely to increase over time. In addition, such requirements may require
us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects,
all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Any failure
or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data
privacy and security could result in damage to our reputation and our relationship with our customers, as well as proceedings or
litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions, which would
subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on
our business, financial condition, results of operations or prospects.
Our internal computer systems, or those of our third-party
vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material
disruption of our product development programs, compromise sensitive information related to our business or prevent us from accessing
critical information, potentially exposing us to liability or otherwise adversely affecting our business.
Our internal computer systems and those
of our current and any future third-party vendors, collaborators and other contractors or consultants are vulnerable to damage
or interruption from computer viruses, computer hackers, malicious code, employee theft or misuse, denial-of-service attacks, sophisticated
nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. While we seek to protect our information technology systems from system failure, accident and security breach,
if such an event were to occur and cause interruptions in our operations, it could result in a disruption of our development programs
and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions.
For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. If we were to experience a significant cybersecurity breach
of our information systems or data, the costs associated with the investigation, remediation and potential notification of the
breach to counterparties and data subjects could be material. In addition, our remediation efforts may not be successful. If we
do not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure,
we could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing
inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information.
To the extent that any disruption or security
breach were to result in a loss of, or damage to, our or our third-party vendors’, collaborators’ or other contractors’
or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur
liability including litigation exposure, penalties and fines, we could become the subject of regulatory action or investigation,
our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Any of the above could have a material adverse effect on our business, financial condition, results of operations or prospects.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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In the quarter ended September 30, 2020,
we issued the following securities that were not registered under the Securities Act:
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·
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On July 20, 2020 we issued 10,909 shares of common stock to Savant Neglected Diseases, LLC in connection with the cashless
exercise of 20,000 warrants.
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·
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On September 14, 2020 we issued warrants to purchase an aggregate of 80,000 shares of common stock to Mercury FundingCo, LLC
in exchange for services delivered to us in connection with investor relations and corporate development activities.
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·
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On September 14, 2020 we issued warrants to purchase an aggregate of 60,000 shares of common stock to Batuta Capital Advisors,
LLC in exchange for services delivered to us in connection with investor relations and corporate development activities.
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·
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On September 14, 2020 we issued warrants to purchase an aggregate of 60,000 shares of common stock to David Kovacs in exchange
for services delivered to us in connection with public policy and corporate development activities.
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·
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On September 18, 2020, we issued 80,000 shares of common stock to David Tanzer in connection with the exercise of a warrant
for proceeds of $4,000.
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·
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On September 18, 2020, we issued 60,000 shares of common stock to David Kovacs in connection with the exercise of a warrant
for proceeds of $3,000.
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·
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On September 18, 2020 we issued 72,000 shares of common stock to HZ Investments Family LP in connection with the exercise of
a warrant for proceeds of $3,600.
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·
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On September 22, 2020, we issued 13,333 shares of common stock to Wotczak Group in exchange for services provided to us in
connection with investor relations and assistance with uplisting to the Nasdaq Capital Market.
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·
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On September 28, 2020, we issued 400 shares of common stock to Dr. Burkhard Becher in exchange for services delivered to us
in connection with our clinical trial programs and product development activity.
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Except as otherwise described above, the sales and issuances
described above were made in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act as
transactions not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors. The
purchasers in these transactions represented to us that they were accredited investors and were acquiring the shares for investment
purposes and not with a view to, or for sale in connection with, any distribution thereof.
Exhibit
No.
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Exhibit Description
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2.1
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Findings of Fact, Conclusions of Law, and Order Confirming Second Amended Chapter 11 Plan of Reorganization of the Registrant. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on June 22, 2016)
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3.1
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Amended and Restated Certificate of Incorporation of the Registrant. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on July 6, 2016)
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3.2
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on August 7, 2017)
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3.3
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Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on February 28, 2018)
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3.4
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended, effective September 11, 2020. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on September 11, 2020)
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3.5
|
Second Amended and Restated Bylaws of the Registrant. (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed on August 7, 2017)
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10.1
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Clinical Trial Agreement, dated as of July 24, 2020, by and between Humanigen, Inc. and The National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), as represented by the Division of Microbiology and Infectious Diseases (DMID) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-35798), filed on July 30, 2020).
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10.2*
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Humanigen, Inc. 2020 Omnibus Incentive Compensation Plan, effective September 11, 2020. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on September 11, 2020)
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10.3*
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Form of Incentive Stock Option Award Agreement. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on September 11, 2020)
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10.4*
|
Form of Non-qualified Stock Option Award Agreement. (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on September 11, 2020)
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31.1**
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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31.2**
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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32.1**
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Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350.
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32.2**
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Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
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|
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101.INS
|
XBRL Instance Document
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101.SCH
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
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*
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Indicates management contract or compensatory plan.
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**
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The Certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Humanigen, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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