This prospectus relates to the offer and sale by the selling stockholders identified in this prospectus of up to 2,000,000 shares of our common stock issuable
upon the exercise of outstanding warrants. We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholders.
The selling stockholders may sell the shares of common stock described in this prospectus in a number of different ways and at varying prices. See Plan
of Distribution for more information about how the selling stockholders may sell the shares of common stock being offered pursuant to this prospectus.
We will pay the expenses incurred in registering the shares, including legal and accounting fees. See Plan of Distribution.
Our common stock is traded on The NASDAQ Capital Market under the symbol GALE. On October 10, 2016, the closing sale price of our common
stock on The NASDAQ Capital Market was $0.30.
ABOUT THI
S PROSPECTUS
This prospectus is part of the registration statement that we filed with the Securities and Exchange Commission, or the SEC. As permitted by
the rules and regulations of the SEC, the registration statement filed by us includes additional information not contained in this prospectus.
If information in this prospectus is inconsistent with any document incorporated by reference that was filed with the SEC before the date of
this prospectus, you should rely on this prospectus. This prospectus and the documents incorporated by reference into this prospectus include important information about us, the securities being offered and other information you should know before
investing in our securities. You should also read and consider information in the documents to which we have referred you in the section of this prospectus entitled Where You Can Find More Information.
You should rely only on this prospectus and the information incorporated or deemed to be incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is in addition to or different from that contained or incorporated by reference in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on
it. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume that
the information contained or incorporated by reference in this prospectus is accurate as of any date other than as of the date of this prospectus, or in the case of the documents incorporated by reference, the date of such documents regardless of
the time of delivery of this prospectus or any sale of our shares of common stock. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.
We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any document
that is incorporated by reference in this prospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be
a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately
representing the current state of our affairs.
Unless otherwise indicated, information contained or incorporated by reference in this
prospectus concerning our industry, including our general expectations and market opportunity, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and
studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. In addition,
assumptions and estimates of our and our industrys future performance are necessarily uncertain due to a variety of factors, including those described in Risk Factors beginning on page 9 of this prospectus. These and other
factors could cause our future performance to differ materially from our assumptions and estimates.
1
PROSPE
CTUS SUMMARY
This summary highlights selected information appearing elsewhere in this prospectus or incorporated by reference into this prospectus and
does not contain all of the information that may be important to you or that you should consider before investing in our common stock. This prospectus includes or incorporates by reference information about the securities we are offering, as well as
information regarding our business and detailed financial data. Before making an investment decision, you should read this prospectus and the information incorporated by reference herein in their entirety, including Risk Factors
beginning on page 9 of this prospectus.
About Galena
Overview
Galena Biopharma, Inc.
(we, us, our, Galena or the Company) is a biopharmaceutical company committed to the development and commercialization of hematology and oncology therapeutics that address unmet medical
needs. The Companys pipeline consists of multiple mid- to late-stage clinical assets, including our hematology asset, GALE-401, our novel cancer immunotherapy programs including NeuVax (nelipepimut-S), GALE-301 and GALE-302. GALE-401 is
a controlled release version of the approved drug anagrelide for the treatment of elevated platelets in patients with myeloproliferative neoplasms. GALE-401 has completed a Phase 2 trial and we are advancing the asset into a pivotal trial. NeuVax is
currently in multiple Phase 2 trials. GALE-301 is in a Phase 2a clinical trial in ovarian and endometrial cancers and in a Phase 1b clinical trial given sequentially with GALE-302.
We are seeking to build value for shareholders through pursuit of the following objectives:
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Developing hematology and oncology assets through clinical development, targeting areas of unmet medical need. Our hematology asset is targeting the treatment of patients with essential thrombocythemia (ET) to reduce
elevated platelet counts. Our immunotherapy programs are currently targeting two key areas: secondary prevention intended to significantly decrease the risk of disease recurrence in breast, gastric, and ovarian cancers; and primary prevention
intended to cease or delay ductal carcinoma in situ (DCIS) from becoming invasive breast cancer.
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Expand our development pipeline by enhancing the clinical and geographic footprint of our technologies. We intend to accomplish this through the initiation of new clinical trials and potentially through the acquisition
of additional development programs.
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Leverage partnerships and collaborations, as well as investigator-sponsored trial arrangements, to maximize the scope of potential clinical opportunities in a cost effective and efficient manner.
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2
The chart below summarizes the current status of our clinical development pipeline:
Hematology
GALE-401 (anagrelide controlled release (CR))
GALE-401 contains the active ingredient anagrelide, an FDA-approved product, for the treatment of patients with myeloproliferative neoplasms
(MPNs) to lower abnormally elevated platelet levels. The currently available immediate release (IR) version of anagrelide causes adverse events that are believed to be dose and plasma concentration dependent. These adverse events may limit the use
of the IR version of the drug. Therefore, reducing the maximum concentration (C
max
) is hypothesized to reduce the side effects, but preserve efficacy, potentially allowing a broader use of the
drug.
Multiple Phase 1 studies in 98 healthy subjects have shown GALE-401 reduces the
C
max
of anagrelide following oral administration, appears to be well tolerated at the doses administered, and to be capable of reducing platelet levels. The Phase 1 program provided the
desired PK/PD (pharmacokinetic/pharmacodynamic) profile to enable the initiation of the ongoing Phase 2 proof-of-concept trial. The Phase 2, open label, single arm, proof-of-concept trial enrolled 18 patients in the United States for the treatment
of thrombocytosis, or elevated platelet counts, in patients with MPNs. Final safety and efficacy data from this pilot Phase 2 trial were presented in December 2015 and demonstrated a prolonged clinical benefit with a potentially improved safety
profile. We plan to submit a final Phase 2 manuscript at the end of 2016.
We have analyzed our data and the treatment landscape for MPNs,
with a current focus on Essential Thrombocythemia (ET) where we see an unmet medical need in patients who are intolerant to the current standard of care. We are advancing GALE-401 into a pivotal trial and we plan to meet with the FDA by the end of
the year to discuss our Phase 2/3 clinical trial design, development opportunities in ET patients, and confirmation of the 505(b)2 regulatory pathway for approval.
Thrombocythemia is a myeloproliferative blood disorder. It is characterized by the production of too many platelets in the bone marrow. Too
many platelets make normal clotting of blood difficult. It can be either reactive or primary (also termed essential and caused by a myeloproliferative disease). Although often symptomless (particularly when it is a secondary reaction), it can
predispose to thrombosis in some patients. Primary Thrombocytosis (essential thrombocythemia or ET) is due to a failure to regulate the production of platelets (autonomous production) and is a feature of a number of myeloproliferative disorders.
About a third of patients are asymptomatic at the time of diagnosis.
3
Novel Cancer Immunotherapies
Our targeted cancer immunotherapy approach is currently based upon two key areas: preventing secondary recurrence of cancer, which is becoming
increasingly important as the number of cancer survivors continues to grow; and, primary prevention intended to treat breast cancer earlier in the treatment spectrum. Once a patients tumor becomes metastatic, the outcome is often fatal, making
the prevention of recurrence a potentially critical component of overall patient care. Our programs primarily target patients in the adjuvant (after-surgery) setting who have relatively healthy immune systems, but may still have residual disease.
Minimal residual disease, or single cancer cells (occult cancer cells) or micrometastasis, that are undetectable by current radiographic scanning technologies, can result in disease recurrence.
Our therapies utilize an immunodominant peptide combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating
factor (rhGM-CSF), and work by harnessing the patients own immune system to seek out and attack any residual cancer cells. Using peptide immunogens has many potential clinical advantages, including a favorable safety profile, since these drugs
may lack the toxicities typical of most cancer therapies. They also have the potential to evoke long-lasting protection through activation of the immune system and a convenient, intradermal mode of delivery. We are currently engaged in multiple
clinical trials with NeuVax (nelipepimut-S), GALE-301, and GALE-302, targeting the prevention of recurrence in breast, gastric, ovarian and endometrial cancers.
NeuVax (nelipepimut-S)
NeuVax (nelipepimut-S) is a cancer immunotherapy targeting human epidermal growth factor receptor (HER2) expressing cancers. NeuVax is
the immunodominant nonapeptide derived from the extracellular domain of the HER2 protein, a well-established and validated target for therapeutic intervention in breast and gastric carcinomas. The NeuVax vaccine is combined with GM-CSF for injection
under the skin, or intradermal administration. Data has shown that an increased presence of circulating tumor cells (CTCs) may predict Disease Free Survival (DFS) and Overall Survival (OS) suggesting a presence of isolated micrometastases, not
detectable clinically, but, over time, can lead to recurrence, most often in distant sites. After binding to the specific HLA molecules on antigen presenting cells, the nelipepimut-S sequence stimulates specific cytotoxic T lymphocytes, or CTLs,
causing significant clonal expansion. These activated CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate
CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading.
Breast Cancer
: According to the National
Cancer Institute (NCI), over 230,000 women in the U.S. are diagnosed with breast cancer annually. While improved diagnostics and targeted therapies have decreased breast cancer mortality in the U.S., metastatic breast cancer remains incurable.
Approximately 75% to 80% of breast cancer patients have tissue test positive for some increased amount of the HER2 receptor, which is associated with disease progression and decreased survival. Only approximately 20% to 30% of all breast cancer
patients-those with HER2 immunohistochemistry (IHC) 3+ disease, or IHC 2+ and fluorescence in situ hybridization (FISH) amplified-have a HER2 directed, approved treatment option available after their initial standard of care. This leaves the
majority of breast cancer patients with low-to-intermediate HER2 expression (IHC 1+/2+) ineligible for therapy and without an effective targeted treatment option to prevent cancer recurrence.
We currently have two investigator-sponsored trials ongoing with NeuVax in combination with trastuzumab (Herceptin
®
; Genentech/Roche). The combination of trastuzumab and NeuVax has been shown pre-clinically and in a pilot study to be synergistic. Our Phase 2b clinical trial is a randomized, multicenter,
investigator-sponsored, 300 patient study enrolling HER2 1+ and 2+, HLA A2+, A3+, A24 and/or A26, node positive, and high-risk node negative patients. The endpoint is disease free survival and preliminary safety data will be presented in the fourth
quarter of this year. Eligible patients will be randomized to receive NeuVax + GM-CSF + trastuzumab or trastuzumab + GM-CSF alone. The primary endpoint of the study is disease-free survival. Genentech/Roche is providing the trastuzumab and partial
funding for this trial.
Our second combination trial is a Phase 2 in HER2 3+ breast cancer patients who have completed neoadjuvant
therapy with an approved regimen that includes trastuzumab and fail to achieve a pathological complete response, meaning they have microscopic evidence of residual disease and are therefore at an increased risk of disease recurrence. This
multi-center, prospective, randomized, single-blinded Phase 2 trial is enrolling approximately 100 patients with a diagnosis of HER2 3+ breast cancer who are HLA A2+ or HLA A3+ and are determined to be at high-risk for recurrence. High-risk is
defined as having received neoadjuvant therapy with an approved regimen that includes trastuzumab but not obtaining a pathological complete response at surgery, or those who undergo surgery as a first intervention and are found to be pathologically
node-positive. These high-risk patients are known to have higher recurrence rates than other HER2 3+ breast cancer patients. Eligible patients will be randomized to receive NeuVax + GM-CSF (granulocyte macrophage-colony stimulating factor) +
trastuzumab or trastuzumab + GM-CSF alone. The primary endpoint of the study is disease-free survival. Funding for this trial was awarded through the Congressionally Directed Medical Research Program (CDMRP), funded through the Department of Defense
(DoD), via annual Congressional legislation known as the Defense Appropriations Act. The grant was a Breast Cancer Research Program (BCRP) Breakthrough Award.
4
We have also announced our intent to initiate a Phase 2 trial with NeuVax as a single agent in
patients with ductal carcinoma in situ, or DCIS, in collaboration with the NCI, potentially positioning NeuVax as a treatment for earlier stage disease. The trial will have an immunological endpoint evaluating NeuVax peptide-specific cytotoxic T
lymphocyte (CTL; CD8+ T-cell) response in vaccinated patients. The trial is currently suspended pending discussion around the outcome of the PRESENT clinical trial investigation. DCIS is defined by the NCI as a noninvasive condition in which
abnormal cells are found in the lining of a breast duct, and is the most common type of breast cancer. The abnormal cells have not spread outside the duct to other tissues in the breast. In some cases, DCIS may become invasive cancer and spread to
other tissues, and at this time, there is no way to know which lesions could become invasive. Current treatment options for DCIS include breast-conserving surgery and radiation therapy with or without tamoxifen, breast-conserving surgery without
radiation therapy, or total mastectomy with or without tamoxifen. According to the American Cancer Society, in 2015 there were over 60,000 diagnoses of DCIS.
On June 24, 2016, the assembled Independent Data Monitoring Committee, or IDMC, met to conduct a pre-planned safety and futility analysis
of the Phase 3 PRESENT (
P
revention of
R
ecurrence in
E
arly-
S
tage, Node- Positive Breast Cancer with Low to Intermediate HER2
E
xpression with
NeuVax T
reatment) clinical trial. On
June 27, 2016, the IDMC recommended that the Phase 3 trial be stopped for futility unless it is determined that there has been a systematic reversal in the study drug treatments in the two arms, in which case the IDMC should reevaluate
the clinical evidence. We immediately stopped the PRESENT trial, and initiated an investigation into the causes of the recommendation. Our analysis of the data shows that there was a separation of the curves, albeit not statistically
significant, with the control arm performing better than expected and the NeuVax arm performing consistent with our protocol assumptions for the control group. Because the study is deemed futile, we are officially closing the PRESENT trial, and we
expect to present the data at a future medical conference.
Gastric Cancer
: According to the NCI, gastric (stomach) cancer is a
disease in which malignant (cancer) cells form in the lining of the stomach. Almost all gastric cancers are adenocarcinomas (cancers that begin in cells that make and release mucus and other fluids). Other types of gastric cancer are
gastrointestinal carcinoid tumors, gastrointestinal stromal tumors, and lymphomas. Infection with bacteria called Helicobacter pylori (H. pylori) is a common cause of gastric cancer and age, diet, and stomach disease can affect the risk of
developing gastric cancer. Gastric cancer is often diagnosed at an advanced stage because there are no early signs or symptoms. Gastric, or stomach cancer, is the second-most common cancer among males and third-most common among females in Asia and
worldwide with over 63,000 new cases a year in India, where an initial clinical trial of NeuVax will be run. Overexpression of the HER2 receptor occurs in approximately 20% of gastric and gastro-esophageal junction adenocarcinomas, predominantly
those of the intestinal type. Overall, without regard to the stage of cancer, only approximately 28% of patients with stomach cancer live at least five years following diagnosis and new adjuvant treatments are needed to prevent disease recurrence.
We currently have an agreement with Dr. Reddys Laboratories to conduct a Phase 2 investigational study in gastric cancer in
India.
GALE-301 and GALE-302
Our second immunotherapy franchise targets folate binding protein (FBP) receptor-alpha. FBP is a well-validated therapeutic target that is
highly over-expressed in ovarian, endometrial and breast cancers, and is the source of immunogenic peptides that can stimulate cytotoxic T lymphocytes (CTLs) to recognize and destroy FBP-expressing cancer cells. Current treatments after surgery for
these diseases are principally with platinum based chemotherapeutic agents. These patients suffer a high recurrence rate and most relapse with an extremely poor prognosis. GALE-301 and GALE-302 are immunogenic peptides that consist of a peptide
derived from FBP combined with GM-CSF for the prevention of cancer recurrence in the adjuvant setting. GALE-301 is the E39 peptide, while GALE-302 is an attenuated version of this peptide, known as E39. Two trials are ongoing with our FBP
peptides: the GALE-301 Phase 2a portion of the Phase 1/2a clinical trial is ongoing in ovarian and endometrial adenocarcinomas, and the GALE-301 plus GALE-302 Phase 1b clinical trial is ongoing in breast and ovarian cancers.
Ovarian Cancer
: According to the NCI Surveillance, Epidemiology, and End Results (SEER) Program, new cases of ovarian cancer occur at
an annual rate of 11.9 per 100,000 women in the United States, with an estimated 22,280 cases for 2016. Although ovarian cancer represents about 1.3% of all cancers, it represents about 2.4% of all cancer deaths, or an estimated 14,180 deaths
in 2015. Approximately 1.3% of women will be diagnosed with ovarian cancer at some point during their lifetime (2010 - 2012 data). The prevalence of ovarian cancer in the U.S. is about 192,000 women, and the five-year survivorship for women with
ovarian cancer is 45.6%. Due to the lack of specific symptoms, the majority of ovarian cancer patients are diagnosed at later stages of the disease, with an estimated 80% of women presenting with advanced-stage (III or IV) disease. These patients
have their tumors routinely surgically debulked to minimal residual disease, and then are treated with platinum- and/or taxane-based chemotherapy. While many patients respond to this treatment regimen and become clinically free-of-disease, the
majority of these patients will relapse. Depending upon their level of residual disease, the risk for recurrence after completion of primary therapy is approximately 70%. Unfortunately for these women, once the disease recurs, treatment options are
limited and the disease is most likely incurable.
5
According to the NCI SEER Program, new cases of endometrial cancer occur at an annual rate of
25.1 per 100,000 women in the U.S., with an estimated 54,870 cases for 2015. Although endometrial cancer represents about 3.3% of all cancers, it represents about 1.7% of all cancer deaths, or an estimated 10,170 deaths in 2015. Approximately
2.8% of women will be diagnosed with endometrial cancer at some point during their lifetime (2010 - 2012 data). The prevalence of endometrial cancer in the U.S. is about 620,000 women, and the five-year survivorship for women with endometrial cancer
is 81.7%.
Intellectual Property
Patents and other intellectual property rights are crucial to our success. It is our policy to protect our intellectual property rights through
available means, including filing and prosecuting patent applications in the U.S. and other countries, protecting trade secrets, and utilizing regulatory protections such as data exclusivity. We also include restrictions regarding use and disclosure
of our proprietary information in our contracts with third parties, and utilize customary confidentiality agreements with our employees, consultants, clinical investigators and scientific advisors to protect our confidential information and
know-how. Together with our licensors, we also rely on trade secrets to protect our combined technology especially where we do not believe patent protection is appropriate or obtainable. It is our policy to operate without infringing on, or
misappropriating, the proprietary rights of others. The following chart summarizes our intellectual property rights. The patents for the products are for the U.S. and certain foreign countries:
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Drug Candidate
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Indication
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Scope
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Estimated
Exclusivity
Period
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GALE-401 (Anagrelide Controlled Release)
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Platelet Lowering
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Pending and/or issued
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2029
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NeuVax (nelipepimut-S)
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Breast cancer recurrence
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Pending and/or issued
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2028
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NeuVax (nelipepimut-S)
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Gastric
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Pending and/or issued
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2028
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NeuVax (nelipepimut-S)
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DCIS
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Pending and/or issued
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2028
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NeuVax in combination with trastuzumab
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Breast cancer
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Pending and/or issued
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2026
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NeuVax in combination with other compounds
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Breast cancer
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Pending and/or issued
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2037
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GALE-301 & GALE-302
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Breast, ovarian and endometrial cancer
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Pending and/or issued
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2035
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6
If we fail to obtain additional future funding when needed, we could be forced to scale back or
terminate our operations, or to seek to merge with or to be acquired by another company. We may not be able to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to
continue as a going concern may result in our common stock holders losing their entire investment. There is no guaranty that we will become profitable or secure additional financing.
Amendment to Senior Secured Debenture
On
May 10, 2016, we entered into a Securities Purchase Agreement with JGB (Cayman) Newton Ltd., or JGB, pursuant to which we sold and issued to JGB, at a 6.375% original issue discount, a 9% Senior Secured Debenture due November 10, 2018 and
having a principal face amount of $25,530,000, or the Original Debenture, and warrants to purchase up to 2,000,000 shares of the Companys common stock, or the Warrants. A summary of the terms and conditions of the Securities Purchase
Agreement, the Debenture and the Warrants was set forth under Item 5 of Part II of the our Quarterly Report on Form 10-Q for the period ended March 31, 2016, as filed with the Commission on May 10, 2016, which summary is incorporated
by reference herein. On August 22, 2016, we, JGB and certain other parties entered into an Amendment Agreement, which provides for the amendment and restatement of the Original Debenture, an amendment to the terms of the Series A Common Stock
Purchase Warrant issued by us to JGB pursuant to the terms of the Securities Purchase Agreement, and certain other terms and conditions, as summarized below.
Pursuant to the Amendment Agreement, the Original Debenture issued to JGB was amended and restated in its entirety. We refer to the amended
and restated Debenture as the Amended Debenture. Among other items, the Amended Debenture contains the following modified and/or additional terms from the Original Debenture:
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With respect to interest accruing on the outstanding principal amount under the Amended Debenture for the period prior to November 10, 2016, we are permitted to satisfy such interest payments in kind by adding such
amount to the outstanding principal.
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JGB can from time to time during the term of the Amended Debenture require us to prepay in cash all or a portion of the outstanding principal plus accrued and unpaid interest, herein referred to as the Outstanding
Amount, on written notice to us, provided, that such prepayment amount shall not exceed the lesser of $18,500,000 or the Outstanding Amount. In addition, we shall have the right to prepay in cash all (but not less than all) of the Outstanding
Amount (1) at any time after November 10, 2017, or (2) upon a change of control (as such term is used in the Amended Debenture), in each case with a 10% premium on the Outstanding Amount.
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JGB shall continue to have the right under the Original Debenture, commencing November 10, 2016, to require us to redeem the Outstanding Amount in cash, shares of our common stock or a combination thereof, except
that the maximum monthly amount of such redemptions was increased from $1,100,000 to $1,500,000 under the Amended Debenture; provided, that if the trading price of our common stock is at least $0.40 per share (as adjusted appropriately for stock
splits, combinations or similar events) during such calendar month, then such monthly maximum redemption amount may be increased to $2,200,000 at JGBs election and if we have already elected to satisfy such redemptions in shares of common
stock. In addition, notwithstanding the foregoing limitations on the monthly redemption amount, JGB may elect up to three times in any 12-month period to increase the monthly maximum to $2,500,000.
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Among the various conditions that must be satisfied in order for us to be able to elect to satisfy the monthly redemption amounts in shares of our common stock, the minimum volume-weighted average price of the common
stock was decreased from $0.75 to $0.20 per share in the Amended Debenture.
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The Amended Debenture provides that, following November 10, 2016, JGB may elect to convert any portion of the Outstanding Amount into shares of common stock at a fixed price of $0.60 per share (as adjusted
appropriately for stock splits, combinations or similar events).
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Under the Original Debenture, we were required to maintain a minimum of $24,000,000 of unencumbered cash in a restricted account as security for our obligations under the Original Debenture. Under the Amended Debenture,
such minimum amount has been reduced to the lesser of $18,500,000 or the Outstanding Amount.
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Pursuant to the Purchase
Agreement, on May 10, 2016, we issued to JGB a Series A Common Stock Purchase Warrant, or the Series A Warrant to purchase 1,000,000 shares of our common stock at a price of $1.51 per share. In accordance with the terms of the Amendment
Agreement, the exercise price of the warrant was reduced to $0.43 per share (as adjusted appropriately for stock splits, combinations or similar events).
Additionally, in accordance with the listing rules of the NASDAQ Capital Market, the Amended Debenture continues to provide that the maximum
number of shares common stock that we are permitted to issue pursuant to the Debenture is 36,185,586 shares, which amount represented approximately 19.9% of our outstanding common stock on May 10, 2016. However, we have agreed to seek
stockholder approval to exceed such limitation in accordance with applicable NASDAQ rules.
Corporate Information
Our principal executive offices are located at 2000 Crow Canyon Place, Suite 380, San Ramon, California 94583, and our phone number is
(855) 855-4253. Our website address is www.galenabiopharma.com. We do not incorporate the information on our website into this prospectus, and you should not consider such information part of this prospectus.
We were incorporated as Argonaut Pharmaceuticals, Inc. in Delaware on April 3, 2006 and changed our name to RXi Pharmaceuticals
Corporation on November 28, 2006. On September 26, 2011, we changed our company name from RXi Pharmaceuticals Corporation to Galena Biopharma, Inc.
7
RISK
FACTORS
Investing in our securities involves significant risks. Before making an investment decision, you should carefully
consider the risks described below, together with the information under Risk Factors in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and the other information incorporated by reference in this
prospectus. Some of these factors relate principally to our business and the industry in which we operate. Other factors relate principally to your investment in our common stock. If any of these risks were to occur, our business, financial
condition, results of operations, cash flows or prospects could be materially and adversely affected. In such case, you may lose all or part of your investment.
The risks and uncertainties described below and in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q
are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business and operations.
Risks Relating to Our Former Commercial Operations
We are subject to U.S. federal and state health care fraud and abuse and false claims laws and regulations, and we recently have been subpoenaed in
connection with marketing and promotional practices related to Abstral. Prosecutions under such laws have increased in recent years and we may become subject to such prosecutions or related litigation under these laws. If we have not fully complied
with such laws, we could face substantial penalties.
Our former commercial operations are subject to various U.S. federal and
state fraud and abuse laws, including, without limitation, the federal False Claims Act, federal Anti-Kickback Statute, and the federal Sunshine Act.
A federal investigation of two of the high-prescribing physicians for Abstral has resulted in the criminal prosecution of the two physicians
for alleged violations of the federal False Claims Act and other federal statutes. The criminal trial is set for October 2016. We have received a trial subpoena for documents in connection with that investigation and we have been in contact with the
U.S. Attorneys Office for the Southern District of Alabama, which is handling the criminal trial, and are cooperating in the production of documents. On April 28, 2016, a second superseding indictment was filed in the criminal case, which
added additional information about the defendant physicians and provided information regarding the facts and circumstances involving a rebate agreement between the Company and the defendant physicians pharmacy as well as their ownership of our
stock. Certain former employees have received trial subpoenas to appear at the trial and provide oral testimony. We have agreed to reimburse those former employees attorneys fees. To our knowledge, we are not a target or subject of that
investigation.
9
There also have been federal and state investigations of a company that has a product that
competes with Abstral in the same therapeutic class, and we have learned that the FDA and other governmental agencies are investigating our Abstral promotion practices. On December 16, 2015, we received a subpoena issued by the U.S.
Attorneys Office in District of New Jersey requesting the production of a broad range of documents pertaining to our marketing and promotional practices for Abstral. We have been in contact with the U.S. Attorneys Office for the District
of New Jersey and are cooperating in the production of the requested documents. We are unable to predict whether we could become subject to legal or administrative actions as a result of these matters, or the impact of such matters. If we are found
to be in violation of the False Claims Act, Anti-Kickback Statute, Patient Protection and Affordable Care Act, or any other applicable state or any federal fraud and abuse laws, we may be subject to penalties, such as civil and criminal penalties,
damages, fines, or an administrative action of exclusion from government health care reimbursement programs. We can make no assurances as to the time or resources that will need to be devoted to these matters or their outcome, or the impact, if any,
that these matters or any resulting legal or administrative proceedings may have on our business or financial condition.
The federal
False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from, the federal government.
Qui tam
suits filed under the False Claims
Act can be brought by any individual on behalf of the government and such individuals, commonly known as relators or whistleblowers, may share in any amounts paid by the entity to the government in fines or settlement. The
frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of health care companies to have to defend such
qui tam
actions and pay substantial sums to settle such actions.
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration,
directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program such as the Medicare and Medicaid
programs. Several courts have interpreted the statutes intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the statute has been violated.
The Anti-Kickback Statute is broad, and despite a series of narrow safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the health care industry. Penalties for violations of the federal Anti-Kickback
Statute include criminal penalties and civil and administrative sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal health care programs. An alleged violation of the Anti-Kickback Statute may be
used as a predicate offense to establish liability pursuant to other federal laws and regulations such as the federal False Claims Act. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the
referral of patients for health care items or services reimbursed by any source, not only Medicare and Medicaid programs.
The federal
Patient Protection and Affordable Care Act includes provisions expanding the ability of certain relators to bring actions that would have been dismissed under prior law. When an entity is determined to have violated the federal False Claims Act, it
may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. The Deficit Reduction Act of 2005 encouraged states to enact or modify their state false claims acts to be
at least as effective as the federal False Claims Act by granting states a portion of any federal Medicaid funds recovered through Medicaid-related actions. Most states have enacted state false claims laws, and many of those states included laws
including qui tam provisions. The federal Patient Protection and Affordable Care Act includes provisions known as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices and medical supplies covered under
Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data beginning in 2013 to the Centers for Medicare and Medicaid Services for subsequent public disclosures. Manufacturers must also
disclose investment interests held by physicians and their family members. Failure to submit the required information may result in civil monetary penalties of up to $1 million per year for knowing violations and may result in liability under other
federal laws or regulations. Similar reporting requirements have also been enacted on the state level in the U.S., and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of
interactions with health care professionals. In addition, some states such as Massachusetts and Vermont imposed an outright ban on certain gifts to physicians. These laws could affect our product promotional activities by limiting the kinds of
interactions we could have with hospitals, physicians or other potential purchasers or users of our system. Both the disclosure laws and gift bans also will impose administrative, cost and compliance burdens on us.
We face product liability exposure and, if successful claims are brought against us, we may incur substantial liability if our insurance coverage for
those claims is inadequate.
The commercial sale of our products after they are approved as well as the use of our products in
clinical trials exposes us to possible product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, if our products were sold to third
parties, or if our products are provided in clinical trials. Our products are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our products could result in injury
to a patient or even death. For example, because the placebo may have performed better than NeuVax in the PRESENT Trial, the use of NeuVax may have worsened the patients condition.
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Product liability claims may be brought against us by consumers, health care providers,
pharmaceutical companies or others selling or otherwise coming into contact with our products or generic versions of our products. If we cannot successfully defend ourselves against product liability claims we could incur substantial liabilities.
Because we have sold Abstral and Zuplenz and provided NeuVax as a study drug in the Present Trial, regardless of merit or eventual outcome, product liability claims may result in:
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impairment of our business reputation;
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costs of related litigation;
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distraction of managements attention from our primary business; or
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substantial monetary awards to patients or other claimants.
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We have obtained product
liability insurance coverage for commercial product sales with a $10 million per occurrence and a $10 million annual aggregate coverage limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or
losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts
or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of our products, we may be unable to obtain this increased product liability
insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that may be less severe than those of our
products. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse effect on our business,
results of operations, financial condition and prospects.
Our business involves the use of hazardous materials and we and our third-party
manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our third-party manufacturers and suppliers activities involve the controlled storage, use and disposal of hazardous materials. We and our
manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials even after we sell or otherwise dispose of the products. In some cases, these hazardous
materials and various wastes resulting from their use will be stored at our contractors or manufacturers facilities pending use and disposal. We cannot completely eliminate the risk of contamination, which could cause injury to our employees
and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we expect that the safety
procedures utilized by our third-party contractors and manufacturers for handling and disposing of these materials will generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this will be the case or
eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste
insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination.
We will continue to be responsible for certain liabilities and obligations related to Abstral and Zuplenz, and if unknown liabilities were to arise it
could have a material adverse effect on us.
Under our respective asset purchase agreements with Sentynl and Midatech, our future
obligations under our former agreements with Orexo AB and MonoSol have been assumed by Sentynl and Midatech, respectively, except that we will continue to be responsible for chargebacks, rebates, patient assistance and certain other product
distribution channel liabilities related to Abstral and Zuplenz for a specified period of time post-closing. We also will be responsible for any pre-closing liabilities and obligations related to Abstral and Zuplenz, including unknown liabilities,
and have agreed in the respective asset purchase agreements to indemnify Sentynl and Midatech for any breach of our representations, warranties and covenants in the respective asset purchase agreements up to a certain agreed to amount. We cannot
quantify these responsibilities to Sentanyl and Midatech, but if substantial unknown liabilities were to arise, it could have a material adverse effect on our financial condition.
Risks Relating to Our Development Programs
Our
drug candidates may not receive regulatory approval or be successfully commercialized.
Before they can be marketed, our products
in development must be approved by the FDA or similar foreign governmental agencies. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. Before obtaining regulatory approval for the
sale of any drug candidate, we must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates. Although our drug candidates have exhibited no serious
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adverse events, or SAEs, in the Phase 1 and 1/2 clinical trial, SAEs or other unexpected side effects may arising during further testing and development. A failure of any preclinical study or
clinical trial can occur at any stage of testing. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. It also is possible to
suffer significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.
Our Phase 3 PRESENT clinical
trial has been stopped due to futility and though we are conducting an investigation of the causes for the failure of the clinical trial, we are not certain that the investigation will result in the reason(s) for the failure.
On June 27, 2016, the Independent Data Monitoring Committee conducting the pre-planned interim analysis of the PRESENT Trial recommended
that we stop the clinical trial because of futility. We have conducted an investigation of the causes of the failure of the trial, which has resulted in the trial being closed down. The investigation has not yet provided the reasons for the failure
of the clinical trial. The investigation has caused us to unblind the data of the clinical trial. The PRESENT Trial may no longer likely be considered a registrational clinical trial. Even if we determine the causes of the failure, NeuVax may never
be approved for the treatment of patients with Node positive HER2 negative breast cancer.
Our products, GALE 301 and GALE 302 have the same
mechanism of actions NeuVax and may not be a viable product to prevent the recurrence of ovarian cancer or other types of cancers.
GALE 301/302, which have a similar mechanism of action as NeuVax, may no longer be a viable product to prevent the recurrence of ovarian
cancer or other types of cancer, depending upon the reasons for the causes of the failure of NeuVax.
A number of different factors could prevent us
from obtaining regulatory approval or commercializing our product candidates on a timely basis, or at all.
We, the FDA or other
applicable regulatory authorities, an Independent Data Safety Monitoring Board, or IDSMB, governing our clinical trials, or an institutional review board, or IRB, which is an independent committee registered with and overseen by the U.S. Department
of Health and Human Services, or HHS, that functions to approve, monitor and review biomedical and behavioral research involving humans, may suspend clinical trials of a drug candidate at any time for various reasons, including if we or it believe
the subjects or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on subjects or patients in a clinical trial could result in the FDA or other
regulatory authorities suspending or terminating the trial and refusing to approve a particular drug candidate for any or all indications of use.
Clinical trials of a new drug candidate require the enrollment of a sufficient number of patients, including patients who are suffering from
the disease the drug candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, and delays in patient enrollment can result in increased costs and longer development times than
we expect at present. Patients who are enrolled at the outset of this standard of care also may eventually choose for personal reasons not to participate in the study. We also compete for eligible patients with other breast cancer trials underway
from time to time, and we may experience delays in patient enrollment due to the dependency of other large trials underway in the same patient population.
Clinical trials also require the review and oversight of IRBs, which approve and continually review clinical investigations to protect the
rights and welfare of human subjects. An inability or delay in obtaining IRB approval could prevent or delay the initiation and completion of clinical trials, and the FDA may decide not to consider any data or information derived from a clinical
investigation not subject to initial and continuing IRB review and approval.
In addition, cancer vaccines are a relatively new form of
therapeutic treatment and a very limited number of such products have received regulatory approval. Therefore, the FDA or other regulatory authority may apply standards for approval of a new cancer vaccine that is different from past experience.
Numerous factors could affect the timing, cost or outcome of our drug development efforts, including the following:
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difficulties or delays in enrolling patients in our Phase 1/2 clinical trials of GALE-301 (folate binding protein (FBP) vaccine), our Phase 2 or possible phase 3 clinical trial of GALE-401 (anagrelide controlled
release) or other clinical trials in conformity with required protocols or projected timeline or in our other NeuVax clinical trials;
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conditions imposed on us by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;
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difficulties or delays in arranging for third parties to conduct clinical trials of our product candidates;
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problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of studies;
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third-party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
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our drug candidates having very different chemical and pharmacological properties in humans than in laboratory testing and interacting with human biological systems in unforeseen, ineffective or harmful ways, and the
possibility that our previous Phase 1 or Phase 2 trials will not be indicative of our drug candidates performance in larger patient populations;
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the need to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;
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insufficient or inadequate supply or quality of our drug candidates or other necessary materials necessary to conduct our clinical trials;
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disruption at our foreign clinical trial sites resulting from local social or political unrest or other geopolitical factors;
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effects of our drug candidates not being the desired effects or including undesirable side effects or the drug candidates having other unexpected characteristics;
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negative or inconclusive results from our clinical trials or the clinical trials of others for drug candidates similar to our own or inability to generate statistically significant data confirming the efficacy of the
product being tested;
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adverse results obtained by other companies developing similar drugs;
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modification of the drug during testing; and
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reallocation of our financial and other resources to other clinical programs.
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It is possible
that none of the product candidates that we develop will obtain the appropriate regulatory approvals necessary for us to begin selling them or that any regulatory approval to market a product may be subject to limitations on the indicated uses for
which we may market the product. The time required to obtain FDA and other approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we
perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material
adverse effect on our ability to generate revenue from the particular drug candidate.
In addition, the length of time to develop the
product candidates as well as any regulatory delays in the development and regulatory approval process could cause the patent exclusivity to be unavailable or greatly reduced for each product candidate. The lack of patent exclusivity could have a
material adverse effect on our ability to generate revenue from the particular drug candidate.
We are also subject to numerous foreign
regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval
described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not assure approval by regulatory authorities outside of the U.S.
We are dependent upon contract manufacturers for clinical supplies of our product candidates.
We do not have the facilities or expertise to manufacture supplies of any of our product candidates for clinical trials. Accordingly, we are
dependent upon contract manufacturers for these supplies. There can be no assurance that we will be able to secure needed supply arrangements on reasonable terms, or at all. Our failure to secure these arrangements as needed could have a materially
adverse effect on our ability to complete the development of our product candidates or, if we obtain regulatory approval for our product candidates, to commercialize them.
Our current plans call for the manufacture of our compounds by contract manufacturers offering research grade, Good Laboratory Practices grade
and Good Manufacturing Practices grade materials for preclinical studies (e.g., toxicology studies) and for clinical use. Certain of our product candidates are complex molecules requiring many synthesis steps, which may lead to challenges with
purification and scale-up. These challenges could result in increased costs and delays in manufacturing.
NeuVax is administered in
combination with Leukine, a GM-CSF available in both liquid and lyopholyzed forms exclusively from Genzyme Corporation, or Genzyme, a subsidiary of Sanofi-Aventis. We will continue to be dependent on Genzyme for our supply of
Leukine in connection with the ongoing NeuVax and GALE-301/GALE-302 trials and the potential commercial manufacture of these programs. Any temporary interruptions or discontinuation of the availability of Leukine, or any determination by us to
change the GM-CSF used with NeuVax or GALE-301/GALE-302, may have a material adverse effect on our clinical trials and any commercialization of the assets.
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We may not be able to establish or maintain the third-party relationships that are necessary to develop or
potentially commercialize some or all of our product candidates.
We expect to depend on collaborators, partners, licensees,
clinical research organizations and other third parties to support our discovery efforts, to formulate product candidates, to manufacture our product candidates, and to conduct clinical trials for some or all of our product candidates. We cannot
guarantee that we will be able to successfully negotiate agreements for or maintain relationships with collaborators, partners, licensees, clinical investigators, vendors and other third parties on favorable terms, if at all. Our ability to
successfully negotiate such agreements will depend on, among other things, potential partners evaluation of the superiority of our technology over competing technologies and the quality of the preclinical and clinical data that we have
generated, and the perceived risks specific to developing our product candidates. If we are unable to obtain or maintain these agreements, we may not be able to clinically develop, formulate, manufacture, obtain regulatory approvals for or
commercialize our product candidates. Under certain license agreements that we have already entered into, we have minimum dollar amounts per year that we are obligated to spend on the development of the technology we have licensed from our contract
partners and other obligations to maintain certain licenses. If we fail to meet this requirement under any of our licenses that contain such requirements or any other obligations under these licenses, we may be in breach of our obligations under
such agreement, which may result in the loss of the technology licensed. We cannot necessarily control the amount or timing of resources that our contract partners will devote to our research and development programs, product candidates or potential
product candidates, and we cannot guarantee that these parties will fulfill its obligations to us under these arrangements in a timely fashion. We may not be able to readily terminate any such agreements with contract partners even if such contract
partners do not fulfill its obligations to us.
In addition, we may receive notices from third parties from time to time alleging that our
technology or product candidates infringe upon the intellectual property rights of those third parties. Any assertion by third parties that our activities or product candidates infringe upon its intellectual property rights may adversely affect our
ability to secure strategic partners or licensees for our technology or product candidates or our ability to secure or maintain manufacturers for our compounds.
We are subject to competition and may not be able to compete successfully.
The biotechnology industry, including the cancer immunotherapy market, is intensely competitive and involves a high degree of risk. We compete
with other companies that have far greater experience and financial, research and technical resources than us. Potential competitors in the U.S. and worldwide are numerous and include pharmaceutical and biotechnology companies, educational
institutions and research foundations, many of which have substantially greater capital resources, marketing experience, research and development staffs and facilities than us. Some of our competitors may develop and commercialize products that
compete directly with those incorporating our technology, introduce products to market earlier than our products or on a more cost effective basis. In addition, our technology may be subject to competition from other technology or methods developed
using techniques other than those developed by traditional biotechnology methods. Our competitors compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our
technology. We and our collaborators may face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals,
availability of resources, reimbursement coverage, price and patent position, including the potentially dominant patent positions of others. An inability to successfully complete our product development could lead to us having limited prospects for
establishing market share or generating revenue from our technology.
For patients with early stage breast cancer, adjuvant therapy is
often given to prevent recurrence and increase the chance of long-term disease free survival. Adjuvant therapy for breast cancer can include chemotherapy, hormonal therapy, radiation therapy, or combinations thereof. In addition, the HER2 targeted
drug trastuzumab (Herceptin
®
) may be given to patients with tumors with high expression of HER2 (IHC 3+), in the adjuvant setting which may be useful in treating breast cancer.
There are a number of cancer vaccines in development for breast cancer, including but not limited to Lapuleucel-T (Dendreon), and AE-37
(Antigen Express). While these development candidates are aimed at a number of different targets, and AE-37 has published data in the HER2 breast cancer patient population, there is no guarantee that any of the these compounds will not in the future
be indicated for treatment of low to intermediate HER2 breast cancer patients and become directly competitive with NeuVax.
We are dependent on
technologies we license, and if we lose the right to license such technologies or we fail to license new technologies in the future, our ability to develop new products would be harmed.
We currently are dependent on licenses from third parties for technologies relating to our product candidates. Our current licenses impose,
and any future licenses we enter into are likely to impose, various development, funding, royalty, diligence, sublicensing, insurance and other obligations on us. If our license with respect to any of these technologies is terminated for any reason,
the development of the products contemplated by the licenses would be delayed, or suspended altogether, while we seek to license similar technology or develop new non-infringing technology. The costs of obtaining new licenses are high.
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Risks associated with operating in foreign countries could materially adversely affect our product
development.
We may conduct future studies in countries outside of the U.S. Consequently, we may be subject to risks related to
operating in foreign countries. Risks associated with conducting operations in foreign countries include:
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differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;
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unexpected changes in tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment,
immigration and labor laws for employees living or traveling abroad; foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other obligations incident to doing business or operating in another country;
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workforce uncertainty in countries where labor unrest is more common than in the U.S.;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism.
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addition, there may be political instability, including war, terrorism, riots, civil insurrection or social unrest, and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease, which could seriously harm the
progress of our clinical trials at sites in particular foreign countries or regions.
Risks Relating to Our Financial Position and Capital Requirements
We may not be able to obtain sufficient financing, and may not be able to develop our product candidates.
We had cash and cash equivalents of approximately $19.6 million as of June 30, 2016. In addition, we had approximately $24 million of
restricted cash that is reserved for a lender who had the option to redeem all, or part, of such amount within 30 trading days of our public announcement on June 29, 2016, of the discontinuation of the Phase 3 PRESENT Trial upon the IDMCs
recommendation on June 27, 2016. The lender did not exercise its option to redeem the approximately $24 million in full or in part.
We had no revenue for the quarter ending June 30, 2016, and our cash burn from operations for the quarter ending June 30, 2016 was
approximately $13 million. In addition, we paid off our loan with Oxford Finance LLC for a total of $3.1 million. The Company has stopped the PRESENT Trial and has completed the related investigation. Based on the results of the investigation, the
estimated cost to close out the PRESENT Trial will be between $2.5 million to $3.5 million. On July 1, 2016, we paid $2.3 million for the securities class action settlement. We believe that our existing cash and cash equivalents
together with the net proceeds we received on July 13, 2016 from selling 28,000,000 shares of common stock and 14,000,000 warrants (the July Financing) should be sufficient to fund our operations for at least six months. This projection
is based on our current planned operations, stopping the PRESENT Trial and investigation of the causes of the failure of such clinical trial, anticipated payments for defense costs for the cooperation and discussions with the staff in the SEC
investigation and other governmental investigations, and is subject to changes in our plans and uncertainties inherent in our business. We will need to seek to replenish our existing cash and cash equivalents prior to the end of 2016. We also have
funding available under our purchase agreement with Lincoln Park Capital Fund, LLC and sales agreements with MLV & Co. and Maxim Group LLC described in the previously filed prospectuses, but there is no guarantee that such funding will be
available to us on favorable terms or will be sufficient to meet all of our future funding needs. Additionally, in connection with the July Financing, we have agreed not to issue any shares of our common stock (including under our purchase agreement
with Lincoln Park Capital Fund, LLC and under our sales agreements with MLV & Co. and Maxim Group LLC) for a period of 75 days from the date of the closing of the July Financing. At our annual meeting of stockholders adjourned on July 15,
2016, our stockholders approved an increase in our authorized common stock from 275,000,000 to 350,000,000. We are not able to predict whether these additional shares will be sufficient based upon our current stock price to meet the Companys
ongoing financing requirements to maintain the Companys operations.
If we fail to obtain additional future funding when needed, we
could be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company. We may not be able to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a
going concern. Any such inability to continue as a going concern may result in our common stock holders losing their entire investment. There is no guaranty that we will become profitable or secure additional financing.
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We expect to continue to incur significant research and development expenses, which may make it difficult
for us to attain profitability, and may lead to uncertainty about our ability to continue as a going concern.
Substantial funds
were expended to develop our technologies and product candidates, and additional substantial funds will be required for further preclinical testing and clinical trials of our product candidates, and to manufacture and market any products that are
approved for commercial sale. Because the successful development of our products is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to
generate enough revenue, even if we are able to commercialize any of our product candidates, to become profitable.
In the event that we
are unable to achieve or sustain profitability or to secure additional financing, we may not be able to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to
continue as a going concern may result in our common stock holders losing their entire investment. There is no guaranty that we will become profitable or secure additional financing. Our financial statements contemplate that we will continue as a
going concern and do not contain any adjustments that might result if we were unable to continue as a going concern. Changes in our operating plans, our existing and anticipated working capital needs, the acceleration or modification of our
expansion plans, increased expenses, potential acquisitions or other events will all affect our ability to continue as a going concern. Future financing may be obtained through, and future development efforts may be paid for by, the issuance of debt
or equity, which may have an adverse effect on our security holders or may otherwise adversely affect our business.
If we raise funds
through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences and privileges senior to those of holders of our common stock in the event of a liquidation. In such event, there is a possibility
that once all senior claims are settled, there may be no assets remaining to pay out to the holders of common stock. In addition, if we raise funds through the issuance of additional equity, whether through private placements or additional public
offerings, such an issuance would dilute your ownership in us.
The terms of debt securities may also impose restrictions on our
operations, which may include limiting our ability to incur additional indebtedness, to pay dividends on or repurchase our capital stock, or to make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to
satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our control.
You may
have difficulty evaluating our business, and our historical financial information may not be representative of our future results.
We recently announced the recommendation by the IDMC to stop the PRESENT Trial for futility and based upon our investigation we closed down
the trial. As a result, we will focus our resources on our pipeline of other product candidates. As a result, we will have no recurring revenues unless and until we are able to obtain marketing approval of one or more of our other product candidates
and our historical financial information may not be representative of our future results.
We may be unable to comply with our reporting and other
requirements under federal securities laws.
As a publicly traded company, we are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our
failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. The Sarbanes-Oxley Act requires that we, among other
things, establish and maintain effective internal controls and procedures for financial reporting. From time to time we evaluate our existing internal controls in light of the standards adopted by the Public Company Accounting Oversight Board. It is
possible that we or our independent registered public accounting firm may identify significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and
maintaining these controls could cause us to fail to meet the periodic reporting obligations or result in material misstatements in our financial statements.
Section 404 of the Sarbanes-Oxley Act requires annual management and independent auditor assessments of the effectiveness of our internal
control over financial reporting. Our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could have a material
adverse effect on our business and our common stock.
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Risks Related to Our Intellectual Property
We may not be able to obtain and enforce patent rights or other intellectual property rights that cover our product candidates and that are of sufficient
breadth to prevent third parties from competing against us.
Our success with respect to our product candidates will depend in
part on our ability to obtain and maintain patent protection in the U.S. and abroad, to preserve our trade secrets, and to prevent third parties from infringing upon our proprietary rights. Our patents and patent applications, however, may not be
sufficient to provide protection for NeuVax or our other products and product candidates against commercial competition.
The active
peptide found in NeuVax, the E75 peptide, has been known and studied for many years. We have one issued U.S. patent, US 6,514,942, covering the composition of matter of the E75 peptide, which expired in mid-2015, prior to any potential
commercialization of NeuVax. We do not have and will not be able to obtain any composition of matter patent protection for E75, the active peptide in NeuVax. We also have a license from The Henry M. Jackson Foundation to issued U.S., European,
Japanese, Korean, Mexican and Australian method of use patents, which expire in 2028, that are directed to a method of inducing immunity against breast cancer recurrence by administering a composition comprising the E75 peptide to patients who have
both an immunohistochemistry (IHC) rating of 1+ or 2+ for HER2/neu protein expression, as well as a fluorescence in situ hybridization (FISH) rating of less than about 2.0 for HER2/neu gene expression. The license further includes an issued U.S.
method of use patent directed to a method of inducing immunity against recurrence of any HER2/neu expressing tumors by administering the E75 peptide to patients with tumors having a FISH rating of less than about 2.0 for HER2/neu gene expression; an
allowed U.S application which includes claims to the use of E75 to reduce the risk of cancer recurrence, including bone only recurrence; and pending applications with similar claims in a number of foreign jurisdiction, all of which expire in 2028.
Also included in the license is a method of use patent, which expires in 2026, that is directed to the use of NeuVax in combination with Herceptin® to treat any HER2/neu expressing cancer. Thus, our method of use patents may not prevent
competitors from seeking to develop and market NeuVax for use in cancer patients who do not meet these criteria. If any such alternative uses were approved, this could lead to off-label use and price erosion for our NeuVax product. We may seek FDA
approval for use of NeuVax to treat cancer patients who fall outside the claimed IHC and FISH ranges and for other cancers as well. Although we are pursuing additional patent protection for NeuVax through pending patent applications, we may not be
able to obtain additional patent protection that would provide us with a significant commercial advantage.
Anagrelide hydrochloride, the
sole active pharmaceutical ingredient, or API, in GALE-401, has been approved for many years and, thus, it is not possible to obtain composition of matter patents that cover anagrelide hydrochloride. As a result, competitors who obtain the requisite
regulatory approval can offer products with the same 43 API as GALE-401, so long as the competitors do not infringe any formulation patents that we may have or may obtain or license, if any. The only patent protection that we have or are likely to
obtain covering GALE-401 are patents relating to specific formulations, methods using these formulations, and methods of manufacturing and packaging. We have an issued U.S. Patent, which expires in 2020, covering methods of using anagrelide to
reduce platelet count in patients subject to veno-occlusive events. We have granted patents in the U.S., United Kingdom and Japan, which expire in 2029, covering controlled release formulations of anagrelide and methods of use. We also are
prosecuting pending patent applications in other territories including, but not limited to, the U.S. Europe, India and Japan, which may not issue prior to any potential commercialization of GALE-401. We may seek FDA approval for use of GALE-401 to
treat patients with myeloproliferative neoplasms that include several hermatological disorders. Although we are pursuing additional patent protection for GALE-401 through pending patent applications, we may not be able to obtain additional patent
protection that would provide us with a significant commercial advantage.
The active peptides found in GALE-301 and GALE-302 are derived
from Folate Binding Protein. One of the active peptides, E39, has been known and studied for many years. The other active peptide, GALE-302, is a derivative of E39. We have a license from The Henry M. Jackson Foundation to issued and granted patents
in the U.S., Europe, Canada, and Japan, covering composition of matter for the E39 derivative peptides, including GALE-302, alone and in combination with E39, as well as the use of these compositions for the treatment of cancer. These patents are
expected to expire in 2022, prior to any potential commercialization of GALE-301. We do not have and will not be able to obtain any composition of matter patent protection for the E39 peptide in any territory. The license we have from The Henry M.
Jackson Foundation grants us the right to develop and market GALE-301 for any use, including methods of treating cancer, our patents may not prevent competitors from seeking to develop and market the E39 peptide alone. If any such alternative uses
of compositions containing the E39 peptide were approved, this could lead to off label use and price erosion for GALE-301. We may seek FDA approval for use of GALE-301, alone or in combination with GALE-302, to treat cancer patients with ovarian and
endometrial cancers and for other cancers, as well. Although we are pursuing additional patent protection for GALE-301 and the combination of GALE-301 and GALE-302 through pending patent applications, we may not be able to obtain additional patent
protection that would provide us with a significant commercial advantage.
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Our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and
factual questions. Accordingly, rights under any patents we have or may obtain or license may not provide us with sufficient protection for our commercial product and product candidates to afford a commercial advantage against competitive products
or processes, including those from branded and generic pharmaceutical companies. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Nor can we guarantee that the
claims of these patents will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
Changes in either the patent laws or in the interpretations of patent laws in the U.S. or abroad may diminish the value of our intellectual
property. In addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to the U.S. patent law. These include provisions that
affect the way patent applications will be prosecuted and may also affect patent litigation. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act, in
particular the first-to-file provision and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement of or defense of our issued patents, all of which could have a
material adverse effect on our business and financial condition. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
While we intend to take actions reasonably necessary to enforce our patent rights, we may not be able to detect infringement of our own or
in-licensed patents, which may be especially difficult for methods of manufacturing or formulation products, and we depend, in part, on our licensors and collaborators to protect a substantial portion of our proprietary rights. In addition, third
parties may challenge our in-licensed patents and any of our own patents that we may obtain, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. Litigation or other proceedings to enforce or
defend intellectual property rights is very complex, expensive, and may divert our managements attention from our core business and may result in unfavorable results that could adversely affect our ability to prevent third parties from
competing with us.
If another party has reason to assert a substantial new question of patentability against any of our claims in our own
and in-licensed patents, the third party can request that the patent claims be reexamined, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential infringement suits and, interference and
reexamination proceedings, we may become a party to patent opposition proceedings where either the patentability of the inventions subject of our patents are challenged, or we are challenging the patents of others. The costs of these proceedings
could be substantial, and it is possible that such efforts would be unsuccessful. As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert our commercial product
and/or product candidates infringe their patent rights. If a third-party is patents were found to cover our commercial product and product candidates, proprietary technologies or its uses, we or our collaborators could be enjoined by a court and
required to pay damages and could be unable to continue to commercialize our products or use our proprietary technologies unless we or it obtained a license to the patent. A license may not be available to us or our collaborators on acceptable
terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief, which could prohibit us from making, using or selling our commercial product and product candidates pending a trial
on the merits, which could be years away.
Proprietary trade secrets and unpatented know-how are also very important to our business.
Although we have taken steps to protect our trade secrets and unpatented know-how, by entering into confidentiality agreements with third parties, and proprietary information and invention agreements with certain employees, consultants and advisors,
third parties may still obtain this information or we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. There can be no assurance that binding
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are
independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged
trade secrets of their other clients or former employers. As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or
potential competitors. Moreover, we engage the services of consultants to assist us in the development of our commercial product and product candidates, many of whom were previously employed at or may have previously been or are currently providing
consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed
trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these types of claims. Even if we are successful in defending against any such claims, any
such litigation would likely be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.
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Our product candidates may face competition sooner than expected after the expiration of our composition of
matter patent protection for such products.
Our composition of matter patents for many of our product candidates have expired or
will expire prior to any product approval. We intend to seek data exclusivity or market exclusivity for our NeuVax as well as our GALE-301 and GALE-302 product candidates provided under the Federal Food, Drug and Cosmetic Act, or FDCA, and similar
laws in other countries. We believe that these product candidates will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and
Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the Affordable Care Act or ACA) enacted in March 2010. Under the BPCIA, an application for a biosimilar product or biologics license
application (BLA) cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for
the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as
interchangeable based on its similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented by the FDA. While it is uncertain when any such processes may be fully adopted by the
FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological product candidates. There is also a risk that the U.S. Congress could amend the BPCIA to shorten this exclusivity period as proposed
by President Obama, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted for any
reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
If our product candidates are not considered biologics that would qualify for exclusivity under the BPCIA, they may be eligible for market
exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has
not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug
application, or ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be
submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical
investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug.
This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.
Even if, as we expect, GALE-301 and GALE-302 are considered to be reference products eligible for 12 years of exclusivity under the BPCIA or
five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA for such product containing the sponsors own preclinical data and data from adequate and well-controlled
clinical trials to demonstrate the safety, purity and potency of the products.
In some countries outside of the U.S., peptide vaccines,
such as GALE-301 and GALE-302, are regulated as chemical drugs rather than as biologics and may or may not be eligible for non-patent exclusivity.
Although we have received orphan drug designation for both GALE-301, as well as GALE-301 and GALE-302, there is no guarantee that the drugs
will be successfully approved by the FDA, that they will be commercially successful in the marketplace, or that another drug will not be approved for the same indication ahead of our drugs.
Risks Relating to Ownership of Our Common Stock
The market price and trading volume of our common stock may be volatile.
The market price of our common stock has exhibited substantial volatility recently. Between September 30, 2015 and September 30,
2016, the sale price of our common stock as reported on The NASDAQ Capital Market ranged from a low of $0.28 to a high of $2.49. The market price of our common stock could continue to fluctuate significantly for many reasons, including the following
factors:
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reports of the results of our clinical trials regarding the safety or efficacy of our product candidates and surrogate markers;
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announcements of regulatory developments or technological innovations by us or our competitors;
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announcements of business or strategic transactions such as our recent sales of our marketed products and discontinuation of our commercial operations, or our success in doing so;
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announcements of legal or regulatory actions against us or any adverse outcome of any such actions;
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changes in our relationship with our licensors, licensees and other strategic partners;
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our quarterly operating results;
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developments in patent or other technology ownership rights;
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public concern regarding the safety of our Abstral product or our product candidates;
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additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders;
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government regulation of drug pricing; and
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general changes in the economy, the financial markets or the pharmaceutical or biotechnology industries.
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Factors beyond our control may also have an impact on the price of our stock. For example, to the extent that other companies within our
industry experience declines in their stock prices, our stock price may decline as well.
We are, and in the future may be, subject to legal or
administrative actions that could adversely affect our financial condition and our business.
On December 3, 2015, we agreed
in principle to resolve and settle the consolidated shareholder derivative action,
In re Galena Biopharma, Inc. Derivative Litigation
, Civil Action No. 3:14-cv-00382-SI against us and certain of our current and former officers and
directors. Following the hearing on June 23, 2016, on June 24, 2016, the U.S. District Court for the District of Oregon entered a final order and judgment in
In re Galena Biopharma, Inc. Derivative Litigation
, granting final
approval to the settlement. On the same day, the court also issued an opinion and order awarding attorneys fees of $4.5 million plus costs, which will be paid by our insurance carriers. The settlement includes a payment of $15 million in cash
by our insurance carriers, which we will use to fund a portion of the class action settlement, and cancellation of 1,200,000 outstanding director stock options. The settlement also requires that we adopt and implement certain corporate governance
measures. The settlement does not include any admission of wrongdoing or liability on the part of us or the individual defendants and includes a full release of us and the individual defendants in connection with the allegations made in the
consolidated federal derivative actions and state court derivative actions.
On December 3, 2015, we also agreed in principal to
resolve and settle the securities putative class action lawsuit,
In re Galena Biopharma, Inc. Securities Litigation
, Civil Action No. 3:14-cv-00367-SI, against us, certain of our current and former officers and directors and
other defendants in the United States District Court for the District of Oregon. Following the hearing on June 23, 2016, on June 24, 2016, the U.S. District Court for the District of Oregon entered a final order and partial judgment
in
In re Galena Biopharma, Inc. Securities Litigation
, granting final approval of the settlement. On the same day, the Court also issued an opinion and order awarding attorneys fees of $4.5 million plus costs, which is paid out of
the settlement funds. The agreement provides for a settlement payment of $20 million to the class and the dismissal of all claims against us and the other defendants in connection with the consolidated federal securities class actions. Of the $20
million settlement payment to the class, $16.7 million was paid by our insurance carriers and $2.3 million in cash was paid by us on July 1, 2016, along with $1 million in shares of our common stock (480,053 shares) was paid by us on
July 6, 2016. We will be responsible for defense costs and any settlements or judgments incurred for any related opt-out lawsuits.
We are aware that the SEC is investigating certain matters relating to the use of certain outside investor-relations professionals by us and
other public companies. We have been in contact with the SEC staff through our counsel and are cooperating with the investigation and in discussions with the SEC staff.
A federal investigation of two of the high-prescribing physicians for Abstral has resulted in the criminal prosecution of the two physicians
for alleged violations of the federal False Claims Act and other federal statutes. The criminal trial is set for October 2016. We have received a trial subpoena for documents in connection with that investigation and we have been in contact with the
U.S. Attorneys Office for the Southern District of Alabama, which is handling the criminal trial, and are cooperating in the production of documents. On April 28, 2016, a second superseding indictment was filed in the criminal case, which
added additional information about the defendant physicians and provided information regarding the facts and circumstances involving a rebate agreement between the Company and the defendant physicians pharmacy as well as their ownership of our
stock. Certain former employees have received trial subpoenas to appear at the trial and provide oral testimony. We have agreed to reimburse those former employees attorneys fees. To our knowledge, we are not a target or subject of that
investigation.
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There also have been federal and state investigations of a company that has a product that
competes with Abstral in the same therapeutic class, and we have learned that the FDA and other governmental agencies are investigating our Abstral promotion practices. On December 16, 2015, we received a subpoena issued by the U.S.
Attorneys Office in District of New Jersey requesting the production of a broad range of documents pertaining to our marketing and promotional practices for Abstral. We have been in contact with the U.S. Attorneys Office for the District
of New Jersey and are cooperating in the production of the requested documents. We are unable to predict whether we could become subject to legal or administrative actions as a result of these matters, or the impact of such matters. If we are found
to be in violation of the False Claims Act, Anti-Kickback Statute, Patient Protection and Affordable Care Act, or any other applicable state or any federal fraud and abuse laws, we may be subject to penalties, such as civil and criminal penalties,
damages, fines, or an administrative action of exclusion from government health care reimbursement programs. We can make no assurances as to the time or resources that will need to be devoted to these matters or their outcome, or the impact, if any,
that these matters or any resulting legal or administrative proceedings may have on our business or financial condition.
Litigation is
inherently uncertain. We have incurred and may continue to incur substantial unreimbursed legal fees and other expenses in connection with these or other legal and regulatory proceedings that may not qualify for coverage under, or may exceed the
limits of, our applicable directors and officers liability insurance policies and could have a material adverse effect on our financial condition, liquidity, and results of operations. These matters also may distract the time and attention of our
officers and directors or divert our other resources away from our ongoing development programs. An unfavorable outcome in any of these matters could damage our business and reputation or result in additional claims or proceedings against us.
Our common stock is currently trading at prices less than $1.00, which is the minimum bid price requirement under NASDAQs continued listing
standards. If our common stock continues to trade at such prices, our common stock may be subject to delisting from the NASDAQ Capital Market.
The continued listing requirements of the NASDAQ Capital Market require that the closing bid price of our common stock not be less than
$1.00. Following our announcement on June 29, 2016, that we had stopped our PRESENT trial, the closing bid price of our common stock has been less than $1.00. On August 11, 2016, we received a notice from The Nasdaq Stock Market stating
that the closing bid price for our common stock had been below $1.00 per share for the previous 30 consecutive business days, and that we were therefore not in compliance with the requirements for continued inclusion on the Nasdaq Capital Market
under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until February 7, 2017, to regain compliance with this minimum bid price requirement. This notice has no immediate effect
on the Nasdaq listing or trading of our common stock.
We can regain compliance with the $1.00 minimum bid listing requirements of the
Nasdaq Capital Market if the closing bid price of our common stock is $1.00 per share or higher for a minimum of ten consecutive business days during this initial 180-day compliance period. If compliance is not achieved by February 7, 2017, we
expect that Nasdaq would provide written notification to us that our securities are subject to delisting. We will continue to monitor the closing bid price for our common stock and consider our available options to regain compliance with the Nasdaq
minimum bid requirements, which may include applying for an extension of the compliance period or appealing to a Nasdaq Hearings Panel.
In the event that we fail to regain compliance with NASDAQ continued listing standards by the expiration of the applicable cure period or any
extension period, NASDAQ will commence suspension and delisting procedures with respect to our common stock, which could impair the value of your investment. If our common stock is delisted from NASDAQ Capital Market in the future, such securities
may be traded over-the-counter on the pink sheets. Such alternative market, however, is generally considered to be less efficient than, and not as broad as, NASDAQ. Accordingly, delisting of our common stock from NASDAQ could have a
significant negative effect on the trading volume, liquidity and market price of our common stock. In addition, the delisting of our common stock could adversely affect our ability to raise capital on terms acceptable to us or at all and could
reduce the number of investors willing to hold or acquire our common stock.
Future sales of substantial amounts of our common stock, or the
possibility that such sales could occur, could adversely affect the market price of our common stock.
Future sales in the public
market of shares of our common stock, including shares referred to in the foregoing risk factors or shares issued upon exercise of our outstanding stock options, or the perception by the market that these sales could occur, could lower the market
price of our common stock or make it difficult for us to raise additional capital.
As of June 30, 2016, we had reserved for issuance
10,309,365 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $2.44 per share and 37,418,263 shares of our common stock issuable upon the exercise of outstanding warrants at a
weighted-average exercise price of $1.82 per share. Upon exercise of these options and warrants, the underlying shares may be resold into the public market. In the case of outstanding options and warrants that have exercise prices that are below the
market price of our common stock from time to time, our stockholders would experience dilution upon the exercise of these options.
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Our outstanding warrants may result in dilution to our stockholders.
Our outstanding April 2011 warrants to purchase a total of 615,398 shares of common stock as of June 30, 2016 at a current exercise price
of $0.65 per share contain so-called full-ratchet anti-dilution provisions. Our outstanding March 2010 and December 2012 warrants to purchase 25,000 shares and 3,031,311 shares, respectively, of common stock as of June 30, 2016 at exercise
prices of $1.92 and $1.75, respectively, per share contain so-called weighted-average anti-dilution provisions. These anti-dilution provisions may be triggered by the issuance of the shares being offered hereby or upon any future issuance by us of
shares of our common stock or common stock equivalents at a price per share below the then-exercise price of the warrants, subject to some exceptions.
To the extent that these anti-dilution provisions are triggered in the future, we would be required to reduce the exercise price of all of the
warrants on either a full-ratchet or weighted-average basis, which would have a dilutive effect on our stockholders.
We may issue preferred stock
in the future, and the terms of the preferred stock may reduce the value of our common stock.
We are authorized to issue up to
5 million shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect stockholder
rights or reduce the market value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights,
sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party.
Anti-takeover provisions of our amended
and restated certificate of incorporation and amended and restated bylaws and provisions of Delaware law could delay or prevent a change of control.
Anti-takeover provisions of our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or
prevent a merger or other change of control that stockholders may consider favorable or may impede the ability of the holders of our common stock to change our management and may be constrained by other contractual agreements with third parties.
These provisions of our amended and restated certificate of incorporation and amended and restated bylaws, among other things:
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divide our board of directors into three classes, with members of each class to be elected for staggered three-year terms;
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limit the right of security holders to remove directors;
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prohibit stockholders from acting by written consent;
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regulate how stockholders may present proposals or nominate directors for election at annual meetings of stockholders; and
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authorize our board of directors to issue preferred stock in one or more series, without stockholder approval.
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In addition, Section 203 of the Delaware General Corporation Law provides that, subject to limited exceptions, persons that acquire, or
are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation such as our company shall not engage in any business combination with that corporation, including by merger, consolidation or
acquisitions of additional shares for a three-year period following the date on which that person or its affiliate crosses the 15% stock ownership threshold. Section 203 could operate to delay or prevent a change of control of our company.
We have never declared or paid cash dividends on our capital stock and we do not anticipate paying cash dividends in the foreseeable future.
Our business requires significant funding. We currently plan to invest all available funds and future earnings in the development
and growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future, and are prohibited by the terms of our outstanding indebtedness from paying dividends on any common stock, except with the
prior consent of our lenders. As a result, capital appreciation, if any, of our common stock will be our stockholders sole source of potential gain for the foreseeable future.
The terms of our outstanding indebtedness may inhibit potential acquirers.
We are prohibited by the terms of our outstanding indebtedness from disposing of any of our business or property, except with the consent of
our lenders or if we were to prepay the outstanding indebtedness and related fees in accordance with the loan security agreement. Our outstanding indebtedness may inhibit potential acquirers or other interested parties from seeking to acquire all or
a part of our business or assets, and there is no assurance that our lenders would consent to any proposed future transaction that might be beneficial to our stockholders.
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