Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1. Nature of Operations
Description of the Business
Humanigen, Inc. (the “Company”)
was incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name
KaloBios Pharmaceuticals, Inc. The Company completed its initial public offering in January 2013. Effective August 7, 2017, the
Company changed its legal name to Humanigen, Inc.
As disclosed in the Company’s 2017 Form 10-K, since August 29, 2017 the Company has shifted its
primary focus toward developing its proprietary monoclonal antibody portfolio, which comprises lenzilumab, ifabotuzumab and HGEN005,
for use in addressing significant, serious and potentially life-threatening unmet needs in oncology and immunology. These product
candidates are at various stages of development and will require substantial time, expenses, clinical development, testing, and
regulatory approval prior to commercialization, if they are approved at all. Furthermore, none of these product candidates has
advanced into a pivotal registration study and it may be years before any such studies are initiated, if at all.
Lenzilumab is a recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage
colony-stimulating factor, or GM-CSF, a critical cytokine in the inflammatory cascade associated with serious and potentially life-threatening
CAR-T-related side effects and in the growth of certain hematologic malignancies, solid tumors and other serious conditions.
The
Company expects to study lenzilumab’s potential to reduce the side effects associated with CAR-T therapy and potentially
improve efficacy. Pre-clinical work has been completed to explore lenzilumab’s effectiveness in preventing or ameliorating
neurotoxicity and cytokine release syndrome (“CRS”) associated with CAR-T therapy. Pre-clinical animal data shows that
there may be an increase in CAR-T cell expansion when CAR-T is combined with lenzilumab, which potentially could translate into
improved CAR-T efficacy. This is likely to be an area of further study. In addition, the Company has completed enrollment of patients
in a Phase 1 clinical trial for chronic myelomonocytic leukemia (“CMML”), to identify the maximum tolerated dose, (“MTD”),
or recommended Phase 2 dose (“RPTD”) of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical
activity. Fifteen patients in the 200, 400 and 600 mg dose cohorts of the CMML trial have been enrolled, and the Company is evaluating
subjects in the highest dose cohort of 600 mg for continuing accrual of up to 18 patients. The Company also plans to review preliminary
safety and potential efficacy and may use interim data from the lenzilumab CMML Phase 1 study to determine the feasibility of commencing
a Phase 1 study in juvenile myelomonocytic leukemia (“JMML”) patients, or to explore a Phase 2 CMML study. JMML is
a rare pediatric cancer, is associated with poor outcomes and a very high unmet medical need, for which there are no Unites States
Food and Drug Administration (“FDA”) -approved therapies.
Ifabotuzumab is an anti-Eph Type-A receptor
3, or EphA3, mAb that has the potential to offer a novel approach to treating solid tumors and hematologic malignancies, serious
pulmonary conditions and as a CAR construct. EphA3 is aberrantly expressed on the surface of tumor cells and stroma cells in certain
cancers. The Company completed the Phase 1 dose escalation portion of a Phase 1/2 clinical trial for ifabotuzumab in multiple hematologic
malignancies for which the preliminary results were published in the journal
Leukemia Research
in 2016. An investigator-sponsored
Phase 0/1 radio-labeled imaging trial of ifabotuzumab in glioblastoma multiforme, a particularly aggressive and deadly form of
brain cancer, has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia. The trial has enrolled
4 patients to date, with more expected. The Company is also in discussions with a leading center in the U.S. to develop a series
of CAR constructs based on ifabotuzumab and may take these constructs, if developed, into pre-clinical testing for a range of cancer
types. The Company is continuing to explore partnering opportunities to enable further development of ifabotuzumab.
HGEN005 is a pre-clinical stage anti-human
epidermal growth factor-like module containing mucin-like hormone receptor 1, or EMR1, mAb. EMR1 is a therapeutic target for eosinophilic
disorders. Eosinophils are a type of white blood cell. If too many are produced in the body, chronic inflammation and tissue and
organ damage may result. Analysis of blood and bone marrow shows that surface expression of EMR1 is restricted to mature eosinophils
and correlated with eosinophilia. Tissue eosinophils also express EMR1. In pre-clinical work, the Company has demonstrated that
eosinophil killing is enhanced in the presence of HGEN005 and immune effector cells. A major limitation of current eosinophil targeted
therapies is incomplete depletion of tissue eosinophils and/or lack of cell selectivity, which may mean that HGEN005 could offer
promise in a range of eosinophil-driven diseases, such as eosinophilic asthma, eosinophilic esophagitis and eosinophilic granulomatosis
with polyangiitis. The Company is in discussion with a leading center in the U.S. to develop a series of CAR constructs based on
HGEN005 and may take these constructs, if developed, into pre-clinical testing for eosinophilic leukemia, an orphan condition with
significant unmet need.
The Company’s monoclonal antibody
portfolio was developed with its proprietary, patent-protected Humaneered
®
technology, which consists of methods
for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use.
Liquidity and Going Concern
The Company has incurred significant losses since its inception in March 2000 and had an accumulated deficit
of $270.4 million as of June 30, 2018.
At June
30, 2018, the Company had a working capital deficit of $7.1 million. On February 27, 2018, the Company issued 91,815,517
shares of common stock in exchange for the extinguishment of all term loans, related fees and accrued interest and received $1.5
million in cash proceeds. See Note 8 for a more detailed discussion of these restructuring transactions. On March 12, 2018
the Company issued 2,445,557 shares of common stock for proceeds of $1.1 million to accredited investors. On June 4, 2018, the
Company issued 400,000 shares of common stock for proceeds of $0.2 million to an accredited investor. On June 29, 2018 the Company
received aggregate proceeds of $0.4 million from advances made to the Company (the “Advance Notes”) by Dr. Cameron
Durrant, the Company’s Chairman and Chief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital,
L.P., the Company’s controlling stockholder; and Ronald Barliant, a director of the Company. See Note 6 for further description
of the Advance Notes. To date, none of the Company’s product candidates has been approved for sale and therefore the Company
has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The
Company will require additional financing in order to meet its anticipated cash flow needs during the next twelve months. As a
result, the Company will continue to require additional capital through equity offerings, debt financing and/or payments under
new or existing licensing or collaboration agreements. If sufficient funds are not available on acceptable terms when needed, the
Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more
of its development programs. The Company’s ability to access capital when needed is not assured and, if not achieved on a
timely basis, could materially harm its business, financial condition and results of operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
The Condensed Consolidated Financial Statements
for the six months ended June 30, 2018 were prepared on the basis of a going concern, which contemplates that the Company will
be able to realize assets and discharge liabilities in the normal course of business. The ability of the Company to meet its total
liabilities of $8.1 million at June 30, 2018 and to continue as a going concern is dependent upon the availability of future
funding. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Basis of Presentation
The accompanying interim unaudited Condensed
Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements and
include all adjustments necessary for the presentation of the Company’s condensed consolidated financial position, results
of operations and cash flows for the periods presented. The Condensed Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company
will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments
in the normal course of business. The December 31, 2017 Condensed Consolidated Balance Sheet was derived from the audited
financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily
indicative of the results to be expected for the year ending December 31, 2018, or for any other future annual or interim
period. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated
financial statements and the related notes thereto included in the Company’s 2017 Form 10-K.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported
in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.
The Company believes judgment is involved in determining the valuation of the fair value-based measurement of stock-based compensation,
accruals and warrant valuations. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future
events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions,
and those differences could be material to the Condensed Consolidated Financial Statements.
2. Chapter 11 Filing
On December 29, 2015, the Company filed
a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy
Case”).
Plan of Reorganization
On May 9, 2016, the
Company filed with the Bankruptcy Court a Plan of Reorganization and related amended disclosure statement (the “Plan”)
pursuant to Chapter 11 of the Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan.
The Plan became effective on June 30, 2016
(the “Effective Date”) and the Company emerged from its Chapter 11 bankruptcy proceedings.
Bankruptcy Claims Administration
The reconciliation of certain proofs of
claim filed against the Company in the Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and
Other Subordinated Claims, is substantially complete. As a result of its examination of the claims, the Company has asked
the Bankruptcy Court to disallow, reduce, reclassify, subordinate or otherwise adjudicate certain claims the Company believes are
subject to objection or otherwise improper. Under the terms of the Plan, the Company had until December 27, 2016 to file
additional objections to disputed claims, subject to the Company’s right to seek an extension of this deadline from the Bankruptcy
Court. The deadline has been extended by the Bankruptcy Court, most recently by Order dated July 13, 2018, under which the Bankruptcy
Court extended the claims objection deadline through September 24, 2018. On July 11, 2018, the Company filed an objection to the
remaining claims. By objection, the Company seeks to disallow in their entirety the remaining claims totaling approximately $0.5
million. The Bankruptcy Court has scheduled a hearing on the objection for August 10, 2018. The resolution of such claims could
result in material adjustments to the Company’s financial statements. As of June 30, 2018, the Company has recorded $0.06
million related to these claims in Accounts payable and Notes payable to vendors, which represents management’s best estimate
of claims to be allowed by the Bankruptcy Court.
Although the Bankruptcy Case remains open,
other than with respect to certain matters relating to the implementation of the Plan, the administration of certain claims, or
over which the Bankruptcy Court may have otherwise retained jurisdiction, the Company is no longer operating under the direct supervision
of the Bankruptcy Court. The Company anticipates that the Bankruptcy Case will be closed following the completion of the
claims reconciliation process and will seek to close the Bankruptcy as soon as possible.
Financial Reporting in Reorganization
The Company applied Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852,
Reorganizations
, which is
applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line
items. It requires that the financial statements for periods subsequent to the Chapter 11 filing distinguish transactions and events
that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized
gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business
must be reported separately as reorganization items in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that
are not subject to compromise and from post-petition liabilities. Liabilities that may be subject to a plan of reorganization must
be reported at the amounts expected to be allowed in the Company’s Chapter 11 case, even if they may be settled for lesser
amounts as a result of the plan of reorganization or negotiations with creditors.
As of June 30, 2018, approximately $0.06
million of pre-petition liabilities remain in Accounts payable and Notes payable to vendors. For the six months ended June 30,
2017, the Company wrote off approximately $0.2 million in claims that had been reduced or for which a settlement had been reached
at a lower amount than had been previously accrued. Remaining amounts will be paid based on terms of the Plan.
For the three and six months ended June
30, 2018 and 2017, Reorganization items, net consisted of the following charges:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Legal fees
|
|
$
|
23
|
|
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
166
|
|
Professional fees
|
|
|
6
|
|
|
|
10
|
|
|
|
13
|
|
|
|
21
|
|
Total reorganization items, net
|
|
$
|
29
|
|
|
$
|
63
|
|
|
$
|
66
|
|
|
$
|
187
|
|
Cash payments for reorganization items totaled
$0.07 million and $0.09 million for the three and six months ended June 30, 2018, respectively. Cash payments for reorganization
items totaled $0.3 million and $0.6 million for the three and six months ended June 30, 2017, respectively.
3. Summary of Significant Accounting Policies
There have been no material changes in the
Company’s significant accounting policies since those previously disclosed in the 2017 Annual Report.
4. Potentially Dilutive Securities
The Company’s potentially dilutive
securities, which include stock options, restricted stock units and warrants, have been excluded from the computation of diluted
net loss per common share as the effect of including those securities would be to reduce the net loss per common share and be antidilutive.
Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in each period presented.
The following outstanding potentially dilutive
securities have been excluded from the computations of diluted net loss per common share:
|
|
As of June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Options to purchase common stock
|
|
|
15,651,023
|
|
|
|
2,428,948
|
|
Warrants to purchase common stock
|
|
|
331,193
|
|
|
|
356,193
|
|
|
|
|
15,982,216
|
|
|
|
2,785,141
|
|
5. Fair Value of Financial Instruments
Cash, accounts payable and accrued liabilities
are carried at cost, which approximates fair value given their short-term nature. Marketable securities and cash equivalents are
carried at fair value. The Company has money market funds of $71 and $101 at June 30, 2018 and December 31, 2017, respectively,
that are reported as restricted cash on the balance sheet. The amortized cost of these funds equals their fair value as there were
no unrealized gains or losses at June 30, 2018 or December 31, 2017.
The fair value of financial instruments
reflects the amounts that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (exit price). The fair value hierarchy is based on three levels of inputs that
may be used to measure fair value, of which the first two are considered observable, and the third is considered unobservable,
as follows:
Level 1 — Quoted prices in
active markets for identical assets or liabilities.
Level 2 — Inputs other than
those included in Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company measures the fair value of financial
assets and liabilities using the highest level of inputs that are reasonably available as of the measurement date. The following
tables summarize the fair value of financial assets that are measured at fair value and the classification by level of input within
the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
June 30, 2018
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Total assets measured at fair value
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
|
|
Fair Value Measurements as of
|
|
|
|
December 31, 2017
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
101
|
|
Total assets measured at fair value
|
|
$
|
101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
101
|
|
6. Debt
Notes Payable to Vendors
On June 30, 2016, the Company issued promissory
notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Plan. The notes
are unsecured, bear interest at 10% per annum and are due and payable in full, including principal and accrued interest on June
30, 2019. As of June 30, 2018 and 2017, the Company has accrued $0.2 million and $0.1 million in interest related to these promissory
notes, respectively.
Term Loans
Term Loans consisted of the following at
December 31, 2017:
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
Principal
Amount
|
|
|
Accrued
Interest
|
|
|
Loan
Balance
|
|
|
Fees
|
|
|
Balance
Due
|
|
December 2016 Loan
|
|
$
|
3,315
|
|
|
$
|
324
|
|
|
$
|
3,639
|
|
|
$
|
153
|
|
|
$
|
3,792
|
|
March 2017 Loan
|
|
|
5,978
|
|
|
|
452
|
|
|
|
6,430
|
|
|
|
275
|
|
|
|
6,705
|
|
July 2017 Loan
|
|
|
5,435
|
|
|
|
249
|
|
|
|
5,684
|
|
|
|
250
|
|
|
|
5,934
|
|
Bridge Loan
|
|
|
1,500
|
|
|
|
6
|
|
|
|
1,506
|
|
|
|
-
|
|
|
|
1,506
|
|
Claims Advances Loan
|
|
|
80
|
|
|
|
1
|
|
|
|
81
|
|
|
|
-
|
|
|
|
81
|
|
Totals
|
|
$
|
16,308
|
|
|
$
|
1,032
|
|
|
$
|
17,340
|
|
|
$
|
678
|
|
|
$
|
18,018
|
|
On December 21, 2016, the Company entered
into a Credit and Security Agreement, as amended on March 21, 2017 and on July 8, 2017 (as amended, the “Term Loan Credit
Agreement”), with Black Horse Capital Master Fund (“BHCMF”) as administrative agent and lender, and lenders Black
Horse Capital (“BHC”), Cheval Holdings, Ltd. (“Cheval” and collectively with BHCMF and BHC, the “Black
Horse Entities”) and Nomis Bay LTD (“Nomis Bay”) (collectively the “Lenders”). The Term Loan Credit
Agreement provided for the December 2016 Loan, the March 2017 Loan and the July 2017 Loan (the “Term Loans”).
In accordance with the terms of the Term
Loan Credit Agreement, the Company used the proceeds of the Term Loans for general working capital, the payment of certain fees
and expenses owed to BHCMF and the Lenders and other costs incurred in the ordinary course of business. Dr. Dale Chappell, one
of the Company’s former directors, is an affiliate of each of BHCMF, BHC and Cheval.
The Term Loans bore interest at 9.00% and
were subject to certain customary representations, warranties and covenants, as set forth in the Term Loan Credit Agreement.
On December 1, 2017 the Term Loans matured
and began bearing interest at the default rate of 14.00%. The Company’s obligations under the Term Loan Credit Agreement
were secured by a first priority interest in all of the Company’s real and personal property, subject only to certain carve
outs and permitted liens, as set forth in the agreement.
On December 21, 2017, the Company entered
into a Forbearance and Loan Modification Agreement, where among other things, it obtained a $1.5 million bridge loan (the "Bridge
Loan") from Cheval and a credit facility with Nomis Bay (the “Claims Advances Loan”). Both loans bear interest
at 14.00% and are treated as secured loans under the Term Loan Credit Agreement.
On February 27, 2018 the Term Loans, the
Bridge Loan and the Claims Advances Loan along with all related fees and accrued interest, were extinguished in connection with
the Restructuring Transactions described in Note 8.
Advance Notes
On June 29, 2018
the Company
received an aggregate of $0.4 million of proceeds from advances made to the Company (the “Advance Notes”) by Dr. Cameron
Durrant, the Company’s Chairman and Chief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital,
L.P., the Company’s controlling stockholder; and Ronald Barliant, a director of the Company (collectively the “Lenders”).
The Advance Notes will accrue interest at a rate of 7% per year, compounded annually.
The intention of the parties is that the
amounts due under the Advance Notes will be converted automatically into the same type and class of securities as may be sold by
the Company in a future financing transaction with an aggregate sales price of at least $5 million (a “Qualifying Financing”).
The Advance Notes generally are not convertible at the option of the lender into the Company’s common
stock until June 21, 2019 (the “Expiration Date”); however, if prior to completing a Qualifying Financing, the Company
experiences a change of control or makes a public announcement that it has entered into a collaboration arrangement with a strategic
partner relating to clinical studies of lenzilumab in connection with certain CAR-T therapies in a transaction that would not otherwise
constitute a Qualifying Financing, the lenders may elect to convert the amounts due under the Advance Notes into the Company’s
common stock at a conversion price of $0.45 per share. Additionally, if neither a Qualifying Financing nor a change of control
has occurred by the Expiration Date, then at any time from and after the Expiration Date the Lenders may, at their option, convert
the Advance Notes, plus any accrued and unpaid interest, into a number of shares of the Company’s common stock at the lesser
of (i) the volume weighted average sales price per share over the 20 most recent trading days prior to the conversion or (ii) $0.45
per share.
7. Commitments and Contingencies
Contractual Obligations and Commitments
As of June 30, 2018, other than the Restructuring Transactions described in Note 6, there were no material
changes to the Company’s contractual obligations from those set forth in the 2017 Annual Report.
Guarantees and Indemnifications
The Company has certain agreements with
service providers with which it does business that contain indemnification provisions pursuant to which the Company typically agrees
to indemnify the party against certain types of third-party claims. The Company accrues for known indemnification issues when a
loss is probable and can be reasonably estimated. The Company would also accrue for estimated incurred but unidentified indemnification
issues based on historical activity. As the Company has not incurred any indemnification losses to date, there were no accruals
for or expenses related to indemnification issues for any period presented.
8. Stockholders’ Equity
This summarizes the activity in Stockholders’ Equity discussed
below:
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances at December 31, 2017
|
|
|
14,946,712
|
|
|
$
|
15
|
|
|
$
|
238,246
|
|
|
$
|
(262,597
|
)
|
|
$
|
(24,336
|
)
|
Conversion of notes payable and related accrued interest
and fees to common stock
|
|
|
76,007,754
|
|
|
|
76
|
|
|
|
18,356
|
|
|
|
-
|
|
|
|
18,432
|
|
Issuance of common stock
|
|
|
18,653,320
|
|
|
|
19
|
|
|
|
2,762
|
|
|
|
-
|
|
|
|
2,781
|
|
Issuance of stock options in lieu of cash compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
303
|
|
|
|
-
|
|
|
|
303
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
3,455
|
|
|
|
-
|
|
|
|
3,455
|
|
Issuance of common stock in exchange for services
|
|
|
88,333
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
51
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,755
|
)
|
|
|
(7,755
|
)
|
Balances at June 30, 2018
|
|
|
109,696,119
|
|
|
$
|
110
|
|
|
$
|
263,173
|
|
|
$
|
(270,352
|
)
|
|
$
|
(7,069
|
)
|
Restructuring Transactions
On December 21, 2017, the Company entered
into a Securities Purchase and Loan Satisfaction Agreement (the “Purchase Agreement”) and a Forbearance and Loan Modification
Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Agreements”), each
with the Lenders. The Agreements provided for a series of transactions (the “Restructuring Transactions”) pursuant
to which, at the closing of the Restructuring Transactions (the “Transaction Closing”), which occurred on February
27, 2018, the Company would: (i) in exchange for the satisfaction and extinguishment of the entire balance of the Term Loans, (a)
issue to the Lenders an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and (b) transfer
and assign to Madison Joint Venture LLC (“Madison”), an affiliate of Nomis Bay, all of the assets of the Company related
to benznidazole (the “Benz Assets”), the Company’s former drug candidate; and (ii) issue to Cheval an aggregate
of 32,028,669 shares of Common Stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the
“New Common Shares”) for total consideration of $3.0 million.
Issuance of the New Lender Shares
Under the Purchase Agreement, at the Transaction
Closing, the Company issued to the Lenders the New Lender Shares, of which 29,893,424 shares of Common Stock were issued to the
Black Horse Entities and 29,893,424 shares of Common Stock were issued to Nomis Bay. The issuance of the New Lender Shares to the
Lenders and the assignment of the Benz Assets to Madison resulted in the satisfaction and extinguishment of the Company’s
outstanding obligations under the Credit Agreement and the cancellation of the Term Loans, including the Bridge Loan and the Claims
Advances Loan, described below and all security interests of the Lenders in the Company’s assets were released. The conversion
of the Term Loans, Bridge Loan and Claims Advances Loan was accounted for as a decrease to Long-term debt and an increase to Common
stock and Additional paid-in capital in the amount of the liabilities outstanding at the time of conversion.
Transfer of the Benz Assets; Claims Advances
Under the Purchase Agreement, at the Transaction
Closing, the Company transferred and assigned the Benz Assets to Madison. The Company also agreed to retain, but provide Madison
the benefits of, any Benz Assets which are not permitted to be assigned absent receipt of third-party consents. Madison (at the
election of Nomis Bay, which controls Madison) has 180 days from the Transaction Closing to decide, in its sole discretion, whether
to elect to keep the Benz Assets (a “Positive Election”). The Benz Assets will revert back to the Company in the event
that Madison (at the election of Nomis Bay) elects not to make a Positive Election.
In connection with the transfer of the Benz
Assets to Madison, Nomis Bay paid certain amounts incurred by the Company and Madison after December 21, 2017 and prior to the
Transaction Closing in investigating certain causes of action and claims related to or in connection with the Benz Assets (the
“Claims Advances Loan”), including the right to pursue causes of action and claims related to potential misappropriation
of the Company’s trade secrets by a competitor in connection with such competitor’s submissions to the U.S. Food and
Drug Administration (the “Claims”). In addition, if Madison (at the election of Nomis Bay) makes a Positive Election:
(i) Nomis Bay will assume certain legal fees and expenses owed by the Company to its litigation counsel, and (ii) the Company will
be entitled to receive 30% of any amounts realized from the successful prosecution of the Claims or otherwise from the Benz Assets,
after Nomis Bay is reimbursed for certain expenses in connection with funding the Claims Advances Loan and after giving effect
to any payments that Madison may be required to make to any third parties.
Nomis Bay will have full control, in its
sole discretion, over the management of Madison, any development of or realization on the Benz Assets and the prosecution of the
Claims. Since the Benz Assets had no carrying value on the Company’s Condensed Consolidated Balance Sheet, the initial investment
in Madison was recorded at $0.
Issuance of the New Black Horse Shares; Bridge Loan
Under the Purchase Agreement, at the Transaction
Closing, the Company issued to Cheval the New Black Horse Shares for total consideration of $3.0 million, including extinguishment
of the Bridge Loan. The Company used the proceeds from the issuance of the New Black Horse Shares for working capital and other
costs incurred in the ordinary course of business. At the Transaction Closing, the entire amount of the Bridge Loan was credited
to Cheval’s $3.0 million payment obligation and was converted into New Black Horse Shares and all security interests of Cheval
in the non-benznidazole assets was released.
Equity Financings
On March 12, 2018, the Company issued 2,445,557
shares of its common stock for total proceeds of $1.1 million to accredited investors.
On June 4, 2018, the Company issued 400,000
shares of its common stock for total proceeds of $0.2 million to an accredited investor.
Amendments to Articles of Incorporation
Effective February 26, 2018, the Company
amended its Amended and Restated Certificate of Incorporation, as amended (the “Charter”), to amend Article IV of the
Charter to (i) increase the number of authorized shares of Common Stock from 85,000,000 to 225,000,000, and (ii) authorize the
issuance of 25,000,000 shares of preferred stock of the Company, par value $0.001 (the “Preferred Stock”), with such
powers, rights, terms and conditions as may be designated by the Company’s board of directors upon the issuance of shares
of Preferred Stock at one or more times in the future (the “Charter Amendment”). The Charter Amendment was approved
and adopted by the written consent of a majority of the stockholders of the Company in accordance with the applicable provisions
of the Delaware General Corporation Law, the Charter, and the Company’s Second Amended and Restated Bylaws.
Termination of Equity Financing Facility
On August 24, 2017, the Company entered
into a Common Stock Purchase Agreement, dated as of August 23, 2017 (the “ELOC Purchase Agreement”), with Aperture
Healthcare Ventures Ltd. (“Aperture”) pursuant to which the Company may, subject to certain conditions and limitations
set forth in the ELOC Purchase Agreement, require Aperture to purchase up to $15 million worth of newly issued shares (the “Put
Shares”) of the Company’s common stock, over the 36-month term.
The Company terminated the ELOC Purchase
Agreement on March 12, 2018. No Put Shares were issued pursuant to the ELOC Purchase Agreement prior to such termination.
2012 Equity Incentive Plan
Under the Company’s 2012 Equity Incentive
Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees,
directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market
value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and
expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant.
On March 9, 2018, the Board of Directors
of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan (the “Equity Plan”) to increase
the number of shares of the Company’s common stock authorized for issuance under the Equity Plan by 16,050,000 shares, and
to increase the annual maximum aggregate number of shares subject to stock option awards that may be granted to any one person
under the Equity Plan during a calendar year to 7,500,000.
A summary of stock option activity for the
six months ended June 30, 2018 under all of the Company’s options plans is as follows:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2017
|
|
|
2,448,383
|
|
|
$
|
3.67
|
|
Granted
|
|
|
13,575,038
|
|
|
|
0.66
|
|
Cancelled (forfeited)
|
|
|
(331,269
|
)
|
|
|
3.21
|
|
Cancelled (expired)
|
|
|
(41,129
|
)
|
|
|
37.82
|
|
Outstanding at June 30, 2018
|
|
|
15,651,023
|
|
|
$
|
0.98
|
|
The weighted average fair value of options
granted during the six months ended June 30, 2018 was $0.51 per share.
The
Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption
terms for the six months ended June 30, 2018:
|
Six
months ended June
30,
2018
|
Exercise price
|
$0.45 - $0.67
|
Market value
|
$0.45 - $0.67
|
Risk-free rate
|
2.74% - 2.80%
|
Expected term
|
6 years
|
Expected volatility
|
92.6% - 96.9%
|
Dividend yield
|
-
|
Stock-Based Compensation
The Company recorded stock-based compensation
expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
General and administrative
|
|
$
|
780
|
|
|
$
|
276
|
|
|
$
|
3,254
|
|
|
$
|
1,199
|
|
Research and development
|
|
|
-
|
|
|
|
66
|
|
|
|
201
|
|
|
|
229
|
|
Total stock-based compensation
|
|
$
|
780
|
|
|
$
|
342
|
|
|
$
|
3,455
|
|
|
$
|
1,428
|
|
At June 30, 2018, the Company had $4.2 million
of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that
will be recognized over a weighted-average period of 1.3 years.
9. Savant Arrangements
On February 29, 2016, the Company entered
into a binding letter of intent (the “LOI”) with Savant Neglected Diseases, LLC (“Savant”). The LOI provided
that the Company would acquire certain worldwide rights relating to benznidazole (the “Compound”) from Savant.
On the Effective Date, as authorized by
the Plan and the Confirmation Order, the Company and Savant entered into an Agreement for the Manufacture, Development and Commercialization
of Benznidazole for Human Use (the “MDC Agreement”), pursuant to which the Company acquired certain worldwide rights
relating to the Compound. The MDC Agreement consummates the transactions contemplated by the LOI.
In addition, on the Effective Date the Company
and Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company granted
Savant a continuing senior security interest in the assets and rights acquired by the Company pursuant to the MDC Agreement and
certain future assets developed from those acquired assets.
On the Effective Date, the Company issued
to Savant a five year warrant (the “Warrant”) to purchase 200,000 shares of the Company’s Common Stock, at an
exercise price of $2.25 per share, subject to adjustment. The Warrant is exercisable for 25% of the shares immediately and exercisable
for the remaining shares upon reaching certain regulatory related milestones. As of June 30, 2018 the number of shares for which
the Warrant is currently exercisable totals 100,000 shares at an exercise price of $2.25 per share.
The Company reevaluated the performance
conditions and expected vesting of the Warrant as of June 30, 2017 and recorded a reduction in expense of approximately $0.01 and
$0.04 million during the three and six months ended June 30, 2017, respectively, due to a decline in the fair value, which reduction
is included in Research and development expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive
Loss. As a result of the FDA granting accelerated and conditional approval of a benznidazole therapy manufactured by a competitor
for the treatment of Chagas disease and awarding such competitor a neglected tropical disease PRV in August 2017, the Company re-evaluated
the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.
Before a compound receives regulatory approval,
the Company records upfront and milestone payments made to third parties under licensing arrangements as expense. Upfront payments
are recorded when incurred and milestone payments are recorded when the specific milestone has been achieved.
On May 26, 2017, the Company submitted its
benznidazole IND to FDA which became effective on June 26, 2017. The Company recorded expense of $1.0 million during the year ended
December 31, 2017 as Research and development expense related to the milestone achievement associated with the IND being declared
effective.
On July 10, 2017 FDA notified the Company
that it granted Orphan Drug Designation to benznidazole for the treatment of Chagas disease. The Company recorded expense of $1.0
million during the year ended December 31, 2017 as Research and development expense related to the milestone achievement associated
with Orphan Drug Designation.
In July 2017, the Company commenced litigation
against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement. Savant has asserted counterclaims
for breaches of contract under the MDC Agreement and the Security Agreement. The dispute primarily concerns the Company’s
right under the MDC Agreement to offset certain costs incurred by the Company in excess of the agreed upon budget against payments
due Savant. See Note 10, below, for more information regarding the Savant litigation. The aggregate cost overages as of June 30,
2017 that the Company asserts are Savant’s responsibility total approximately $3.4 million, net of a $0.5 million deductible.
The Company asserts that it is entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such
that as of June 30, 2017, Savant owed the Company approximately $1.4 million. As of June 30, 2018, the cost overages totaled $4.1
million such that Savant owed the Company approximately $2.1 million in cost overages. Such cost overages have been charged to
Research and development expense as incurred. Recovery of such cost overages, if any, will be recorded as a reduction of Research
and development expense in the period received.
The $2.0 million in milestone payments due
Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2018 and December
31, 2017
10. Litigation
Bankruptcy Proceeding
The Company filed for protection under Chapter
11 of Title 11 of the United States Bankruptcy Code on December 29, 2015. See Note 2 for additional information related to the
bankruptcy.
Savant Litigation
On July 10, 2017, the Company filed a complaint
against Savant Neglected Diseases, LLC (“Savant”) in the Superior Court for the State of Delaware, New Castle County
(the “Delaware Court”).
KaloBios Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC
, No. N17C-07-068 PRW-CCLD.
The Company asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note
9 - “Savant Arrangements” for more information about the MDC Agreement. The Company alleges that Savant has breached
its MDC Agreement obligations to pay cost overages that exceed a budgetary threshold as well as other related MDC Agreement representations
and obligations. In the litigation, the Company has alleged that as of June 30, 2017, Savant was responsible for aggregate cost
overages of approximately $3.4 million, net of a $0.5 million deductible under the MDC. The Company asserts that it is entitled
to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant owed the
Company approximately $1.4 million.
On July 12, 2017, Savant removed the case
to the Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July
2016. On July 27, 2017, Savant filed an Answer and Counterclaims. Savant’s filing alleges breaches of contracts under the
MDC Agreement and the Security Agreement, claiming that the Company breached its obligations to pay the milestone payments and
other related representations and obligations.
On August 1, 2017, the Company moved to
remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure
notice to the Company, demanding that it provide the Collateral as defined in the Security Agreement for inspection and possession
on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the
“TRO”) and Preliminary Injunction in the Bankruptcy Court on August 4, 2017. Savant responded on August 7, 2017. On
August 7, 2017, the Bankruptcy Court granted the Company’s motion for a TRO, entering an order prohibiting Savant from collecting
on or selling the Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies
under the MDC Agreement or the Security Agreement. The parties have stipulated to continue the provisions of the TRO in full force
and effect until further order of the appropriate court.
On January 22, 2018, Savant wrote to the
Bankruptcy Court requesting dissolution of the TRO. On January 29, 2018, the Bankruptcy Court granted the Motion to Remand and
denied Savant’s request to dissolve the TRO, ordering that any request to dissolve the TRO be made to the Delaware Court.
On February 13, 2018 Savant made a letter
request to the Delaware Superior Court to dissolve the TRO. Also on February 13, 2018, Humanigen filed its Answer and Affirmative
defenses to Savant’s Counterclaims. On February 15, 2018 Humanigen filed a letter opposition to Savant’s request to
dissolve the TRO and requesting a status conference. A hearing on Savant’s request to dissolve the TRO was held before the
Delaware Superior Court on March 19, 2018. The Delaware Superior Court denied Savant’s request to dissolve the TRO and the
TRO remains in effect.
On April 11, 2018, Humanigen advised the
Delaware Superior Court that it would meet and confer with Savant regarding a proposed case management order and date for trial.
On April 26, 2018 the Delaware Superior Court so-ordered a proposed case management order submitted by the Company and Savant.
There have been no further proceedings
in this matter to date.