This prospectus relates to the resale or other disposition, from time to time,
by the selling stockholders named in this prospectus or their pledgees, donees, transferees, or other successors in interest of
up to 82,563,584 shares of our common stock, comprising (i) 82,528,718 shares of common stock issued pursuant to a June 1, 2020
securities purchase agreement; and (ii) 34,866 shares of common stock issued at the direction of Carter, Terry & Company, Inc.
in connection with its performance of capital markets advisory services for us.
The selling stockholders may offer and sell any of the shares from time to
time in a number of different ways and at varying prices, and may engage a broker, dealer or underwriter to sell the shares. Information
regarding the selling stockholders and the times and manner in which they may offer and sell the shares under this prospectus is
provided under “Selling Stockholders” and “Plan of Distribution” in this prospectus.
We are not selling any common stock under this prospectus and we will not
receive any of the proceeds from the sale of any shares of common stock by the selling stockholders. All expenses of registration
incurred in connection with this offering are being borne by us. All selling and other expenses incurred by the selling stockholders
will be borne by the selling stockholders.
We have applied to list our common stock on the Nasdaq Capital Market under
the symbol “HGEN”. We cannot assure investors that our listing application will be approved by Nasdaq. Our common stock
is currently listed for quotation on the OTCQB Venture Market operated by OTC Markets Group, Inc., under the symbol “HGEN”.
On August 5, 2020, the last reported sale price per share of our common stock on the OTCQB Venture Market was $4.95.
ABOUT THIS PROSPECTUS
This prospectus forms a part of a registration statement on Form S-1 that
we filed with the Securities and Exchange Commission, or the SEC. Under this process, the selling stockholders may from time to
time, in one or more offerings, sell the common stock described in this prospectus.
You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where offer or
sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the
front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that
date.
Unless otherwise indicated, information contained in this prospectus concerning
our industry and the markets in which we operate, including our general expectations and market position, market opportunity and
market share, 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. Our management
estimates have not been verified by any independent source, and we have not independently verified any third-party information.
In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree
of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors
could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding
Forward-Looking Statements.”
This prospectus contains references to our trademarks and service marks and
to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear
without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert,
to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.
We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship
with, or endorsement or sponsorship of us by, any other companies.
PROSPECTUS
SUMMARY
The following summary highlights information contained
elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock.
You should read the entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes, in each case
included in this prospectus before making an investment decision.
In this prospectus, unless we indicate otherwise or
the context requires, references to the “Company,” “Humanigen,” “we,” “our,” “ours,”
and “us” refer to Humanigen, Inc. The following summary is qualified in its entirety by the more detailed information
and financial statements and notes thereto included elsewhere in this prospectus.
Overview
We are a clinical stage biopharmaceutical company, developing
our clinical stage COVID-19 immunology and immuno-oncology portfolio of monoclonal antibodies. We are focusing our efforts on the
development of our lead product candidate, lenzilumab, our proprietary Humaneered® (“Humaneered” or “Humaneered®”)
anti-human granulocyte-macrophage colony-stimulating factor (“GM-CSF”) immunotherapy.
Our proprietary and patented Humaneered technology platform
is a method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed for
therapeutic use, particularly for chronic conditions. We have developed or in-licensed targets or research (mouse) antibodies,
typically from academic institutions, and then applied our Humaneered technology to them. Lenzilumab and our other two product
candidates, ifabotuzumab and HGEN005, are Humaneered antibodies. Our Humaneered antibodies are closer to human antibodies than
chimeric or conventionally humanized antibodies and have a high affinity for their target but low immunogenicity. Specifically,
our Humaneered technology generates an antibody from an existing antibody with the required specificity as a starting point and,
we believe, provides the following additional advantages:
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retention of identical target epitope specificity and generation of higher affinity antibodies;
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high antibody expression yields;
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attractive cost-of-goods;
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physiochemical properties that facilitate process development and formulation;
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lack of aggregation at high concentration;
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very-near-to-human germ line sequence (which means they are less likely to induce an inappropriate
immune response when used chronically, which has proven to be the case in clinical studies); and
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an optimized antibody processing time of three to six months.
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Lenzilumab is a monoclonal antibody
that has been proven in animal models to neutralize GM-CSF, a cytokine that we believe is of critical importance in the inflammatory
cascade, sometimes referred to as cytokine release syndrome (“CRS”) or cytokine storm, associated with COVID-19, chimeric
antigen receptor T-cell (“CAR-T”) therapy and acute Graft versus Host Disease (“GvHD”) related side-effects.
Lenzilumab binds to and neutralizes soluble, circulating GM-CSF.
Published scientific evidence links GM-CSF expression to
serious and potentially life-threatening outcomes in respiratory conditions such as COVID-19 pneumonia. Evidence also indicates
a potential causal role of GM-CSF expression in serious and potentially life-threatening side-effects associated with CAR-T therapy,
and reduced efficacy in CAR-T therapies approved by the U.S. Food and Drug Administration (“FDA”). As a result, while
we believe our leadership position in GM-CSF pathway science and cytokine storm presents us with a diverse set of development
opportunities, we currently are focused on developing lenzilumab for three primary indications:
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As
a therapy targeting severe outcomes in hospitalized patients with confirmed COVID-19
pneumonia;
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a sequenced therapy ahead of CAR-T administration in CD19 targeted CAR-T therapies; and
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an early treatment or potential prophylaxis for acute GvHD in high and intermediate risk
patients.
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Our Development Program for Lenzilumab
COVID-19
We are currently enrolling patients
in a Phase III multi-center, randomized, placebo-controlled, double-blinded, clinical trial in the setting of COVID-19. There
are currently 17 clinical sites across the U.S. actively recruiting patients. The Phase III trial will assess the safety and efficacy
of lenzilumab in reducing severe outcomes in hospitalized adult patients with confirmed severe or critical COVID-19 pneumonia.
On May 6, 2020, we announced that the first patient had been randomized in the Phase III lenzilumab COVID-19 study.
There are currently no products approved
by the FDA for the prevention of CRS/cytokine storm associated with COVID-19. There are numerous products currently in development
for COVID-19 which can be broadly categorized as direct-acting antivirals, immunomodulators, and other preventative strategies
such as vaccines. Recently, remdesivir (a direct-acting antiviral) has been given emergency use authorization by the FDA for COVID-19
based on results from the NIAID ACTT-1 trial. In this trial, remdesivir demonstrated improvement in the primary endpoint of time
to recovery reducing this measurement by four days (11 days in the remdesivir cohort vs. 15 days in the placebo cohort). There
was not a statistically significant difference in mortality between the remdesivir treated cohort and the placebo cohort. Other
direct acting antiviral agents such as lopinavir/ritonavir and hydroxychloroquine (with or without a macrolide) have not demonstrated
efficacy in randomized controlled trials to date. In addition, no immunomodulator therapy has proven efficacy in a randomized
controlled clinical trial in the setting of COVID-19 and the two leading IL-6 inhibitors, Actemra (tocilizumab) and Kevzara (sarilumab)
both recently failed to demonstrate efficacy in randomized, placebo-controlled studies in COVID-19 patients.
We believe that, as an upstream regulator
of cytokine storm, GM-CSF neutralization with lenzilumab may offer advantages over other immunomodulator strategies that either
target other downstream cytokines such as IL-1, IL-6, CCR5 or MIP-1 alpha or are broadly immunosuppressive and target cytokine
signaling pathways non-selectively through JAK inhibition. In addition, lenzilumab is the only immunomodulator that was in an
active clinical trial in another indication to prevent cytokine storm prior to embarking upon the Phase III COVID-19 trial and
is currently the only agent in an active Phase III trial targeting GM-CSF.
Lenzilumab was granted emergency single use Investigational
New Drug Application (“IND”) authorization from the FDA (often referred to as compassionate use) to treat patients
with COVID-19. On June 15, 2020, we announced that Mayo Clinic published data derived from the compassionate use of lenzilumab
in treatment of 12 patients hospitalized in the Mayo Clinic system. Under applicable FDA rules, a patient cannot receive a compassionate
use drug unless FDA has issued an individual patient emergency IND authorization, which the Mayo Clinic requested from FDA prior
to each individual patient dosing of lenzilumab. Accordingly, there was no randomized control group in the Mayo Clinic program.
We did not pre-select patients to receive lenzilumab through the compassionate use program and did not deny any requests for compassionate
use. Mayo Clinic clinicians solely determined which patients for which they would request emergency IND authorization from the
FDA.
The patients receiving lenzilumab had severe
or critical pneumonia as a result of COVID-19. They were also viewed as being at high risk of further disease progression.
All patients required oxygen supplementation and had elevation in at least one inflammatory biomarker prior to receiving
lenzilumab. All patients had at least one co-morbidity associated with poor outcomes in COVID-19 and several patients had
multiple co-morbidities: 58% had diabetes mellitus, 58% had hypertension, 58% had underlying lung diseases, 50% were obese
(defined as a BMI greater than 30), 17% had chronic kidney disease and 17% had coronary artery disease. The median age was 65
years.
Patients receiving lenzilumab showed rapid clinical improvement
with a median time to recovery of five days, median time to discharge of five days and 100% survival to the data cut-off date.
Patients also demonstrated rapid improvement in oxygenation, temperature, and inflammatory cytokines consistent with the improved
clinical outcomes. At the cut-off date, 11 of the 12 patients had been discharged.
On July 27, 2020, we announced that the National
Institute of Allergy and Infectious Diseases (“NIAID”), a part of the National Institutes of Health (“NIH”),
which is part of the United States Government Department of Health and Human Services (“HHS”) as represented by the
Division of Microbiology and Infectious Diseases (“DMID”), and Humanigen have executed a clinical trial agreement
for lenzilumab as an agent to be evaluated in the NIAID-sponsored Big Effect Trial (“BET”) in hospitalized patients
with COVID-19.
BET will help advance NIAID’s strategic plan
for COVID-19 research, which includes conducting studies to advance high-priority therapeutic candidates. Identification of agents
with novel mechanisms of action for therapy is a strategic priority.
This trial builds on initial data from NIAID’s
Adaptive COVID-19 Treatment Trial (ACTT) that demonstrated Gilead’s investigational antiviral, remdesivir, may improve time
to recovery in hospitalized patients with COVID-19. BET will evaluate the combination of lenzilumab and remdesivir on treatment
outcomes versus placebo and remdesivir in hospitalized COVID-19 patients. The trial is expected to enroll 100 patients in each
arm of the study with an interim analysis for efficacy after 50 patients have been enrolled in each arm.
With data from the BET and our ongoing Phase III study, we expect to have
data from approximately 500 hospitalized COVID-19 patients.
CAR-T Therapies
Our current clinical and regulatory development
plan in the CAR-T setting is focused on a collaboration agreement we executed with Kite Pharmaceuticals, Inc., a Gilead company
(“Kite”), in May 2019, which we refer to as the Kite Agreement. Pursuant to the Kite Agreement, the parties have agreed
to conduct and are currently enrolling patients for a multi-center Phase 1b/2 study (“ZUMA-19”) of lenzilumab with
Kite’s YESCARTA in patients with relapsed or refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”).
Kite is the sponsor of ZUMA-19 and is responsible for its conduct. The primary objective of ZUMA-19 is to determine the effect
of lenzilumab on the safety of YESCARTA. In addition, efficacy and healthcare resource utilization will be assessed. On June 30,
2020, we announced that the first patient had been infused in the ZUMA-19 study.
Kite’s YESCARTA is one of two CAR-T
therapies that have been approved by FDA and is the leading CAR-T by revenue. We believe our collaboration with Kite is the only
current clinical collaboration that is enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy.
The Kite Agreement is non-exclusive. Depending upon FDA feedback, we believe ZUMA-19 may serve as the basis for registration for
lenzilumab in the CAR-T setting.
GvHD
We are collaborating with IMPACT, a clinical trial partnership
of 23 transplant centers in the United Kingdom, in planning a potential randomized, placebo controlled, Phase II/III study focused
on early intervention with lenzilumab in patients at high risk or intermediate risk for steroid refractory acute GvHD based on
specific biomarkers. The goal of the trial, as it is currently contemplated, would be to determine the efficacy and safety
of lenzilumab in reducing non-relapse mortality at six months.
Our Pipeline
In addition to these programs with lenzilumab,
we are also exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing
antibody, or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break
the efficacy/toxicity linkage including the prevention and/or treatment of GvHD while preserving graft-versus-leukemia (“GvL”)
benefits in patients undergoing allogeneic hematopoietic stem cell therapy (“HSCT”). In this context, GvHD is akin
to cytokine storm and we believe this to be a similar mechanism and driven by elevated GM-CSF levels.
We believe that we have built a strong
intellectual property position in the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain
to COVID-19, CAR-T, GvHD and multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may
be driven by GM-CSF.
Our clinical-stage pipeline also comprises a further Phase
I study which is almost fully enrolled with ifabotuzumab in glioblastoma multiforme (“GBM”) and potentially other
solid cancers and an additional Phase II study in CMML. We also have a focus on creating safer and more effective CAR-T therapies
in hematologic malignancies and solid tumors via three key modalities:
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Combining FDA-approved and development stage CAR-T therapies with lenzilumab;
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Creating next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies; and
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Exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of
lenzilumab as a neutralizing antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy
treatments, including allogeneic HSCT.
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These product candidates are in the early stage of development
and will require substantial time, resources, research and development, and regulatory approval prior to commercialization. Furthermore,
none of these product candidates have been approved for marketing and it may be years, if this occurs at all. Our current pipeline
is depicted below:
1 Phase III may not be necessary
for approval in ZUMA-19; precedent is CAR-Ts to date have been approved on Phase II data
2 UK
3 US, EU, Australia
4 Australia
Our Team
We have assembled an experienced management team with significant biotech
and immuno-oncology expertise. Since January 2016, our team has been led by our chairman who was subsequently, in March 2016, appointed
as our chief executive officer, Dr. Cameron Durrant, a medical doctor who also holds an MBA and several post-graduate medical qualifications.
Prior to joining our company, Dr. Durrant held senior executive positions at multinational pharmaceutical companies including Johnson
& Johnson, Pharmacia Corporation (“Pharmacia”) (acquired by Pfizer), GlaxoSmithKline and Merck, as well as entrepreneurial
roles with smaller biotech companies.
On August 3, 2020, we announced that Timothy Morris was
appointed as our Chief Operating Officer and Chief Financial Officer, effective August 1, 2020. From June 2016 until his
appointment as our Chief Operating Officer and Chief Financial Officer, Mr. Morris served as a member of our Board. Mr.
Morris formerly served as the Chief Financial Officer of Iovance Biotherapeutics, a publicly traded immuno-oncology biotech
company (Nasdaq: IOVA), from August 2017 to June 2020. Mr. Morris has extensive
operational experience with public companies in the biopharmaceutical industry, particularly in the areas of finance and
corporate development.
On July 7, 2020, we announced the addition of two new members to our executive
management team. Dr. Dale Chappell, the managing member of Black Horse Capital Management LLC (“BH Management”), a
private investment manager that specializes in biopharmaceuticals and a significant stockholder, joined the company in a full-time
role as our Chief Scientific Officer. Dr. Chappell, who received his MD from Dartmouth Medical School and his MBA from Harvard
Business School, began his career as a Howard Hughes Medical Institute fellow at the National Cancer Institute where he studied
tumor immunology, worked as a researcher in the labs of Dr. Steven A. Rosenberg (widely thought of as one of the pioneers in CAR-T
therapy) and Dr. Nicholas P. Restifo (a leading researcher in the field of immunology) and is published in the field of GM-CSF,
giving him clear insights into the development and execution of our business strategy. In addition, David Tousley joined the company
as Chief Accounting and Administrative Officer, Corporate Secretary and Treasurer. Mr. Tousley has held a number of senior finance
and accounting roles within the industry, including serving as Executive Vice President and Chief Financial Officer and President
and Chief Operating Officer at companies including Pasteur Merieux Connaught (now Sanofi Pasteur), AVAX Technologies, Inc. (Nasdaq:
AVXT) and DARA BioSciences (Nasdaq: DARA). Mr. Tousley has led functions including finance and accounting, procurement, customer
account management, strategic and financial planning and management, corporate governance, equity capital financing and business
development.
Our board of directors actively supports Dr. Durrant and our team in the
development and execution of the company’s business strategy. The four other members of our board, each of whom is independent,
offer extensive experience in biotech/pharmaceuticals, finance and law, including:
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Bob Savage, the former Worldwide Chairman of J&J Pharmaceuticals, has extensive experience serving on boards of publicly
traded biotech companies;
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Dr. Rainer Boehm, the former interim CEO and Chief Commercial and Chief Medical Affairs Officer of Novartis Pharma, also serves
as a member of the board of directors of Cellectis, a leading allogeneic CAR-T company;
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Cheryl
Buxton has, for the past 25 years, worked at Korn/Ferry International, the world’s
largest executive search company, currently serving as the Korn/Ferry Vice Chairman,
Global Sector Leader, Pharmaceuticals; and
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Ron Barliant, a former bankruptcy judge, has significant legal experience counseling management teams and boards of directors
of companies with complex financial needs.
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Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, including those
highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include,
but are not limited to, the following:
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We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable;
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Our business is solely dependent on the success of our current product candidates and technology platforms. We cannot be certain
that we will be able to obtain regulatory approval for, or successfully develop or commercialize, any of our product candidates,
which are at an early stage of development;
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The evolution of scientific discovery around the coronavirus, COVID-19 and the lung dysfunction resulting in some patients
may indicate that cytokine storm is caused by or results from something other than elevated GM-CSF levels, which might limit or
eliminate the utility of lenzilumab as a part of a potential COVID-19 therapy;
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If our competitors develop and receive FDA approval for treatments or safe and effective vaccines for COVID-19 which are widely
utilized, our commercial opportunity may be reduced or eliminated;
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We may be unable to successfully complete our Phase III trial of lenzilumab for the prevention and treatment of cytokine storm
in COVID-19 pneumonia;
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The COVID-19 pandemic, or any other health epidemic, may have a negative impact on our business, our clinical trials, our research
programs, healthcare systems or the global economy as a whole;
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We have in the past relied, and may rely in the future, on third parties to conduct investigator-sponsored trials (“ISTs”)
of lenzilumab, our GM-CSF gene knockout platform, and our other immunotherapies, which is cost-effective for us but affords the
investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the data
generated from their efforts;
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The adoption of CAR-T therapies as the potential standard of care for treatment of certain cancers is uncertain, and dependent
on the efforts of a limited number of market entrants, and if not adopted as anticipated, a market for lenzilumab in combination
with CAR-T therapies or gene-edited CAR-T therapies may not develop;
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We may be unable to successfully pursue the Kite collaboration;
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If third parties do not conduct the trials in accordance with our agreements with them, our ability to pursue our clinical
development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize
our product candidates;
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Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated
delays, or may prevent the receipt of the required approvals to commercialize our product candidates;
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We have a limited staff, and rely heavily on outside consultants to conduct our business under the leadership of Dr. Durrant.
If we fail to attract and retain key management and clinical development personnel, or if the attention of such personnel is diverted,
we may be unable to successfully manage our business and develop or commercialize our product candidates;
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If our competitors develop treatments for the target indications of our product candidates that are approved more quickly,
marketed more successfully or are demonstrated to be safer or more effective than our product candidates, or if the FDA approves
biosimilar competitors to our products post-approval, our commercial opportunity will be reduced or eliminated;
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If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients,
healthcare payers and the medical community, the revenue that it generates may be limited;
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Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult
for us to sell our product candidates profitably;
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We rely completely on third parties, most of which are sole source suppliers, to supply drug substance and manufacture drug
product for our clinical trials and preclinical studies and intend to rely on other third parties to produce commercial supplies
of product candidates, and our dependence on third parties could adversely impact our business;
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We may not be successful in establishing and maintaining development partnerships and licensing agreements, which could adversely
affect our ability to develop and commercialize product candidates;
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If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value
of our intellectual property rights would diminish, and our business and competitive position would suffer;
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We
may not be successful in our attempt to list our common stock on the Nasdaq Capital Market;
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We
will need additional capital to develop and commercialize our product candidates and
technology platforms, and our access to capital funding is uncertain;
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The concentration of our common stock owned by insiders may limit the ability of our other stockholders to influence corporate
matters and may contribute to volatility in our stock price;
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We have identified material weaknesses in our internal control over financial reporting and may be unable to maintain effective
control over financial reporting. Any material weaknesses in our internal control over financial reporting in the future could
adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital;
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Pending, threatened or future litigation or governmental proceedings could result in material adverse consequences, including
judgments or settlements; and
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Our stock price is volatile and purchasers of our common stock could incur substantial losses.
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Corporate Information
We were incorporated on March 15, 2000 in California and reincorporated as
a Delaware corporation in September 2001. We completed our initial public offering in January 2013. Effective August 7, 2017, we
changed our legal name to Humanigen, Inc. We maintain a website at www.humanigen.com where you may obtain copies of our reports,
information and proxy statements and other filings with the SEC as soon as they are filed. Information contained on our website
is not part of this prospectus, and the inclusion of our website address in this prospectus is intended to be an inactive textual
reference only. The address of our principal executive office is 533 Airport Boulevard, Suite 400 Burlingame, CA 94010 and our
telephone number is (650) 243-3100.
The Offering
Common stock offered by the
Selling Stockholders
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82,563,584 shares, consisting of:
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82,528,718 shares of common stock issued pursuant to a June 1, 2020 securities purchase agreement; and
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34,866 shares
issued at the direction of Carter, Terry & Company, Inc. in connection with its performance of capital markets advisory services
for us.
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Common stock outstanding
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210,499,810 shares outstanding as of July 29, 2020,
excluding shares of common stock issuable upon the exercise of stock options and warrants.
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Use of proceeds
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We will receive no proceeds from the sale of shares of common stock by the selling stockholders in this offering. See “Use of Proceeds.”
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OTCQB Venture Market Trading
Symbol
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“HGEN”
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Risk factors
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You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 6 of this prospectus before deciding whether or not to invest in our common stock.
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RISK FACTORS
Investing in our securities involves a high degree
of risk. Any of the risks and uncertainties set forth herein or therein could materially and adversely affect our business, results
of operations and financial condition, which in turn could materially and adversely affect the trading price or value of our securities.
As a result, you could lose all or part of your investment. The risks described in these documents are not the only ones we face.
There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material
adverse effects on our future results. Please also read carefully the section below entitled “Special Note Regarding Forward-Looking
Statements.”
Risks Related to Our Common Stock and This Offering
A significant portion of our total outstanding
shares are eligible to be sold into the market in the near future, including pursuant to this offering, which could cause the market
price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common
stock in the public market, including pursuant to this offering, or the perception in the market that the holders of a large number
of shares intend to sell shares, could depress the market price of our common stock
and could impair our future ability to obtain capital, especially through an offering of
equity securities. If there are more shares of common stock offered for sale than buyers are willing to purchase, then the
market price of our common stock may decline to a market price at which buyers are willing to purchase the offered shares of common
stock and sellers remain willing to sell the shares.
Persons who were our stockholders prior to our issuance
of common stock to certain of the selling stockholders pursuant to a June 1, 2020 securities purchase agreement continue to hold
a substantial number of shares of our common stock. If such persons sell, or indicate an intention to sell, substantial amounts
of our common stock in the public market, the trading price of our common stock could decline. In April 2018, we filed a registration
statement registering additional shares of common stock that we may issue under the Humanigen,
Inc. 2012 Equity Incentive Plan. These shares can be freely sold in the public market upon issuance, subject to volume limitations
applicable to affiliates.
Moreover, holders of a substantial number of shares of
our common stock have rights, subject to specified conditions, to require us to file a registration statement covering their shares.
Registration of these shares under the Securities Act of 1933, as amended (the “Securities
Act”), would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares
held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a
material adverse effect on the trading price of our common stock.
The concentration of our common stock owned by
insiders may limit the ability of our other stockholders to influence corporate matters and may contribute to volatility in our
stock price.
We have a relatively small public float
due to the ownership percentage of our executive officers and directors, and greater than 5% stockholders. Our directors, executive
officers, and the other holders of more than 5% of our common stock together with their affiliates beneficially owned approximately
72% of our common stock as of July 29, 2020. Some of these persons or entities may have interests that are different from our
other stockholders, which could prevent or discourage unsolicited acquisition proposals or offers for our common stock that may
be in the best interest of our other stockholders. This may also adversely affect the trading price of our common stock because
investors may perceive disadvantages in owning stock in companies with a significant concentration of ownership.
As a result of our small public float, our common stock
may be less liquid and have greater stock price volatility than the common stock of companies with broader public ownership. In
addition, the trading of a relatively small volume of shares of our common stock may result in significant volatility in our stock
price. If and to the extent ownership of our common stock becomes more concentrated, whether due to increased ownership by our
directors and executive officers or other principal stockholders, or other factors, our public float would further decrease, which
in turn would likely result in increased stock price volatility.
Additionally, because a large amount of our stock is
closely held, we may experience low trading volume or large fluctuations in share price and volume due to large sales by our principal
stockholders. If our existing stockholders, particularly our directors, executive officers and the holders of more than 5% of our
common stock, or their affiliates or associates, sell substantial amounts of our common stock in the public market, or are perceived
by the public market as intending to sell substantial amounts of our common stock, the trading price of our common stock could
decline significantly.
In conjunction with a June 1, 2020 securities purchase
agreement, our directors, executive officers, and certain holders of more than 5% of our common stock together with their affiliates,
which collectively beneficially owned approximately 50% of our common stock as of July 29, 2020, entered into lock-up agreements
pursuant to which they have agreed to, among other things, not sell their shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock until 180 days after the closing of the private placement on June 2, 2020.
Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur,
or early release of restrictions in the lock-up agreements, could cause the market price of our common stock to fall or make it
more difficult for you to sell your common stock at a time and price that you deem appropriate.
There is a limited trading market for our securities
and we do not currently have an active public market for our securities, which means you may not be able to resell shares of our
common stock publicly, if at all, at times or prices you feel are fair and appropriate. An active trading market for our common
stock may not develop or be sustained.
While our intention is to list our common stock on
the Nasdaq Capital Market, our common stock is currently quoted on the OTCQB Venture Market, and trading in our common stock has
been limited. The OTCQB Venture Market is generally understood to be a less active, and therefore less liquid, trading market
than a national securities exchange. We cannot predict whether an active market for our common stock will ever develop in the
future. In the absence of an active trading market:
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investors may have difficulty buying and selling shares of our common stock;
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market visibility for shares of our common stock may be limited;
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a lack of visibility for shares of our common stock may have a depressive effect on the market
price for shares of our common stock; and
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significant sales of our common stock, or the expectation of these sales, could materially and
adversely affect the market price of our common stock.
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Our historically small trading volume in our common stock
may make it difficult for our stockholders to sell their shares as and when they choose. Small trading volumes generally depress
market prices. As a result, you may not be able to resell shares of our common stock publicly, if at all, at times or prices that
you feel are fair or appropriate.
An inactive market may also impair our ability to raise
capital and to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets
by using our shares as consideration.
No assurance can be given that an active market will
develop for the common stock or as to the liquidity of the trading market for the common stock. The common stock may be traded
only infrequently in transactions arranged through brokers or otherwise, and reliable market quotations may not be available.
We have applied to list our
common stock on the Nasdaq Capital Market, but there is no assurance that our listing application will be approved by Nasdaq or
that our common stock will ever be listed on the Nasdaq Capital Market or any other national securities exchange.
While we have applied to list our
common stock on the Nasdaq Capital Market, we cannot ensure that we will be able to satisfy the listing standards or that our
common stock will be accepted for listing on the Nasdaq Capital Market. Should we fail to satisfy the initial listing standards
of the Nasdaq Capital Market, or our common stock are otherwise rejected for listing, our common stock will continue to trade
on the OTCQB Venture Market, in which event the trading price of our common stock could suffer, the trading market for our common
stock may be less liquid, and our common stock price may be subject to increased volatility.
Even if our common stock is accepted
for listing on the Nasdaq Capital Market upon our satisfaction of the exchange’s initial listing criteria, there can be
no assurance that an active trading market for our common stock will develop or be sustained, and the Nasdaq Capital Market may
subsequently delist our common stock if we fail to comply with ongoing listing standards.
In the event we are able to list our
common stock on the Nasdaq Capital Market upon our satisfaction of the exchange’s initial listing criteria, the exchange
will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue
the listing of our common stock. In addition to specific listing and maintenance standards, the Nasdaq Capital Market will have
broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to the
listing of our common stock.
If we fail to meet these continued
listing requirements, our common stock may be subject to delisting. If our common stock is delisted from the Nasdaq Capital Market
and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted
on an over-the-counter market; however, if this were to occur, our stockholders could face significant material adverse consequences,
including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities.
In addition, in the event of such delisting, we could experience a decreased ability to issue additional securities and obtain
additional financing in the future.
Further, even if our common stock is listed on the Nasdaq
Capital Market, there can be no assurance that an active trading market for our common stock will develop or be sustained after
our initial listing.
Raising additional funds by issuing securities
or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require
us to relinquish proprietary rights.
To the extent that we raise additional capital by issuing
equity securities, the share ownership of existing stockholders will be diluted. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the issuance could result in further dilution to our stockholders by
causing a reduction in their proportionate ownership and voting power.
Any future debt financing may involve covenants that
restrict our operations, including, among other restrictions, limitations on our ability to incur liens or additional debt, pay
dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions.
In addition, if we raise additional funds through licensing arrangements, it may be necessary to grant potentially valuable rights
to our product candidates or grant licenses on terms that are not favorable to us.
We have identified material weaknesses in our internal
control over financial reporting and may be unable to maintain effective control over financial reporting.
In the course of the preparation and external audit of
our consolidated financial statements for the fiscal year ended December 31, 2019, we and our independent registered public accounting
firm identified a “material weakness” in our internal control over financial reporting related to our limited number
of accounting and financial reporting personnel. A material weakness in internal control over financial reporting is a deficiency,
or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility
that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely
basis. We identified an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel.
We intend to work to remediate the material weaknesses
identified above, which could include the addition of accounting and financial reporting personnel and/or the engagement of accounting
and personnel consultants on a limited-time basis until we add a sufficient number of personnel.
Any material weaknesses in our internal control
over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock and increase
our cost of raising capital.
If we are unable to remediate our material weakness over
financial controls or we identify other material weaknesses or significant deficiencies in the future, our operating results might
be harmed, we may fail to meet our reporting obligations or fail to prevent or detect material misstatements in our financial statements.
Any such failure could, in turn, affect the future ability of our management to certify that internal control over our financial
reporting is effective. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and
other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject
us to civil or criminal penalties or stockholder litigation, which could have an adverse effect on our results of operations and
the market price of our common stock.
In addition, if we or our independent registered public
accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly
remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, deficiencies
could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us
to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
Our stock price is volatile and purchasers of our
common stock could incur substantial losses.
The market price of our common stock may fluctuate significantly
in response to a number of factors. These factors include those discussed in this “Risk Factors” section of this prospectus
and others such as:
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delay or failure in initiating or completing preclinical studies or clinical trials, or unsatisfactory
results of these trials and the resulting impact on ongoing product development;
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the success, progress, timing and costs of our efforts to evaluate or consummate various strategic
alternatives if in the best interests of our stockholders;
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our
ability to successfully list and maintain the listing of our common stock on the Nasdaq
Capital Market;
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announcements regarding equity or debt financing transactions;
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sales or potential sales of substantial amounts of our common stock or securities convertible into
our common stock;
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announcements about us or about our competitors including clinical trial results, regulatory approvals,
or new product candidate introductions;
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developments concerning our development partner, licensors or product candidate manufacturers;
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litigation and other developments relating to our patents or other proprietary rights or those
of our competitors;
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conditions in the pharmaceutical or biotechnology industries and the economy as a whole;
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governmental regulation and legislation;
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recruitment or departure of members of our board of directors, management team or other key personnel;
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changes in our operating results;
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any financial projections we may provide to the public, any changes in these projections, our failure
to meet these projections, or changes in recommendations by any securities analysts that elect to follow our common stock;
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change in securities analysts’ estimates of our performance, or our failure to meet analysts’
expectations; and
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price and volume fluctuations in the overall stock market or resulting from inconsistent trading
volume levels of our shares.
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In recent years, the stock market in general, and the
market for pharmaceutical and biotechnological companies in particular, has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing
those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock,
regardless of our actual operating performance.
In addition,
public statements by us, government agencies, the media or others relating to the COVID-19 outbreak (including regarding efforts
to develop COVID-19 vaccines, treatments or therapies) have in the past resulted, and may in the future result, in significant
fluctuations in our stock price. Given the global focus on the COVID-19 outbreak, any information in the public arena on this
topic, whether or not accurate, could have an outsized impact (either positive or negative) on our stock price. Information related
to our Phase III trial of lenzilumab, or our development, manufacturing and distribution efforts with respect to lenzilumab, or
information regarding such efforts by competitors, may also impact our stock price.
Our common stock may be considered to be a “penny
stock” and, as such, any market for our common stock may be further limited by SEC rules applicable to penny stocks. Some
brokers may be unwilling to trade our securities, and you may have difficulty reselling your shares, which may cause the value
of your investment to decline.
To the extent the price of our common stock continues
to trade at prices below $5.00 per share, our common stock may be subject to the “penny stock” rules promulgated by
the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established
customers and accredited investors. For transactions covered by the penny stock rules, the broker must make a special suitability
determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore,
the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide
customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and
asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage
firm. These rules and regulations may adversely affect the ability of brokers to sell our common stock and limit the liquidity
of our common stock, and because of the imposition of these additional sales practices, it is possible that brokers will not want
to make a market in our shares. This could prevent a holder of our shares from reselling those shares and may cause the value of
such investment to decline.
In addition, under applicable SEC rules and interpretations,
issuers of penny stocks are subject to disclosure requirements that can increase the cost and complexity of registering shares
for sale in a public offering, including a public offering proposed to be made to facilitate sales by existing stockholders. These
penny stock disclosure requirements may pose challenges or impediments to achieving our goals of increasing our public float and
the liquidity of the trading market for our shares.
If securities analysts do not publish research
or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for a company’s common stock
often is based in part on the research and reports that securities and industry analysts publish about the company. We are not
currently aware of any well-known analysts that are covering our common stock, and without analyst coverage it could be hard to
generate interest in investments in our common stock. Furthermore, if analyst coverage does develop, and an analyst downgrades
our stock or publishes unfavorable research about our business, or if our clinical trials or operating results fail to meet the
analysts’ expectations, our stock price would likely decline.
We have never paid and do not intend to pay cash
dividends and, consequently, the ability to achieve a return on any investment in our common stock will depend on appreciation
in the price of our common stock.
We have never paid cash dividends on any of our capital
stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. Therefore,
a holder of our stock is not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend
to pay dividends, the ability to receive a return on an investment in our common stock will depend on any future appreciation in
the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at
which it was purchased.
Anti-takeover provisions in our charter documents
and Delaware law, could discourage, delay, or prevent a change in control of our company and may affect the trading price of our
common stock.
We are a Delaware corporation and the anti-takeover provisions
of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in
a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder,
even if a change in control would be beneficial to our existing stockholders.
Our Amended and Restated Certificate of Incorporation,
as amended (the “Charter”), and our Second Amended and Restated Bylaws (the “Bylaws”) may discourage, delay,
or prevent a change in our management or control over us that stockholders may consider favorable. Our Charter and Bylaws:
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provide that vacancies on our board of directors, including newly created directorships, may be
filled only by a majority vote of directors then in office;
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do not provide stockholders with the ability to cumulate their votes; and
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require advance notification of stockholder nominations and proposals.
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In addition, our Charter permits the Board to issue up
to 25 million shares of preferred stock with such powers, rights, terms and conditions as may be designated by the Board upon the
issuance of shares of preferred stock at one or more times in the future. Specifically, the Charter permits the Board to approve
the future issuance of all or any shares of the preferred stock in one or more series, to determine the number of shares constituting
any series and to determine any voting powers, conversion rights, dividend rights, and other designations, preferences, limitations,
restrictions and rights relating to such shares without any further authorization by our stockholders. The Board’s power
to issue preferred stock could have the effect of delaying, deterring or preventing a transaction or a change in control of our
company that might otherwise be in the best interest of our stockholders.
Risks Related to our Business and Industry
The fluid and unpredictable nature of the COVID-19
pandemic, which began in late 2019 and has spread worldwide, may affect our ability to conduct our Phase III trial of lenzilumab
for the prevention and treatment of cytokine storm in COVID-19 pneumonia, delay the initiation of planned and future clinical trials,
disrupt regulatory activities, or have other adverse effects on our business and operations. In addition, this pandemic has caused
substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse
effects on our business and operations.
In December 2019, an outbreak of the respiratory
illness COVID-19 caused by a strain of novel coronavirus, SARS-Cov-2, was first reported in China. The COVID-19 outbreak has spread
worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, strict travel
restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response have had
a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have
been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services
and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the
outbreak and its effects on our business and operations are uncertain.
We and our third-party contract research organizations
(“CROs”) and clinical sites may experience disruptions in supply of product candidates and/or procuring items that
are essential for our research and development activities, including raw materials used in the manufacturing of our product
candidates, medical and laboratory supplies used in our clinical trials or preclinical studies or animals that are used for preclinical
testing, in each case, for which there may be shortages because of ongoing efforts to address the outbreak. While these delays
have not materially impacted our overall manufacturing supply chain operations to date, and we continue to explore back up or
alternative sources of supply, any future disruption in the supply chain from the COVID-19 outbreak, or any potential future
outbreak could have a material adverse impact on our clinical trial plans and business operations.
Additionally, we have enrolled, and will seek to enroll,
patients in our clinical trials at sites located in many areas affected by COVID-19 and, as a result, our trials may be impacted.
In addition, even if sites are actively recruiting, we may face difficulties recruiting or retaining patients in our ongoing and
planned clinical trials if patients are affected by the virus or are fearful of visiting or traveling to our clinical trial sites
because of the outbreak. Prolonged delays or closure to enrollment in our trials or patient discontinuations could have a material
adverse impact on our clinical trial plans and timelines, including our Phase III trial of lenzilumab for the prevention and treatment
of cytokine storm in COVID-19 pneumonia.
In addition, our ability to collect all data requested
of patients enrolled in our clinical trials during this pandemic is being impacted to varying degrees by COVID-19. Clinical trial
data collection generally continues for each of our clinical trials, but at a slower pace, and in some instances, we encounter
disruption of collection of complete study data. This could have a material adverse impact on our data analysis.
The response to the COVID-19 pandemic may redirect resources
with respect to regulatory and intellectual property matters in a way that would adversely impact our ability to progress regulatory
approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and approvals due
to measures intended to limit in-person interactions.
Any negative impact that the COVID-19 outbreak has on
the ability of our suppliers to provide materials for our product candidates or on recruiting or retaining patients in our clinical
trials or our ability to collect patient data could cause costly delays to clinical trial activities, which could adversely affect
our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and
have a material adverse effect on our financial results. Furthermore, any negative impact that the outbreak has on the ability
of our CROs to deliver data sets and execute on experimentation could cause substantial delays for our discovery activities and
materially impact our ability to fuel our pipeline with new product candidates.
Any negative impact that the COVID-19 pandemic has on
recruiting or retaining patients in our clinical trials, obtaining complete clinical trial data or on the ability of our suppliers
to provide materials for our product candidates could cause additional delays to clinical trial and developmental activities, which
could materially and adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates,
increase our operating expenses, affect our ability to raise additional capital, and have a material adverse effect on our financial
results.
The COVID-19 pandemic has already caused significant
disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional
funds through public offerings and may also impact the volatility of our stock price and trading in our stock. Moreover, the pandemic
has also significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot
be certain what the overall impact of the COVID-19 pandemic will be on our business. It has the potential to adversely affect our
business, financial condition, results of operations, and prospects.
If our competitors develop and
receive FDA approval for treatments or vaccines for COVID-19, our commercial opportunity may be reduced or eliminated.
There are numerous companies working on therapies to treat
COVID-19 and/or vaccines to prevent or treat COVID-19. The speed at which all parties are acting to create and test many treatments
and vaccines for COVID-19 is unusual, and evolving or changing plans or priorities within the FDA, including changes based on
new knowledge of COVID-19 and how the disease affects the human body, may significantly affect the regulatory timeline for lenzilumab.
Results from clinical testing may raise new questions and require us to redesign proposed clinical trials. Many of our competitors
and potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater
financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have
formed collaborations with large, established companies to support the research, development and commercialization of products
that may be competitive with ours.
Furthermore, the incidence of COVID-19 in the communities
where the Phase III trial participants reside will vary across different locations. If the overall incidence of clinical deterioration
of patients with COVID-19 in the lenzilumab COVID-19 Phase III trial is low, it may be difficult for this study to demonstrate
differences between participants in the study who receive placebo and those who receive lenzilumab. There can be no assurance
that we will receive FDA approval or Emergency Use Authorization for lenzilumab as a therapy for patients suffering from COVID-19
pneumonia, or that we would be the first to successfully develop a therapy for this indication. If we are not the first therapy
approved, or if other competing therapies are approved after lenzilumab, and/or a safe, efficacious, accessible preventative vaccine
is approved, such approval could have a material adverse impact on our ability to commercialize lenzilumab as a therapy for COVID-19.
We have a history of operating losses, we expect
to continue to incur losses, and we may never become profitable.
We have incurred net losses in nearly every year since our inception. For
the fiscal year ended December 31, 2019 we incurred a net loss of $10.3 million, and we have an accumulated deficit of $284.9 million
as of December 31, 2019. Since inception, we have recognized a nominal amount of revenue from payments for funded research and
development and for license or collaboration fees, none of which was recognized in either of the last two years. We expect to make
substantial expenditures and incur additional operating losses in the future to further develop and commercialize our product candidates.
Our accumulated deficit is expected to increase significantly as we continue our development and clinical trial efforts. Our ability
to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing our product
candidates, either alone or with third parties. We do not currently have the required approvals to market any of our product candidates
and we may never receive them. We may not be profitable even if we or any future development partners succeed in commercializing
any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our
product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
Our ability to execute on all of the initiatives in our development
pipeline is substantially dependent on third parties to plan and conduct the referenced studies and clinical trials.
Our success depends on our ability to negotiate agreements with third parties
with resources to plan and conduct the initiatives, studies and clinical trials we are pursuing. If we are not able to reach agreements
with current or future partners for it, we will not be able to execute on each of these particular initiatives, studies and trials.
Our inability to identify and complete negotiations with any such third party therefore could have a material and adverse impact
on our ability to pursue our business plan in respect of the applicable element of our pipeline, which in turn could have a material
adverse effect on our business.
We review and explore strategic alternatives on an on-going basis,
but there can be no assurance that we will be successful in identifying or completing any strategic alternative or that any such
strategic alternative will yield additional value for our stockholders.
We regularly review strategic alternatives to ensure
our current structure optimizes our ability to execute our strategic plan and to maximize stockholder value. The review of strategic
alternatives could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture, partnering,
licensing or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing
to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives
will result in the identification or consummation of any transaction.
In addition, we may incur substantial expenses associated with identifying
and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive
to our business operations and if we are unable to effectively manage the process, our business, financial condition and results
of operations could be adversely affected. We also cannot assure that any potential transaction or other strategic alternative,
if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in our current stock
price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other
factors, market conditions, industry trends, the interest of third parties in our business or product candidates and the availability
of financing to potential buyers on reasonable terms.
Future acquisitions of and investments in new businesses
could impact our business and financial condition.
From time to time, we may acquire or invest in businesses
or partnerships that we believe could complement our business and drug candidates. The pursuit of such acquisitions or investments
may divert the attention of management and cause us to incur various expenses, regardless of whether the acquisition or investment
is ultimately completed. In addition, acquisitions and investments may not perform as expected and we may be unable to realize
the expected benefits, synergies or developments that we may initially anticipate. Further, if we are able to successfully identify
and acquire additional businesses, we may not be able to successfully integrate the acquired personnel or operations, or effectively
manage the combined business following the acquisition, any of which could harm our business and financial condition.
In addition, to the extent we finance any acquisition or
investment in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with shares of our common
or preferred stock, it could be dilutive to our current stockholders. To the extent we finance any acquisition or investment with
the proceeds from the incurrence of debt, this would increase our level of indebtedness and could negatively affect our liquidity,
credit rating and restrict our operations. Moreover, we may face contingent liabilities in connection with any acquisitions or
investments.
We will require additional financing
to pursue our development pipeline.
As previously disclosed, we do not expect to recognize any
revenues while we continue to pursue the development of lenzilumab and our other product candidates. As a result, we will require
additional capital to support our business efforts, including our Phase III study of lenzilumab in COVID-19, our collaboration
with Kite and our GvHD clinical programs.
We will also require substantial additional capital
to support our other business efforts, including obtaining regulatory approvals for our other product candidates, product manufacturing
and CMC work, clinical trials and other studies, and, if approved, the commercialization of our product candidates. The amount
of capital we will require and the timing of our need for additional capital will depend on many factors, including:
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the type, number, timing, progress, costs, and results of the product candidate development programs
that we are pursuing or may choose to pursue in the future;
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the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials;
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the timing of and costs involved in obtaining regulatory approvals;
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our
costs in connection with the manufacturing of drugs, whether alone or with a manufacturing
partner or several partners;
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our ability to establish and maintain development partnering arrangements and any associated funding;
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the emergence of competing products or technologies and other adverse market developments;
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the costs of maintaining, expanding, and protecting our intellectual property portfolio, including
potential litigation costs and liabilities;
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the resources we devote to marketing, and, if approved, commercializing our product candidates;
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the scope, progress, expansion and costs of manufacturing our product candidates; and
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the costs associated with being a public company.
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The scientific rationale behind the hypothesis
that GM-CSF is a cause of the cytokine storm that leads to adverse results in COVID-19 patients is still being tested and may not
prove accurate.
The hypothesis that elevated GM-CSF levels may contribute
to cytokine storm-induced immune mechanisms that places patients at greater risk of ICU admission and mortality with the current
pandemic strain of coronavirus is unproven. Certain data are the subject of pre-publication papers that have not been peer-reviewed
and may not be substantiated. If this hypothesis is not ultimately proven through clinical trials which are underway, the potential
for lenzilumab to play a meaningful role in a COVID-19 therapy likely would decrease or be eliminated. We cannot assure you that
our exploratory efforts in this respect will be fruitful.
Our business depends on the success of our current product candidates.
We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product
candidates.
We have a limited pipeline of product candidates and
we do not plan to conduct active research at this time for discovery of new molecules or antibodies. We depend on the successful
continued development and regulatory approval of our current product candidates for our future business success. Since the fall
of 2017, our primary focus has been the development of lenzilumab. We are also working to create next-generation gene-edited CAR-T
therapies using GM-CSF gene knockout technologies, as well as working to develop ifabotuzumab and related products. We will need
to successfully enroll and complete clinical trials of lenzilumab and ifabotuzumab, and potentially obtain regulatory approval
to market these products. The future clinical, regulatory and commercial success of our product candidates is subject to a number
of risks, including the following:
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we may not be able to enroll adequate numbers of eligible patients in the clinical trials we propose
to conduct, whether alone or through collaborations, including the collaboration with Kite announced in May 2019;
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we may not have sufficient financial and other resources to fund our clinical trials or collaborations;
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we may not be able to provide acceptable evidence of safety and efficacy for our product candidates;
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the results of our clinical trials or collaborations may not meet the level of statistical or clinical
significance, or product safety, required to move to the next stage of development or, ultimately, obtain marketing approval from
the FDA;
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we may not be able to obtain, maintain and enforce our patents and other intellectual property
rights; and
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we may not be able to obtain and maintain commercial manufacturing arrangements with third-party
manufacturers or establish commercial-scale manufacturing capabilities.
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Furthermore, even if we do receive regulatory approval
to market any of our product candidates, any such approval may be subject to limitations on the indicated uses for which we may
market the product. If any of our product candidates are unsuccessful, that could have a substantial negative impact on our business.
Accordingly, we cannot assure you that our product candidates
will be successfully developed or commercialized. If we or any future development partners are unable to develop, or obtain regulatory
approval for or, if approved, successfully commercialize, one or more of our product candidates, we may not be able to generate
sufficient revenue to continue our business.
Our product candidates are at an early stage of
development and may not be successfully developed or commercialized.
Our product candidates are in the early stages of development
and will require substantial clinical development, testing, and regulatory approval prior to commercialization. Of the large number
of drugs in development, only a small percentage successfully completes the FDA regulatory approval process and are commercialized.
Accordingly, we cannot assure you that our product candidates will be successfully developed or commercialized. If we or any future
development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, one
or more of our product candidates, we may not be able to generate sufficient revenue to continue our business.
The adoption of CAR-T therapies as the potential
standard of care for treatment of certain cancers is uncertain, and dependent on the efforts of a limited number of market entrants,
and if not adopted as anticipated, the market for lenzilumab or next-generation gene-edited CAR-T therapies may be limited or not
develop.
We are seeking to advance the development of lenzilumab
to address, among other things, the serious and potentially fatal side effects associated with CAR-T therapies and to improve
the efficacy of these treatments. We are also working to create next-generation gene-edited CAR-T therapies using GM-CSF gene
knockout technologies. Although two CAR-T therapies have been approved by FDA to date, the use of engineered T cells as a potential
cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment
centers, payers and others in the medical community. The degree of market acceptance of any approved product candidates will depend
on a number of factors, including:
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the efficacy and safety as demonstrated in clinical trials;
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the clinical indications for which the product candidate is approved;
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acceptance by physicians, major operators of hospitals and clinics, and patients of the product
candidate as a safe and effective treatment;
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the potential and perceived advantages of product candidates over alternative treatments;
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the safety of product candidates seen in a broader patient group, including its use outside the
approved indications;
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competitive approaches to tackle similar issues;
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the
cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by payers;
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relative convenience and ease of administration;
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the prevalence and severity of adverse events;
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the effectiveness of sales and marketing efforts; and
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the ability to manage any unfavorable publicity relating to the product candidate.
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If the medical and payer community is not sufficiently
persuaded of the safety, efficacy and cost-effectiveness of CAR-T therapy and the potential advantages of using lenzilumab compared
to existing and future therapeutics, and there is not significant market acceptance of CAR-T therapy as the standard of care for
treatment of certain cancers, the market for lenzilumab or next-generation gene-edited CAR-T therapies may be limited or not develop,
and our stock price could be adversely affected.
CAR-T therapies currently in early development
purport to incorporate technology that may minimize or eliminate the adverse side-effects that we believe have impaired the uptake
of the approved CAR-T therapies. If these developing therapies are proven equally efficacious in their proposed indications and
approved for use by FDA and other regulatory agencies, the market growth for the currently-approved CAR-T therapies may be limited,
impairing demand for lenzilumab.
In recent months, several biotechnology companies describing
business plans focusing on development of CAR-T therapies have completed or announced they are pursing initial public offerings,
or “IPOs”. Several of these companies have described their belief that their therapies will not result in the same
level of CRS or NT as has been experienced in use of previously FDA-approved CAR-T therapies. While these products are in early
stage development, the data is limited and these products have not yet been approved for use by FDA, if any such product were also
proven equally efficacious and subsequently approved, the market for lenzilumab may not develop or grow as anticipated. Any such
failure of a market for lenzilumab to develop could adversely affect our stock price.
Our business could target benefits
from various regulatory incentives, such as Emergency Use Authorization, orphan drug exclusivity, breakthrough therapy designation,
fast track designation, and priority review, but we may not ultimately qualify for or benefit from these arrangements.
We may seek various regulatory incentives,
such as Emergency Use Authorization, orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated
approval, priority review and Priority Review Vouchers (“PRVs”), where available, that provide for certain periods
of exclusivity, expedited review and/or other benefits, and we may also seek similar designations elsewhere in the world. Often,
regulatory agencies have broad discretion in determining whether or not products qualify for such regulatory incentives and benefits.
We cannot guarantee that we will be able to receive orphan drug status from FDA or equivalent regulatory designations elsewhere.
We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may provide certain potential
benefits such as more frequent meetings with FDA to discuss the development plan, intensive guidance on an efficient drug development
program, and potential eligibility for rolling review or priority review. Legislative developments in the U.S., including recent
proposed legislation that would restrict eligibility for PRVs, may affect our ability to qualify for these programs in the future.
Even if we are successful in obtaining beneficial regulatory
designations by FDA or other regulatory agency for our product candidates, such designations may not lead to faster development
or regulatory review or approval, and it does not increase the likelihood that our product candidates will receive marketing approval.
We may not be able to obtain or maintain such designations for our product candidates, and our competitors may obtain these designations
for their product candidates, which could impact our ability to develop and commercialize our product candidates or compete with
such competitors, which would adversely impact our business, financial condition or results of operations.
There is a limited amount of information about us upon which investors
can evaluate our product candidates and business prospects, including because we have a limited operating history developing product
candidates, have not yet successfully commercialized any products, have changed our strategy and have a small management team.
On August 29, 2017, we shifted our primary focus
toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab and ifabotuzumab and HGEN005. We are
also currently developing our GM-CSF knockout gene-editing CAR-T platform to create next-generation CAR-T therapies that preserve
the benefits of CAR-T therapy while altogether avoiding its serious and potentially life-threatening side-effects. Our limited
operating history developing clinical-stage product candidates may make it more difficult for us to succeed or for investors to
be able to evaluate our business and prospects. In addition, as an early-stage clinical development company, we have limited experience
in development activities, including conducting clinical trials, or seeking and obtaining regulatory approvals, even though our
executives have had relevant experience at other companies. We currently have five full-time employees and therefore are heavily
dependent on external consultants and expert vendors for scientific, clinical manufacturing and regulatory expertise. We have
not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies
in the biopharmaceutical area. To execute our business plan we will need to successfully:
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execute our product candidate development activities, including successfully completing our clinical trial programs, including
through our Phase III study and through our collaboration with Kite;
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obtain required regulatory approvals for the development and commercialization of our product candidates;
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manage our costs and expenses related to clinical trials, regulatory approvals, manufacturing and
commercialization;
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secure substantial additional funding;
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develop and maintain successful strategic relationships;
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build and maintain a strong intellectual property portfolio;
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build and maintain appropriate clinical, sales, manufacturing, distribution, and marketing capabilities
on our own or through third parties; and
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gain market acceptance and favorable reimbursement status for our product candidates.
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If we are unsuccessful in accomplishing these objectives,
we may not be able to develop product candidates, raise capital, expand our business, or continue our operations.
Our collaboration with Kite is critically important
to our business. If we are unable to maintain this collaboration, or if this collaboration is not successful, our business could
be adversely affected.
In May 2019, we entered into the Kite Agreement to
conduct a multi-center Phase 1b/2 study of lenzilumab with Kite’s YESCARTA in
patients with relapsed or refractory B-cell lymphoma. See "Business — Kite Collaboration."
Pursuant to the terms of the Kite Agreement, Kite may
elect to terminate or suspend the Study at any time. Because we currently rely on Kite for a substantial portion of our discovery
capabilities, if Kite delays or fails to perform its obligations under the Kite Agreement, disagrees with our interpretation of
the terms of the collaboration or our discovery plan or terminates the Kite Agreement, our pipeline of product candidates would
be adversely affected. Kite may also fail to properly maintain or defend the intellectual property we have licensed from them,
or even infringe upon, our intellectual property rights, leading to the potential invalidation of our intellectual property or
subjecting us to litigation or arbitration, any of which would be time-consuming and expensive. Additionally, either party has
the right to terminate the Kite Agreement under certain circumstances. If our collaboration with Kite is terminated, the development
of lenzilumab would be materially delayed or harmed.
In addition to our collaboration with Kite, we may, in the future, seek
to enter into collaborations with other third parties for the discovery, development and commercialization of our product candidates.
If our collaborators cease development efforts under our collaboration agreements, or if any of those agreements are terminated,
these collaborations may fail to lead to commercial products and we may never receive milestone payments or future royalties under
these agreements.
We may in the future seek to enter into agreements with
other third-party collaborators for research, development and commercialization of other therapeutic technologies or product candidates.
Biopharmaceutical companies are our likely future collaborators for any marketing, distribution, development, licensing or broader
collaboration arrangements. If we fail to enter into future collaborations on commercially reasonable terms, or at all, or such
collaborations are not successful, we may not be able to execute our strategy to develop our product candidates or therapies that
we believe could benefit from the resources of either larger biopharmaceutical companies or those specialized in a particular area
of relevance.
With respect to our existing Kite Agreement and with
any future collaboration agreements, we have limited control over the amount and timing of resources that our collaborators dedicate
to the development or commercialization of our product candidates. Moreover, our ability to generate revenues from these arrangements
will depend on our collaborators' abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates pose
the following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will
apply to these collaborations;
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collaborators may not pursue development and commercialization of our product candidates or may
elect not to continue or renew development or commercialization programs based on preclinical studies or clinical trial results,
changes in the collaborators' strategic focus or available funding, or external factors such as an acquisition that diverts resources
or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program,
stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product
candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete
directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be
successfully developed or can be commercialized under terms that are more economically attractive than ours;
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collaborators with marketing and distribution rights to one or more products may not commit sufficient
resources to the marketing and distribution of such product or products;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in
such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or
expose us to litigation or potential liability;
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collaborators may infringe the intellectual property rights of third parties, which may expose
us to litigation and potential liability;
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disputes may arise between the collaborators and us that result in the delay or termination of
the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that
diverts management attention and resources; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital
to pursue further development or commercialization of the applicable product candidates.
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As a result of the foregoing, our current and any future
collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner
or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product
development or commercialization program could be delayed, diminished or terminated. Any failure to successfully develop or commercialize
our product candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect
on our business, financial condition, results of operations and prospects.
Moreover, to the extent that any of our existing or future collaborators were
to terminate a collaboration agreement, we may be forced to independently develop these product candidates, including funding
preclinical studies or clinical trials, assuming marketing and distribution costs and defending intellectual property rights, or,
in certain instances, abandon product candidates altogether, any of which could result in a change to our business plan and have
a material adverse effect on our business, financial condition, results of operations and prospects.
We have relied and may in the future rely on third
parties to conduct investigator-sponsored trials (“ISTs”) of our products, which is cost-effective for us but affords
the investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the
data generated from their efforts.
We have relied
and may in the future rely on third parties to conduct and sponsor clinical trials relating to lenzilumab, our GM-CSF gene
knockout platform and our other immunotherapies, ifabotuzumab and HGEN005. Such ISTs may
provide us with valuable clinical data that can inform our future development strategy in a cost-efficient manner,
but we do not control the design or conduct of the ISTs, and it is possible that the FDA or non-U.S. regulatory authorities will
not view these ISTs as providing adequate support for future clinical trials, whether controlled by us or third parties, for any
one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.
These arrangements
provide us limited information rights with respect to the ISTs, including access to and the ability to use and reference the data,
including for our own regulatory filings, resulting from the ISTs. However, we would not have control over the timing
and reporting of the data from ISTs, nor would we own the data from the ISTs. If we are unable to confirm or replicate
the results from the ISTs or if negative results are obtained, we would likely be further delayed or prevented from advancing further
clinical development. Further, if investigators or institutions breach their obligations with respect to the clinical development
of our product candidates, or if the data proves to be inadequate compared to the first-hand knowledge we might have gained had
the ISTs been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be
adversely affected.
If the third parties conducting our clinical trials
do not conduct the trials in accordance with our agreements with them, our ability to pursue our clinical development programs
could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates
when expected or at all.
We do not have the ability to conduct all aspects of
our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these trials is
uncertain and may occur on substantially different timing from our estimates. We also use CROs to conduct our clinical trials and
rely on medical institutions, clinical investigators, CROs, and consultants to conduct our trials in accordance with our clinical
protocols and regulatory requirements. Our CROs, investigators, and other third parties play a significant role in the conduct
of these trials and subsequent collection and analysis of data.
There is no guarantee that any CROs, investigators, or
other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources
to such trials or perform as contractually required. If any of these third parties fails to meet expected deadlines, fails to adhere
to our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated.
If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled
in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial site. In addition,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may
receive cash or equity compensation in connection with such services. If these relationships and any related compensation result
in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be
jeopardized.
We may experience delays in commencing or conducting our clinical trials,
in receiving data from third parties or in the continuation or completion of clinical testing, which could result in increased
costs to us, delay our ability to generate product candidate revenue or, ultimately, render us unable to complete the development
and commercialization of our product candidates.
We have product candidates in clinical development and preclinical development.
The risk of failure for each of our product candidates is high. It is impossible to predict when or if any of our product candidates
will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory
authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical
trials to demonstrate the safety and efficacy of our product candidates in humans.
Before we can initiate clinical trials in the United
States for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of an IND application,
along with other information including information about product candidate chemistry, manufacturing, and controls and our proposed
clinical trial protocol. For our programs already underway, we are required to report or provide information to appropriate regulatory
authorities in order to continue with our testing programs. If we are unable to make timely regulatory submissions for any of our
programs, it will delay our plans for our clinical trials. If those third parties do not make the required data available to us,
we will likely have to identify and contract with another third party, and/or develop all necessary preclinical and clinical data
on our own, which will lead to significant delays and increase development costs of the product candidate. In addition, FDA may
require us to conduct additional preclinical testing for any product candidate before it allows us to initiate clinical testing
under any IND application, which may lead to additional delays and increase the costs of our preclinical development. Moreover,
despite the presence of an active IND application for a product candidate, clinical trials can be delayed for a variety of reasons,
including delays in:
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identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;
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identifying, recruiting, and training suitable clinical investigators;
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs,
and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time,
and may vary significantly among different CROs and trial sites;
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obtaining and maintaining sufficient quantities of a product candidate for use in clinical trials,
either as a result of transferring the manufacturing of a product candidate to another site or manufacturer, deferring ordering
or production of product in order to conserve resources or mitigate risk, having product in inventory become no longer suitable
for use in humans, or other reasons that reduce or delay availability of drug supply;
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obtaining and maintaining Institutional Review Board (“IRB”) or ethics committee approval
to conduct a clinical trial at an existing or prospective site;
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retaining or replacing participants who have initiated a clinical trial but may withdraw due to
adverse events from the therapy, insufficient efficacy, fatigue with the clinical trial process, or personal issues;
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developing any companion diagnostic necessary to ensure the study enrolls the target population;
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being required by the FDA to add more patients or sites or to conduct additional trials; or
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the FDA placing a clinical trial on hold.
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Once a clinical trial has begun, recruitment and enrollment
of subjects may be slower than we anticipate. Numerous companies and institutions are conducting clinical studies in similar patient
populations which can result in competition for qualified patients. In addition, clinical trials will take longer than we anticipate
if we are required, or believe it is necessary, to enroll additional subjects than originally planned. Clinical trials may also
be delayed as a result of ambiguous or negative interim results. Further, a clinical trial may be suspended or terminated by us,
an IRB, an ethics committee, or a data safety monitoring committee overseeing the clinical trial, any of our clinical trial sites
with respect to that site, or FDA or other regulatory authorities, due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols;
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inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory
authorities;
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inability to provide timely supply of drug product;
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unforeseen safety issues, known safety issues that occur at a greater frequency or severity than
we anticipate, or any determination that the clinical trial presents unacceptable health risks; or
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lack of adequate funding to continue the clinical trial or unforeseen significant incremental costs
related to the trial.
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Additionally, if any future development partners do not
develop the licensed product candidates in the time and manner that we expect, or at all, the clinical development efforts related
to these licensed product candidates could be delayed or terminated. In addition, our ability to enforce our partners’ obligations
under any future collaboration efforts may be limited due to time and resource constraints, competing corporate priorities of our
future partners, and other factors.
Any delays in the commencement of our clinical trials may delay or preclude
our ability to further develop or pursue regulatory approval for our product candidates. Changes in U.S. and foreign regulatory
requirements and guidance also may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments
may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect the costs, timing, and likelihood
of a successful completion of a clinical trial.
If we are required to conduct additional clinical trials or other testing
of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials
of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive
or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or safety
warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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Our product development costs will also increase if we experience delays in
testing or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin
as planned, will need to be restructured or will be completed on schedule, or at all. We may also determine to change the design
or protocol of one or more of our clinical trials, including to add additional arms or patient populations, which could result
in increased costs and expenses and/or delays. If we or any future development partners experience delays in the completion of,
or if we or any future development partners must terminate, any clinical trial of any product candidate our ability to obtain regulatory
approval for that product candidate will be delayed and the commercial prospects, if any, for the product candidate may suffer
as a result. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the
exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair
our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition,
many of these factors may also ultimately lead to the denial of regulatory approval of a product candidate.
Our product candidates are subject to extensive
regulation, compliance with which is costly and time consuming, may cause unanticipated delays, or may prevent the receipt of the
required approvals to commercialize our product candidates.
The clinical development, approval, manufacturing, labeling,
storage, record-keeping, advertising, promotion, import, export, marketing, and distribution of our product candidates are subject
to extensive regulation by FDA in the United States and by comparable authorities in foreign markets. In the United States, we
are not permitted to market our product candidates until we receive regulatory approval from FDA. The process of obtaining regulatory
approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products
involved, as well as the target indications. Approval policies or regulations may change and FDA has substantial discretion in
the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many reasons. Despite
the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. FDA or other
comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons, including:
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such authorities may disagree with the design or implementation of our or any future development
partners’ clinical trials;
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such authorities may not accept clinical data from trials that are conducted at clinical facilities
or in countries where the standard of care is potentially different from the United States;
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the results of clinical trials may not demonstrate the safety or efficacy required by such authorities
for approval;
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we or any future development partners may be unable to demonstrate that a product candidate’s
clinical and other benefits outweigh its safety risks;
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such authorities may disagree with our interpretation of data from preclinical studies or clinical;
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such authorities may find deficiencies in the manufacturing processes or facilities of third-party
manufacturers with which we or any future development partners contract for clinical and commercial supplies; or
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the approval policies or regulations of such authorities may significantly change in a manner rendering
our or any future development partners’ clinical data insufficient for approval.
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With respect to foreign markets, approval procedures
vary widely among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative
review periods, and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed
pharmaceuticals may result in increased caution by FDA and comparable foreign regulatory authorities in reviewing new drugs based
on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.
Any delay in obtaining, or inability to obtain, applicable regulatory approvals may delay or prevent us or any future development
partners from commercializing our product candidates.
The results of preclinical studies and early clinical
trials are not always predictive of future results. Any product candidate we or any future development partners advance into clinical
trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Drug development has substantial inherent risk. We or
any future development partners will be required to demonstrate through adequate and well-controlled clinical trials that our product
candidates are effective, with a favorable benefit-risk profile, for use in their target populations for their intended indications
before we can seek regulatory approvals for their commercial sale. Drug development is a long, expensive and uncertain process,
and delay or failure can occur at any stage of development, including after commencement of any of our clinical trials. Success
in early clinical trials does not mean that later clinical trials will be successful because product candidates in later-stage
clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing.
Furthermore, our future trials will need to demonstrate sufficient safety and efficacy for approval by regulatory authorities in
larger patient populations. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical
trials have shown promising results. In addition, only a small percentage of drugs under development result in the submission of
a New Drug Application (“NDA”) or Biologic License Application (“BLA”) to FDA and even fewer are approved
for commercialization.
In addition, serious adverse or undesirable side effects
may emerge or be identified during later stages of development that were not observed in earlier stages. If our product candidates,
either alone or in combination with other therapeutics, are associated with serious adverse events or undesirable side effects
or unacceptable drug-drug interactions in clinical trials or have characteristics that are unexpected in clinical trials or preclinical
testing, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious
adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit
perspective. In pharmaceutical development, many compounds that initially show promise in early-stage or clinical testing are later
found to cause side effects that prevent further development of the compound. In addition, if third parties manufacture or use
our product candidates without our permission, and generate adverse events or unacceptable side effects, this could also have an
adverse impact on our development efforts.
Unacceptable adverse events caused by any of our
product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay, or halt
clinical trials and could result in the denial of regulatory approval by FDA or other regulatory authorities for any or all
targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected
product candidate and generating revenue from its sale. We have not yet successfully completed testing of any of our product
candidates for the treatment of the indications for which we intend to seek approval in humans, and we currently do not know
the extent of adverse events, if any, that will be observed in individuals who receive any of our product candidates. If any
of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory
approval or commercialize such product candidates.
If we fail to attract and retain key management
and clinical development personnel, or if the attention of such personnel is diverted, we may be unable to successfully manage
our business and develop or commercialize our product candidates.
We will need to effectively manage our managerial,
operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts.
As a company with a limited number of personnel, we are heavily affected by turnover and highly dependent on the expertise of
the members of our senior management, in particular our Chief Executive Officer, Dr. Cameron Durrant, and Dr. Dale Chappell, the
controlling owner of the Black Horse Entities (as defined below) and our current Chief Scientific Officer. Furthermore, we rely
on third party consultants for a variety of services. We cannot predict the impact of the loss of such individuals or the loss
of services of any of our other senior management, should they occur, or the difficulty in replacing such individuals. Such losses
could delay or prevent the further development and potential commercialization of our product candidates and, if we are not successful
in finding suitable replacements, could harm our business.
If our competitors develop treatments for the target
indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated to be safer
or more effective than our product candidates, or if FDA approves generic or biosimilar competitors to our products post-approval,
our commercial opportunity will be reduced or eliminated.
We compete in an industry characterized by rapidly advancing
technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual
property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies,
academic institutions, government agencies and other private and public research organizations. We compete with these parties in
immunotherapy and oncology treatments and in recruiting highly qualified personnel. Our product candidates, if successfully developed
and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including
competitors relying on our biologics approvals under section 351(k) of the Public Health Service Act, or with generic copies of
our products approved by FDA under an abbreviated new drug application (“ANDA”), referencing our drug products. We
believe that competitors are actively developing competing products to our product candidates. See “Competition” in
the “Business” section of this prospectus for a discussion of competition with respect to our current product candidates.
Many of our competitors and potential competitors have
substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales
and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with
large, established companies to support the research, development and commercialization of products that may be competitive with
ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing,
and achieving widespread market acceptance for our products. If a competitor obtains approval for an orphan drug that is the same
drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years
from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved
competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate
supply of its product to patients after approval. In addition, our competitors’ products may be more effective or more effectively
marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete
or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our
product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our
product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration,
quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to
market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.
The acquisition or licensing of pharmaceutical products
is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license or acquire
products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions.
The more established companies may have a competitive advantage over us due to their size, cash flows, institutional experience
and historical corporate reputation.
We are subject to a multitude of manufacturing
risks, any of which could substantially increase our costs and limit supply of our products.
We are, and will for the foreseeable future continue
to be, wholly dependent on third party contract manufacturers for the timely supply of adequate quantities of our products which
meet or exceed requisite quality and production standards for use in clinical and nonclinical studies. Given the extensive risks,
scope, complexity, cost, regulatory requirements and commitment of resources associated with developing the capabilities to manufacture
one or more of our products, we have no present plan or intention of developing in-house manufacturing capabilities for nonclinical,
clinical or commercial scale production, beyond our current supervision and management of our third-party contract manufacturers.
In addition, in order to balance risk and conserve financial and human resources, we have and may continue from time to time to
defer commitment to production of product, which could result in delays to the continued progress of our clinical and nonclinical
testing.
In addition to the foregoing, the process of manufacturing
our products is complex, highly regulated and subject to several risks, including but not limited to the following:
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We, and our contract manufacturers, must comply with FDA’s current Good Manufacturing Practice,
(“cGMP”), regulations and guidance. We, and our contract manufacturers, may encounter difficulties in achieving quality
control and quality assurance and may experience shortages in qualified personnel. We, and our contract manufacturers, are subject
to inspections by FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements.
Any failure to follow cGMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture,
fill-finish, packaging, or storage of our products as a result of a failure of our facilities or the facilities or operations of
third parties to comply with regulatory requirements, or a failure to pass any regulatory authority inspection, could significantly
impair our ability to develop and commercialize our products, including leading to significant delays in the availability of products
for our clinical studies or the termination or hold on a clinical study, or the delay or prevention of a filing or approval of
marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions,
including injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates,
delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, adverse
publicity, and criminal prosecutions, any of which could damage our reputation. If we are not able to maintain regulatory compliance,
we may not be permitted to market our products and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.
Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages,
lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. Once our product candidates
are approved, we may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet
specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
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The manufacturing facilities in which our products are made could be adversely affected by equipment
failures, plant closures, capacity constraints, competing customer priorities or changes in corporate strategy or priorities, process
changes or failures, changes in business models or operations, materials or labor shortages, natural disasters, power failures
and numerous other factors.
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We are wholly dependent upon third party CMOs for the timely supply of adequate quantities of requisite
quality product for our nonclinical, clinical and, if approved by regulatory authorities, commercial scale production.
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The process of manufacturing biologics is extremely susceptible to product loss due to contamination,
equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal
manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial,
viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made,
such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
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If any product candidate that we successfully develop
does not achieve broad market acceptance among physicians, patients, healthcare payers and the medical community, the revenue that
it generates may be limited.
Even if our product candidates receive regulatory approval,
they may not gain market acceptance among physicians, patients, healthcare payers, and the medical community. Coverage and reimbursement
of our product candidates by third-party payers, including government payers, generally is also necessary for commercial success.
The degree of market acceptance of any approved product candidates will depend on a number of factors, including:
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the efficacy and safety as demonstrated in clinical trials;
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the clinical indications for which the product candidate is approved;
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acceptance by physicians, major operators of hospitals and clinics, and patients of the product
candidate as a safe and effective treatment;
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the potential and perceived advantages of product candidates over alternative treatments;
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the safety of product candidates seen in a broader patient group, including its use outside the
approved indications;
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the cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by payers;
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relative convenience and ease of administration;
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the prevalence and severity of adverse events;
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the effectiveness of our sales and marketing efforts; and
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the ability to manage any unfavorable publicity relating to the product candidate.
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If any product candidate is approved but does not achieve
an adequate level of acceptance by physicians, hospitals, healthcare payers, and patients, we may not generate sufficient revenue
from that product candidate and may not become or remain commercially attractive as a standalone indication for that product.
Reimbursement may be limited or unavailable in
certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.
Market acceptance and sales of our product candidates
will depend significantly on the availability of adequate insurance coverage and reimbursement from third-party payers for any
of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party
payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish
reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the third-party payer’s
determination that use of a product candidate is:
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a covered benefit under its health plan;
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safe, effective, and medically necessary;
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appropriate for the specific patient;
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval for a product
candidate from a government or other third-party payer is a time-consuming and costly process that could require us to provide
supporting scientific, clinical, and cost effectiveness data for the use of our product candidates to the payer. We may not be
able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage
or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts
will not reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available only
to limited levels or with restrictions, we may not be able to commercialize certain of our product candidates profitably, or at
all, even if approved.
In the United States and in certain foreign jurisdictions, there have been
a number of legislative and regulatory changes to the health care system that could affect our ability to sell our product candidates
profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methods for many product candidates under
Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal and state initiatives designed
to reduce payment for pharmaceuticals.
As a result of legislative proposals and the trend toward
managed health care in the United States, third-party payers are increasingly attempting to contain health care costs by limiting
both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved product candidates
for medical indications other than those for which FDA has granted market approvals. As a result, significant uncertainty exists
as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs, which in turn will
put pressure on the pricing of drugs. We could be subject to pricing pressures in connection with the sale of our product candidates
due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative
proposals as well as country, regional, or local healthcare budget limitations.
Similar concerns about the costs of treatment have been
raised in Europe and the United Kingdom, where the cost effectiveness of CAR-T therapies
have been an impediment to utilization of Kymriah and YESCARTA. If CAR-T companies
are not able to convince regulators and payers in national healthcare systems that the benefits of a CAR-T therapy outweigh its
costs, the market for lenzilumab might not develop.
If we are unable to establish sales and marketing
capabilities or fail to enter into agreements with third parties to market and sell any product candidates we may successfully
develop, we may not be able to effectively market and sell any such product candidates.
We do not currently have the sales and marketing infrastructure
in place that would be necessary to sell and market products. As our drug candidates progress, while we may build the infrastructure
that would be needed to successfully market and sell any successful drug candidate, we currently anticipate seeking strategic alliances
and partnerships with third parties, particularly for any drug candidates that we determine would require larger sales efforts.
The establishment of a sales and marketing operation can be expensive and time consuming and could delay any product candidate
launch.
Governments may impose price controls, which may
adversely affect our future profitability.
We intend to seek approval to market our future product
candidates in the United States and potentially in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions,
we will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign countries,
particularly in the European Union, the pricing of prescription pharmaceuticals and biologics is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing
approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing
is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We face potential product liability exposure and,
if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials
and the sale of any product candidates for which we may obtain marketing approval expose us to the risk of product liability claims.
Product liability claims may be brought against us or any future development partners by participants enrolled in our clinical
trials, patients, health care providers, or others using, administering, or selling our product candidates. If we cannot successfully
defend ourselves against any such claims, or have insufficient insurance protection, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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costs of related litigation;
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substantial monetary awards to trial participants or other claimants;
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decreased demand for our product candidates and loss of revenue;
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impairment of our business reputation;
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diversion of management and scientific resources from our business operations; and
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the inability to commercialize our product candidates.
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We have obtained limited product liability insurance
coverage for our clinical trials domestically and in selected foreign countries where we are conducting clinical trials. As such,
our insurance coverage may not reimburse us or may not be sufficient to reimburse 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 or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance
coverage for product candidates to include the sale of commercial products if we obtain marketing approval for our product candidates
in development; however, we may be unable to obtain commercially reasonable product liability insurance for any product candidates
approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects.
A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage,
could decrease our working capital and adversely affect our business.
Our insurance policies are expensive and protect
us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk
that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability,
property, auto, workers’ compensation, products liability, and directors’ and officers’ insurance. We do not
know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant, uninsured liability
may require us to pay substantial amounts, which would adversely affect our working capital and results of operations.
Our employees and consultants may engage in misconduct
or other improper activities, including noncompliance with regulatory standards, which could have a material adverse effect on
our business.
We are exposed to the risk of employee fraud or other
misconduct. Misconduct by employees or consultants could include intentional failures to comply with FDA regulations
or similar regulations of comparable foreign regulatory authorities, failure to provide accurate information to FDA or comparable
foreign regulatory authorities, failure to comply with manufacturing standards, failure to comply with federal and state healthcare
fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory
authorities, failure to report financial information or data accurately, violations of anti-bribery laws, or failure to disclose
unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry
are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee or consultant misconduct could also involve the
improper use of confidential information obtained in the course of our business, which could result in civil or criminal legal
actions, regulatory sanctions, or serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics
and other corporate policies, but it is not always possible to identify and deter employee misconduct, and the precautions we take
to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us
from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business and results of operations, including the imposition of significant fines or other
sanctions.
We may encounter difficulties in managing our growth
and expanding our operations successfully.
As we seek to advance our product candidates through
clinical trials we will need to expand our development, regulatory, manufacturing, marketing, and sales capabilities, and contract
with third parties to provide these capabilities for us. As our operations expand we expect that we will need to manage additional
relationships with various development partners, suppliers, and other third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates
and to compete effectively will depend in part on our ability to manage any future growth effectively. To that end, we must be
able to manage our development efforts and clinical trials effectively. We may not be able to accomplish these tasks and our failure
to accomplish any of them could prevent us from successfully growing our company.
We and any future development partners, third-party manufacturers and
suppliers use hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could
be time consuming or costly.
We and any future development partners, third-party manufacturers
and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human
health and safety or the environment. Our operations and the operations of our development partner, third-party manufacturers and
suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture,
storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may
be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition,
we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific
biological or hazardous waste insurance coverage and our property, casualty, and general liability insurance policies specifically
exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the
event of contamination or injury we could be held liable for damages or be penalized with fines in an amount exceeding our resources,
and our clinical trials or regulatory approvals could be suspended.
Our internal computer systems, or those of our
future development partners, third-party clinical research organizations or other contractors or consultants, may fail or suffer
security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures, our
internal computer systems and those of our development partners, third-party clinical research organizations and other contractors
and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication
and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an
event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example,
the loss of clinical trial data for any of our product candidates could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results
in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates,
or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development
of our product candidates could be delayed.
Healthcare reform measures, when implemented, could
hinder or prevent our commercial success.
There have been, and likely will continue to be, legislative
and regulatory proposals at the federal and state levels directed at broadening the availability of health care and containing
or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing efforts
of the government, insurance companies, managed care organizations, and other payers of healthcare services to contain or reduce
costs of health care may adversely affect:
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the demand for any drug products for which we may obtain regulatory approval;
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our ability to set a price that we believe is fair for our product candidates;
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our ability to generate revenue and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
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the availability of capital.
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We and any of our future development partners will be required to report
to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do
so would result in sanctions that would materially harm our business.
If we and any future development partners are successful
in commercializing our products, FDA and foreign regulatory authorities would require that we and any future development partners
report certain information about adverse medical events if those products may have caused or contributed to those adverse events.
The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature
of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed
timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse
event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in
time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA
or a foreign regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties,
seizure of our products, or delay in approval or clearance of future products.
Our product candidates for which we intend to seek
approval as biologic products may face competition sooner than anticipated.
With the enactment of the Biologics Price Competition
and Innovation Act of 2009, or the BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval of biosimilar
and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for 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. Under the BPCIA, an application for a biosimilar product cannot be approved
by FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted
and implemented by FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain
when such processes intended to implement BPCIA may be fully adopted by FDA, any such processes could have a material adverse effect
on the future commercial prospects for our biological products.
We believe that any of our product candidates approved
as biological products under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that FDA will
not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar
competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one
of our reference products 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. Finally, there is a risk that the
12-year exclusivity period could be reduced which could negatively affect our products.
In addition, foreign regulatory authorities may also
provide for exclusivity periods for approved biological products. For example, biological products in Europe may be eligible for
a 10-year period of exclusivity. However, biosimilar products have been approved under a sub-pathway of the centralized procedure
since 2006. The pathway allows sponsors of a biosimilar product to seek and obtain regulatory approval based in part on the clinical
trial data of an originator product to which the biosimilar product has been demonstrated to be ‘‘similar.’’
In many cases, this allows biosimilar products to be brought to market without conducting the full suite of clinical trials typically
required of originators. It is unclear whether we and our development partner would face competition to our products in European
markets sooner than anticipated.
We may in the future be subject to various U.S.
federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud
laws, and any violations by us of such laws could result in fines or other penalties.
If one or more of our product candidates is approved,
we will likely be subject to the various U.S. federal and state laws intended to prevent health care fraud and abuse. The federal
anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients
or the use of products or services that would be paid for in whole or part by Medicare, Medicaid or other federal health care programs.
Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price
items and services. Many states have similar laws that apply to their state health care programs as well as private payers. Violations
of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.
The False Claims Act imposes liability on persons who,
among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The
False Claims Act has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for
services not provided as claimed, or for services that are not medically necessary. The False Claims Act includes a whistleblower
provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful
claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws,
then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.
State and federal authorities have aggressively targeted
medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts
with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper
promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars
or more, have been forced to implement extensive corrective action plans or corporate integrity agreements, and have often become
subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such
an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional
practices, we could face similar sanctions, which would materially harm our business.
Also, the Foreign Corrupt Practices Act and similar worldwide
anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for
the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect
us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations
of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on
our business, results of operations and reputation.
Legislative or regulatory healthcare reforms in
the United States may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce,
market, and distribute our products after approval is obtained.
From time to time, legislation is drafted and introduced
in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing
of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted
by FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations
of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product
candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated,
enacted or adopted may have on our business in the future. Such changes could, among other things, require:
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changes to manufacturing methods;
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additional studies, including clinical studies;
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recall, replacement, or discontinuance of one or more of our products; and
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additional record-keeping.
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Each of these would likely entail substantial time and
cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive
regulatory approvals for any future products would harm our business, financial condition, and results of operations.
Even if we are able to obtain regulatory approval
for our product candidates, we will continue to be subject to ongoing and extensive regulatory requirements, and our failure to
comply with these requirements could substantially harm our business.
If we receive regulatory approval for our product candidates,
we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued safety reporting
requirements, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory
compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls or seizures.
If the FDA approves any of our product candidates, the labeling, manufacturing,
packaging, storage, distribution, export, adverse event reporting, advertising, promotion and record-keeping for our products will
be subject to extensive regulatory requirements. Violations of these regulatory requirements or the subsequent discovery of previously
unknown problems with the products, including adverse events of unanticipated severity or frequency, may result in:
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the issuance of warning or untitled letters;
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requirements to conduct post-marking clinical trials;
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restrictions on the marketing and distribution of the product, including potential withdrawal of
the product from the market;
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suspension of ongoing clinical trials;
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the issuance of product recalls, import and export restrictions, seizures, and detentions; and
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the issuance of injunctions, or imposition of other civil and/or criminal penalties.
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Our ability to utilize our net operating loss carryforwards
and certain other tax attributes may be subject to certain limitations.
We have incurred substantial losses
during our history and do not expect to become profitable in the foreseeable future and may never achieve profitability. To the
extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any,
until such unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. The Tax
Cuts and Jobs Act, enacted in 2017, limited the use of net operating loss carryforwards for periods beginning after 2017 to eighty-percent
of taxable income in the period to which the losses were carried. However, this limitation on the use of the carryforwards was
eliminated by the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act) for tax years beginning before
January 1, 2021. In addition, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the utilization of net operating
loss carryforwards. Under Section 382, if a corporation undergoes an ‘‘ownership change’’ (generally defined
as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to
use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be
limited. We have recently and in the past experienced ownership changes that have resulted in limitations on the use of a portion
of our net operating loss carryforwards. If we experience further ownership changes our ability to utilize our net operating loss
carryforwards could be further limited.
We rely completely on third parties, most of which
are sole source suppliers, to supply drug substance and manufacture drug product for our clinical trials and preclinical studies
and intend to rely on other third parties to produce commercial supplies of product candidates, and our dependence on third parties
could adversely impact our business.
We are completely dependent on third-party suppliers,
most of which are sole source suppliers of the drug substance and drug product for our product candidates. We regularly evaluate
potential alternate sources of supply but there can be no assurance that any such suppliers would be available, acceptable or successful.
The costs of manufacturing our drug candidates are high, and we will require additional capital to ensure that we can maintain
an adequate supply to conduct our contemplated development programs.
If our third-party suppliers do not supply sufficient
quantities for product candidates to us on a timely basis and in accordance with applicable specifications and other regulatory
requirements, there could be a significant interruption of our supplies, which would adversely affect clinical development of the
product candidate, including affecting our ability to enroll in and timely progress clinical trials. Furthermore, if any of our
contract manufacturers cannot successfully manufacture material that conforms to our specifications and with regulatory requirements,
we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates.
We will also rely on our contract manufacturers to purchase
from third-party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials. There
are a small number of suppliers for certain capital equipment and raw materials used to manufacture our product candidates. We
do not have any control over the process or timing of the acquisition of these raw materials by our contract manufacturers. Moreover,
we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the
supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay completion
of that clinical trial, product candidate testing, and potential regulatory approval of that product candidate.
We do not expect to have the resources or capacity to commercially manufacture
any of our proposed product candidates if approved, and will likely continue to be dependent on third-party manufacturers. Our
dependence on third parties to manufacture and supply us with clinical trial materials and any approved product candidates may
adversely affect our ability to develop and commercialize our product candidates on a timely basis.
We may not be successful in establishing and maintaining
development partnerships and licensing agreements, which could adversely affect our ability to develop and commercialize product
candidates.
Part of our strategy is to enter into development partnerships
and licensing agreements. We face significant competition in seeking appropriate partners and the negotiation process is time consuming
and complex. Even if we are successful in securing a development partnership, we may not be able to continue it. Moreover, we may
not be successful in our efforts to establish a development partnership or other alternative arrangements for any of our other
existing or future product candidates and programs because, among other reasons, our research and development pipeline may be insufficient,
our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third
parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy.
Even if we are successful in our efforts to establish new development partnerships, the terms that we agree upon may not be favorable
to us and we may not be able to maintain such development partnerships if, for example, development or approval of a product candidate
is delayed or sales of an approved product candidate are disappointing. Any delay in entering into new development partnership
agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce
their competitiveness if they reach the market.
Moreover, if we fail to establish and maintain additional
development partnerships related to our product candidates:
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the development of our current or future product candidates may be terminated or delayed;
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our cash expenditures related to development of certain of our current or future product candidates
would increase significantly and we may need to seek additional financing;
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we may be required to hire additional employees or otherwise develop expertise, such as sales and
marketing expertise, for which we have not budgeted; and
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we will bear all of the risk related to the development of any such product candidates.
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Our or any new partner’s failure to develop, manufacture
or effectively commercialize our product would result in a material adverse effect on our business and results of operations and
would likely cause our stock price to decline.
Currently pending, threatened or future litigation
or governmental proceedings or inquiries could result in material adverse consequences, including judgments or settlements.
We are, or may from time to time become, involved
in lawsuits, inquiries and other legal proceedings. See “Business—Legal Proceedings” set forth elsewhere in
this prospectus for information regarding currently pending litigation that could have a material impact on the Company. Many
of these matters raise complicated factual and legal issues and are subject to uncertainties and complexities, all of which make
the matters costly to address. The timing of the final resolutions to any such lawsuits, inquiries, and other legal proceedings
is uncertain.
Additionally, the possible outcomes or resolutions to these
matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting
our consolidated financial condition, results of operations and cash flows. Any judgment against us, the entry into any settlement
agreement, or the imposition of any fine could have a material adverse effect on our consolidated financial condition, results
of operations and cash flows.
Risks Related to Intellectual Property
If we fail to adequately protect or enforce our
intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish,
and our business and competitive position would suffer.
Our success, competitive position and future revenues
will depend in part on our ability and the abilities of our licensors and licensees to obtain and maintain patent protection for
our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing
on our proprietary rights and to operate without infringing the proprietary rights of third parties. We have an active patent
protection program that includes filing patent applications on new compounds, formulations, delivery systems and methods of making
and using products and prosecuting these patent applications in the United States and abroad. As patents issue, we also file continuation
applications as appropriate. Although we have taken steps to build what we believe to be a strong patent portfolio, we cannot
predict:
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the degree and range of protection any patents will afford us against competitors, including whether
third parties find ways to invalidate or otherwise circumvent our licensed patents;
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if and when patents will issue in the United States or any other country;
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whether or not others will obtain patents claiming aspects similar to those covered by our licensed
patents and patent applications;
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whether we will need to initiate litigation or administrative proceedings to protect our intellectual
property rights, which may be costly whether we win or lose;
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whether any of our patents will be challenged by our competitors alleging invalidity or unenforceability
and, if opposed or litigated, the outcome of any administrative or court action as to patent validity, enforceability or scope;
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whether a competitor will develop a similar compound that is outside the scope of protection afforded
by a patent or whether the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;
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whether there were activities previously undertaken by a licensor that could limit the scope, validity
or enforceability of licensed patents and intellectual property; or
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whether a competitor will assert infringement of its patents or intellectual property, whether
or not meritorious, and what the outcome of any related litigation or challenge may be.
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Our success also depends upon the skills, knowledge and
experience of our scientific and technical personnel, our consultants and advisors as well as our licensors, sublicensees and contractors.
To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely
on trade secret protection and confidentiality agreements. To this end, we require all employees, consultants and board members
to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide
adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure
or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information
is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired, and our business
and competitive position would suffer.
Due to legal and factual uncertainties regarding
the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.
Our long-term success will substantially depend upon
our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication and avoid infringing
the proprietary rights of others. Our patent rights, and the patent rights of biopharmaceutical companies in general, are highly
uncertain and include complex legal and factual issues. These uncertainties also mean that any patents that we own or may obtain
in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition.
Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against
us.
If some or all of our or any licensor’s patents
expire or are invalidated or are found to be unenforceable, or if some or all of our patent applications do not result in issued
patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard to written
description or enablement by the specification, or if we are prevented from asserting that the claims of an issued patent cover
a product of a third party, we may be subject to competition from third parties with products in the same class of products as
our product candidates or products with the same active pharmaceutical ingredients as our product candidates, including in those
jurisdictions in which we have no patent protection.
Our commercial success will depend in part on obtaining
and maintaining patent and trade secret protection for our product candidates, as well as the methods for treating patients in
the product indications using these product candidates. We will be able to protect our product candidates and the methods for treating
patients in the applicable product indications using these product candidates from unauthorized use by third parties only to the
extent that we or our exclusive licensor owns or controls such valid and enforceable patents or trade secrets.
Even if our product candidates and the methods for treating
patients for prescribed indications using these product candidates are covered by valid and enforceable patents and have claims
with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount
of time. Our and any licensor’s ability to obtain patents can be highly uncertain and involve complex and in some cases unsettled
legal issues and factual questions. Furthermore, different countries have different procedures for obtaining patents, and patents
issued in different countries provide different degrees of protection against the use of a patented invention by others. Therefore,
if the issuance to us or any licensor, in a given country, of a patent covering an invention is not followed by the issuance, in
other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or
scope of the claims in, or the utility, written description or enablement in, a patent issued in one country is not similar to
the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property
in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and
other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
We may be subject to competition from third parties with products in the same
class of products as our product candidates, or products with the same active pharmaceutical ingredients as our product candidates
in those jurisdictions in which we have no patent protection. Even if patents are issued to us or any licensor regarding our product
or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid or unenforceable
on a variety of grounds, including lack of utility, lack sufficient written description or enablement, utility, or that the claims
of the issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors
devise ways of making or using these products without legally infringing our patents. The current U.S. regulatory environment may
have the effect of encouraging companies to challenge branded drug patents or to create non-infringing versions of a patented product
in order to facilitate the approval of ANDAs for generic substitutes. These same types of incentives encourage competitors to submit
NDAs that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway
to approval.
If we infringe the rights of third parties, we
could be prevented from selling products and be forced to defend against litigation and pay damages.
There is a risk that we are infringing the proprietary
rights of third parties because numerous United States and foreign issued patents and pending patent applications, which are owned
by third parties, exist in the fields that are the focus of our development and manufacturing efforts. Others might have been the
first to make the inventions covered by each of our or any licensor’s pending patent applications and issued patents and/or
might have been the first to file patent applications for these inventions. In addition, because patent applications take many
months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to
us or any licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization,
formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation
or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party
claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from
our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their
claims, we might have to pay substantial damages or take other actions that are adverse to our business.
If our products, methods, processes and other technologies
infringe the proprietary rights of other parties, we could incur substantial costs and may have to:
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obtain licenses, which may not be available on commercially reasonable terms, if at all;
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redesign our products or processes to avoid infringement, which may not be possible or could require
substantial funds and time;
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stop using the subject matter claimed in patents held by others, which could cause us to lose the
use of one or more of our drug candidates;
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pay damages royalties, or other amounts; or
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grant a cross license to our patents to another patent holder.
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We expect that, as our drug candidates move further into
clinical trials and commercialization and our public profile is raised, we will be more likely to be subject to such claims.
We may fail to comply with any of our obligations
under existing agreements pursuant to which we license or have otherwise acquired rights or technology, which could result in the
loss of rights or technology that are material to our business.
We are a party to technology licenses and have acquired
certain assets and rights that are important to our business and we may enter into additional licenses or acquire additional assets
and rights in the future. We currently hold licenses from Ludwig Institute for Cancer Research (“LICR”), BioWa, Inc.
(“BioWa”), Lonza Sales AG (“Lonza”) Mayo Foundation (“Mayo”) and the University of Zurich (“UZH”).
These licenses impose various commercial, contingent payments, royalty, insurance, indemnification, and other obligations on us.
If we fail to comply with these obligations, the licensor may have the right to terminate the license or take back rights or assets,
in which event we would lose valuable rights under our collaboration agreements, potential claims and our ability to develop product
candidates.
We may be subject to claims that our consultants or independent contractors
have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.
As is common in the biotechnology and pharmaceutical
industry, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants
were previously employed at, or may have previously or may be currently providing consulting services to, other biotechnology or
pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that our company or
a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers
or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to our management team.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting and defending patents on product
candidates in all countries throughout the world would be prohibitively expensive, and we intend to seek patent protection only
in selected countries. Our intellectual property rights in some countries outside the United States can be less extensive than
those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the
same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing
our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and
into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained
patent protection to develop their own products and further, may export otherwise infringing products to territories where we have
patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates
and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems
in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly
certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly
those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing
of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions
could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents
at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third
parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded,
if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world
may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking
statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,”
“Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Business.” These statements relate to future events or to our future financial performance and involve known and
unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking
statements include, but are not limited to, statements about:
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the evolution of scientific discovery around the coronavirus, COVID-19 and the lung dysfunction resulting in some patients
may indicate that cytokine storm is caused by or results from something other than elevated GM-CSF levels;
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our ability to successfully complete our Phase III trial of lenzilumab for the prevention and treatment of cytokine storm
in COVID-19 pneumonia;
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the ultimate impact of the COVID-19 pandemic, or any other health epidemic, on our business, our clinical trials, our research
programs, healthcare systems or the global economy as a whole;
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our ability to research, develop and commercialize our product candidates, including our ability to do so before our competitors
develop and receive FDA approval for treatments or vaccines for COVID-19;
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our ability to execute our strategy and business plan focused on developing our proprietary monoclonal antibody portfolio
and our GM-CSF knockout gene-editing CAR-T platform;
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our ability to attract and retain other collaborators with development, regulatory and commercialization expertise to pursue
the other initiatives in our development pipeline;
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our ability to successfully pursue the Kite collaboration;
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our ability to attain the additional financing
we will need to pursue our development initiatives and commercialize our product candidates
on favorable terms or at all;
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our ability to successfully list our common
stock and maintain the listing of our common stock on the Nasdaq Capital Market;
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the timing of the initiation, enrollment and completion of planned clinical trials;
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our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend;
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the potential, if any, for future development of any of our present or future products;
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increasing levels of market acceptance of CAR-T therapies and the development of a market for lenzilumab in these therapies;
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our ability to successfully progress, partner or complete further development of our programs;
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the potential timing and outcomes of development, preclinical and clinical studies of lenzilumab, ifabotuzumab, HGEN005,
any of our CAR-T projects and the uncertainties inherent in development, preclinical and clinical testing;
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our ability to identify and develop additional uses for our products;
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our ability to attain market exclusivity and/or to protect our intellectual property and to operate our business without
infringing on the intellectual property rights of others;
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the outcome of pending, threatened or future litigation;
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acquisitions or in-licensing transactions
that we may pursue may fail to perform as expected;
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our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions;
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limitations and/or warnings in the label of an approved product candidate;
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changes in the regulatory landscape that may prevent us from pursuing or realizing any of the
expected benefits from the various regulatory incentives, or the imposition of regulations that affect our products;
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the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the
best interests of our stockholders; and
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the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.
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In some cases, you can identify these
statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,”
“should,” “will,” “would” or the negative of those terms, and similar expressions that
convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views
with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks
and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions
on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while
we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our
statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available
relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We discuss many of the risks associated with the forward-looking statements in this prospectus in greater detail under the heading
“Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from
time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking
statements.
You should carefully read this prospectus and the documents
that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part,
completely and with the understanding that our actual future results may be materially different from what we expect. We qualify
all of the forward-looking statements in this prospectus by these cautionary statements.
Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated
in any forward-looking statements, whether as a result of new information, future events or otherwise.
Any forward-looking statement made by us in this prospectus
is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation
to publicly update any forward-looking statement, whether written or oral that may be made from time to time, whether as a result
of new information, future developments or otherwise, except as required by applicable law.
DETERMINATION OF MARKET PRICE
The selling stockholders will
determine at what price it may sell the offered shares, and such sales may be made at prevailing market prices or at privately
negotiated prices. See “Plan of Distribution” for more information.
USE OF PROCEEDS
This prospectus relates to shares of our common stock
that may be offered and sold from time to time by the selling stockholders. We will receive no proceeds from the sale of shares
of common stock by any selling stockholder in this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends. We
currently expect to retain all future earnings, if any, for use in the operation and expansion of our business, and therefore do
not anticipate paying any cash dividends in the foreseeable future.
MARKET PRICE OF COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
We have applied to list our common stock on the Nasdaq
Capital Market under the symbol “HGEN”. We cannot assure investors that our listing application will be approved by
Nasdaq. Our common stock is currently quoted on the OTCQB Venture Market operated by OTC Markets Group, Inc. under the symbol
“HGEN”. From January 13, 2016 to June 25, 2017, our common stock was quoted on the OTC Pink marketplace operated by
OTC Markets Group, Inc. Previously, our common stock was listed on the Nasdaq Global Market under the symbol “KBIO”
from its beginning of trading on January 31, 2013 through January 13, 2016. Prior to January 31, 2013, there was no public
market for our common stock.
Holders of Common Stock
As of July 29, 2020, we had 210,499,810
shares of common stock outstanding held by approximately 88 stockholders of record. The actual number of stockholders is greater
than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers and other nominees.
Shares Eligible for Future Sale
Rule 144
As of July 29, 2020, approximately 90% of our outstanding
shares of common stock, including all of the shares being registered hereby, are restricted or held by affiliates. These shares
may be resold publicly in the United States only if they are subject to an effective registration statement under the Securities
Act or pursuant to an exemption from the registration requirement such as that provided by Rule 144 promulgated under the Securities
Act. In general, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the
three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months
will be entitled to sell the restricted securities without registration under the Securities Act, subject only to the availability
of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one
year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six
months may sell a number of restricted securities within any three-month period that does not exceed 1% of the then outstanding
common shares of the same class.
Sales by our affiliates under Rule 144 are also subject
to certain requirements relating to manner of sale, notice and the availability of current public information about us.
Registration Rights
Pursuant to that certain Registration Rights Agreement
between the Company and Nomis Bay LTD (“Nomis Bay”) and the Black Horse Entities (as defined below), dated February
27, 2018 (the “2018 Registration Rights Agreement”), Nomis Bay and the Black Horse Entities have been granted certain
registration rights related to all of the shares of our common stock owned by them (collectively, the “Registrable Securities”).
Under the 2018 Registration Rights Agreement, these stockholders may demand that we register all or any portion of the Registrable
Securities pursuant to a registration statement on Form S-1. In addition, if we propose to register the offer and sale of any shares
of our common stock under the Securities Act in another offering, either for our own account or for the account of other stockholders,
these stockholders will be entitled to certain “piggyback” registration rights allowing them to include their Registrable
Securities in such registration.
In connection with the private placement that we completed
on June 2, 2020, we entered into a registration rights agreement with the private placement investors under which we agreed to file the
registration statement of which this prospectus is a part, covering the resale of the 82,563,584 shares of common stock issued
in such private placement. Nomis Bay and the Black Horse Entities (as defined below) consented to the entry into the registration
rights agreement with the private placement investors and have waived their piggyback rights in connection with this filing.
BUSINESS
During 2019, we completed our transformation into a clinical stage biopharmaceutical
company, developing our clinical stage immuno-oncology and immunology portfolio of monoclonal antibodies. We are focusing our efforts
on the development of our lead product candidate, lenzilumab, our proprietary Humaneered® (“Humaneered” or “Humaneered®”)
anti-human GM-CSF immunotherapy.
The coronavirus pandemic which is due to the SARS-CoV-2 virus and leads
to the condition referred to as COVID-19, is characterized in the later and sometimes fatal stages by lung dysfunction and, in
many patients, multi-organ impairment, which is triggered by CRS, or cytokine storm. Publications have pointed to GM-CSF as being
a key cytokine, with elevated levels correlated to Intensive Care Unit (“ICU”) admission. We are currently enrolling
a US, multi-center, randomized, placebo-controlled, double-blind prospective Phase III study in hospitalized severe and critical
COVID-19 pneumonia patients. This study may serve as a basis for registration. We are also exploring conducting the same or a
similar study in centers outside the US.
On July 27, 2020, we announced that NIAID, a part
of NIH, which is part of HHS as represented by the DMID, and Humanigen have executed a clinical trial agreement for lenzilumab
as an agent to be evaluated in the NIAID-sponsored Big Effect Trial (“BET”) in hospitalized patients with COVID-19.
With data from the BET and our ongoing Phase III study, we expect to have data from approximately 500 hospitalized COVID-19 patients.
We announced a clinical research agreement (the “Kite Agreement”)
with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”) on May 31, 2019, to study the effect of lenzilumab on the
safety of YESCARTA®, axicabtagene ciloleucel (“YESCARTA” or “YESCARTA®”) including CRS and neurotoxicity,
with a secondary endpoint of increased efficacy in a multicenter Phase Ib/II clinical trial in adults with relapsed or refractory
large B-cell lymphoma. We believe this study, designated the nomenclature ‘ZUMA-19’, may be the basis for the registration
of lenzilumab, given the similar trial design to YESCARTA’s and Novartis’s Kymriah®
(“Kymriah” or “Kymriah®”) registration trials.
We are also exploring the effectiveness of our GM-CSF neutralization technologies
(either through the use of lenzilumab as a neutralizing antibody, or through GM-CSF gene knockout) in combination with other CAR-T,
T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage including the prevention and/or treatment
of GvHD while preserving GvL benefits in patients undergoing allogeneic HSCT. In this context, GvHD is akin to CRS, or cytokine
storm and we believe the mechanism to be driven by GM-CSF activated myeloid cells.
We believe that we have built a strong intellectual property position
in the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain to COVID-19, CAR-T, GvHD and
multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may be driven by GM-CSF.
As a leader in GM-CSF pathway science, we believe that we have the ability
to transform prevention and treatment of CRS in SARS-CoV-2 infection. The virus associated with the current COVID-19 pandemic,
SARS-Cov-2, is one of a group of several betacoronaviruses, which includes the viruses responsible for Severe Acute Respiratory
Syndrome (SARS-CoV) and Middle East Respiratory Syndrome (MERS-CoV). These viruses infect predominantly the lower lung and cause
fatal pneumonia. Other coronaviruses infect the upper respiratory tract and cause some cases of the common cold. The clinical course
of COVID-19 can be mistaken for influenza infection – patients in both cases often suffer from aches and pains throughout
the body, fever, cough and general malaise. A nasal or throat swab can be used to test for SARS-CoV-2 infection, and blood tests
can be run to check for viral titers. Travel to areas where COVID-19 appears to have a large number of cases and exposure to people
who are known to have suffered from the condition or carriers of SARS-CoV-2 also increases the clinical suspicion of possible infection.
Data generated during the SARS and MERS outbreaks point to cytokine storm as a phase of the illness which is characterized by an
immune hyperactive phase, which can progress to lung dysfunction and death. In patients who clinically deteriorate, there can be
multi-system effects, including hematologic and coagulation disorders, renal, cardiovascular and neurologic impairment, some of
which may further complicate respiratory compromised patients. The natural history of SARS infection shows viral load decreases
as patients enter the second phase of the illness, which is often characterized by cytokine storm and the elevation of certain
biomarkers.
Source: Adapted from: doi: 10.1016/j.healun.2020.03.012
The severe clinical features associated with some COVID-19 infections result
from an inflammation-induced lung injury requiring ICU care and invasive mechanical ventilation. This lung injury is a result of
a cytokine storm resulting from a hyper-reactive immune response. The lung injury that leads to death is not directly related to
the virus, but appears to be a result of a hyper-reactive immune response to the virus triggering a cytokine storm that can continue
even after viral titers remain stable or even begin to fall.
CRS is characterized by an elevation
of inflammatory cytokines resulting in fever, hypotension, capillary leak syndrome, pulmonary edema, disseminated intravascular
coagulation, respiratory failure, and ARDS. The development of CRS as a direct result of immune hyper- stimulation has been previously
described in patients with autoimmune and lymphoproliferative diseases, as well as in patients with B-cell malignancies receiving
CAR-T therapy. Over the last five years, preclinical studies and correlative science from clinical trials in CAR-T therapy have
shed light on the pathophysiology, development, characterization, and management of CRS.
CRS is characterized by activation of
myeloid cells and release of inflammatory cytokines, including interleukin-6 (IL-6), GM-CSF, monocyte chemoattractant protein -1
(MCP-1), macrophage inflammatory protein 1α (MIP-1α), Interferon gamma-induced protein 10 (IP-10), and interleukin-1
(IL-1). The cascade, once initiated, can quickly evolve into a cytokine storm, resulting in further activation, expansion and trafficking
of myeloid cells, leading to abnormal endothelial activation, increased vascular permeability, and disseminated intravascular coagulation.
Recent data from China and the subject of a pre-publication titled “Aberrant
pathogenic GM-CSF+ T cells and inflammatory CD14+CD16+ monocytes in severe pulmonary syndrome patients of a new coronavirus”,
supports the hypothesis that GM-CSF induced cytokine storm immune mechanisms have contributed to patient mortality with the current
pandemic strain of coronavirus, and there is increasing acceptance that this pathophysiology may be responsible for worsening of
clinical status and poor outcomes. The authors noted that steroid treatment in such cases has been disappointing in terms of outcome,
but suggested that a monoclonal antibody that targets GM-CSF may prevent or curb the hyper-active immune response caused by COVID-19
in this setting.
Similar to patients receiving CART therapy,
the development of CRS in patients with COVID-19 has been associated with elevation of CRP, ferritin, MCP-1, MIP-1 alpha, INF-gamma,
TNF-alpha, and IL-6, as well as correlating with respiratory failure, ARDS, and adverse clinical outcomes. Most significantly,
high levels of GM-CSF-secreting Th17 T-cells have been associated with disease severity, myeloid cell trafficking to the lungs,
and ICU admission. This indicates that post-COVID-19 CRS is caused by a similar mechanism, induced by activation of myeloid cells
and their trafficking to the lung, resulting in lung injury and ARDS. Tissue CD14+ myeloid cells produce GM-CSF and IL-6, further
triggering a cytokine storm cascade. Single-cell RNA sequencing of bronchoalveolar lavage samples from COVID-19 patients with severe
ARDS demonstrated an overwhelming infiltration of newly-arrived inflammatory myeloid cells compared to mild COVID-19 disease and
healthy controls, consistent with a hyperinflammatory CRS-mediated pathology. We believe that these new data suggest that
GM-CSF may be a critical triggering cytokine in the increased mortality in COVID-19.
Lenzilumab has been shown to prevent cytokine storm in animal models and this
work has been published in peer reviewed journals. These data demonstrate that GM-CSF neutralization
results in a reduction in IL-6, MCP-1, MIP-1α, IP-10, vascular endothelial growth factor (VEGF), and tumor necrosis factor-α
(TNFα) levels, demonstrating that GM-CSF is an upstream regulator of many inflammatory cytokines that are important in the
pathophysiology of CRS. GM-CSF depletion results in modulation of myeloid cell behavior, a specific decrease in their inflammatory
cytokines, and a reduction in tissue trafficking, while enhancing T-cell apoptosis machinery.
Patients are currently being enrolled in a Phase III, potential registration
clinical study to determine lenzilumab’s effect on COVID-19 in patients hospitalized with severe or critical COVID-19 pneumonia.
On July 27, 2020, we announced that NIAID has selected lenzilumab to participate in the NIAID-sponsored Big Effect Trial (BET)
in hospitalized patients with COVID-19.
The Phase III program in COVID-19 is complementary to the programs in CAR-T
and GvHD, which are also focused on preventing or reducing cytokine storm in those disease states. Positive results in COVID-19
may be predictive of results in these other settings, which are also characterized by cytokine storm.
As a leader in GM-CSF pathway science, we also believe that we have the ability
to transform CAR-T therapy and a broad range of other T-cell engaging therapies, including both autologous and allogeneic cell
transplantation. There is a direct correlation between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities
(referred to as the efficacy/toxicity linkage). We have begun enrolling patients in ZUMA-19, in collaboration with our partner
Kite, to assess effect of the sequential therapy of lenzilumab with YESCARTA, the leading CAR-T, in reducing or minimizing cytokine
storm and neurotoxicity in patients receiving CAR-T, and potentially building further on YESCARTA’s current category-leading
efficacy. This is a Phase 1b/2 potential registration study.
We believe that our GM-CSF neutralization and gene-editing CAR-T platform
technologies have the potential to reduce the inflammatory cascade associated with serious and potentially life-threatening CAR-T
therapy-related side-effects while preserving and potentially improving the efficacy of the CAR-T therapy itself, thereby breaking
the efficacy/toxicity linkage. Clinical correlative analysis and preclinical in vivo evidence points to GM-CSF as the key
initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects, including CRS and NT. GM-CSF has also been
linked to the suppressive myeloid cell axis through recruitment of myeloid-derived suppressor cells (“MDSCs”) that
reduce CAR-T cell expansion and hamper CAR-T cell efficacy. Our strategy is to continue to pioneer the use of GM-CSF neutralization
and GM-CSF gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated
with CAR-T therapy.
We believe that our GM-CSF pathway science, assets and expertise create two
technology platforms to assist in the development of next-generation CAR-T therapies. Lenzilumab has the potential to be used in
combination with any FDA-approved or development stage T-cell therapy, including CAR-T therapy, as well as in combination with
other cell therapies such as allogeneic HSCT such as bone marrow transplants, to make these treatments safer and more effective.
In addition, our GM-CSF knockout gene-editing CAR-T platform has the potential
to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving
the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.
We have utilized a precision medicine approach and personalized
the development of lenzilumab based on specific genetic mutations or biomarkers at baseline. We are collaborating with IMPACT,
a clinical trial partnership of 23 transplant centers in the United Kingdom, in planning a potential randomized, placebo controlled,
Phase II/III study focused on early intervention with lenzilumab in patients at high risk or intermediate risk for steroid refractory
acute GvHD based on specific biomarkers. The goal of the trial, as it is currently contemplated, would be to determine the
efficacy and safety of lenzilumab in reducing non-relapse mortality at six months.
We also recently reported on a Phase I study of lenzilumab
as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and are planning a potential Phase II study of lenzilumab
in combination with azacitidine (current standard therapy) in newly-diagnosed CMML patients with certain genetic mutations. We
have also reported on a Phase II study in severe asthma in patients uncontrolled on steroid therapy utilizing lenzilumab.
Our Pipeline
Our lenzilumab-based clinical-stage pipeline comprises a Phase III potential
registration study in COVID-19, a Phase Ib/II study (ZUMA-19) which is enrolling patients in sequenced therapy of lenzilumab and
YESCARTA, a Phase II/III study in acute GvHD, and a Phase II study in CMML, the latter two of which are in advanced planning stages
and which we expect will be majority funded by partners. A further Phase 1 study is almost fully enrolled with ifabotuzumab in
GBM and potentially other solid cancers. We also have a focus on creating safer and more effective CAR-T therapies in hematologic
malignancies and solid tumors via three key modalities:
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Combining FDA-approved and development stage CAR-T therapies with lenzilumab, including YESCARTA in collaboration with Kite;
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Creating a proprietary next-generation gene-edited CAR-T therapy pipeline using GM-CSF gene knockout technologies; and
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Exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing
antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments, including
allogeneic HSCT.
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These product candidates are in the early stage of development and will require
substantial time, resources, research and development, and regulatory approval prior to commercialization. Furthermore, it may
be years before any of our products are approved for use, if at all. Our current pipeline is depicted below:
1 Phase III may not be necessary for approval in ZUMA-19; precedent
is CAR-Ts to date have been approved on Phase II data
2 UK
3 US, EU, Australia
4 Australia
Lenzilumab
Lenzilumab
neutralizes human GM-CSF and has the potential to prevent or reduce poor outcomes associated with COVID-19. We are currently enrolling
patients in a Phase III U.S., multi-center, randomized, placebo-controlled, double-blinded, clinical trial in the setting of COVID-19.
There are currently 17 clinical sites across the US actively recruiting patients. The Phase III trial will assess the safety and
efficacy of lenzilumab in reducing severe outcomes in hospitalized adult patients with confirmed severe or critical COVID-19 pneumonia.
On May 6, 2020, we announced that the first patient had been randomized in the Phase III lenzilumab COVID-19 study.
There are currently no products approved by the FDA for the prevention of
CRS/cytokine storm associated with COVID-19. There are numerous products currently in development for COVID-19 which can be broadly
categorized as direct acting antivirals, immunomodulators, and other preventative strategies such as vaccines. Recently, remdesivir
(a direct acting antiviral) has been given emergency use authorization by the FDA for COVID-19 based on results from the NIAID
ACTT-1 trial. In this trial remdesivir demonstrated improvement in the primary endpoint of time to recovery reducing this measurement
by four days (11 days in the remdesivir cohort vs. 15 days in the placebo cohort). There was not a statistically significant difference
in mortality between the remdesivir treated cohort and the placebo cohort. Other direct acting antiviral agents such as lopinavir/ritonavir
and hydroxychloroquine (with or without a macrolide) have not demonstrated efficacy in randomized controlled trials to date.
In addition, no immunomodulator therapy
has proven efficacy in a randomized controlled clinical trial in the setting of COVID-19 and the two leading IL-6 inhibitors,
Actemra (tocilizumab) and Kevzara (sarilumab) both recently failed to demonstrate efficacy in randomized, placebo-controlled studies
in COVID-19 patients.
As an upstream regulator of cytokine
storm, GM-CSF neutralization with lenzilumab may offer advantages over other immunomodulator strategies that either target other
downstream cytokines such as IL-1, IL-6, CCR5 or MIP-1 alpha or are broadly immunosuppressive and target cytokine signaling pathways
non-selectively through JAK inhibition. In addition, lenzilumab is the only immunomodulator that was in an active clinical trial
to prevent cytokine storm prior to COVID-19 and is currently the only agent in an active Phase III trial targeting GM-CSF.
We have previously announced that lenzilumab was
granted emergency single use IND authorization from the FDA (often referred to as compassionate use) to treat patients with COVID-19.
On June 15, 2020, we announced that Mayo Clinic published data derived from the compassionate use of lenzilumab in treatment of
12 patients hospitalized in the Mayo Clinic system. Under applicable FDA rules, a patient cannot receive a compassionate use drug
unless FDA has issued an individual patient emergency IND authorization, which the Mayo Clinic requested from FDA prior to each
individual patient dosing of lenzilumab. Accordingly, there was no randomized control group in the Mayo Clinic program. We did
not pre-select patients to receive lenzilumab through the compassionate use program and did not deny any requests for compassionate
use. Mayo Clinic clinicians solely determined which patients for which they would request emergency IND authorization from the
FDA.
The patients receiving lenzilumab had severe or critical
pneumonia as a result of COVID-19. They were also viewed as being at high risk of further disease progression. All patients required
oxygen supplementation and had elevation in at least one inflammatory biomarker prior to receiving lenzilumab. All patients had
at least one co-morbidity associated with poor outcomes in COVID-19 and several patients had multiple co-morbidities: 58% had diabetes
mellitus, 58% had hypertension, 58% had underlying lung diseases, 50% were obese (defined as a BMI greater than 30), 17% had chronic
kidney disease and 17% had coronary artery disease. The median age was 65 years.
Patients receiving lenzilumab showed rapid clinical
improvement with a median time to recovery of five days, median time to discharge of five days and 100% survival to the data cut-off
date. Patients also demonstrated rapid improvement in oxygenation, temperature, and inflammatory cytokines consistent with the
improved clinical outcomes. At the cut-off date, 11 of the 12 patients had been discharged.
On July 27, 2020, we announced that NIAID, a part
of NIH, which is part of HHS as represented by the DMID, and Humanigen have executed a clinical trial agreement for lenzilumab
as an agent to be evaluated in the NIAID-sponsored Big Effect Trial (“BET”) in hospitalized patients with COVID-19.
BET will help advance NIAID’s strategic plan for COVID-19 research, which includes conducting studies to advance high-priority
therapeutic candidates. Identification of agents with novel mechanisms of action for therapy is a strategic priority.
This trial builds on initial data from NIAID’s Adaptive COVID-19
Treatment Trial (ACTT) that demonstrated Gilead’s investigational antiviral, remdesivir, may improve time to recovery in
hospitalized patients with COVID-19. BET will evaluate the combination of lenzilumab and remdesivir on treatment outcomes versus
placebo and remdesivir in hospitalized COVID-19 patients. The trial is expected to enroll 100 patients in each arm of the study
with an interim analysis for efficacy after 50 patients have been enrolled in each arm. With data from the BET and our ongoing
Phase III study, we expect to have data from approximately 500 hospitalized COVID-19 patients.
Lenzilumab also has the potential to prevent or reduce
serious and sometime fatal side-effects associated with CAR-T therapy (CRS and neurotoxicity) and improve upon the efficacy of
CAR-T therapy. This same mechanism we believe to be the causation of CRS/cytokine storm which precedes the decline in lung function
seen with severe cases of COVID-19. Preclinical data generated in collaboration with the Mayo Clinic (the “Mayo Clinic”),
which was published in ‘blood®’, a premier journal in hematology,
indicates that the use of lenzilumab in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy
of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies. There are currently no products
approved by the FDA for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment
of CAR-T therapy related NT. We continue to advance the development of lenzilumab in combination with CAR-T therapy through a
non-exclusive clinical collaboration with Kite, pursuant to which we are conducting a multi-center potential registration Phase
Ib/II study of lenzilumab with Kite’s YESCARTA in patients with relapsed or refractory B-cell lymphoma, including DLBCL
(the “Study”). The Study has been designated the nomenclature ‘ZUMA-19’, consistent with the other Kite
CAR-T studies, which also receive a ‘ZUMA’ designation. The primary objective of ZUMA-19 is to determine the effect
of lenzilumab on the safety and efficacy of YESCARTA. Kite’s YESCARTA is one of two CAR-T therapies that have been approved
by the FDA and is the CAR-T therapy market leader. Our collaboration with Kite is currently the only clinical collaboration which
is now enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. We also plan to measure
other potentially beneficial effects on efficacy and healthcare resource utilization. In addition, lenzilumab’s success
in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers by
making the CAR-T therapy capable of being administered, and follow-up care subsequently monitored and managed, potentially on
an out-patient basis in certain patients and circumstances. In turn, we believe that delivering such provider and payer benefits
might accelerate the use of the CAR-T therapy itself, and thereby permit us to generate further revenues from sales of lenzilumab.
In addition to COVID-19 and CAR-T therapy, we are committed to advancing our
diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both autologous and
allogeneic next generation CAR-T therapies, bi-specific antibody therapies, as well as other cell-based immunotherapies in development,
including allogeneic HSCT, with our current and future partners.
In July 2019, we entered into an exclusive worldwide license agreement (the
“Zurich Agreement”) with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe
may be used to prevent or treat GvHD a serious and potentially fatal condition associated with transplantation, thereby expanding
our development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for
patients with hematological cancers. We believe that cytokine storm may be responsible, at least in part, for the emergence of
GvHD in this setting. There are currently no FDA-approved agents for the prevention of GvHD nor treatment of GvHD in patients identified
as high risk by certain biomarkers. We believe that GM-CSF neutralization with lenzilumab has the potential to prevent or treat
GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby
making allogeneic HSCT safer. Several recent papers have been published which support this approach, including in Science Translational
Medicine in November 2018 and in ‘blood advances’ in October 2019.
We aim to position lenzilumab as a necessary companion product to any allogeneic
HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment
option in patients identified as high risk for GvHD.
Given our interest in developing lenzilumab to prevent CRS/cytokine storm
in COVID-19 as well as in the treatment of rare cancers and other orphan conditions such as GvHD, we believe that we have the opportunity
to benefit from various regulatory incentives, such as coronavirus treatment acceleration program (CTAP), orphan drug exclusivity,
breakthrough therapy designation, fast track designation, priority review and accelerated approval.
GM-CSF Gene Knockout
We are advancing our GM-CSF knockout gene-editing CAR-T platform through an
exclusive worldwide license agreement (the “Mayo Agreement”) that we entered into in June 2019 with the Mayo Foundation
for Medical Education and Research (the “Mayo Foundation”). Under the Mayo Agreement, we have in-licensed certain technologies
that we believe may be used to create CAR-T cells lacking GM-CSF expression through
various gene-editing tools, including CRISPR-Cas9. We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential
to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T therapy. In addition, we have and
continue to file intellectual property encompassing a broad range of gene-editing approaches related to GM-CSF knockout.
Preclinical data indicates that GM-CSF gene knockout
CAR-T cells show improved overall survival in animals compared to wild-type CAR-T cells in addition to the expected benefits of
reduced serious side-effects associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene
knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating
multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously
preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we
may be able to increase the proportion of fitter T-cells produced during expansion, increase their proliferative potential, and
inhibit activation-induced cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making
them more effective and safer in the treatment of cancers. Initial data were published in an abstract that was presented at the
December 2019 American Society of Hematology (ASH) meeting and also won an ASH Abstract Achievement award.
We plan to continue development of this technology
in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products. In addition, we
anticipate that our GM-CSF knockout gene-editing CAR-T platform may be a future backbone for controlling the serious side-effects
that hamper CAR-T therapy that lead to serious and sometimes fatal outcomes for patients as a result of the CAR-T therapy itself.
CAR-T Overview
Development and implementation of individualized
treatments based on T-cell therapies has the potential to revolutionize the fight against cancer. The two CAR-T therapies that
have been approved by the FDA, Gilead/Kite’s YESCARTA and Novartis’s Kymriah, seek to treat forms of B-cell cancers
such as various types of Non-Hodgkin Lymphoma (“NHL”), including DLBCL and acute lymphoblastic leukemia (“ALL”)
that are refractory or in second or later stage relapse. Although patients suffering from these aggressive cancers frequently undergo
multiple treatments, including chemotherapy, radiation and targeted therapy including stem cell transplants, the five-year survival
rate has been severely limited and patients who do not respond to, or have relapsed following at least two courses of standard
treatment, have no other treatment options and a very poor outcome. According to the Surveillance,
Epidemiology, and End Results (“SEER”) program of the National Cancer Institute, which is a source of epidemiologic
information on the incidence and survival rates of cancer in the U.S., it is estimated that up to 10,000 patients per year
in the U.S. with relapsed or refractory (r/r) B-cell NHL and ALL who have failed at least two prior systemic therapies may be eligible
for CAR-T therapy. In addition, if CAR-T therapy is approved as an earlier second line option versus stem cell transplantation,
an additional 10,000 to 12,000 patients may be eligible for treatment. However, this is predicated on improving the benefit-to-risk
profile of CAR-T therapy, addressing the severe life threatening adverse events currently associated with these agents and breaking
the efficacy/toxicity linkage.
The FDA-approved CAR-T therapies have
demonstrated the effectiveness of using targeted immuno-cellular engineering to cause a patient’s own T-cells to fight certain
cancers that have not responded to standard therapies. T-cells are often called the “workhorses” of the immune system
because of their role in coordinating the immune response and killing cells infected by pathogens and cancer cells. As depicted
below, each of the FDA-approved CAR-T therapies is currently a one-time treatment that involves multiple steps:
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Harvesting white blood cells from the patient’s blood, also known as apheresis;
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Engineering T-cells within this population to express cancer-specific receptors;
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Increasing and purifying the number of genetically re-engineered T-cells; and
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Infusing the functional cancer-specific T-cells back into the patient to allow for expansion and targeting the cancer cells.
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Both Kymriah and YESCARTA received FDA approval for adults with r/r DLBCL
on the basis of one pivotal, single-arm Phase II study (ZUMA-1) which served as the pivotal registration trial for each product
in this indication, a markedly accelerated process that indicates the FDA’s view of the strong potential of these novel CAR-T
therapy treatments to address an unmet need and improve patient outcomes. The number of evaluable patients in the studies that
led to FDA approval for Kymriah and YESCARTA in large B-cell lymphoma was 68 and 101, respectively. Moreover, Kymriah also received
FDA approval for the treatment of pediatrics and adolescents with r/r acute lymphoblastic
leukemia (“ALL”) based on a single phase II study. The Novartis-sponsored
pivotal Kymriah study in ALL showed that 83% of pediatric and adolescent patients with r/r ALL who received treatment with Kymriah
(52 of 63; 95% confidence interval: 71%-91%) achieved a complete response rate (“CR”) or
a CR with incomplete blood count recovery within three months of infusion. In addition, Novartis announced that no minimal residual
disease, a blood marker that indicates potential relapse, was detected among responding patients. The Novartis-sponsored
Kymriah study in adults with r/r DLBCL showed that 32% of adults achieved a CR within three months of infusion, which
dropped to 30% after six months. In the Kymriah registration study in the DLBCL population, 160 patients were enrolled and 68 were
evaluable.
ZUMA-1, the single Phase II study that led to the FDA approval of YESCARTA
in r/r DLBCL, showed similarly positive results. The study enrolled 111 patients (101 were
evaluable) with large B-cell lymphoma at advanced stages despite having undergone at least two previous treatments, with
approximately 20% of patients already having undergone a stem cell transplant. The CR rate
within three months of CAR-T treatment, given as a single infusion, was 58%, which dropped to 46% after six months. The CR rate
after two years of CAR-T treatment, given as a single infusion, has been reported as 37%.
Encouraged by the success of the Phase
II studies, since the initial FDA approvals were granted to Novartis for Kymriah, the CAR-T therapy market has seen rapid expansion,
with Gilead/Kite and Novartis and scores of other biotechnology companies actively working to progress CAR-T therapies as potential
treatments for numerous blood and solid tumor cancers. The third entrant to the US market, lisocabtagene maraleucel (“liso-cel”)
from BMS, had been expected to be approved in 2020, although according to company announcements has been delayed several times
relative to previously issued company guidance and the approval timing is unclear.
Kymriah, YESCARTA and liso-cel are autologous individualized CD19 targeted
CAR-T therapies. Development is also ongoing to move each agent to earlier lines of therapy for DLBCL (rather
than as salvage therapy for patients who have exhausted other options), in other types of B-cell NHL and for the treatment
of chronic lymphocytic leukemia (“CLL”). According to SEER, as well as the American Cancer Society's Cancer Statistics
Center and World Health Organization Union for International Cancer Control, it is estimated that up to 10,000 patients with r/r
B-cell hematologic malignancies (including DLBCL, ALL, CLL) per year may potentially benefit from CD19 targeted CAR-T therapies.
In addition, if CAR-T therapy is approved as an earlier second-line option versus stem cell
transplantation, an additional 10,000 to 12,000 patients may be eligible for treatment. Moreover, there are two B-cell maturation
antigen (“BCMA”) targeted CAR-T therapies in phase II development for relapsed or refractory multiple myeloma and several
other novel CAR-T therapies targeting various antigens and neo-antigens in development for a number of hematologic and solid cancers.
While there may be individual differences between CAR-T therapy products, the overall toxicity profile is generally expected to
be generally consistent with that reported for YESCARTA and for Kymriah and it is known that various development-stage BCMA and
other CAR-T therapies are hampered by the emergence of cytokine storm and other serious and potentially fatal side-effects.
Former FDA Commissioner Scott Gottlieb and FDA Center for Biologics Evaluation
and Research (CBER) Director Peter Marks detailed plans for the FDA to keep pace with an expected influx of applications for cell
and gene therapies over the coming years. Gottlieb and Marks have indicated that by 2020, FDA expects to receive more than 200
active IND applications for cell and gene therapies each year, adding to the 800 active IND applications for such products already
filed with FDA. By 2025, they predict that FDA will be approving between 10 and 20 cell and gene therapy products annually. The
FDA has also issued final guidance to gene therapy and cell therapy developers, whereby under the Regenerative Medicine Advanced
Therapy (“RMAT”) designation, qualified applications will be eligible for FDA priority review and accelerated approval.
Allogeneic HSCT Overview
Allogeneic HSCT, which involves transferring
stem cells from a healthy donor to the patient, has demonstrated effectiveness in treating hematological cancers. As depicted below,
allogeneic HSCT involves multiple steps:
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Collecting blood from a healthy donor;
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Processing the donor’s blood to remove the stem cells before returning the rest of the donor’s blood back to the
donor;
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Pre-conditioning the patient with high-dose chemotherapy and/or radiation; and
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Infusing the donor’s stem cells into the patient to allow for the production of new blood cells.
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The overall number of allogeneic HSCT treatments continues to increase annually
in the US and abroad. In 2019, approximately 10,000 allogeneic HSCT treatments are expected to be performed in the US, with similar
trends expected in Europe.
CAR-T Therapy
The two FDA-approved CAR-T therapies are not without significant
limitations. Despite the exciting prospects for treating patients with limited options, significant and potentially life-threatening
side-effects associated with CAR-T therapy, including NT and CRS, remain a significant unmet need that must be addressed. Because
NT and CRS can be life-threatening and have proven fatal in many instances, and because each product bears a “Boxed”
warning from the FDA (the strictest FDA warning label intended to alert patients and providers about serious and life-threatening
risks associated with a particular drug), patients seeking to benefit from YESCARTA or Kymriah generally may only do so if the
treatment center is in compliance with the Risk Evaluation and Mitigation Strategy (“REMS”)
program required by FDA.
REMS
is a drug safety program that the FDA can require for certain medications with serious safety concerns to help ensure
the benefits of the medication outweigh its risks and are intended to assist and train certified treatment centers on the
management of these serious side-effects. For example, each hospital and its associated clinics have a minimum of two doses of
tocilizumab available on-site for each patient for the potential treatment of moderate to severe cases of CRS. We believe the
REMS requirement may have adversely impacted both market uptake and usage to date. Both CRS and NT are caused by a large-scale
release of pro-inflammatory cytokines and chemokines induced by the CAR-T therapy, sometimes referred to as a “cytokine
storm”. The first placebo-controlled, randomized study evaluating tocilizumab for the treatment of cytokine storm, in this
case in COVID-19 patients with cytokine storm, failed to demonstrate an effect.
According to the package inserts for
YESCARTA and Kymriah, up to 94% of patients treated with YESCARTA or Kymriah in the clinical trial setting experienced CRS
(with up to 49% of cases being severe or grade >3 in nature) and up to 87% experienced NT (with up to 31% of cases being
severe or grade >3 in nature) despite the availability and utilization of tocilizumab. Moreover, based
on feedback from leading treatment centers in the US, approximately 30 to 60% of patients receiving CAR-T therapy require admission
to the ICU and in some cases require an extended stay, with multiple interventions, including ventilator support and other supportive
measures, to be urgently administered to manage these side-effects. Some patients can suffer seizures, coma, brain swelling,
heart arrhythmias, organ failure and serious and life-threatening clotting disorders, not only causing more complex and potentially
fatal medical consequences, but significantly adding to cost of patient care. These can be particularly challenging and concerning
issues, especially in younger and pediatric patients.
It is important to note that patients suffering from severe or critical COVID-19
pneumonia can often suffer similar medical conditions and extended hospitalization and ICU care.
Researchers who evaluated 1,254 patients
who underwent CAR-T therapy at 86 hospitals over the past two years reported that the median ICU stay was 15 to 19 days with a
median overall cost ranging from $85,726 to $242,730, not including the cost of the CAR-T therapy itself (Harris, et al. TCT 2019
Abstracts 500, 501). In addition, there have also been deaths reported as a result of these serious side-effects. A publication
assessing 636 patients who had received either of the two FDA-approved CAR-T therapies (348 patients on YESCARTA and 288 on Kymriah)
authored by Anand and Burns, et al. in the Journal of Clinical Oncology (37, 2019 (suppl; abstract 2540)) reported that 15% of
CAR-T treated patients (10% receiving YESCARTA and 21% receiving Kymriah) died from factors not associated with disease progression
(i.e., non-relapse mortality) and the primary driver of non-relapse mortality was NT and/or CRS. Therefore these serious side-effects
are associated with significant mortality rates, despite the availability of approved supportive care measures, even as CAR-T therapies
are administered only in trained and certified treatment centers staffed by experts in the field. We expect that the CAR-T therapies
under development may be hampered by the same significant side-effects. If such side-effects can be ameliorated or eradicated,
and adequate data is submitted to FDA, the “Black Box” warning and REMS program could potentially be scaled back or
removed.
There are currently no FDA-approved
products for the prevention or treatment of NT or for the prevention of CRS associated with CAR-T therapy. Medicines used to manage
NT and CRS, such as tocilizumab and corticosteroids, have not adequately controlled the side-effects, and steroids may have a detrimental
impact on the efficacy of the CAR-T therapy itself while tocilizumab may increase the risk of CAR-T therapy induced NT and is correlated
with an increased risk of infections, including severe infections. Further, these medicines have not undergone prospective clinical
trials for use in this patient population. Tocilizumab is only approved for the treatment of severe cases of CRS, but is not approved
for prevention of CRS, nor is it approved for either prevention or treatment of NT.
The approval in CRS was granted as a
result of case studies and not as a result of a planned, prospective clinical study in this patient population, as would be typical.
Studies testing tocilizumab for the prevention of NT have shown tocilizumab to significantly worsen the rate of NT across all grades
as well as the more serious grades 3 and above, as compared to the rate in patients who did not receive tocilizumab prophylactically.
In addition, recent publications question the efficacy of tocilizumab in CRS. For example, studies testing tocilizumab as a prophylactic
therapy for CRS have shown the rates of overall CRS remained unaltered as compared to the rate in patients who did not receive
tocilizumab prophylactically (Locke et al. American Society of Hematology (“ASH”) 2017, Abstract 1547). Further, a
publication authored by Le, et al. in The Oncologist (2018, 28(8); 943-947) assessing 60 patients who had received either YESCARTA
or Kymriah and had suffered from CRS having received tocilizumab and/or steroids after the onset of CRS, reported that only approximately
half of the patients responded at day 11.
These data, along with the Anand/Burns
data and the Locke data discussed above, demonstrate that improvements in the ability to prevent or mitigate NT and CRS are needed.
Such improvements would help remove these major impediments to uptake and utility of CAR-T therapies, improve healthcare utilization
and improve overall patient outcomes. Managing patients with these side-effects can consume a significant amount of in-hospital
resources, including extended stays in the ICU. The primary driver of non-drug related costs associated with CAR-T therapy is the
length of stay in the hospital, particularly if this includes ICU admission. Non-drug related costs for patients who develop CRS
and/or NT are approximately double that of patients who do not develop these serious toxicities. Further, as the potential benefit
of CAR-T therapies are explored in earlier lines of hematologic cancers (rather than as salvage therapy for patients who have exhausted
other options), as well as moving use of CAR-T therapies into solid tumors, the need to address serious side-effects becomes paramount.
In addition to improving patient outcomes,
the ability to significantly reduce the incidence and severity of NT and prevent CRS associated with CAR-T therapy may offer significant
benefits in making these treatments more cost-effective. Hospital reimbursement for patients who are treated only as an out-patient
is profoundly different from, and more favorable to the hospital than, the reimbursement afforded to treatments for patients who
are admitted or re-admitted to the hospital within a 72 hour period. Unfortunately, at present, the need to identify, treat and
manage NT and CRS generally has prevented CAR-T therapies from being administered, and follow-up care monitored and managed, potentially
on an out-patient basis. Again, 30-60% of patients receiving CAR-T therapy require
admission to the ICU, in some cases requiring an extended stay, with multiple interventions, investigations and treatments needing
to be urgently administered. As a result, in some institutions, the treating
physician may require the hospital to reserve a bed in the ICU as a prerequisite to administering the CAR-T therapy in case the
patient needs to be hospitalized in an attempt to manage the adverse effects from NT and CRS. At other institutions, the patient
is admitted as an in-patient and is required to remain in the hospital for at least a week, with discharge being subject to satisfactory
short-term outcomes and no emergence of complications. Even in institutions where the CAR-T therapy is initially administered
in an out-patient setting, the patient is closely monitored daily for several weeks and is required to stay within a short distance
from the hospital in case the patient needs to be admitted to the hospital on an emergency basis, requiring additional lodging,
food and other costs to be incurred by the patient, the payer, or both. In some situations these patients are re-admitted
to the hospital on an emergency basis as an in-patient if complications ensue. If a patient is admitted or re-admitted to the
hospital as an in-patient, the hospital reimbursement dynamics may change in a manner which is negative for the hospital, the
payer and the patient. This dynamic also changes typical hospital reimbursement, depending on when in the treatment cycle the
patient is admitted or re-admitted. In addition, certain treatment centers do not accept
patients who are not potentially able to be treated as an out-patient and refer such patients to other centers who may be willing
to treat them as in-patients, primarily as a result of the reimbursement handicap that would accrue as a result of in-patient
coding, billing and reimbursement, which generally leads to the hospital system losing money because of the in-patient care reimbursement.
Further, the COVID-19 pandemic has placed further stress on the hospital, ICU and broader healthcare systems of almost all countries
affected by the outbreak.
The reimbursement challenges associated
with CAR-T therapies are also proving to be an impediment to greater utilization of Kymriah and YESCARTA in Europe and the United
Kingdom, where the National Institute of Clinical Excellence (“NICE”) initially recommended that the UK National Health
Service not reimburse YESCARTA based on their assessment of the cost per quality-adjusted life-year (“QALY”). A
key driver of the cost per QALY is in-patient and potential ICU-related costs. This led to
YESCARTA having to be funded through other mechanisms. A positive recommendation for use of YESCARTA within the Cancer Drugs
Fund (“CDF”) was subsequently made by the NICE appraisal committee in
January 2019, but only in compliance with a managed access agreement. When the data collection period finishes (anticipated by
February 2022), the process for exiting the CDF will begin and the review of NICE’s guidance for YESCARTA will start.
While both Kymriah and YESCARTA have
been approved by European regulators for market authorization, prescriptions have been limited as Kite and Novartis work to establish
reimbursement arrangements intended to facilitate access to the treatments on a discounted basis consistent with the governmental
mandates to curb healthcare spending. These dynamics, and the additional complexity of treating patients with serious and potentially
life-threatening side-effects in the hospital and/or ICU, mean that enabling true out-patient administration and follow-up
would confer significant benefits to patients, payers and the hospital system. Lenzilumab, if proven to be able to abrogate these
serious side-effects as well as improve efficacy, may offer a solution.
Other T-cell Engaging Therapies
In addition to CAR-T therapy, we are committed to advancing our diverse platform
for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both autologous and allogeneic next
generation CAR-T therapies, bi-specific antibody therapies, as well as other cell-based immunotherapies in development, to break
the efficacy/toxicity linkage, including for the prevention and/or treatment of GvHD in patients undergoing allogeneic HSCT. Many
of these treatment options may lead to serious side-effects and have ample room for improved efficacy.
We believe that GM-CSF neutralization with lenzilumab has the potential to
prevent or reduce GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic
HSCT, thereby making allogeneic HSCT safer. Allogeneic HSCT is a potentially curative therapy for patients with hematological cancers.
Although a potentially life-saving treatment for patients suffering from hematological cancers, between 40-60% of patients receiving
HSCT treatments experience acute or chronic GvHD, which together carries a 50% mortality rate. After being transplanted into the
patient, donor-derived T cells are responsible for mediating the beneficial GvL effect. In many cases, however, donor-derived T
cells that remain within the graft itself have also been linked to destruction of healthy tissue in the patient (the host), with
particular risk of destroying cells in the patient’s skin, gut, and liver, resulting in GvHD. Although depleting donor grafts
of T cells can prevent or reduce the risk of GvHD, this results in a reduced GvL effect, thereby having a detrimental impact on
the efficacy of the allogeneic HSCT treatment itself and leading to increased relapse rates. We expect that the use of allogeneic
HSCT may be hampered by GvHD complications. A recent study published in ‘blood advances’ an official journal of the
American Society of Hematology, suggests that neutralizing or blocking GM-CSF may limit or prevent GvHD in the gastrointestinal
tract (Gartlan, K., et al, October 8, 2019, vol. 3, no.19).
There are currently no FDA-approved agents for the prevention of GvHD, and
there is a significant unmet medical need for an agent that can uncouple the beneficial GvL effect from harmful GvHD. At this time,
pre-conditioning regimens for HSCT treatments vary significantly by treatment centers, including by unapproved, or “off-label”,
use of agents that have been approved by the FDA for other uses only. We believe there to be a significant unmet medical need and
lenzilumab, if proven to be able to prevent GvHD in allogeneic HSCTs, may offer a solution.
We completed dosing in a Phase 1 clinical trial in patients with CMML
to identify the MTD or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical
activity and reported the results at the 2019 American Society of Hematology (ASH) conference.
Our Solution
We believe that our GM-CSF pathway science, assets and expertise create two
technology platforms to assist in the treatment of COVID-19 as well as the development of next-generation CAR-T therapies. Lenzilumab
has the potential to be used to prevent cytokine storm in hospitalized COVID-19 patients and improve outcomes.
The clinical manifestations of COVID-19,
the disease caused by severe acute respiratory coronavirus 2 (SARS-CoV-2) infection,
range from asymptomatic disease to severe and critical pneumonia. Although viral evasion of host immune response and virus-induced
cytopathic effects are believed to be critical for disease progression, most deaths associated with COVID-19 are attributed to
the development of cytokine release syndrome (CRS) and resultant acute respiratory distress syndrome (ARDS).
Similar to patients receiving CART therapy,
the development of CRS in patients with COVID-19 has been associated with elevation of CRP, ferritin, MCP-1, MIP-1 alpha, INF-gamma,
TNF-alpha, and IL-6, as well as correlating with respiratory failure, ARDS, and adverse clinical outcomes. Most significantly,
high levels of GM-CSF-secreting Th17 T-cells have been associated with disease severity, myeloid cell trafficking to the lungs,
and ICU admission. This indicates that post-COVID-19 CRS is caused by a similar mechanism, induced by activation of myeloid cells
and their trafficking to the lung, resulting in lung injury and ARDS. Tissue CD14+ myeloid cells produce GM-CSF and IL-6, further
triggering a cytokine storm cascade. Single-cell RNA sequencing of bronchoalveolar lavage samples from COVID-19 patients with severe
ARDS demonstrated an overwhelming infiltration of newly-arrived inflammatory myeloid cells compared to mild COVID-19 disease and
healthy controls, consistent with a hyperinflammatory CRS-mediated pathology. We believe that these new data suggest that
GM-CSF may be a critical triggering cytokine in the increased mortality in COVID-19.
Lenzilumab has been shown to prevent cytokine storm in animal models and this
work has been published in peer reviewed journals. These data demonstrate that GM-CSF neutralization
results in a reduction in IL-6, MCP-1, MIP-1α, IP-10, vascular endothelial growth factor (VEGF), and tumor necrosis factor-α
(TNFα) levels, demonstrating that GM-CSF is an upstream regulator of many inflammatory cytokines that are important in the
pathophysiology of CRS. GM-CSF depletion results in modulation of myeloid cell behavior, a specific decrease in their inflammatory
cytokines, and a reduction in tissue trafficking, while enhancing T-cell apoptosis machinery.
Patients are currently being enrolled in a Phase III, potential registration
clinical study to determine lenzilumab’s effect on COVID-19 in patients hospitalized with severe or critical COVID-19 pneumonia.
Lenzilumab may also be used in combination with any FDA-approved or development
stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell therapies such as HSCT, to make these
treatments safer and more effective. In addition, our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation
CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving the benefits of the CAR-T
therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.
In our review of results of CAR-T clinical
trials, as well as preclinical animal models that seek to understand the causation of side-effects, we noted from independent researchers
that CAR-T infusion leads to an early rise in levels of soluble GM-CSF, a cytokine that we believe is of critical importance in
the inflammatory cascade associated with CAR-T therapy related side-effects. GM-CSF is one of only two cytokines that have
been clearly demonstrated to be associated with severe NT and early rise in, and peak levels of, GM-CSF are associated with NT.
GM-CSF is also implicated in the generation
of cytokine storm in COVID-19, GvHD, hemophagocytic lymphohistiocytosis (“HLH”), and macrophage activation syndrome
(“MAS”) and the growth of certain hematologic malignancies, such as chronic myelomonocytic leukemia (“CMML”),
juvenile myelomonocytic leukemia (“JMML”), certain solid tumors and other serious conditions, particularly a broad
range of auto-immune, inflammatory and fibrotic conditions. Moreover, there is an abundance of data demonstrating that GM-CSF
is upstream in the cytokine cascade and that the neutralization of GM-CSF is known to inhibit the release of key downstream cytokines
known to be associated with cytokine storm/CRS and NT.
Combining CAR-T Therapies with Lenzilumab
We believe lenzilumab has the potential to improve the efficacy and safety
of CAR-T therapy and that the use of lenzilumab may minimize or eradicate the incidence, frequency, duration and/or severity of
NT and/or CRS that frequently appear in CAR-T patients. Further, GM-CSF neutralization may enhance CAR-T proliferation and effector
functions and potentially confer additional benefits in terms of durable efficacy and healthcare resource utilization. However,
these effects do not appear to be replicated by antibodies which selectively block the GM-CSF receptor. Lenzilumab has a mechanism
of action which does not interfere with the GM-CSF receptor – rather, it neutralizes the ligand GM-CSF, minimizing its availability
to interact with the GM-CSF receptor, enhancing its ability to bind to and neutralize soluble, circulating GM-CSF.
We also believe lenzilumab may improve the value proposition of CAR-T and
allogeneic HSCT therapies and facilitate their use and acceptance throughout the healthcare systems in the US and abroad.
Our current clinical and regulatory
development plan in marketed CAR-T therapies is focused on a collaboration agreement we executed with Kite in May 2019 (the “Kite
Agreement”), with Kite marketing one of only two approved CAR-T therapies (YESCARTA) which is the market leader by a large
margin. Pursuant to the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1b/2 study (ZUMA-19) of lenzilumab
with Kite’s YESCARTA in patients with relapsed or refractory B-cell lymphoma. The primary objective of ZUMA-19 is to determine
the effect of lenzilumab on the safety of YESCARTA. In addition, efficacy and healthcare resource utilization will be assessed.
The Kite Agreement is non-exclusive. Depending upon FDA feedback, we believe ZUMA-19 may serve as the basis for registration for
lenzilumab. On June 30, 2020, we announced that the first patient had been infused in the ZUMA-19 study.
Combining Allogeneic HSCT with Lenzilumab
In addition to CAR-T therapy, we are committed to
advancing our diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both
autologous and allogeneic next generation CAR-T therapies, bi-specific antibody therapies as well as other cell-based immunotherapies
in development, with our current and future partners.
We believe that GM-CSF neutralization using lenzilumab has the potential to
make allogeneic HSCT safer and more effective. Similar to GM-CSF neutralization with lenzilumab breaking the efficacy/toxicity
linkage with CAR-T therapy, GM-CSF neutralization has demonstrated potential to attenuate GvHD while maintaining the beneficial
GvL effect in patients undergoing allogeneic HSCT.
In July 2019, we entered into the Zurich Agreement with UZH. Under the Zurich
Agreement, we have in-licensed certain technologies that we believe may be used to prevent or treat GvHD, thereby expanding our
development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for patients
with hematological cancers. The technology was recently featured in a November 2018 research article published in Science Translational
Medicine, where the authors demonstrated in a murine model of GvHD, that donor T cell-derived GM-CSF drives GvHD through activation,
expansion, and trafficking of myeloid cells but has no effect on the GvL response. Neutralization of GM-CSF (either using a neutralizing
antibody or through GM-CSF gene knock-out) was able to uncouple the myeloid-mediated immunopathology resulting in GvHD from the
T cell-mediated control of leukemic cells. This discovery provides a clear mechanistic proof-of-concept for neutralizing GM-CSF
to prevent GvHD without compromising, and potentially improving, the GvL effect in patients undergoing allogeneic HSCT. Corroborating
data related to the critical effect GM-CSF has on GvHD development in HSCT was published recently by Gartlan et al.
The strong link between T cell-mediated efficacy and myeloid cell mediated
toxicity mirrors the findings that have been reported with CAR-T therapies where T cell-produced GM-CSF has emerged as a key driver
of the myeloid inflammatory cascade resulting in NT and CRS and potentially impairing improved CAR-T therapy efficacy through effects
on myeloid-derived suppressor cells. GM-CSF neutralization has the potential to eliminate or reduce the off-target inflammatory
cascade while preserving the on-target efficacy of T cell therapies, thereby breaking the efficacy/toxicity linkage.
We believe that GM-CSF neutralization with lenzilumab has the potential to
prevent or treat GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic
HSCT, thereby making allogeneic HSCT safer. Accordingly, we aim to position lenzilumab as a “must have” companion product
to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive
or as an early treatment option in patients identified as high risk for GvHD.
Lenzilumab in CMML
We believe that lenzilumab also holds promise in CMML, a rare form of hematologic
cancer with no FDA-approved treatment options and a three-year overall survival rate of 20% and median overall survival of 20 months,
and potentially in JMML, a rare pediatric form of leukemia. CMML is a clonal stem cell disorder of which monocytosis is a key feature.
Approximately 40% of CMML patients carry NRAS/KRAS/CBL mutations which are associated with GM-CSF hypersensitivity. CMML has features
of myelodysplastic syndrome (“MDS”), including abnormal, dysplastic bone marrow cells; cytopenia; transfusion dependence;
and of myeloproliferative neoplasms, including overproduction of white blood cells, organomegaly (e.g., splenomegaly and hepatomegaly)
and extramedullary disease. About 15 to 20% of CMML cases progress to acute myeloid leukemia, or AML. According to the American
Cancer Society, approximately 1,100 individuals in the United States are newly diagnosed annually with CMML, with the majority
of these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants.
In a recently conducted Phase 1 study, 3 of 6 patients with NRAS/KRAS/CBL
mutations demonstrated a clinical response by the MDS/MPN International Working Group criteria. Final results of this study were
presented at the 2019 ASH annual meeting and published in ‘blood’. Building on this successful Phase 1 study in CMML
with lenzilumab, we are planning a Phase 2 study in combination with azacitidine in newly-diagnosed CMML patients who express NRAS/KRAS/CBL
mutations which are known to be hypersensitive to GM-CSF and therefore may lend themselves to responsiveness to lenzilumab treatment.
Gene-edited CAR-T Therapies using GM-CSF Gene Knockout
We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential
to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T therapy via gene-edited CAR-T cells
which can be engineered to lack the ability to produce GM-CSF, thereby avoiding any efficacy/toxicity linkage and potentially preserving
and improving upon the benefits of the CAR-T therapy while altogether avoiding its serious and potentially life-threatening side-effects.
We are advancing our GM-CSF knockout gene-editing CAR-T platform through the
Mayo Agreement that we entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain
technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression
through various gene-editing tools including CRISPR-Cas9. The Mayo Agreement broadened our leadership position in the GM-CSF neutralization
space and expanded our discovery platform aimed at improving CAR-T therapy to include gene-edited CAR-T cells.
Preclinical data indicates that GM-CSF gene knockout CAR-T cells show improved
overall survival compared to GM-CSF-expressing CAR-T cells in addition to the expected benefits of reduced serious side-effects
associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have
potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs
using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T
therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase
the proportion of fitter T-cells produced during expansion, increase the proliferative potential, and inhibit activation induced
cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making them more effective and
safer in the treatment of cancers. Preclinical data indicates that CAR-T cells express GM-CSF and signal through GM-CSF receptors
upon activation in an autocrine fashion. GM-CSF knockout CAR-T cells are not able to signal through this pathway which results
in a gene expression profile distinct from GM-CSF-expressing CAR-T cells after in vitro expansion. This includes lower levels
of Fas expression which may indicate a less differentiated state of the CAR-T cells. These data were presented at the 2019 ASH
annual meeting and the abstract was the recipient of an Abstract Achievement Award. We continue to explore the phenotypic pattern
of GM-CSF knockout CAR-T cells relative to GM-CSF-expressing CAR-T cells and possible implications for improved safety and efficacy.
We plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of
current generation CAR-T products.
Kite Collaboration
Our current clinical and regulatory
development plan is focused on the Kite Agreement we executed in May 2019. Pursuant to the Kite Agreement, the parties have agreed
to conduct a multi-center potential registration Phase 1b/2 study (ZUMA-19) of lenzilumab with Kite’s YESCARTA in patients
with relapsed or refractory B-cell lymphoma, including DLBCL. The primary objective of ZUMA-19 is to determine the effect of lenzilumab
on the safety of YESCARTA. In addition, efficacy and healthcare resource utilization will be assessed. Kite is the sponsor of
ZUMA-19 and responsible for its conduct. On June 30, 2020, we announced that the first patient had been infused in the ZUMA-19
study.
The Kite Agreement provides that we
and Kite will split only the out-of-pocket costs incurred in conducting the ZUMA-19 study, including third-party expenses incurred
in accordance with a mutually agreed budget. We currently project we will be responsible for an aggregate of up to approximately
$8 million in out-of-pocket costs, assuming up to a total of 72 patients are recruited for a multi-center study. Each party will
otherwise be responsible for its own internal costs, including internal personnel costs, incurred in connection with the Study.
In addition, the parties have agreed
to enter into certain additional agreements in connection with ZUMA-19, including a quality and a supply agreement that will obligate
us, at our expense, to supply certain quantities of lenzilumab in final form for administration to subjects in ZUMA-19. Kite is
responsible, at its expense, to supply YESCARTA. Kite will be responsible for other costs related to ZUMA-19.
The parties have formed a Joint Development
Committee (“JDC”) to oversee ZUMA-19, its progress and administration, and other matters between the parties and their
obligations set forth in the Kite Agreement. The JDC comprises representatives of each of Humanigen and Kite. Kite’s JDC
designees will have decision-making authority with respect to (1) certain operational matters in conducting ZUMA-19, such as selection
of participating sites and engagement of third party service providers; and (2) amendments to the ZUMA-19 protocol established
by the JDC that do not directly relate to our investigational product or the part of the ZUMA-19 Study combination that consists
solely of our investigational product; but only, in each case, to the extent that such decisions by the Kite JDC designees do not
result in an increase in the mutually agreed-upon budget by fifteen percent or more. Neither Kite designees nor our designees will
have final decision making authority on matters directly related to the investigational product of the other party, including the
other party’s investigational product that is used in or a part of ZUMA-19.
We and Kite will jointly own all ZUMA-19
data and sample data, including case report forms, findings, conclusions and other results from ZUMA-19 that relates to each party’s
investigational product that is used in combination or sequence in ZUMA-19, and not solely to either party’s investigational
product. ZUMA-19 data and sample data that relates solely to a party’s own investigational product will be owned solely by
that party. We and Kite will own our respective background intellectual property and neither party has been granted a commercial
license to use the respective background intellectual property of the other party. Each party will own any inventions that relate
to its own investigational product used in ZUMA-19 or sample data, however, any new inventions related to, or covering, the combination
of each party’s investigational product used in ZUMA-19 will be jointly owned by the parties. Kite will control any preparation,
filing, prosecution and maintenance of any patent covering any new inventions related to, or covering, the combination of each
party’s investigational product used in ZUMA-19 and the parties will equally share costs for all such patents. We will continue
to own all world-wide rights to lenzilumab and the intellectual property related to lenzilumab, including use of lenzilumab with
CAR-T therapy.
Unless previously terminated, the Kite
Agreement will continue until the first anniversary of the date Kite provides the final ZUMA-19 Study report to us or the termination
of the Study. Kite may elect to terminate or suspend the Study at any time. Each party may terminate the Kite Agreement under certain
circumstances, including (1) for an uncured breach by the other party; (2) if a party determines that the Study may unreasonably
affect patient safety; (3) upon certain actions by regulatory authorities that are adverse to the Study; or (4) if a party determines
to discontinue the development of its investigational product.
The Kite Agreement imposes additional
obligations on the parties, such as confidentiality obligations, obligations to comply with applicable law related to patient privacy
and data protection, and potential indemnification obligations. The Kite Agreement is non-exclusive.
Worldwide License for the Prevention of GvHD through GM-CSF Neutralization
from UZH
In July 2019, we entered into the Zurich Agreement with UZH. Under the Zurich
Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization.
The Zurich Agreement covers various patent applications filed by UZH which complement and broaden our position in the application
of GM-CSF neutralization and expands our development platform to include improving allogeneic HSCT.
Worldwide License to Gene-Editing Technology from the Mayo Foundation
In June 2019, we entered into an exclusive worldwide license with the Mayo
Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells
lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. The license covers various patent applications
and know-how developed by the Mayo Foundation in collaboration with us. These licensed technologies complement and broaden our
leadership position in the CAR-T/GM-CSF neutralization space and expand our discovery platform aimed at improving CAR-T therapy
to include gene-edited CAR-T cells. With this license agreement, we significantly expanded our intellectual property portfolio
to include gene-edited CAR-T cells which can be engineered to lack the ability to produce GM-CSF which may improve the efficacy
and safety profile of CAR-T therapy. In addition, we have and continue to file intellectual property encompassing a broad range
of gene-editing approaches related to GM-CSF knockout.
Lenzilumab
Overview and Mechanism of Action
Lenzilumab, previously referred to as KB003, is a novel monoclonal antibody
designed to target and neutralize human GM-CSF, which could also be described as a ‘myeloid inflammatory factor’. We
used our proprietary and patent-protected Humaneered antibody development platform to develop lenzilumab.
We have completed a 160 patient Phase 2 study with lenzilumab in severe
asthma patients uncontrolled by high-dose corticosteroids. These data were published in the British Medical Journal.
There is extensive evidence linking GM-CSF expression to serious and potentially
life-threatening outcomes in other respiratory conditions such as COVID-19 pneumonia. GM-CSF and other downstream cytokines that
are triggered by GM-CSF are elevated in patients who are admitted to the ICU. Neutralizing GM-CSF with lenzilumab may result in
fewer days to symptom resolution, fewer days in hospital, minimization or absence of admission to the ICU and use of invasive mechanical
ventilation.
In addition, there is extensive published scientific evidence linking
GM-CSF expression to serious and potentially life-threatening side-effects associated with CAR-T therapy and reduced efficacy
through recruitment of MDSCs. Our focus for lenzilumab development is investigating its potential to improve efficacy of CAR-T
therapy and to prevent or ameliorate CAR-T therapy-related NT and CRS. Following CAR-T therapy administration, GM-CSF produced
by CAR-T cells initiates a signaling cascade of inflammation that results in the trafficking and recruitment of myeloid cells
to the tumor site. These myeloid cells produce key cytokines known to be associated with the development of NT and CRS thereby
perpetuating the inflammatory cascade. Peer-reviewed publications in leading journals by well-recognized experts have reported
that GM-CSF blood levels are elevated early after CAR-T cell administration and reach significant peak levels in patients who
suffer serious NT as a side-effect of CAR-T therapy.
GM-CSF seems to be critical for the initiation of CRS, NT and the inflammatory
cascade in COVID-19 and following CAR-T administration. GM-CSF acts as an upstream ‘initiator’ and the precursor to
other cytokines involved in the cascade. GM-CSF gene knock-out (k/o) mice, or animals that lack a functional myeloid compartment,
do not develop CRS and have normal levels of downstream cytokines, including IL-6, IL-1 and MCP-1/CCL2. Animals that are k/o for
IL-1, INF-gamma and IL-6 still develop CRS in models which recapitulate this syndrome. This is very telling, given that some investigators
believe IL-6 to be causative of CRS. In addition, in pivotal clinical studies, IL-6 has not been shown to correlate with severe
NT or CRS emergence. In the COVID-19 setting, some late-stage clinical trials have failed to demonstrate a benefit in patients
hospitalized with COVID-19 pneumonia when dosed with IL-6 inhibitors. Furthermore, IL-6 inhibitors have Black Box Warnings in the
product label and package inserts related to an increase of potentially fatal infections, including respiratory and an increase
in viral reactivation. In the COVID-19 setting, these may be particularly concerning, given the viral and respiratory issues at
work. The benefit:risk to patients who are not end-stage and with co-morbidities where the additional risk posed by these Warnings
may need to be carefully assessed before using IL-6 inhibitors off-label and in studies in COVID-19 patients.
The lack of GM-CSF does not affect T-cell mediated cancer-killing, or cytotoxicity,
as GM-CSF k/o animals had equivalent effector to target cell (E:T) ratios and cytotoxic activity against tumor cells in our published
studies. GM-CSF is required for CCR2+ monocytes to initiate and sustain neuro-inflammation. It is postulated that GM-CSF
induces CCR2+ inflammatory myeloid derived cells to infiltrate into the CNS, activating microglial cells; the activated microglial
cells then increase their expression of CCL2/MCP-1 to further recruit inflammatory myeloid cells in a self-perpetuating manner,
forming a positive feedback loop. Research from CAR-T clinical trials demonstrated that fever and elevated MCP-1 levels 36 hours
post CAR-T treatment were most predictive of severe CRS and NT across patients with NHL, ALL and CLL, providing further support
for the mechanism by which GM-CSF may contribute to these toxicities.
The field of COVID-19 is extremely dynamic and fast-moving, with multiple
publications and other information appearing at a very rapid pace, as clinical practice endeavors to optimize care for patients.
There are many other publications that point to the pivotal role of GM-CSF
in CRS and NT in CAR-T therapy, as well as potentially hampering efficacy. Based on these publications and extensive discussions
with leading key opinion leaders, we believe that lenzilumab, used as alongside CAR-T therapy offers a number of potential benefits,
including:
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Lower rates of severe/grades >3 CRS and all grades of CRS;
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Lower rates of severe/grades >3 NT and all grades of NT;
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Lower rates of ICU admissions and duration of hospitalization;
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Improved anti-tumor response (e.g. ORR, CR) and overall patient outcomes;
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Improved duration of response and reduced relapse rates;
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Improved cost effectiveness and reduced direct/indirect costs;
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Improved reimbursement, and preferential formulary placement for CAR-T;
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Expansion of CAR-T beyond the relapse/refractory setting to second-line and potential first-line
use due to improved benefit-risk profile, increasing utilization to a significantly larger pool of patients;
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Expansion of CAR-T into solid tumor treatments; and
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Scaling back or removal of current CAR-T required REMS programs and “Black Box” warnings
due to improved benefit-risk profile of CAR-T.
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Preclinical studies in mice conducted at the Mayo Clinic using human ALL blasts,
human CD19 CAR-T, and human peripheral blood mononuclear cells (PBMCs), demonstrated that blockade of GM-CSF with lenzilumab prevented
the onset of CRS, reduced neuro-inflammation by 75% (as assessed by quantitative MRI) and maintained the integrity of the blood-brain
barrier (BBB) compared to CAR-T plus control antibody treatment, where CRS, neuro-inflammation and BBB disruption can be profoundly
affected. The administration of lenzilumab in combination with CAR-T therapy led to a significant (5-fold) increase in proliferation
of CAR-T cells and improved CAR-T effector function, presumably due to a decrease in MDSC expansion and trafficking which is known
to be promulgated by GM-CSF. GM-CSF neutralization in combination with CAR-T therapy reduced relapse, enhanced anti-tumor response
and improved overall survival compared to CAR-T therapy alone and these data were published in ‘blood’. Moreover, the
combination of lenzilumab and CAR-T reduced myeloid cell infiltration into the CNS and resulted in significantly better leukemic
control as quantified by flow cytometry compared to CAR-T and control antibody. Human data from CAR-T clinical trials suggests
that the only cytokines associated with grade > 3 NT are GM-CSF, IL-2 and IL-15. Moreover, in patients who developed
severe NT, there was a 17-fold increase in myeloid cell trafficking into the CNS further establishing the role of GM-CSF in the
expansion and trafficking of myeloid cells in the toxicities associated with CAR-T therapy.
We are also developing lenzilumab alongside allogeneic HSCT for patients with
hematological cancers. Accordingly, we are assessing plans to investigate use of lenzilumab
as a necessary companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving
allogeneic HSCT should receive or as an early treatment option for patients identified as high risk by certain biomarkers.
Clinical data also shows the potential for lenzilumab as a treatment for certain
autoimmune and other inflammatory conditions, including eosinophilic asthma, rheumatoid arthritis (RA), ankylosing spondylitis
(“AS”), psoriatic arthritis (“PsA”), inflammatory bowel disease (“IBD”), juvenile idiopathic
arthritis (“JIA”), giant cell arteritis (“GCA”), atopic dermatitis (“AD”) and systemic lupus
erythematosus (“SLE”). There is potential for a range of other oncology, immunology and autoimmune conditions and we
are investigating partnering lifecycle management opportunities for lenzilumab in high value markets with strong unmet medical
needs.
Development Program
As a Treatment and/or Prevention of Cytokine Storm Associated with COVID-19
We are currently enrolling patients
in a Phase III U.S., multi-center, randomized, placebo-controlled, double-blinded, clinical trial in the setting of COVID-19.
There are currently 17 clinical sites across the US actively recruiting patients. The Phase III trial will assess the safety and
efficacy of lenzilumab in reducing severe outcomes in hospitalized adult patients with confirmed severe or critical COVID-19 pneumonia.
On May 6, 2020, we announced that the first patient had been randomized in the Phase III lenzilumab COVID-19 study.
There are currently no products approved by the FDA for the prevention of
CRS/cytokine storm associated with COVID-19. There are numerous products currently in development for COVID-19 which can be broadly
categorized as direct acting antivirals, immunomodulators, and other preventative strategies such as vaccines. Recently, remdesivir
(a direct acting antiviral) has been given emergency use authorization by the FDA for COVID-19 based on results from the NIAID
ACTT-1 trial. In this trial remdesivir demonstrated improvement in the primary endpoint of time to recovery reducing this measurement
by four days (11 days in the remdesivir cohort vs. 15 days in the placebo cohort). There was not a statistically significant difference
in mortality between the remdesivir treated cohort and the placebo cohort. Other direct acting antiviral agents such as lopinavir/ritonavir
and hydroxychloroquine (with or without a macrolide) have not demonstrated efficacy in randomized controlled trials to date.
In addition, no immunomodulator therapy has proven efficacy in a randomized
controlled clinical trial in the setting of COVID-19 and the two leading IL-6 inhibitors, Actemra (tocilizumab) and Kevzara (sarilumab)
both recently failed to demonstrate efficacy in randomized, placebo-controlled studies in COVID-19 patients.
As an upstream regulator of cytokine storm, GM-CSF neutralization
with lenzilumab may offer advantages over other immunomodulator strategies that either target other downstream cytokines such
as IL-1, IL-6, or MIP-1 alpha or are broadly immunosuppressive and target cytokine signaling pathways non-selectively through
JAK inhibition. In addition, lenzilumab is the only immunomodulator that was in an active clinical trial to prevent cytokine storm
prior to COVID-19 and is currently the only agent in an active Phase III trial targeting GM-CSF.
We have previously announced that lenzilumab was
granted emergency single use IND authorization from the FDA (often referred to as compassionate use) to treat patients with COVID-19.
On June 15, 2020, we announced that Mayo Clinic published data derived from the compassionate use of lenzilumab in treatment of
12 patients hospitalized in the Mayo Clinic system. Under applicable FDA rules, a patient cannot receive a compassionate use drug
unless FDA has issued an individual patient emergency IND authorization, which the Mayo Clinic requested from FDA prior to each
individual patient dosing of lenzilumab. Accordingly, there was no randomized control group in the Mayo Clinic program. We did
not pre-select patients to receive lenzilumab through the compassionate use program and did not deny any requests for compassionate
use. Mayo Clinic clinicians solely determined which patients for which they would request emergency IND authorization from the
FDA.
The patients receiving lenzilumab had severe or critical
pneumonia as a result of COVID-19. They were also viewed as being at high risk of further disease progression. All patients required
oxygen supplementation and had elevation in at least one inflammatory biomarker prior to receiving lenzilumab. All patients had
at least one co-morbidity associated with poor outcomes in COVID-19 and several patients had multiple co-morbidities: 58% had diabetes
mellitus, 58% had hypertension, 58% had underlying lung diseases, 50% were obese (defined as a BMI greater than 30), 17% had chronic
kidney disease and 17% had coronary artery disease. The median age was 65 years.
Patients receiving lenzilumab showed rapid clinical improvement
with a median time to recovery of five days, median time to discharge of five days and 100% survival to the data cut-off date.
Patients also demonstrated rapid improvement in oxygenation, temperature, and inflammatory cytokines consistent with the improved
clinical outcomes. At the cut-off date, 11 of the 12 patients had been discharged.
As a Sequenced Therapy In Combination with CD19 Targeted CAR-T Therapies
Our current clinical and regulatory development plan is focused on the
Kite Agreement we executed in May 2019. Pursuant to the Kite Agreement, the parties have agreed to conduct a multi-center Phase
1b/2 study (ZUMA-19) of lenzilumab with Kite’s YESCARTA in patients with relapsed
or refractory B-cell lymphoma, including DLBCL which is currently enrolling. Kite
is the sponsor of ZUMA-19 and is responsible for its conduct. The primary objective
of ZUMA-19 is to determine the effect of lenzilumab on the safety of YESCARTA. In
addition, efficacy and healthcare resource utilization will be assessed. On June 30, 2020, we announced that the first patient
had been infused in the ZUMA-19 study.
Kite’s YESCARTA is one of two CAR-T therapies that have been approved
by FDA and is the leading CAR-T by revenue. Our collaboration with Kite is the only current clinical collaboration that is enrolling
patients with the potential to improve both the safety and efficacy of CAR-T therapy. The Kite Agreement is non-exclusive. Depending
upon FDA feedback, we believe ZUMA-19 may serve as the basis for registration for
lenzilumab.
As a Companion to Allogeneic HSCT
We believe lenzilumab has potential to prevent or reduce GvHD in allogeneic
HSCT, thereby making allogeneic HSCT safer as a potentially curative therapy for patients with hematological cancers. In July 2019,
we entered into an exclusive worldwide license agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies
that we believe may be used to prevent GvHD through GM-CSF neutralization, thereby expanding our development platform to include
improving the safety and effectiveness of allogeneic HSCT. A recent study published in ‘blood advances’, an official
journal of the American Society of Hematology, suggests that neutralizing or blocking GM-CSF may limit or prevent GvHD in the gastrointestinal
tract (Gartlan, K., et al, October 8, 2019, vol. 3, no.19).
We plan to study lenzilumab as a companion to allogeneic HSCT for patients
with hematological cancers. We are collaborating with IMPACT, a clinical trial partnership of 23 transplant centers in the United
Kingdom, in planning a potential randomized, placebo controlled, Phase II/III study focused on early intervention with lenzilumab
in patients at high risk or intermediate risk for steroid refractory acute GvHD based on specific biomarkers. The goal of
the trial, as it is currently contemplated, would be to determine the efficacy and safety of lenzilumab in reducing non-relapse
mortality at six months.
Other Inflammatory Conditions
Previous clinical studies of lenzilumab include a repeat-dose, Phase II
clinical trial of lenzilumab in RA with the inclusion of a run-in portion. On completing the run-in portion of this trial, we
reassessed the increasingly competitive RA market and chose to redirect our study of lenzilumab to other areas given the competitive
intensity and diminishing levels of unmet need in RA relative to some other medical areas. As a result of a strategic shift and
other corporate activities, we terminated development of lenzilumab in severe asthma. We have generated tolerability data in 113
patients in various clinical studies, including in CMML.
Gene-edited CAR-T Therapies using GM-CSF Gene Knockout
We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential
to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T therapy via gene-edited CAR-T cells
which can be engineered to lack the ability to produce GM-CSF, thereby avoiding any efficacy/toxicity linkage and potentially preserving
and improving upon the benefits of the CAR-T therapy while altogether avoiding its serious and potentially life-threatening side-effects.
We are advancing our GM-CSF knockout gene-editing CAR-T platform through the
Mayo Agreement that we entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain
technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression
through various gene-editing tools including CRISPR-Cas9. The Mayo Agreement broadened our leadership position in the GM-CSF neutralization
space and expanded our discovery platform aimed at improving CAR-T therapy to include gene-edited CAR-T cells.
Preclinical data indicates that GM-CSF knockout CAR-T cells show
improved overall survival compared to GM-CSF-expressing CAR-T cells, in addition to the expected benefits of reduced serious side-effects
associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have
potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs
using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T
therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase
the proportion of fitter T-cells produced during expansion, increase the proliferative potential, and inhibit activation-induced
cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making them more effective and
safer in the treatment of cancers. Preclinical data indicates that CAR-T cells express GM-CSF and signal through GM-CSF receptors
upon activation in an autocrine fashion. GM-CSF knockout CAR-T cells are not able to signal through this pathway which results
in a gene expression profile distinct from GM-CSF-expressing CAR-T cells after in vitro expansion. This includes lower levels of
Fas expression which may indicate a less exhausted state of the CAR-T cells. These data were presented at the 2019 ASH annual meeting.
We continue to explore exhaustion markers of GM-CSF knockout CAR-T
cells relative to GM-CSF-expressing CAR-T cells and possible implications for improved safety and efficacy. We plan to continue
development of this technology in combination approaches that could add to the observed efficacy benefits of current generation
CAR-T products.
Ifabotuzumab
Ifabotuzumab is a Humaneered immunotherapy, formerly referred to as KB004,
which targets the EphA3 receptor, and in which the antibody carbohydrate chains lack fucose, thereby enhancing the targeted cell-killing
activity of the antibody. We believe that ifabotuzumab has the potential for treating solid tumors, hematologic malignancies and
serious pulmonary conditions. In 2006, we entered into a license agreement with Ludwig Institute of Cancer Research (“LICR”)
pursuant to which LICR granted certain exclusive rights to the ifabotuzumab prototype (referred to as IIIA4) as well as EphA3 intellectual
property.
Ifabotuzumab binds to the EphA3 receptor, which plays an important role in
cell positioning and tissue organization during fetal development, but is not thought to be expressed nor play a significant role
in healthy adults. EphA3 is a tyrosine kinase receptor, aberrantly expressed on the tumor cell surface in a number of hematologic
malignancies and solid tumors. It is also expressed in the stem cell compartment, which includes malignant stem cells, the vasculature
that feeds them, and the stromal cells that protect them. EphA3 expression has been documented in a number of hematologic and solid
tumor types, including AML, chronic myelogenous leukemia (“CML”), CLL, MDS, myelofibrosis, multiple myeloma, melanoma,
breast cancer, small and non-small cell lung cancer (“SCLC” and “NSCLC”), colorectal cancer, gastric cancer,
renal cancer, GBM, and prostate cancer, making it an attractive target for a range of cancers. Publications related to certain
cancers have indicated that EphA3 tumor cell expression correlates with cancer growth and a poor prognosis. EphA3 is overexpressed
in GBM and, in particular, in the most aggressive mesenchymal subtype. Importantly, EphA3 is highly expressed on the tumor-initiating
cell population in glioma and appears to be critically involved in maintaining tumor cells in a less differentiated state by modulating
mitogen-activated protein kinase signaling. EphA3 knockdown or depletion of EphA3-positive tumor cells may reduce tumorigenic potential
to a degree comparable to treatment with a therapeutic radiolabeled EphA3-specific monoclonal antibody. We believe EphA3 is a functional,
targetable receptor in GBM and other solid tumors as well as certain lymphomas and leukemias. A study published in December 2018
in ‘Cancers’ showed that an antibody drug conjugate (“ADC”) comprising IIIA4 (a predecessor monoclonal
antibody and prototype for ifabotuzumab) showed significant survival benefit in mice with GBM.
Anti-EphA3 treatment has shown encouraging preclinical results in multiple
experiment types, including patient primary tumor cell assays, colony forming assays, and xenograft mouse models. Upon binding
to EphA3, ifabotuzumab causes cell killing to occur either through antibody-dependent, cell-mediated cytotoxicity or through direct
apoptosis, and in the case of tumor neovasculature, through cell rounding and blood vessel disruption. Given the expression pattern
of EphA3 in multiple tumor types, ifabotuzumab may have the potential to kill cancer cells and the tumor stem cell microenvironment,
providing for long-term responses while sparing normal cells.
We completed the Phase I dose escalation portion of a Phase I/II clinical
trial of ifabotuzumab in multiple hematologic malignancies for which the preliminary results were published in the journal Leukemia
Research in 2016. A Phase I safety and imaging trial of radio-labeled ifabotuzumab in recurrent glioblastoma multiforme, a particularly
aggressive and deadly form of brain cancer, has almost fully enrolled at two centers in Australia, the ONJCRI in Melbourne and
the Queensland Institute for Medical Research in Brisbane and data have been presented at both AACR and SNO in 2019. The lead investigators
at the ONJCRI, are also evaluating an antibody-drug conjugate (“ADC” or “ADCs”) based on ifabotuzumab in
tumor models. The current clinical trial has enrolled eight patients to date, and is expected to complete enrollment with a total
of twelve patients. Preliminary imaging data reported at AACR and at SNO demonstrated that administration of ifabotuzumab resulted
in rapid, specific targeting of GBM tumors in all patients. Whole body bio-distribution imaging demonstrated no normal tissue uptake
of the antibody. Post-treatment MRI scans showed predominant T2/Flair changes which were consistent with treatment effect on tumor
vasculature. We continue to explore partnering opportunities to facilitate the further development of ifabotuzumab in a range of
cancer types.
We are in discussions with separate and various parties and may initiate partnerships
to pursue some of the following activities:
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Complete the on-going clinical study and preclinical studies with various ADCs that are based on ifabotuzumab (in partnership
with leading centers in Australia); and
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Develop bi-specific antibodies based on ifabotuzumab.
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We have conducted a Phase I/II trial for ifabotuzumab in multiple hematologic
malignancies. The most common adverse event attributed to ifabotuzumab in this trial was infusion reactions (chills, fever, nausea,
hypertension, and rapid heart rate) which is an expected safety finding based on the mechanism of action. The majority of infusion
reactions were mild-to-moderate in severity and resolved with temporary stoppage of infusion and/or use of medications to treat
symptoms. In 2014, we completed the Phase I dose escalation portion of our study, primarily treating patients with AML as well
as patients with MDS and myelofibrosis (“MF”).
Centers in Australia have worked independently on IIIA4, the murine antibody
parent of ifabotuzumab, as an ADC in mice and a December 2018 publication in the journal ‘Cancers’ showed that in mice
engrafted with GBM, treatment with an ADC based on IIIA4 showed significantly improved survival.
HGEN005
HGEN005 is a Humaneered immunotherapy, formerly referred to as KB005, which
targets the EMR1, and in which the antibody carbohydrate chains lack fucose, thereby enhancing the targeted cell-killing activity
of the antibody.
A major limitation of current eosinophil-targeted therapies is incomplete
depletion of tissue eosinophils and/or lack of cell selectivity. Eosinophils are a type of white blood cell. If too many eosinophils
are produced in the body, chronic inflammation and tissue and organ damage may result. The origin and development of eosinophilic
disorders is mostly due to eosinophils infiltrating tissue. EMR1 is expressed exclusively on eosinophils, making it an ideal target
for the treatment of eosinophilic disorders. Regardless of the eosinophilic disorder, mature eosinophils express EMR1 in tissue,
blood and bone marrow in patients with eosinophilia. We believe that because of its high selectivity, HGEN005 has significant potential
to treat serious eosinophil diseases.
In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically
enhanced NK killing of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils
in a non-human primate model without any clinically significant adverse events. We have engaged with NIH to discuss expanding the
initial work they have conducted utilizing HGEN005 and discussions are underway with a leading center in the US to perform the
IND-enabling work.
Our Humaneered Technology
Our proprietary and patented Humaneered technology platform is a method for
converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed for therapeutic use,
particularly for chronic conditions. We have developed or in-licensed targets or research (mouse) antibodies, typically from academic
institutions, and then applied our Humaneered technology to them. Lenzilumab, ifabotuzumab and HGEN005 are Humaneered antibodies.
In aggregate, our Humaneered antibodies have been tested clinically in more than 200 patients with no evidence of serious immunogenicity.
Our Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and have a high affinity
for their target but low immunogenicity. Specifically, our Humaneered technology generates an antibody from an existing antibody
with the required specificity as a starting point and, we believe, provides the following additional advantages:
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retention of identical target epitope specificity and generation of higher affinity antibodies;
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high antibody expression yields;
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attractive cost-of-goods;
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physiochemical properties that facilitate process development and formulation;
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lack of aggregation at high concentration;
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very-near-to-human germ line sequence (which may means they are less likely to induce an inappropriate immune response when
used chronically, which has proven to be the case in clinical studies); and
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an optimized antibody processing time of three to six months.
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As we are focused on progressing our current portfolio of antibodies through
clinical development and out-licensing, we are not currently dedicating additional resources to the research or development of
additional Humaneered antibodies other than our existing portfolio of lenzilumab, ifabotuzumab and HGEN005.
Intellectual Property
Intellectual property (IP) is an important part
of our strategy and has been a key focus area for the Company. We have and continue to file aggressively on our own inventions
and in-license intellectual property and technology as it relates to our therapeutic interests. We believe that we are a leader
in the field of GM-CSF neutralization to ameliorate cytokine storm as it relates to COVID-19, CAR-T and GvHD.
Licensing and Collaborations
Clinical Trial Agreement with the National Institute of Allergy and
Infectious Diseases
On July 24, 2020, we entered into a clinical trial agreement (the “Clinical
Trial Agreement”) with NIAID, part of the National Institutes of Health, which is part of the United States Government Department
of Health and Human Services, as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the Clinical
Trial Agreement, lenzilumab will be an agent to be evaluated in the NIAID-sponsored Big Effect Trial (BET) in hospitalized patients
with COVID-19.
BET will evaluate the combination of lenzilumab
and Gilead’s investigational antiviral, remdesivir, on treatment outcomes versus placebo and remdesivir in hospitalized
COVID-19 patients. The trial is expected to enroll 100 patients in each arm of the study with an interim analysis for efficacy
after 50 patients have been enrolled in each arm.
Pursuant to the Clinical Trial Agreement, NIAID will serve as sponsor
and will be responsible for supervising and overseeing BET. The Company will be responsible for providing lenzilumab to NIAID
without charge and in quantities to ensure a sufficient supply of lenzilumab.
The University of Zurich
On July 19, 2019, we entered into the Zurich Agreement with UZH. Under the
Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization.
The Zurich Agreement covers various patent applications filed by UZH which complement and broaden our position in the application
of GM-CSF neutralization and expands our development platform to include improving allogeneic HSCT.
The Zurich Agreement required an initial one-time payment of $100,000, which
we paid to UZH on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as
milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
The Mayo Foundation for Medical Education and Research
On June 19, 2019, we entered into the Mayo Agreement with the Mayo Foundation.
Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lacking GM-CSF
expression through various gene-editing tools including CRISPR-Cas9. The license covers various patent applications and
know-how developed by Mayo Foundation in collaboration with us. These licensed technologies complement and broaden our position
in the GM-CSF neutralization space and expand our discovery platform aimed at improving CAR-T to include gene-edited CAR-T cells.
The Mayo Agreement requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization
milestones.
Kite
On May 30, 2019, we entered into the Kite Agreement. Pursuant to the Kite
Agreement, the parties agreed to conduct a multi-center Phase Ib/II study (ZUMA-19) of lenzilumab with Kite’s YESCARTA in
patients with relapsed or refractory B-cell lymphoma. The primary objective of ZUMA-19 is to determine the effect of lenzilumab
on the safety of YESCARTA. Various other important parameters, including efficacy and healthcare resource utilization, will also
be measured. Kite is the sponsor of ZUMA-19 and responsible for its conduct. On June 30, 2020, we announced that the first patient
had been infused in the ZUMA-19 study.
The Kite Agreement provides that we and Kite will split only the out-of-pocket
costs incurred in conducting ZUMA-19, including third-party expenses incurred in accordance with a mutually agreed budget. We currently
project we will be responsible for an aggregate of up to approximately $8 million in out-of-pocket costs, assuming up to a total
of 72 patients are recruited for ZUMA-19 as a multi-center Study. Each party will otherwise be responsible for its own internal
costs, including internal personnel costs, incurred in connection with ZUMA-19.
The Ludwig Institute for Cancer Research
In 2004, we entered into a license agreement with the LICR pursuant to which
LICR granted to us an exclusive license for intellectual property rights and materials related to chimeric anti-GM-CSF antibodies
that formed the basis for lenzilumab. Under the agreement, we were granted an exclusive license to develop antibodies related to
LICR’s antibodies against GM-CSF. We are responsible for using commercially reasonable efforts to research, develop, and
sell lenzilumab. We pay LICR a quarterly license fee and are obligated to pay to LICR a royalty from 1.5% to 3% of net sales of
licensed products, subject to certain potential offsets and deductions. Our royalty obligation applies on a country-by-country
and licensed product-by-licensed product basis, and will begin on the first commercial sale of a licensed product in a given country
and end on the later of the expiration of the last to expire patent covering a licensed product in a given country (which in the
US is currently expected in 2029 for the composition of matter and 2038 for methods of use in CAR-T) or 10 years from first commercial
sale of such licensed product in the country. We must also pay to LICR a certain percentage of sublicensing revenue received by
us. Payments made to LICR under this license for the twelve months ended December 31, 2019 and 2018 were $0.1 million and $0.1
million, respectively.
Other License Agreements
LICR and ifabotuzumab
In 2006, we entered into a license agreement with LICR pursuant to which LICR
granted to us certain exclusive rights to the ifabotuzumab prototype (IIIA4) which targets the EphA3 receptor and EphA3-related
intellectual property. Under the agreement, we obtained rights to develop and commercialize products made through use of licensed
patents and any improvements thereto, including human or Humaneered antibodies that bind to or modulate EphA3. We paid LICR an
upfront option fee of $0.05 million and a further $0.05 million upon our exercise of the option for the exclusive license outlined
above. We are responsible for contingent milestone payments of less than $2.5 million and royalties of 3% of net sales subject
to certain potential offsets and deductions. In addition, we are obligated to pay to LICR a percentage of certain payments we receive
from any sublicensee in consideration for a sublicense. Our royalty obligation exists on a country-by-country and licensed product-by-licensed
product basis, which will begin on the first commercial sale and end on the later of the expiration of the last to expire patent
covering such licensed product in such country, which in the US is currently expected in 2031, or 10 years from first commercial
sale of such licensed product in such country.
BioWa and Lonza
In 2010, we entered into a license agreement with BioWa, Inc. (“BioWa”),
and Lonza Sales AG (“Lonza”) pursuant to which BioWa and Lonza granted us a non-exclusive, royalty-bearing, sub-licensable
license under certain know-how and patents related to antibody expression and antibody-dependent cellular cytotoxicity enhancing
technology using BioWa and Lonza’s Potelligent® CHOK1SV technology. This technology is used to enhance the
cell killing capabilities of antibodies and is currently used by us in connection with our development of ifabotuzumab. Under this
agreement, we owe annual license fees, milestone payments in connection with certain regulatory and sales milestones and royalties
in the low single digits on net sales of products developed under the agreement. The agreement expires upon the expiration of royalty
payment obligations under the agreement, is terminable at will by us upon written notice, is terminable by BioWa and Lonza if we
challenge or otherwise oppose any licensed patents under the agreement, and is terminable by either party upon the occurrence of
an uncured material breach or insolvency.
Patents and Trade Secrets
We use a combination of patent, trade secret and other intellectual property
protections to protect our product candidates and platforms. We will be able to protect our product candidates from unauthorized
use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our technology is effectively
maintained as trade secrets. Intellectual property is an important part of our strategy. We have and continue to file aggressively
on our own inventions and in-license intellectual property and technology as it relates to our therapeutic interests. Our success
will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of patents
covering lenzilumab, ifabotuzumab, HGEN005, our Humaneered technology, and our GM-CSF gene-editing CAR-T platform technologies,
to preserve trade secrets and proprietary know how, and to operate without infringing the patents and proprietary rights of third
parties. We actively seek patent protection, if available, in the US and select foreign countries for the technology we develop.
We have 111 registered patents, including 14 registered in the US and 97 registered in foreign countries. Of the 111 registered
patents, 86 are owned by us, 9 are owned jointly with a third party and 16 are exclusively licensed from a third party. We also
have 19 patent applications pending globally, of which 12 are owned by us, 4 are owned jointly with a third party and 3 are exclusively
licensed from a third party.
Using our Humaneered technology, we have developed and own two composition
of matter US patents covering lenzilumab and related anti-GM-CSF antibodies that provide patent protection through April 2029,
a granted composition of matter patent in Europe and certain foreign countries, and have five additional pending patent applications
in the US and one PCT international patent application covering various methods of treatment, including in the CAR-T space covering
a broad and comprehensive range of approaches to neutralizing GM-CSF, including the use of GM-CSF k/o CAR-T cells, which, if granted,
are expected to confer protection to at least October 2038. We also have three currently pending patent applications in the US
and selected foreign countries for anti-EphA3 antibodies and their use, and we developed and own an issued US composition of matter
patent covering ifabotuzumab and related anti-EphA3 antibodies, which is currently expected to expire in 2031, in addition to three
US patents to methods of anti-EphA3 antibodies and six foreign patents countries. The nine patents to our Humaneered technology
cover methods of producing human antibodies that are very specific for target antigens using only a small region from mouse antibodies.
We cannot be certain that any of our pending patent applications, or those
of our licensors, will result in issued patents. In addition, because the patent positions of biopharmaceutical companies are highly
uncertain and involve complex legal and factual questions, the patents we own and license, or any further patents we may own or
license, may not prevent other companies from developing similar or therapeutically equivalent products, even though we may be
able to prevent their commercial use without our permission if our intellectual property allows for such limitations. Patents also
will not protect our products if competitors devise ways of making or using these products without legally infringing our patents.
We cannot be assured that our patents will not be challenged by third parties or that we will be successful in any defense we undertake.
In addition, changes in patent laws, rules or regulations or in their interpretations
by the courts may materially diminish the value of our intellectual property or narrow the scope of our patent protection, which
could have a material adverse effect on our business and financial condition. However, prospective partners may have to license
or otherwise come to an agreement with us if they wish to use our products and those products and methods of use of such products
have issued patents in those territories.
We also rely on trade secrets, technical know-how and continuing innovation
to develop and maintain our competitive position. We seek to protect our proprietary information by requiring our employees, consultants,
contractors, outside scientific collaborators and other advisors to execute non-disclosure and confidentiality agreements and our
employees to execute assignment of invention agreements to us on commencement of their employment. Agreements with our employees
also prevent them from bringing any proprietary rights of third parties to us. We also require confidentiality or material transfer
agreements from third parties that receive our confidential data or materials.
Manufacturing
We outsource all development activities, including the development of
formulation prototypes, and have adopted a manufacturing strategy of contracting with third parties for the manufacture of drug
substance and product. Additional contract manufacturers are used to fill, label, package, and distribute investigational drug
products. This allows us to maintain a more flexible infrastructure while focusing our expertise on developing our products. It
does however mean that we have to carefully plan the availability of manufacturing ‘slots’ and the availability of
drug for investigation in preclinical and clinical trials. We have been proactive and aggressive in pursuing manufacturing slots
for lenzilumab in connection with our clinical trial programs and expect to commit the necessary resources to ensure that our
manufacturing capabilities do not hinder our ability to attain future approvals for its use. The use of contract manufacturers
can be expensive, complicated and time consuming and could delay clinical trials, drug approval and potential product launch.
Sales and Marketing
We do not currently have the sales and marketing infrastructure in place that
would be necessary to market and sell our products, if approved. The establishment of a sales and marketing operation can be expensive,
complicated and time consuming and could delay any potential product launch. As our drug candidates progress, while we may build
or contract with expert commercial vendors the type of infrastructure that would be needed to successfully market and sell any
successful drug candidate on our own, we may also seek strategic alliances and partnerships with third parties including those
with existing infrastructure and with government bodies.
Competition
We compete in an industry characterized by rapidly advancing technologies,
intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property
protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic
institutions, government agencies and other private and public research organizations. We compete with these parties to develop
potential biologic therapies to make CAR-T therapy and allogeneic HSCT safer and more effective and to develop a potential treatment
for hematologic cancers, in addition to recruiting highly qualified personnel. Our product candidates, if successfully developed
and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including
competitors relying to a large extent on our drug approvals or on our biologics approvals, or with generic copies of our product
approved by FDA, as bio-similars, referencing our drug products. Many of our potential competitors have substantially greater scientific,
research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities
than we do.
In addition, many specialized biotechnology firms have formed collaborations
with large, established companies to support the research, development and commercialization of products that may be competitive
with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing,
and achieving widespread market acceptance for our products. In addition, our competitors’ products may be more effective
or more effectively marketed and sold than any treatment we or our development partners may commercialize and may render our product
candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization
of any of our product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After
one of our product candidates is approved, FDA may also approve a generic version with the same or similar dosage form, safety,
strength, route of administration, quality, performance characteristics and intended use as our product. These bio-similar equivalents
would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or
retain market share. However, our product candidates are all biologics and, as such, would benefit from 12 years market exclusivity
from launch in the US.
The acquisition or licensing of pharmaceutical products is also very competitive,
and a number of more established companies, which have acknowledged strategies to in-license or acquire products, may have competitive
advantages as may other emerging companies taking similar or different approaches to product acquisitions. The more established
companies may have a competitive advantage over us due to their size, cash flows, institutional experience and historical corporate
reputation.
Lenzilumab and COVID-19 competition
There are currently no products approved by the FDA for the prevention of
CRS/cytokine storm associated with COVID-19. There are numerous products currently in development for COVID-19 which can be broadly
categorized as direct acting antivirals, immunomodulators, and other preventative strategies such as vaccines. Recently, remdesivir
(a direct acting antiviral) has been given emergency use authorization by the FDA for COVID-19 based on results from the NIAID
ACTT-1 trial. In this trial, remdesivir demonstrated improvement in the primary endpoint of time to recovery reducing this measurement
by four days (11 days in the remdesivir cohort vs. 15 days in the placebo cohort). There was not a statistically significant difference
in mortality between the remdesivir treated cohort and the placebo cohort. Other direct acting antiviral agents such as lopinavir/ritonavir
and hydroxychloroquine (with or without a macrolide) have not demonstrated efficacy in randomized controlled trials to date.
In addition, several monoclonal antibodies are in development that target
various surface proteins on SARS-CoV-2 including the spike protein which may limit viral replication. To date, none of these neutralizing
antibodies have demonstrated efficacy in a controlled, randomized trial.
Various centers are using convalescent plasma which may contain antibodies
to surface proteins of SARS-CoV-2 to neutralize the virus and reduce viral replication. To date, these efforts have not demonstrated
efficacy in a controlled, randomized trial.
Given the mechanism of action of lenzilumab as an immunomodulator to prevent
or treat the cytokine storm associated with COVID-19, lenzilumab may be used in combination with direct acting antiviral agents
including remdesivir, neutralizing monoclonal antibody strategies, and convalescent plasma.
Although there are several strategies aimed at modulating
the immune hyper-inflammatory response including targeting IL-1, IL-6, CCR5, none have proven efficacy in a randomized, controlled
clinical trial in the setting of COVID-19. Phase II results of sarilumab (targeting IL-6 receptor) did not demonstrate a clinical
benefit in the overall patient population (severe and critical patients). A July 2, 2020 press release issued by Regeneron and
Sanofi, who are partnering on sarilumab, reported that the phase III trial in critical patients did not demonstrate clinical benefit.
In addition, a June 17, 2020 report on 126 patients receiving tocilizumab indicated that it did not demonstrate clinical benefit.
There are also non-specific immunomodulator therapies in
development for COVID-19 including JAK inhibitors such as baricitinib. This class of agents are known to be broadly immunosuppressive
and carry black box warnings for risk of infections (including viral) and risk of thrombosis. A compassionate use series of 15
patients receiving baricitinib showed a 20% mortality rate, 27% suffered thromboembolic complications, including pulmonary embolus,
and 73% of patients showed clinical improvement.
Several other companies are targeting GM-CSF as a potential
therapeutic strategy in COVID-19. None of these agents are in Phase III trials for COVID-19, none have data demonstrating the
ability to prevent and/or treat cytokine storm in any setting and all were in development for other indications (including autoimmune
arthritides) prior to COVID-19. The dosing required to treat CRS may differ relative to other autoimmune conditions.
As an upstream regulator of cytokine storm, GM-CSF neutralization with
lenzilumab may offer advantages over other immunomodulator strategies that either target other downstream cytokines such as IL-1,
IL-6, or CCR5 (receptor for MIP-1 alpha) or are broadly immunosuppressive and target cytokine signaling pathways non-selectively
through JAK inhibition. In addition, lenzilumab is the only immunomodulator that was in an active clinical trial to prevent cytokine
storm prior to COVID-19 and is currently the only agent in an active Phase III trial targeting GM-CSF.
Lenzilumab and CAR-T-related toxicities competition
Significant ongoing concerns for clinicians, care-givers, patients and FDA
regarding CAR-T therapy include, durability of response, long-term outcomes, manufacturing process, time to delivery of active
CAR-T product, serious and potentially life-threatening side-effects, namely NT and CRS, frequency and duration of hospitalization
and ICU admission, health resource utilization, cost effectiveness and reimbursement. Both Kymriah and YESCARTA carry “Black
Box” warnings in their labels for NT and CRS and are subject to a REMS program, such that on-going data has to be provided
to FDA and CAR-T therapy can only be administered in strictly controlled environments at trained centers.
FDA approval of tocilizumab (anti-IL-6 receptor blocker, Genetech’s
Actemra®) with or without high-dose corticosteroids, for the management of severe cases of CRS, was announced in
conjunction with approval of Kymriah solely as part of its REMS program based on a retrospective analysis of 45 patients who received
tocilizumab. Approval was subsequently also granted for tocilizumab as a treatment (not prevention) of moderate to severe CRS,
despite the lack of an IND application, NDA or conduct of a prospective trial of tocilizumab in this setting. Only 20% of Kymriah
or YESCARTA patients treated with tocilizumab had resolution of signs and symptoms 6 days after onset of CRS and ~50% patients
responded 11 days after onset of CRS. Tocilizumab is not approved for the prevention of CRS or for the prevention or treatment
of NT. Tocilizumab is also not approved for the treatment of mild cases of CRS.
There are no FDA-approved therapies for the prevention of CAR-T therapy
induced NT and CRS or for the treatment of CAR-T therapy induced NT. The CAR-T therapy-associated TOXicity Working Group currently
recommends intensive monitoring, accurate grading and aggressive supportive care with the anti-IL-6 receptor blocker tocilizumab
and/or high-dose corticosteroids. These agents are reserved only for the treatment of severe cases of CRS and are not approved
for prevention. Since corticosteroids have been reported to suppress T-cell function and/or induce T-cell apoptosis, they may
limit the effectiveness of CAR-T therapy and use has been generally limited to treatment of severe cases of CRS refractory to
tocilizumab and severe cases of NT. Sometimes high-dose corticosteroids are used alongside tocilizumab. Tocilizumab has not been
found to be effective in the prevention or management of CAR-T therapy induced NT. In fact, the prophylactic use of tocilizumab
has been shown to increase both overall rates of NT and rates of severe NT with overall rates of CRS remaining unchanged in an
expanded safety cohort from a CAR-T trial. As tocilizumab is an anti-IL-6 receptor blocker, serum IL-6 levels have been shown
to increase shortly after administration of tocilizumab which may increase passive diffusion of IL-6 into the CNS and increase
the risk of NT. In patients who received prophylactic tocilizumab, a 17-fold increase in CD14+ myeloid cells was seen in the CSF
of patients who developed severe NT vs those who did not. A similar dynamic may occur with other cytokine receptor blocking monoclonal
antibodies that are also being explored in this setting (e.g. anti-IL-1Ra, anti-GM-CSFRa). As the antibody directly binds the
cytokine receptor, the receptor may get saturated causing the cytokine to get dislodged which leads to an initial increase in
the level of the circulating cytokine. In this setting, elevated levels of pro-inflammatory cytokines can further propagate the
inflammatory cascade and result in higher levels of NT and CRS when the receptor blocker is administered prophylactically. In
addition, IL-1 levels have not been shown to correlate to CRS and NT in CAR-T clinical trials and there is no evidence in the
clinical or preclinical setting available to support the use of GM-CSF receptor alpha blockade with CAR-T cell therapy. There
are data that suggest that the mechanism of GM-CSF receptor alpha blockade may be interfere with CAR-T expansion and potentially
efficacy. Our approach with lenzilumab is a different mechanism of action entirely and we have published data which shows expansion
of CAR-T cells in animal models.
Other experimental approaches being explored include development of next-generation,
CAR-T constructs, including introducing suicide genes into CAR-T cells using herpes simplex virus thymidine kinase (HSV-TK) or
inducible caspase-9 (iCasp9) genes with “on / off” switches, incorporating a co-stimulatory molecule into T-cells,
using RNA-guided DNA targeting technology or other epitope-based / gene-editing technology. While it is possible that some of
these approaches could result in lower rates of NT and/or CRS, preliminary data suggests that improvements in the safety profile
are associated with lower rates of efficacy and durable response. This is not surprising given the linkage that has been shown
to exist between CAR-T cell expansion, efficacy and toxicity. In addition, an agent comprised of a mixture of single-stranded
oligonucleotides that is purified from the intestinal mucosa of pigs, defibrotide (Jazz Pharmaceuticals, Defitelio®)
is being evaluated to reduce NT although there is no preclinical data supporting its use in this indication and the mechanisms
of action is uncertain. Defibrotide is approved for the treatment of severe
veno-occlusive disease (VOD) in adults and children who have undergone chemotherapy and a stem-cell transplant and is
associated with a 37% rate of hypotension, or low blood pressure. Hypotension is a hallmark of CRS, which occurs very frequently
with patients receiving CAR-T therapy. There are also several other anti-GM-CSF compounds that are in various stages of
development, however the focus of these compounds appears to be in chronic autoimmune disorders such as rheumatoid arthritis,
ankylosing spondylitis, giant cell arteritis and related disorders.
Government Regulation
Drug Development and Approval in the U.S.
As a biopharmaceutical company operating in the U.S., we are subject to extensive
regulation by FDA and by other federal, state, and local regulatory agencies. FDA regulates biological products such as our product
candidates under the U.S. Federal Food and Cosmetic Act (FDCA), the Public Health Service Act (PHSA) and their implementing regulations.
Under the PHSA, an FDA-approved biologics license application (BLA) is required to market a biological product, or biologic, in
the U.S. These laws and regulations set forth, among other things, requirements for preclinical and clinical testing, development,
approval, labeling, manufacture, storage, record keeping, reporting, distribution, import, export, advertising, and promotion of
our products and product candidates. Biologics receive 12 years market exclusivity from approval and launch.
Applications Relying on the Applicant’s Clinical Data
The approval process for a BLA under the PHSA requires the conduct of extensive
studies and the submission of large amounts of data by the applicant. The biologic development process for these applications will
generally include the following phases:
Preclinical Testing. Before testing any new biologic in human subjects
in the U.S., a company must generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of
product chemistry and formulation, as well as toxicological and pharmacological studies in several animal species to assess the
quality and safety of the product. Animal studies must be performed in compliance with FDA’s Good Laboratory Practice (GLP)
regulations and the U.S. Department of Agriculture’s Animal Welfare Act.
IND Application. Human clinical trials in the U.S. cannot commence
until an IND application is submitted and becomes effective. A company must submit preclinical testing results to FDA as part of
the IND application, and FDA must evaluate whether there is an adequate basis for testing the product in initial clinical studies
in human volunteers. Unless FDA raises concerns, the IND application becomes effective 30 days following its receipt by FDA. Once
human clinical trials have commenced, FDA may stop the clinical trials by placing them on “clinical hold” because of
concerns about the safety of the product being tested, or for other reasons.
Clinical Trials. Clinical trials involve the administration of the
product to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical
trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring regulations and Good Clinical
Practice (“GCP”) requirements, which establish standards for conducting, recording data from, and reporting the results
of clinical trials. GCP requirements are intended to assure that the data and reported results are credible and accurate, and that
the rights, safety, and well-being of study participants are protected.
Clinical trials must be conducted under protocols that detail the study objectives,
parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is submitted to FDA as part
of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an Institutional
Review Board (IRB), at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators,
and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with
the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events. Foreign
studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S. Data
from a foreign study not conducted under an IND application may be submitted in support of a BLA if the study was conducted in
accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain details about active
clinical trials and clinical trial results on the government website clinicaltrials.gov.
Human clinical trials are typically conducted in three sequential phases,
although the phases may overlap with one another and, notably, in the CAR-T setting, FDA has granted approval to both currently
marketed CAR-T therapies (Kite’s Yescarta and Novartis’s Kymriah) based on Phase II data and to tocilizumab without
any prospective data in the CAR-T setting:
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Phase I clinical trials include the initial administration of the investigational product to humans, typically to a small group
of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase I clinical trials
generally are intended to determine the metabolism and pharmacologic actions of the product, the side-effects associated with increasing
doses, and, if possible, to gain early evidence of effectiveness.
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Phase II clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population,
and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range,
and to gather additional information relating to safety and potential adverse effects.
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Phase III clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended to gather
additional information about safety and effectiveness necessary to evaluate the product’s overall risk-benefit profile, and
to provide a basis for physician labeling. Generally, Phase III clinical development programs consist of expanded, large-scale
studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug at
the proposed dosing regimen, or with the safety, purity, and potency of a biological product.
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The FDA does not always require every approved therapy to complete Phase I through III studies to secure approval. Approval
through expedited routes is at the discretion of FDA.
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The sponsoring company, FDA, or the IRB may suspend or terminate a clinical
trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further,
success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities
are not always conclusive and may be subject to alternative interpretations that could delay, limit, or prevent regulatory approval.
BLA Submission and Review
After completing clinical testing of an investigational biologic product,
a sponsor must prepare and submit a BLA for review and approval by FDA. A BLA is a comprehensive, multi-volume application that
must include, among other things, sufficient data establishing the safety, purity and potency of the proposed biological product
for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials,
including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s
chemistry, manufacturing, controls and proposed labeling. When a BLA is submitted, FDA conducts a preliminary review to determine
whether the application is sufficiently complete to be accepted for filing. If it is not, FDA may refuse to file the application
and may request additional information, in which case the application must be resubmitted with the supplemental information and
review of the application is delayed.
FDA performance goals, which are target dates and other aspirational measures
of agency performance to which the agency, Congressional representatives, and industry agree through negotiations that occur every
five years, generally provide for action BLA applications within 10 months of submission or 10 months from acceptance for filing
for an original BLA. FDA is not expected to meet those target dates for all applications, however, and the deadline may be extended
in certain circumstances, such as when the applicant submits new data late in the review period. In practice, the review process
is often significantly extended by FDA requests for additional information or clarification. In some circumstances, FDA can expedite
the review of new biologics deemed to qualify for priority review, such as those intended to treat serious or life-threatening
conditions that demonstrate the potential to address unmet medical needs. In those cases, the targeted action date is six months
from submission, or for biologics constituting original biological products, six months from the date that FDA accepts the application
for filing.
As part of its review, FDA may refer a BLA to an advisory committee for evaluation
and a recommendation as to whether the application should be approved. Although FDA is not bound by the recommendation of an advisory
committee, the agency usually has followed such recommendations. FDA may also determine that a REMS program is necessary to ensure
that the benefits of a new product outweigh its risks, and that the product can therefore be approved. A REMS program may include
various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the
product, depending on what FDA considers necessary for the safe use of the product. Under the Pediatric Research Equity Act, a
BLA must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug or
biological product in relevant pediatric populations, unless the requirement is waived or deferred. Receiving orphan drug designation
from FDA is one situation where such a requirement may be waived.
After review of a BLA, FDA may determine that the product cannot be approved,
or may determine that it can only be approved if the applicant cures deficiencies in the application, in which case the agency
endeavors to provide the applicant with a complete list of the deficiencies in correspondence known as a Complete Response Letter
(“CRL”). A CRL may request additional information, including additional preclinical or clinical data. Even if such
additional information and data are submitted, FDA may decide that the BLA still does not meet the standards for approval. Data
from clinical trials are not always conclusive and FDA may interpret data differently than the sponsor interprets them. Additionally,
as a condition of approval, FDA may impose restrictions that could affect the commercial success of a drug or require post-approval
commitments, including the completion within a specified time period of additional clinical studies, which often are referred to
as “Phase IV” studies or “post-marketing requirements.” Obtaining regulatory approval often takes a number
of years, involves the expenditure of substantial resources, and depends on a number of factors, including the severity of the
disease in question, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials.
Post-approval modifications to the drug or biologic product, such as changes
in indications, labeling, or manufacturing processes or facilities, may require a sponsor to develop additional data or conduct
additional preclinical or clinical trials. The proposed changes would need to be submitted in a new or supplemental BLA, which
would then require FDA approval.
Regulatory Exclusivities
Biologics Price Competition and Innovation Act
In 2010, the Biologics Price Competition and Innovation Act (BPCIA)
was enacted, creating an abbreviated approval pathway for biologic products that are biosimilar to, and possibly interchangeable
with, reference biological products licensed under a BLA. The BPCIA also provides innovator manufacturers of original reference
biological products 12 years of exclusive use before biosimilar versions can be licensed in the U.S.. This means that FDA may not
approve an application for a biosimilar version of a reference biological product until 12 years after the date of approval of
the reference biological product (with a potential six-month extension of exclusivity if certain pediatric studies are conducted
and the results reported to FDA), although a biosimilar application may be submitted four years after the date of licensure of
the reference biological product. Additionally, the BPCIA establishes procedures by which the biosimilar applicant must provide
information about its application and product to the reference product sponsor, and by which information about potentially relevant
patents is shared and litigation over patents may proceed in advance of approval, although the interpretation of those procedures
has been subject to litigation and appears to continue to evolve. The BPCIA also provides a period of exclusivity for the first
biosimilar to be determined by FDA to be interchangeable with the reference product.
FDA approved the first biosimilar product under the BPCIA in 2015, and the
agency continues to refine the procedures and standards it will apply in implementing this approval pathway. FDA has released guidance
documents interpreting specific aspects of the BPCIA in each of the last four years. We would expect lenzilumab, ifabotuzumab and
HGEN005, as biologics, to each receive at least 12 years exclusivity from approval, if they are approved.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act, a BLA must contain
data adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations,
and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors
must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric
study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other
information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the
information submitted, consult with each other and agree upon a final plan. The FDA or the applicant may request an amendment to
the plan at any time.
For products intended to treat a serious or life-threatening
disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study
plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to
discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-Phase I meeting for serious
or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the
applicant, grant deferrals for submission of some or all pediatric data until after licensing of the product for use in adults,
or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests
and requests for extension of deferrals are contained in Food and Drug Administration Safety and Innovation Act (FDASIA).
Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
The FDA Reauthorization Act of 2017 established new requirements
to govern certain molecularly targeted cancer indications. Any company that submits a BLA three years after the date of enactment
of that statute must submit pediatric assessments with the BLA if the biologic is intended for the treatment of an adult cancer
and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric
cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing, safety and
preliminary potency to inform pediatric labeling for the product. Deferrals and waivers as described above are also available.
Pediatric exclusivity is another type of exclusivity in the
U.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing
regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor
submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product
to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s
request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA
within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product
are extended by a further six-months. This is not a patent term extension, but it effectively extends the regulatory period during
which the FDA cannot license another application.
Orphan Drug Designation
The Orphan Drug Act provides incentives for the development
of therapeutic products intended to treat rare diseases or conditions. Rare diseases and conditions generally are those affecting
less than 200,000 individuals in the U.S., but also include diseases or conditions affecting more than 200,000 individuals in the
U.S. if there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease
or condition will be recovered from sales in the U.S. of such product.
If a sponsor demonstrates that a therapeutic product, including
a biological product, is intended to treat a rare disease or condition, and meets certain other criteria, FDA grants orphan drug
designation to the product for that use. FDA may grant multiple orphan designations to different companies developing the same
product for the same indication, until the one company is the first to be able to secure successful approval for that product.
The first product approved with an orphan drug designated indication is granted seven years of orphan drug exclusivity from the
date of approval for that indication. During that period, FDA generally may not approve any other application for the same product
for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior
to the product with exclusivity. FDA can also revoke a product’s orphan drug exclusivity under certain circumstances, including
when the holder of the approved orphan drug application is unable to assure the availability of sufficient quantities of the product
to meet patient needs.
A sponsor of a product application that has received an orphan
drug designation is also granted tax incentives for clinical research undertaken to support the application. In addition, FDA will
typically coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion to grant marketing
approval on the basis of more limited product safety and efficacy data than would ordinarily be required, based on the limited
size of the applicable patient population.
We anticipate submitting applications for orphan drug designation
for all of our current pipeline candidates and the targeted therapeutic indications.
Expedited Programs for Serious Conditions
FDA has implemented a number of expedited programs to help ensure
that therapies for serious or life-threatening conditions, and for which there is unmet medical need, are approved and available
to patients as soon as it can be concluded that the therapies’ benefits justify their risks. Among these programs are the
following:
Fast Track Designation
FDA may designate a product for fast track review if it is intended,
whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or
condition and where non-clinical or clinical data demonstrates the potential to address unmet medical need for such a disease or
condition. A product can also receive fast track review if it receives breakthrough therapy designation.
For fast track products, sponsors may have greater interactions
with FDA and FDA may initiate review of sections of a fast track product’s application before the application is complete,
also referred to as a ‘rolling review’. This rolling review may be available if FDA determines, after preliminary evaluation
of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and FDA must
approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. Furthermore,
FDA’s time period goal for reviewing a fast track application does not begin until the last section of the complete application
is submitted. Finally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported
by data emerging in the clinical trial process.
Breakthrough Therapy Designation
A product may be designated as a breakthrough therapy if it
is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or
condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies
on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The designation includes all of the features of fast track designation, as well as more intensive FDA interaction and guidance.
FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the
development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff
in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design efficient
clinical trials.
Accelerated Approval
Under the accelerated approval pathway, FDA may approve a drug
or biologic based on a surrogate endpoint that is reasonably likely to predict clinical benefit; qualifying products must target
a serious or life-threatening illness and provide meaningful therapeutic benefit to patients over existing treatments. In clinical
trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a
direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more
rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to
conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would allow FDA to withdraw
the product from the market on an expedited basis. All promotional materials for product candidates approved under accelerated
regulations are subject to prior review by FDA.
Priority Review
FDA may designate a product for priority review if it is a product
that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. FDA generally
determines, on a case-by-case basis, whether the proposed product represents a significant improvement in safety and effectiveness
when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness
in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement
of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation.
A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and will shorten
FDA’s goal for taking action on a marketing application from the standard targeted ten months to a target of six months review.
Created in 2012 under the FDASIA and extended with the 21st
Century Cures Act in 2016, FDA is authorized under section 529 of the FDCA to grant a PRV to BLA sponsors receiving FDA approval
for a product to treat a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the U.S.,
and where more than 50% of the patients affected are aged from birth to 18 years. We believe that our product candidates which
may assist with the treatment of rare pediatric cancers or other rare pediatric diseases may qualify for a PRV under this program,
depending on the indication.
The PRV program allows the voucher holder to obtain priority
review for a product application that would otherwise not receive priority review, shortening FDA’s target review period
to a targeted six months following acceptance of filing of an NDA or BLA, or four months shorter than the standard review period.
The voucher may be used by the sponsor who receives it, or it may be sold to another sponsor for use in that sponsor’s own
marketing application. The sponsor who uses the voucher is required to pay additional user fees on top of the standard user fee
for reviewing an NDA or BLA.
We anticipate submitting applications for one or more of these
expedited programs for all of our current pipeline candidates and the targeted therapeutic indications.
Regenerative Medicine Advanced Therapy Designation
Recently, through the 21st Century Cures Act, or Cures
Act, Congress also established another expedited program, called a RMAT designation. The Cures Act directs the FDA to facilitate
an efficient development program for and expedite review of RMATs. To qualify for this program, the product must be a cell therapy,
therapeutic tissue engineering product, human cell and tissue product, or a combination of such products, and not a product solely
regulated as a human cell and tissue product. The product must be intended to treat, modify, reverse, or cure a serious or life-threatening
disease or condition, and preliminary clinical evidence must indicate that the product has the potential to address an unmet need
for such disease or condition. Advantages of the RMAT designation include all the benefits of the fast track and breakthrough therapy
designation programs, including early interactions with the FDA. These early interactions may be used to discuss potential surrogate
or intermediate endpoints to support accelerated approval.
Post-Licensing Regulation
Once a BLA is approved and a product marketed, a sponsor will
be required to comply with all regular post-licensing regulatory requirements as well as any post-licensing requirements that the
FDA may have imposed as part of the licensing process. The sponsor will be required to report, among other things, certain adverse
reactions and manufacturing problems to the FDA, provide updated safety and potency or efficacy information and comply with requirements
concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to
register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the
FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain
procedural and documentation requirements upon manufacturers. Changes to the manufacturing processes are strictly regulated and
often require prior FDA approval before being implemented. Accordingly, the sponsor and its third-party manufacturers must continue
to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP regulations and
other regulatory requirements.
In addition, the distribution of prescription pharmaceutical
products is subject to the Prescription Drug Marketing Act (PDMA) and its implementing regulations, as well as the Drug
Supply Chain Security Act (DSCA), which regulate the distribution and tracing of prescription drug samples at the federal level,
and set minimum standards for the regulation of distributors by the states. The PDMA, its implementing regulations and state laws
limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability
in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Employees
We currently have five full-time employees. We contract with several part-time
independent consultants performing manufacturing, regulatory and clinical development, intellectual property, public relations,
investor relations and finance and accounting functions. None of our employees are represented by labor unions or covered by collective
bargaining agreements.
Bankruptcy
As previously reported, on December 29, 2015, we filed a voluntary
petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the U.S. Bankruptcy Court
for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS)).
On May 9, 2016, we filed with the Bankruptcy Court a Second
Amended Plan of Reorganization (the “Plan”), and related amended disclosure statement pursuant to Chapter 11 of the
Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan. On June 30, 2016 (the “Effective
Date”), the Plan became effective and we emerged from our Chapter 11 bankruptcy proceedings.
On September 17, 2018 the Bankruptcy Court issued a Final Decree
and Order to close the bankruptcy case and terminate the remaining claims and noticing services.
Restructuring Transactions
On December 1, 2017, our obligations matured under the Credit
and Security Agreement dated December 21, 2016, as amended on March 21, 2017 and on July 8, 2017 (the “Term Loan Credit Agreement”)
with Black Horse Capital Master Fund Ltd., as administrative agent and lender (“BHCMF”), Black Horse Capital LP, as
a lender (“BHC”), Cheval Holdings, Ltd., as a lender (“Cheval” and collectively with BHCMF and BHC, the
“Black Horse Entities”) and Nomis Bay, as a lender (“Nomis” and, together with the Black Horse Entities,
the “Term Loan Lenders”).
On December 21, 2017, we entered into a
Securities Purchase and Loan Satisfaction Agreement (the “Restructuring Purchase Agreement”) and a Forbearance and
Loan Modification Agreement (the “Forbearance Agreement” and, together with the Restructuring Purchase Agreement, the
“Restructuring Agreements”), each with the Term Loan Lenders, in connection with a series of transactions providing
for, among other things, the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement
and the infusion of $3.0 million of new capital. As of February 27, 2018, the date the Restructuring Transactions were completed,
the aggregate amount of our obligations under the Term Loan Credit Agreement, including the Bridge Loan, the Claims Advances extended
by Nomis Bay (each as discussed below) and all accrued interest and fees, approximated $18.4 million (the “Term Loans”).
On February 27, 2018 (the “Restructuring
Effective Date”), the Restructuring Transactions were completed in accordance with the Restructuring Agreements. As a result,
on the Restructuring Effective Date, we: (i) in exchange for the satisfaction and extinguishment of the entire $18.4 million balance
of the Term Loans, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each as discussed below) and all accrued
interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848 shares of our common stock (the “New Lender
Shares”), and (b) transferred and assigned to Madison Joint Venture LLC owned 70% by Nomis Bay and 30% by us (Madison), all
of our assets related to benznidazole (the “Benz Assets”), our former drug candidate, capable of being so assigned;
and (ii) issued to Cheval an aggregate of 32,028,669 shares of our 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 (collectively,
the “Restructuring Transactions”), $1.5 million of which we received on December 22, 2017 in the form of a bridge loan
(the “Bridge Loan”).
On the Restructuring Effective Date, the
aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to the Black Horse Entities,
including the Bridge Loan and all accrued interest and fees, approximated $9.9 million, and (ii) previously owed to Nomis Bay,
including certain advances previously extended to us by Nomis Bay totaling $0.1 million (the Claims Advances) and all accrued interest
and fees, approximated $8.5 million. In addition, on the Restructuring Effective Date, (i) each of the Term Loan Credit Agreement,
all promissory notes issued thereunder and the Intellectual Property Security Agreement, dated as of December 21, 2016, by and
between us and the Term Loan Lenders, were terminated and are of no further force or effect, and (ii) all security interests of
the Black Horse Entities and Nomis Bay in our assets were released. Although the Term Loans were satisfied and extinguished, if
Madison elected to keep the Benz Assets after the Restructuring Effective Date, Nomis Bay would be obligated to pay or cause Madison
to pay $0.3 million in legal fees and expenses owed by us to our litigation counsel, which remain unpaid in our Accounts payable
at December 31, 2017. On August 23, 2018 Madison elected to keep the Benz Assets and these amounts were paid by Madison to our
litigation counsel.
Property
We have leased an office in Burlingame, California, which lease
was month-to-month and commenced in April 2018. We terminated the lease on November 19, 2019 and entered into a sub-lease agreement
for space in the same building in Burlingame, California. The initial term of the sub-lease ended on March 31, 2020 but was extended
until September 14, 2020. Thereafter, the sub-lease is renewable for additional terms by mutual agreement.
Legal Proceedings
Bankruptcy Proceedings
We filed for protection under Chapter 11
of Title 11 of the United States Code on December 29, 2015, in the Bankruptcy Court (Case No. 15-12628 (LSS) (the “Bankruptcy
Case”). Our Plan, was approved by the Bankruptcy Court on June 16, 2016 and went effective on June 30, 2016, or the Effective
Date. As of the Effective Date, approximately 195 proofs of claim were outstanding (including claims that were previously identified
on the Schedules) totaling approximately $32.0 million.
The reconciliation of certain proofs of
claim filed against us in the Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and Other Subordinated
Claims, is complete. As a result of its examination of the claims, we asked the Bankruptcy Court to disallow, reduce, reclassify
or otherwise adjudicate certain claims we believed were subject to objection or otherwise improper. On July 11, 2018, the Company
filed an objection to the remaining claims. By objection, the Company sought to disallow in their entirety the remaining claims
totaling approximately $0.5 million. On September 17, 2018 the Bankruptcy Court issued a Final Decree and Order to close the Bankruptcy
Case and terminate the remaining claims and noticing services.
Savant Litigation
On February 29, 2016, we entered into a
binding letter of intent (the “LOI”) with Savant Neglected Diseases, LLC (“Savant”). The LOI provided that
we would acquire certain worldwide rights relating to benznidazole from Savant. On June 30, 2016, we and Savant entered into an
Agreement for the Manufacture, Development and Commercialization of Benznidazole for Human Use (the “MDC Agreement”),
pursuant to which we acquired certain worldwide rights relating to benznidazole. The MDC Agreement consummates the transactions
contemplated by the LOI.
In addition, on June 30, 2016, we and
Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which we granted Savant a continuing
senior security interest in the assets and rights acquired by us pursuant to the MDC Agreement and certain future assets developed
from those acquired assets.
On June 30, 2016, in connection with the
MDC Agreement, we issued to Savant a five year warrant to purchase 200,000 shares of our common stock, at an exercise price of
$2.25 per share, subject to adjustment.
On May 26, 2017, we submitted our benznidazole
IND to the FDA which became effective on June 26, 2017. We 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 us that it granted Orphan Drug
Designation to benznidazole for the treatment of Chagas disease. We 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.
On July 10, 2017, we filed a complaint against Savant in the
Superior Court for the State of Delaware, New Castle County (the “Delaware Court”). KaloBios Pharmaceuticals, Inc.
v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. We asserted breach of contract and declaratory judgment claims
against Savant arising under the MDC Agreement. See Note 5 - “Savant Arrangements” to
the accompanying Consolidated Financial Statements for more information about the MDC Agreement. We alleged that Savant
had 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, we have 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. We asserted that we
are entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant
owed the Company approximately $1.4 million.
On July 12, 2017, Savant removed the case to the Bankruptcy
Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July 2016. In re
KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). On July 27, 2017, Savant filed an Answer and Counterclaims.
Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming that we breached
our obligations to pay the milestone payments and other related representations and obligations. On August 1, 2017, we moved to
remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure notice to us, demanding
that we 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. We 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
our motion for a TRO, entering an order prohibiting Savant from collecting on or selling the Collateral, entering our premises,
issuing any default notices to us, or attempting to exercise any other remedies under the MDC Agreement or the Security Agreement.
On August 9, 2017, the parties have stipulated to continue the provisions of the TRO in full force and effect until further order
of the appropriate court, which the Bankruptcy Court signed that same day (the “Stipulated Order”).
On January 22, 2018, Savant wrote to the Bankruptcy Court requesting
dissolution of the TRO and the Stipulated Order. On January 29, 2018, the Bankruptcy Court granted the Motion to Remand and denied
Savant’s request to dissolve the TRO and Stipulated Order, ordering that any request to dissolve the TRO and Stipulated Order
be made to the Delaware Court.
On February 13, 2018 Savant made a letter request to the Delaware
Court to dissolve the TRO and Stipulated Order. Also on February 13, 2018, we filed our Answer and Affirmative defenses to Savant’s
Counterclaims. On February 15, 2018 we filed a letter opposition to Savant’s request to dissolve the TRO and Stipulated Order,
requesting a status conference. A hearing on Savant’s request to dissolve the TRO and Stipulated Order was held before the
Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request to dissolve the TRO and Stipulated order, which
remain in effect.
On April 11, 2018, we advised the Delaware Court that we would
meet and confer with Savant regarding a proposed case management order and date for trial. On April 26, 2018 the Delaware Court
so-ordered a proposed case management order submitted by us and Savant. The schedule in the case management order was modified
by stipulation on August 24, 2018.
On April 8, 2019, we moved to compel Savant to produce documents
in response to our document requests. The parties thereafter agreed to a discovery schedule through June 30, 2019, which
the Superior Court so-ordered, and the parties produced documents to each other.
On June 4, 2019, Savant filed a complaint against us and Madison
in the Delaware Court of Chancery (the “Chancery Action”) seeking to “recover as damages amounts owed to it under
the MDC Agreement, and to reclaim Savant’s intellectual property,” among other things. Savant also requested
leave to move to dismiss our complaint on the grounds that our transfer of assets to Madison was champertous. On June 10,
2019, we requested by letter that the Superior Court hold a contempt hearing because the Chancery Action violated the TRO entered
by the Bankruptcy Court, the terms of which have been extended by stipulation of the parties. On June 18, 2019, the Superior
Court held a telephonic status conference. The parties agreed that the Chancery Action should be consolidated with the Superior
Court action, after which the Superior Court would address the parties’ motions.
On July 22, 2019, we moved for contempt against Savant.
Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied the Company’s motion for
contempt.
On July 23, 2019, Savant moved for summary judgment on the issue
of champerty. We filed our response and cross-motion for summary judgment on August 27, 2019. Savant filed its reply
on September 10, 2019 and we filed our cross-reply on September 20, 2019. The motion was argued at a hearing on February
3, 2020. The court has not yet ruled on the motion.
On July 26, 2019, we moved to modify the previously agreed-upon
discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted. In subsequent orders,
the discovery schedule was extended until the end of June 2020.
On July 30, 2019, we filed a motion to dismiss Savant’s
Chancery Action. Savant filed an amended complaint on September 4, 2019, and we filed our opening brief in support of our
motion to dismiss on October 11, 2019. That motion was argued at a hearing on February 3, 2020. The court has not yet ruled
on the motion.
On August 19, 2019, Savant moved to dismiss our amended Superior
Court complaint. On September 27, 2019, we filed an opposition to Savant’s motion and, in the alternative, requesting
leave to file a second amended complaint against Savant. Savant consented to the filing of the second amended complaint and
withdrew their motion to dismiss. Savant filed a partial motion to dismiss against a co-defendant on October 30, 2019.
That motion was heard on February 3, 2020, and the Court reserved judgment on the parties’ reciprocal motions.
On November 18, 2019, the Court granted Savant’s Motion
to Schedule a Preliminary Injunction hearing concerning the August 2017 TRO and Stipulated Order that are still in effect. On May
8, 2020, the Court granted the application for a preliminary injunction to the Company. The Stipulated Order is no longer in effect.
On May 22, 2020, the Court stayed both Delaware actions
until July 29, 2020.
On July 24, 2020, the parties submitted a joint status report
in the Delaware actions. The parties also requested a status conference with the Court to discuss moving the trial from October
2020 to some later time.
Private Placement Litigation
On June 15, 2020, a complaint was filed against Humanigen
and Dr. Durrant in the Commercial Division of the Supreme Court of the State of New York. The plaintiffs comprise a group of 17
prospective investors introduced to Humanigen by Noble Capital Markets, Inc. (“Noble”), which had been engaged as
a non-exclusive placement agent in connection with the Private Placement. The plaintiffs had indicated interest in purchasing
shares of common stock in the Private Placement but, due to the strength of demand for shares from other prospective investors
introduced to the company by J.P. Morgan Securities LLC, the lead placement agent for the Private Placement, the plaintiffs were
not allocated any investment amount. The plaintiffs allege that the company and Dr. Durrant breached a contractual obligation
to deliver shares of common stock to the plaintiffs. The plaintiffs seek to recover for losses due to alleged fraudulent misstatements
and the company’s failure to deliver shares to them, and seek equitable relief in the form of specific performance. On June
19, 2020, Noble filed a separate complaint against Humanigen in the Circuit Court of the Fifteenth Judicial Circuit in and for
Palm Beach County, Florida, also arising from the Private Placement. Noble’s complaint alleges that Humanigen breached the
terms of its engagement letters with Noble by refusing to pay it the sales commissions it would have earned had its prospective
investors received the entire allocation of shares sought in the Private Placement, as opposed to the $4 million of shares actually
allocated to Noble and its clients. Noble is seeking payment in full of the commission, damages for Humanigen’s alleged
tortious interference with Noble’s business relationship with the investors it introduced to Humanigen but which were not
allocated shares in the Private Placement, and attorneys’ fees. Humanigen believes that the claims made in each complaint
are without merit, and it is prepared to defend itself vigorously.
Available Information
We were incorporated on March 15, 2000
in California and reincorporated as a Delaware corporation in September 2001. Effective August 7, 2017, we changed our legal name
to Humanigen, Inc. Our principal offices are located at 533 Airport Boulevard, Suite 400, Burlingame, CA 94010, and our telephone
number is (650) 243-3100. Our website address is www.humanigen.com. Our common stock is currently traded on the OTCQB Venture Market.
We operate in a single segment.
Our website and the information contained
on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered
part of, this prospectus. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments
to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available
free of charge on the Investor Relations portion of our website as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains the reports, proxy
and information statements, and other information we electronically file with or furnish to the SEC, located at www.sec.gov.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion
and analysis of our financial condition and results of operations together with our financial statements and related notes appearing
elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this
prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. As a result of many factors, including those set forth in the “Risk Factors”
section of this prospectus, our actual results could differ materially from the results described in or implied by these forward-looking
statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”
Overview
We were incorporated on March 15, 2000 in
California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. Effective
August 7, 2017, we changed our legal name to Humanigen, Inc. During February 2018, we
completed the financial restructuring transactions announced in December 2017 and continued our transformation into a clinical-stage
biopharmaceutical company by further developing our clinical stage immuno-oncology and immunology portfolio of monoclonal
antibodies.
The recent coronavirus pandemic which is
due to the SARS-CoV-2 virus and leads to the condition referred to as COVID-19, is characterized in the later and sometimes fatal
stages by lung dysfunction which may be triggered by CRS, or cytokine storm. Recent publications point to GM-CSF being a key cytokine,
with elevated levels especially in those patients who transition to the ICU. We are initiating a Phase III clinical trial with
lenzilumab, our lead product candidate, in hospitalized patients suffering from severe pneumonia with COVID-19.
We are continuing to progress our efforts
on the development of our lead product candidate, lenzilumab, through our collaboration with Kite to study the effect of lenzilumab
on the safety of Yescarta including CRS and neurotoxicity, with a secondary endpoint of increased efficacy. We believe this study,
ZUMA-19, may be the basis for registration of lenzilumab given the similar trial design to Yescarta’s and Kymriah’s
registration trials.
We are also exploring the effectiveness
of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody or through GM-CSF gene
knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage
including the prevention and/or treatment of GvHD while preserving GvL benefits in patients undergoing allogeneic HSCT. In this
context, GvHD is akin to CRS, or cytokine storm and we believe this to be driven by GM-CSF.
Intellectual Property
Intellectual property is an important
part of our strategy. We have and continue to file aggressively on our own inventions and in-license intellectual property and
technology as it relates to our therapeutic interests. We believe that we have built a strong intellectual property position in
the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain to COVID-19, CAR-T, GvHD and multiple
other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may be driven by GM-CSF.
Operating Losses and Liquidity
We have incurred significant losses and
had an accumulated deficit of $287.4 million as of March 31, 2020. We expect to continue to incur net losses for the foreseeable
future as we develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, expand
our development activities and seek regulatory approvals. Significant capital is required to continue to develop and to launch
a product and many expenses are incurred before revenue is received, if any. We are unable to predict the extent of any future
losses or when we will receive revenue or become profitable, if at all.
We will need additional capital to support our business efforts, including
obtaining regulatory approvals for our product candidates, product manufacturing and CMC work, clinical trials and other studies,
and, if approved, the commercialization of our product candidates. We anticipate that we will seek additional financing from a
number of sources, including, but not limited to, the sale of equity or debt securities, strategic collaborations, and licensing
of our product candidates. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all.
Our ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business,
financial condition and results of operations. If adequate funds are not available, we may be required to delay, reduce the scope
of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies,
product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than
favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic
transaction that could result in, among other things, a sale, merger, acquisition, consolidation or business combination.
Results of Operations
Three months ended March 31, 2020 compared to three months
ended March 31, 2019
General
We have not generated net income from operations
for any periods presented. At March 31, 2020, we had an accumulated deficit of $287.4 million primarily as a result of research
and development and general and administrative expenses. While we may in the future generate revenue from a variety of sources,
including license fees, milestone payments, and research and development payments in connection with strategic partnerships, our
product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product
sales, particularly because most of our product candidates are at an early stage of development. Accordingly, we expect to continue
to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate
significant revenue or profits.
Research and Development Expenses
Conducting research and development is central
to our business model. We expense both internal and external research and development costs as incurred. We track external research
and development costs incurred by project for each of our clinical programs. Our external research and development costs consist
primarily of:
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expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities;
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the cost of acquiring and manufacturing clinical trial and other materials; and
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other costs associated with development activities, including additional studies.
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Other research and development costs consist
primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees (such
as workers compensation and health insurance premiums), stock-based compensation charges, travel costs, lab supplies, overhead
expenses such as rent and utilities, and external costs not allocated to one of our clinical programs. Internal research and development
costs generally benefit multiple projects and are not separately tracked per project.
The following table shows our total research
and development expenses for the three months ended March 31, 2020 and 2019:
|
|
Three
Months Ended March 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
External Costs
|
|
|
|
|
|
|
|
|
Lenzilumab
|
|
$
|
483
|
|
|
$
|
211
|
|
Ifabotuzumab
|
|
|
25
|
|
|
|
25
|
|
Internal costs
|
|
|
151
|
|
|
|
123
|
|
Total research and development
|
|
$
|
659
|
|
|
$
|
359
|
|
General and Administrative Expenses
General and administrative expenses consist
principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general
operating expenses not otherwise included in research and development.
Comparison of Three Months Ended March 31, 2020 and 2019
|
|
Three
Months Ended March 31,
|
|
|
Increase/ (Decrease)
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
659
|
|
|
$
|
359
|
|
|
$
|
300
|
|
|
|
84
|
|
General and administrative
|
|
|
1,398
|
|
|
|
1,879
|
|
|
|
(481
|
)
|
|
|
(26
|
)
|
Loss from operations
|
|
|
(2,057
|
)
|
|
|
(2,238
|
)
|
|
|
(181
|
)
|
|
|
(8
|
)
|
Interest expense
|
|
|
(410
|
)
|
|
|
(302
|
)
|
|
|
108
|
|
|
|
36
|
|
Other income
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
100
|
|
Net loss
|
|
$
|
(2,467
|
)
|
|
$
|
(2,541
|
)
|
|
$
|
(74
|
)
|
|
|
(3
|
)
|
Research and development expenses increased
$0.3 million from $0.4 million for the three months ended March 31, 2019 to $0.7 million for the three months ended March 31, 2020.
The increase is primarily due to increased CMC costs related to preparation of lenzilumab for the clinical trial in CAR-T and COVID-19.
We expect our development costs to increase significantly in the remaining nine months of 2020 as a result of the enrollment of
patients in the respective clinical trials.
General and administrative expenses decreased
$0.5 million from $1.9 million for the three months ended March 31, 2019 to $1.4 million for the three months ended March 31, 2020.
The decrease is primarily due to lower compensation expense, including stock-based compensation costs related to lower headcount
in the three months ended March 31, 2020. We expect our general and administrative costs to increase in the remaining nine months
of 2020 related to anticipated new hires in the finance and business development areas as we scale our operations in connection
with the ongoing clinical trials of lenzilumab in CAR-T and COVID-19.
Interest expense increased $0.1 million
from $0.3 million recognized for the three months ended March 31, 2019 to $0.4 million for the three months ended March 31, 2020.
The increase is primarily due to the addition of the 2019 Bridge Notes in June and November of 2019 and the 2019 Convertible Notes
in April 2019.
Other income (expense) was essentially unchanged
for the 3 months ended March 31, 2020 as compared to the same period in 2019.
Year ended December 31, 2019 compared to year ended December
31, 2018
At December 31, 2019, we had an accumulated deficit of
$284.9 million, primarily as a result of research and development and general and administrative expenses as well as costs
incurred in reorganization. While we may in the future generate revenue from a variety of sources, including license fees, milestone
payments, and research and development payments in connection with strategic partnerships, our product candidates are at an early
stage of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial
losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenue
or profits.
Research and Development Expenses
Conducting research and development is central to our business
model. We expense both internal and external research and development costs as incurred. We track external research and development
costs incurred by project for each of our clinical programs. We have continued to refine our systems and our methodology in tracking
external research and development costs. Our external research and development costs consist primarily of:
|
·
|
expenses incurred under agreements with contract research organizations, investigative sites, and
consultants that conduct our clinical trials and a substantial portion of our preclinical activities;
|
|
·
|
the cost of acquiring and manufacturing clinical trial and other materials; and
|
|
·
|
other costs associated with development activities, including additional studies.
|
Other research and development costs consist primarily of internal
research and development costs such as salaries and related fringe benefit costs for our employees (such as workers compensation
and health insurance premiums), stock-based compensation charges, travel costs, lab supplies, overhead expenses such as rent and
utilities, and external costs not allocated to one of our clinical programs. Internal research and development costs generally
benefit multiple projects and are not separately tracked per project. The following table shows our total research and development
expenses for the years ended December 31, 2019 and 2018 ($000’s):
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
External Costs
|
|
|
|
|
|
|
Lenzilumab
|
|
$
|
2,046
|
|
|
$
|
1,662
|
|
Ifabotuzumab
|
|
|
104
|
|
|
|
105
|
|
Internal costs
|
|
|
466
|
|
|
|
452
|
|
Total research and development
|
|
$
|
2,616
|
|
|
$
|
2,219
|
|
We expect to continue to incur substantial expenses related
to our research and development activities for the foreseeable future as we continue product development including our development
efforts for lenzilumab to reduce the serious and potentially life-threatening side-effects associated with CAR-T therapy and potentially
improve efficacy. Depending on the results of our development efforts we expect to incur substantial costs to prepare for potential
clinical trials and activities for lenzilumab.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related
costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise
included in research and development. For the years ended December 31, 2019 and 2018, general and administrative expenses
were $6.3 million and $9.1 million, respectively.
Comparison of Years Ended December 31, 2019 and 2018
($000’s)
|
|
Year Ended December 31,
|
|
|
Increase/ (Decrease)
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,616
|
|
|
$
|
2,219
|
|
|
$
|
397
|
|
|
|
18
|
|
General and administrative
|
|
|
6,328
|
|
|
|
9,112
|
|
|
|
(2,784
|
)
|
|
|
(31
|
)
|
Loss from operations
|
|
|
(8,944
|
)
|
|
|
(11,331
|
)
|
|
|
(2,387
|
)
|
|
|
(21
|
)
|
Interest expense
|
|
|
(1,349
|
)
|
|
|
(852
|
)
|
|
|
497
|
|
|
|
58
|
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
324
|
|
|
|
325
|
|
|
|
100
|
|
Reorganization items, net
|
|
|
-
|
|
|
|
(145
|
)
|
|
$
|
(145
|
)
|
|
|
(100
|
)
|
Net loss
|
|
$
|
(10,294
|
)
|
|
$
|
(12,004
|
)
|
|
$
|
(1,710
|
)
|
|
|
(14
|
)
|
Research and development expenses increased $0.4 million in
2019 from $2.2 million for the year ended December 31, 2018 to $2.6 million for the year ended December 31, 2019. The increase
is primarily due to the increase in spending in preparation for the phase Ib/II clinical trial of Lenzilumab with Kite’s
Yescarta in CAR-T therapy. We expect our research and development expenses will increase substantially in 2020 compared to 2019,
due to the commencement of enrollment in the trial.
General and administrative expenses decreased $2.8 million in
2019 from $9.1 million for the year ended December 31, 2018 to $6.3 million for the year ended December 31, 2019. The decrease
in general and administrative expenses is primarily attributable to a $2.7 million decrease in stock-based compensation expense
related to the issuance of options to management, consultants and board members subsequent to the completion of the Restructuring
Transactions in 2018 without such issuances in 2019. We expect our general and administrative expenses to increase somewhat in
2020 as compared to 2019 due to the expected addition of positions in the finance and accounting area with the objective of improving
internal controls and eliminating the material weakness that exists as of December 31, 2019.
Interest expense increased $0.5 million from $0.8 million recognized
for the year ended December 31, 2018 to $1.3 million for the year ended December 31, 2019. Interest expense for the year ended
December 31, 2019 primarily consisted of $0.2 million for interest and amortization of debt discount related to the Advance Notes,
entered into in June, July and August 2018, $0.8 million for interest and amortization of debt discount related to the 2018 Convertible
Notes entered into in September 2018, $0.1 million in interest and amortization of debt discount related to the 2019 Convertible
Notes entered into in April 2019, $0.1 million in interest related to the 2019 Bridge Notes entered into in June and November 2019
and $0.1 million in interest related to the Notes payable to vendors related to our 2016 bankruptcy filing. Interest expense of
$0.9 million recognized for the year ended December 31, 2018 is comprised of $0.4 million for interest and loan issuance costs
related to the Term Loans (as defined below), $0.2 million for interest and amortization of debt discount related to the Advance
Notes, $0.2 million for interest and amortization of debt discount related to the 2018 Convertible Notes and $0.1 million for interest
related to the Notes payable to vendors related to our 2016 bankruptcy filing.
Reorganization items, net for the year ended December 31, 2018
primarily consisted of legal fees. There were no Reorganization items, net incurred for the year ended December 31, 2019.
Other income, net for the year ended December 31, 2018 primarily
consisted of legal fees assumed by Madison Joint Venture LLC related to their positive election related to the assets related to
benznidazole, our former drug candidate (see Note 9 of the notes to our Consolidated Financial Statements included elsewhere in
this prospectus).
Income Taxes
As of December 31, 2019, we had net operating loss carryforwards
of approximately $166.2 million to offset future federal income taxes which expire in the years 2021 through 2037, and approximately
$172.1 million that may offset future state income taxes which expire in the years 2028 through 2039. We also have federal
net operating loss carryforwards generated in 2018 and 2019 of $15.4 million that have no expiration date as a result of the tax
law changes signed into law on December 22, 2017. Current federal and state tax laws include substantial restrictions on the utilization
of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may
be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration
of the carryforwards before they are utilized. At December 31, 2019, we recorded a 100% valuation allowance against our deferred
tax assets of approximately $57.4 million, as at that time our management believed it was uncertain that they would be fully
realized. If we determine in the future that we will be able to realize all or a portion of our deferred tax assets, an adjustment
to our valuation allowance would increase net income in the period in which we make such a determination.
Liquidity and Capital Resources
Since our inception, we have financed our
operations primarily through proceeds from the public offerings of our common stock, private placements of our common and preferred
stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against
lines of credit. At March 31, 2020, we had cash and cash equivalents of $0.1 million.
We raised gross proceeds of approximately
$71.8 million from our private placement of common stock on June 2, 2020.
The following tables sets forth the primary
sources and uses of cash and cash equivalents for each of the periods presented below ($000’s):
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(607
|
)
|
|
$
|
(684
|
)
|
Financing activities
|
|
$
|
532
|
|
|
$
|
50
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(75
|
)
|
|
$
|
(634
|
)
|
|
|
Twelve Months Ended December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(4,001
|
)
|
|
$
|
(6,209
|
)
|
Financing activities
|
|
|
3,330
|
|
|
|
6,256
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(671
|
)
|
|
$
|
47
|
|
Three months ended March 31, 2020 compared to three months
ended March 31, 2019
Net cash used in operating activities was
$0.6 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively. Cash used in operating activities
of $0.6 million for the three months ended March 31, 2020 primarily related to our net loss of $2.4 million, adjusted for non-cash
items, such as $0.3 million in stock-based compensation, $0.4 million in noncash interest expense, and net increases in other working
capital items of $1.1 million.
Cash used in operating activities
of $0.7 million for the three months ended March 31, 2019 primarily related to our net loss of $2.5 million, adjusted
for non-cash items, such as $0.7 million in stock-based compensation, $0.3 million in noncash interest expense, and net increases
in other working capital items of $0.8 million.
Net cash provided by financing activities
was $0.5 million for the three months ended March 31, 2020 and consists primarily of $0.4 million received from the issuance of
convertible notes in March 2020 and $0.1 million received from the issuance of common stock under that certain Purchase Agreement,
dated as of November 8, 2019 (the “ELOC Purchase Agreement”), pursuant to which Lincoln Park Capital Fund, LLC (“Lincoln
Park”) had agreed to provide the Company with an equity line of credit.
Year ended December 31, 2019 compared to year ended December
31, 2018
Net cash used in operating activities was $4.0 million and $6.2
million for the years ended December 31, 2019 and 2018, respectively. Cash used in operating activities in 2018 primarily related
to our net loss of $12.0 million, adjusted for non-cash items, such as $4.8 million in stock-based compensation, $0.8 million in
non-cash interest expense and other non-cash items of $0.2 million. Cash used in operating activities in 2019 primarily related
to our net loss of $10.3 million, adjusted for non-cash items, such as $2.0 million in stock-based compensation, $1.3 million in
non-cash interest expense, changes in operating assets and liabilities of $2.8 million and other non-cash items of $0.2 million.
Net cash provided by financing activities was $3.3 million for
the year ended December 31, 2019. This amount consists primarily of $2.0 million received from the issuance of the 2019 Bridge
Notes (as defined below) entered into in June and November 2019, $1.3 million from the issuance of the 2019 Notes (as defined below)
entered into in April 2019, $0.3 million received from the exercise of stock options, $0.2 million received from the issuance of
common stock under the equity line of credit with Lincoln Park, offset by $0.5 million in payments made against the Notes payable
to vendors.
Net cash provided by financing activities was $6.3 million for
the year ended December 31, 2018. This amount consists primarily of $1.5 million received from Cheval, an affiliate of Black Horse
Capital, L.P., the Company’s controlling stockholder at the time (“BHC”), related to the Restructuring Transactions
(see “Restructuring Transactions” below), $1.1 million from the issuance of 2,445,557 shares of our common stock to
accredited investors on March 12, 2018, $0.2 million received from the issuance of 400,000 shares of our common stock to an accredited
investor on June 4, 2018, $0.9 million received from the issuance of the Advance Notes in June, July and August 2018 and $2.5 million
received for the issuance of the notes in September 2018.
Restructuring Transactions
In December 2016, we entered into a Credit
and Security Agreement (as amended, the “Term Loan Credit Agreement”) providing for an original $3.0 million credit
facility, net of certain fees and expenses. On March 21, 2017, we entered into an amendment to the Term Loan Credit Agreement to
obtain an additional $5.5 million, net of certain fees and expenses, providing additional working capital. On July 8, 2017, we
entered into a second amendment to the Term Loan Credit Agreement to obtain an additional $5.0 million, net of certain fees and
expenses, providing additional working capital. As of the third quarter of 2017, we had received the entire amount available under
the Term Loan Credit Agreement.
On December 21, 2017, we entered into the
Restructuring Agreements with the Term Loan Lenders in connection with a series of transactions providing for, among other things,
the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement and the infusion of $3.0
million of new capital.
On February 27, 2018 (the “Restructuring Effective Date”),
the Restructuring Transactions (as defined below) were completed in accordance with the Restructuring Agreements. As a result,
on the Restructuring Effective Date, we: (i) in exchange for the satisfaction and extinguishment of the entire $18.4 million balance
of the Term Loans (as defined below), including the Bridge Loan (as defined below), the Claims Advances extended by Nomis Bay (each
as discussed and defined below) and all accrued interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848
shares of our common stock (the “New Lender Shares”), and (b) transferred and assigned to Madison Joint Venture LLC
owned 70% by Nomis Bay and 30% by us (Madison), all of the Company’s assets related to benznidazole (the “Benz Assets”),
related to our former drug candidate, capable of being so assigned; and (ii) issued to Cheval an aggregate of 32,028,669 shares
of our 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 (collectively, the “Restructuring Transactions”), $1.5 million
of which we received on December 22, 2017 in the form of a bridge loan (the “Bridge Loan”).
In connection with the transfer of the
Benz Assets to the joint venture, the joint venture partner paid certain amounts we incurred after December 21, 2017 and prior
to February 27, 2018 in investigating certain causes of action and claims related to or in connection with the Benz Assets. In
addition, upon exercise of its rights under the terms of the joint venture, the joint venture partner assumed certain legal fees
and expenses owed us to our litigation counsel totaling $0.3 million.
Operating Leases
In April 2016 we entered into a lease agreement for a facility
in Brisbane, California. The lease commenced in April 2016. This lease expired on September 30, 2018. In May 2018, we entered into
a month-to-month lease agreement for a new facility in Burlingame, California. We terminated the lease on November 1, 2019 and
entered into a sub-lease agreement for space in the same building in Burlingame, California. The initial term of the sub-lease
ended on March 31, 2020 but was extended until September 14, 2020. Thereafter, the sub-lease is renewable for additional terms
by mutual agreement.
Prior Equity Financings
On March 12, 2018, we issued 2,445,557
shares of our common stock to accredited investors for total proceeds of $1.1 million. On June 4, 2018, we issued 400,000 shares
of our common stock to an accredited investor for total proceeds of $0.2 million. In December 2019 and January 2020, we issued
an aggregate of 700,000 shares to Lincoln Park for total proceeds of approximately $250,000.
Notes Payable to Vendors
On June 30, 2016, we issued promissory notes in an aggregate
principal amount of approximately $1.2 million to certain claimants in accordance with the Plan. The notes were unsecured, accrued
interest at 10% per annum and became due and payable in full, including principal and accrued interest on June 30, 2019. In July
and August 2019, following the receipt of proceeds from the 2019 Bridge Notes, we used approximately $0.5 million of the proceeds
to retire a portion of these notes, including accrued interest. After giving effect to these payments, the aggregate principal
amount and accrued but unpaid interest on these notes approximated $1.1 million as of December 31, 2019. As of December 31, 2019
and December 31, 2018, we accrued $0.3 million and $0.3 million in interest related to these promissory notes, respectively. In
June and July 2020, the Company used the proceeds from the Private Placement to repay the remaining outstanding principal and
accrued and unpaid interest on these notes, and the notes were extinguished.
Advance Notes
In June, July and August 2018, we received an aggregate of $0.9
million of proceeds from advances made to us (the “Advance Notes”) by four different lenders including Dr. Cameron
Durrant, the Company’s Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the Company’s controlling
stockholder at the time; and Ronald Barliant, a director of the Company (collectively the “Advance Note Lenders”).
The Advance Notes accrued interest at a rate of 7% per year, compounded annually.
In accordance with their terms, on May 30, 2019, in connection
with our announcement of the Kite Agreement, the Advance Note Lenders converted the amounts due under the Advance Notes into common
stock at the conversion price of $0.45 per share. We issued a total of 2,179,622 shares of common stock in connection with the
conversion.
2018 Convertible Notes
Commencing September 19, 2018, we delivered a series of convertible
promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans made to us by six different lenders,
including an affiliate of BHC, our controlling stockholder at the time. The 2018 Notes accrued interest at a rate of 7% per annum
and, in general, were set to mature twenty-four months from the date the 2018 Notes were signed. We used the proceeds from the
2018 Notes for working capital.
The 2018 Notes were convertible into our equity securities in
three different scenarios, including if we sold our equity securities on or before the date of repayment of the 2018 Notes
in any financing transaction that resulted in gross proceeds to us of less than $10 million (a “Non-Qualified Financing”).
In connection with a Non-Qualified Financing, the noteholders were able to convert their remaining 2018 Notes into either (i) such
equity securities as the noteholder would acquire if the principal and accrued but unpaid interest thereon (the “Conversion
Amount”) were invested directly in the financing on the same terms and conditions as given to the financing investors in
the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment
for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes).
Our sales of shares pursuant to the ELOC Purchase Agreement with Lincoln
Park constituted a Non-Qualified Financing. Commencing on April 2, 2020, the holders of the 2018 Notes notified us of their exercise
of their conversion rights under the 2018 Notes. See “—2019 Convertible Notes” for additional information regarding
the conversion of 2018 Notes by the holders.
2019 Convertible Notes
Commencing on April 23, 2019, we delivered
a series of convertible promissory notes (the “2019 Notes” and together with the 2018 Notes, the “Convertible
Notes”) evidencing an aggregate of $1.3 million of loans made to us. The 2019 Notes accrued interest at a rate of 7.5% per
annum and, in general, were set to mature twenty-four months from the date the 2019 Notes were signed. We used the proceeds from
the 2019 Notes for working capital.
The 2019 Notes were convertible into
our equity securities in four different scenarios, including if we sold our equity securities on or before the date of repayment
of the 2019 Notes in any financing transaction that resulted in gross proceeds to us of less than $ 10.0 million (a “Non-Qualified
Financing”). In connection with a Non-Qualified Financing, the noteholders were able to convert their remaining Convertible
Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in
the financing on the same terms and conditions (including price) as given to the financing investors in the Non-Qualified Financing,
or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend,
stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).
Our sales of shares pursuant to the ELOC Purchase
Agreement with Lincoln Park on December 11, 2019 constituted a Non-Qualified Financing. Commencing on April 2, 2020, holders of
the Convertible Notes, including Cheval, an affiliate of BHC, our controlling stockholder at the time, notified us of their exercise
of their conversion rights under the Convertible Notes. Pursuant to the exemption from registration afforded by Section 3(a)(9)
under the Securities Act, we issued an aggregate of 7,131,942 shares of our common stock upon the conversion of $2.6 million in
aggregate principal and interest on the Convertible Notes that were converted, which obligations were retired. Of these, we issued
1,583,333 shares to Cheval. Dr. Dale Chappell, who was serving as our ex-officio chief scientific officer at the time and currently
serves as our Chief Scientific Officer, controls BHC and reports beneficial ownership of all shares held by it and its affiliates,
including Cheval. After giving effect to the shares issued upon such conversions, no convertible notes issued in 2018 or 2019
were outstanding.
2019 Bridge
Notes
On June 28, 2019,
we issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million
of loans made to us by three parties: Cheval, an affiliate of BHC, our controlling stockholder at the time, lent $750,000; Nomis
Bay, our second largest stockholder, lent $750,000; and Cameron Durrant, M.D., MBA, our Chief Executive Officer and Chairman of
our Board of Directors, lent $200,000. The proceeds from the June Bridge Notes were used to satisfy a portion of the unsecured
obligations incurred in connection with our emergence from bankruptcy in 2016 and for working capital and general corporate purposes.
Of the $1.7 million in proceeds received, $950,000 was received on June 28, 2019 and was recorded as Advance notes in the Condensed
Consolidated Balance Sheet as of June 30, 2019. The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.
The June Bridge
Notes accrued interest at a rate of 7.0% per annum and, after giving effect to multiple extensions, were set to mature on December
31, 2020. The June Bridge Notes could become due and payable at such earlier time as we raised more than $3,000,000 in a
bona fide financing transaction or upon a change in control. Accordingly, the June Bridge Notes were
repaid in June 2020 with proceeds from the Private Placement, and the June Bridge Notes were extinguished. The June Bridge
Notes were secured by liens of substantially all of the Company’s assets, which liens have been released.
On November 12, 2019, we issued two
short-term, secured bridge notes (the “November Bridge Notes”) evidencing an aggregate of $350,000 of loans made us
by two parties: Cheval, an affiliate BHC, our controlling stockholder at the time, lent $250,000; and Cameron
Durrant, M.D., MBA, our Chief Executive Officer and Chairman of our Board of Directors, lent $100,000. The proceeds from
the November Bridge Notes were used for working capital and general corporate purposes.
The November Bridge Notes ranked on
par with the June Bridge Notes, and possessed other terms and conditions substantially consistent with those notes. The November
Bridge Notes accrued interest at a rate of 7.0% per annum and, after giving effect to multiple extensions, were set to mature on
December 31, 2020. The November Bridge Notes could become due and payable at such
earlier time as we raised more than $3,000,000 in a bona fide financing transaction or upon a change in control. Accordingly,
the November Bridge Notes were repaid in June 2020 with proceeds from the Private Placement, and the November Bridge Notes were
extinguished. The November Bridge Notes were secured by a lien of substantially all of the Company’s assets, which
liens have been released.
March 2020
Notes
In March 2020,
we delivered a series of convertible redeemable promissory notes evidencing loans with an aggregate principal amount of $518,333
made to us. The notes accrued interest at a rate of 7.0% per annum and were set to mature on March 13, 2021 and March 19, 2021,
respectively. The notes contained an original issue discount of $33,000 and $18,833.33, respectively. We used the proceeds from
the notes for working capital. The notes could be redeemed by us at any time before the 270th day following issuance,
at a redemption price equal to the principal and accrued but unpaid interest on the notes to the date of redemption, plus a premium
that increases on day 61 and day 121 from the issuance date. Accordingly, the notes were repaid in June 2020 with proceeds from
the Private Placement, and the notes were extinguished.
April 2020 Bridge Notes
In April 2020, we issued two short-term,
secured bridge notes evidencing an aggregate of $350,000 of loans made to the Company by Cheval,
an affiliate of BHC, our controlling stockholder at the time, which loaned $100,000, and Nomis
Bay, our second largest stockholder, loaned $250,000. The proceeds from the notes were used for working
capital and general corporate purposes. The notes ranked on par with the 2019 Bridge Notes, and possessed other terms and conditions
substantially consistent with the 2019 Bridge Notes. The notes accrued interest at a rate of 7.0% per annum and were set to mature
on December 31, 2020. The notes could become due and payable at such earlier time as the Company raised more than $10,000,000 in
a bona fide financing transaction or upon a change in control. Accordingly, these bridge notes were repaid in June 2020 with proceeds
from the Private Placement, and these bridge notes were extinguished.
Equity Line of Credit
On November 8, 2019, we entered into the ELOC Purchase Agreement and a
registration rights agreement with Lincoln Park, pursuant to which we had the right to sell to Lincoln Park up to $20,000,000
in shares of our common stock, subject to certain limitations and conditions set forth in the ELOC Purchase Agreement. On June
2, 2020, following completion of the Private Placement described below, we notified Lincoln Park of our decision to terminate
the ELOC Purchase Agreement. The termination of the ELOC Purchase Agreement became effective on June 3, 2020.
2020 Private Placement
On June 1, 2020, we entered into a securities purchase agreement with
certain accredited investors (the “Purchase Agreement”) to complete a private placement of our common stock (the “Private
Placement”). The closing of the Private Placement occurred on June 2, 2020. At the closing, we issued and sold 82,528,718
shares of our common stock at a purchase price of $0.87 per share, for aggregate gross proceeds of approximately $71.8 million.
We used a portion of the proceeds to retire certain indebtedness, as further described above. We expect to use the remaining proceeds
from the Private Placement to retire other indebtedness, to fund our Phase III study of lenzilumab in COVID-19, our collaboration
with Kite and other development programs, as well as for manufacturing and preparation for potential commercialization of lenzilumab,
working capital and other general corporate purposes. See “Business—Legal Proceedings” set forth elsewhere in
this prospectus for material information regarding two complaints filed against us in connection with the Private Placement.
Contractual Obligations and Commitments
The following table summarizes our contractual
obligations at December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flow in future
years ($000’s):
|
|
Total
|
|
|
Less than 1
year
|
|
|
1 to 3
years
|
|
|
4 to 5
years
|
|
|
After 5
years
|
|
Principal payments on notes payable to
vendors*
|
|
$
|
774
|
|
|
$
|
774
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest payments on notes payable to
vendors*
|
|
|
320
|
|
|
|
320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Principal payments on 2019 Bridge Notes*
|
|
|
2,050
|
|
|
|
2,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest payments on 2019 Bridge Notes*
|
|
|
63
|
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Principal payments on Convertible Notes*
|
|
|
3,775
|
|
|
|
2,500
|
|
|
|
1,275
|
|
|
|
-
|
|
|
|
-
|
|
Interest payments on Convertible Notes*
|
|
|
290
|
|
|
|
224
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
7,272
|
|
|
$
|
5,931
|
|
|
$
|
1,341
|
|
|
$
|
-
|
|
|
$
|
-
|
|
* Subsequent to December 31, 2019, these notes were either
converted into shares of our common stock in accordance with their terms or extinguished with proceeds from the Private Placement
that was completed on June 2, 2020.
Contracts
We are obligated to make future payments
to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on
the achievement of certain development and commercialization milestones.
We record upfront and milestone payments
made to third parties under licensing arrangements as an expense. Upfront payments are recorded when incurred and milestone payments
are recorded when the specific milestone has been achieved.
License with the University of Zurich
On July 19, 2019, we entered into the Zurich
Agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent
GvHD through GM-CSF neutralization. The Zurich Agreement required an initial one-time payment of $100,000, which we paid to UZH
on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as milestones and
royalties upon the achievement of certain regulatory and commercialization milestones.
License with the Mayo Foundation for Medical Education and
Research
On June 19, 2019, we entered into the Mayo Agreement with the
Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T
cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. The Mayo Agreement also requires the
payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
Kite Agreement
On May 30, 2019, we entered into the Kite
Agreement. The Kite Agreement provides that we and Kite will split only the out-of-pocket costs actually incurred in conducting
the Study, including all third-party expenses incurred in accordance with a mutually agreed budget. We currently project we will
be responsible for an aggregate of approximately $8 million in out-of-pocket costs, assuming up to a total of 72 patients are recruited
for a multi-center Study. Each party will otherwise be responsible for its own internal costs, including internal personnel costs,
incurred in connection with the Study.
Indemnification
In the normal course of business, we enter
into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.
Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not
yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations.
However, we may record charges in the future as a result of these indemnification obligations.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet
arrangements, such as structured finance, special purpose entities, or variable interest entities.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements
in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported
in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our
management believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value-based
measurement of stock-based compensation, accruals and warrant valuations. Our management evaluates estimates and assumptions as
facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ
from these estimates and assumptions, and those differences could be material to the consolidated financial statements. If our
assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material
adverse effect on our statements of operations, liquidity and financial condition.
Until December 31, 2018, we qualified as
an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012. Emerging growth companies
can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We elected
to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same
new or revised accounting standards as other public companies that are not emerging growth companies.
A registrant with EGC status loses its eligibility as an EGC
five years after its common equity initial public offering, December 31, 2018 for our company. Accordingly, we are required to
adopt new accounting standards on the same timeline as other public companies effective January 1, 2018. See Note 3 in the Notes
to the Consolidated Financial Statements included elsewhere in this prospectus for a description of the impact of new accounting
standards adopted in 2018.
While our significant accounting policies
are described in more detail in Note 3 in the Notes to the Consolidated Financial Statements included elsewhere in this prospectus,
we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial
statements.
Accrued Research and Development Expenses
As part of the process of preparing our
consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves
reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel
to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost
incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Some of our service providers
invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based
on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees
to:
|
·
|
contract research organizations and other service providers in connection with clinical studies;
|
|
·
|
contract manufacturers in connection with the production of clinical trial materials; and
|
|
·
|
vendors in connection with preclinical development activities.
|
We base our expenses related to clinical
studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions
and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements
are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments
under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial
milestones. In accruing these costs, we estimate the time period over which services will be performed for which we have not been
invoiced and the level of effort to be expended in each period. If the actual timing of the performance of services or the level
of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed
relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in
any particular period.
Stock-Based Compensation
Our stock-based compensation expense for
stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing
model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires various highly
judgmental assumptions including expected volatility and expected term. The expected volatility is based on the historical stock
volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have
a sufficient trading history to use the volatility of our own common stock. To estimate the expected term, we have opted to use
the simplified method, which is the use of the midpoint of the vesting term and the contractual term. If any of the assumptions
used in the Black-Scholes option pricing model changes significantly, stock-based compensation expense may differ materially in
the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and
only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our
expectations regarding future pre-vesting termination behavior of employees. To the extent our actual forfeiture rate is different
from our estimate, stock-based compensation expense is adjusted accordingly.
Recently Issued Accounting Pronouncements
For a discussion of new accounting pronouncements,
see Note 3 in the Notes to the Consolidated Financial Statements included elsewhere in this prospectus.
MANAGEMENT
Directors
The
following table sets forth the names, ages and current positions of members of our board of directors. Following the table
is biographical information for each director, including information on specific experiences, qualifications and skills that support
the conclusion that the director should currently serve on our board of directors.
Name
|
|
Age
|
|
Principal Occupation
|
|
Director
Since
|
Cameron Durrant, M.D., MBA
|
|
59
|
|
Chairman and Chief Executive Officer, Humanigen, Inc.
|
|
2016
|
Ronald Barliant, JD
|
|
74
|
|
Of Counsel, Goldberg Kohn, Ltd.
|
|
2016
|
Rainer Boehm, M.D., MBA
|
|
60
|
|
Former Chief Commercial and Medical Officer and interim Chief Executive Officer at Novartis Pharmaceuticals
|
|
2018
|
Robert Savage, MBA
|
|
67
|
|
Former Worldwide Chairman, Pharmaceuticals Group, Member of the Executive Committee and Company Officer, J&J Pharmaceuticals, President and CEO, Strategic Imagery, LLC
|
|
2018
|
|
|
|
|
|
|
|
Cheryl Buxton
|
|
60
|
|
Vice Chairman, Global Sector Leader, Pharmaceuticals, Korn Ferry International
|
|
2019
|
Cameron
Durrant, M.D., MBA, has served as a member and Chairman of our Board since January 2016, and as our Chief Executive Officer
since March 2016. From July 1, 2019 to July 31, 2020, Dr. Durrant acted, on an interim basis, as our principal financial
officer. From May 2014 to January 2016, Dr. Durrant served as Founder and Director of Taran
Pharma Limited, a private semi-virtual specialty pharma company developing and registering treatments in Europe for orphan conditions.
Dr. Durrant served as President and Chief Executive Officer of ECR Pharmaceuticals Co., Inc., a subsidiary of Hi-Tech Pharmacal
Co., Inc., from September 2012 to April 2014. From January 2010 to September 2012, Dr. Durrant served as a consultant to several
biopharma companies, as the Founder, CEO, CFO and director of PediatRx, Inc. and on the boards of several privately-held healthcare
companies. He previously served as CEO of PediaMed Pharmaceuticals and has been a senior executive at Johnson and Johnson, Pharmacia,
GSK and Merck. Dr. Durrant served as a director of Immune Pharmaceuticals Inc. from July 2014 through September 2018 and serves
on the board of directors of a privately held nano-biotech company and a medical device company. Dr. Durrant earned his medical
degree from the Welsh National School of Medicine, Cardiff, UK, his DRCOG from the Royal College of Obstetricians and Gynecologists,
London, UK, his MRCGP from the Royal College of General Practitioners, London, UK, his DipCH from the Melbourne Academy, Australia
and his MBA from Henley Management College, Oxford, UK. Dr. Durrant brings to the Board extensive experience as a pharma/biotech
entrepreneur, operating executive and board member, as well as his day to day operating experience as our Chief Executive Officer.
Ronald
Barliant, JD, has served as a member of our Board since January 2016. Mr. Barliant has been Of Counsel to Goldberg Kohn, Ltd.
since January 2016, and immediately prior to that had served as a principal in Goldberg Kohn’s Bankruptcy & Creditors’
Rights Group since September 2002. He previously served as U.S. bankruptcy judge for the Northern District of Illinois from 1988
to 2002. Mr. Barliant has represented debtors and creditors in complex bankruptcy cases, and counseled major financial institutions,
business firms and boards of directors in connection with workouts. Mr. Barliant brings to the Board valuable experience gained
from a distinguished career as a counselor to numerous boards, considered judgment and experience with bankruptcy in the bankruptcy
setting, which continues to be relevant as we address the finalization of matters related to our emergence from bankruptcy.
Rainer
Boehm, M.D., MBA has served as a member of our Board since February 2018. Dr. Boehm has been a biopharmaceutical industry leader
for more than three decades. At Novartis for 29 years, he held roles of increasing responsibility culminating with his position
as Chief Commercial and Medical Affairs Officer and as ad interim CEO of Novartis’ pharmaceuticals division. His background
spans senior leadership, marketing, sales and medical affairs positions in both oncology and pharmaceuticals and he has led regions
around the world, including North America, Asia and all emerging markets. Dr. Boehm has overseen the launch and commercialization
of many new drugs in his career, including blockbuster breakthroughs Cosentyx and Entresto, and major oncology brands including
Afinitor, Exjade, Tasigna, Femara, Zometa and Glivec. Dr. Boehm also currently serves on the board of directors for Cellectis,
a clinical-stage biopharmaceutical company focused on immunotherapies based on gene-edited CAR-T cells; as an advisor in leadership
development for senior executives at the GLG Institute in New York City; and as a consultant to healthcare companies. He graduated
from the medical school at the University of Ulm in Germany and received his MBA from Schiller University at the Strasbourg campus
in France. Dr. Boehm brings to the Board significant knowledge and experience within the biopharmaceutical industry, as well as
financial acumen and operational experience.
Robert Savage, MBA, has served as
a member of our Board since March 2018. Mr. Savage is a seasoned executive with more than 45 years of experience in marketing,
sales, drug development, operations and business development in the pharmaceutical and biotechnological industries. Moreover, Mr.
Savage has served on 12 boards over two decades helping to guide companies and organizations, both public and private. Recently,
he has been a director at Depomed, from October 2016 to August 2017; The Medicines Company, from 2003 – 2016; and Medworth
Acquisition Corporation, from 2013 – 2015. He has led multinational groups to successfully execute on corporate strategies
to develop, launch and market multiple pharmaceutical brands with sales exceeding $4 billion. Currently, Mr. Savage is the president,
chief executive officer and chairman of Strategic Imagery, LLC. He served as group vice president and president, worldwide general
therapeutics & inflammation business, at Pharmacia from 2002 until its acquisition by Pfizer. Prior to his work with Pharmacia,
Mr. Savage held leadership positions at Johnson & Johnson, where he was the worldwide chairman of the pharmaceuticals group,
with prior senior roles at Ortho-McNeil Pharmaceuticals and Hoffman La-Roche. Mr. Savage earned his MBA in international marketing
from Rutgers University in New Jersey. He received his BS in biology from Upsala College. Mr. Savage brings to the Board valuable
operational experience with public companies in the biopharmaceutical industry, particularly in the areas of commercialization
and corporate development, as well as extensive outside board experience.
Cheryl Buxton has, for the past 25 years, worked at Korn/Ferry
International, the world’s largest executive search company. She is the Korn/Ferry Vice Chairman, Global Sector Leader,
Pharmaceuticals, based in the firm’s Princeton office. Ms. Buxton conducts senior level assignments, with a special focus
on research driven organizations. She also leads the R&D sector for the Pharmaceutical and Consumer divisions within Korn/Ferry. Ms.
Buxton joined the Firm’s London office and European headquarters before spending time in Paris and then relocating to Princeton
in 1997. Prior to joining Korn/Ferry, Ms. Buxton was human resources director for Johnson & Johnson Pharmaceuticals (Cilag
Ltd), based in the U.K., where her focus was on organizational issues and strategic resourcing and guidance on European directives.
She also provided human resources support to three smaller companies in the group for Europe. Her human resources career started
at Bristol Myers Ltd., where she was responsible for its consumer and pharmaceutical business. Ms. Buxton holds a master’s
degree in employment law and industrial relations from Leicester University, a degree in Nursing, a diploma in personnel management
and is a member of the Institute of Personnel and Development. Ms. Buxton is on the Executive Council for Springboard, a
non-profit organization encouraging women entrepreneurs in Life Sciences, and the Advisory Board for South Asia Pharmaceutical
Council. She previously was on Board of SIFE. A keen horsewoman, she is a competitive amateur show jumper and endurance
rider. Ms. Buxton brings to the Board significant knowledge and experience within the biopharmaceutical
industry, as well as an extensive executive network.
Executive Officers
The
following table sets forth the names, ages and current positions of each person currently serving as an executive officer.
Name
|
|
Age
|
|
Position
|
Cameron Durrant, M.D., MBA
|
|
59
|
|
Chief Executive Officer
|
Timothy Morris, CPA
|
|
58
|
|
Chief Operating Officer
and Chief Financial Officer
|
Dale Chappell, M.D., MBA
|
|
50
|
|
Chief Scientific Officer
|
David Tousley, MBA, CPA
|
|
65
|
|
Chief Accounting and Administrative Officer, Corporate Secretary and Treasurer
|
Cameron
Durrant, M.D., MBA has served as our Chief Executive Officer since March 2016. See “Directors” for
Dr. Durrant’s biographical information.
Timothy
Morris, CPA was appointed as our Chief Operating Officer and Chief Financial Officer effective August 1, 2020. From June
2016 until his appointment as our Chief Operating Officer and Chief Financial Officer, Mr. Morris served as a
member of our Board. Mr. Morris served as the Chief Financial Officer of Iovance Biotherapeutics, Inc., a publicly
traded immuno-oncology biotech company (Nasdaq: IOVA), from August 2017 to June 2020.
From March 2014 to June 2017 Mr. Morris served as Chief Financial Officer and Head of Business Development of AcelRx
Pharmaceuticals, Inc., a specialty pharmaceutical company. From November 2004 to December 2013, Mr. Morris served as Senior
Vice President Finance and Global Corporate Development, Chief Financial Officer of VIVUS, Inc. a biopharmaceutical company.
Mr. Morris received his BS in Business with an emphasis in Accounting from California State University, Chico, and is a
Certified Public Accountant (Inactive). Mr. Morris has extensive operational experience with public companies in the
biopharmaceutical industry, particularly in the areas of finance and corporate development.
Dale Chappell, M.D., MBA was
appointed as our Chief Scientific Officer on July 6, 2020. Dr. Chappell is the managing member of BH Management, a private investment
manager that specializes in biopharmaceuticals and a significant stockholder, a position he has held since 2002. Since April 2015,
Dr. Chappell has served as CEO, President and CFO of Cheval US Holdings, Inc., a private investment company with holdings in the
hospitality industry. Previously, Dr. Chappell was an associate with Chilton Investment Company, covering healthcare, and an analyst
at W.P. Carey & Company. Dr. Chappell, who received his MD from Dartmouth Medical School and his MBA from Harvard Business
School, began his career as a Howard Hughes Medical Institute fellow at the National Cancer Institute where he studied tumor immunology,
worked as a researcher in the labs of Dr. Steven A. Rosenberg (widely thought of as one of the pioneers in CAR-T therapy) and
Dr. Nicholas P. Restifo (a leading researcher in the field of immunology) and is published in the field of GM-CSF. Dr. Chappell
served as a member of the Board from June 2016 to November 2017. Prior to joining the Company in a full-time role as our Chief
Scientific Officer, Dr. Chappell advised and consulted with management as our ex-officio chief scientific officer.
David Tousley, MBA, CPA was
appointed as our Chief Accounting and Administrative Officer, Corporate Secretary and Treasurer on July 6, 2020. From January
2007 to July 6, 2020, Mr. Tousley served as Principal of Stratium Consulting Services (“Stratium Consulting”), assisting
private and public companies with strategic and financial planning and management. Previously, Mr. Tousley served as the Chief
Financial Officer for DARA Biosciences (Nasdaq: DARA), a publicly traded specialty pharmaceutical company focused on oncology
treatment and oncology supportive care. Mr. Tousley has over 35 years of business experience including biotech, specialty pharmaceuticals
and full phase pharmaceutical companies. He has held President, Chief Operating Officer and Chief Financial Officer roles in companies
such as Pasteur Merieux Connaught (known today as Sanofi Pasteur), AVAX Technologies, Inc. (Nasdaq: AVXT), DARA BioSciences, Inc.
(Nasdaq: DARA), airPharma, LLC, and PediaMed Pharmaceuticals, Inc., and has led companies in all aspects of operations, including
pharmaceutical development. He has managed in both the private and public company environment, taking companies public, raising
in excess of four hundred million dollars in debt and equity financings and has led business development activities, including
joint ventures, partnerships, acquisitions and divestitures in the U.S., Europe and Australia. Mr. Tousley is a Certified Public
Accountant, a member of the American Institute of Certified Public Accountants, holds an undergraduate degree from Rutgers College
and earned his MBA in accounting from Rutgers Graduate School of Business. Mr. Tousley previously served as our interim Chief
Financial Officer from October 2016 until his resignation in August 2017.
Code of Ethics
We have adopted a Code of Business Conduct
that applies to all of our directors, officers and employees, including our principal executive officer and principal financial
officer. The Code of Business Conduct is posted on our website at www.humanigen.com/governance.
Director Independence
We use the definition of “independent”
set forth in Nasdaq rules in determining whether a director is independent in the capacity of director. Consistent with Nasdaq’s
independence criteria, our Board has affirmatively determined that each of our current directors, and all of our directors who
served in 2019, other than Dr. Durrant, our Chief Executive Officer, is independent. Nasdaq’s independence criteria include
a series of objective tests, such as that the director is not an employee of the Company and has not engaged in various types of
business dealings with us. In addition, as further required by Nasdaq rules, our Board has subjectively determined as to each independent
director that no relationship exists that, in the opinion of the Board, would interfere with each such person's exercising independent
judgment in carrying out his or her responsibilities as a director. In making these determinations on the independence of our directors,
our Board considered the relationships that each such director has with us and all other facts and circumstances the Board deemed
relevant in determining independence, including the beneficial ownership of our capital stock by each such person.
We have established an audit committee,
a compensation committee and a nominating and corporate governance committee.
Audit Committee Matters
We have established an audit committee of the Board,
which is currently comprised of Dr. Boehm, as chair of the Committee, Mr. Barliant, and Mr. Savage. The Board has determined that
Dr. Boehm is an audit committee financial expert. The Board has determined that each member of the Audit Committee is currently
independent within the means of the Nasdaq rules.
Summary Compensation Table
The following summary compensation table
shows, for the fiscal years ended December 31, 2019 and December 31, 2018, information regarding the compensation awarded
to, earned by or paid to our most highly compensated executive officers for 2019, and all individuals serving as our principal
financial officer during the fiscal year ended December 31, 2019. We refer to these officers as our “named executive
officers.”
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
Name and Principal
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Total
|
|
Position
|
|
Year
|
|
|
($)
|
|
|
($)(4)
|
|
|
($)(3)
|
|
|
($)
|
|
Cameron Durrant, M.D., MBA (1)
|
|
2019
|
|
|
|
600,000
|
|
|
|
184,500
|
|
|
|
-
|
|
|
|
784,500
|
|
Chairman & Chief Executive Officer;
Interim Chief Financial Officer
|
|
2018
|
|
|
|
600,000
|
|
|
|
180,000
|
|
|
|
3,503,399
|
|
|
|
4,283,399
|
|
Greg Jester (2)
|
|
2019
|
|
|
|
155,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,000
|
|
Former Chief Financial Officer
|
|
2018
|
|
|
|
306,667
|
|
|
|
108,500
|
|
|
|
503,834
|
|
|
|
919,001
|
|
|
(1)
|
Appointed as Chairman January
7, 2016 and as Chief Executive Officer on March 1, 2016. In addition, Dr. Durrant served
as our Interim Chief Financial Officer from July 1, 2019 to July 31, 2020.
|
|
(2)
|
Appointed Chief Financial Officer on September 5, 2017. Mr. Jester passed away on June
28, 2019.
|
|
(3)
|
The amounts in this column represent the aggregate grant date fair value of option awards granted
to each named executive officer, computed in accordance with FASB ASC Topic 718. See Note 9 of the notes to our Consolidated Financial
Statements included elsewhere in this prospectus for a discussion of all assumptions made by us in determining the grant date fair
value of our equity awards.
|
|
(4)
|
The Compensation Committee of the Board determined Dr.
Durrant’s bonus for 2019 to be $184,500 and awarded Dr. Durrant a bonus for 2018
in the amount of $180,000. Dr. Durrant has agreed to take 50% of his 2019 bonus in stock
options (issued in January 2020) and to defer the other 50% pending completion of a fundraising
transaction. The number of options granted was based on the grant date fair value as
of January 28, 2020, reflecting a 10-year term. Dr. Durrant and Mr. Jester received 50%
of their 2018 bonus in immediately exercisable stock options. The number of options granted
was based on the grant date fair value as of January 25, 2019, reflecting a 10-year term.
Dr. Durrant and Mr. Jester agreed to defer receipt of the 50% cash portion of the 2018
bonuses pending completion of a fundraising transaction. The remaining portion of Mr.
Jester’s 2018 bonus was paid to his estate upon completion of the Private Placement
in June 2020.
|
Narrative to Summary Compensation Table
We offer stock options to our employees,
including our named executive officers, as the long-term incentive component of our compensation program. Our stock options allow
our employees to purchase shares of our common stock at a price equal to the fair market value of our common stock on the date
of grant.
In 2018, we issued stock options to Dr. Durrant and Mr. Jester.
On March 9, 2018, Dr. Durrant was issued stock options to purchase 7,466,749 shares of our common stock at an exercise price of
$0.67. One half of the options were fully vested on the grant date and the remaining options vested in six equal quarterly increments
beginning on April 1, 2018. Dr. Durrant’s options were determined to have a grant date fair value of $3.5 million.
On March 9, 2018, in lieu of a cash bonus for 2017, Mr. Jester was issued
stock options to purchase 284,313 shares of our common stock at an exercise price of $0.67. These options were fully vested on
the grant date and were exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.
On March 9, 2018, Mr. Jester was issued a long-term award of stock options
to purchase 1,073,815 shares of the Company’s common stock at an exercise price of $0.67. Mr. Jester’s options
grants were determined to have an aggregate grant date fair value of $0.6 million. Of the options issued 17% were fully vested
on the grant date and the remaining options vested and became exercisable in 10 equal quarterly increments beginning on April
1, 2018. On June 28, 2019, the date of Mr. Jester’s death, 447,423 of the options, representing the unvested portion of
the options issued, were forfeited pursuant to the Plan. The remaining vested options were exercisable until June 28, 2020, the
one year anniversary of Mr. Jester’s death.
On January 5, 2019, in lieu of 50% of his cash bonus for 2018,
Dr. Durrant was issued stock options to purchase 142,857 shares of the Company’s common stock at an exercise price of $0.84.
These options were fully vested on the grant date. Dr. Durrant’s options were determined to have a grant date fair value
of $0.09 million.
On January 5, 2019, in lieu of 50% of his cash bonus for 2018, Mr. Jester
was issued stock options to purchase 86,111 shares of the Company’s common stock at an exercise price of $0.84. Mr. Jester’s
options were determined to have a grant date fair value of $0.05 million. These options were fully vested on the grant date. The
remaining vested options were exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.
The stock option grant made to Dr. Durrant and the long-term
stock option award made to Mr. Jester were approved by the Company’s Board of Directors for the dual purpose of providing
award recipients with appropriate incentives to develop lenzilumab and the Company’s other monoclonal assets in accordance
with the Company’s updated business plan, and to ensure their retention. The number of shares underlying each award, and
the vesting provisions of each, were designed to mitigate the significant dilution to the value of the equity awards held by such
executive officers resulting from completion of the Restructuring Transactions in February 2018. (Note 9 to the accompanying Consolidated
Financial Statements included elsewhere in this prospectus for more information regarding the Restructuring Transactions).
In advance of approving these awards and the amendment to the Company’s 2012 Equity Incentive Plan described below, the Board
of Directors consulted with Dr. Chappell, the Company’s controlling stockholder at the time, and confirmed the awards were
appropriate to achieve Dr. Chappell’s long-term and retention goals for each named executive officer.
Outstanding Equity Awards at 2019 Fiscal Year End
The following table shows certain information
regarding outstanding equity awards held by our named executive officers as of December 31, 2019.
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
Option
|
|
|
|
|
|
Options
|
|
|
|
Options
|
|
|
|
Exercise
|
|
|
Expiration
|
Name
|
|
|
|
|
Exercisable
|
|
|
|
Unexercisable
|
|
|
|
Price ($)
|
|
|
Date
|
Cameron Durrant, M.D., MBA
|
|
(1)
|
|
|
1,043,022
|
|
|
|
-
|
|
|
$
|
3.38
|
|
|
9/12/2026
|
|
|
(2)
|
|
|
7,316,749
|
|
|
|
-
|
|
|
$
|
0.67
|
|
|
3/8/2028
|
|
|
(3)
|
|
|
142,857
|
|
|
|
-
|
|
|
$
|
0.84
|
|
|
1/4/2029
|
Greg Jester
|
|
(4)
|
|
|
87,500
|
|
|
|
-
|
|
|
$
|
0.33
|
|
|
6/28/2020
|
|
|
(5)
|
|
|
284,313
|
|
|
|
-
|
|
|
$
|
0.67
|
|
|
6/28/2020
|
|
|
(6)
|
|
|
447,422
|
|
|
|
626,393
|
|
|
$
|
0.67
|
|
|
6/28/2020
|
|
|
(7)
|
|
|
86,111
|
|
|
|
-
|
|
|
$
|
0.84
|
|
|
6/28/2020
|
|
(1)
|
On September 13, 2016, Dr. Durrant was issued stock options to purchase 1,043,022 shares of the Company’s common stock
at an exercise price of $3.38. The options will vest and become exercisable in 12 equal quarterly increments beginning on October
1, 2016. As of December 31, 2019, the options were fully vested.
|
|
(2)
|
On March 9, 2018, Dr. Durrant was issued stock options to purchase 7,466,749 shares of the Company’s common stock at
an exercise price of $0.67. One half of the options were fully vested on the grant date and the remaining options will vest and
become exercisable in six equal quarterly increments beginning April 1, 2018. As of December 31, 2019, these options were fully
vested.
|
|
(3)
|
On January 5, 2019, Dr. Durrant was issued stock options to purchase 142,857 shares of the Company’s common stock at
an exercise price of $0.84 in lieu of cash in respect of 50% of Dr. Durrant’s 2018 bonus. These options were fully vested
on the grant date.
|
|
(4)
|
On September 5,
2017, Mr. Jester was issued stock options to purchase 150,000 shares of the Company’s
common stock at an exercise price of $0.33. The options vested and became exercisable
in 12 equal quarterly increments beginning on October 1, 2017. On June 28, 2019, the
date of Mr. Jester’s death, 62,500 of the options, representing the unvested portion
of the options issued, were terminated pursuant to the Plan. The remaining vested options
were exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s
death.
|
|
(5)
|
On March 9, 2018, Mr. Jester was issued stock options
to purchase 284,313 shares of the Company’s common stock at an exercise price of
$0.67 in lieu of cash in respect of Mr. Jester's 2017 bonus. These options were fully
vested on the grant date. The options were exercisable until June 28, 2020, the one year
anniversary of Mr. Jester’s death.
|
|
(6)
|
On March 9, 2018, Mr. Jester was issued stock options
to purchase 1,073,815 shares of the Company’s common stock at an exercise price
of $0.67. Of the options issued 17% were fully vested on the grant date and the
remaining options vested and became exercisable in 10 equal quarterly increments beginning
on April 1, 2018. On June 28, 2019, the date of
Mr. Jester’s death, 447,423 of the options, representing the unvested portion of
the options issued, were terminated pursuant to the Plan. The remaining vested options
were exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s
death.
|
|
(7)
|
On January 5, 2019, Mr. Jester was issued stock options
to purchase 86,111 shares of the Company’s common stock at an exercise price of
$0.84 in lieu of cash in respect of 50% of Mr. Jester’s 2018 bonus. These options
were fully vested on the grant date. The remaining
vested options were exercisable until June 28, 2020, the one year anniversary
of Mr. Jester’s death.
|
Retirement Benefits
We have established a 401(k) tax-deferred
savings plan, which permits participants, including our named executive officers, to make contributions by salary deduction pursuant
to Section 401(k) of the Internal Revenue Code. We are responsible for administrative costs of the 401(k) plan. We may, in our
discretion, make matching contributions to the 401(k) plan. No employer contributions have been made to date.
Employment Agreement with Dr. Durrant
On September 13, 2016, we entered into
an employment agreement with Cameron Durrant, MD, our chairman and chief executive officer (the “Durrant Agreement”).
The Durrant Agreement provides for an initial annual base salary for Dr. Durrant of $600,000 as well as eligibility for an annual
bonus targeted at 60% of his salary based on the achievements of objectives set and agreed to by the Board. Such bonus may be
a mix of cash and stock, as determined by the Board in its sole discretion. The Compensation Committee of the Board determined
Dr. Durrant’s bonus for 2017 to be $180,000. The Compensation Committee of the Board determined Dr. Durrant’s bonus
for 2017, 2018 and 2019 to be $180,000, $180,000 and $184,500, respectively. Dr. Durrant agreed to defer receipt of the 2017 bonus,
the cash component comprising 50% of the 2018 bonus (having received stock options for the other 50%) and the cash component comprising
50% of the 2019 bonus (with the Board recommending stock options for the other 50%), subject to successful completion of Company
fundraising activities. Dr. Durrant is entitled to participate in our benefit plans available to other executives, including our
retirement plan and health and welfare programs.
Under the Durrant Agreement, Dr. Durrant
is entitled to receive certain benefits upon termination of employment under certain circumstances. If we terminate Dr. Durrant’s
employment for any reason other than “Cause”, or if Dr. Durrant resigns for “Good Reason” (each as such
term is defined in the Durrant Agreement), Dr. Durrant will receive twelve months of base salary then in effect and the amount
of the actual bonus earned by Dr. Durrant under the agreement for the year prior to the year of termination, pro-rated based on
the portion of the year Dr. Durrant was employed by us during the year of termination.
The Durrant Agreement additionally
provides that if Dr. Durrant resigns for Good Reason or we or our successor terminates his employment within the three month period
prior to and the 12 month period following a change in control (as such term is defined in the Durrant Agreement), we must pay
or cause our successor to pay Dr. Durrant a lump sum cash payment equal to two times (a) his annual salary as of the day before
his resignation or termination plus (b) the aggregate bonus received by Dr. Durrant for the year preceding the change in control
or, if no bonus had been received, at minimum 50% of the target bonus. In addition, upon such a resignation or termination, all
outstanding stock options held by Dr. Durrant will immediately vest and become exercisable.
Equity Incentive Plans
On September 13, 2016, the Board approved
an amendment to our 2012 Equity Plan (the “2012 Equity Plan”) to increase the number of shares of our common stock
available for issuance under the 2012 Equity Plan by 3,000,000 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 2012 Equity Plan from 125,000 to 1,100,000. On
March 9, 2018, the Board approved an amendment to our 2012 Equity Plan to increase the number of shares of our common stock available
for issuance under the 2012 Equity Plan by 16,050,000 shares.
On June 1, 2020, with a limited number of shares
remaining available for grant, and with the 2012 Equity Plan set to expire in 2022, the Board determined that it was appropriate
to replace the 2012 Equity Plan rather than merely request an additional share reserve be approved by our stockholders. Accordingly,
on July 27, 2020, the Board unanimously approved, and recommended that our stockholders approve, the Humanigen, Inc. 2020 Omnibus
Incentive Compensation Plan (the “2020 Equity Plan”), to ensure that the Board and its compensation committee (the
“Compensation Committee”) will be able to make the types of awards, and covering the number of shares, as necessary
to meet the Company’s compensatory needs. On July 29, 2020, the 2020 Equity Plan was approved by the holders of approximately
63% of our outstanding shares of common stock on that date. Upon the “Effective Date” of the 2020 Equity Plan (as
described below), an aggregate of 35,000,000 shares of our common stock will be reserved for issuance upon grants of awards made
under the plan by the Board or the Compensation Committee.
The 2020 Equity Plan is intended to
replace the 2012 Equity Plan. No further grants will be made under the 2012 Equity Plan. However, any outstanding awards under
the 2012 Equity Plan will continue in accordance with the terms of the 2012 Equity Plan and any award agreement executed in connection
with such outstanding awards. Stockholder approval of the 2020 Equity Plan was necessary to ensure that the 2020 Equity Plan meets
the requirements under section 422 of the Internal Revenue Code for issuing incentive stock options.
The 2020 Equity Plan will not become
effective (such time, the “Effective Date”) until such time as we file the Charter Amendment with the Delaware Secretary
of State (described in more detail under “Description of Securities” elsewhere in this prospectus). The 2020 Equity
Plan will remain in effect until the tenth anniversary of the Effective Date, unless terminated earlier by the Board.
Following is a summary of the 2020
Equity Plan:
Corporate Governance Provisions.
The 2020 Equity Plan contains several provisions intended to make sure that awards under the 2020 Equity Plan comply with
established principles of good corporate governance. These provisions include:
|
·
|
No
Discounted Stock Options or Stock Appreciation Rights. Except for certain
substitute awards (as described below), stock options and stock appreciation rights may
not be granted with an exercise price of less than the fair market value of the common
stock on the date the stock option or stock appreciation right is granted. This restriction
may not be changed without stockholder approval.
|
|
·
|
No
Stock Option or Stock Appreciation Rights Repricings. Stock options and
stock appreciation rights may not be repriced absent stockholder approval. This provision
applies to both direct repricings—lowering the exercise price of an outstanding
stock option or stock appreciation right—and indirect repricings—canceling
an outstanding stock option or stock appreciation right and granting a replacement stock
option or stock appreciation right with a lower exercise price.
|
|
·
|
No
Cash Buyouts of Underwater Stock Options or Stock Appreciation Rights. The
2020 Equity Plan does not permit cash buyouts of underwater stock options or stock appreciation
rights without stockholder approval.
|
|
·
|
No
Liberal Share Recycling. The 2020 Equity Plan permits share recycling only if an
award expires or is terminated, surrendered or canceled without having been fully exercised
or is forfeited in whole or in part, or results in shares not being issued. The 2020
Equity Plan expressly prohibits recycling shares in specified circumstances, including:
shares tendered to the Company by a participant to pay the exercise price of stock options;
shares forfeited to satisfy tax withholding obligations; shares that were subject to
a stock-settled stock appreciation right granted under the 2020 Equity Plan that were
not issued upon the exercise of such stock appreciation right; and shares repurchased
by the Company on the open market using the proceeds from the exercise of an award.
|
|
·
|
No
Unvested Dividends or Dividend Units. The 2020 Equity Plan prohibits the Company
from paying dividends or dividend units on unvested awards.
|
|
·
|
Cap
on Director Compensation: The total compensation paid to a single non-employee director
in any calendar year, including the cash compensation and cash value of all equity awards
granted to such director in such year, cannot exceed $750,000.
|
|
·
|
No
Evergreen Provision. The 2020 Equity Plan does not contain an “evergreen
provision”—there is no automatic provision to replenish the shares of common
stock authorized for issuance under the 2020 Equity Plan.
|
|
·
|
No
reload options. The 2020 Equity Plan does not provide for the issuance of stock options
or stock appreciation rights which, upon exercise, automatically entitle a participant
to a new stock option or stock appreciation right.
|
Administration. The
2020 Equity Plan will be administered by the Board or a committee appointed by the Board. Generally, it is expected that the Compensation
Committee will administer the 2020 Equity Plan. The Compensation Committee is comprised entirely of independent directors. Subject
to the terms of the 2020 Equity Plan, the Compensation Committee may:
|
·
|
grant
awards under the 2020 Equity Plan;
|
|
·
|
establish
the terms and conditions, including vesting criteria, of those awards;
|
|
·
|
construe
and interpret the 2020 Equity Plan and any agreement or instrument entered into under
the 2020 Equity Plan;
|
|
·
|
establish,
amend or waive rules and regulations for the 2020 Equity Plan’s administration;
|
|
·
|
amend
the terms and conditions of any outstanding award as provided in the 2020 Equity Plan;
and
|
|
·
|
take
all other actions it deems necessary or advisable for the proper operation or administration
of the 2020 Equity Plan.
|
The Compensation Committee may delegate
its authority under the 2020 Equity Plan, subject to certain limitations.
Eligibility. Awards
may be granted to employees of the Company, its subsidiaries and affiliates, directors of the Company, and consultants or advisers
who provide bona fide services to the Company, its subsidiaries and affiliates, as an independent contractor and who qualifies
as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 under the Securities Act. The Compensation Committee decides
who should receive awards and what kind of awards they should receive. The 2020 Equity Plan does not limit the number of employees
and affiliates who may receive awards.
Authorized Number of Shares. The
2020 Equity Plan authorizes the issuance of up to 35,000,000 shares of common stock. The common stock issued under the 2020 Equity
Plan may be authorized but unissued shares or treasury shares.
Recoupment. The Company
may require employees to reimburse any previously paid compensation provided under the Plan or an award agreement in accordance
with any recoupment policy that may be adopted in the future.
Types of Awards. The
Compensation Committee may grant the following types of awards under the 2020 Equity Plan: stock options, stock appreciation rights,
restricted stock, stock awards, restricted stock units, performance shares, performance units, cash-based awards and substitute
awards.
|
·
|
Stock
Options. A stock option is the right to purchase one or more shares of common
stock at a specified price, as determined by the Compensation Committee. The Compensation
Committee may grant non-qualified stock options and incentive stock options. A stock
option is exercisable at such times and subject to such terms and conditions as the Compensation
Committee determines. Except as described below in connection with incentive stock options
granted to certain participants: (i) the exercise price of a stock option will not be
less than 100% of the fair market value of a share of common stock on the date that the
option is granted, and (ii) no option will remain exercisable beyond 10 years after its
grant date. Incentive stock options may only be granted to employees of the Company or
its affiliates or subsidiaries (provided that the affiliate or subsidiary is a type of
entity whose employees can receive such options under the tax rules that apply to such
awards), and the maximum number of shares that may be issued under incentive stock options
cannot exceed 35,000,000. In connection with incentive stock options granted to a participant
that owns, directly or indirectly, more than 10% of the total combined voting power of
the Company or any subsidiary: (i) the exercise price of an incentive stock option will
not be less than 110% of the fair market value of a share of common stock on the date
that the incentive stock option is granted, and (ii) no incentive stock option will remain
exercisable beyond 5 years after its grant date. To the extent that the aggregate fair
market value (determined at the time of grant) of the shares with respect to which incentive
stock options are exercisable for the first time by any participant during any calendar
year (under all plans of the Company and any affiliates) exceeds $100,000 (or such other
limit established in the Internal Revenue Code) or otherwise does not comply with the
rules governing incentive stock options, the stock options or portions thereof that exceed
such limit (according to the order in which they were granted) or otherwise do not comply
with such rules will be treated as non-qualified stock options, notwithstanding any contrary
provision of the applicable award agreement.
|
|
·
|
Stock
Appreciation Rights. A stock appreciation right (“SAR”) is a
right to receive an amount in any combination of cash or common stock (as determined
by the Compensation Committee) equal in value to the excess of the fair market value
of the shares covered by such SAR on the date of exercise over the aggregate exercise
price of the SAR for such shares. SARs may be granted freestanding or in tandem with
related options. The exercise price of a SAR granted in tandem with an option will be
equal to the exercise price of the related option, and may be exercised for all or part
of the shares covered by such option upon surrender of the right to exercise the equivalent
portion of the related option. The exercise price of a freestanding SAR will be not less
than the fair market value of a share of common stock on the date the SAR is granted.
No SAR will remain exercisable beyond 10 years after its grant date.
|
|
·
|
Restricted
Stock/Stock Awards. Restricted stock is an award of common stock that is
subject to a substantial risk of forfeiture for a period of time and such other terms
and conditions as the Compensation Committee determines. A stock award is an award of
common stock that is not subject to such a risk of forfeiture, but which may be subject
to such other terms and conditions as the Compensation Committee determines.
|
|
·
|
Restricted
Stock Units. A restricted stock unit is an award whose value is based on
the fair market value of the Company’s common stock and whose payment is conditioned
on the completion of specified service requirements and such other terms and conditions
as the Compensation Committee may determine. Payment of earned restricted stock units
may be made in a combination of cash or shares of common stock (as determined by the
Compensation Committee).
|
|
·
|
Performance
Units/Shares and Cash-Based Awards. Performance Units/Shares and Cash Based
Awards are other equity-type or cash-based awards that may be granted to participants.
These awards may be valued in whole or in part by reference to, or are otherwise based
on, the fair market value of the Company’s common stock or other criteria established
by the Compensation Committee and the achievement of performance goals. These awards
are subject to such terms and conditions as the Compensation Committee determines. Performance
goals may include a service requirement. Payment of earned performance units/shares and
cash-based awards may be made in any combination of cash or shares of common stock (as
determined by the Compensation Committee) that have an aggregate fair market value equal
to the value of the earned awards at the close of the applicable performance period.
|
Substitute Awards. Substitute
awards may be granted under the 2020 Equity Plan under certain circumstances such as a merger, acquisition, spin-off or other
corporate event, to replace awards granted by another company or entity. Certain of the limits and rules discussed in this summary
do not apply to substitute awards.
Adjustments. In
the event of material changes in the outstanding number of shares of common stock or in the capital structure of the Company by
reason of a stock split, stock or extraordinary dividend, a reverse stock split, or an extraordinary corporate transaction, such
as any recapitalization, merger, consolidation, combination, exchange of shares or the like, separation, including a spin-off,
or other distribution of stock or property of the Company, any reorganization or any partial or complete liquidation of the Company,
the Compensation Committee shall make an appropriate adjustment in the number and class of shares that are authorized under the
2020 Equity Plan, and in the number, class of and/or price of shares subject to outstanding awards granted under the 2020 Equity
Plan, as may be determined to be equitable by the Compensation Committee, in its sole discretion, to prevent dilution or enlargement
of rights.
Change in Control.
Generally, in the event of a change in control of the Company, as defined in the 2020 Equity Plan, unless otherwise specified
in the award agreement, accelerated vesting for awards will only occur if: (i) the awards are not continued or assumed (e.g.,
the awards are not equitably converted or substituted for awards of a successor entity) in connection with the change in control;
or (ii) the participant has a qualifying termination of his or her service relationship (as defined in the award agreement) within
two years following the date of the change in control. Unless otherwise specified in the award agreement, in the event that the
awards are not so continued or assumed in connection with the change in control or in the event of a qualifying termination of
his or her service relationship within two years following the date of the change in control, then upon such change in control
or such qualifying termination (as the case may be): (1) all outstanding options and SARs will become immediately exercisable
in full during their remaining term; (2) any restriction periods and restrictions imposed on non-performance based restricted
stock awards will lapse; (3) all outstanding awards of performance-based restricted stock, performance units and performance
shares will be paid out assuming achievement of all relevant target performance goals; (4) all restricted stock units will
vest and be paid; and (5) all outstanding cash-based awards shall be accelerated as of the effective date of the change in
control (and, in the case of performance-based cash-based awards, based on an assumed achievement of all relevant target performance
goals), and be paid. The Compensation Committee’s policies relating to vesting of awards in the event of a change in control
are implemented in the award agreements approved by it from time to time.
Provisions for Foreign Participants. The
Compensation Committee may modify awards granted to participants who are foreign nationals or employed outside the United States
or establish subplans or procedures under the 2020 Equity Plan to recognize differences in laws, rules, regulations or customs
of such foreign jurisdictions with respect to tax, securities, currency, employee benefits or other matters.
Amendment and Termination. The
Compensation Committee may amend or terminate the 2020 Equity Plan at any time, but no such amendment or termination may adversely
affect in any material way the rights of a participant with respect to an outstanding award without that participant’s consent.
No awards may be granted on or after the tenth anniversary of the Effective Date. Stockholder approval is required for certain
amendments to the 2020 Equity Plan.
Director Compensation
Pursuant to our Director Compensation Program,
each member serving on our Board of Directors during 2019 who was not our employee was eligible to compensation for his service,
as follows. At the option of the director, such fees were payable in cash, common stock or immediately exercisable stock options
having a grant date fair value equal to the equivalent cash compensation owed.
|
·
|
Board of Directors member: $40,000;
|
|
·
|
Audit committee member: $10,000;
|
|
·
|
Audit committee chair: $20,000;
|
|
·
|
Compensation committee member: $6,000;
|
|
·
|
Compensation committee chair: $12,000;
|
|
·
|
Nominating and corporate governance committee member: $4,000;
|
|
·
|
Nominating and corporate governance committee chair: $8,000; and
|
|
·
|
Transaction committee member: $12,500.
|
The following table shows for the fiscal
year ended December 31, 2019 certain information with respect to the compensation of our non-employee directors:
|
|
|
|
|
Option
|
|
|
|
|
|
|
Fees Earned
|
|
|
Awards
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
Timothy Morris, CPA(2)
|
|
|
66,000
|
|
|
|
-
|
|
|
|
66,000
|
|
Ronald Barliant, JD(3)
|
|
|
54,000
|
|
|
|
-
|
|
|
|
54,000
|
|
Rainer Boehm, M.D., MBA (4)
|
|
|
66,000
|
|
|
|
-
|
|
|
|
66,000
|
|
Bob Savage, MBA (5)
|
|
|
74,000
|
|
|
|
-
|
|
|
|
74,000
|
|
Cheryl Buxton (6)
|
|
|
1,739
|
|
|
|
230,512
|
|
|
|
232,251
|
|
|
(1)
|
The amounts in this column reflect retainers earned under the Board of Directors Compensation Program for fiscal year 2019.
|
|
(2)
|
Mr. Morris elected to defer the payment of his board fees until the Company completes a fundraising transaction. As of December
31, 2019, Mr. Morris held options to purchase an aggregate of 904,112 shares of the Company’s common stock, of which options
to purchase 605,829 shares were vested.
|
|
(3)
|
Mr. Barliant received $27,000 of his fee in cash and $40,500 in common stock. As of December 31, 2019, Mr. Barliant held options
to purchase an aggregate of 992,210 shares of the Company’s common stock, of which options to purchase 700,927 shares were
vested.
|
|
(4)
|
Dr. Boehm received $7,833 of his fees in cash and $27,000 in common stock. As of December 31, 2019, Dr. Boehm held options
to purchase an aggregate of 477,252 shares of the Company’s common stock, of which options to purchase 178,969 shares were
vested.
|
|
(5)
|
Mr. Savage received $18,500 of his fees in cash and $18,500 in common stock and elected to defer payment of $37,000 until the
Company completes a fundraising transaction. As of December 31, 2019, Mr. Savage held options to purchase an aggregate of 615,877
shares of the Company’s common stock, of which options to purchase 317,594 shares were vested.
|
|
(6)
|
Ms. Buxton received $1,739 of her pro-rated fee for her service in December 2019 in common stock and on December 16, 2019,
the date of her appointment to the Board of Directors, received a one-time stock option grant to purchase 715,877 shares at an
exercise price of $0.45, which options vest in 12 ratable quarterly installments beginning on March 31, 2020. As of December 31,
2019, Ms. Buxton held options to purchase an aggregate of 715,877 shares of the Company’s common stock, of which no options
were vested.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Security Ownership Information
The following table presents information regarding
beneficial ownership of our common stock as of July 29, 2020 by:
|
·
|
each stockholder or group of stockholders known by us to be the beneficial owner of more than 5%
of our common stock;
|
|
·
|
each of our named executive officers; and
|
|
·
|
all of our current directors and executive officers as a group.
|
Beneficial ownership is determined in accordance
with the rules of the SEC, and thus represents voting or investment power with respect to our securities. Unless otherwise indicated
below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to
all shares beneficially owned, subject to community property laws where applicable.
Percentage ownership of our common
stock is based on 210,499,810 shares of our common stock outstanding as of July 29, 2020.
Shares of our common stock subject to options that
are currently exercisable or exercisable within 60 days of July 29, 2020 are deemed to be outstanding and to be beneficially owned
by the person holding the options but are not deemed to be outstanding for the purpose of computing the percentage ownership of
any other person. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Humanigen,
Inc., 533 Airport Boulevard, Suite 400, Burlingame, CA 94010.
Name and Address of Beneficial Owner
|
|
Shares of
Common
Stock
Beneficially
Owned
|
|
|
Percentage
of Shares
Beneficially
Owned
|
|
5% Stockholders
|
|
|
|
|
|
|
Entities affiliated with Black Horse Capital LP(1)
|
|
|
69,631,459
|
|
|
|
33.1
|
%
|
Nomis Bay LTD(2)
|
|
|
32,689,270
|
|
|
|
15.5
|
%
|
Entities affiliated with Valiant Capital Partners(3)
|
|
|
30,172,413
|
|
|
|
14.3
|
%
|
Entities affiliated with Venrock Healthcare Capital Partners(4)
|
|
|
17,241,379
|
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Cameron Durrant, M.D., MBA(5)
|
|
|
9,534,188
|
|
|
|
4.3
|
%
|
Ronald Barliant, JD(6)
|
|
|
1,334,931
|
|
|
|
*
|
|
Timothy Morris, CPA(7)
|
|
|
725,142
|
|
|
|
*
|
|
Robert Savage, MBA(8)
|
|
|
657,798
|
|
|
|
*
|
|
Rainer Boehm, M.D., MBA(9)
|
|
|
715,620
|
|
|
|
*
|
|
Cheryl Buxton(10)
|
|
|
134,712
|
|
|
|
*
|
|
All current executive officers and directors as a group (8 persons)(1)(11)
|
|
|
83,338,003
|
|
|
|
37.5
|
%
|
_____________
* Represents less than 1%
|
(1)
|
Number of shares based on information
reported on Amendment No. 3 to the Schedule 13D/A filed with the SEC on April 7, 2020,
reporting beneficial ownership by the Black Horse Entities, BH Management, and Dale Chappell,
our Chief Scientific Officer. According to the report, BHC has sole voting and dispositive
power with respect to 5,996,710 shares, BHCMF has shared voting and dispositive power
with respect to 13,997,832 shares, Cheval has shared voting and dispositive power with
respect to 49,636,917 shares, BH Management has sole voting and dispositive power with
respect to 55,633,627 shares and Dr. Chappell has shared voting and dispositive power
with respect to 69,631,459 shares. The business address of each of BHC, BHCMF, BH Management
and Dr. Chappell is c/o Opus Equum, Inc. P.O. Box 788, Dolores, Colorado 81323. The business
address of Cheval is P.O. Box 309G, Ugland House, Georgetown, Grand Cayman, Cayman
Islands KY1-1104. Dr. Chappell is currently serving as our Chief Scientific Officer.
|
|
(2)
|
Number of shares based solely
on information reported on Amendment No. 3 to the Schedule 13D/A filed with the SEC on
July 21, 2020, reporting beneficial ownership by Nomis Bay. Nomis Bay has sole voting
and dispositive power over all 32,689,270 shares. The business address of Nomis Bay is
Wessex House, 3rd Floor, 45 Reid Street, Hamilton, Bermuda HM12.
|
|
(3)
|
Number
of shares based on information provided by the Valiant Funds (as defined below): (i)
Valiant Capital Partners, LP (“VCP”) has shared voting and dispositive power
with respect to 9,129,885 shares; (ii) Valiant Capital Master Fund, LP (“VCMF”)
has shared voting and dispositive power with respect to 17,881,609 shares; and (iii)
Valiant Employee Investment Fund, LLC (“VEIF”), a member-managed Delaware
series limited liability company, (collectively with VCP and VCMF, the “Valiant
Funds”) has shared voting and dispositive power with respect to 3,160,919 shares.
Valiant Capital Management, LP is the general partner and investment adviser of VCP and
the investment adviser of VCMF, and has the authority to vote the shares on behalf of
both VCP and VCMF. Christopher R. Hansen is the founder, President and portfolio manager
of Valiant Capital Management, LP and, as such, he has ultimate ownership and authority
over voting and investment decisions of the shares. As a result, Mr. Hansen may be deemed
to have beneficial ownership of the shares held by VCP and VCMF. In addition, although
VEIF is not advised or controlled by Valiant Capital Management, L.P., as the controlling
member of this particular VEIF investment series, Mr. Hansen may be deemed to have beneficial
ownership of the shares held by VEIF. The address of the Valiant Funds is One Market
Street, Steuart Tower, Suite 2625, San Francisco, California 94105.
|
|
(4)
|
Number of shares based on information
provided by the VHCP Funds (as defined below): (i) Venrock Healthcare Capital Partners
II, L.P. (“VHCP II”) has shared voting and dispositive power with respect
to 4,556,897 shares; (ii) VHCP Co-Investment Holdings II, LLC (“Co-Invest II”)
has shared voting and dispositive power with respect to 1,846,551 shares; (iii) Venrock
Healthcare Capital Partners III, L.P.(“VHCP III”) has shared voting and dispositive
power with respect to 9,853,449 shares; and (iv) VHCP Co-Investment Holdings III, LLC
(“Co-Invest III”) (collectively, the “VHCP Funds”) has shared
voting and dispositive power with respect to 984,482 shares. VHCP Management III, LLC
(“VHCPM III”) is the sole general partner of VHCP III and the sole manager
of Co-Invest III and may be deemed to have beneficial ownership of the shares held by
VHCP III and Co-Invest III. VHCP Management II, LLC (“VHCPM II”) is the sole
general partner of VHCP II and the sole manager of Co-Invest II and may be deemed to
have beneficial ownership of the shares held by VHCP II and Co-Invest II. Dr. Bong Koh
and Nimish Shah are the voting members of VHCPM III and VHCPM II. The address of the
VHCP Funds is 3340 Hillview Avenue, Palo Alto, California 94304.
|
|
(5)
|
Includes options to purchase
8,976,981 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(6)
|
Includes options to purchase
885,580 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(7)
|
Includes options to purchase
725,142 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(8)
|
Includes options to purchase
457,929 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(9)
|
Includes options to purchase
298,282 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(10)
|
Includes options to purchase
119,312 shares of common stock that may be exercised within 60 days of July 29, 2020.
|
|
(11)
|
Includes options to purchase
12,094,226 shares of common stock that may be exercised within 60 days of July 29, 2020.
Dr. Dale Chappell, who currently serves as our Chief Scientific Officer, controls BHC
and reports beneficial ownership of all shares held by it and its affiliates.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Term Loans and Restructuring Transactions
On December 21, 2017, we entered into the
Purchase Agreement and the Forbearance Agreement as more fully described in the section of this prospectus titled “Business—Restructuring
Transactions”, with certain lenders and investors who were deemed to be our affiliates.
The Restructuring Transactions were completed
on February 27, 2018. For additional information regarding the Restructuring Transactions, see Note 10 to the accompanying Audited
Consolidated Financial Statements included elsewhere in this prospectus.
Advance Notes
In June, July and August 2018, we received
an aggregate of $0.9 million of proceeds from the Advance Notes by four different lenders including Dr. Cameron Durrant, our Chairman
and Chief Executive Officer; Cheval, an affiliate of BHC, our controlling stockholder at the time; and Ronald Barliant, a director
of the Company. See Note 6 to the accompanying Audited Consolidated Financial Statements included elsewhere in this prospectus
for a discussion of the Advance Notes. The Advance Notes converted into shares of our common stock upon our announcement of the
collaboration with Kite. See Note 6 to the accompanying Unaudited Consolidated Financial Statements included elsewhere in this
prospectus for more information regarding the conversion.
Convertible Notes
Commencing September 19, 2018, the Company delivered a series
of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans made to us by six
different lenders, including an affiliate of BHC, our controlling stockholder at the time. See Note 6 to our Audited Consolidated
Financial Statements included elsewhere in this prospectus for a discussion of the 2018 Notes.
Holders of our outstanding 2018 Notes and our outstanding
convertible notes issued in 2019 were entitled to convert the principal and unpaid interest on such notes into shares of our common
stock as a result of our completion on December 11, 2019 of a “Non-Qualified Financing”, as defined in such notes,
through sales of our common stock to Lincoln Park pursuant to the equity line of credit. Certain additional “Non-Qualified
Financing” transactions occurred from December 11, 2019 until January 7, 2020. Commencing on April 2, 2020, certain holders
of such notes, including Cheval, an affiliate of BHC, our controlling stockholder at the time, notified us of their exercise of
such conversion rights. Pursuant to the exemption from registration afforded by Section 3(a)(9) under the Securities Act of 1933,
we issued an aggregate of 7,131,942 shares of our common stock upon the conversion of $2.6 million in aggregate principal and
interest on the notes converted, which obligations were retired. Of these, we issued 1,583,333 shares to Cheval. Dr. Dale Chappell,
who was serving as our ex-officio chief scientific officer at the time and currently serves as our Chief Scientific Officer, controls
BHC and reports beneficial ownership of all shares held by it and its affiliates, including Cheval.
Secured Bridge Notes
On June 28, 2019, the Company made three
short-term, secured bridge notes (the “Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to the
Company by three parties: Cheval, an affiliate of BHC, the Company’s controlling stockholder at the time, lent $750,000;
Nomis Bay, the Company’s second largest stockholder, lent $750,000; and Dr. Durrant lent $200,000. The proceeds from the
Bridge Notes were used to satisfy certain unsecured obligations incurred in connection with the Company’s emergence from
bankruptcy in 2016 and for working capital and general corporate purposes.
The Bridge Notes accrued interest at a
rate of 7.0% per annum and, after giving effect to extensions announced in October 2019, December 2019 and March 2020, were set
to mature on December 31, 2020. The Bridge Notes could become due and payable at such earlier time as the Company raised more than
$3,000,000 in a bona fide financing transaction or upon a change in control. Accordingly, the Bridge Notes were repaid in June
2020 with proceeds from the Private Placement, and the Bridge Notes were extinguished.
November 2019 Bridge Notes
On November 12, 2019, the Company made
two short-term, secured bridge notes evidencing an aggregate of $350,000 of loans made to the Company by Cheval, which loaned $250,000,
and Dr. Cameron Durrant loaned $100,000. The proceeds from the notes were used for working capital and general corporate purposes.
The notes rank on par with the Bridge Notes
issued in June 2019, and possess other terms and conditions substantially consistent with the Bridge Notes. The notes accrued interest
at a rate of 7.0% per annum and, after giving effect to previously announced extensions, were set to mature on December 31, 2020.
The notes could become due and payable at such earlier time as the Company raised more than $3,000,000 in a bona fide financing
transaction or upon a change in control. Accordingly, these bridge notes were repaid in June 2020 with proceeds from the Private
Placement, and these bridge notes were extinguished.
April 2020 Bridge Notes
In April 2020, the Company made two short-term,
secured bridge notes evidencing an aggregate of $200,000 of loans made to the Company by Cheval,
an affiliate of BHC, the Company’s controlling stockholder at the time, which loaned $100,000, and Nomis Bay, the Company’s
second largest stockholder, loaned $100,000. The proceeds from the notes were used for working capital and general corporate purposes.
The notes ranked on par with the Bridge
Notes issued in June 2019, and possessed other terms and conditions substantially consistent with the Bridge Notes. The notes accrued
interest at a rate of 7.0% per annum and were set to mature on December 31, 2020. The notes could become due and payable at such
earlier time as the Company raised more than $3,000,000 in a bona fide financing transaction or upon a change in control. Accordingly,
these bridge notes were repaid in June 2020 with proceeds from the Private Placement.
Consulting Arrangement with Stratium
Consulting
David Tousley was appointed as our Chief Accounting
and Administrative Officer, Corporate Secretary and Treasurer on July 6, 2020. While at Stratium Consulting, Mr. Tousley provided
various finance and accounting services to the Company, including as interim Chief Financial Officer from October 2016 until August
2017, and from July 2019 until joining the Company in a full-time role. In connection with these services rendered since July
2019, Mr. Tousley received $457,912.50 in cash compensation from the Company, a stock option award to purchase 758,000 shares
of the Company’s common stock at an exercise price of $0.40 per share, and a stock option award to purchase 100,000 shares
of the Company’s common stock at an exercise price of $0.86 per share.
DESCRIPTION OF SECURITIES
Authorized
Capital Stock
Our authorized capital stock consists
of 250,000,000 shares of which 225,000,000 shares shall be common stock, par value $0.001 per share, and 25,000,000 shares shall
be preferred stock, par value of $0.001 per share. As of July 29, 2020 there were 210,499,810 shares of common stock outstanding,
held by approximately 88 stockholders of record, although we believe that there may be a significantly larger number of beneficial
owners of our common stock, and no shares of preferred stock outstanding. We derived the number of stockholders by reviewing the
listing of outstanding common stock recorded by our transfer agent as of July 29, 2020.
On July 27, 2020, our board of directors unanimously
approved, and recommended that our stockholders approve, an amendment to our certificate of incorporation, as amended, which we
refer to as our “charter,” to increase the number of our authorized shares of common stock from 225,000,000 shares
to 750,000,000 shares (the “Charter Amendment”). On July 29, 2020, the Charter Amendment was approved by the written
consent of holders of approximately 63% of our outstanding shares of common stock as of such date. We refer to the group of stockholders
as the “consenting stockholders.”
The availability of additional authorized
shares of common stock will provide the Company with necessary flexibility to issue common stock for a variety of general corporate
purposes as the Board may determine to be in the best interest of the Company and its stockholders including, without limitation,
future issuances in connection with financing activities, investment opportunities, licensing agreements, acquisitions or other
issuances. Without the proposed increase in the number of authorized shares of common stock, we would not be able to execute our
corporate strategy and complete any of the above corporate actions if determined by the Board to be in the best interests of the
Company and its stockholders. The Charter Amendment will become effective upon filing of the Charter Amendment with the Delaware
Secretary of State, which is currently anticipated to occur in the third quarter of 2020.
Common Stock
Each holder of
our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of the stockholders.
Holders of our common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the
board of directors out of funds legally available therefor. If there is a liquidation, dissolution or winding up of our company,
holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities. Holders of our
common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable. Holders of
shares of our common stock are not liable for further calls or to assessments by us. The rights, powers, preferences and privileges
of holders of common stock would be subordinate to, and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which our board of directors may designate and issue in the future. Certain of our existing holders of
common stock have the right to require us to register their shares of common stock under the Securities Act in specified circumstances.
Preferred Stock
Our Charter permits our board of directors
to issue up to 25,000,000 shares of preferred stock with such powers, rights, terms and conditions as may be designated by the
board of directors upon the issuance of shares of preferred stock at one or more times in the future. Specifically, our Charter
permits the board of directors to approve the future issuance of all or any shares of the preferred stock in one or more series,
to determine the number of shares constituting any series and to determine any voting powers, conversion rights, dividend rights,
and other designations, preferences, limitations, restrictions and rights relating to such shares without any further authorization
by our stockholders. The board of director’s power to issue preferred stock could have the effect of delaying, deterring
or preventing a transaction or a change in control of our company that might otherwise be in the best interest of our stockholders.
Listing
Our common stock is currently listed
for quotation on the OTCQB Venture Market operated by OTC Markets Group, under the symbol “HGEN”. We have applied
to list our common stock on the Nasdaq Capital Market under the symbol “HGEN”. We cannot assure investors that our
listing application will be approved by Nasdaq.
The attainment and maintenance of the
desired Nasdaq listing requires, among other things, that the common stock satisfy certain minimum trading price requirements
of Nasdaq. We are keenly focused on ensuring that we are able to satisfy those requirements, and furthermore understand that a
higher trading price for our shares may provide holders of our common stock with benefits in the form of the potential for reduced
trading volatility and liquidity. A higher stock price also may foster broader ownership of our shares, by enhancing the ability
of certain brokerage houses and institutional investors to comply with their internal policies and practices that either may prohibit
them from investing in low-priced stocks or may tend to discourage individual brokers from recommending low-priced stocks to their
customers or by restricting or limiting the ability to purchase such stocks on margin.
Accordingly, on July 27, 2020, our board of directors
unanimously approved, and recommended that our stockholders approve, a second potential amendment to our charter that will give
our board the discretion, until July 29, 2021, to effect a reverse split of our common stock whereby each outstanding 2, 3, 4,
5, 6, 7, 8, 9 or 10 shares may be combined, converted and changed into one share of our common stock, with the final ratio (if
any) as may be determined by and subject to final approval of our board (the “Reverse Stock Split Charter Amendment”).
The consenting stockholders likewise have approved the Reverse Stock Split Charter Amendment by written consent on July 29, 2020.
Pursuant to the authority provided
by the consenting stockholders, our board will have the sole discretion, until July 29, 2021, to elect whether to effect the reverse
stock split and, if so, the number of shares—2, 3, 4, 5, 6, 7, 8, 9 or 10 —of our common stock which will be combined
into one share of our common stock. If the board determines to effect one of the alternative Reverse Stock Split Charter Amendment,
the charter would be amended accordingly.
If the board elects to effect the reverse stock split,
the number of issued and outstanding shares of our common stock would be reduced in accordance with a reverse split ratio selected
by the board from among the approved ratios described above. Except for adjustments that may result from the treatment of fractional
shares as described below, each stockholder will hold the same percentage of outstanding common stock immediately following the
reverse stock split as such stockholder held immediately prior to the reverse stock split. The Reverse Stock Split Charter Amendment
would not change the number of authorized shares of our common stock.
There can be no assurance that the
board will decide to implement a reverse stock split before July 29, 2021. If the board does not act before that date, further
stockholder approval would be required before any future reverse stock split could be implemented.
Transfer Agent and Registrar
The transfer agent
and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent’s address is 250 Royall Street,
Canton, Massachusetts 02021 and its telephone number is (800) 662-7232.
Dividend Policy
We have never
declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common
stock for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business.
Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend
upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion
and other factors that our board of directors may deem relevant.
Anti-Takeover Provisions of Our Charter Documents and Delaware
Law
Some provisions
of our Charter, our Bylaws and Delaware law could make it more difficult to acquire our company by means of a tender offer, a proxy
contest, or otherwise.
Our Bylaws establish
advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other
than nominations made by or at the direction of our board of directors or a committee of our board of directors. These procedures
provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at
which the action is to be taken. Generally, for a proposal to be timely submitted for consideration at an annual meeting, notice
must be delivered to our secretary not less than 90 days nor more than 120 days prior to the first anniversary date of the annual
meeting for the preceding year. Our Bylaws specify the requirements as to form and content of all stockholders’ notices.
These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making
nominations for directors at our annual meeting of stockholders if the proper procedures are not followed.
Our Charter and
Bylaws both provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority
vote of directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders
or until such director’s successor shall have been duly elected and qualified. Accordingly, the board of directors could
prevent any stockholder from filling the new directorships with such stockholder’s own nominee.
Our Charter provides
that, unless we consent in writing to the selection of an alternative forum, the Delaware
Court of Chancery shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf,
(ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other
employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General
Corporation Law, our Charter or our Bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine;
in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants. This choice
of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers
and other employees.
Delaware Anti-Takeover
Law
We are subject
to Section 203 of the Delaware General Corporation Law which contains anti-takeover provisions. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three
years following the date that the person became an interested stockholder, unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes
a merger, asset or stock sale or another transaction resulting in a financial benefit to the interested stockholder. An interested
stockholder is a person who, together with affiliates and associates, owns 15% or more of the corporation’s voting stock.
The existence of this provision may have an anti-takeover effect with respect to transactions that are not approved in advance
by our board of directors, including discouraging attempts that might result in a premium over the market price for the shares
of common stock held by stockholders.
No Cumulative
Voting
Under Delaware
law, cumulative voting for the election of directors is not permitted unless a corporation’s certificate of incorporation
authorizes cumulative voting. Our Charter does not provide for cumulative voting in the election of directors. Cumulative voting
allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on our board of directors.
Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the
number of shares of our stock the stockholder holds as compared to the number of seats the stockholder would be able to gain if
cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a
seat on our board of directors to influence our board’s decision regarding a takeover.
Stockholder Action by Written Consent
Delaware law generally
provides that the affirmative vote of a majority of the shares entitled to vote on such matter is required to amend a corporation’s
certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws requires a greater
percentage. Our Charter permits our board of directors to amend or repeal most provisions of our Bylaws by majority vote. Generally,
our Charter may be amended by holders of a majority of the voting power of the then outstanding shares of our capital stock entitled
to vote. The stockholder vote or consent with respect to an amendment of our Charter or Bylaws would be in addition to any separate
class vote that might in the future be required under the terms of any series of preferred stock that might be outstanding at the
time such a proposed amendment were submitted to stockholders. Delaware law and the provisions of our Bylaws generally permit stockholders
owning the requisite percentage of shares of common stock necessary to approve an amendment to our Charter and Bylaws to act by
written consent in lieu of a meeting of our stockholders.
Limitation
of Liability and Indemnification of Officers and Directors
Our Bylaws provide
indemnification, including advancement of expenses, to the fullest extent permitted under applicable law to any person made or
threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative by reason of the fact that such person is or was a director or officer of the company, or is or was serving at
our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise, including
service with respect to an employee benefit plan. In addition, our Charter provides that our directors will not be personally liable
to us or our stockholders for monetary damages for breaches of their fiduciary duty as directors, unless they violated their duty
of loyalty to us or our shareholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as directors. This provision does not limit or eliminate
our rights or the rights of any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach
of a director’s duty of care. In addition, this provision does not limit the directors’ responsibilities under Delaware
law or any other laws, such as the federal securities laws. We have obtained insurance that insures our directors and officers
against certain losses and which insures us against our obligations to indemnify the directors and officers. We also have entered
into indemnification agreements with our directors and executive officers.
SELLING STOCKHOLDERS
This prospectus relates to the resale or other disposition,
from time to time, by the selling stockholders named below or their pledgees, donees, transferees, or other successors in interest
of up to 82,563,584 shares of our common stock, comprising (i) 82,528,718 shares of common stock issued pursuant to the Purchase
Agreement, as further described below; and (ii) 34,866 shares of common stock issued at the direction of Carter, Terry & Company,
Inc. in connection with its performance of capital markets advisory services for us.
On June 1, 2020, we entered into a securities purchase agreement
(the “Purchase Agreement”) with certain of the selling stockholders to complete a private placement (the “Private
Placement”) of our common stock. The closing of the Private Placement occurred on June 2, 2020 (the “Closing Date”).
At the closing, we issued and sold 82,528,718 shares of our common stock (the “Shares”) to accredited investors at
a purchase price of $0.87 per share.
On the Closing Date, we and certain of the selling stockholders
also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which we agreed
to prepare and file the registration statement of which this prospectus forms a part (the “Resale Registration Statement”).
The Registration Rights Agreement includes customary indemnification rights in connection with the Resale Registration Statement.
The Purchase Agreement also provides that we will use our
commercially reasonable efforts to achieve a listing of our common stock on a national securities exchange, subject to certain
limitations set forth in the Purchase Agreement. We have applied to list our common stock on the Nasdaq Capital Market under the
symbol “HGEN”. Our ability to obtain approval of the listing of our common stock on the Nasdaq Capital Market will
require us to satisfy a number of conditions, including the effectiveness of the Resale Registration Statement, our ability to
obtain certain stockholder and third party consents and approvals, and our ability to meet certain listing criteria including
a minimum stock price and total value of public float. Accordingly, we may not be able to achieve a listing of our common stock
on the Nasdaq Capital Market or on any other national securities exchange in any particular time frame or at all.
The table below sets forth, to our knowledge, information
concerning the beneficial ownership of shares of our common stock by the selling stockholders as of July 29, 2020. The percentages
of shares owned before and after the offering are based on 210,499,810 shares of common stock outstanding as of July 29, 2020,
which includes the shares of common stock offered by this prospectus.
The information in the table below with respect to the selling
stockholders has been obtained from the selling stockholders. When we refer to the “selling stockholders” in this prospectus,
we mean the selling stockholders listed in the table below as offering shares, as well as their respective pledgees, donees, transferees
or other successors-in-interest. The selling stockholders may sell all, some or none of the shares of common stock subject to this
prospectus. See “Plan of Distribution.”
Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect to shares. Unless otherwise indicated below, to our knowledge,
each selling stockholder named in the table has sole voting and investment power with respect to the shares of common stock beneficially
owned by it, except to the extent authority is shared by spouses under applicable law. The inclusion of any shares in this table
does not constitute an admission of beneficial ownership for any selling stockholder named below. None of the selling stockholders
has held any position or office, or has otherwise had a material relationship, with us or any of our subsidiaries within the past
three years, other than as described below.
|
|
Shares of Common Stock
Beneficially Owned Prior to
Offering
|
|
|
Number of Shares
of Common Stock
Being Offered
|
|
|
Shares of Common Stock to
be Beneficially Owned
After
Offering(1)
|
|
Name of Selling Stockholder
|
|
Number
|
|
|
Percentage
|
|
|
|
|
|
Number
|
|
|
Percentage
|
|
Entities affiliated with Venrock Healthcare
Capital Partners(2)
|
|
|
17,241,379
|
|
|
|
8.2
|
%
|
|
|
17,241,379
|
|
|
—
|
|
|
*
|
|
Entities affiliated with HealthCor Management, L.P.(3)
|
|
|
4,597,701
|
|
|
|
2.2
|
%
|
|
|
4,579,701
|
|
|
—
|
|
|
*
|
|
Entities affiliated with Valiant Capital Partners (4)
|
|
|
30,172,413
|
|
|
|
14.3
|
%
|
|
|
30,172,413
|
|
|
—
|
|
|
*
|
|
Citadel Multi-Strategy Equities Master Fund Ltd.(5)
|
|
|
5,747,126
|
|
|
|
2.7
|
%
|
|
|
5,747,126
|
|
|
—
|
|
|
*
|
|
Entities affiliated with Ghost Tree Capital Group, LP (6)
|
|
|
2,873,563
|
|
|
|
1.4
|
%
|
|
|
2,873,563
|
|
|
—
|
|
|
*
|
|
TMJ & Associates LLC (7)
|
|
|
8,850,574
|
|
|
|
4.2
|
%
|
|
|
8,850,574
|
|
|
—
|
|
|
*
|
|
Oren Eisner
|
|
|
155,542
|
|
|
|
*
|
|
|
|
114,942
|
|
|
40,600
|
|
|
*
|
|
Manouchehr Graham Taraz
|
|
|
114,942
|
|
|
|
*
|
|
|
|
114,942
|
|
|
—
|
|
|
*
|
|
Peter Hirsch
|
|
|
86,206
|
|
|
|
*
|
|
|
|
86,206
|
|
|
—
|
|
|
*
|
|
Jeff Paley
|
|
|
99,195
|
|
|
|
*
|
|
|
|
28,735
|
|
|
70,460
|
|
|
*
|
|
First Light Focus Fund, LP (8)
|
|
|
4,022,988
|
|
|
|
1.9
|
%
|
|
|
4,022,988
|
|
|
—
|
|
|
*
|
|
Logos Global Master Fund, LP (9)
|
|
|
2,298,850
|
|
|
|
1.1
|
%
|
|
|
2,298,850
|
|
|
—
|
|
|
*
|
|
KPM Tech Co., Ltd(10)
|
|
|
2,298,850
|
|
|
|
1.1
|
%
|
|
|
2,298,850
|
|
|
—
|
|
|
*
|
|
Telcon RF Pharmaceutical Co., Ltd (11)
|
|
|
2,298,850
|
|
|
|
1.1
|
%
|
|
|
2,298,850
|
|
|
—
|
|
|
*
|
|
Roger Griggs
|
|
|
57,471
|
|
|
|
*
|
|
|
|
57,471
|
|
|
—
|
|
|
*
|
|
Steven J. Lerner
|
|
|
383,141
|
|
|
|
*
|
|
|
|
383,141
|
|
|
—
|
|
|
*
|
|
Coleman Wortham, III
|
|
|
239,463
|
|
|
|
*
|
|
|
|
239,463
|
|
|
—
|
|
|
*
|
|
Kevin Penn
|
|
|
191,570
|
|
|
|
*
|
|
|
|
191,570
|
|
|
—
|
|
|
*
|
|
Michael G. Fisch 2006 Revocable Trust (12)
|
|
|
191,570
|
|
|
|
*
|
|
|
|
191,570
|
|
|
—
|
|
|
*
|
|
Jonathan Adam Abram
|
|
|
119,732
|
|
|
|
*
|
|
|
|
119,732
|
|
|
—
|
|
|
*
|
|
Sallie Shuping Russell
|
|
|
71,839
|
|
|
|
*
|
|
|
|
71,839
|
|
|
—
|
|
|
*
|
|
Blair Levin
|
|
|
71,839
|
|
|
|
*
|
|
|
|
71,839
|
|
|
—
|
|
|
*
|
|
Ken Eudy
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Magellan
Partners I, LLC (13)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Magellan's Compass I LP (14)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
The H. Stewart Parker Living Trust (15)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Ronald J. Bernstein
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Beauregard Holdings LLC (16)
|
|
|
11,973
|
|
|
|
*
|
|
|
|
11,973
|
|
|
—
|
|
|
*
|
|
Ted D Meisel Trust dated 10/16/2000 (17)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
AT Investors, LLC (18)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
The Shlain Family Trust (19)
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Charles Froland
|
|
|
47,892
|
|
|
|
*
|
|
|
|
47,892
|
|
|
—
|
|
|
*
|
|
Paul Gilbert
|
|
|
11,973
|
|
|
|
*
|
|
|
|
11,973
|
|
|
—
|
|
|
*
|
|
Carter, Terry & Company, Inc. (20)
|
|
|
5,230
|
|
|
|
*
|
|
|
|
5,230
|
|
|
—
|
|
|
*
|
|
Adam Cabibi
|
|
|
29,636
|
|
|
|
*
|
|
|
|
29,636
|
|
|
—
|
|
|
*
|
|
_____________
* Represents less
than 1%
|
(1)
|
We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling
stockholders might not sell any or might sell all of the shares offered by this prospectus. Because the selling stockholders may
offer all or some of the shares pursuant to this offering, and because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the shares, we cannot estimate the number of the shares that will be held by the selling stockholders
after completion of the offering. However, for purposes of this table, we have assumed that, after completion of the offering,
none of the shares covered by this prospectus will be held by the selling stockholders.
|
|
(2)
|
The shares purchased in the
Private Placement consist of: (i) 4,556,897 shares purchased by Venrock Healthcare Capital
Partners II, L.P. (“VHCP II”); (ii) 1,846,551 shares purchased by VHCP Co-Investment
Holdings II, LLC (“Co-Invest II”); (iii) 9,853,449 shares purchased by Venrock
Healthcare Capital Partners III, L.P. (“VHCP III”); and (iv) 984,482 shares
purchased by VHCP Co-Investment Holdings III, LLC (“Co-Invest III”) (collectively,
the “VHCP Funds”). VHCP Management III, LLC (“VHCPM III”) is
the sole general partner of VHCP III and the sole manager of Co-Invest III and may be
deemed to have beneficial ownership of the shares held by VHCP III and Co-Invest III.
VHCP Management II, LLC (“VHCPM II”) is the sole general partner of VHCP
II and the sole manager of Co-Invest II and may be deemed to have beneficial ownership
of the shares held by VHCP II and Co-Invest II. Dr. Bong Koh and Nimish Shah are the
voting members of VHCPM III and VHCPM II.
|
|
(3)
|
The shares purchased in the Private Placement consist of: (i) 2,231,084 shares purchased by HealthCor
Offshore Master Fund, L.P.; and (ii) 2,366,617 shares purchased by HealthCor Sanatate Offshore Master Fund, L.P. HealthCor Offshore
GP, LLC is the general partner of HealthCor Offshore Master Fund, L.P. Accordingly, HealthCor Offshore GP, LLC may be deemed to
beneficially own the shares that are beneficially owned by HealthCor Offshore Master Fund, L.P. HealthCor Group, LLC is the managing
member of HealthCor Offshore GP, LLC and, therefore, may be deemed to beneficially own the shares that are beneficially owned by
HealthCor Offshore Master Fund, L.P. HealthCor Offshore II GP, LLC is the general partner of HealthCor Sanatate Offshore Master
Fund, L.P. Accordingly, HealthCor Offshore II GP, LLC may be deemed to beneficially own the shares that are beneficially owned
by HealthCor Sanatate Offshore Master Fund, L.P. HealthCor Group, LLC is the managing member of HealthCor Offshore II GP, LLC and,
therefore, may be deemed to beneficially own the shares that are beneficially owned by HealthCor Sanatate Offshore Master Fund,
L.P. By virtue of its position as the investment manager of HealthCor Offshore Master Fund, L.P. and HealthCor Sanatate Offshore
Master Fund, L.P. (the “HealthCor Funds”), HealthCor Management, L.P. may be deemed a beneficial owner of all the shares
owned by the HealthCor Funds, as well as those it manages through separately managed accounts. HealthCor Associates, LLC is the
general partner of HealthCor Management, L.P. and thus may also be deemed to beneficially own the shares that are beneficially
owned by the HealthCor Funds or managed through such accounts. As the managers of HealthCor Associates, LLC, Arthur Cohen and Joseph
Healey exercise both voting and investment power with respect to the shares owned by the HealthCor Funds, and therefore each may
be deemed a beneficial owner of such shares. HealthCor Offshore GP, LLC, HealthCor Group, LLC, HealthCor Offshore II GP, LLC, HealthCor
Management, L.P., HealthCor Associates, LLC, Arthur Cohen and Joseph Healey disclaim beneficial ownership over all shares held
by the HealthCor Funds, except to the extent of their respective indirect pecuniary interest therein.
|
|
(4)
|
The
shares purchased in the Private Placement consist of: (i) 9,129,885 shares purchased
by Valiant Capital Partners, LP (“VCP”); (ii) 17,881,609 shares purchased
by Valiant Capital Master Fund, LP (“VCMF”); and (iii) 3,160,919 shares purchased
by Valiant Employee Investment Fund, LLC (“VEIF”), a member-managed Delaware
series limited liability company (collectively, the “Valiant Funds”). Valiant
Capital Management, LP is the general partner and investment adviser of VCP and the investment
adviser of VCMF, and has the authority to vote the shares on behalf of both VCP and VCMF.
Christopher R. Hansen is the founder, President and portfolio manager of Valiant Capital
Management, LP and, as such, he has ultimate ownership and authority over voting and
investment decisions of the shares. As a result, Mr. Hansen may be deemed to have beneficial
ownership of the shares held by VCP and VCMF. In addition, although VEIF is not advised
or controlled by Valiant Capital Management, L.P., as the controlling member of this
particular VEIF investment series, Mr. Hansen may be deemed to have beneficial ownership
of the shares held by VEIF.
|
|
(5)
|
Citadel Advisors LLC (“Citadel Advisors”), acts as the portfolio manager of Citadel
Multi-Strategy Equities Master Fund Ltd. (“Citadel”). Citadel Advisors Holdings LP (“CAH”) is the sole
member of Citadel Advisors. Citadel GP LLC (“CGP”) is the general partner of CAH. Mr. Kenneth Griffin is the President
and Chief Executive Officer of CGP and owns a controlling interest in CGP and may be deemed to share voting and dispositive power
over the shares held by Citadel. The address for this entity is c/o Citadel Advisors LLC, 601 Lexington Avenue, New York, NY 10022.
|
|
(6)
|
The shares purchased in the Private Placement consist of: (i) 544,316 shares purchased by Ghost
Tree Master Fund, LP; (ii) 677,948 shares purchased by NR1 SP, a segregated portfolio of North Rock SPC; (iii) 676,989 shares purchased
by NR2 SP, a segregated portfolio of North Rock SPC; (iv) 389,724 shares purchased by Schonfeld Fundamental Equity Fund LLC, and
(v) 584,586 shares purchased by Whitney Capital Series Fund LLC (collectively, the “Ghost Tree Affiliated Entities”).
The investment manager of each of the Ghost Tree Affiliated Entities is Ghost Tree Capital Group, LP. Ghost Tree Capital Group,
LP may be deemed to beneficially own and share voting and dispositive power over the shares held by the Ghost Tree Affiliated Entities.
|
|
(7)
|
As the managing member of TMJ & Associates LLC (“TMJ”), Jeffrey Talpins may be deemed to beneficially own and
share voting and dispositive power over the shares held by TMJ.
|
|
(8)
|
First Light Asset Management, LLC is the investment advisor for First Light Focus Fund, LP. (“First
Light”). First Light Focus Fund GP, LLC is the general partner of First Light. Mathew P. Arens is the chief executive officer
of the managing member of First Light Focus Fund GP, LLC. Mr. Arens and each of the foregoing entities disclaim beneficial ownership
of the shares held by First Light except to the extent of any pecuniary interest therein.
|
|
(9)
|
Logos GP LLC is the general partner of Logos Global Master Fund, LP. Arsani William, as manager
of Logos GP LLC, may be deemed to beneficially own and has voting and investment power over the shares held by Logos GP LLC.
|
|
(10)
|
JiHoon Kim is the Chief Executive Officer of KPM Tech Co. (“KPM Tech”), Ltd and may
be deemed to beneficially own and have voting and dispositive power over the shares held by KPM Tech.
|
|
(11)
|
JiHoon Kim is the Chief Executive Officer of Telcon RF Pharmaceutical Co., Ltd (“Telcon RF”),
and may be deemed to beneficially own and have voting and dispositive power over the shares held by Telcon RF.
|
|
(12)
|
Michael G. Fisch is the trustee of the Michael G. Fisch 2006 Revocable Trust and may be deemed
to beneficially own and share voting and dispositive power over the shares held by the Michael G. Fisch 2006 Revocable Trust.
|
|
(13)
|
Alfred Childers is the investment manager of Magellan Partners I, LLC (“Magellan”),
and Bruce Boucher serves as the manager of Magellan. Each of Messrs. Childers and Boucher may be deemed to beneficially own and
share voting and dispositive power over the shares held by Magellan.
|
|
(14)
|
As the limited partner of Magellan's Compass I LP (“MCLP”), Dr. W. Lowry Caudill may
be deemed to beneficially own and share voting and dispositive power over the shares held by MCLP.
|
|
(15)
|
H. Stewart Parker is the trustee of The H. Stewart Parker Living Trust and may be deemed to beneficially
own and share voting and dispositive power over the shares held by The H. Stewart Parker Living Trust.
|
|
(16)
|
Stuart Lipton may be deemed to beneficially own and share voting and dispositive power over the
shares held by Beauregard Holdings LLC.
|
|
(17)
|
Ted Meisel is the trustee of the Ted D Meisel Trust dated 10/16/2000 and may be deemed to beneficially
own and share voting and dispositive power over the shares held by the Ted D Meisel Trust dated 10/16/2000.
|
|
(18)
|
Arthur H. Bilger may be deemed to beneficially own and share voting and dispositive power over
the shares held by AT Investors, LLC.
|
|
(19)
|
Dr. Jordan Shlain is the trustee of The Shlain Family Trust and may be deemed to beneficially own
and share voting and dispositive power over the shares held by The Shlain Family Trust.
|
|
(20)
|
As the president of Carter, Terry & Company, Inc., Timothy Terry may be deemed to beneficially own and share voting and
dispositive power over the shares held by Carter, Terry & Company, Inc.
|
PLAN OF DISTRIBUTION
The selling stockholders, which as used
herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares
of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution
or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one
or more of the following methods when disposing of shares or interests therein:
|
·
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
·
|
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
|
|
·
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
·
|
if
we are successful in attaining a listing of our common stock on the Nasdaq Capital Market,
through an exchange distribution in accordance with the rules of the Nasdaq Capital Market;
|
|
·
|
privately negotiated transactions;
|
|
·
|
short sales effected after the date the registration statement of which this prospectus is a part is declared effective by
the SEC;
|
|
·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
·
|
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per
share;
|
|
·
|
a combination of any such methods of sale; and
|
|
·
|
any other method permitted pursuant to applicable law.
|
The selling stockholders may, from time
to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act, amending the list of selling stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus, provided that our prior written consent will be required prior to an assignment
of a selling stockholders rights under the Registration Rights Agreement to a non-affiliate. The selling stockholders also may
transfer the shares of common stock to an “affiliate” (as such term is defined in Rule 405 promulgated under the Securities
Act) or in other circumstances with our prior written consent, in which case the transferees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common
stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The
selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions,
or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also
enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus,
which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
The aggregate proceeds to the selling stockholders
from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions,
if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject,
in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the
proceeds from this offering.
The selling stockholders also may resell
all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided
that they meet the criteria and conform to the requirements of that rule.
The selling stockholders and any underwriters,
broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters”
within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale
of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters”
within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities
Act.
To the extent required, the shares of our
common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the
names of any agent, dealer or underwriter, and any applicable commissions or discounts with respect to a particular offer will
be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement
that includes this prospectus.
In order to comply with the securities
laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or
an exemption from registration or qualification requirements is available and is complied with.
We have advised the selling stockholders
that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities
of the selling stockholders and their affiliates. In addition, to the extent applicable, we will make copies of this prospectus
(as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities
Act.
We have agreed to indemnify the selling
stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration
of the shares offered by this prospectus.
We have agreed with the selling stockholders
to use reasonable best efforts to cause the registration statement of which this prospectus constitutes a part to become effective
and to remain continuously effective until the earlier of (1) the date on which all of the shares covered by this prospectus have
been sold or (2) the date on which all of the shares covered by this prospectus may be sold pursuant to Rule 144 promulgated under
the Securities Act without limitation as to volume or the manner of such sale.
LEGAL MATTERS
The legal validity of the securities offered
by this prospectus have been passed upon for us by Polsinelli PC, Washington, D.C.
EXPERTS
The consolidated financial statements of
Humanigen, Inc. as of December 31, 2019 and 2018 and for each of the years in the two-year period ended December 31, 2019 have
been audited by HORNE LLP, an independent registered public accounting firm, as stated in their report thereon, and included in
this Prospectus and Registration Statement in reliance upon such report and upon the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement
on Form S-1 under the Securities Act relating to the shares of common stock being offered by this prospectus, and reference is
made to such registration statement. This prospectus and it does not contain all information in the registration statement, as
certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
In addition, since our common stock is
registered under the Securities Exchange Act of 1934, we are required to file annual, quarterly, and current reports, or other
information with the SEC as provided by the Securities Exchange Act of 1934, as amended. Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d)
of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our website,
www.humanigen.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
In addition, the SEC maintains an internet site that contains the reports, proxy and information statements, and other information
we electronically file with or furnish to the SEC, located at http://www.sec.gov.
Information contained in, or that can be accessed through,
our website is not a part of, and shall not be incorporated by reference into, this prospectus. We have included our website address
in this prospectus solely as an inactive textual reference.
INDEX TO FINANCIAL STATEMENTS
Years Ended December 31, 2019 and 2018
Three Months Ended March 31, 2020 and
2019
Report of Independent
Registered Public Accounting Firm
To Shareholders and the Board of Directors of Humanigen, Inc.
Opinion on Financial Statement
We have audited the accompanying consolidated
balance sheets of Humanigen, Inc. and subsidiary (the "Company") as of December 31, 2019 and 2018, and the related consolidated
statements of operations and comprehensive loss, stockholders' deficit, and cash flows for the years then ended, and the related
notes to the consolidated financial statements (collectively, the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and
the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted
in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described
in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
We have served as the Company's auditor since 2016.
/s/ HORNE LLP
Ridgeland, Mississippi
March 16,
2020
Humanigen, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share
data)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
143
|
|
|
$
|
814
|
|
Prepaid expenses and other current assets
|
|
|
309
|
|
|
|
485
|
|
Total current assets
|
|
|
452
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
71
|
|
|
|
71
|
|
Total assets
|
|
$
|
523
|
|
|
$
|
1,370
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,046
|
|
|
$
|
2,856
|
|
Accrued expenses
|
|
|
3,308
|
|
|
|
3,129
|
|
Advance notes
|
|
|
2,113
|
|
|
|
807
|
|
Convertible notes - current
|
|
|
2,033
|
|
|
|
-
|
|
Notes payable to vendors
|
|
|
1,094
|
|
|
|
1,471
|
|
Total current liabilities
|
|
|
13,594
|
|
|
|
8,263
|
|
Convertible notes - non current
|
|
|
1,247
|
|
|
|
1,217
|
|
Total liabilities
|
|
|
14,841
|
|
|
|
9,480
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 225,000,000 shares authorized at
|
|
|
|
|
|
|
|
|
December
31, 2019 and December 31, 2018; 114,034,451 and
109,897,526 shares issued and outstanding at December 31, 2019 and
December 31, 2018, respectively
|
|
|
114
|
|
|
|
110
|
|
Additional paid-in capital
|
|
|
270,463
|
|
|
|
266,381
|
|
Accumulated deficit
|
|
|
(284,895
|
)
|
|
|
(274,601
|
)
|
Total stockholders’ deficit
|
|
|
(14,318
|
)
|
|
|
(8,110
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
523
|
|
|
$
|
1,370
|
|
See accompanying notes.
Humanigen, Inc.
Consolidated Statements of Operations
and Comprehensive Loss
(in thousands, except share and per share
data)
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,616
|
|
|
$
|
2,219
|
|
General and administrative
|
|
|
6,328
|
|
|
|
9,112
|
|
Total operating expenses
|
|
|
8,944
|
|
|
|
11,331
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,944
|
)
|
|
|
(11,331
|
)
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,349
|
)
|
|
|
(852
|
)
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
324
|
|
Reorganization items, net
|
|
|
-
|
|
|
|
(145
|
)
|
Net loss
|
|
|
(10,294
|
)
|
|
|
(12,004
|
)
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
Comprehensive loss
|
|
$
|
(10,294
|
)
|
|
$
|
(12,004
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used to
|
|
|
|
|
|
|
|
|
calculate basic and diluted net loss per common share
|
|
|
111,806,251
|
|
|
|
94,756,375
|
|
See accompanying notes.
Humanigen, Inc.
Consolidated Statements of Stockholders’
Deficit
(in thousands, except share and per share
data)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances at January 1, 2018
|
|
|
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 common stock in connection with financing agreement
|
|
|
30,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial conversion feature of Advance Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
271
|
|
|
|
-
|
|
|
|
271
|
|
Beneficial conversion feature of Convertible Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
1,465
|
|
|
|
-
|
|
|
|
1,465
|
|
Issuance of stock options for payment of accrued compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
303
|
|
|
|
-
|
|
|
|
303
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
4,812
|
|
|
|
-
|
|
|
|
4,812
|
|
Issuance of common stock in lieu of cash compensation
|
|
|
151,407
|
|
|
|
-
|
|
|
|
85
|
|
|
|
-
|
|
|
|
85
|
|
Issuance of common stock in exchange for services
|
|
|
108,333
|
|
|
|
-
|
|
|
|
81
|
|
|
|
-
|
|
|
|
81
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,004
|
)
|
|
|
(12,004
|
)
|
Balances at December 31, 2018
|
|
|
109,897,526
|
|
|
$
|
110
|
|
|
$
|
266,381
|
|
|
$
|
(274,601
|
)
|
|
$
|
(8,110
|
)
|
Issuance of common stock
|
|
|
500,000
|
|
|
|
1
|
|
|
|
185
|
|
|
|
-
|
|
|
|
186
|
|
Issuance of common stock in connection with financing agreement
|
|
|
706,592
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance of stock options for payment of accrued compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
207
|
|
|
|
-
|
|
|
|
207
|
|
Issuance of common stock for payment of accrued compensation
|
|
|
152,223
|
|
|
|
-
|
|
|
|
137
|
|
|
|
-
|
|
|
|
137
|
|
Issuance of common stock in exchange for services
|
|
|
109,863
|
|
|
|
-
|
|
|
|
83
|
|
|
|
-
|
|
|
|
83
|
|
Issuance of common stock upon note conversions
|
|
|
2,179,622
|
|
|
|
2
|
|
|
|
979
|
|
|
|
-
|
|
|
|
981
|
|
Convertible note beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
|
|
143
|
|
Exercise of common stock options
|
|
|
488,625
|
|
|
|
-
|
|
|
|
324
|
|
|
|
-
|
|
|
|
324
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
2,025
|
|
|
|
-
|
|
|
|
2,025
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,294
|
)
|
|
|
(10,294
|
)
|
Balances at December 31, 2019
|
|
|
114,034,451
|
|
|
$
|
114
|
|
|
$
|
270,463
|
|
|
$
|
(284,895
|
)
|
|
$
|
(14,318
|
)
|
See accompanying notes.
Humanigen, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,294
|
)
|
|
$
|
(12,004
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
19
|
|
Noncash interest expense
|
|
|
1,295
|
|
|
|
819
|
|
Stock based compensation expense
|
|
|
2,025
|
|
|
|
4,812
|
|
Issuance of common stock for payment of accrued compensation
|
|
|
137
|
|
|
|
85
|
|
Issuance of common stock in exchange for services
|
|
|
83
|
|
|
|
81
|
|
Gain on disposal of assets
|
|
|
-
|
|
|
|
(276
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
176
|
|
|
|
328
|
|
Accounts payable
|
|
|
2,190
|
|
|
|
(198
|
)
|
Accrued expenses
|
|
|
387
|
|
|
|
125
|
|
Net cash used in operating activities
|
|
|
(4,001
|
)
|
|
|
(6,209
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
185
|
|
|
|
2,781
|
|
Net proceeds from term loan
|
|
|
-
|
|
|
|
50
|
|
Proceeds from exercise of stock options
|
|
|
325
|
|
|
|
-
|
|
Net proceeds from issuance of Convertible notes
|
|
|
1,275
|
|
|
|
2,500
|
|
Net proceeds from issuance of Advance notes
|
|
|
2,050
|
|
|
|
925
|
|
Payments on notes payable to vendors
|
|
|
(505
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
3,330
|
|
|
|
6,256
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(671
|
)
|
|
|
47
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
885
|
|
|
|
838
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
214
|
|
|
$
|
885
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
13
|
|
|
$
|
8
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of notes payable and related accrued interest and fees to common stock
|
|
$
|
981
|
|
|
$
|
18,432
|
|
Beneficial conversion feature of Advance notes
|
|
$
|
-
|
|
|
$
|
271
|
|
Beneficial conversion feature of Convertible notes
|
|
$
|
143
|
|
|
$
|
1,465
|
|
Issuance of stock options in lieu of cash compensation
|
|
$
|
207
|
|
|
$
|
303
|
|
Issuance of common stock for payment of accrued compensation
|
|
$
|
137
|
|
|
$
|
85
|
|
Issuance of common stock in exchange for services
|
|
$
|
83
|
|
|
$
|
81
|
|
See accompanying notes.
Notes to Consolidated Financial Statements
(in thousands unless otherwise indicated,
except share and per share data)
1. Organization and Description of Business
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. Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc.
During
February 2018, the Company completed the restructuring transactions announced in December 2017 and furthered its transformation
into a clinical-stage biopharmaceutical company.
During
2019, the Company completed its transformation into a clinical stage biopharmaceutical company, developing its clinical
stage immuno-oncology and immunology portfolio of monoclonal antibodies. The Company is focusing its efforts on the development
of its lead product candidate, lenzilumab, through a clinical collaboration agreement (the “Kite Agreement”) with Kite
Pharmaceuticals, Inc., a Gilead company (“Kite”) to study the effect of lenzilumab on the safety of Yescarta®,
axicabtagene ciloleucel (“Yescarta” or “Yescarta®”) including
cytokine release syndrome (CRS), which is sometimes also referred to as cytokine storm, and neurotoxicity,with a secondary endpoint
of increased efficacy. The Company believes that this study, designated the nomenclature ‘ZUMA-19’, may be the basis
for registration of lenzilumab given the similar trial design to the Yescarta’s and Novartis’ Kymriah®
(“Kymriah” or “Kymriah®”) registration trials.
The Company is also exploring the effectiveness
of its GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody or through GM-CSF gene
knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage,
including the prevention and/or treatment of graft-versus-host disease (“GvHD”) while preserving graft-versus-leukemia
(“GvL”) benefits in patients undergoing allogeneic HSCT. In this context, GvHD is akin to CRS, or cytokine storm and
the Company believe the mechanism to be driven by GM-CSF levels. The recent coronavirus pandemic which is due to the SARS-CoV-2
virus and leads to the condition referred to as COVID-19, is characterized in the later and sometimes fatal stages by lung dysfunction
which is triggered by CRS, or cytokine storm. Recent publications point to GM-CSF being a key cytokine, with elevated levels especially
in those patients who transition to the Intensive Care Unit (ICU).The Company has established several partnerships with leading
institutions to advance its innovative pipeline and is in active discussion with several government and commercial organizations.
The Company believes that it has a dominant
intellectual property position in the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain
to CAR-T, GvHD and multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may be driven
by GM-CSF.
The Company has also advanced its preclinical
next-generation cell and gene therapies for the treatment of cancers via its novel human granulocyte-macrophage colony-stimulating
factor (“GM-CSF”) neutralization and gene-knockout platforms.
As a leader in GM-CSF pathway science, the
Company believes that it has the ability to transform prevention of CRS in SARS-CoV-2 infection. The virus associated with the
current COVID-19 pandemic, SARS-Cov-2, is one of a group of several betacoronaviruses, which includes the viruses responsible for
Severe Acute Respiratory Syndrome (SARS-CoV) and Middle East Respiratory Syndrome (MERS-CoV). These viruses infect predominantly
the lower lung and cause fatal pneumonia. Other coronaviruses infect the upper respiratory tract and cause some cases of the common
cold. The clinical course of COVID-19 can be mistaken for influenza infection – patients in both cases often suffer from
aches and pains throughout the body, fever, cough and general malaise. COVID-19 is not typically associated with a productive cough
– rather it tends to be a dry cough – and sneezing is less common. A nasal or throat swab can be used to test for SARS-CoV-2
infection, and blood tests can be run to check for viral titers. Travel to areas where COVID-19 appears to have a large number
of cases and exposure to people who are known to have suffered from the condition or carriers of SARS-CoV-2 also increases the
clinical suspicion of possible infection. Data generated during the SARS and MERS outbreaks point to cytokine storm as a phase
of the illness which is characterized by an immune hyperactive phase, which then can progress to lung dysfunction and death. The
natural history of SARS infection shows viral load actually decreases as patients enter the second phase.
Recent data from China and the subject of
a pre-publication titled “Aberrant pathogenic GM-CSF+ T cells and inflammatory CD14+CD16+ monocytes in severe pulmonary syndrome
patients of a new coronavirus”, supports the hypothesis that cytokine storm-induced immune mechanisms have contributed to
patient mortality with the current pandemic strain of coronavirus.
The severe clinical features associated
with some COVID-19 infections result from an inflammation-induced lung injury requiring Intensive Care Unit (ICU) care and mechanical
ventilation. This lung injury is a result of a cytokine storm resulting from a hyper-reactive immune response. The lung injury
that leads to death is not directly related to the virus, but appears to be a result of a hyper-reactive immune response to the
virus triggering a cytokine storm that can continue even after viral titers begin to fall.
The authors of the study assessed samples
from patients with severe pneumonia resulting from COVID-19 infection to identify whether inflammatory factors such as GM-CSF,
G-CSF, IL-6, MCP-1, MIP 1 alpha, IFN-gamma and TNF-alpha were implicated. The authors noted that steroid treatment in such cases
has been disappointing in terms of outcome, but suggested that a monoclonal antibody that targets GM-CSF may prevent or curb the
hyper-active immune response caused by COVID-19 in this setting. The Company believes that the authors’ findings are worthy
of further investigation, suggesting that to reduce or eradicate ICU care and prevent deaths from COVID-19 infection, an intervention
may be needed to prevent cytokine storm.
Separate publications
confirm that cytokine storm is characterized by surge of high levels of circulating inflammatory cytokines, and is an overreaction
of the immune system under the conditions, such as CAR-T therapy and patients infected with SARS-CoV-2. These recent studies
revealed that high levels of GM-CSF, along with a few other cytokines, are critically associated with severe clinical complications
in COVID-19 patients. High concentration of GM-CSF was found in the plasma of severe and critically ill patients, which account
for approximately 20% of all patients, especially in those requiring intensive care.
Lenzilumab has been shown to prevent cytokine
storm in animal models and this work has been published in peer reviewed journals. Patients are expected to be enrolled soon in
a clinical study to determine lenzilumab’s effect on cytokine storm associated with the hyper-active immune response associated
with CAR-T therapy in collaboration with Kite Pharma.
The Company believes these new data suggest
that GM-CSF may be a critical triggering cytokine in the increased mortality in the current coronavirus pandemic. A potential program
in COVID-19 to prevent cytokine storm is complementary to the programs in CAR-T and GvHD, which are also focused on preventing
or reducing cytokine storm in those disease states.
As a leader in GM-CSF pathway science, the
Company believes that it has the ability to transform chimeric antigen receptor T-cell (“CAR-T”) therapy and a broad
range of other T-cell engaging therapies, including both autologous and allogeneic cell transplantation. There is a direct correlation
between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities (referred to as the efficacy/toxicity linkage).
The Company believes that its GM-CSF neutralization
and gene-editing CAR-T platform technologies have the potential to reduce the inflammatory cascade associated with serious and
potentially life-threatening CAR-T therapy-related side-effects while preserving and potentially improving the efficacy of the
CAR-T therapy itself, thereby breaking the efficacy/toxicity linkage. Clinical correlative analysis and preclinical in-vivo
evidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects, including
cytokine release syndrome (“CRS) and neurotixicity (“NT”). GM-CSF has also been linked to the suppressive myeloid
cell axis through recruitment of myeloid derived suppressor cells (“MDSC’s”) that reduce CAR-T cell expansion
and hamper CAR-T cell efficacy. The Company’s strategy is to continue to pioneer the use of GM-CSF neutralization and GM-CSF
gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated with CAR-T
therapy.
The Company believes that its GM-CSF pathway
science, assets and expertise create two technology platforms to assist in the development of next-generation CAR-T therapies.
Lenzilumab, the Company’s proprietary Humaneered anti-GM-CSF immunotherapy, has the potential to be used in combination with
any U.S. FDA-approved or development stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell
therapies such as hematopoietic stem cell therapy (“HSCT”), to make these treatments safer and more effective.
The Company has utilized a precision medicine approach and personalized
the development of lenzilumab based on specific genetic mutations or biomarkers at baseline. The Company recently reported on a
Phase I study of lenzilumab as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and is now planning a potential
Phase II study of lenzilumab in combination with azacitidine (current standard therapy) in newly diagnosed CMML patients with certain
genetic mutations. The Company is also planning a potential Phase II/III study focused on early intervention with lenzilumab in
patients at high risk for acute Graft versus Host Disease (GvHD) based on specific biomarkers. The Company has also reported on
a Phase II study in severe asthma utilizing lenzilumab. In addition, the Company’s GM-CSF knockout gene-editing CAR-T platform
has the potential to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially
preserving the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening
side-effects.
The Company’s immediate focus is combining
FDA-approved and development stage CAR-T therapies with lenzilumab, its lead product candidate. A clinical collaboration with Kite
was recently announced to evaluate the use of lenzilumab with Yescarta in a multicenter clinical trial (ZUMA-19) in adults with
relapsed or refractory large B-cell lymphoma.
The Company is also creating next-generation
combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies
to control toxicity. This includes developing its own portfolio of proprietary first-in-class EphA3-CAR-Ts for various solid cancers
and EMR1-CAR-Ts for various eosinophilic disorders.
Lenzilumab
Lenzilumab
neutralizes human GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy
(CRS and neurotoxicity) and improve upon the efficacy of CAR-T therapy. The Company believes this same mechanism to be the
causation of CRS/cytokine storm which precedes the decline in lung function seen with severe cases of COVID-19. Preclinical data
generated in collaboration with the Mayo Clinic, which was published in ‘blood®’,
a premier journal in hematology, indicates that the use of lenzilumab in combination with CAR-T therapy may also enhance the proliferation
and improve the efficacy of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies.
There are currently no products approved
by the FDA for the prevention of CRS/cytokine storm associated with COVID-19. Also there are currently no products approved by
the FDA for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment of CAR-T
therapty related NT. The Company is continuing to advance the development of lenzilumab in combination with CAR-T therapy through
a non-exclusive clinical collaboration with Kite, pursuant to which we are conducting a multi-center Phase Ib/II study (the “Study”)
of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including diffuse large B-cell
lymphoma (“DLBCL”). The Study has been designated the nomenclature ‘ZUMA-19’, consistent with the other
Kite CAR-T studies, which also receive a ‘ZUMA’ designation. The primary objective of ZUMA-19 is to determine the effect
of lenzilumab on the safety and efficacy of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved
by the FDA and is the CAR-T therapy market leader, and our collaboration with Kite is currently the only clinical collaboration
which is now enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. The Company also plans
to measure other potentially beneficial effects on efficacy and healthcare resource utilization. In addition, lenzilumab’s
success in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers
by making the CAR-T therapy capable of being administered, and follow-up care subsequently monitored and managed, potentially on
an out-patient basis in certain patients and circumstances. In turn, the Company believes that delivering such provider and payer
benefits might accelerate the use of the CAR-T therapy itself, and thereby permit us to generate further revenues from sales of
lenzilumab.
In addition to COVID-19 and CAR-T therapy,
the Company is committed to advancing its diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging
therapies, including both autologous and allogeneic next generation CAR-T therapies, bi-specific antibody therapies, as well as
other cell-based immunotherapies in development, including allogeneic HSCT, with our current and future partners.
In July 2019, the Company entered into
the “Zurich Agreement” with the University of Zurich, Switzerland (“UZH”). Under the Zurich Agreement,
the Company has in-licensed certain technologies that it believes may be used to prevent or treat GvHD, thereby expanding its
development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for
patients with hematological cancers. There are currently no FDA-approved agents for the prevention of GvHD nor treatment of GvHD
in patients identified as high risk by certain biomarkers. the Company believes that GM-CSF neutralization with lenzilumab has
the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial graft-versus-leukemia (“GvL”)
effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Several recent papers have been published
which support this approach, including in Science Translational Medicine in November 2018 and in ‘blood advances’
in October 2019.
The Company aims to position lenzilumab
as a necessary companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving
allogeneic HSCT should receive or as an early treatment option in patients identified as high risk for GvHD. Given its interest
in developing lenzilumab to prevent CRS/cytokine storm in COVID-19 as well as in the treatment of rare cancers and other orphan
conditions such as GvHD, the Company believes that it has the opportunity to benefit from various regulatory incentives, such as
orphan drug exclusivity, breakthrough therapy designation, fast track designation, priority review and accelerated approval.
GM-CSF Gene Knockout
The Company is advancing its GM-CSF knockout
gene-editing CAR-T platform through the Mayo Agreement that it entered into in June 2019 with the Mayo Foundation. Under the Mayo
Agreement, the Company has in-licensed certain technologies that it believes may be used to create CAR-T cells lacking GM-CSF
expression through various gene-editing tools, including CRISPR-Cas9. The Company believes that its GM-CSF knockout gene-editing
CAR-T platform has the potential to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T
therapy. In addition, the Company has and continues to file intellectual property encompassing a broad range of gene-editing approaches
related to GM-CSF knockout.
Preclinical data
indicates that GM-CSF gene knockout CAR-T cells show improved overall survival in animals compared to wild-type CAR-T cells in
addition to the expected benefits of reduced serious side-effects associated with CAR-T therapy. The Company is establishing a
platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and
allogeneic approaches and is also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly
enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression
and modulating cytokine activation signaling, the Company may be able to increase the proportion of fitter T-cells produced during
expansion, increase their proliferative potential, and inhibit activation-induced cell death, thereby improving the cancer killing
activity of our engineered CAR-T cells thereby making them more effective and safer in the treatment of cancers. Initial data were
published in an abstract that was presented at the December 2019 American Society of Hematology (ASH) meeting and also won an ASH
Abstract Achievement award.
The Company plans
to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current
generation CAR-T products. In addition, the Company anticipates that its GM-CSF knockout gene-editing CAR-T platform may be a future
backbone for controlling the serious side-effects that hamper CAR-T therapy that lead to serious and sometimes fatal outcomes for
patients as a result of the CAR-T therapy itself.
EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature
The Company has
begun to generate its own pipeline of CAR-T therapies including an EphA3-CAR-T based on the ifabotuzumab v-region and backbone.
Ifabotuzumab is a Humaneered anti-EphA3 monoclonal antibody. Ifabotuzumab has the potential to kill tumor cells by targeting tumor
stroma that protects them and the vasculature that feeds them. This unique combination of activities as a backbone of a CAR-T therapy
may provide the potential to generate durable responses in a range of solid tumors by targeting the tissues that surround, protect,
and nourish a growing cancer.
By developing an EphA3-CAR-T using ifabotuzumab
as the backbone, the Company may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. The
Company is collaborating with the Mayo Clinic and plans to move to clinical testing with an anti-EphA3 construct for a range of
cancer types after completing IND-enabling work. The Company has published initial data from its Phase I study in an abstract that
was accepted for the November 2019 Society of Neuro-Oncology (SNO) meeting, showing data in glioblastoma multiforme, a form of
brain cancer.
EMR1-CAR: Targeting Eosinophils
The Company’s EMR1-CAR-T product is
based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets EMR1. Our EMR1-CAR-T based on the HGEN005
backbone is another approach in our growing platform of CAR-T therapies. The Company believes that because of its high selectivity,
EMR1-CAR-T has significant potential to treat serious eosinophil diseases.
In preclinical work, HGEN005’s anti-EMR1
activity resulted in dramatically enhanced killing of eosinophils from normal and eosinophilic donors and also induced a rapid
and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. The Company
has engaged with NIH to discuss expanding the initial work they have conducted utilizing HGEN005 and discussions are underway with
a leading center in the U.S. to perform the IND-enabling testing in eosinophilic leukemia, an orphan condition with significant
unmet need, as well as with several other potential partners, although there is no assurance that it will reach any agreements
for these next steps.
Liquidity and Going Concern
The Company has incurred significant losses
since its inception in March 2000 and had an accumulated deficit of $284.9 million as of December 31, 2019. At December
31, 2019, the Company had a working capital deficit of $13.1 million.
During March, April and May of 2019, the
Company received aggregate proceeds of $324,000 from the exercise of stock options by our Chairman and Chief Executive Officer
and two other members of our Board of Directors.
Commencing on April 23, 2019, the Company
delivered a series of convertible promissory notes (the “2019 Convertible Notes”) evidencing an aggregate of $1.3 million
of loans made to the Company by eleven different lenders. See Note 6 for further description of the 2019 Convertible Notes.
On June 28, 2019, the Company received aggregate
proceeds of $1.7 million from bridge loans made to the Company (the “June Bridge Notes”) by three different lenders
including 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 Nomis Bay LTD, our second largest shareholder. See
Note 6 for further description of the June Bridge Notes.
On November 12, 2019, the Company received
aggregate proceeds of $350,000 from bridge loans made to the Company (the “November Bridge Notes”) by two parties,
including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer and Cheval Holdings, Ltd., an affiliate
of Black Horse Capital, L.P., the Company’s controlling stockholder. See Note 6 for further description of the November Bridge
Notes.
During the month of December 2019, the Company
received aggregate proceeds of approximately $186,000 from the issuance of common stock to Lincoln Park Capital under the Purchase
Agreement. See Note 9 for further description of the Purchase Agreement.
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 Consolidated Financial Statements for
the twelve months ended December 31, 2019 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 $14.8 million at December 31, 2019 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.
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 U.S. 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 complete. As a result of its examination of the claims, the Company asked the Bankruptcy Court
to disallow, reduce, reclassify, subordinate or otherwise adjudicate certain claims the Company believes are subject to objection
or otherwise improper. On July 11, 2018, the Company filed an objection to the remaining claims. By objection, the Company
sought to disallow in their entirety the remaining claims totaling approximately $0.5 million. On September 17, 2018 the Bankruptcy
Court issued a Final Decree and Order to close the Bankruptcy Case and terminate the remaining claims and noticing services.
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.
For the years ended December 31, 2019 and
2018, Reorganization items, net consisted of the following charges:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Legal fees
|
|
$
|
-
|
|
|
$
|
119
|
|
Professional fees
|
|
|
-
|
|
|
|
26
|
|
Total reorganization items, net
|
|
$
|
-
|
|
|
$
|
145
|
|
Cash payments for reorganization items totaled
$0.2 million for the year ended December 31, 2018. There were no payments for reorganization items for the year ended December
31, 2019.
3. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying Consolidated Financial
Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all adjustments
necessary for the presentation of the Company’s consolidated financial position, results of operations and cash flows for
the periods presented. The 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 preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported
in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The
Company believes judgment is involved in accounting for the fair value-based measurement of stock-based compensation, accruals,
convertible notes and warrants. 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 Consolidated Financial Statements.
Concentration of Credit Risk
Cash, cash equivalents, and marketable securities
consist of financial instruments that potentially subject the Company to a concentration of credit risk in the event of a default
by the related financial institution holding the securities, to the extent of the value recorded in the balance sheet. The Company
invests cash that is not required for immediate operating needs primarily in highly liquid instruments with lower credit risk.
The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company
to manage its credit risk.
Fair Value of Financial Instruments
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 (marketable securities) that are measured at fair value, and the
classification by level of input within the fair value hierarchy:
|
|
Fair Value Measurements as of
|
|
|
|
December 31, 2019
|
|
|
|
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, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Total assets measured at fair value
|
|
$
|
71
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
71
|
|
The estimated fair value of the Advance
notes, Notes payable to vendors, Bridge notes and Convertible notes as of December 31, 2019 and 2018, based upon current market
rates for similar borrowings, as measured using Level 3 inputs, approximate the carrying amounts as presented in the Consolidated
Balance Sheets.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents
consist of deposits with commercial banks in checking, interest-bearing and demand money market accounts.
Restricted Cash
Restricted cash at December 31, 2019
of $0.07 million related to a standby letters of credit in the amount of $0.05 million issued in connection with certain insurance
policy coverage maintained by the Company and restricted cash related to a credit card facility in the amount of $0.02 million.
Restricted cash at December 31, 2018 of $0.07 million related to a standby letters of credit in the amount of $0.05 million
issued in connection with certain insurance policy coverage maintained by the Company and restricted cash related to a credit card
facility in the amount of $0.02 million.
Debt Issue Costs
Debt issuance costs related to a recognized
debt liability are presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts and are amortized to interest expense over the term of the related debt on the effective interest method.
Research and Development Expenses
Development costs incurred in the research
and development of new product candidates are expensed as incurred, including expenses that may or may not be reimbursed under
research and development collaboration arrangements. Research and development costs include, but are not limited to, salaries,
benefits, stock-based compensation, laboratory supplies, allocated overhead, fees for professional service providers and costs
associated with product development efforts, including preclinical studies and clinical trials.
The Company estimates preclinical study
and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research
organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company
estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual
timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.
Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid
expenses until the services are rendered.
The Company records upfront and milestone
payments made to third parties under licensing arrangements as an expense. Upfront payments are recorded when incurred and milestone
payments are recorded when the specific milestone has been achieved.
Research and Development Services
Internal and external research and development
costs incurred in connection with collaboration agreements are recognized as revenue in the same period as the costs are incurred
and are presented on a gross basis when the Company acts as a principal, has the discretion to choose suppliers, bears credit risk,
and performs at least part of the services.
Revenue Recognition
The Company’s revenue to date has
been generated primarily through license agreements and research and development collaboration agreements. The Company had no revenues
for the years ending December 31, 2019 and 2018. Commencing January 1, 2018, the Company recognizes revenue in accordance with
ASC 606. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines
are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii)
identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price
to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied.
Revenue under technology licenses and collaborative
agreements typically consists of nonrefundable and/or guaranteed license fees, collaborative research funding, and various milestone
and future product royalty or profit-sharing payments. These agreements are generally referred to as “multiple element arrangements”.
The Company applies the accounting standard
on revenue recognition for multiple element arrangements. The fair value of deliverables under the arrangement may be derived using
a best estimate of selling price if vendor specific objective evidence and third-party evidence is not available. Deliverables
under the arrangement will be separate units of accounting if a delivered item has value to the customer on a standalone basis
and if the arrangement includes a general right of return for the delivered item, delivery or performance of the undelivered item
is considered probable and substantially in the Company’s control.
The Company recognizes upfront license payments
as revenue upon delivery of the license only if the license has standalone value from any undelivered performance obligations and
that value can be determined. The undelivered performance obligations typically include manufacturing or development services or
research and/or steering committee services. If the fair value of the undelivered performance obligations can be determined, then
these obligations would be accounted for separately. If the license is not considered to have standalone value, then the license
and other undelivered performance obligations would be accounted for as a single unit of accounting. In this case, the license
payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations
are performed or deferred indefinitely until the undelivered performance obligation is determined.
Whenever the Company determines that an
arrangement should be accounted for as a single unit of accounting, the Company determines the period over which the performance
obligations will be performed, and revenue will be recognized. Revenue is recognized using a proportional performance or straight-line
method. The proportional performance method is used when the level of effort required to complete performance obligations under
an arrangement can be reasonably estimated. The amount of revenue recognized under the proportional performance method is determined
by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of milestones,
by the ratio of the level of effort performed to date to the estimated total level of effort required to complete performance obligations
under the arrangement. If the Company cannot reasonably estimate the level of effort to complete performance obligations under
an arrangement, the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected
to complete its performance obligations. Significant management judgment is required in determining the level of effort required
under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.
The Company’s collaboration agreements
typically entitle the Company to additional payments upon the achievement of development, regulatory and sales performance-based
milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone
payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue
calculation. Typically, these milestones are not considered probable at the inception of the collaboration. As such, milestones
will typically be recognized in one of two ways depending on the timing of when the milestone is achieved. If the milestone is
achieved during the performance period, then the Company will only recognize revenue to the extent of the proportional performance
achieved at that date, or the proportion of the straight-line basis achieved at that date, and the remainder will be recorded as
deferred revenue to be amortized over the remaining performance period. If the milestone is achieved after the performance period
has completed and all performance obligations have been delivered, then the Company will recognize the milestone payment as Revenue
in its entirety in the period the milestone was achieved.
Leases
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation
and disclosure of leases for both lessees and lessors. The FASB subsequently issued ASU No. 2018-10 and 2018-11 in July 2018, which
provide clarifications and improvements to ASU 2016-02 (collectively, the “new lease standard”).
ASU No. 2018-11 provides the optional transition
method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period
presented and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods.
The new lease standard requires lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet.
Additional footnote disclosures related to leases is also required.
On January 1, 2019, the Company adopted
the new lease standard using the optional transition method and certain other practical expedients. Under the practical expedient
package elected, the Company is not required to reassess whether expired or existing contracts are or contain a lease; and is not
required to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.
The new lease standard also provides practical
expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases
that qualify. This means, for those leases that qualify, we will not recognize right of use assets or lease liabilities, and this
includes not recognizing right of use assets or lease liabilities for existing short-term leases of those assets in transition.
The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets.
The Company sub-leases office-space under
a short-term lease for $300 per month. Management has determined the lease term to be less than 12 months, including renewals,
and therefore has not recorded a right-of-use asset and corresponding liability under the short-term lease recognition exemption.
Lease costs for the years ended December 31, 2019 and 2018 totaled approximately $10,700 and $204,800, respectively and are included
in the Consolidated Statements of Operations and Comprehensive Loss.
Because the Company has elected to adopt
the transitional practical expedients, Management was not required to reassess whether any existing or expired contracts contained
embedded leases. The Company has not entered into any contracts during the 2019 fiscal year that contain an embedded lease.
Stock-Based Compensation Expense
The Company measures stock-based compensation
expense for stock awards at the grant date, based on the fair value-based measurement of the award, and the expense is recorded
over the related service period, generally the vesting period, net of estimated forfeitures. The Company calculates the fair value-based
measurement of stock options using the Black-Scholes valuation model and the single-option method and recognizes expense using
the straight-line attribution approach.
Income Taxes
The Company accounts for income taxes under
an asset-and-liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities
recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when
the differences are expected to reverse, net operating loss carryforwards and tax credits. Valuation allowances are provided when
necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. The Company’s policy
is to include interest and penalties related to unrecognized tax benefits within the Company’s provision for income taxes.
Comprehensive Loss
Comprehensive loss represents net loss adjusted
for the change during the periods presented in unrealized gains and losses on available-for-sale securities less reclassification
adjustments for realized gains or losses included in net loss. The unrealized gains or losses are reported on the Consolidated
Statements of Operations and Comprehensive Loss.
Net Loss Per Common Share
Basic net loss per common share is calculated
by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during
the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net
loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding
for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation,
stock options, restricted stock units and common stock warrants are considered to be potentially dilutive securities but are excluded
from the calculation of diluted net loss per share because their effect would be anti-dilutive and therefore, basic and diluted
net loss per share were the same for all periods presented.
The Company’s potential dilutive securities,
which include stock options, restricted stock units and warrants have been excluded from the computation of diluted net loss per
share as the effect 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 all periods presented.
The following shares subject to outstanding
potentially dilutive securities have been excluded from the computations of diluted net loss per common share as the effect of
including such securities would be antidilutive:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Options to purchase common stock
|
|
|
15,881,721
|
|
|
|
15,409,357
|
|
Warrants to purchase common stock
|
|
|
331,193
|
|
|
|
331,193
|
|
|
|
|
16,212,914
|
|
|
|
15,740,550
|
|
Segment Reporting
The Company determines its segment reporting
based upon the way the business is organized for making operating decisions and assessing performance. The Company operates in
only one segment, which is related to the development of pharmaceutical products.
Recent Accounting Pronouncements
Until December 31, 2018, the Company qualified
as an “emerging growth company” (“EGC”) pursuant to the provisions of the Jumpstart Our Business Startups
Act of 2012 (“JOBS Act”) and elected to take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act which permits EGCs to defer compliance with new or revised accounting standards until non-issuers are required
to comply with such standards. A registrant with EGC status loses its eligibility as an EGC five years after its common equity
initial public offering, or December 31, 2018 for the Company. Accordingly, the Company was required to adopt new accounting standards
on the same timeline as other public companies effective January 1, 2018.
In November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires the inclusion of restricted cash with
cash and cash equivalents when reconciling the beginning-of-the period and end-of-period total amounts shown on the statement of
cash flows. The Company adopted the standard effective January 1, 2018. As a result of the adoption, the Company will no longer
present the change within restricted cash in the consolidated statements of cash flows. See below for the composition of cash,
cash equivalents and restricted cash shown on the statements of cash flow:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash and cash equivalents
|
|
$
|
143
|
|
|
$
|
814
|
|
Restricted cash
|
|
|
71
|
|
|
|
71
|
|
Total cash, cash equivalents and restricted cash as shown on statement of
cash flows
|
|
$
|
214
|
|
|
$
|
885
|
|
In June 2018, the FASB issued ASU 2018-07,
“Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting”.
This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees
and is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption
is permitted. The Company adopted the standard effective January 1, 2019. The adoption of this standard did not have a material
impact on the Company’s Consolidated Financial Statements and related disclosures.
In November 2018, the FASB issued ASU No.
2018-18, “Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606”.
ASU 2018-18 makes targeted improvements for collaborative arrangements by clarifying that certain transactions between collaborative
arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a
customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition,
measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in Topic 808 was aligned with the
guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or
a part of the arrangement is within the scope of Topic 606. ASU 2018-18 is effective for fiscal years beginning after December
15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period.
The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. The Company is
currently evaluating the requirements of ASU 2018-18 and has not yet determined its impact on the Company’s Consolidated
Financial Statements and related disclosures.
4. Investments
At December 31, 2019, the amortized
cost and fair value of investments, with gross unrealized gains and losses, were as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Total investments
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
Total investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71
|
|
At December 31, 2018 the amortized
cost and fair value of investments, with gross unrealized gains and losses, were as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Total investments
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Restricted cash, long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
Total investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71
|
|
5. 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 from Savant. On June 30, 2016, 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 benznidazole. The MDC Agreement
consummates the transactions contemplated by the LOI.
In addition, on June 30, 2016, 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 June 30, 2016, in connection with the
MDC Agreement, the Company issued to Savant a five year warrant to purchase 200,000 shares of the Company’s Common Stock,
at an exercise price of $2.25 per share, subject to adjustment. See Note 7.
On May 26, 2017, the Company submitted its
benznidazole Investigational New Drug Application (“IND”) to the Food and Drug Administration (“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.
The $2.0 million in milestone payments due
Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2019 and 2018.
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. See Note 12 below for more information regarding the
Savant litigation.
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 became due and payable in full, including principal and accrued interest on June
30, 2019. In July and August, 2019, following the receipt of proceeds from the 2019 Bridge Notes, the Company used approximately
$0.5 million of the proceeds to retire a portion of these notes, including accrued interest. After giving effect to these payments,
the aggregate principal amount and accrued but unpaid interest on these notes approximates $1.1 million as of December 31, 2019.
As of December 31, 2019 and December 31, 2018, the Company has accrued $0.3 million and $0.3 million in interest related to these
promissory notes, respectively. The outstanding principal amount and accrued but unpaid interest on these notes is currently payable
to the respective holders without demand, notice or declaration, and the holders, without demand or notice of any kind, may exercise
any and all other rights and remedies available to them under the notes, the Plan, at law or in equity. The Company does not have
sufficient funds to repay the principal and accrued but unpaid interest on these notes in their entirety.
Advance Notes
In June, July and August, 2018, the Company
received an aggregate of $0.9 million of proceeds from advances made to the Company (the “Advance Notes”) by four different
lenders including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the
Company’s controlling stockholder; Ronald Barliant, a director of the Company; and an unrelated third party (collectively
the “Advance Note Lenders”). The Advance Notes accrue interest at a rate of 7% per annum, compounded annually.
The intention of the parties was that the
amounts due under the Advance Notes would 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 were not convertible
at the option of the Advance Note Lenders into the Company’s common stock until June 21, 2019 (the “Expiration Date”);
however, if prior to completing a Qualifying Financing, the Company experienced a change of control or made a public announcement
that it had 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 Advance Note Lenders
could 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 had occurred by the Expiration Date, then at
any time from and after the Expiration Date the Advance Note Lenders could, 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.
In accordance with their terms, on May 30,
2019, in connection with the Company’s announcement of the Kite Agreement, the lenders converted the amounts due under the
Advance Notes into the Company’s common stock at the conversion price of $0.45 per share. The Company issued a total of 2,179,622
shares of common stock in connection with the conversion.
Convertible Notes
2018 Convertible Notes
Commencing September 19, 2018, the Company
delivered a series of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans
made to the Company by six different lenders, including an affiliate of Black Horse Capital, L.P., the Company’s controlling
stockholder. The 2018 Notes bear interest at a rate of 7% per annum and will mature on the earliest of (i) twenty-four months from
the date the 2018 Notes were signed, (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events
including any dissolution or winding up of the Company or merger or sale by the Company of all or substantially all of its assets
(in any case, a “Liquidation Event”). The Company used the proceeds from the 2018 Notes for working capital.
The 2018 Notes are convertible into equity
securities in the Company in three different scenarios:
If the Company sells its equity securities
on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to the Company
of at least $10 million (a “Qualified Financing”), the 2018 Notes will be converted into either (i) such equity securities
as the noteholder would acquire if the principal and accrued but unpaid interest thereon (the “Conversion Amount”)
were invested directly in the financing on the same terms and conditions as given to the financing investors in the Qualified Financing,
or (ii) common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend,
stock combination or other recapitalization occurring subsequent to the date of the Notes).
If the Company sells its equity securities
on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to the Company
of less than $10 million (a “Non-Qualified Financing”), the noteholders may convert their remaining 2018 Notes into
either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in the financing
on the same terms and conditions as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a
conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination
or other recapitalization occurring subsequent to the date of the Notes).
The 2018 Notes may convert in the event
the Company enters into or publicly announces its intention to consummate a Liquidation Event. Immediately prior to the completion
of any such Liquidation Event, in lieu of receiving payment in cash, noteholders may convert the Conversion Amount into common
stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock
combination or other recapitalization occurring subsequent to the date of the Notes).
2019 Convertible Notes
Commencing on April
23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Notes”) evidencing an aggregate
of $1.3 million of loans made to the Company.
The 2019 Notes bear interest at a rate of
7.5% per annum and will mature on the earliest of (i) twenty-four months from the date the 2019 Notes are signed (the “Stated
Maturity Date”), (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including
any dissolution or winding up of the Company or merger or sale by the Company of all or substantially all of its assets (in any
case, a “Liquidation Event”). The Company used the proceeds from the 2019 Notes for working capital.
The 2019 Notes
are convertible into equity securities in the Company in four different scenarios:
If the Company
sells its equity securities on or before the Stated Maturity Date in any financing transaction that results in gross proceeds to
the Company of at least $10.0 million (a “Qualified Financing”) or the Company consummates a reverse merger or similar
transaction, the 2019 Notes will be converted into either (i) (a) in the case of a Qualified Financing, such equity securities
as the noteholder would acquire if the principal and accrued but unpaid interest thereon together with such additional amount of
interest as would have been paid on the 2019 Notes if held to the Stated Maturity Date (the “Conversion Amount”) were
invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the
Qualified Financing or (b) in the case of a reverse merger, common stock at the same price per share paid by the buyer in such
transaction (which in a stock for stock transaction, shall be based on the price per share used by the parties for purposes of
setting the applicable exchange ration), or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable
adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of
the 2019 Notes).
If the Company
sells its equity securities on or before the date of repayment of the 2019 Notes in any financing transaction that results in gross
proceeds to the Company of less than $ 10.0 million (a “Non-Qualified Financing”), the noteholders may convert their
remaining Convertible Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were
invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the
Non-Qualified Financing, or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for
any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).
The 2019 Notes
may convert in the event the Company enters into or publicly announces its intention to consummate a Liquidation Event. Immediately
prior to the completion of any such Liquidation Event, in lieu of receiving payment in cash, noteholders may convert the Conversion
Amount into common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock
dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).
In addition, upon the six-month anniversary
of the date the 2019 Notes are signed or such earlier time as the Company publicly announces that it has entered into a definitive
arrangement with an unaffiliated third party (a “Strategic Partner”) pursuant to which, among other things, such Strategic
Partner may agree to collaborate with the Company in conducting a clinical study to assess the efficacy of the Company’s
lenzilumab monoclonal antibody in reducing adverse effects from neurotoxicity and cytokine release syndrome when used as a companion
therapy in certain CAR-T cell therapies, noteholders may convert any portion of the outstanding principal amount of the 2019 Notes,
together with (a) any unpaid and accrued interest on such principal amount to the date the noteholder’s notice of the noteholder’s
intention to convert is received by the Company (the “Notice Date”), and (b) such additional amount of interest as
would have been paid on such principal amount from the Notice Date to the Stated Maturity Date, into common stock at a conversion
price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization
occurring subsequent to the date of the 2019 Notes). The Company’s announcement of the Kite Agreement satisfied this requirement
and accordingly, the 2019 Notes are convertible into common stock on the above terms.
The Advance Notes, the 2018 Notes and the
2019 Notes have an optional voluntary conversion feature in which the holder could convert the notes in the Company’s common
stock at maturity at a conversion rate of $0.45 per share for the Advance Notes and the 2018 Notes and at a conversion rate of
$1.25 for the 2019 Notes. The intrinsic value of this beneficial conversion feature was $1.9 million upon the issuance of the Advance
Notes, the 2018 Notes and the 2019 Notes and was recorded as additional paid-in capital and as a debt discount which is accreted
to interest expense over the term of the Advance Notes and Notes. Interest expense includes debt discount amortization of $0.8
million and $0.3 million for the years ended December 31, 2019 and 2018, respectively. Total interest expense for the Advance Notes,
the 2018 Notes and the 2019 Notes for the years ended December 31, 2019 and 2018, excluding the debt discount amortization was
$0.3 and $0.1 million, respectively.
The Company evaluated the embedded features
within the Advance Notes, the 2018 Notes and the 2019 Notes to determine if the embedded features are required to be bifurcated
and recognized as derivative instruments. The Company determined that the Advance Notes, the 2018 Notes and the 2019 Notes contain
contingent beneficial conversion features (“CBCF”) that allow or require the holder to convert the Advance Notes, the
2018 Notes and the 2019 Notes, as applicable, to Company common stock at a conversion rate of $0.45 per share for the Advance Notes
and the 2018 Notes and $1.25 for the 2019 Notes, but did not contain embedded features requiring bifurcation and recognition as
derivative instruments. Upon the occurrence of a CBCF that results in conversion of the Advance Notes, the 2018 Notes or the 2019
Notes to Company common stock, the remaining unamortized discount will be charged to interest expense. Upon conversion of the Advance
Notes on May 30, 2019, the remaining unamortized discount was charged to interest expense. The remaining debt discount will be
amortized over 9 and 16 months for the 2018 Notes and the 2019 Notes, respectively.
2019 Bridge
Notes
On
June 28, 2019, the Company issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate
of $1.7 million of loans made to the Company by three parties: Cheval Holdings, Ltd., an affiliate of Black Horse Capital,
L.P., the Company’s controlling stockholder, lent $750,000; Nomis Bay LTD, the Company’s second largest stockholder,
lent $750,000; and Cameron Durrant, M.D., MBA, the Company’s Chief Executive Officer and Chairman of the Board of Directors,
lent $200,000. The proceeds from the June Bridge Notes were used to satisfy a portion of the unsecured obligations incurred in
connection with the Company’s emergence from bankruptcy in 2016 and for working capital and general corporate purposes. Of
the $1.7 million in proceeds received, $950,000 was received on June 28, 2019 and was recorded as Advance notes in the Condensed
Consolidated Balance Sheet as of June 30, 2019. The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.
The
June Bridge Notes bear interest at a rate of 7.0% per annum and had an original maturity date of October 1, 2019. On October 8,
2019, the Company and the lenders agreed to extend the maturity date of the June Bridge Notes from October 1, 2019 until December
31, 2019 and to waive any prior default up to and including the date of the amendment. On December 30, 2019, the Company and the
lenders agreed to extend the maturity date of the June Bridge Notes from December 31, 2019 until March 31, 2020. No other changes
to the terms of the June Bridge Notes were made in connection with the extension of the maturity date. The June Bridge Notes may
become due and payable at such earlier time as the Company raises more than $3,000,000 in a bona fide financing transaction or
upon a change in control. The June Bridge Notes are secured by liens of substantially all of the Company’s assets.
On November 12,
2019, he Company issued two short-term, secured bridge notes (the “November Bridge Notes” and together with the June
Bridge Notes, the “2019 Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company by two parties:
Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling stockholder, lent $250,000; and Cameron
Durrant, M.D., MBA, our Chief Executive Officer and Chairman of our Board of Directors, lent $100,000. The proceeds from
the November Bridge Notes will be used for working capital and general corporate purposes.
The November Bridge
Notes rank on par with the June Bridge Notes, and possess other terms and conditions substantially consistent with those notes.
The November Bridge Notes bear interest at a rate of 7.0% per annum and had an original maturity date of December 31, 2019. On
December 30, 2019, the Company and the lenders agreed to extend the maturity date of the November Bridge Notes from December 31,
2019 until March 31, 2020. No other changes to the terms of the November Bridge Notes were made in connection with the extension
of the maturity date. The November Bridge Notes may become due and payable at such earlier time as the Company raises more than
$3,000,000 in a bona fide financing transaction or upon a change in control. The November Bridge Notes also are secured by a lien
of substantially all of the Company’s assets.
Upon
an event of default, which events include, but are not limited to, (1) the Company’s failure to timely pay any monetary obligation
under the 2019 Bridge Notes; (2) our failure to pay our debts generally as they become due and (3) our commencing any proceeding
relating to the Company under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar laws of any jurisdiction now or hereafter in effect, the interest payable on the 2019 Bridge Notes increases to 10.0%
per annum. Further, upon certain events of default, all payments and obligations due and owed under the 2019 Bridge Notes shall
immediately become due and payable without demand and without notice to the Company.
Total interest expense for the 2019 Bridge
Notes for the year ended December 31, 2019 was $0.1 million.
As of December 31, 2019, the maturities
of the debt of the Company by year is as follows:
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
Principal payments on Notes payable to vendors
|
|
$
|
774
|
|
|
$
|
774
|
|
|
$
|
-
|
|
Interest payments on Notes payable to vendors
|
|
|
320
|
|
|
|
320
|
|
|
|
-
|
|
Principal payments on 2019 Bridge notes
|
|
|
2,050
|
|
|
|
2,050
|
|
|
|
-
|
|
Interest payments on 2019 Bridge notes
|
|
|
63
|
|
|
|
63
|
|
|
|
-
|
|
Principal payments on Convertible notes
|
|
|
3,775
|
|
|
|
2,500
|
|
|
|
1,275
|
|
Interest payments on Convertible notes
|
|
|
290
|
|
|
|
224
|
|
|
|
66
|
|
Gross debt before unamortized discount
|
|
|
7,272
|
|
|
|
5,931
|
|
|
|
1,341
|
|
Unamortized debt discount on convertible debt
|
|
|
(785
|
)
|
|
|
(691
|
)
|
|
|
(94
|
)
|
Total Debt
|
|
$
|
6,487
|
|
|
$
|
5,240
|
|
|
$
|
1,247
|
|
7. Warrants to Purchase Common Stock
On June 19, 2013, the Company issued
a warrant to purchase up to an aggregate of 6,193 shares of common stock and an exercise price of $96.88 per share. The warrant
expires on the tenth anniversary of its issuance date. As of December 31, 2019, these warrants were fully vested.
On December 4, 2015, the Company issued
a warrant to purchase up to an aggregate of 125,000 shares of common stock at an exercise price of $29.32 per share. The
warrant expires on the fifth anniversary of its issuance. As of December 31, 2019, these warrants were fully vested.
On June 30, 2016, in connection with the
MDC Agreement described in Note 5, the Company issued to Savant a five year warrant (the “Savant 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 Savant
Warrant is exercisable for 25% of the shares immediately and exercisable for the remaining shares upon reaching certain regulatory
related milestones. In addition, pursuant to the MDC Agreement, the Company has granted Savant certain “piggyback”
registration rights for the shares issuable under the Savant Warrant.
The Company determined the initial fair
value of the Savant Warrant to be approximately $0.7 million as of June 30, 2016. The Company reevaluated the performance conditions
and expected vesting of the Warrant quarterly during 2017 and 2018 and recorded a reduction of expense of approximately $0.1 million
during the year ended December 31, 2017. The expense reduction was due to a decline in the fair value, which reduction is included
in Research and development expenses in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.
Specifically, as a result of the FDA granting accelerated and conditional approval of a benznidazole therapy manufactured by the
Chemo Group (“Chemo”) for the treatment of Chagas disease and awarding Chemo a neglected tropical disease PRV, the
Company re-evaluated the final two vesting milestones and concluded that the probability of achievement of these milestones had
decreased to 0%.
As of December 31, 2019, 100,000 of these
warrants were fully vested and 100,000 were not vested.
The Company will continue to reevaluate
the performance conditions and expected vesting of the Savant Warrant on a quarterly basis until all performance conditions have
been met or the warrants expire.
8. Commitments and Contingencies
Operating Leases
The Company leased
office space in Brisbane, California under an operating lease agreement that expired in September 2018. In May 2018, the Company
entered into a month-to-month lease for office space in Burlingame, California. The Company terminated the lease on November 19,
2019 and entered into a sub-lease agreement for space in the same building in Burlingame, California. The sub-lease initial term
expires on March 31, 2020 and is renewable for additional terms by mutual agreement.
As of December 31, 2019, the Company
had no significant future minimum lease payments.
Rent expense was $0.01 million and $0.2
million for the years ended December 31, 2019 and December 31, 2018, respectively.
Indemnification
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.
9. Stockholders’ Equity
Restructuring Transactions
On December 1, 2017,
the Company’s obligations matured under the Credit and Security Agreement dated December 21, 2016, as amended on March 21,
2017 and on July 8, 2017 (the “Term Loan Credit Agreement”) with BHCMF, as administrative agent and lender, BHC, as
a lender, Cheval, as a lender (collectively with BHCMF and BHC, the Black Horse Entities) and Nomis Bay LTD, as a lender (Nomis
and, together with the Black Horse Entities, the Term Loan Lenders).
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 “Restructuring
Agreements”), each with the Term Loan Lenders, in connection with a series of transactions providing for, among other things,
the satisfaction and extinguishment of the Company’s outstanding obligations under the Term Loan Credit Agreement and the
infusion of $3.0 million of new capital. As of February 27, 2018, the date the Restructuring Transactions were completed, the aggregate
amount of our obligations under the Term Loan Credit Agreement, including the Bridge Loan, the Claims Advances extended by Nomis
Bay (each as discussed below) and all accrued interest and fees, approximated $18.4 million (the “Term Loans”).
On February 27, 2018
(the “Restructuring Effective Date”), the Restructuring Transactions were completed in accordance with the Restructuring
Agreements. As a result, on the Restructuring Effective Date, the Company: (i) in exchange for the satisfaction and extinguishment
of the entire $18.4 million balance of the Term Loans, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each
as discussed below) and all accrued interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848 shares of
its common stock (the “New Lender Shares”), and (b) transferred and assigned to Madison Joint Venture LLC owned 70%
by Nomis Bay and 30% by the Company (Madison), all of the Company’s assets related to benznidazole (the Benz Assets), the
Company’s former drug candidate, capable of being so assigned; and (ii) issued 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 (collectively, the “Restructuring Transactions”), $1.5 million of which the
Company received on December 22, 2017 in the form of a bridge loan (the “Bridge Loan”).
On the Restructuring
Effective Date, the aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to
the Black Horse Entities, including the Bridge Loan and all accrued interest and fees, approximated $9.9 million, and (ii) previously
owed to Nomis Bay, including certain advances previously extended to the Company by Nomis Bay totaling $0.1 million (the “Claims
Advances”) and all accrued interest and fees, approximated $8.5 million. In addition, on the Restructuring Effective Date,
(i) each of the Term Loan Credit Agreement, all promissory notes issued thereunder and the Intellectual Property Security Agreement,
dated as of December 21, 2016, by and between the Company and the Term Loan Lenders, were terminated and are of no further force
or effect, and (ii) all security interests of the Black Horse Entities and Nomis Bay in the Company’s assets were released.
Although the Term Loans were satisfied and extinguished, if Madison elected to keep the Benz Assets after the Restructuring Effective
Date, Nomis Bay would be obligated to pay or cause Madison to pay $0.3 million in legal fees and expenses owed by the Company to
its litigation counsel, which remained unpaid in Accounts payable at December 31, 2017. On August 23, 2018 Madison elected to keep
the Benz Assets and these amounts were paid by Madison to the Company’s litigation counsel.
Upon completion of the Restructuring Transactions,
Nomis Bay held 33,573,530 of the Company’s common stock, or approximately 31.4% of its outstanding common stock, and the
Black Horse Entities collectively held 66,870,851 shares of the Company’s common stock, or approximately 62.6% of its outstanding
common stock. Accordingly, the completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change
in control of the Company, as the Black Horse Entities and their affiliates owning more than a majority of its outstanding common
stock. Dr. Dale Chappell, a member of the Company’s board of directors from June 30, 2016 until November 10, 2017, controls
the Black Horse Entities and accordingly, will be able to exert control over matters of the Company and will be able to determine
all matters of the Company requiring stockholder approval.
Lincoln Park Capital Purchase Agreement
On November 8,
2019, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement
(the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the
Company has the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value per share
(the “Common Stock”), subject to certain limitations and conditions set forth in the Purchase Agreement.
Under the Purchase
Agreement, the Company has the right, from time to time at its sole discretion and subject to certain conditions, to direct LPC
to purchase up to 100,000 shares of Common Stock, with such amounts increasing based on certain threshold prices but not to exceed
$750,000 in total proceeds on any purchase date. The purchase price of shares of Common Stock pursuant to the Purchase Agreement
will be based on the market prices of the Common Stock at the time of such purchases as set forth in the Purchase Agreement. Such
sales of Common Stock by the Company, if any, may occur from time to time, at the Company’s option, over the 36-month period
expiring in December 2022.
In connection with
the signing of the Purchase Agreement on November 8, 2019, the Company issued 706,592 shares of its common stock to LPC. The issuance
of the shares were recorded as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’
deficit.
In addition to
regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases
if the closing sale price of the Common Stock is not below certain threshold prices, as set forth in the Purchase Agreement. In
all instances, the Company may not sell shares of its Common Stock to LPC under the Purchase Agreement if it would result in LPC
beneficially owning more than 4.99% of the Common Stock then outstanding.
LPC represented
to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation
D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities
to LPC pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of, and Regulation
D under, the Securities Act.
The Purchase Agreement
and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future
sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement
at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside
of LPC’s control, LPC does not have the right to terminate the Purchase Agreement; however, the Company may not initiate
any regular or other sale of shares to LPC until such event of default is cured.
Actual sales of
shares of Common Stock to LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company
from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the
Company as to the appropriate sources of funding for the Company and its operations. In consideration for entering in the Purchase
Agreement, the Company has agreed to pay to LPC a commitment fee in shares of Common Stock. The Company will not receive any cash
proceeds from the issuance of these shares.
The net proceeds
under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock
to LPC. The Company expects that any proceeds received by the Company from such sales to LPC will be used for working capital and
general corporate purposes.
On November 20,
2019, the Company filed a registration statement on Form S-1. The registration statement was declared effective on December 2,
2019 and the Company filed a final prospectus on December 4, 2019.
Other Common Stock Transactions
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.
In February 2018, the Company amended and
restated its certificate of incorporation to increase the authorized common stock to 225,000,000 shares and authorized 25,000,000
shares of preferred stock.
During the month of December 2019, the Company
issued 500,000 shares of its common stock for aggregate proceeds of $0.2 million under the Purchase Agreement.
The Company has reserved the following shares
of common stock for issuance as of December 31, 2019:
Warrants to purchase common stock
|
|
|
331,193
|
|
Options:
|
|
|
|
|
Outstanding under the 2012 Equity Incentive Plan
|
|
|
15,881,406
|
|
Outstanding under the 2001 Equity Incentive Plan
|
|
|
315
|
|
Available for future grants under the 2012 Equity Incentive Plan
|
|
|
3,050,799
|
|
Shares reserved under the 2019 LPC Purchase Agreement
|
|
|
14,500,000
|
|
Total common stock reserved for future issuance
|
|
|
33,763,713
|
|
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.
In general, to the extent that awards under
the 2012 Plan are forfeited or lapse without the issuance of shares, those shares will again become available for awards.
The 2012 Plan will continue in effect for
10 years from its adoption date, unless the Company’s board of directors decides to terminate the plan earlier.
On September 13, 2016, the Board of Directors
of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan to increase the number of shares of the
Company’s common stock available for issuance under the Plan by 3,000,000 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 Plan from 125,000 to 1,100,000.
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.
As of December 31, 2019, there were 3,050,799
shares available for grant under the 2012 Equity Incentive Plan.
2001 Equity Incentive Plan
Under the Company’s 2001 Stock Plan
(the “2001 Plan”), the Company was able to grant shares and/or options to purchase up to 426,030 shares of common stock
to employees, directors, consultants, and other service providers. In connection with the 2012 Plan taking effect, the 2001 Plan
was terminated in August 2012. However, the awards under the 2001 Plan outstanding as of the termination of the 2001 Plan continued
to be governed by their existing terms.
Stock Option Activity
The following table summarizes stock option
activity for the years ended December 31, 2019 and 2018:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price (per
share)(1)
|
|
|
Weighted-
Average
Remaining
Contractual
Term (in
years)
|
|
|
Aggregate
Intrinsic
Value
($000's)
(2)
|
|
Outstanding at January 1, 2018
|
|
|
2,448,383
|
|
|
$
|
4.15
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
13,575,038
|
|
|
|
0.66
|
|
|
|
|
|
|
|
|
|
Cancelled (forfeited)
|
|
|
(572,935
|
)
|
|
|
3.20
|
|
|
|
|
|
|
|
|
|
Cancelled (expired)
|
|
|
(41,129
|
)
|
|
|
37.82
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
15,409,357
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,470,957
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(488,625
|
)
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
Cancelled (forfeited)
|
|
|
(509,923
|
)
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
Cancelled (expired)
|
|
|
(45
|
)
|
|
|
9.68
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
15,881,721
|
|
|
$
|
0.95
|
|
|
|
8.2
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest
|
|
|
15,827,723
|
|
|
$
|
0.95
|
|
|
|
8.2
|
|
|
$
|
49
|
|
Exercisable
|
|
|
13,661,670
|
|
|
$
|
0.99
|
|
|
|
8.0
|
|
|
$
|
22
|
|
|
(1)
|
The weighted average price per share is determined using exercise price per share for stock options.
|
|
(2)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of
the Company’s common stock for in-the-money options at December 31, 2019.
|
The stock options outstanding and exercisable
by exercise price at December 31, 2019 are as follows:
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
Range of Exercise Prices
|
|
|
Number of
Shares
|
|
|
|
Weighted-
Average
Remaining
Contractual
Life
In Years
|
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
|
Number of
Shares
|
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
$0.33 - $0.67
|
|
|
13,442,367
|
|
|
|
8.28
|
|
|
$
|
0.65
|
|
|
|
11,533,358
|
|
|
$
|
0.66
|
|
$0.84 - $1.30
|
|
|
755,080
|
|
|
|
9.15
|
|
|
$
|
1.09
|
|
|
|
445,705
|
|
|
$
|
0.94
|
|
$1.91 - $3.30
|
|
|
370,000
|
|
|
|
7.10
|
|
|
$
|
2.97
|
|
|
|
368,333
|
|
|
$
|
2.97
|
|
$3.38 - $3.38
|
|
|
1,263,022
|
|
|
|
6.71
|
|
|
$
|
3.38
|
|
|
|
1,263,022
|
|
|
$
|
3.38
|
|
$3.40 - $4.72
|
|
|
50,625
|
|
|
|
6.77
|
|
|
$
|
3.40
|
|
|
|
50,625
|
|
|
$
|
3.40
|
|
$8.24 - $17.36
|
|
|
315
|
|
|
|
1.02
|
|
|
$
|
12.94
|
|
|
|
315
|
|
|
$
|
12.94
|
|
$42.88 - $48.00
|
|
|
312
|
|
|
|
3.76
|
|
|
$
|
45.17
|
|
|
|
312
|
|
|
$
|
45.17
|
|
|
|
|
15,881,721
|
|
|
|
8.17
|
|
|
$
|
0.95
|
|
|
|
13,661,670
|
|
|
$
|
0.99
|
|
The total fair value of options vested for
the years ended December 31, 2019 and 2018 was $2.0 million and $4.8 million, respectively.
Stock-Based Compensation
The Company’s stock-based compensation
expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes
option pricing model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires
various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the
historical stock volatilities of several of the Company’s publicly listed peers over a period equal to the expected terms
of the options as the Company does not have a sufficient trading history to use the volatility of its own common stock. To estimate
the expected term, the Company has opted to use the simplified method, which is the use of the midpoint of the vesting term and
the contractual term. If any of the assumptions used in the Black-Scholes option pricing model changes significantly, stock-based
compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is
required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates
the forfeiture rate based on historical experience and its expectations regarding future pre-vesting termination behavior of employees.
The Company reviews its estimate of the expected forfeiture rate annually, and stock-based compensation expense is adjusted accordingly.
The weighted-average fair value-based measurement
of stock options granted under the Company’s stock plans in the years ended December 31, 2019 and 2018 was $0.79 and
$0.47 per share, respectively. The fair value- based measurement of stock options granted under the Company’s stock plans
was estimated at the date of grant using the Black-Scholes model with the following assumptions:
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
Expected term
|
|
5 - 6 years
|
|
5 - 6 years
|
Expected volatility
|
|
96% - 99%
|
|
93% - 97%
|
Risk-free interest rate
|
|
1.74% - 2.59%
|
|
2.7% - 2.8%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Total expense for stock option grants recognized
was as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
General and administrative
|
|
$
|
1,928
|
|
|
$
|
4,611
|
|
Research and development
|
|
|
97
|
|
|
|
201
|
|
Total stock-based compensation
|
|
$
|
2,025
|
|
|
$
|
4,812
|
|
At December 31, 2019, the Company had
$1.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that
will be recognized over a weighted-average period of 1.4 years.
10. Income Taxes
No provision for federal income taxes has
been recorded for the years ended December 31, 2019 and 2018 due to net losses and the valuation allowance established.
Deferred tax assets and liabilities reflect
the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amounts
of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's
deferred tax assets are as follows:
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
50,144
|
|
|
$
|
47,877
|
|
Research and other credits
|
|
|
2,178
|
|
|
|
2,178
|
|
Stock based compensation
|
|
|
3,001
|
|
|
|
2,682
|
|
In-Process research and development
|
|
|
1,253
|
|
|
|
1,314
|
|
Other
|
|
|
854
|
|
|
|
708
|
|
Total deferred tax assets
|
|
|
57,430
|
|
|
|
54,759
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(57,430
|
)
|
|
|
(54,759
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of the statutory tax rates
and the effective tax rates for the years ended December 2019 and 2018 is as follows:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Valuation allowance
|
|
|
(26.0
|
)%
|
|
|
(26.4
|
)%
|
Nondeductible stock compensation
|
|
|
(0.3
|
)%
|
|
|
0.1
|
%
|
Other
|
|
|
5.3
|
%
|
|
|
5.3
|
%
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance increased by $2.7 million during 2019 and increased by $3.2 million
during 2018.
At December 31, 2019, the Company had
federal net operating loss carryforwards of approximately $166.2 million, which expire in the years 2021 through 2037, and
state net operating loss carryforwards of approximately $172 million, which expire in the years 2028 through 2039. The Company
also has federal net operating loss carryforwards generated in 2018 and 2019 of $15.4 million that have no expiration date as a
result of the December 22, 2017 Tax Cuts and Jobs Act tax reform legislation.
At December 31, 2019, the Company had
federal research and development credit carryforwards of approximately $1.3 million, which expire in the years 2022 through 2035
and state research and development credit carryforwards of approximately $2.2 million. The state research and development
credit carryforwards can be carried forward indefinitely.
During 2013, the Company completed a Section
382 study in accordance with the Internal Revenue Code of 1986, as amended, and similar state provisions. The study concluded that
the Company has experienced several ownership changes since inception. This causes the Company's utilization of its net operating
loss and tax credit carryforwards to be subject to substantial annual limitations. These results are reflected in the above carryforward
amounts and deferred tax assets. The Company's ability to utilize its net operating loss and tax credit carryforwards are further
limited as a result of subsequent ownership changes. All such limitations could result in the expiration of carryforwards before
they are utilized. An ownership change may have occurred during 2015, 2016, 2017, 2018 and 2019, or all five years and in connection
with the Restructuring Transactions described in Note 9. As a result, tax attributes such as net operating losses and research
and development credits may be subject to further limitation.
ASC 740 requires that the Company recognize
the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position
will be sustained upon examination.
A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
1,060
|
|
Additions based on tax positions related to prior year
|
|
|
-
|
|
Additions based on tax positions related to current year
|
|
|
-
|
|
Balance at December 31, 2018
|
|
|
1,060
|
|
Additions based on tax positions related to prior year
|
|
|
-
|
|
Additions based on tax positions related to current year
|
|
|
-
|
|
Balance at December 31, 2019
|
|
$
|
1,060
|
|
|
|
|
|
|
There were no interest or penalties related
to unrecognized tax benefits. Substantially all of the unrecognized tax benefit, if recognized to offset future taxable income
would affect the Company’s tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits
will significantly increase or decrease within the next 12 months. Because of net operating loss carryforwards, substantially
all of the Company’s tax years remain open to federal tax and state tax examination.
The Company files income tax returns in
the U.S. federal jurisdiction, California and Florida. Federal and California corporation income tax returns beginning with the
2001 tax year remain subject to examination by the Internal Revenue Service and the California Franchise Tax Board, respectively.
11. Employee Benefit Plan
The Company has established a 401(k) tax-deferred
savings plan (the “401(k) Plan”), which permits participants to make contributions by salary deduction pursuant to
Section 401(k) of the Internal Revenue Code. The Company is responsible for administrative costs of the 401(k) Plan. The Company
may, at its discretion, make matching contributions to the 401(k) Plan. No employer contributions have been made to date.
12. Litigation
Savant Litigation
On July 10, 2017, the Company filed a
complaint against Savant in the Superior Court for the State of Delaware, New Castle County (the “Delaware
Court”). KaloBios Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. The Company
asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 5 -
“Savant Arrangements” for more information about the MDC Agreement. The Company alleges that Savant has breached
its MDC Agreement obligations to pay cost overages that exceed a budgetary threshold as well as other related MDC Agreement
representations and obligations. In the litigation, the Company has alleged that as of June 30, 2017, Savant was responsible
for aggregate cost overages of approximately $3.4 million, net of a $0.5 million deductible under the MDC. The Company
asserts that it is entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as
of June 30, 2017 Savant owed the Company approximately $1.4 million.
On July 12, 2017, Savant removed the case
to the Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July
2016. In re KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). On July 27, 2017, Savant filed an Answer
and Counterclaims. Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming
that the Company breached its obligations to pay the milestone payments and other related representations and obligations. On August
1, 2017, the Company moved to remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure
notice to the Company, demanding that it provide the Collateral as defined in the Security Agreement for inspection and possession
on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the
“TRO”) and Preliminary Injunction in the Bankruptcy Court on August 4, 2017. Savant responded on August 7, 2017. On
August 7, 2017, the Bankruptcy Court granted the Company’s motion for a TRO, entering an order prohibiting Savant from collecting
on or selling the Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies
under the MDC Agreement or the Security Agreement. On August 9, 2017, the parties have stipulated to continue the provisions of
the TRO in full force and effect until further order of the appropriate court, which the Bankruptcy Court signed that same day
(the “Stipulated Order”).
On January 22, 2018, Savant wrote to the
Bankruptcy Court requesting dissolution of the TRO and the Stipulated Order. On January 29, 2018, the Bankruptcy Court granted
the Motion to Remand and denied Savant’s request to dissolve the TRO and Stipulated Order, ordering that any request to dissolve
the TRO and Stipulated Order be made to the Delaware Court.
On February 13, 2018 Savant made a letter
request to the Delaware Court to dissolve the TRO and Stipulated Order. Also on February 13, 2018, the Company filed its Answer
and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 the Company filed a letter opposition to Savant’s
request to dissolve the TRO and Stipulated Order and requesting a status conference. A hearing on Savant’s request to dissolve
the TRO and Stipulated Order was held before the Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request
to dissolve the TRO and Stipulated order, which remain in effect.
On April 11, 2018, the Company advised the
Delaware Court that it would meet and confer with Savant regarding a proposed case management order and date for trial. On April
26, 2018 the Delaware Court so-ordered a proposed case management order submitted by the Company and Savant. The schedule in the
case management order was modified by stipulation on August 24, 2018.
On April 8, 2019, the Company moved to compel
Savant to produce documents in response to the Company’s document requests. The parties thereafter agreed to a discovery
schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other.
On June 4, 2019, Savant filed a complaint
against the Company and Madison in the Delaware Court of Chancery (the “Chancery Action”) seeking to “recover
as damages that amounts owed to it under the MDC Agreement, and to reclaim Savant’s intellectual property,” among other
things. Savant also requested leave to move to dismiss the Company’s complaint on the grounds that the Company’s
transfer of assets to Madison was champertous. On June 10, 2019, the Company requested by letter that the Superior Court
hold a contempt hearing because the Chancery Action violated the TRO entered by the Bankruptcy Court, the terms of which have been
extended by stipulation of the parties. On June 18, 2019, the Superior Court held a telephonic status conference. The
parties agreed that the Chancery Action should be consolidated with the Superior Court action, after which the Superior Court would
address the parties’ motions.
On July 22, 2019, the Company moved for
contempt against Savant. Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied
the Company’s motion for contempt.
On July 23, 2019, Savant moved for summary
judgment on the issue of champerty. The Company filed its response and cross-motion for summary judgment on August 27, 2019.
Savant filed its reply on September 10, 2019 and the Company filed its cross-reply on September 20, 2019. The motion is fully
briefed, and is scheduled for argument on February 3, 2020.
On July 26, 2019, the Company moved to modify
the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted.
In a subsequent order, the discovery schedule was extended until the end of March 2020.
On July 30, 2019, the Company filed a motion
to dismiss Savant’s Chancery Action. Savant filed an amended complaint on September 4, 2019, and the Company filed
its opening brief in support of its motion to dismiss on October 11, 2019. That motion is fully briefed and scheduled for
argument on February 3, 2020.
On August 19, 2019, Savant moved to dismiss
the Company’s amended Superior Court complaint. On September 27, 2019, the Company filed an opposition to Savant’s
motion and, in the alternative, requested leave to file a second amended complaint against Savant. Savant consented to the
filing of the second amended complaint and withdrew their motion to dismiss. Savant filed a partial motion to dismiss against
a co-defendant on October 30, 2019. That motion is fully briefed and is scheduled for argument on February 3, 2020. At the
February 3, 2020 hearing, the Court reserved judgment on the parties’ reciprocal motions.
On November 18, 2019, the Court granted
Savant’s Motion to Schedule a Preliminary Injunction hearing concerning the August 2017 TRO and Stipulated Order that are
still in effect. A briefing schedule has been set and the hearing is scheduled for March 25, 2020.
The $2.0 million in milestone payments due
Savant are included in Accrued expenses in the accompanying balance sheet as of December 31, 2019 and 2018. Recovery of the cost
overages from Savant, if any, will be recorded in the period received.
13. License and Collaboration Agreements
Kite Agreement
On May 30, 2019, the Company entered into
the Kite Agreement, pursuant to which the Company and Kite will conduct a multi-center Phase Ib/II study of lenzilumab with Kite’s
Yescarta in patients with relapsed or refractory B-cell lymphoma, including DLBCL. The primary objective of the Study is to determine
the effect of lenzilumab on the safety of Yescarta.
Pursuant to the Kite Agreement, the Company
will supply lenzilumab to the collaboration for use in the study and will contribute up to approximately $8.0 million towards the
out-of-pocket costs of the study.
Mayo Agreement
On June 19, 2019, the Company entered
into an exclusive worldwide license agreement (the “Mayo Agreement”) with the Mayo Foundation for Medical
Education and Research (“Mayo”) for certain technologies used to create CAR-T cells lacking GM-CSF expression
through various gene-editing tools including CRISPR-Cas9 (“GM-CSF knock-out”). The license covers various patent
applications and know-how developed by Mayo in collaboration with the Company. These licensed technologies complement and
broaden the Company’s position in the GM-CSF neutralization space and expand the Company’s discovery platform
aimed at improving CAR-T to include gene-edited CAR-T cells.
Pursuant to the Mayo Agreement, the Company
was required to pay $200,000 to Mayo within six months of the effective date, or upon completion of a qualified financing, whichever
is earlier. The Company did not pay the initial payment as of the due date and will incur interest on the unpaid balance at the
prime rate plus 2%. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain regulatory
and commercialization milestones. The Company accrued the initial payment in Accrued expenses in the accompanying Consolidated
Balance Sheet as of December 31, 2019.
Zurich Agreement
On July 19, 2019, the Company entered into
an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich (“UZH”)
for technology used to prevent or treat Graft versus Host Disease (“GvHD”) through GM-CSF neutralization. The Zurich
Agreement covers various patent applications filed by UZH which complement and broaden the Company’s position in the application
of GM-CSF and expands the Company’s development platform to include improving allogeneic HSCT.
Pursuant to the Zurich Agreement, the Company
paid $100,000 to UZH in July 2019. The Zurich Agreement also requires the payment of milestones and royalties upon the achievement
of certain regulatory and commercialization milestones. The license payment of $100,000 was recorded as expense in Research and
development in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2019.
14. Related Party Transactions
The Restructuring Transactions were completed
on February 27, 2018. See Note 9.
In June, July and August, 2018 the Company
received an aggregate of $0.9 million of proceeds from advance notes made to it by four different lenders including Dr. Cameron
Durrant, our Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the Company’s controlling stockholder; and
Ronald Barliant, a director of the Company. See Note 6 for a further discussion of the Advance Notes.
Commencing September 19, 2018, the Company
delivered a series of convertible promissory notes evidencing an aggregate of $2.5 million of loans made to the Company by six
different lenders, including an affiliate of BHC, the Company’s controlling stockholder. See Note 6 for a further discussion
of the 2018 Notes.
On June 28, 2019, the Company issued three
short-term, secured bridge notes evidencing an aggregate of $1.7 million of loans made to the Company by three parties including
Dr. Cameron Durrant, our Chairman and Chief Executive Officer and Cheval Holdings, Ltd., an affiliate of Black Horse Capital,
L.P., our controlling stockholder. See Note 6 for a further discussion of the 2019 Bridge Notes.
On November 12, 2019, the Company issued
two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019
Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company by two parties, including Dr. Cameron Durrant,
our Chairman and Chief Executive Officer and Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling
stockholder. See Note 6 for a further discussion of the 2019 Bridge Notes.
15. Subsequent Events
Issuance of Convertible Notes in
March 2020
In
March 2020 (the “Issuance Date”), we delivered a series of convertible redeemable promissory notes (the “Notes”)
evidencing loans with an aggregate principal amount of $448,333.33 made to us.
The
Notes bear interest at a rate of 7.0% per annum and will mature on March 13, 2021 and March 19, 2021, respectively. The Notes contain
an original issue discount of $33,000 and $18,833.33, respectively. We plan to use the proceeds from the Notes for working capital.
Beginning
on the 6th month anniversary of the Issuance Date, unless earlier redeemed by us, the holder is entitled, at its option, to convert
all or any amount of the principal amount of the Notes then outstanding, together with the accrued and unpaid interest on such
portion of the Notes proposed to be converted, into shares of our common stock (the "Common Stock") at a conversion
price equal to $.25 per share (the “Fixed Price”). After the 9 month anniversary of the Issuance Date, the conversion
price shall be equal to the lower of (i) the Fixed Price or (ii) 68% of the lowest of either the trading price or closing bid
of the Common Stock, for the ten prior trading days including the day upon which a Notice of Conversion is received (the “Variable
Conversion Price”).
In
the event our Common Stock has a closing price equal to $0.30 or less for 5 consecutive days prior to the 9 month anniversary of
the Issuance Date, then, beginning on the 6 month anniversary of the Issuance Date, the holder may elect in its Notice of Conversion
to use the lower of the Fixed Price or the Variable Conversion Price set forth above.
Commencing
on the 6 month anniversary of the Issuance Date, we will have the right, but not the obligation, to elect to make fixed monthly
amortizing payments to the holder in the amount of $25,000. If we elect to make such payments, the holder shall not be entitled
to convert all or any amount of the principal amount of the Notes then outstanding if and for so long as we are current in respect
of the amortizing payments.
The Notes may be redeemed by us at any time
before the 270th day following its issuance, at a redemption price equal to (i) 110% of the principal plus accrued but
unpaid interest on the Notes to the date of redemption, if the redemption occurs in the first 60 days following the Issuance Date;
(ii) 120% of the principal plus accrued but unpaid interest on the Notes to the date of redemption, if the redemption occurs from
day 61 through day 120 following the Issuance Date; or (iii) 130% of the principal plus accrued but unpaid interest on the Notes
to the date of redemption, if the redemption occurs from day 121 through day 270 following the Issuance Date. The Notes contain
customary default and remedies provisions for convertible note financings of this nature.
The Notes contain customary default and
remedies provisions for convertible note financings of this nature.
The Notes were issued in reliance upon the
exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended.
Conversion of Certain Outstanding 2018 and 2019 Convertible
Notes
As previously reported, holders of the Company’s
outstanding convertible notes issued in 2018 and 2019 are entitled to convert the principal and unpaid interest on such notes into
shares of our common stock as a result of our completion on December 11, 2019 of a “Non-Qualified Financing”, as defined
in such notes, through sales of our common stock to Lincoln Park Capital Fund, LLC pursuant to the Purchase Agreement described
in Note 9 in the Notes to the Consolidated Financial Statements. Certain additional “Non-Qualified Financing” transactions
occurred from December 11, 2019 until January 7, 2020. Commencing on April 2, 2020, certain holders of such notes, including Cheval
Holdings, Ltd. (“Cheval”), an affiliate of Black Horse Capital, L.P., our controlling stockholder, notified us of their
exercise of such conversion rights. Pursuant to the exemption from registration afforded by Section 3(a)(9) under the Securities
Act of 1933, we issued an aggregate of 7,131,942 shares of our common stock upon the conversion of $2.6 million in aggregate principal
and interest on the notes converted, which obligations were retired. Of these, we issued 1,583,333 shares to Cheval. Dr. Dale Chappell,
our ex-officio chief scientific officer, controls Black Horse Capital, L.P. and reports beneficial ownership of all shares held
by it and its affiliates, including Cheval.
After giving effect to the shares issued
upon such conversions, as of April 3, 2020, an aggregate of $0.6 million in principal amount of convertible notes issued in 2018,
and an aggregate of $1.2 million in principal amount of convertible notes issued in 2019 were outstanding.
Humanigen, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68
|
|
|
$
|
143
|
|
Prepaid expenses and other current assets
|
|
|
293
|
|
|
|
309
|
|
Total current assets
|
|
|
361
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
71
|
|
|
|
71
|
|
Total assets
|
|
$
|
432
|
|
|
$
|
523
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,906
|
|
|
$
|
5,046
|
|
Accrued expenses
|
|
|
3,500
|
|
|
|
3,308
|
|
Bridge Notes
|
|
|
2,149
|
|
|
|
2,113
|
|
Convertible notes - current
|
|
|
2,756
|
|
|
|
2,033
|
|
Notes payable to vendors
|
|
|
1,122
|
|
|
|
1,094
|
|
Total current liabilities
|
|
|
15,433
|
|
|
|
13,594
|
|
Convertible notes - non current
|
|
|
1,288
|
|
|
|
1,247
|
|
Total liabilities
|
|
|
16721
|
|
|
|
14841
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 225,000,000 shares authorized at
|
|
|
|
|
|
|
|
|
March 31, 2020 and December 31, 2019; 114,311,790 and
114,034,451 shares issued and outstanding at March 31, 2020 and
December 31, 2019, respectively
|
|
|
114
|
|
|
|
114
|
|
Additional paid-in capital
|
|
|
270,959
|
|
|
|
270,463
|
|
Accumulated deficit
|
|
|
(287,362
|
)
|
|
|
(284,895
|
)
|
Total stockholders’ deficit
|
|
|
(16,289
|
)
|
|
|
(14,318
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
432
|
|
|
$
|
523
|
|
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of
Operations
(in thousands, except share and per share
data)
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
|
$
|
659
|
|
|
$
|
359
|
|
General and administrative
|
|
|
1,398
|
|
|
|
1,879
|
|
Total operating expenses
|
|
|
2,057
|
|
|
|
2,238
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,057
|
)
|
|
|
(2,238
|
)
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(410
|
)
|
|
|
(302
|
)
|
Other income (expense), net
|
|
|
-
|
|
|
|
(1
|
)
|
Net loss
|
|
$
|
(2,467
|
)
|
|
$
|
(2,541
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used to
|
|
|
|
|
|
|
|
|
calculate basic and diluted net loss per common share
|
|
|
114,270,532
|
|
|
|
110,033,098
|
|
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of
Cash Flows
(in thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,467
|
)
|
|
$
|
(2,541
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
265
|
|
|
|
697
|
|
Issuance of common stock for payment of compensation
|
|
|
19
|
|
|
|
48
|
|
Issuance of common stock in exchange for services
|
|
|
13
|
|
|
|
68
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
16
|
|
|
|
5
|
|
Accounts payable
|
|
|
860
|
|
|
|
592
|
|
Accrued expenses
|
|
|
687
|
|
|
|
447
|
|
Net cash used in operating activities
|
|
|
(607
|
)
|
|
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
65
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
50
|
|
Net proceeds from issuance of Convertible notes
|
|
|
467
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
532
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(75
|
)
|
|
|
(634
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
214
|
|
|
|
885
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
139
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2
|
|
|
$
|
1
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Issuance of stock options in lieu of cash compensation
|
|
$
|
133
|
|
|
$
|
195
|
|
Issuance of warrant for services
|
|
$
|
1
|
|
|
$
|
-
|
|
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of
Stockholders’ Deficit
(in thousands, except share data)
(Unaudited)
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances at January 1, 2020
|
|
|
114,034,451
|
|
|
$
|
114
|
|
|
$
|
270,463
|
|
|
$
|
(284,895
|
)
|
|
$
|
(14,318
|
)
|
Issuance of common stock
|
|
|
200,000
|
|
|
|
-
|
|
|
|
65
|
|
|
|
-
|
|
|
|
65
|
|
Issuance of common stock in exchange for services
|
|
|
29,342
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
Issuance of stock options for payment of compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
|
|
-
|
|
|
|
133
|
|
Issuance of common stock for payment of compensation
|
|
|
47,997
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Issuance of warrant for services
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
265
|
|
|
|
-
|
|
|
|
265
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,467
|
)
|
|
|
(2,467
|
)
|
Balances at March 31, 2020
|
|
|
114,311,790
|
|
|
$
|
114
|
|
|
$
|
270,959
|
|
|
$
|
(287,362
|
)
|
|
$
|
(16,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
|
Paid-In
|
|
|
|
Accumulated
|
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
Balances at January 1, 2019
|
|
|
109,897,526
|
|
|
$
|
110
|
|
|
$
|
266,381
|
|
|
$
|
(274,601
|
)
|
|
$
|
(8,110
|
)
|
Issuance of common stock for payment of compensation
|
|
|
93,358
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
|
|
90
|
|
Issuance of stock options for payment of compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
195
|
|
|
|
-
|
|
|
|
195
|
|
Issuance of common stock in exchange for services
|
|
|
82,432
|
|
|
|
-
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
Exercise of stock options
|
|
|
75,000
|
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
697
|
|
|
|
-
|
|
|
|
697
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,541
|
)
|
|
|
(2,541
|
)
|
Balances at March 31, 2019
|
|
|
110,148,316
|
|
|
$
|
110
|
|
|
$
|
267,481
|
|
|
$
|
(277,142
|
)
|
|
$
|
(9,551
|
)
|
See accompanying notes.
Humanigen, Inc.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Description of the Business
The Company was incorporated on March 15,
2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc.
Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc. During February
2018, the Company completed the restructuring transactions announced in December 2017 and continued its transformation into a clinical-stage
biopharmaceutical company by further developing its clinical stage immuno-oncology and immunology portfolio of monoclonal
antibodies. The Company is currently focused on developing its novel human granulocyte-macrophage colony-stimulating factor (“GM-CSF”)
neutralization and gene-knockout platforms and its portfolio of next-generation cell and gene therapies.
The Company’s lead product candidate
is lenzilumab, a proprietary Humaneered® monoclonal antibody (a biologic) that has been demonstrated to neutralize a naturally
occurring inflammatory factor (GM-CSF). GM-CSF is a cytokine which acts directly on myeloid cells to cause expansion, activation,
and to initiate and promote the production of other chemokines, including MCP-1, MIP-1a, and IP-10, and cytokines, including TNFa,
IL-6 and IL-1 as part of the body’s immune response. GM-CSF is thought of as a communication conduit between the innate and
adaptive immune systems. Once initiated, the inflammatory cascade in certain cases may quickly evolve into a self-perpetuating
“storm” as the production of chemokines increases expansion and trafficking of myeloid cells. This, in turn, leads
to abnormally high levels of inflammatory cytokines, endothelial activation, vascular permeability, disseminated intravascular
coagulation, and neurologic inflammation. This “cytokine storm” is frequently referred to as cytokine release syndrome,
or CRS. The neutralization of GM-CSF has been shown to prevent and potentially treat cytokine storm through a decrease in levels
of IL-6, MCP-1, MIP1a, IP-10, VEGF, TNFα and other factors and reduce levels of inflammatory myeloid cells. Reduction of these
factors demonstrates that GM-CSF is a critical upstream and early regulator of many inflammatory cytokines known to be important
in the pathophysiology of CRS (Sterner RM et al. Blood 2019. 133(7): 697–709).
During 2019 and throughout the early portion
of the first quarter of 2020, the Company continued to pursue its anti-GM-CSF programs to prevent or reduce the serious and potentially
life-threatening side effects associated with chimeric antigen receptor T-cell (“CAR-T”) therapy and to prevent or
treat graft-versus-host disease (“GvHD”) in patients undergoing allogeneic hematopoietic stem cell transplantation
(“HSCT”). In collaboration with Kite Pharmaceuticals, Inc., a Gilead company (“Kite or the “Kite Collaboration”),
the Company seeks to study the effect of lenzilumab on the safety of Yescarta®, axicabtagene ciloleucel (“Yescarta”),
Kite’s FDA-approved CAR-T therapy. A clinical trial is underway to measure the effect of lenzilumab in reducing CRS and neurotoxicity
(NT), with a secondary endpoint of increased efficacy of Yescarta.
The recent coronavirus pandemic, which is
due to the SARS-CoV-2 virus and leads to the condition referred to as COVID-19, is frequently characterized in the later and sometimes
fatal stages by severe, progressive viral pneumonia that can progress to acute respiratory distress syndrome (“ARDS”),
respiratory failure and death. Recent publications indicate that ARDS in this setting is caused by the body’s autoimmune
response to CRS. Published data point to GM-CSF being a key triggering cytokine, with elevated levels especially in those patients
who transition to the Intensive Care Unit (“ICU”).
In response to this published data indicating
that GM-CSF inhibition may play a role in treating patients with COVID-19, the Company is developing lenzilumab in COVID-19 in
a Phase III potential registration study. The Company has commenced enrollment in a multicenter randomized, placebo-controlled,
double-blind clinical trial with lenzilumab for the prevention of respiratory failure and/or death in hospitalized patients with
severe pneumonia associated with SARS-CoV-2 infection (Clinicaltrials.gov # NCT04351152).
The Company has generated compassionate
use data with lenzilumab in patients hospitalized with severe pneumonia associated with COVID-19 and is working with stakeholders
to share these data.
See Management’s Discussion and Analysis
of Financial Condition and Results of Operations in Item 2 of this Quarterly Report on Form 10-Q for additional information regarding
the business.
Liquidity and Going Concern
The Company has incurred significant losses
since its inception in March 2000 and had an accumulated deficit of $287.4 million
as of March 31, 2020. At March 31, 2020, the Company had a working capital deficit of $15.1
million. 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, which are expected to increase as the Company’s clinical
trial activities accelerate 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 three months ended March 31, 2020 were prepared on the basis of a going concern, which contemplates that the Company will
be able to realize assets and discharge liabilities in the normal course of business. The ability of the Company to meet its total
liabilities of $16.7 million at March 31, 2020 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, 2019 Condensed Consolidated Balance Sheet was derived from the audited financial
statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative
of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period. The accompanying
unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements
and the related notes thereto included in the Company’s 2019 Form 10-K.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported
in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.
The Company believes judgment is involved in determining the valuation of the fair value-based measurement of stock-based compensation
and warrant valuations. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events
and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those
differences could be material to the Condensed Consolidated Financial Statements.
Certain prior year amounts have been reclassified
to conform to the current year presentation. Such reclassifications had no effect on prior years’ Net loss or Stockholders’
deficit.
|
2.
|
Summary of Significant Accounting Policies
|
There have been no material changes in the
Company’s significant accounting policies since those previously disclosed in the 2019 Form 10-K.
Derivative Financial Instruments
The Company has equity conversion features
within its 2020 Convertible Redeemable Notes that qualify as embedded derivatives under the guidance of FASB ASC Topic 815, Derivatives
and Hedging. As part of that guidance, an analysis is performed on each embedded derivative to determine whether it should
be bifurcated from the host instrument and recorded separately within the Consolidated Balance Sheet at its fair value. Changes
in fair value are recorded in other income (expense) within the Consolidated Statement of Operations. Refer to Note 4 - Debt
and Note -5 – Derivative Instruments for further discussion of the Company’s embedded derivatives.
|
3.
|
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 March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
17,104,649
|
|
|
|
16,062,922
|
|
Warrants to purchase common stock
|
|
|
331,193
|
|
|
|
331,193
|
|
|
|
|
17,435,842
|
|
|
|
16,394,115
|
|
Notes Payable to Vendors
On June 30, 2016, the Company issued promissory
notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Company’s
Plan of Reorganization (the “Plan”) filed with the United States Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy Case”) which became effective June 30, 2016,
at which time the Company emerged from its Chapter 11 bankruptcy proceedings. The notes are unsecured, bear interest at 10% per
annum and became due and payable in full, including principal and accrued interest on June 30, 2019. In July and August, 2019,
following the receipt of proceeds from the 2019 Bridge Notes, the Company used approximately $0.5 million of the proceeds to retire
a portion of these notes, including accrued interest. After giving effect to these payments, the aggregate principal amount and
accrued but unpaid interest on these notes approximates $1.1 million as of March 31, 2020. As of March 31, 2020 and December 31,
2019, the Company has accrued $0.3 million and $0.3 million in interest related to these promissory notes, respectively. The outstanding
principal amount and accrued but unpaid interest on these notes is currently payable to the respective holders without demand,
notice or declaration, and the holders, without demand or notice of any kind, may exercise any and all other rights and remedies
available to them under the notes, the Plan, at law or in equity. We do not have sufficient funds to repay the principal and accrued
but unpaid interest on these notes in their entirety.
Advance Notes
In June, July and August, 2018 the Company
received an aggregate of $0.9 million of proceeds from advances made to the Company (the “Advance Notes”) by four different
lenders including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval Holdings, Ltd., 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 accrued interest at a rate of 7% per year, compounded annually.
In accordance with their terms, on May 30,
2019, in connection with the Company’s announcement of the Collaboration Agreement with Kite, the lenders converted the amounts
due under the Advance Notes into the Company’s common stock at the conversion price of $0.45 per share. The Company issued
a total of 2,179,622 shares of common stock in connection with the conversion.
2018 Convertible Notes
Commencing September 19, 2018, the Company
delivered a series of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans
made to the Company by six different lenders, including an affiliate of Black Horse Capital, L.P., the Company’s controlling
stockholder. The 2018 Notes bear interest at a rate of 7% per annum and will mature on the earliest of (i) twenty-four months from
the date the 2018 Notes were signed, (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events
including any dissolution or winding up of the Company or merger or sale by the Company of all or substantially all of its assets
(in any case, a “Liquidation Event”). The Company used the proceeds from the 2018 Notes for working capital.
Following the end of the quarter ended March
31, 2020, holders of the 2018 Notes notified us of their exercise of their conversion rights. Please see Note 11 – Subsequent
Events for additional information.
As of March 31, 2020 and December 31, 2019,
the Company has accrued $0.3 million and $0.2 million in interest related to these promissory notes, respectively.
2019 Convertible Notes
Commencing on April
23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Notes”) evidencing an aggregate
of $1.3 million of loans made to the Company.
The 2019 Notes bear interest at a rate of 7.5% per annum and
will mature on the earliest of (i) twenty-four months from the date the 2019 Notes are signed (the “Stated Maturity Date”),
(ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including any dissolution or winding
up of the Company or merger or sale by the Company of all or substantially all of its assets (in any case, a “Liquidation
Event”). The Company used the proceeds from the 2019 Notes for working capital.
Following the end
of the quarter ended March 31, 2020, holders of the 2019 Notes notified us of their exercise of their conversion rights. Please
see Note 11 – Subsequent Events for additional information.
As of March 31, 2020 and December 31, 2019,
the Company had accrued $0.1 million and $0.1 million in interest related to these promissory notes, respectively.
The Advance Notes, the 2018 Notes and the
2019 Notes have an optional voluntary conversion feature in which the holder could convert the notes in the Company’s common
stock at maturity at a conversion rate of $0.45 per share for the Advance Notes and the 2018 Notes and at a conversion rate of
$1.25 for the 2019 Notes. The intrinsic value of this beneficial conversion feature was $1.8 million upon the issuance of the Advance
Notes, the 2018 Notes and the 2019 Notes and was recorded as additional paid-in capital and as a debt discount which is accreted
to interest expense over the term of the Advance Notes and Notes. Interest expense includes debt discount amortization of $0.2
million for the three months ended March 31, 2020.
The Company evaluated the embedded features
within the Advance Notes, the 2018 Notes and the 2019 Notes to determine if the embedded features are required to be bifurcated
and recognized as derivative instruments. The Company determined that the Advance Notes, the 2018 Notes and the 2019 Notes contain
contingent beneficial conversion features (“CBCF”) that allow or require the holder to convert the Advance Notes, the
2018 Notes and the 2019 Notes, as applicable, to Company common stock at a conversion rate of $0.45 per share for the Advance Notes
and the 2018 Notes and $1.25 for the 2019 Notes, but did not contain embedded features requiring bifurcation and recognition as
derivative instruments. Upon the occurrence of a CBCF that results in conversion of the Advance Notes, the 2018 Notes or the 2019
Notes to Company common stock, the remaining unamortized discount will be charged to interest expense. Upon conversion of the Advance
Notes on May 30, 2019, the remaining unamortized discount was charged to interest expense. The remaining debt discount for the
2018 and 2019 will be charged to interest expense in the second quarter of 2020 with their conversion in April 2020.
2020 Convertible Redeemable Notes
On
March 13, 2020 and March 19, 2020 (the “Issuance Dates”), the Company delivered two convertible redeemable promissory
notes (the “2020 Notes”) evidencing loans with an aggregate principal amount of $518,333 made to the Company.
The
2020 Notes bear interest at a rate of 7.0% per annum and will mature on March 13, 2021 and March 19, 2021, respectively. The 2020
Notes contain an original issue discount of $33,000 and $18,833, respectively. The Company used the proceeds from the 2020 Notes
for working capital.
Beginning
on the six month anniversary of the Issuance Dates, unless earlier redeemed by the Company, the holders are entitled, at their
option, to convert all or any amount of the principal amount of the 2020 Notes then outstanding, together with the accrued and
unpaid interest on such portion of the 2020 Notes proposed to be converted, into shares of the Company’s common stock (the
"Common Stock") at a conversion price equal to $0.25 per share (the “Fixed Price”). After the nine month
anniversary of the Issuance Dates, the conversion price shall be equal to the lower of (i) the Fixed Price or (ii) 68% of the lowest
of either the trading price or closing bid of the Common Stock, for the ten prior trading days including the day upon which a Notice
of Conversion is received (the “Variable Conversion Price”).
In
the event our Common Stock has a closing price equal to $0.30 or less for 5 consecutive days prior to the 9 month anniversary of
the Issuance Date, then, beginning on the 6 month anniversary of the Issuance Date, the holders may elect in their respective Notice
of Conversion to use the lower of the Fixed Price or the Variable Conversion Price set forth above.
Commencing
on the 6 month anniversary of the Issuance Dates, the Company will have the right, but not the obligation, to elect to make fixed
monthly amortizing payments to the holders in the amount of $25,000 and $14,250, respectively. If we elect to make such payments,
the holders shall not be entitled to convert all or any amount of the principal amount of the 2020 Notes then outstanding if and
for so long as we are current in respect of the amortizing payments.
The 2020 Notes may be redeemed by us at
any time before the 270th day following their issuance, at a redemption price equal to (i) 110% of the principal plus
accrued but unpaid interest on the 2020 Notes to the date of redemption, if the redemption occurs in the first 60 days following
the Issuance Dates; (ii) 120% of the principal plus accrued but unpaid interest on the 2020 Notes to the date of redemption, if
the redemption occurs from day 61 through day 120 following the Issuance Dates; or (iii) 130% of the principal plus accrued but
unpaid interest on the 2020 Notes to the date of redemption, if the redemption occurs from day 121 through day 270 following the
Issuance Dates. The 2020 Notes contain customary default and remedies provisions for convertible note financings of this nature.
As of March 31, 2020, the Company has accrued
$1,600 in interest related to the 2020 Notes.
The Company evaluated the embedded features
within the 2020 Notes and determined that the embedded features are required to be bifurcated and recognized as stand-alone derivative
instruments. The variable-share settlement features within the 2020 Notes qualify as redemption features and meet the net settlement
criterion for qualification as a stand-alone derivative. In determining the fair value of the bifurcated derivative, the Company
evaluated the likelihood of conversion of the 2020 Notes to Company stock. As the Company believes it will have adequate
funding prior to the six month anniversary of the 2020 Notes, the first conversion option for the holders of the 2020 Notes, and
it has the intent to either begin making amortizing payments or to pay off the 2020 Notes in their entirety prior to that date,
the fair value was determined to be $0 as of March 31, 2020. The original issue discount
is being accreted to interest expense over the term of the 2020 Notes. Interest expense includes the original issue discount amortization
of approximately $4,000 for the three months ended March 31, 2020. The remaining debt discount will be amortized over approximately
11 months for the 2020 Notes.
2019 Bridge
Notes
On June 28, 2019, the
Company issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million
of loans made to the Company by three parties: Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s
controlling stockholder, lent $750,000; Nomis Bay LTD, the Company’s second largest stockholder, lent $750,000; and Dr. Cameron
Durrant, the Company’s Chief Executive Officer and Chairman of the Board of Directors, lent $200,000. The proceeds from the
June Bridge Notes were used to satisfy a portion of the unsecured obligations incurred in connection with the Company’s emergence
from bankruptcy in 2016 and for working capital and general corporate purposes. Of the $1.7 million in proceeds received, $950,000
was received on June 28, 2019 and was recorded as Advance notes in the Condensed Consolidated Balance Sheet as of June 30, 2019.
The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.
The June Bridge Notes
bear interest at a rate of 7.0% per annum and had an original maturity date of October 1, 2019, which the Company and the lenders
agreed to extend until December 31, 2020. No other changes to the terms of the June Bridge Notes were made in connection with the
extension of the maturity date. The June Bridge Notes may become due and payable at such earlier time as the Company raises more
than $3,000,000 in a bona fide financing transaction or upon a change in control. The June Bridge Notes are secured by liens on
substantially all of the Company’s assets.
On November 12, 2019, the Company issued
two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019
Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company by two parties: Cheval Holdings, Ltd.,
an affiliate of Black Horse Capital, L.P., our controlling stockholder, lent $250,000; and Dr. Cameron
Durrant, our Chief Executive Officer and Chairman of our Board of Directors, lent $100,000. The proceeds from the November
Bridge Notes were used for working capital and general corporate purposes.
The November Bridge Notes rank on par with
the June Bridge Notes, and possess other terms and conditions substantially consistent with those notes. The November Bridge Notes
bear interest at a rate of 7.0% per annum and had an original maturity date of December 31, 2019, which the Company and the lenders
agreed to extend until December 31, 2020. No other changes to the terms of the November Bridge Notes were made in connection with
the extension of the maturity date. The November Bridge Notes may become due and payable at such earlier time as the Company raises
more than $3,000,000 in a bona fide financing transaction or upon a change in control. The November Bridge Notes also are secured
by a lien on substantially all of the Company’s assets.
Upon an event of default,
which events include, but are not limited to, (1) the Company’s failure to timely pay any monetary obligation under the 2019
Bridge Notes; (2) our failure to pay our debts generally as they become due and (3) our commencing any proceeding relating to the
Company under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar
laws of any jurisdiction now or hereafter in effect, the interest payable on the 2019 Bridge Notes increases to 10.0% per annum.
Further, upon certain events of default, all payments and obligations due and owed under the 2019 Bridge Notes shall immediately
become due and payable without demand and without notice to the Company.
As of March 31, 2020 and December 31, 2019,
the Company has accrued $0.1 million and $0.1 million in interest related to these promissory notes, respectively.
As of March 31, 2020, the maturities of
the debt of the Company by year is as follows:
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
Principal payments on Notes payable to vendors
|
|
$
|
774
|
|
|
$
|
774
|
|
|
$
|
-
|
|
Interest payments on Notes payable to vendors
|
|
|
348
|
|
|
|
348
|
|
|
|
-
|
|
Principal payments on 2019 Bridge notes
|
|
|
2,050
|
|
|
|
2,050
|
|
|
|
-
|
|
Interest payments on 2019 Bridge notes
|
|
|
99
|
|
|
|
99
|
|
|
|
-
|
|
Principal payments on Convertible notes
|
|
|
4,293
|
|
|
|
3,018
|
|
|
|
1,275
|
|
Interest payments on Convertible notes
|
|
|
358
|
|
|
|
270
|
|
|
|
88
|
|
Gross debt before unamortized discount
|
|
|
7,922
|
|
|
|
6,559
|
|
|
|
1,363
|
|
Unamortized debt discount on convertible debt
|
|
|
(607
|
)
|
|
|
(532
|
)
|
|
|
(75
|
)
|
Total Debt
|
|
$
|
7,315
|
|
|
$
|
6,027
|
|
|
$
|
1,288
|
|
|
5.
|
Derivative Instruments
|
The Company has certain embedded equity
conversion features within its 2020 Notes that require bifurcation and recognition as stand-alone derivatives. See Note 4 –
Debt for additional information and discussion on the bifurcated derivatives.
|
6.
|
Commitments and Contingencies
|
Contractual Obligations and Commitments
As of March 31, 2020, other than the
debt issuances described in Note 4 and the license agreements described in Note 8, there were no material changes to
the Company’s contractual obligations from those set forth in the 2019 Form 10-K.
Guarantees and Indemnifications
The Company has certain agreements with
service providers with which it does business that contain indemnification provisions pursuant to which the Company typically agrees
to indemnify the party against certain types of third-party claims. The Company accrues for known indemnification issues when a
loss is probable and can be reasonably estimated. The Company would also accrue for estimated incurred but unidentified indemnification
issues based on historical activity. As the Company has not incurred any indemnification losses to date, there were no accruals
for or expenses related to indemnification issues for any period presented.
Lincoln Park Capital Purchase Agreement
On November 8, 2019, the Company entered
into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights
Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell
to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”),
subject to certain limitations and conditions set forth in the Purchase Agreement.
Under the Purchase Agreement, the Company
has the right, from time to time at its sole discretion and subject to certain conditions, to direct LPC to purchase up to 100,000
shares of Common Stock, with such amounts increasing based on certain threshold prices but not to exceed $750,000 in total proceeds
on any purchase date. The purchase price of shares of Common Stock pursuant to the Purchase Agreement will be based on the market
prices of the Common Stock at the time of such purchases as set forth in the Purchase Agreement. Such sales of Common Stock by
the Company, if any, may occur from time to time, at the Company’s option, over the 36-month period expiring in December
2022.
In connection with the signing of the Purchase
Agreement on November 8, 2019, the Company issued 706,592 shares of its common stock to LPC. The issuance of the shares were recorded
as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’ deficit.
In addition to regular purchases, as described
above, the Company may also direct LPC to purchase additional amounts as accelerated purchases if the closing sale price of the
Common Stock is not below certain threshold prices, as set forth in the Purchase Agreement. In all instances, the Company may not
sell shares of its Common Stock to LPC under the Purchase Agreement if it would result in LPC beneficially owning more than 4.99%
of the Common Stock then outstanding.
LPC represented to the Company, among other
things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under
the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities to LPC pursuant
to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of, and Regulation
D under, the Securities Act.
The Purchase Agreement and the Registration
Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions,
indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time,
at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside of LPC’s
control, LPC does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any regular or
other sale of shares to LPC until such event of default is cured.
Actual sales of shares of Common Stock to
LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including,
among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate
sources of funding for the Company and its operations. In consideration for entering in the Purchase Agreement, the Company paid
LPC a commitment fee in shares of Common Stock. The Company did not receive any cash proceeds from the issuance of these shares.
The net proceeds under the Purchase Agreement
to the Company will depend on the frequency and prices at which the Company sells shares of its stock to LPC. The Company expects
that any proceeds received by the Company from such sales to LPC will be used for working capital and general corporate purposes.
During the months of December 2019 and January
2020, the Company issued a total of 700,000 shares for aggregate proceeds of $0.3 million under the Purchase Agreement.
Equity Financings
During the month of December 2019, the Company
issued 500,000 shares of its common stock for aggregate proceeds of $0.2 million under the Purchase Agreement.
During the month of January 2020, the Company
issued 200,000 shares of its common stock for aggregate proceeds of $0.1 million under the Purchase Agreement.
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.
A summary of stock option activity for the
three months ended March 31, 2020 under all of the Company’s options plans is as follows:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at January 1, 2020
|
|
|
15,881,721
|
|
|
$
|
0.95
|
|
Granted
|
|
|
1,223,033
|
|
|
|
0.40
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled (forfeited)
|
|
|
-
|
|
|
|
-
|
|
Cancelled (expired)
|
|
|
(105
|
)
|
|
|
11.68
|
|
Outstanding at March 31, 2020
|
|
|
17,104,649
|
|
|
$
|
0.91
|
|
The weighted average fair value of options
granted during the three months ended March 31, 2020 was $0.40 per share.
The
Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption
terms for the three months ended March 31, 2020:
|
Three
months ended
March
31, 2020
|
Exercise price
|
$0.38 - $0.40
|
Market value
|
$0.38 - $0.40
|
Expected term
|
5 years
|
Expected volatility
|
95%
|
Risk-free interest rate
|
1.47% - 1.57%
|
Expected dividend yield
|
0%
|
Stock-Based Compensation
The Company recorded stock-based compensation
expense in the Condensed Consolidated Statements of Operations as follows:
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
General and administrative
|
|
$
|
211
|
|
|
$
|
697
|
|
Research and development
|
|
|
54
|
|
|
|
-
|
|
Total stock-based compensation
|
|
$
|
265
|
|
|
$
|
697
|
|
At March 31, 2020, the Company had $0.7
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 1.6 years.
|
8.
|
License and Collaboration Agreements
|
Kite Agreement
On May 30, 2019, the Company entered
into a collaboration agreement (the “Kite Agreement”) with Kite Pharmaceuticals, Inc., pursuant to which the
Company and Kite are conducting a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with
relapsed or refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). The primary objective
of the Study is to determine the effect of lenzilumab on the safety of Yescarta.
Pursuant to the Kite Agreement, the Company
shall supply lenzilumab to the collaboration for use in the study and will contribute up to approximately $8.0 million towards
the out-of-pocket costs of the study, depending on the number of patients enrolled into the study.
Mayo Agreement
On June 19, 2019 the
Company entered into an exclusive worldwide license agreement (the “Mayo Agreement”) with the Mayo Foundation for Medical
Education and Research (“Mayo”) for certain technologies used to create CAR-T cells lacking GM-CSF expression through
various gene-editing tools including CRISPR-Cas9 (GM-CSF knock-out). The license covers various patent applications and know-how
developed by Mayo in collaboration with the Company. These licensed technologies complement and broaden the Company’s position
in the GM-CSF neutralization space and expand the Company’s discovery platform aimed at improving CAR-T to include gene-edited
CAR-T cells.
Pursuant to the Mayo
Agreement, the Company will pay $200,000 to Mayo within six months of the effective date, or upon completion of a qualified financing,
whichever is earlier. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain
regulatory and commercialization milestones. The Company accrued the initial payment and interest through March 31, 2020 in Accrued
expenses in the accompanying Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2020.
Zurich Agreement
On July 19, 2019 the
Company entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich
(“UZH”) for technology used to prevent or treat Graft versus Host Disease (“GvHD”) through GM-CSF neutralization.
The Zurich Agreement covers various patent applications filed by UZH which complement and broaden the Company’s position
in the application of GM-CSF and expands the Company’s development platform to include improving allogeneic Hematopoietic
Stem Cell Transplantation (“HSCT”).
Pursuant to the Zurich
Agreement, the Company paid $100,000 to UZH in July 2019. The Zurich Agreement also requires the payment of milestones and royalties
upon the achievement of certain regulatory and commercialization milestones. The license payment of $100,000 was recorded as expense
in Research and development in July 2019.
On June 30, 2016 the Company and Savant
Neglected Diseases, LLC (“Savant”) entered into an Agreement for the Manufacture, Development and Commercialization
of Benznidazole for Human Use (the “MDC Agreement”), pursuant to which the Company acquired certain worldwide rights
relating to benznidazole (the “Compound”).
In addition, on the Effective Date the Company
and Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company granted
Savant a continuing senior security interest in the assets and rights acquired by the Company pursuant to the MDC Agreement and
certain future assets developed from those acquired assets.
On the Effective Date, the Company issued
to Savant a five year warrant (the “Warrant”) to purchase 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 March 31, 2020 the number of shares for which
the Warrant is currently exercisable totals 100,000 shares at an exercise price of $2.25 per share.
As a result of the FDA granting accelerated
and conditional approval of a benznidazole therapy manufactured by a competitor for the treatment of Chagas disease and awarding
such competitor a neglected tropical disease PRV in August 2017, the Company ceased development of benznidazole and re-evaluated
the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.
In July 2017, the Company commenced litigation
against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement. Savant has asserted counterclaims
for breaches of contract under the MDC Agreement and the Security Agreement. The dispute primarily concerns the Company’s
right under the MDC Agreement to offset certain costs incurred by the Company in excess of the agreed upon budget against payments
due Savant. See Note 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, 2019, the cost overages totaled $4.1
million such that Savant owed the Company approximately $2.1 million in cost overages. Such cost overages have been charged to
Research and development expense as incurred. Recovery of such cost overages, if any, will be recorded as a reduction of Research
and development expense in the period received.
The $2.0 million in milestone payments due
Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2020 and December
31, 2019.
Savant Litigation
On July 10, 2017, the Company filed a complaint
against Savant in the Superior Court for the State of Delaware, New Castle County (the “Delaware Court”). KaloBios
Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. The Company asserted breach of contract
and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 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. In re KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). On July 27, 2017, Savant filed an Answer
and Counterclaims. Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming
that the Company breached its obligations to pay the milestone payments and other related representations and obligations. On August
1, 2017, the Company moved to remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure
notice to the Company, demanding that it provide the Collateral as defined in the Security Agreement for inspection and possession
on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the
“TRO”) and Preliminary Injunction in the Bankruptcy Court on August 4, 2017. Savant responded on August 7, 2017. On
August 7, 2017, the Bankruptcy Court granted the Company’s motion for a TRO, entering an order prohibiting Savant from collecting
on or selling the Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies
under the MDC Agreement or the Security Agreement. On August 9, 2017, the parties have stipulated to continue the provisions of
the TRO in full force and effect until further order of the appropriate court, which the Bankruptcy Court signed that same day
(the “Stipulated Order”).
On January 22, 2018, Savant wrote to the
Bankruptcy Court requesting dissolution of the TRO and the Stipulated Order. On January 29, 2018, the Bankruptcy Court granted
the Motion to Remand and denied Savant’s request to dissolve the TRO and Stipulated Order, ordering that any request to dissolve
the TRO and Stipulated Order be made to the Delaware Court.
On February 13, 2018 Savant made a letter
request to the Delaware Court to dissolve the TRO and Stipulated Order. Also on February 13, 2018, the Company filed its Answer
and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 the Company filed a letter opposition to Savant’s
request to dissolve the TRO and Stipulated Order and requesting a status conference. A hearing on Savant’s request to dissolve
the TRO and Stipulated Order was held before the Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request
to dissolve the TRO and Stipulated order, which remain in effect.
On April 11, 2018, the Company advised the
Delaware Court that it would meet and confer with Savant regarding a proposed case management order and date for trial. On April
26, 2018 the Delaware Court so-ordered a proposed case management order submitted by the Company and Savant. The schedule in the
case management order was modified by stipulation on August 24, 2018.
On April 8, 2019, the Company moved to compel
Savant to produce documents in response to the Company’s document requests. The parties thereafter agreed to a discovery
schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other.
On June 4, 2019, Savant filed a complaint
against the Company and Madison in the Delaware Court of Chancery (the “Chancery Action”) seeking to “recover
as damages that amounts owed to it under the MDC Agreement, and to reclaim Savant’s intellectual property,” among other
things. Savant also requested leave to move to dismiss the Company’s complaint on the grounds that the Company’s
transfer of assets to Madison was champertous. On June 10, 2019, the Company requested by letter that the Superior Court
hold a contempt hearing because the Chancery Action violated the TRO entered by the Bankruptcy Court, the terms of which have been
extended by stipulation of the parties. On June 18, 2019, the Superior Court held a telephonic status conference. The
parties agreed that the Chancery Action should be consolidated with the Superior Court action, after which the Superior Court would
address the parties’ motions.
On July 22, 2019, the Company moved for
contempt against Savant. Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied
the Company’s motion for contempt.
On July 23, 2019, Savant moved for summary
judgment on the issue of champerty. The Company filed its response and cross-motion for summary judgment on August 27, 2019.
Savant filed its reply on September 10, 2019 and the Company filed its cross-reply on September 20, 2019. The motion is fully
briefed, and was argued at a hearing on February 3, 2020. The court has not yet ruled on the motion.
On July 26, 2019, the Company moved to modify
the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted.
In subsequent orders, the discovery schedule was further extended until the end of June 2020.
On July 30, 2019, the Company filed a motion
to dismiss Savant’s Chancery Action. Savant filed an amended complaint on September 4, 2019, and the Company filed
its opening brief in support of its motion to dismiss on October 11, 2019. That motion is fully briefed and was argued at
a hearing on February 3, 2020. The court has not yet ruled on the motion.
On August 19, 2019, Savant moved to dismiss
the Company’s amended Superior Court complaint. On September 27, 2019, the Company filed an opposition to Savant’s
motion and, in the alternative, requested leave to file a second amended complaint against Savant. Savant consented to the
filing of the second amended complaint and withdrew their motion to dismiss. Savant filed a partial motion to dismiss against
a co-defendant on October 30, 2019. That motion is fully briefed and was argued at a hearing on February 3, 2020. At the
February 3, 2020 hearing, the Court reserved judgment on the parties’ reciprocal motions.
On November 18, 2019, the Court granted Savant’s Motion
to Schedule a Preliminary Injunction hearing concerning the August 2017 TRO and Stipulated Order that are still in effect.
At a hearing on April 28, 2020, the Court granted the application for a preliminary injunction to the Company, and the parties
are preparing a proposed order to effectuate the Court’s rulings at the hearing. The Stipulated Order will no longer
be in effect upon the entry of the preliminary injunction order.
A trial is scheduled for October 2020.
Conversion of Outstanding 2018 and
2019 Convertible Notes
As described in the Company’s 2019
Annual Report on Form 10-K, holders of the Company’s outstanding convertible notes issued in 2018 and 2019 are entitled
to convert the principal and unpaid interest on such notes into shares of the Company’s common stock under various scenarios,
including if the Company were to sell its equity securities on or before the date of repayment of the 2018 and 2019 Notes in any
financing transaction that results in gross proceeds to the Company of less than $10 million (a “Non-Qualified Financing”).
A Non-Qualified Financing occurred as a result of sales of our common stock to Lincoln Park Capital Fund, LLC starting on December 11,
2019 and concluding on January 7, 2020, pursuant to the Purchase Agreement described in Note 7, Stockholders’ Equity
above. Commencing on April 2, 2020, the holders of such notes, including Cheval Holdings, Ltd. (“Cheval”), an
affiliate of Black Horse Capital, L.P., our controlling stockholder, notified us of their exercise of such conversion rights. Pursuant
to the exemption from registration afforded by Section 3(a)(9) under the Securities Act of 1933, we issued an aggregate of
11,989,578 shares of our common stock upon the conversion of $4.3 million in aggregate principal and interest on the notes
converted, which obligations were retired. Of these, we issued 1,583,333 shares to Cheval. Dr. Dale Chappell, our ex-officio
chief scientific officer, controls Black Horse Capital, L.P. and reports beneficial ownership of all shares held by it and its
affiliates, including Cheval.
After giving effect to the shares issued
upon such conversions, as of May 14, 2020, no convertible notes issued in 2018 or 2019 were outstanding.
April 2020 Bridge Notes
On April 27, 2020, the Company issued
two short-term, secured bridge notes (the “2020 Bridge Notes”) evidencing an aggregate of $350,000 of loans made to
the Company by two parties: Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder,
lent $100,000; and Nomis Bay LTD, the Company’s second largest stockholder, lent $250,000. The proceeds from the 2020 Bridge
Notes were used for working capital and general corporate purposes.
The 2020 Bridge Notes rank on par with the
2019 Bridge Notes, and possess other terms and conditions substantially consistent with those notes. The 2020 Bridge Notes bear
interest at a rate of 7.0% per annum and have a maturity date of December 31, 2020. The 2020 Bridge Notes may become due and
payable at such earlier time as the Company raises more than $10,000,000 in a bona fide financing transaction or upon a change
in control. The 2020 Bridge Notes also are secured by a lien on substantially all of the Company’s assets.
Upon an event of default, which events include,
but are not limited to, (1) the Company’s failure to timely pay any monetary obligation under the 2020 Bridge Notes;
(2) our failure to pay our debts generally as they become due and (3) our commencing any proceeding relating to the Company
under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar laws
of any jurisdiction now or hereafter in effect, the interest payable on the 2020 Bridge Notes increases to 10.0% per annum. Further,
upon certain events of default, all payments and obligations due and owed under the 2020 Bridge Notes shall immediately become
due and payable without demand and without notice to the Company.
Paycheck Protection Plan Loan
On May 5, 2020, the Company received a Paycheck Protection
Plan loan under the 2020 CARES Act in the amount of $83 thousand (the “PPP Loan”), which the Company used for payroll
costs. On June 26, 2020, the Company voluntarily repaid the PPP Loan in full, including applicable interest.
2020 Private Placement
On June 1, 2020, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with certain accredited investors to complete a private placement (the
“Private Placement”) of common stock. The closing of the Private Placement occurred on June 2, 2020 (the “Closing
Date”). At the closing, the Company issued and sold 82,528,718 shares of common stock at a purchase price of $0.87 per share,
for aggregate gross proceeds of approximately $71.8 million. We used a portion of the proceeds to retire certain indebtedness,
including all outstanding bridge notes. We expect to use the remaining proceeds from the Private Placement to retire other indebtedness,
to fund our Phase III study of lenzilumab in COVID-19, our collaboration with Kite and other development programs, as well as for
manufacturing and preparation for potential commercialization of lenzilumab, working capital and other general corporate purposes.
Private Placement Litigation
On June 15, 2020, a complaint was filed against Humanigen and
Dr. Durrant in the Commercial Division of the Supreme Court of the State of New York. The plaintiffs comprise a group of 17 prospective
investors introduced to Humanigen by Noble Capital Markets, Inc. (“Noble”), which had been engaged as a non-exclusive
placement agent in connection with the Private Placement. The plaintiffs had indicated interest in purchasing shares of common
stock in the Private Placement but, due to the strength of demand for shares from other prospective investors introduced to the
company by J.P. Morgan Securities LLC, the lead placement agent for the Private Placement, the plaintiffs were not allocated any
investment amount. The plaintiffs allege that the company and Dr. Durrant breached a contractual obligation to deliver shares of
common stock to the plaintiffs. The plaintiffs seek to recover for losses due to alleged fraudulent misstatements and the company’s
failure to deliver shares to them, and seek equitable relief in the form of specific performance. On June 19, 2020, Noble filed
a separate complaint against Humanigen in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida,
also arising from the Private Placement. Noble’s complaint alleges that Humanigen breached the terms of its engagement letters
with Noble by refusing to pay it the sales commissions it would have earned had its prospective investors received the entire allocation
of shares sought in the Private Placement, as opposed to the $4 million of shares actually allocated to Noble and its clients.
Noble is seeking payment in full of the commission, damages for Humanigen’s alleged tortious interference with Noble’s
business relationship with the investors it introduced to Humanigen but which were not allocated shares in the Private Placement,
and attorneys’ fees. Humanigen believes that the claims made in each complaint are without merit, and it is prepared to defend
itself vigorously.
Appointment of Mr. Tousley as Chief Accounting and Administrative Officer,
Corporate Secretary and Treasurer
On July 6, 2020, the Company entered into an employment
agreement with David L. Tousley in connection with his appointment as the Company’s Chief Accounting and Administrative Officer,
Corporate Secretary and Treasurer (the “Tousley Agreement”). The Tousley Agreement provides for an initial annual base
salary for Mr. Tousley of $375,000 as well as eligibility for an annual bonus targeted at 40% of his base salary. In connection
with his appointment, Mr. Tousley will be entitled to receive stock options to purchase 313,500 shares of the Company’s common
stock within three business days following the effective date of the 2020 Equity Plan (as further described below). Mr. Tousley
is entitled to participate in the Company’s benefit plans available to other executives.
Under the Tousley Agreement, Mr. Tousley is entitled to
receive certain benefits upon termination of employment under certain circumstances. If the Company terminates Mr. Tousley’s
employment for any reason other than “Cause”, or if Mr. Tousley resigns for “Good Reason” (each as such
term is defined in the Agreement), Mr. Tousley will receive twelve months of base salary then in effect and the amount of the actual
bonus earned by Mr. Tousley under the Tousley Agreement for the year prior to the year of termination, pro-rated based on the portion
of the year Mr. Tousley was employed by the Company during the year of termination, or if no bonus had been received, at minimum
50% of his target bonus.
The Tousley Agreement additionally provides that if Mr.
Tousley resigns for Good Reason or the Company or its successor terminates his employment within the three month period prior to
and the two year period following a change in control (as such term is defined in the Tousley Agreement), the Company must pay
or cause its successor to pay Mr. Tousley a lump sum cash payment equal to one times (a) his annual salary as of the day before
his resignation or termination plus (b) the aggregate bonus received by Mr. Tousley for the year immediately preceding the change
in control or, if no bonus had been received, at minimum 50% of the target bonus. In addition, upon such a resignation or termination,
all outstanding stock options held by Mr. Tousley will immediately vest and become exercisable.
Appointment of Dr. Chappell as Chief Scientific Officer
On July 6, 2020, the Company entered into an employment
agreement with Dale Chappell in connection with his appointment as the Company’s Chief Scientific Officer (the “Chappell
Agreement”). The Chappell Agreement provides for an initial annual base salary for Dr. Chappell of $410,000 as well as eligibility
for an annual bonus targeted at 40% of his base salary. In connection with his appointment, Dr. Chappell will be entitled to receive
stock options to purchase 668,800 shares of the Company’s common stock within three business days following the effective
date of the 2020 Equity Plan (as further described below). Dr. Chappell is entitled to participate in the Company’s benefit
plans available to other executives.
Under the Chappell Agreement, Dr. Chappell is entitled
to receive certain benefits upon termination of employment under certain circumstances. If the Company terminates Dr. Chappell
employment for any reason other than “Cause”, or if Dr. Chappell resigns for “Good Reason” (each as such
term is defined in the Chappell Agreement), Dr. Chappell will receive twelve months of base salary then in effect and the amount
of the actual bonus earned by Dr. Chappell under the Chappell Agreement for the year prior to the year of termination, pro-rated
based on the portion of the year Dr. Chappell was employed by the Company during the year of termination, or if no bonus had been
received, at minimum 50% of his target bonus.
The Chappell Agreement additionally provides that if Dr.
Chappell resigns for Good Reason or the Company or its successor terminates his employment within the three month period prior
to and the two year period following a change in control (as such term is defined in the Chappell Agreement), the Company must
pay or cause its successor to pay Dr. Chappell a lump sum cash payment equal to one times (a) his annual salary as of the day before
his resignation or termination plus (b) the aggregate bonus received by Dr. Chappell for the year immediately preceding the change
in control or, if no bonus had been received, at minimum 50% of the target bonus. In addition, upon such a resignation or termination,
all outstanding stock options held by Dr. Chappell will immediately vest and become exercisable.
Appointment of Mr. Morris as Chief Operating Officer
and Chief Financial Officer
On August 3, 2020,
the Company announced the appointment of Timothy Morris as the Company’s Chief Operating Officer and Chief Financial Officer.
In connection with his appointment as COO and CFO, Mr. Morris stepped down as a member of the Board, a position he had held since
June 2016, and the size of the Board was reduced to five members.
The Company entered
into an employment agreement with Mr. Morris in connection with his appointment (the “Morris Agreement”). The Morris
Agreement provides for an initial annual base salary for Mr. Morris of $475,000 as well as eligibility for an annual bonus targeted
at 50% of his base salary. In connection with his appointment, Mr. Morris will be entitled to receive stock options to purchase
756,580 shares of the Company’s common stock within three business days following the effective date of the Humanigen, Inc.
2020 Equity Plan (as further described below). Mr. Morris is entitled to participate in certain of the Company’s benefit plans available
to other executives.
Under the Morris Agreement,
Mr. Morris is entitled to receive certain benefits upon termination of employment under certain circumstances. If the Company
terminates Mr. Morris’s employment for any reason other than “Cause”, or if Mr. Morris resigns for “Good
Reason” (each as such term is defined in the Morris Agreement), Mr. Morris will receive his annual salary and the amount
of the actual bonus earned by Mr. Morris under the Agreement for the year prior to the year of termination, pro-rated based on
the portion of the year Mr. Morris was employed by the Company during the year of termination, or if no bonus had been received,
50% of his target bonus. In addition, upon such a resignation or termination, Mr. Morris will also be entitled to be reimbursed
for certain monthly health plan continuation premiums for up to 12 months, and all outstanding stock options held by Mr. Morris
will immediately vest and become exercisable.
The Morris Agreement
additionally provides that if Mr. Morris resigns for Good Reason or the Company terminates his employment other than for Cause
within the three month period prior to or the two year period following a change in control (as such term is defined in the Morris
Agreement), the Company must pay or cause its successor to pay Mr. Morris a lump sum cash payment equal to one and one-half times
(a) his annual salary plus (b) the aggregate bonus received by Mr. Morris for the year immediately preceding the change in control
or, if no bonus had been received, 50% of the target bonus. In addition, upon such a resignation or termination, Mr. Morris will
also be entitled to be reimbursed for certain monthly health plan continuation premiums for up to 18 months, and all outstanding
stock options held by Mr. Morris will immediately vest and become exercisable.
Clinical Trial Agreement with the National Institute of Allergy and Infectious
Diseases
On July 24, 2020, the Company entered into a clinical
trial agreement (the “Clinical Trial Agreement”) with the National Institute of Allergy and Infectious Diseases (“NIAID”),
part of the National Institutes of Health, which is part of the United States Government Department of Health and Human Services,
as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the Clinical Trial Agreement, lenzilumab will
be an agent to be evaluated in the NIAID-sponsored Big Effect Trial (“BET”) in hospitalized patients with COVID-19.
BET will evaluate the combination
of lenzilumab and Gilead’s investigational antiviral, remdesivir, on treatment outcomes versus placebo and remdesivir in
hospitalized COVID-19 patients. The trial is expected to enroll 100 patients in each arm of the study with an interim analysis
for efficacy after 50 patients have been enrolled in each arm.
Pursuant to the Clinical Trial Agreement, NIAID will serve
as sponsor and will be responsible for supervising and overseeing BET. The Company will be responsible for providing lenzilumab
to NIAID without charge and in quantities to ensure a sufficient supply of lenzilumab. The Clinical Trial Agreement imposes additional
obligations on the Company that are reasonable and customary for clinical trial agreements of this nature, including in respect
of compliance with data privacy laws and potential indemnification obligations.
Stockholder Action by Written Consent
On July 27, 2020, the Board unanimously
approved and recommended, and on July 29, 2020, certain stockholders of the Company (the “Consenting Stockholders”)
owning as of July 29, 2020 (the “Record Date”) approximately 63% of the Company's outstanding common stock,
par value $0.001 per share (“common stock”), approved the following actions (each, an “Action” and collectively,
the “Actions”) by written consent in lieu of a special meeting, in accordance with the applicable provisions of the
Delaware General Corporation Law, the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Charter”),
and the Company’s Second Amended and Restated Bylaws:
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1.
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The approval of an amendment to Article IV of the Charter to increase the number of authorized
shares of common stock from 225,000,000 to 750,000,000;
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2.
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The approval of an amendment to Article IV of the Charter that will give the Board the discretion,
until July 29, 2021, to effect a reverse stock split whereby each outstanding 2, 3, 4, 5, 6, 7, 8, 9 or 10 shares of our common
stock may be combined, converted and changed into one share of common stock, with the final ratio (if any) as may be determined
by and subject to final approval of the Board; and
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3.
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The approval of the Humanigen, Inc. 2020 Omnibus Incentive Compensation Plan (the “2020 Equity
Plan”).
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The Company will prepare
and cause to be sent or delivered to its stockholders of record as of the Record Date pursuant to Regulation 14C under the Securities
Exchange Act of 1934 an information statement relating to the Actions (the “Information Statement”). In accordance
with the rules and regulations of the Securities and Exchange Commission, the Actions will not become effective until at least
20 calendar days after we send the Information Statement to such stockholders. Furthermore, the Board retains sole discretion to
implement or abandon a reverse stock split, based on its determination of whether effecting a reverse stock split is advisable
and in the best interests of the Company and its stockholders. Therefore, a reverse stock split may not occur without further stockholder
action, notwithstanding the approval provided by the Consenting Stockholders.
PROSPECTUS
82,563,584 Shares of Common Stock
August 5, 2020