As filed with the Securities and Exchange Commission
on March 23, 2020
Registration No. 333-234801
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Post-Effective Amendment No. 1 to
Form S-1
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF 1933
Humanigen,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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2834
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77-0557236
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
No.)
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533
Airport Boulevard, Suite 400
Burlingame,
California 94010
(650)
243-3100
(Address,
including zip code, and telephone number, including area code,
of
principal executive offices)
Cameron
Durrant, M.D.
Chief
Executive Officer
Humanigen,
Inc.
533
Airport Boulevard, Suite 400
Burlingame,
California 94010
(650)
243-3100
(Address,
including zip code, and telephone number, including area code, of agent for service)
Copies
to:
Kevin
L. Vold
Polsinelli
PC
1401
Eye Street, NW
Suite
800
Washington,
DC 20005
Telephone:
(202) 783-3300
Facsimile:
(202) 783-3535
Approximate date of commencement of proposed
sale to the public: From time to time after this registration statement becomes effective.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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Emerging Growth Company ¨
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If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a) may determine.
EXPLANATORY NOTE
Humanigen, Inc., a Delaware corporation (the “Company”),
filed a Registration Statement on Form S-1 on November 20, 2019, which was declared effective on December 2, 2019 (as amended and
supplemented, the “Registration Statement”). This Post-Effective Amendment No. 1 to Form S-1 is being filed
in order to update the prospectus forming a part of the Registration Statement based on information disclosed in the Company’s
Annual Report on Form 10-K initially filed with the Securities and Exchange Commission on March 16, 2020.
The information in this prospectus is
not complete and may be changed. The selling stockholder may not sell these securities until the Securities and Exchange Commission
declares this registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED MARCH 23, 2020
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Humanigen, Inc.
14,484,500
Shares of Common Stock
This prospectus relates to the resale or other disposition from
time to time of up to 14,484,500 shares of common stock, par value $0.001, of Humanigen, Inc., by Lincoln Park Capital Fund, LLC,
or Lincoln Park or the selling stockholder.
The shares of common stock being offered by the selling stockholder
have been or may be issued pursuant to the purchase agreement dated November 8, 2019 that we entered into with Lincoln Park. See
“The Lincoln Park Transaction” for a description of that agreement and “Selling Stockholder” for additional
information regarding Lincoln Park. The prices at which Lincoln Park may sell the shares will be determined by the prevailing market
price for the shares or in negotiated transactions.
We are not selling any securities under this prospectus and will
not receive any of the proceeds from the sale of shares by the selling stockholder.
The selling stockholder may sell or otherwise dispose of the shares
of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution”
for more information about how the selling stockholder may sell or otherwise dispose of the shares of common stock being registered
pursuant to this prospectus. The selling stockholder is an “underwriter” within the meaning of Section 2(a)(11) of
the Securities Act of 1933, as amended.
The selling stockholder will pay all brokerage fees and commissions and similar
expenses. We will pay the expenses (except brokerage fees and commissions and similar expenses) incurred in registering the shares,
including legal and accounting fees. See “Plan of Distribution”.
Our common stock is quoted on the OTCQB Venture Market under
the symbol “HGEN”. On March 20, 2020, the last reported sale of our common stock on the OTCQB Venture Market was $1.15
per share.
Investing in our securities involves a high degree of risk. See
“Risk Factors” beginning on page 13 of this prospectus before making a decision to purchase our securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
The date of this prospectus is , 2020.
Table of Contents
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 stockholder 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 focusing our efforts on the development of our lead product candidate,
lenzilumab, our proprietary Humaneered® (“Humaneered” or “Humaneered®”) anti-human GM-CSF immunotherapy,
through a clinical research 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 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 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 we 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). We have established several partnerships with leading institutions to advance our innovative pipeline and are
in active discussion with several government and commercial organizations.
We believe that we have a dominant 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.
During 2019, we also advanced our preclinical next-generation cell and gene
therapies for the treatment of cancers via our novel human granulocyte-macrophage colony-stimulating factor (“GM-CSF”)
neutralization and gene-knockout platforms.
As a leader in GM-CSF pathway science, we believe that we have 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.
Source:WHO
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. Humanigen 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.
We believe that 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, we believe that we have 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).
Our Company
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 cytokine release syndrome (CRS)
and neurotoxicity (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 United States Food and Drug Administration (“FDA”)-approved or development stage T-cell therapy,
including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic hematopoietic stem cell therapy
(“HSCT”) to make these treatments safer and more effective.
We have utilized a precision medicine approach and personalized the development
of lenzilumab based on specific genetic mutations or biomarkers at baseline. We recently reported on a Phase I study of lenzilumab
as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and are 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. We
are 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. We have also reported on a Phase II study in severe asthma utilizing
lenzilumab, which showed a statistically significant improvement in efficacy and favorable safety profile in patients with eosinophilic
asthma, 21 of whom received lenzilumab vs. 20 patients who received placebo. 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.
Our immediate focus is combining FDA-approved and development stage CAR-T
therapies with lenzilumab, our lead product candidate. A clinical collaboration with Kite was recently announced to evaluate the
use of lenzilumab with Yescarta .
We are 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
our own portfolio of proprietary first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic
disorders.
Our Pipeline
Our clinical-stage pipeline comprises a further Phase I study which is almost
fully enrolled with ifabotuzumab in GBM and potentially other solid cancers, a Phase Ib/II study which is enrolling alongside YESCARTA
in the CAR-T arena (ZUMA-19), an additional Phase II study, in CMML and a Phase II/III study in acute GvHD, the latter two of which
are in advanced planning stages. 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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We are also developing our own CAR-T programs based on the backbone of ifabotuzumab
and HGEN005, in high unmet medical need and rare/orphan oncology conditions.
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 has advanced into a pivotal registration study and it may be years before such a study is initiated, if
at all. Our current pipeline is depicted below:
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. 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 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
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 Phase Ib/II 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”). 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. 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 the University of Zurich (“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. 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 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.
EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature
We have begun to generate our 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 (“EphA3”). 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, we may have
the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. We are collaborating with the Mayo Clinic
and plan to move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing Investigational
New Drug (“IND”)-enabling work. We have published initial data from our 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
Our epidermal growth factor-like module containing mucin-like hormone receptor
1 (“EMR1”)-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets epidermal
growth factor-like module containing mucin-like hormone receptor 1 (“EMR1”). Our EMR1-CAR-T based on the HGEN005 backbone
is another approach in our growing platform of CAR-T therapies. We believe 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. We have engaged with U.S. National Institutes of
Health (“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 we cannot assure you that we will reach any agreements for
these next steps.
Market Opportunity for CAR-T Therapy
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 single-arm Phase II study 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 ALL based on a single phase II study. The
Novartis-sponsored 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.
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 U.S. market, lisocabtagene
maraleucel (liso-cel) from BMS, is expected to be approved in 2020.
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.
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.
The global CAR-T therapy market is projected
to grow from approximately $300 million in 2018 to greater than $2 billion in 2021, with continued growth up to $8.5 billion in
2028, according to ‘Evaluatepharma’.
Kite
Collaboration
Our current clinical
and regulatory development plan centers around 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.
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.
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.
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.
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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Tim Morris serves as the Chief Financial Officer of Iovance Biotherapeutics, a publicly traded
immuno-oncology biotech company (Nasdaq: IOVA); and
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Ron Barliant, a former bankruptcy judge, has significant legal experience counseling management
teams and boards of director of companies with complex financial needs.
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In addition, Dr. Dale Chappell, the managing member of
Black Horse Capital Management LLC (“BH Management”), a private investment manager that specializes in biopharmaceuticals
and our controlling stockholder, advises and consults with management as our ex-officio 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.
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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We will need substantial additional capital to pursue our collaboration with Kite, develop and
commercialize our product candidates and technology platforms and to continue as a going concern, and our access to capital funding
is uncertain;
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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 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 or gene-edited CAR-T therapies may not develop;
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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+
T cells, which might limit or eliminate the utility of lenzilumab as a part of a potential COVID-19 therapy;
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We are relying, or 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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If these 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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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; 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 Stockholder
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14,484,500 shares consisting of:
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● 706,592
shares of our common stock issued to Lincoln Park as consideration for its commitment to purchase shares of our common stock under
the Purchase Agreement, or the Commitment Shares;
● 700,000 shares sold to
Lincoln Park in December 2019 and January 2020 under the Purchase Agreement; and
● 13,093,408 shares we may sell to Lincoln Park under the Purchase Agreement from time to time after the date of this prospectus.
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Common stock outstanding before
the offering
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114,311,790 shares, as of March 21, 2020 (which includes the
706,592 Commitment Shares previously issued to Lincoln Park upon the execution of the Purchase Agreement and 700,000 shares sold
to Lincoln Park in December 2019 and January 2020).
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Common stock outstanding after the
offering
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127,405,198 shares.
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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 Lincoln Park in this offering. We may receive up to $20,000,000 in aggregate gross proceeds under the Purchase Agreement (as defined below) from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. Any proceeds that we receive from sales to Lincoln Park under the Purchase Agreement will be used for working capital and general corporate purposes. 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 13 of this prospectus before deciding whether or not to invest in our common stock.
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Purchase Agreement with Lincoln Park
On November 8, 2019, we entered into a purchase agreement
with Lincoln Park, which we refer to in this prospectus as the Purchase Agreement, pursuant to which Lincoln Park has agreed to
purchase from us up to an aggregate of $20,000,000 of our common stock (subject to certain limitations) from time to time over
the term of the Purchase Agreement. Also on November 8, 2019, we entered into a registration rights agreement with Lincoln Park,
which we refer to in this prospectus as the Registration Rights Agreement, pursuant to which we have filed with the SEC the registration
statement that includes this prospectus to register for resale under the Securities Act of 1933, as amended, or the Securities
Act, the shares of common stock that have been or may be issued to Lincoln Park under the Purchase Agreement. Pursuant to the terms
of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 706,592
Commitment Shares to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase
Agreement. During December 2019 and January 2020, we sold 700,000 shares to Lincoln Park under the Purchase Agreement.
We do not have the right to commence any sales of our
common stock to Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of
which are outside of Lincoln Park’s control, have been satisfied, including that the SEC has declared effective the registration
statement that includes this prospectus. Thereafter, we may, from time to time and at our sole discretion, on any single business
day on which the closing price of our common stock is above $0.15 per share (subject to adjustment for any reorganization, recapitalization,
non-cash dividend, stock split, or other similar transaction as provided in the Purchase Agreement), direct Lincoln Park to purchase
shares of our common stock in amounts up to 100,000 shares, which amounts may be increased to up to 250,000 shares depending on
the market price of our common stock at the time of sale and subject to a maximum commitment by Lincoln Park of $750,000 per single
purchase, which we refer to in this prospectus as “regular purchases”, plus other “accelerated amounts”
and/or “additional accelerated amounts” under certain circumstances. We will control the timing and amount of any sales
of our common stock to Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park in the initial purchase
and regular purchases under the Purchase Agreement will be based on the market price of our common stock preceding the time of
sale as computed under the Purchase Agreement. The purchase price per share will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute
such price. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or cost upon one business
day notice. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated
damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition on our entering into certain types
of transactions that are defined in the Purchase Agreement as “Variable Rate Transactions”. Lincoln Park may not assign
or transfer its rights and obligations under the Purchase Agreement.
As of March 21, 2020, there were 114,311,790
shares of our common stock outstanding, of which 44,675,920 shares were held by non-affiliates. Although the Purchase Agreement
provides that we may sell up to $20,000,000 of our common stock to Lincoln Park, only 14,484,500 shares of our common stock are
being offered under this prospectus, which represents: (i) 706,592 shares that we already issued to Lincoln Park as a commitment
fee for making the commitment under the Purchase Agreement, (ii) 700,000 shares sold to Lincoln Park in December 2019 and January
2020 under the Purchase Agreement and (iii) an additional 13,093,408 shares which may be issued to Lincoln Park in the future under
the Purchase Agreement, if and when we sell shares to Lincoln Park under the Purchase Agreement, less (iv) 15,500 shares sold by
Lincoln Park. Depending on the market prices of our common stock at the time we elect to issue and sell shares to Lincoln Park
under the Purchase Agreement, we may need to register for resale under the Securities Act additional shares of our common stock
in order to receive aggregate gross proceeds equal to the $20,000,000 total commitment available to us under the Purchase Agreement.
If all of the 14,484,500 shares offered by Lincoln Park under this prospectus were issued and outstanding as of March 21, 2020,
such shares would represent approximately 11.4% of the total number of shares of our common stock outstanding and approximately
25.1% of the total number of outstanding shares held by non-affiliates, in each case as of March 21, 2020. If we elect to issue
and sell more than the 14,484,500 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation,
to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial
dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of
shares we sell to Lincoln Park under the Purchase Agreement.
The Purchase Agreement prohibits us from directing Lincoln
Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially
owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single
point in time, of more than 4.99% of the then total outstanding shares of our common stock, as calculated pursuant to Section 13(d)
of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 13d-3 thereunder, which limitation we refer
to as the Beneficial Ownership Cap.
Issuances of our common stock in this offering will not
affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing
stockholders will be diluted as a result of any such issuance. Although the number of shares of common stock that our existing
stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total
outstanding shares after any such issuance to Lincoln Park.
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
The sale or issuance of our common stock to Lincoln Park may cause dilution
and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the
price of our common stock to fall.
On November 8, 2019, we entered into the Purchase Agreement
with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $20,000,000 of our common stock. Upon the execution
of the Purchase Agreement, we issued 706,592 Commitment Shares to Lincoln Park as consideration for its commitment to purchase
shares of our common stock under the Purchase Agreement. The remaining 13,793,408 shares of our common stock being registered for
resale hereunder that may be issued under the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time
to time over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including
that the SEC has declared effective the registration statement that includes this prospectus. The purchase price for the shares
that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending
on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We generally have the right to control the timing and
amount of any future sales of our shares to Lincoln Park. Sales of our common stock, if any, to Lincoln Park will depend upon market
conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the
additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do
sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares
at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution
to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock
to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities
in the future at a time and at a price that we might otherwise wish to effect sales.
We may not have access to the full amount available under the Purchase
Agreement with Lincoln Park.
Under our Purchase Agreement with Lincoln
Park, we may, at our discretion from time to time over a 36-month period commencing after the satisfaction of certain conditions
set forth in the Purchase Agreement, on any single business day on which the closing price of our common stock is above $0.15 per
share (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction
as provided in the Purchase Agreement), direct Lincoln Park to purchase shares of our common stock in amounts up to 100,000 shares,
which amounts may be increased to up to 250,000 shares depending on the market price of our common stock at the time of sale and
subject to a maximum commitment by Lincoln Park of $750,000 per single regular purchase. Although the Purchase Agreement provides
that we may sell up to $20,000,000 of our common stock to Lincoln Park, only 14,484,500 shares of our common stock are being offered
under this prospectus, which represents: (i) 706,592 Commitment Shares that we already
issued to Lincoln Park as consideration for making the commitment under the Purchase Agreement, (ii) 700,000 shares sold to Lincoln
Park in December 2019 and January 2020 under the Purchase Agreement and (iii) an additional 13,093,408 shares which may be issued
to Lincoln Park in the future under the Purchase Agreement, if and when we sell shares to Lincoln Park under the Purchase Agreement,
less (iv) 15,500 shares sold by Lincoln Park.
Depending on the market prices of our common
stock at the time we elect to issue and sell shares to Lincoln Park under the Purchase Agreement, we may need to register for resale
under the Securities Act additional shares of our common stock in order to receive aggregate gross proceeds equal to the $20,000,000
total commitment available to us under the Purchase Agreement. Assuming a purchase price of $0.60 per share (the closing sale price
of the common stock on March 21, 2020) and the purchase by Lincoln Park of the 13,093,408 shares that are being registered for
resale under this prospectus that we may sell to Lincoln Park under the Purchase Agreement from time to time after the date of
this prospectus, total gross proceeds to us would only be $7,856,045.
The extent we rely on Lincoln Park as a source of funding will
depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to
secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove unavailable or prohibitively
dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. If we elect to issue
and sell more than the 14,484,500 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation,
to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial
dilution to our stockholders. Even if we sell all $20,000,000 under the Purchase Agreement to Lincoln Park, we may still need additional
capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect
on our business, operating results, financial condition and prospects.
The Black Horse Entities currently own more than a majority of our outstanding
common stock and, even after completion of this offering, will be able to exert significant influence over all matters subject
to stockholder approval.
As of March 21, 2020, Black Horse Capital Master Fund Ltd.,
(“BHCMF”), Black Horse Capital LP (“BHC”), Cheval Holdings, Ltd. (“Cheval”), (Cheval and collectively
with BHCMF and BHC, the “Black Horse Entities”) collectively hold approximately 59.5% of our outstanding common stock.
Dr. Chappell, a member of our board of directors from June 30, 2016 until November 10, 2017 and our current ex-officio chief scientific
officer, controls the Black Horse Entities. As a result, Dr. Chappell has the ability to exert significant influence over the election
of the members of our board of directors and the outcome of all matters requiring stockholder approval, including the ability to
cause or prevent a change of control of our company. The control possessed by Dr. Chappell could prevent or discourage unsolicited
acquisition proposals or offers for our common stock that may be in the best interest of our other stockholders.
The interests of the Black Horse Entities may not in
all cases be aligned with the interests of our other stockholders. For example, a sale of a substantial number of shares of our
common stock in the future by the Black Horse Entities could cause our stock price to decline. Additionally, the Black Horse Entities
are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that
compete directly or indirectly with us. Accordingly, the Black Horse Entities may also pursue acquisition opportunities that may
be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition, Black
Horse Entities may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve risks to holders 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
Black Horse Entities and the other holders of more than 5% of our common stock together with their affiliates beneficially own
approximately 90.3% of our common stock as of March 21, 2020. Some of these persons or entities may have interests that are different
from our other stockholders. This significant concentration of ownership may adversely affect the trading price of our common stock
because investors often perceive disadvantages in owning stock in companies with controlling stockholders.
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.
There is a limited trading market for our securities
and we do not currently have an active public market for our securities. An active trading market for our common stock may not
develop or be sustained and the market price of our securities is subject to volatility.
While our common stock is currently quoted on the OTCQB
Venture Market, there is currently no active public market for our common stock and trading in our common stock is limited. 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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An inactive market may
also impair our ability to raise capital to continue as a going concern 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.
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.
However, our current financial position could make it difficult for us to add the necessary resources.
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 re-list and maintain the listing of our common stock on a national
securities exchange;
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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.
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
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 auditor has expressed substantial doubt about
our ability to continue as a going concern, and absent our ability to draw significantly on the Purchase Agreement with Lincoln
Park or to raise additional funds, we may be unable to remain a going concern.
We need additional capital to continue to operate our
business. If we are unsuccessful in our efforts to raise additional capital, including in the immediate future, based on our current
levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months.
These conditions raise substantial doubt about our ability to continue as a going concern. The Report of Independent Registered
Public Accounting Firm at the beginning of the Consolidated Financial Statements included elsewhere in this prospectus includes
an explanatory paragraph about our ability to continue as a going concern.
The Consolidated Financial Statements for the year ended
December 31, 2019 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets
and discharge liabilities in the normal course of business. Our ability to meet our liabilities and to continue as a going concern
is dependent upon our ability to draw on our Purchase Agreement with Lincoln Park as a source of funding as contemplated by the
Purchase Agreement or the availability of other funding. The financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern. In addition, our current financial situation, and the presence of the
explanatory paragraph about our ability to continue as a going concern, could also make it more difficult to raise the capital
necessary to address our current needs.
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.
We do not have sufficient capital to pursue the actions in the development
pipeline for our product candidates as depicted elsewhere in this prospectus. Accordingly, absent our ability to raise sufficient
capital to carry out these actions independently, 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.
If we cannot obtain additional financing, we may
not be able to pursue our collaboration with Kite or other business issues.
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 require
substantial additional capital to support our business efforts, including our collaboration with Kite. Under the Kite Agreement,
the parties have agreed to conduct a multi-center Phase 1/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed
or refractory B-cell lymphoma. We currently project we will be responsible for an aggregate of approximately $8 million in out-of-pocket
costs assuming a total of 72 patients are enrolled in the Study, of which $2 million will be required to be paid to Kite thirty
days prior to the initiation of the Study.
We will also require substantial additional capital to
support our other business efforts, including obtaining regulatory approvals for our other product candidates, 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;
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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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As of December 31, 2019, our current liabilities of approximately
$13.6 million exceeded our current assets of approximately $0.5 million.
We have defaulted on $1.1 million of unsecured obligations incurred
upon our emergence from bankruptcy in 2016.
Our cash position as of June 30, 2019 was insufficient for us to satisfy in
full at maturity on June 30, 2019 all of the outstanding principal amount and accrued but unpaid interest on unsecured promissory
notes we made to certain of our vendors upon our emergence from bankruptcy. As of December 31, 2019, the aggregate principal amount
and accrued but unpaid interest on these notes approximates $1.1 million. 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, our
bankruptcy plan, at law or in equity. We do not have sufficient funds to repay the principal and accrued but unpaid notes, as our
available cash balance as of March 13, 2020 was approximately $268,000.
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 for use with FDA-approved CAR-T therapies. 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, even if we are able to obtain the requisite
financing to continue to fund our development programs, 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. None of our product
candidates have advanced into a pivotal study and it may be years before such a study is initiated, if at all. Of the large number
of drugs in development, only a small percentage successfully completes the FDA regulatory approval process and are commercialized.
Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, 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 the serious 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 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 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, for use in addressing
significant unmet needs in oncology and CAR-T therapy. 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 relatively new team, new strategic business focus and 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 only have two employees and therefore are heavily dependent on external consultants
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 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.
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+ T cells 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, 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.
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 contract research organizations (“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 and delay our ability to generate product candidate revenue.
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 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. 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.
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. 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.
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 and our current ex-officio 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.
Any product candidate we or any future development
partner may advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent
its regulatory approval or commercialization or limit its commercial potential.
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 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 limited.
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. Under Section 382 of the Internal
Revenue Code, 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. On February 27, 2018, upon the closing of the Restructuring Transactions (as defined below), we experienced an ownership
change that may result in limitations on the use of a portion of our net operating losses. 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.
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 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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•
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our lack of revenues, history of operating losses, bankruptcy, limited cash reserves and ability
to draw on our equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”) or obtain other capital to
develop and commercialize our product candidates, including the additional capital which will be necessary to pursue the Kite collaboration
and undertake the clinical trials that we have initiated or plan to initiate, and continue as a going concern;
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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 preserve our stock quotation on the OTCQB Venture Market or, in the future, to list our common stock on a
national securities exchange, whether through a new listing or by completing a reverse merger or other strategic transaction;
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the effect on our stock price and the potential dilution to the share ownership of our existing stockholders that may result
in the future upon additional issuances of our equity securities, including issuances of our common stock to Lincoln Park under
the equity line of credit, or from conversion of our outstanding convertible notes into equity of the company;
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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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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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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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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 plans to research, develop and commercialize our product candidates;
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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 or future litigation;
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the ability of our controlling stockholder to influence control over all matters put to a vote of our stockholders, including
elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate
transaction;
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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; 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 stockholder 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 Lincoln Park. We will receive no proceeds from the sale of shares of common stock
by Lincoln Park in this offering.
We may receive up to $20,000,000 in aggregate gross proceeds
under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus.
We estimate that the net proceeds to us from the sale of our common stock to Lincoln Park pursuant to the Purchase Agreement will
be up to approximately $19,500,000 over an approximately 36-month period, assuming that we sell the full amount of our common stock
that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase Agreement, and after other estimated
fees and expenses. See “Plan of Distribution” elsewhere in this prospectus for more information.
We currently intend to use the estimated net proceeds
we receive under the Purchase Agreement to fund our obligations under the Kite Agreement and the license agreements with each of
the Mayo Foundation and UZH and otherwise to pursue our pre-clinical development, clinical development and regulatory strategies
for our product candidates and for general working capital and general corporate purposes, including repayment of our secured debt
and outstanding trade payables.
Our management will have significant discretion and flexibility
in applying the net proceeds from the Purchase Agreement. Pending the application of the net proceeds, as described above, we intend
to invest the net proceeds in high-quality, short-term, interest-bearing securities.
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.
LINCOLN PARK TRANSACTION
General
On November 8, 2019, we entered into the Purchase Agreement
and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed
to purchase from us up to $20,000,000 of our common stock (subject to certain limitations)
from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we have
filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the
shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, at the
time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 706,592 Commitment Shares to Lincoln Park
as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. In addition, during December
2019 and January 2020 we sold 700,000 shares to Lincoln Park under the Purchase Agreement.
We may, from time to time and at our sole discretion,
direct Lincoln Park to purchase shares of our common stock in amounts up to 100,000 shares on any single business day from and
after the Commencement on which the closing price of our common stock is above $0.15 per share (subject to adjustment for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction as provided in the Purchase Agreement), which amounts
may be increased to up to 250,000 shares of our common stock depending on the market
price of our common stock at the time of sale, subject to a maximum of $750,000 per purchase. In addition, upon notice to Lincoln
Park, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase additional shares of our common stock
in “accelerated purchases,” “additional accelerated purchases” and/or “additional purchases”
as set forth in the Purchase Agreement. The purchase price per share is based on the market price of our common stock at the time
of sale as computed under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the
Purchase Agreement.
The Purchase Agreement prohibits us from directing Lincoln
Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially
owned by Lincoln Park, would result in Lincoln Park and its affiliates exceeding the Beneficial Ownership Cap.
Purchase of Shares Under the Purchase Agreement
Regular Purchases
Under the Purchase Agreement, on any business day selected
by us on which the closing sale price of our common stock is not below $0.15 (subject
to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction
as provided in the Purchase Agreement), we may direct Lincoln Park to purchase up to 100,000
shares of our common stock, which we refer to as the Regular Purchase Share Limit, on such business day (the “purchase date”)
in a regular purchase (a “Regular Purchase”), provided, however, that (i) the Regular Purchase Share Limit may be increased
to up to 150,000 shares, provided that the closing sale price is not below $1.00 on
the applicable purchase date, (ii) the Regular Purchase Share Limit may be increased to up to 200,000 shares, provided that the
closing sale price is not below $1.50 on the applicable purchase date, and (iii) the
Regular Purchase Share Limit may be increased to up to 250,000 shares, provided that
the closing sale price is not below $2.00 on the applicable purchase date. In each case, the maximum amount of any single Regular
Purchase may not exceed $750,000 per purchase. The Regular Purchase Share Limit is
subject to proportionate adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction; provided, that if after giving effect to such full proportionate adjustment, the adjusted Regular Purchase
Share Limit would preclude us from requiring Lincoln Park to purchase common stock at an aggregate purchase price equal to or greater
than $75,000 in any single Regular Purchase, then the Regular Purchase Share Limit will not be fully adjusted, but rather the Regular
Purchase Share Limit for such Regular Purchase shall be adjusted as specified in the Purchase Agreement, such that, after giving
effect to such adjustment, the Regular Purchase Share Limit will be equal to (or as close as can be derived from such adjustment
without exceeding) $75,000.
The purchase price per share for each such Regular Purchase will be equal
to the lower of:
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the lowest sale price for our common stock on the purchase date of such shares; and
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the arithmetic average of the three lowest closing sale prices for our common stock during the
12 consecutive business days ending on the business day immediately preceding the purchase date of such shares.
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Accelerated Purchases
We may also direct Lincoln Park, on any business day
on which we have properly submitted a Regular Purchase notice and the closing sale price of our common stock is not below $0.15
(subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar
transaction as provided in the Purchase Agreement), to purchase an additional amount of our common stock, which we refer to as
an Accelerated Purchase, of up to the lesser of:
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·
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30% of the aggregate shares of our common stock traded during all or, if certain trading volume
or market price thresholds specified in the Purchase Agreement are crossed on the applicable Accelerated Purchase date, which is
defined as the next business day following the purchase date for the corresponding Regular Purchase, the portion of the normal
trading hours on the applicable Accelerated Purchase date prior to such time that any one of such thresholds is crossed, which
period of time on the applicable Accelerated Purchase date we refer to as the Accelerated Purchase Measurement Period; and
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three times the number of purchase shares purchased pursuant to the corresponding Regular Purchase.
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The purchase price per share for each such Accelerated Purchase will be equal
to the lower of:
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95% of the volume weighted average price of our common stock during the applicable Accelerated
Purchase Measurement Period on the applicable Accelerated Purchase date; and
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the closing sale price of our common stock on the applicable Accelerated Purchase date.
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In the case of the Accelerated Purchases, the purchase
price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock
split or other similar transaction occurring during the business days used to compute the purchase price.
Additional Accelerated Purchases
We may also direct Lincoln Park, not later than 1:00
p.m., Eastern time, on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased
thereunder have been properly delivered to Lincoln Park in accordance with the Purchase Agreement, provided that the closing price
of our common stock on the business day immediately preceding such business day is not below $0.30 (subject to adjustment for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided
in the Purchase Agreement), to purchase an additional amount of our common stock, which we refer to as an Additional Accelerated
Purchase, of up to the lesser of:
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30% of the aggregate shares of our common stock traded during a certain portion of the normal trading
hours on such Accelerated Purchase date as determined in accordance with the Purchase Agreement, which period of time we refer
to as the Additional Accelerated Purchase Measurement Period; and
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three times the number of purchase shares purchased pursuant to the Regular Purchase corresponding
to the Accelerated Purchase that was completed on such Accelerated Purchase date on which an additional accelerated Purchase notice
was properly received.
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We may, in our sole discretion, submit multiple Additional
Accelerated Purchase notices to Lincoln Park prior to 1:00 p.m., Eastern time, on a single Accelerated Purchase date, provided
that all prior Accelerated Purchases and Additional Accelerated Purchases (including those that have occurred earlier on the same
day) have been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance
with the Purchase Agreement.
The purchase price per share for each such Additional Accelerated Purchase
will be equal to the lower of:
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95% of the volume weighted average price of our common stock during the applicable Additional Accelerated
Purchase Measurement Period on the applicable Additional Accelerated Purchase date; and
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the closing sale price of our common stock on the applicable Additional Accelerated Purchase date.
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In the case of the Additional Accelerated Purchases,
the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split,
reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.
Other than as described above, there are no trading volume
requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common
stock to Lincoln Park.
Events of Default
Events of default under the Purchase Agreement include the following:
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the effectiveness of the registration statement of which this prospectus forms a part lapses for
any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying
prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability
continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;
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suspension by our principal market of our common stock from trading for a period of one business
day;
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the de-listing of our common stock from the OTCQB Venture Exchange, our principal market, provided
our common stock is not immediately thereafter trading on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq
Global Market, the Nasdaq Capital Market, the NYSE American, the NYSE Arca, the OTC Bulletin Board or the OTCQX (or nationally
recognized successor thereto);
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the failure of our transfer agent to issue to Lincoln Park shares of our common stock within two
business days after the applicable date on which Lincoln Park is entitled to receive such shares;
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any breach of the representations or warranties or covenants contained in the Purchase Agreement
or Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant
that is reasonably curable, that is not cured within five business days;
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any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy
proceedings by or against us; or
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if at any time we are not eligible to transfer our common stock electronically.
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Lincoln Park does not have the right to terminate the Purchase Agreement upon
any of the events of default set forth above. During an event of default, all of which are outside of Lincoln Park’s control,
we may not direct Lincoln Park to purchase any shares of our common stock under the Purchase Agreement.
Our Termination Rights
We have the unconditional right, at any time, for any reason and without any
payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement. In the event of bankruptcy proceedings
by or against us, the Purchase Agreement will automatically terminate without action of any party.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it nor any of its affiliates shall engage
in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase
Agreement.
Prohibitions on Variable Rate Transactions
There are no restrictions on future financings, rights of first refusal, participation
rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on
entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.
Effect of Performance of the Purchase Agreement on Our Stockholders
All 14,484,500 shares registered in this offering which have
been or may be issued or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated
that shares registered in this offering will be sold over a period of up to 36 months commencing on the date that the registration
statement including this prospectus becomes effective. The sale by Lincoln Park of a significant amount of shares registered in
this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. Sales of
our common stock to Lincoln Park, if any, will depend upon market conditions and other factors to be determined by us. We may ultimately
decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us to sell
pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares,
Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales
to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our
common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors
expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more
difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish
to effect such sales. However, we have the right to control the timing and amount of any additional sales of our shares to Lincoln
Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
Pursuant to the terms of the Purchase Agreement, we have
the right, but not the obligation, to direct Lincoln Park to purchase up to $20,000,000
of our common stock, exclusive of the 706,592 Commitment Shares issued to Lincoln
Park on the date of the Purchase Agreement. Depending on the price per share at which we sell our common stock to Lincoln Park
pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common
stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $20,000,000
total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the
Securities Act such additional shares of our common stock, which could cause additional substantial dilution to our stockholders.
The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares
we direct Lincoln Park to purchase under the Purchase Agreement.
The Purchase Agreement prohibits us from issuing or selling
to Lincoln Park under the Purchase Agreement any shares of our common stock if those shares, when aggregated with all other shares
of our common stock then beneficially owned by Lincoln Park, would exceed the Beneficial Ownership Cap.
The following table sets forth the amount of gross proceeds we would receive
from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying purchase prices:
Assumed Average Purchase
Price Per Share
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Number of Registered
Shares Issued or to be Issued if
Full Purchase (1)
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Percentage of
Outstanding Shares
After Giving Effect to
the Issuances to Lincoln
Park (2)
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Proceeds from the Sale
of Shares to Lincoln
Park Under the $20M
Purchase Agreement
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$
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0.30
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13,793,408
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|
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11.87
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%
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$
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4,138,022
|
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$
|
0.40
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
5,517,363
|
|
$
|
0.50
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
6,896,704
|
|
$
|
0.60
|
(3)
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|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
8,276,045
|
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$
|
0.70
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
9,655,386
|
|
$
|
0.80
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
11,034,726
|
|
$
|
0.90
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
12,414,067
|
|
$
|
1.00
|
|
|
|
13,793,408
|
|
|
|
11.87
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%
|
|
$
|
13,793,408
|
|
$
|
1.50
|
|
|
|
13,333,333
|
|
|
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11.55
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%
|
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$
|
20,000,000
|
|
$
|
3.00
|
|
|
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6,666,667
|
|
|
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6.67
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%
|
|
$
|
20,000,000
|
|
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(1)
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Although the Purchase Agreement provides that we may sell up to $20,000,000
of our common stock to Lincoln Park, we are only registering 14,484,500 shares under this prospectus which represents: (i) 706,592
Commitment Shares that we already issued to Lincoln Park as consideration for making
the commitment under the Purchase Agreement, (ii) 700,000 shares sold to Lincoln Park in December 2019 and January 2020 under the
Purchase Agreement and (iii) an additional 13,093,408 shares which may be issued to Lincoln Park in the future under the Purchase
Agreement, if and when we sell shares to Lincoln Park under the Purchase Agreement, and which may or may not cover all the shares
we ultimately sell to Lincoln Park under the Purchase Agreement, depending on the purchase price per share, less (iv) 15,500 shares
sold by Lincoln Park. As a result, we have included in this column only those shares that we may sell to Lincoln Park prior to
resale by them in this offering.
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(2)
|
The denominator is based on 114,311,790 shares outstanding as of March 21, 2020 (which includes
the 706,592 Commitment Shares previously issued to Lincoln Park upon the execution of the Purchase Agreement and the 700,000 shares
sold to Lincoln Park in December 2019 and January 2020 under the Purchase Agreement), as adjusted to include the issuance of the
number of shares set forth in the adjacent column which we would have sold to Lincoln Park, assuming the purchase price in the
adjacent column. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed
purchase price set forth in the adjacent column.
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(3)
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The closing sale price of our common stock on March 13, 2020.
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DILUTION
The sale of our common stock to Lincoln Park pursuant
to the Purchase Agreement will have a dilutive impact on our stockholders. In addition, the lower our stock price is at the time
we exercise our right to sell shares to Lincoln Park, the more shares of our common stock we will issue to raise our desired amount
of proceeds from the sale, and the greater the dilution to our existing stockholders.
The net tangible book value of our company as of December
31, 2019 was $(14.3 million) or approximately $(0.13) per share of common stock. Net tangible book value per share is determined
by dividing the net tangible book value of our company (total tangible assets less total liabilities) by the number of outstanding
shares of our common stock as of December 31, 2019.
After giving effect to the sale of 13,293,408 shares
of common stock to Lincoln Park pursuant to the Purchase Agreement and assuming gross proceeds of approximately $8,276,048 from
the sale of shares to Lincoln Park pursuant to the Purchase Agreement (based on the closing price of our common stock on March
13, 2020), our adjusted net tangible book value as of December 31, 2019 would have been $(6.0 million) or approximately $(0.05)
per share. This represents an immediate increase in net tangible book value of approximately $0.08 per share to existing stockholders.
The hypothetical dilution calculation shown above is
based on 114,034,451 shares issued and outstanding as of December 31, 2019 and excludes:
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15,881,721 shares of our common stock underlying outstanding options to purchase common stock with
a weighted average exercise price of $0.95;
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331,193 shares of our common stock underlying outstanding warrants to purchase common stock with
a weighted average exercise price of $14.24;
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7,125,781 shares of our common stock that may be issued upon conversion of convertible notes; and
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3,050,799 shares of our common stock reserved for future issuance under our 2012 Equity Incentive
Plan.
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To the extent that outstanding options or warrants outstanding have been or
may be exercised or other shares are issued upon conversion of outstanding convertible notes, investors purchasing our common stock
in this offering may experience further dilution. In addition, we expect to raise additional capital to fund our current or future
operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the
issuance of these securities could result in further dilution to our stockholders.
MARKET PRICE OF COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
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 March 21, 2020, we had 114,311,790 shares of common stock
outstanding held by approximately 44 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 March 21, 2020, our transfer agent has recorded 62,828,178
of our outstanding common shares as 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, which as of March 21, 2020
equals approximately 114,311,790 common shares.
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 the Registration Rights Agreement between
the Company and Nomis Bay and the Black Horse Entities (the “Registration Rights Agreement”), dated February 27, 2018,
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 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.
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, through a clinical research 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 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 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 we 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). We have established several partnerships with leading institutions to advance our innovative pipeline and are
in active discussion with several government and commercial organizations.
We believe that we have a dominant 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.
During 2019, we also advanced our preclinical next-generation cell and gene
therapies for the treatment of cancers via our novel human granulocyte-macrophage colony-stimulating factor (“GM-CSF”)
neutralization and gene-knockout platforms.
As a leader in GM-CSF pathway science, we believe that we have 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.
Source:WHO
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. Humanigen 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.
We believe that 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, we believe that we have 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).
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 cytokine release syndrome (CRS)
and neurotoxicity (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 United States Food and Drug Administration (“FDA”)-approved or development stage T-cell therapy,
including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic hematopoietic stem cell therapy
(“HSCT”) to make these treatments safer and more effective.
We have utilized a precision medicine approach and personalized the development
of lenzilumab based on specific genetic mutations or biomarkers at baseline. We recently reported on a Phase I study of lenzilumab
as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and are 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. We
are 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. We have also reported on a Phase II study in severe asthma utilizing
lenzilumab, which showed a statistically significant improvement in efficacy and favorable safety profile in patients with eosinophilic
asthma, 21 of whom received lenzilumab vs. 20 patients who received placebo. 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.
Our immediate focus is combining FDA-approved and development stage CAR-T
therapies with lenzilumab, our lead product candidate. A clinical collaboration with Kite was recently announced to evaluate the
use of lenzilumab with Yescarta .
We are 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
our own portfolio of proprietary first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic
disorders.
Our Pipeline
Our clinical-stage pipeline comprises a further Phase I study which is almost
fully enrolled with ifabotuzumab in GBM and potentially other solid cancers, a Phase Ib/II study which is enrolling alongside YESCARTA
in the CAR-T arena (ZUMA-19), an additional Phase II study, in CMML and a Phase II/III study in acute GvHD, the latter two of which
are in advanced planning stages. 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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We are also developing our own CAR-T programs based on the backbone of ifabotuzumab
and HGEN005, in high unmet medical need and rare/orphan oncology conditions.
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 has advanced into a pivotal registration study and it may be years before such a study is initiated, if
at all. Our current pipeline is depicted below:
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. 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
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 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 Phase Ib/II 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”).
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. 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 the University of Zurich (“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.
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 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.
EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature
We have begun to generate our 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 (“EphA3”). 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, we may have
the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. We are collaborating with the Mayo Clinic
and plan to move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing Investigational
New Drug (“IND”)-enabling work. We have published initial data from our 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
Our epidermal growth factor-like module containing mucin-like hormone receptor
1 (“EMR1”)-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets epidermal
growth factor-like module containing mucin-like hormone receptor 1 (“EMR1”). Our EMR1-CAR-T based on the HGEN005 backbone
is another approach in our growing platform of CAR-T therapies. We believe 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. We have engaged with U.S. National Institutes of
Health (“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 we cannot assure you that we will reach any agreements for
these next steps.
CAR-T Overview and Market Opportunity
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 single-arm Phase II study 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 ALL based on a single phase II study. The
Novartis-sponsored 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.
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 U.S. market, lisocabtagene maraleucel (liso-cel)
from BMS, is expected to be approved in 2020.
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.
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.
The global CAR-T therapy market is projected to grow from approximately $300
million in 2018 to greater than $2 billion in 2021, with continued growth up to $8.5 billion in 2028, according to ‘Evaluatepharma’.
Allogeneic HSCT Overview and Market Opportunity
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 U.S. and abroad. In 2019, approximately 10,000 allogeneic HSCT treatments are expected to be performed in the U.S., with
similar trends expected in Europe.
Market Opportunity
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
from 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”.
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 U.S., approximately 30 to 60% of patients receiving CAR-T therapy require admission
to the intensive care unit (“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.
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.
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.
Preclinical studies have shown lenzilumab can potentially be
used to cause apoptosis in CMML cells by depriving them of GM-CSF. 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 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 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 growth of certain hematologic malignancies, such as chronic myelomonocytic
leukemia (“CMML”), juvenile myelomonocytic leukemia (“JMML”), hemophagocytic lymphohistiocytosis (“HLH”),
macrophage activation syndrome (“MAS”), certain solid tumors and other serious conditions, particularly a broad range
of auto-immune 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 CRS and NT.
Combining CAR-T Therapies with Lenzilumab
Lenzilumab binds to and
neutralizes soluble, circulating GM-CSF, and has been shown to be generally safe and well tolerated in 113 patients in three Phase
I and two Phase II studies conducted for other purposes, including a form of leukemia, CMML. As a result, we have an extensive
safety, tolerability and pharmacokinetics data package on lenzilumab in clinical use in healthy human volunteers as well as in
patients. Accordingly, 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 associated
with CAR-T therapy while also enhancing CAR-T proliferation and effector functions and potentially confer additional benefits in
terms of durable efficacy and healthcare resource utilization. We also believe lenzilumab may further improve the value proposition
of CAR-T therapies and facilitate their use and acceptance throughout the healthcare systems in the U.S. and abroad.
A strong scientific rationale exists for GM-CSF neutralization
using lenzilumab for the improvement of safety, efficacy and cost-effectiveness of CAR-T therapy. Lenzilumab is in development
to significantly reduce the incidence and severity of CAR-T therapy induced NT and CRS, and to improve the overall efficacy and
duration of response of CAR-T therapy. Robust scientific rationale and independent scientific research from leading institutions
support GM-CSF neutralization as a validated target in this setting. In December 2017, we held a scientific advisory board at the
2017 ASH annual meeting with leading key opinion leaders in the CAR-T field to validate the scientific rationale of lenzilumab
prophylactic therapy in combination with CAR-T therapy. Based on feedback received from the advisory board, we created the development
plan for lenzilumab. To that end, we initiated preclinical studies using proprietary xenograft models in collaboration with the
Mayo Clinic. In addition, and following subsequent scientific advisory boards convened at the 2018 American Society of Clinical
Oncology and the 2018 ASH annual meeting, we continued to work with leading key opinion leaders and CAR-T centers to advance lenzilumab
into phase Ib/II pivotal trials in combination with FDA-approved, CD19 targeted CAR-T therapies such as Kite’s
Yescarta and potentially with Novartis’s Kymriah.
Following outreach to
key opinion leaders and innovators in the CAR-T field, we have tested the hypothesis of using lenzilumab as a prophylaxis against
these side-effects. A preclinical study conducted in 2018 in collaboration with leading researchers at the Mayo Clinic, validated
our hypothesis that the use of lenzilumab along with CD19 targeted CAR-T therapy neutralized GM-CSF and significantly reduced NT
and CRS. In addition, the Mayo Clinic study showed that the use of lenzilumab enhanced CAR-T proliferation and effector functions,
generally improving the efficacy of the CAR-T therapy. This was the first time it has been demonstrated that the toxicities associated
with CAR-T therapy can be effectively abrogated in vivo. These data were submitted as an abstract to the ASH and led to
a presentation during the CAR-T plenary session at the 2018 annual meeting of the ASH, the receipt of one of ASH’s coveted
‘Outstanding Abstract Achievement Awards’, and an invitation to submit a manuscript to ‘blood’, a premier
journal in hematology and the official journal of ASH. The manuscript entitled “GM-CSF inhibition reduces cytokine release
syndrome and neuroinflammation but enhances CAR-T cell function in xenografts” was published as a first edition paper by
‘blood’ in the November 21, 2018 online edition. In February 2019, the editors of ‘blood’ selected our
study and a key image from the associated manuscript for the front cover of the February 14, 2019 edition of the journal.
Our current clinical and
regulatory development plan centers around the collaboration agreement we executed with Kite in May 2019 (the “Kite Agreement”).
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.
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 I 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
I study in CMML with lenzilumab, we may initiate a Phase II study 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.
EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature
We have begun to generate our 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.
Eph receptors are critical for cell positioning and movement
in fetal development. However, in the adult, EphA3 is not expressed in normal tissue but it is thought to be expressed on the cancer
stem cell compartment, in particular the stroma that surrounds and protects the cancer cells and the tumor vasculature that feeds
them. EphA3 expression has been reported in the tumor vasculature of human cancers of the brain, kidney, skin, lung, colon, and
bladder. GBM is the most common form of brain cancer and the most deadly. Targeting antigens expressed by GBM such as IL-13Ra2
and EGFRvIII is associated with the development of antigen loss variants. There are safety concerns targeting HER2 given its expression
in normal adult tissue. EphA3 is increasingly being recognized as a therapeutic target for GBM given its lack of expression in
normal adult tissues and its expression on stromal cells that support the cancer’s growth and metastatic potential.
Using ifabotuzumab as the backbone, we have generated an EphA3-CAR-T
that may be useful in the treatment of a range of solid tumors and presented data at the 2019 SNO annual meeting. EphA3 expression
in tumor stroma is controlled by HIF in response to the low oxygen environment that characterizes solid tumors. Preclinical data
has shown the EphA3 expressing stroma cells are important for tumor neovascularization.
A Phase I safety and imaging trial of radio-labeled ifabotuzumab
in recurrent glioblastoma multiforme (GBM), a particularly aggressive and deadly form of brain cancer, is enrolling at two centers
in Australia, the Olivia-Newton John Cancer Research Institute in Melbourne (the “ONJCRI”) and the Queensland Institute
for Medical Research in Brisbane. Preliminary imaging data reported at AACR in early 2019 and at SNO in late 2019, 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.
By developing an EphA3-CAR-T using ifabotuzumab as the backbone,
we may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. We are collaborating with the
Mayo Clinic and plan to move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing IND-enabling
work.
EMR1-CAR: Targeting Eosinophils
Our EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered
monoclonal antibody) backbone and targets EMR1.
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. Our EMR1-CAR-T based on the HGEN005 backbone is another approach
in our growing platform of CAR-T therapies. We believe 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 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 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 we cannot assure you that we will reach any agreements for these next steps.
Kite Collaboration
Our current clinical and
regulatory development plan centers around 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. 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.
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 II
study with lenzilumab in severe asthma. Lenzilumab was found to be safe and well-tolerated in the 78 patients who received it in
the active treatment arm of the study. There was a trend toward improved respiratory function and a statistically significant improvement
in patients with eosinophilic asthma (measured by standard forced expiratory volume measures at 24 weeks vs. baseline). These data
were published in the British Medical Journal.
There is extensive evidence linking GM-CSF expression to serious
and potentially life-threatening side-effects in 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 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. 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.
There are many other publications
that point to the pivotal role of GM-CSF in CRS and NT, 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 Sequenced Therapy In
Combination with CD19 Targeted CAR-T Therapies
Our current clinical and regulatory
development plan centers around 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.
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. Accordingly, we are working to initiate pivotal Phase II/III studies of lenzilumab prophylaxis
or early treatment in combination with allogeneic HSCT with a primary objective of preventing or reducing acute GvHD.
We are exploring the potential for use of
lenzilumab to prevent the emergence of CRS in COVID-19. According to a recent paper published in The Lancet, patients infected
with SARS-CoV-2 have high serum amounts of GM-CSF, MCP1, IL1b, INFg, IP10; patients requiring ICU admission had higher concentrations
of GCSF, IP10, MCP1, MIP1a, and TNFa and it has been shown that GM-CSF, MCP1, MIP1a, IL1b, and IP10 are all produced by GM-CSF
activated myeloid cells. The cytokine storm seen in the context of CAR-T therapy appears to follow the same cascade as in SAR-CoV-2
infection and the COVID-19 disease process.
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 safety run-in portion. On completing the safety run-in portion
of this trial, which showed lenzilumab to be well tolerated with no clinically significant adverse events, 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. Results from a subsequent randomized, double-blinded, placebo-controlled,
repeat dose, Phase II clinical trial in severe asthma, showed a statistically significant benefit on patients with eosinophilic
asthma. As a result of a strategic shift and other corporate activities, we terminated development of lenzilumab in severe asthma.
We have generated safety and tolerability data in 113 patients in various clinical studies, including in CMML, and have demonstrated
lenzilumab to be safe and well- tolerated in these settings.
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.
Further, by developing ifabotuzumab as the backbone for a next
generation CAR-T construct, we may have the ability to target both the tumor, tumor stroma, and tumor vasculature in a novel manner
and build on the experience with current second generation CD19 CAR-T therapies. We are collaborating with the Mayo Clinic to make
a series of CAR-T constructs based on ifabotuzumab, of which initial constructs have been created and data presented at the 2019
SNO annual meeting, and plan to move to preclinical testing with these constructs for a range of cancer types. EphA3 is a tumor
specific antigen expressed on the surface of a multitude of solid tumor cells, tumor stroma cells and tumor vasculature in certain
cancers. 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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Initiate and complete preclinical studies with a CAR-T product;
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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”). Responses were observed in patients with AML, MF and MDS. In
this study, ifabotuzumab was well tolerated and clinically active when given as a weekly infusion.
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
Our EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 monoclonal
antibody) backbone and targets EMR1.
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. Our EMR1-CAR-T based on the HGEN005 backbone is another approach
in our growing platform of CAR-T therapies. We believe 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 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 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 we cannot assure you that we will reach any agreements for these next steps.
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 of the starting antibody and frequent generation of higher affinity antibodies;
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very-near-to-human germ line sequence, which we believe means our Humaneered antibodies are less likely to induce an inappropriate
immune response in broad patient populations when used chronically than chimeric or conventionally humanized antibodies, which
has proven to be the case in clinical studies;
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high potency and slow off-rate of the antibody;
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antibodies with physiochemical properties that facilitate process development and formulation (lack of aggregation at high
concentration);
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high antibody expression yields that potentially provide cost-of-goods benefits; 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 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.
Licensing and Collaborations
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.
Pursuant to the Mayo Agreement, we were required to pay $200,000
to the Mayo Foundation within six months of the effective date of the Mayo Agreement, or upon completion of a qualified financing,
whichever is earlier. We did not make the initial payment as of the due date and until the payment is made, the overdue amount
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.
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.
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
U.S. 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 U.S. 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. Payment made to BioWa under
this license for the twelve months ended December 31, 2018 was $0.1 million. We have not made a payment for the annual license
fee in 2019 as of December 31, 2019, but have accrued the related expense as of December 31, 2019.
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 U.S.
and select foreign countries for the technology we develop. We have 111 registered patents, including 14 registered in the U.S.
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 U.S. 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 U.S. 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 U.S. and selected foreign countries for anti-EphA3 antibodies and their use,
and we developed and own an issued U.S. composition of matter patent covering ifabotuzumab and related anti-EphA3 antibodies,
which is currently expected to expire in 2031, in addition to three U.S. 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. 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.
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 U.S.
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 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 and potential
beneficial effects on efficacy 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 two 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 LTD, 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.
Upon completion of the Restructuring Transactions, Nomis Bay
held 33,573,530 of our common stock, or approximately 31.4% of our outstanding common stock, and the Black Horse Entities collectively
held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock. Accordingly, the completion
of the Restructuring Transactions on the Restructuring Effective Date resulted in a change in control of our company, as the Black
Horse Entities and their affiliates owning more than a majority of our outstanding common stock. Dr. Dale Chappell, a member of
our 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 our company and will be able to determine all matters of our company requiring stockholder approval.
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 sub-lease initial term expires on March 31, 2020 and 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 the 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 is fully briefed, and is scheduled for
argument on February 3, 2020.
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 a subsequent order,
the discovery schedule was extended until the end of March 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 is fully briefed and scheduled for argument on February 3, 2020.
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 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.
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 furthered our transformation into a clinical-stage
biopharmaceutical company.
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, through our collaboration with Kite to study
the effect of lenzilumab on the safety of Yescarta including cytokine release syndrome (CRS), which is sometimes also referred
to as cytokine storm, 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 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). We have established several partnerships with
leading institutions to advance our innovative pipeline and are in active discussion with several government and commercial organizations.
We believe that we have a dominant 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.
During 2019, we have also advanced our preclinical next-generation
cell and gene therapies for the treatment of cancers via our novel GM-CSF neutralization and gene-knockout platforms.
As a leader in GM-CSF pathway science, we believe that we have
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. Humanigen 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, we 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 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 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 HSCT to make these treatments safer and more effective.
We have utilized a precision medicine approach and personalized
the development of lenzilumab based on specific genetic mutations or biomarkers at baseline. We recently reported on a Phase I
study of lenzilumab as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and are 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. We are 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. We have also reported on a Phase II study
in severe asthma utilizing lenzilumab, which showed a statistically significant improvement in efficacy and favorable safety profile
in patients with eosinophilic asthma, 21 of whom received lenzilumab vs. 20 patients who received placebo. 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.
Our immediate focus is combining FDA-approved and development
stage CAR-T therapies with lenzilumab, our lead product candidate. A clinical collaboration with Kite was recently announced to
evaluate the use of lenzilumab with Yescarta.
We are 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 our 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. 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, 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 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 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. 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, 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 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. 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 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 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. 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 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 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.
EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature
We have begun to generate our 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,
we may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. We are collaborating with the
Mayo Clinic and plan to move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing IND-enabling
work. We have published initial data from our Phase I study in an abstract that was accepted for the November 2019 SNO meeting,
showing data in glioblastoma multiforme, a form of brain cancer.
EMR1-CAR: Targeting Eosinophils
Our 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. We believe 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. 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 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 we cannot assure you that we will reach any agreements for these next steps.
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.
Operating Losses and Liquidity
We have incurred significant losses and had an accumulated deficit
of $284.9 million as of December 31, 2019. 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 require substantial additional capital to continue as
a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, 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, consolidation or business combination.
If management is unsuccessful in efforts to raise additional
capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations
for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. The Report
of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements elsewhere in this prospectus
includes an explanatory paragraph about our ability to continue as a going concern.
The Consolidated Financial Statements for the year ended December
31, 2019 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge
liabilities in the normal course of business. Our ability to meet our liabilities 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 we
are unable to continue as a going concern.
Results of Operations
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).
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 and private placements of our common stock, private placements of our preferred stock,
debt financings, interest income earned on cash, and cash equivalents, and marketable securities, borrowings against lines of credit,
and receipts from prior collaboration agreements. At December 31, 2019, we had cash and cash equivalents of $0.1 million.
As of March 13, 2020, we had cash and cash equivalents of $268,000.
The following table sets forth the primary sources and uses
of cash and cash equivalents for each of the periods presented below ($000’s):
|
|
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 increase (decrease) in cash and cash equivalents
|
|
$
|
(671
|
)
|
|
$
|
47
|
|
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 Capital Fund, LLC (“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 Holdings, Ltd. (“Cheval”),
an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder (“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 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”),
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.
Upon completion of the Restructuring Transactions
on February 27, 2018, the Black Horse Entities collectively held 66,870,851 shares of our common stock, or approximately 62.6%
of our outstanding common stock. Accordingly, the completion of the Restructuring Transactions resulted in a change in control
of our company, as the Black Horse Entities and their affiliates owning more than a majority of our outstanding common stock. Dr.
Dale Chappell, a member of our 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 our company and will be able to determine all matters of our company
requiring stockholder approval. For additional information regarding the Restructuring Transactions, see “Business –
Restructuring Transactions”.
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 sub-lease initial term expires
on March 31, 2020 and is renewable for additional terms by mutual agreement.
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
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 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, 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 approximates $1.1 million as of December 31, 2019. As of December 31, 2019
and December 31, 2018, we have 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. Currently, 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, 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; 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. 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 our company or merger or sale by
us of all or substantially all of our assets (in any case, a “Liquidation Event”). We used the proceeds from the 2018
Notes for working capital.
The 2018 Notes are convertible into our equity securities in
three different scenarios:
If we sell our equity securities on or before the date of repayment
of the 2018 Notes in any financing transaction that results in gross proceeds to us 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 we sell our equity securities on or before the date of repayment
of the 2018 Notes in any financing transaction that results in gross proceeds to us 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). Our sales of shares pursuant to the Purchase Agreement with Lincoln Park constitute a Non-Qualified Financing,
and, thus, holders of the 2018 Notes have the ability to convert in accordance with the terms described above.
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 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 us of all or substantially all of our assets (in any case, a “Liquidation Event”).
We used the proceeds from the 2019 Notes for working capital.
The 2019 Notes are convertible into
our equity securities in four different scenarios:
If we sell our equity securities on
or before the Stated Maturity Date in any financing transaction that results in gross proceeds to us of at least $10.0 million
(a “Qualified Financing”) or we consummate 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 we sell our equity securities on
or before the date of repayment of the 2019 Notes in any financing transaction that results in gross proceeds to us 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). Our sales of shares pursuant to the
Purchase Agreement with Lincoln Park constitute a Non-Qualified Financing, and, thus, holders of the 2019 Notes have the ability
to convert in accordance with the terms described above.
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, lent $750,000; Nomis Bay LTD, 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 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 2019 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,
we and the lenders agreed to further extend the maturity date of the June Bridge Notes until March 31, 2020. No other changes to
the terms of the June Bridge Notes were made in connection with either extension of the maturity date. The June Bridge Notes
may become due and payable at such earlier time as we raise 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, we 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 us by two parties: Cheval, an affiliate BHC, 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 will mature on December 31, 2019. The November Bridge Notes may become due
and payable at such earlier time as we raise 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) our 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.
March 2020
Notes
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 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. The Notes contain customary default
and remedies provisions for convertible note financings of this nature.
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
2018 Notes
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest payments on
2018 Notes
|
|
|
350
|
|
|
|
350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Principal payments on
2019 Notes
|
|
|
1,275
|
|
|
|
0
|
|
|
$
|
1,275
|
|
|
|
-
|
|
|
|
-
|
|
Interest Payments on
2019 Notes
|
|
|
191
|
|
|
|
0
|
|
|
$
|
191
|
|
|
|
-
|
|
|
|
-
|
|
Principal payments on
2019 Bridge Notes
|
|
|
2,050
|
|
|
|
2,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest payments on
2019 Bridge Notes
|
|
|
90
|
|
|
|
90
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
7,550
|
|
|
$
|
6,084
|
|
|
$
|
1,466
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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. Pursuant to the Mayo Agreement, we were
required to pay $200,000 to the Mayo Foundation within six months of the effective date of the Mayo Agreement, or upon completion
of a qualified financing, whichever is earlier. We 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.
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 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, 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.
Revenue Recognition
Our revenue to date has been generated
primarily through license agreements and research and development collaboration agreements. We had no revenues for the years ending
December 31, 2017 and 2018. Commencing January 1, 2018, we recognize revenue in accordance with Accounting Standards Update (“ASU”)
2014-09, “Revenue from Contracts with Customers (Topic 606)” (“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 we determine 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”.
We apply 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 our control.
We recognize 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 we determine that an arrangement
should be accounted for as a single unit of accounting, we determine 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 we cannot reasonably estimate the level of effort to complete performance obligations under an arrangement,
we recognize revenue under the arrangement on a straight-line basis over the period we are expected to complete our performance
obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the
period over which we are expected to complete our performance obligations under an arrangement.
Our collaboration agreements typically
entitle us 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 our 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 we 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 we will recognize the milestone payment as Revenue in its entirety in the period the milestone was achieved.
Recently Issued Accounting Pronouncements
For a discussion of new accounting pronouncements,
see Note 3 in the Notes to the Consolidated Financial Statements.
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 and Interim Chief Financial Officer, Humanigen, Inc.
|
|
2016
|
Ronald Barliant, JD
|
|
74
|
|
Of Counsel, Goldberg Kohn, Ltd.
|
|
2016
|
Timothy Morris, CPA
|
|
58
|
|
Chief Financial Officer, Iovance Biotherapeutics, Inc.
|
|
2016
|
Rainer Boehm, M.D., MBA
|
|
59
|
|
Former Chief Commercial and Medical Officer and interim Chief Executive Officer at Novartis Pharmaceuticals
|
|
2018
|
Robert Savage, MBA
|
|
66
|
|
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
|
|
59
|
|
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. In addition, Dr. Durrant has served as our interim chief financial officer since July 1, 2019. 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.
Timothy Morris, CPA
has served as a member of our Board since June 2016. Mr. Morris has served as the Chief Financial Officer of Iovance Biotherapeutics,
Inc., a biopharmaceutical company, since August 2017. 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 brings to the Board valuable operational experience with public
companies in the biopharmaceutical industry, particularly in the areas of finance and corporate development.
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; Interim Chief Financial Officer
|
Cameron
Durrant, M.D, MBA has served as our Chief Executive Officer since March 2016. See “Directors” for
Dr. Durrant’s biographical information.
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 2018, 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 Mr. Morris, as chair of the Committee, Mr. Boehm, and Mr. Savage. The Board has determined
that Mr. Morris 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
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Total
|
|
Name and Principal
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 has served
as our Interim Chief Financial Officer since July 1, 2019.
|
|
(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 will be paid to his estate upon
completion of a fundraising transaction.
|
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 remain 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 are 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 $0.05 million. These options were fully vested on
the grant date. The remaining vested options are exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s
death.
The stock option grant made to Dr. Durrant and the long-term
stock option award made to Mr. Jester were approved by the Company’s Board of Directors for the dual purpose of providing
award recipients with appropriate incentives to develop lenzilumab and the Company’s other monoclonal assets in accordance
with the Company’s updated business plan, and to ensure their retention. The number of shares underlying each award, and
the vesting provisions of each, were designed to mitigate the significant dilution to the value of the equity awards held by such
executive officers resulting from completion of the Restructuring Transactions in February 2018. (Note 9 to the accompanying Consolidated
Financial Statements included elsewhere in this prospectus for more information regarding the Restructuring Transactions).
In advance of approving these awards and the amendment to the Company’s 2012 Equity Incentive Plan described below, the Board
of Directors consulted with Dr. Chappell, the Company’s controlling stockholder, and confirmed the awards were appropriate
to achieve Dr. Chappell’s long-term and retention goals for each named executive officer.
Outstanding Equity Awards at 2019 Fiscal Year End
The following table shows certain information
regarding outstanding equity awards held by our named executive officers as of December 31, 2019.
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
Option
|
|
|
|
|
|
Options
|
|
|
|
Options
|
|
|
|
Exercise
|
|
|
Expiration
|
Name
|
|
|
|
|
Exercisable
|
|
|
|
Unexercisable
|
|
|
|
Price ($)
|
|
|
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 are
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 are 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 are 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 are 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 its
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
its 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.
2012 Equity Incentive Plan
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. As of December 31, 2019, after giving effect to outstanding awards,
there were approximately 3.1 million shares available for future grant under the 2012 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 March 21, 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 114,311,790
shares of our common stock outstanding as of March 21, 2020.
Shares of our common stock subject to options that are currently
exercisable or exercisable within 60 days of March 21, 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)
|
|
|
68,048,126
|
|
|
|
59.5
|
%
|
Nomis Bay LTD(2)
|
|
|
33,573,530
|
|
|
|
29.4
|
%
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Cameron Durrant, M.D., MBA(3)
|
|
|
9,377,938
|
|
|
|
7.6
|
%
|
Ronald Barliant, JD(4)
|
|
|
1,233,079
|
|
|
|
1.1
|
%
|
Timothy Morris, CPA(5)
|
|
|
665,477
|
|
|
|
*
|
|
Robert Savage, MBA(6)
|
|
|
577,111
|
|
|
|
*
|
|
Rainer Boehm, M.D., MBA(7)
|
|
|
642,205
|
|
|
|
*
|
|
Cheryl Buxton(8)
|
|
|
64,224
|
|
|
|
*
|
|
All current executive officers and directors as a group (6 persons)(9)
|
|
|
12,560,034
|
|
|
|
10.0
|
%
|
_____________
* Represents less than 1%
|
(1)
|
Number of shares based on information reported on the Schedule 13D filed with the SEC on March 1, 2018, reporting beneficial
ownership as of February 27, 2018, by the Black Horse Entities, BH Management, and Dale Chappell. 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 46,876,309 shares, BH Management has sole
voting and dispositive power with respect to 52,873,019 shares and Dr. Chappell has shared voting and dispositive power with respect
to 68,048,126 shares. The number of shares reported in this row also includes an additional 1,177,275 shares issued to Cheval on
May 31, 2019 in satisfaction of certain loans made to the Company in 2018, as reported on the Form 4 filed with the SEC on June
4, 2019 by Cheval, BH Management, and Dale Chappell. 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 ex-officio chief scientific officer.
|
|
(2)
|
Number of shares based solely on information reported on the Schedule 13D filed with the SEC on March 5, 2018, reporting beneficial
ownership as of February 27, 2018, by Nomis Bay. Nomis Bay has sole voting and dispositive power over all 33,573,530 shares. The
business address of Nomis Bay is West Essex House, 3rd Floor, 45 Reid Street, Hamilton, Bermuda HM12.
|
|
(3)
|
Includes options to purchase 8,820,731 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(4)
|
Includes options to purchase 810,575 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(5)
|
Includes options to purchase 665,477 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(6)
|
Includes options to purchase 377,242 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(7)
|
Includes options to purchase 238,617 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(8)
|
Includes options to purchase 59,648 shares of common stock that may be exercised within 60 days
of March 21, 2020.
|
|
(9)
|
Includes options to purchase 10,972,290 shares of common stock that may be exercised within 60
days of March 21, 2020.
|
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; 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.
See Note 6 to our Audited Consolidated Financial Statements included elsewhere in this prospectus for a discussion of the 2018
Notes.
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,
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 bear interest at a rate of 7.0% per annum and, after giving effect to extensions announced in October 2019, will mature
on December 31, 2019. The 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 Bridge Notes are secured by liens of substantially all of the
Company’s assets.
Upon an
event of default, which events include, but are not limited to, (1) the Company failing to timely pay any monetary obligation
under the Bridge Notes; (2) the Company failing to pay its debts generally as they become due and (3) the Company 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 Bridge Notes increases
to 10.0% per annum. Further, upon certain events of default, all payments and obligations due and owed under the Bridge Notes
shall immediately become due and payable without demand without notice to the Company.
November 2019 Bridge Notes
On November
12, 2019, the Company made two short-term, secured bridge notes (the “Notes”) evidencing an aggregate of $350,000
of loans made to the Company by two parties: Cheval, an affiliate of BHC, the Company’s controlling stockholder, loaned
$250,000; and Dr. Cameron Durrant, the Company’s Chief Executive Officer and Chairman of the Board of Directors, loaned
$100,000. The proceeds from the Notes will be 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 bear interest at a rate of 7.0% per annum and will mature on March 31, 2020. The 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 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 failing to timely pay any monetary obligation
under the Notes; (2) the Company failing to pay its debts generally as they become due and (3) the Company 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 Notes increases to 10.0% per annum.
Further, upon certain events of default, all payments and obligations due and owed under the Notes shall immediately become due
and payable without demand and without notice to the Company.
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 March 21, 2020 there were 114,311,790 shares of common stock outstanding,
held by 44 stockholders of record, although we believe that there may be a significantly larger number of beneficial owners of
our common stock. We derived the number of stockholders by reviewing the listing of outstanding common stock recorded by our transfer
agent as of March 21, 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. Although our Charter does not currently authorize
us to issue preferred stock, if that provision of our charter were amended in the future, 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 of 1933, as amended,
in specified circumstances.
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 STOCKHOLDER
This prospectus relates to the possible
resale by the selling stockholder, Lincoln Park, of shares of common stock that have been or may be issued to Lincoln Park pursuant
to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions
of the Registration Rights Agreement, which we entered into with Lincoln Park on November 8, 2019 concurrently with our execution
of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the
shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the selling stockholder,
may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to Lincoln
Park under the Purchase Agreement. The selling stockholder may sell some, all or none of its shares. We do not know how long the
selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings
with the selling stockholder regarding the sale of any of the shares.
The following table presents information regarding the selling
stockholder and the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information
supplied to us by the selling stockholder, and reflects its holdings as of March 21, 2020. Neither Lincoln Park nor any of its
affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates.
Beneficial ownership is determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) and Rule 13d-3 thereunder.
Selling Stockholder
|
|
Shares Beneficially
Owned Before this
Offering
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned Before
this Offering
|
|
Shares to be Sold in
this Offering
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned After
this Offering
|
Lincoln Park Capital Fund, LLC (1)
|
|
1,391,092(2)
|
|
*(3)
|
|
14,484,500(4)
|
|
*(5)
|
_____________
* Represents less
than 1%
|
(1)
|
Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed
to be beneficial owners of all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld
have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with
the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate
of a licensed broker dealer.
|
|
(2)
|
Represents 706,592 Commitment Shares of our common stock issued
to Lincoln Park upon our execution of the Purchase Agreement as a fee for its commitment to purchase shares of our common stock
under the Purchase Agreement, all of which shares are covered by the registration statement that includes this prospectus, and
700,000 shares sold to Lincoln Park pursuant to the Purchase Agreement, less 15,500 shares of common stock sold by Lincoln Park.
We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the additional shares
of common stock that Lincoln Park may be required to purchase pursuant to the Purchase Agreement, because the issuance of such
shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln
Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective.
Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park are subject
to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See the
description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement.
|
|
(3)
|
Based
on 114,311,790 outstanding shares of our common stock as of March 21, 2020, which includes the 706,592 Commitment Shares we issued
to Lincoln Park on November 8, 2019 and 700,000 shares sold to Lincoln Park in December 2019 and January 2020 under the Purchase
agreement.
|
|
(4)
|
Although the Purchase Agreement provides that we may sell up to $20,000,000 of our common stock
to Lincoln Park, only 14,484,500 shares of our common stock are being offered under this prospectus, which represents: (i) 706,592
Commitment Shares issued to Lincoln Park upon our execution of the Purchase Agreement as consideration for its commitment to purchase
shares of our common stock under the Purchase Agreement; (ii) 700,000 shares sold to Lincoln Park in December 2019 and January
2020 under the Purchase agreement; and (iii) an aggregate of 13,093,408 shares of our common stock that may be sold by us to Lincoln
Park at our discretion from time to time over a 36-month period commencing after the satisfaction of certain conditions set forth
in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus,
less (iv) 15,500 shares sold by Lincoln Park. Depending on the price per share at which we sell our common stock to Lincoln Park
pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common
stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $20,000,000 total commitment
available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act
such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares
we sell to Lincoln Park under the Purchase Agreement.
|
|
(5)
|
Assumes the sale of all shares of common stock registered pursuant to this prospectus, although
the selling stockholder is under no obligation to sell any shares of common stock at this time.
|
PLAN OF DISTRIBUTION
The common stock offered by this prospectus
is being offered by the selling stockholder, Lincoln Park. The common stock may be sold or distributed from time to time by the
selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents
at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be effected in one or more of
the following methods:
|
·
|
ordinary brokers’ transactions;
|
|
·
|
transactions involving cross or block trades;
|
|
·
|
through brokers, dealers, or underwriters who may act solely as agents;
|
|
·
|
“at the market” into an existing market for the common stock;
|
|
·
|
in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected
through agents;
|
|
·
|
in privately negotiated transactions; or
|
|
·
|
any combination of the foregoing.
|
In order to comply with the securities
laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption
from the state’s registration or qualification requirement is available and complied with.
Lincoln Park is an “underwriter”
within the meaning of Section 2(a)(11) of the Securities Act.
Lincoln Park has informed us that it intends
to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant
to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current
market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed
customary brokerage commissions.
Brokers, dealers, underwriters or agents
participating in the distribution of the shares offered by this prospectus may receive compensation in the form of commissions,
discounts, or concessions from the purchasers, for whom the broker-dealers may act as agent, of the common stock sold by Lincoln
Park through this prospectus. The compensation paid to any such particular broker-dealer by any such purchasers of common stock
sold by Lincoln Park may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently estimate
the amount of compensation that any agent will receive from any purchasers of common stock sold by Lincoln Park.
We know of no existing arrangements between
Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares
offered by this prospectus.
We may from time to time file with the
SEC one or more supplements to this prospectus or amendments to the registration statement of which this prospectus forms a part
to amend, supplement or update information contained in this prospectus, including, if and when required under the Securities Act,
to disclose certain information relating to a particular sale of shares offered by this prospectus by the selling stockholder,
including the names of any brokers, dealers, underwriters or agents participating in the distribution of such shares by the selling
stockholder, any compensation paid by Lincoln Park to any such brokers, dealers, underwriters or agents, and any other required
information.
We will pay the expenses incident to the
registration under the Securities Act of the offer and sale of the shares covered by this prospectus by Lincoln Park. We have agreed
to indemnify Lincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common
stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute
amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the
Securities Act that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus
or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has represented to us that
at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected,
in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the
Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common
stock. Lincoln Park agreed that, during the term of the Purchase Agreement, it, its agents, representatives or affiliates will
not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that it is
required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling
stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution, from bidding
for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price
of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities
offered by this prospectus.
This offering will terminate on the date
that all shares offered by this prospectus have been sold by Lincoln Park.
Our common stock is quoted on the OTCQB
Venture Market under the symbol “HGEN”.
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 balance sheets of Humanigen,
Inc. as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, changes in
stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2019, included in this prospectus,
have been so included in reliance on the report of HORNE LLP, independent auditors, given on the authority of that firm as experts
in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement
on Form S-1 under the Securities Act of 1933, as amended, 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
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, which showed a statistically significant improvement in
efficacy and favorable safety profile in patients with eosinophilic asthma, 21 of whom received lenzilumab vs. 20 patients who
received placebo. 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
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.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE
AND DISTRIBUTION
The following table sets forth the estimated
costs and expenses in connection with the sale and distribution of the securities being registered, all of which will be paid by
us.
SEC Registration Fee
|
|
$
|
1,167.00
|
|
Accounting Fees and Expenses
|
|
$
|
100,000.00
|
|
Legal Fees and Expenses
|
|
$
|
350,000.00
|
|
Miscellaneous Fees and Expenses
|
|
$
|
50,000.00
|
|
Total
|
|
$
|
501,167.00
|
|
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102(b)(7) of the Delaware General
Corporation Law, or the DGCL, provides that a Delaware corporation, in its certificate of incorporation, may limit the personal
liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director,
except for liability for any:
|
·
|
transaction from which the director derived an improper personal benefit;
|
|
·
|
act or omission not in good faith or that involved intentional misconduct or a knowing violation
of law;
|
|
·
|
unlawful payment of dividends or redemption of shares; or
|
|
·
|
breach of the director’s duty of loyalty to the corporation or its stockholders.
|
Section 145(a) of the DGCL provides, in
general, that a Delaware corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) because that person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other
enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action, so long as the person acted in good faith and in
a manner he or she reasonably believed was in or not opposed to the corporation’s best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Section 145(b) of the DGCL provides, in
general, that a Delaware corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in the right of the corporation to obtain a judgment in its favor because
the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action,
so long as the person acted in good faith and in a manner the person reasonably believed was in or not opposed to the corporation’s
best interests, except that no indemnification shall be permitted without judicial approval if a court has determined that the
person is to be liable to the corporation with respect to such claim. Section 145(c) of the DGCL further provides that, if a present
or former director or officer has been successful in defense of any action referred to above, the corporation must indemnify such
officer or director against the expenses (including attorneys’ fees) he or she actually and reasonably incurred in connection
with such action.
Section 145(g) of the DGCL provides, in
general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise against any liability asserted against and incurred by such person, in any such capacity,
or arising out of his or her status as such, whether or not the corporation could indemnify the person against such liability under
Section 145 of the DGCL.
Our Charter eliminates the personal liability
of our directors to the Company and our stockholders for monetary damages for breach of fiduciary duty as a director, with certain
limited exceptions set forth therein. Our Amended and Restated Bylaws provide for the indemnification of our directors and officers
to the fullest extent permitted by the DGCL.
We maintain an insurance policy that covers
certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors
or officers.
Certain of our non-employee directors may,
through their relationships with their employers, also be insured and/or indemnified against certain liabilities incurred in their
capacity as members of our board of directors.
The foregoing descriptions are only general
summaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1, 2017, we have sold the following securities that
were not registered under the Securities Act:
|
(a)
|
On August 23, 2017, we issued 15,000 shares of our common stock to Aperture Healthcare Ventures
Ltd. in connection with the ELOC Purchase Agreement, which was terminated on March 12, 2018. No additional shares were issued pursuant
to the ELOC Purchase Agreement prior to such termination.
|
|
(b)
|
On February 27, 2018, in connection with the Restructuring Transactions (as described herein),
we issued an aggregate of 91,815,517 shares of our common stock to the Term Loan Lenders in exchange for the satisfaction and extinguishment
of the entire $18.4 million balance of the Term Loans and new cash consideration of $3.0 million.
|
|
(c)
|
On March 12, 2018, we sold 2,445,557 shares of our common stock for total proceeds of $1.1 million
to certain investors in a private placement.
|
|
(d)
|
On April 6, 2018, we issued 33,333 shares of restricted common stock to Wotczak Group, LLC, an
investor relations consultant, in return for services.
|
|
(e)
|
On June 4, 2018, the Company sold 400,000 shares of its common stock for total proceeds of $0.2
million to an investor in a private placement.
|
|
(f)
|
On June 19, 2018, we received an aggregate of $400,000 in proceeds from certain Company insiders
in connection with the issuance of the Advance Notes.
|
|
(g)
|
On July 6, 2018, we issued 30,000 shares of common stock to Lincoln Park Capital Fund, LLC in return
for services.
|
|
(h)
|
On September 19, 2018, we completed a bridge financing through which we received aggregate proceeds
of $2.5 million in exchange for the 2018 Notes. The 2018 Notes bear interest at a rate of 7% per annum and, unless earlier converted
into equity securities in our company, will mature on the second anniversary of the issue date. In general, the outstanding principal
and accrued but unpaid interest on the 2018 Notes will be convertible, at the option of the holders, into shares of our common
stock at a conversion price of $0.45 per share in the event that we receive aggregate gross proceeds of less than $10,000,000 under
the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus.
|
|
(i)
|
On April 23, 2019, we completed a bridge financing through which we received aggregate proceeds
of $1.3 million in exchange for the April 2019 Notes. The April 2019 Notes bear interest at a rate of 7.5% per annum and, unless
earlier converted into equity securities in our company, will mature on the second anniversary of the issue date. In general, the
outstanding principal and accrued but unpaid interest on the April 2019 Notes will be convertible, at the option of the holders,
into shares of our common stock at a conversion price of $1.25 per share in the event that we receive aggregate gross proceeds
of less than $10,000,000 under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement
after the date of this prospectus.
|
|
(j)
|
On May 31, 2019, we issued 472,123 shares of common stock to certain Company insiders upon the
conversion of the Advance Notes. No gain or loss was recognized on the conversion.
|
|
(k)
|
On June 28, 2019, we made three short-term, secured 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; Nomis Bay, our second largest
stockholder; and Cameron Durrant, M.D., MBA, our Chief Executive Officer and Chairman of the Board of Directors.
|
|
(l)
|
On September 18, 2019, we issued 3,529 shares of common stock to Ness Capital and Consulting, LLC
(the “Consultant”) in exchange for capital markets consulting services delivered by the Consultant to us pursuant to
a consulting services agreement entered into on September 13, 2019.
|
|
(m)
|
On October 11, 2019, we issued 4,285 shares of common stock to Ness Capital and Consulting, LLC
in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement
entered into on September 13, 2019.
|
|
(n)
|
On November 11, 2019, we issued 7,258 shares of common stock to Ness Capital and Consulting, LLC
in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement
entered into on September 13, 2019.
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(o)
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On November 12, 2019, we made two short-term, secured bridge notes evidencing an aggregate of $350,000
of loans made to the Company by two parties: Cheval, an affiliate of BCH, our controlling stockholder; and Cameron Durrant, M.D.,
MBA, our Chief Executive Officer and Chairman of the Board of Directors.
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(p)
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On December 13, 2019, we issued 12,359 shares of common stock to Ness Capital and Consulting, LLC
in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement
entered into on September 13, 2019.
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(q)
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In December 2019 and January 2020, we issued an aggregate of 700,000 shares of common stock to
Lincoln Park pursuant to the Purchase Agreement.
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(r)
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On January 13, 2020, we issued 10,000 shares of common stock to Ness Capital and Consulting, LLC
in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement
entered into on September 13, 2019.
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(s)
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On February 13, 2020, we issued 11,842 shares of common stock to Ness Capital and Consulting, LLC
in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement
entered into on September 13, 2019.
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(t)
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On March 13, 2020, we issued 7,500 shares of common stock to
Ness Capital and Consulting, LLC in exchange for capital markets consulting services delivered by the Consultant to us pursuant
to a consulting services agreement entered into on September 13, 2019.
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(u)
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On March 19, 2020, we completed a bridge financing through which
we received aggregate proceeds of approximately $448,333.33 through the issuance of convertible redeemable notes (the “March
2020 Notes”). The March 2020 Notes were issued with a 10% original issue discount, bear interest at a rate of 7.0% per annum
and, unless earlier converted into equity securities in our company, will mature on the first anniversary of the issue date. In
general, unless earlier redeemed by us at our option, the outstanding principal and accrued but unpaid interest on the March 2020
Notes will be convertible, at the option of the holders, commencing six months from the date of issuance into shares of our common
stock at a conversion price of $0.25 per share or, if conversion occurs after nine months from the date of issuance, at a variable
conversion price set at a discount to the then-current value of our common stock.
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The sales and issuances described in paragraphs
(a) – (u) were made in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act as
transactions not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors. The
purchasers in these transactions represented to us that they were accredited investors and were acquiring the shares for investment
purposes and not with a view to, or for sale in connection with, any distribution thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
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Incorporated by Reference
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Previously
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Exhibit No.
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Exhibit Description
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Form+
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Date
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Number
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Filed
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2.1
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Findings of Fact, Conclusions of Law, and Order Confirming Second Amended Chapter 11 Plan of Reorganization of the Registrant.
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8-K
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June 22, 2016
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2.1
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3.1
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Amended and Restated Certificate of Incorporation of the Registrant.
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8-K
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July 6, 2016
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3.1
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3.1.1
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Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant.
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8-K
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August 7, 2017
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3.1
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3.1.2
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Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended.
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8-K
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February 28, 2018
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3.1
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3.2
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Second Amended and Restated Bylaws of the Registrant.
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8-K
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August 7, 2017
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3.2
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4.1
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Specimen of Stock Certificate evidencing shares of Common Stock.
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S-1
(File No. 333-184299)
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January 15, 2013
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4.1
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4.2
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Warrant to Purchase Stock, by and between the Registrant and MidCap Financial SBIC, LP, dated as of June 19, 2013.
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8-K
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June 24, 2013
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10.2
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4.3
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Common Stock Purchase Warrant, by and between the Registrant and Armistice Capital Fund, dated as December 4, 2015.
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8-K
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December 9, 2015
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4.2
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4.4†
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Common Stock Purchase Warrant, dated June 30, 2016, by and between the Registrant and Savant Neglected Diseases, LLC.
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10-Q
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September 23, 2016
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4.1
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4.5
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Registration Rights Agreement, dated as of February 27, 2018, by and among the Registrant and Black Horse Capital Master Fund, Black Horse Capital, Cheval Holdings, Ltd., and Nomis Bay LTD.
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10-Q
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May 8, 2018
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4.6
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5.1
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Opinion of Polsinelli PC.
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X
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10.1**
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2012 Equity Incentive Plan, as amended and restated.
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10-Q
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August 10, 2015
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10.2
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10.1.1**
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Amendment to the 2012 Equity Incentive Plan, dated as of September 13, 2016.
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S-8
(File No. 333-214110)
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October 14, 2016
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10.2
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10.1.2**
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Amendment to the 2012 Equity Incentive Plan, effective March 9, 2018.
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10-Q
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May 8, 2018
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10.2
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10.2**
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Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan.
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10-12G
(File No. 000-54735)
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June 12, 2012
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10.8
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10.3**
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Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan (Outside Directors).
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10-K
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March 13, 2014
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10.37
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10.4**
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Form of Notice of Stock Unit Award under the 2012 Equity Incentive Plan.
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8-K
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April 24, 2015
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10.1
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10.5**
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Form of Director and Officer Indemnification Agreement.
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10-12G
(File No. 000-54735)
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June 12, 2012
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10.11
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10.6
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Development and License Agreement, dated May 11, 2004, by and between the Registrant and the Ludwig Institute for Cancer Research.
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10-12G/A
(File No. 000-54735)
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August 7, 2012
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10.13
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10.7
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License Agreement, dated April 7, 2006, by and between the Registrant and the Ludwig Institute for Cancer Research.
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10-12G/A
(File No. 000-54735)
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August 7, 2012
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10.14
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10.7.1
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Amendment to License Agreement, dated October 9, 2008, by and between the Registrant and the Ludwig Institute for Cancer Research.
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10-Q
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May 8, 2014
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10.8
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10.7.2
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Amendment to License Agreement, dated June 8, 2011, by and between the Registrant and the Ludwig Institute for Cancer Research.
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10-Q
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May 8, 2014
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10.9
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10.8†
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Non-Exclusive License Agreement, dated October 15, 2010, by and between the Registrant, BioWa, Inc. and Lonza Sales AG.
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10-12G/A
(File No. 000-54735)
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September 12, 2012
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10.16
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10.9†
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License Agreement, dated March 16, 2007, by and between the Registrant and Novartis International Pharmaceutical Ltd.
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10-12G/A
(File No. 000-54735)
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August 7, 2012
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10.17
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10.10**
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Employment Agreement, dated as of September 13, 2016, by and between the Registrant and Cameron Durrant, MD.
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10-Q
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November 10, 2016
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10.2
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10.11
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Form of Advance Note.
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10-Q
|
|
August 9, 2018
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10.1
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|
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10.12
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Form of Convertible Promissory Note.
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10-Q
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November 6, 2018
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10.1
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10.13
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Amended Employment Agreement dated August 22, 2018, between the Company and Jon. G. Jester.
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10-Q
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November 6, 2018
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10.2
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10.14
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Form of 2019 Convertible Note.
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10-Q
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|
August 13, 2019
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10.1
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|
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10.15
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Clinical Collaboration Agreement, dated May 30, 2019 between the Registrant and Kite Pharma, Inc.
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10-Q
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August 13, 2019
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10.2
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10.16
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Form of 2019 Bridge Note
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|
10-Q
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|
August 13, 2019
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|
10.3
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|
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10.16.1
|
|
Form of October 8, 2019 Amendment
to 2019 Bridge Note.
|
|
8-K
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|
October 8, 2019
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|
10.1
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|
|
10.16.2
|
|
Form of December 30, 2019 Amendment
to 2019 Bridge Note.
|
|
8-K
|
|
December 31, 2019
|
|
10.1
|
|
|
10.16.3
|
|
Form of March 20, 2020 Amendment to 2019 Bridge Note.
|
|
8-K
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|
March 23, 2020
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|
10.1
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|
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10.17
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|
Purchase Agreement, dated as of November 8, 2019 by and between Humanigen, Inc. and Lincoln Park Capital Fund, LLC.
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8-K
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|
November 12, 2019
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10.1
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|
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10.18
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Registration Rights Agreement, dated as of November 8, 2019, by and between Humanigen, Inc. and Lincoln Park Capital Fund, LLC.
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8-K
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|
November 12, 2019
|
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10.2
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|
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10.19
|
|
Form of March 2020 Convertible Note.
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|
|
|
|
|
|
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21.1
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|
List of Subsidiaries.
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X
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23.1
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Consent of Horne LLP.
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23.2
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Consent of Polsinelli PC (included in Exhibit 5.1)
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|
|
|
|
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X
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101.INS
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XBRL Instance Document
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|
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101.SCH
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|
XBRL Taxonomy Extension Schema
|
|
|
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101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
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|
|
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101.DEF
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|
XBRL Taxonomy Extension Definition Linkbase Document
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|
|
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101.LAB
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|
XBRL Taxonomy Extension Label Linkbase Document
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|
|
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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**Indicates management contract or compensatory
plan.
†Confidential treatment has been granted
with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange
Commission.
+Unless otherwise indicated, File No. is 001-035798.
ITEM 17. UNDERTAKINGS
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(a)
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The undersigned registrant hereby undertakes:
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(1) To file,
during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect
in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information
with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
information in the registration statement;
provided, however,
that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) above do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement,
or is contained in a form of prospectus filed pursuant to Rule 424(b) that is a part of the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove
from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(5) That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included
in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement or made in any such document immediately prior
to such date of first use.
(h) Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Burlingame, State of California on March 23, 2020.
|
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Humanigen, Inc.
|
|
|
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/s/ Cameron Durrant, M.D., MBA
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|
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By: Cameron Durrant, M.D., MBA
|
|
|
Chairman of the Board and Chief Executive Officer;
|
|
|
Interim Chief Financial Officer
|
POWER OF ATTORNEY
We, the undersigned
directors and officers of Humanigen, Inc., a Delaware corporation, do hereby constitute and appoint Cameron Durrant, our true and
lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to do any and all acts and things in our
names and on our behalf in our capacities as trustees and officers and to execute any and all instruments for us and in our name
in the capacities indicated below, which said attorney and agent may deem necessary or advisable to enable said company to comply
with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection
with this Registration Statement, including specifically, but without limitation, any and all amendments (including post-effective
amendments) hereto; and we hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates
indicated.
Signature
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|
Title
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Date
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|
|
|
|
|
|
|
|
|
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/s/ Cameron Durrant
|
|
|
|
|
Cameron Durrant, M.D., MBA
|
|
Chairman of the Board and Chief Executive Officer; Interim Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
|
|
March 23, 2020
|
|
|
|
|
|
*
|
|
|
|
|
Ronald Barliant, JD
|
|
Director
|
|
March 23, 2020
|
|
|
|
|
|
*
|
|
|
|
|
Rainer Boehm, M.D.
|
|
Director
|
|
March 23, 2020
|
|
|
|
|
|
*
|
|
|
|
|
Timothy Morris, CPA
|
|
Director
|
|
March 23, 2020
|
|
|
|
|
|
*
|
|
|
|
|
Robert G. Savage, MBA
|
|
Director
|
|
March 23, 2020
|
|
|
|
|
|
|
|
|
|
|
Cheryl Buxton
|
|
Director
|
|
March 23, 2020
|
|
|
|
|
|
|
|
|
|
|
* Pursuant to power of attorney
By:
|
/s/ Cameron Durrant
|
|
Name: Cameron Durrant
|
|
Title: Attorney-in-fact
|
|
Grafico Azioni Humanigen (CE) (USOTC:HGEN)
Storico
Da Lug 2024 a Lug 2024
Grafico Azioni Humanigen (CE) (USOTC:HGEN)
Storico
Da Lug 2023 a Lug 2024