UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
OR
☐ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 001-35798
Humanigen, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0557236 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation) | Identification No.) |
830 Morris Turnpike, 4th Floor
Short Hills, NJ 07078
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (650) 243-3100(973) 200-3100
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on with registered |
| Common Stock | HGEN | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of November 10, 2017,9, 2022, there were 14,986,712119,080,135 shares of common stock of the issuer outstanding.
Unless the context indicates otherwise, the terms “Humanigen,” “we,” “us” and “our” refer to Humanigen, Inc., and its consolidated subsidiaries. This report also may include trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this report are the property of their respective owners.
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TABLE OF CONTENTS
HUMANIGEN, INC.
FORM 10-Q
| Page | |||||
| PART I. FINANCIAL INFORMATION | |||||
| Item 1. | |||||
| 4 | |||||
| 4 | |||||
| Condensed Consolidated Statements of | 5 | ||||
| 6 | |||||
| Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021 | 7 | ||||
| Notes to Condensed Consolidated Financial Statements | |||||
| Item 2. | |||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 25 | |||
| Item 4. | |||||
| PART II. OTHER INFORMATION | |||||
| Item 1. | |||||
| Item 1A. | |||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 | |||
| Item 3. | Defaults Upon Senior Securities | 29 | |||
| Item 4. | Mine Safety Disclosures | 29 | |||
| Item 5. | Other Information | 29 | |||
| Item 6. | |||||
| 3 |
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Humanigen, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,095 | $ | 2,906 | ||||
| Prepaid expenses and other current assets | 1,213 | 1,643 | ||||||
| Total current assets | 2,308 | 4,549 | ||||||
| Property and equipment, net | 30 | 68 | ||||||
| Restricted cash | 101 | 101 | ||||||
| Other assets | 128 | - | ||||||
| Total assets | $ | 2,567 | $ | 4,718 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,177 | $ | 4,072 | ||||
| Accrued expenses | 2,990 | 736 | ||||||
| Term loans payable | 15,656 | 3,016 | ||||||
| Total current liabilities | 22,823 | 7,824 | ||||||
| Notes payable to vendors | 1,322 | 1,273 | ||||||
| Total liabilities | 24,145 | 9,097 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.001 par value: 85,000,000 shares authorized at September 30, | ||||||||
| 2017 and December 31, 2016; 14,986,712 and 14,977,397 shares issued and outstanding | ||||||||
| at September 30, 2017 and December 31, 2016, respectively | 15 | 15 | ||||||
| Additional paid-in capital | 237,904 | 236,216 | ||||||
| Accumulated deficit | (259,497 | ) | (240,610 | ) | ||||
| Total stockholders’ deficit | (21,578 | ) | (4,379 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 2,567 | $ | 4,718 | ||||
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 24,725 | $ | 70,016 | ||||
| Prepaid expenses and other current assets | 1,153 | 955 | ||||||
| Total current assets | 25,878 | 70,971 | ||||||
| Other assets | 90 | 90 | ||||||
| Total assets | $ | 25,968 | $ | 71,061 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 53,340 | $ | 44,698 | ||||
| Accrued expenses | 22,163 | 19,882 | ||||||
| Deferred revenue | 884 | 4,145 | ||||||
| Total current liabilities | 76,387 | 68,725 | ||||||
| Non-current liabilities: | ||||||||
| Deferred revenue | 1,986 | 1,018 | ||||||
| Long-term debt, net of current portion | - | 25,006 | ||||||
| Total liabilities | 78,373 | 94,749 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.001 par value: 225,000,000 shares authorized at | ||||||||
| September 30, 2022 and December 31, 2021; 119,080,135 and 64,027,629 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 119 | 64 | ||||||
| Additional paid-in capital | 633,675 | 587,327 | ||||||
| Accumulated deficit | (686,199 | ) | (611,079 | ) | ||||
| Total stockholders’ deficit | (52,405 | ) | (23,688 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 25,968 | $ | 71,061 | ||||
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||
| License revenue | $ | 221 | $ | 1,036 | $ | 2,293 | $ | 2,558 | ||||||||||||||||||||||||
| Total revenue | 221 | 1,036 | 2,293 | 2,558 | ||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Research and development | $ | 3,807 | $ | 1,741 | $ | 10,328 | $ | 7,805 | 18,929 | 60,811 | 62,587 | 183,757 | ||||||||||||||||||||
| General and administrative | 1,993 | 2,453 | 5,987 | 6,169 | 4,013 | 6,204 | 12,307 | 19,228 | ||||||||||||||||||||||||
| Total operating expenses | 5,800 | 4,194 | 16,315 | 13,974 | 22,942 | 67,015 | 74,894 | 202,985 | ||||||||||||||||||||||||
| Loss from operations | (5,800 | ) | (4,194 | ) | (16,315 | ) | (13,974 | ) | (22,721 | ) | (65,979 | ) | (72,601 | ) | (200,427 | ) | ||||||||||||||||
| Other expense: | ||||||||||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest expense | (1,269 | ) | (30 | ) | (2,245 | ) | (76 | ) | (1,298 | ) | (751 | ) | (2,800 | ) | (1,516 | ) | ||||||||||||||||
| Other income (expense), net | (14 | ) | 128 | (38 | ) | 128 | 326 | (9 | ) | 281 | (1,166 | ) | ||||||||||||||||||||
| Reorganization items, net | (102 | ) | (427 | ) | (289 | ) | (8,039 | ) | ||||||||||||||||||||||||
| Net loss | (7,185 | ) | (4,523 | ) | (18,887 | ) | (21,961 | ) | $ | (23,693 | ) | $ | (66,739 | ) | $ | (75,120 | ) | $ | (203,109 | ) | ||||||||||||
| Other comprehensive income | - | - | - | - | ||||||||||||||||||||||||||||
| Comprehensive loss | $ | (7,185 | ) | $ | (4,523 | ) | $ | (18,887 | ) | $ | (21,961 | ) | ||||||||||||||||||||
| Basic and diluted net loss per common share | $ | (0.48 | ) | $ | (0.30 | ) | (1.26 | ) | $ | (2.76 | ) | $ | (0.23 | ) | $ | (1.12 | ) | $ | (0.95 | ) | $ | (3.56 | ) | |||||||||
| Weighted average common shares outstanding used to | ||||||||||||||||||||||||||||||||
| calculate basic and diluted net loss per common share | 14,981,346 | 14,879,519 | 14,978,728 | 7,950,826 | 101,422,027 | 59,486,626 | 79,179,209 | 56,997,039 | ||||||||||||||||||||||||
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (18,887 | ) | $ | (21,961 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 38 | 81 | ||||||
| Gain on lease termination | - | (227 | ) | |||||
| Noncash interest expense | 2,226 | 46 | ||||||
| Reorganization items related to debtor-in-possession financing | - | 1,627 | ||||||
| Stock based compensation expense | 1,773 | 317 | ||||||
| Issuance of common stock for services | 12 | - | ||||||
| Issuance of warrants in connection with acquisition of licenses | - | 272 | ||||||
| Change in fair value of warrants issued in connection with acquisition of licenses | (97 | ) | - | |||||
| Issuance of common stock to officer and directors | - | 1,452 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 303 | 428 | ||||||
| Accounts payable | 327 | 3,537 | ||||||
| Accrued expenses | 2,253 | (367 | ) | |||||
| Liabilities subject to compromise | (259 | ) | (3,153 | ) | ||||
| Net cash used in operating activities | (12,311 | ) | (17,948 | ) | ||||
| Investing activities: | ||||||||
| Changes in restricted cash | - | 92 | ||||||
| Net cash provided by investing activities | - | 92 | ||||||
| Financing activities: | ||||||||
| Net proceeds from issuance of common stock | - | 10,132 | ||||||
| Net proceeds from term loan | 10,500 | - | ||||||
| Net proceeds from convertible notes payable | - | 2,198 | ||||||
| Net cash provided by financing activities | 10,500 | 12,330 | ||||||
| Net increase (decrease) in cash and cash equivalents | (1,811 | ) | (5,526 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,906 | 8,431 | ||||||
| Cash and cash equivalents, end of period | $ | 1,095 | $ | 2,905 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of notes payable and related accrued interest and fees to common stock | $ | - | $ | 3,387 | ||||
| Change in fair value of warrants issued in connection with acquisition of licenses | $ | (97 | ) | $ | - | |||
| Issuance of common stock for services | $ | 12 | $ | - | ||||
| Issuance of warrants in connection with acquisition of licenses | $ | - | $ | 272 | ||||
| Issuance of common stock to officer and directors | $ | - | $ | 1,452 | ||||
| Issuance of notes payable to vendors | $ | - | $ | 1,212 | ||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (75,120 | ) | $ | (203,109 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation expense | 4,560 | 3,815 | ||||||
| Non-cash interest expense related to debt financing | - | 374 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | (198 | ) | (872 | ) | ||||
| Accounts payable | 8,642 | 30,596 | ||||||
| Accrued expenses | 2,281 | 15,427 | ||||||
| Deferred revenue | (2,293 | ) | 1,983 | |||||
| Net cash used in operating activities | (62,128 | ) | (151,786 | ) | ||||
| Financing activities: | ||||||||
| Net proceeds from issuance of common stock | 41,843 | 134,140 | ||||||
| Proceeds from exercise of stock options | - | 1,965 | ||||||
| Net proceeds from issuance of long-term debt | - | 24,444 | ||||||
| Repayment of Hercules loan | (25,006 | ) | - | |||||
| Net cash provided by financing activities | 16,837 | 160,549 | ||||||
| Net increase (decrease) in cash and cash equivalents | (45,291 | ) | 8,763 | |||||
| Cash and cash equivalents, beginning of period | 70,016 | 67,737 | ||||||
| Cash and cash equivalents, end of period | $ | 24,725 | $ | 76,500 | ||||
| Supplemental cash flow disclosure: | ||||||||
| Cash paid for interest | $ | 1,319 | $ | 961 | ||||
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share data)
(Unaudited)
| Three and Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balances at January 1, 2022 | 64,027,629 | $ | 64 | $ | 587,327 | $ | (611,079 | ) | $ | (23,688 | ) | |||||||||
| Issuance of common stock, net of expenses | 5,926,748 | 6 | 18,368 | - | 18,374 | |||||||||||||||
| Stock-based compensation expense | - | - | 1,543 | - | 1,543 | |||||||||||||||
| Net loss | - | - | - | (21,278 | ) | (21,278 | ) | |||||||||||||
| Balances at March 31, 2022 | 69,954,377 | 70 | 607,238 | (632,357 | ) | (25,049 | ) | |||||||||||||
| Issuance of common stock, net of expenses | 1,288,561 | 1 | 3,474 | - | 3,475 | |||||||||||||||
| Stock-based compensation expense | - | - | 1,635 | - | 1,635 | |||||||||||||||
| Net loss | - | - | - | (30,149 | ) | (30,149 | ) | |||||||||||||
| Balances at June 30, 2022 | 71,242,938 | 71 | 612,347 | (662,506 | ) | (50,088 | ) | |||||||||||||
| Issuance of common stock, net of expenses | 47,837,197 | 48 | 19,946 | - | 19,994 | |||||||||||||||
| Stock-based compensation expense | - | - | 1,382 | - | 1,382 | |||||||||||||||
| Net loss | - | - | - | (23,693 | ) | (23,693 | ) | |||||||||||||
| Balances at September 30, 2022 | 119,080,135 | $ | 119 | $ | 633,675 | $ | (686,199 | ) | $ | (52,405 | ) | |||||||||
| Three and Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balances at January 1, 2021 | 51,626,508 | $ | 52 | $ | 419,923 | $ | (374,430 | ) | $ | 45,545 | ||||||||||
| Issuance of common stock, net of expenses | 1,796,858 | 2 | 36,104 | - | 36,106 | |||||||||||||||
| Issuance of common stock upon option exercise | 233,323 | - | 429 | - | 429 | |||||||||||||||
| Stock-based compensation expense | - | - | 510 | - | 510 | |||||||||||||||
| Net loss | - | - | - | (65,567 | ) | (65,567 | ) | |||||||||||||
| Balances at March 31, 2021 | 53,656,689 | 54 | 456,966 | (439,997 | ) | 17,023 | ||||||||||||||
| Issuance of common stock, net of expenses | 5,427,017 | 5 | 94,167 | - | 94,172 | |||||||||||||||
| Issuance of common stock upon option exercise | 319,153 | - | 1,432 | - | 1,432 | |||||||||||||||
| Stock-based compensation expense | - | - | 1,871 | - | 1,871 | |||||||||||||||
| Net loss | - | - | - | (70,803 | ) | (70,803 | ) | |||||||||||||
| Balances at June 30, 2021 | 59,402,859 | 59 | 554,436 | (510,800 | ) | 43,695 | ||||||||||||||
| Issuance of common stock, net of expenses | 600,933 | 1 | 3,861 | - | 3,862 | |||||||||||||||
| Issuance of common stock upon option exercise | 13,541 | - | 104 | - | 104 | |||||||||||||||
| Stock-based compensation expense | - | - | 1,434 | - | 1,434 | |||||||||||||||
| Net loss | - | - | - | (66,739 | ) | (66,739 | ) | |||||||||||||
| Balances at September 30, 2021 | 60,017,333 | $ | 60 | $ | 559,835 | $ | (577,539 | ) | $ | (17,644 | ) | |||||||||
See accompanying notes.
| 7 |
Humanigen, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Description of the Business
The Company was incorporated on March 15, 2000 in Californiais a clinical stage biopharmaceutical company, developing its portfolio of proprietary Humaneered® anti-inflammatory immunology and reincorporated asimmuno-oncology monoclonal antibodies. The Company’s proprietary, patented Humaneered technology platform is a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc.method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed for therapeutic use, particularly with acute and chronic conditions. Humanigen has developed or in-licensed targets or research antibodies, typically from academic institutions, and then applied its Humaneered technology to optimize them. The Company completed its initial public offering in January 2013. Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc.
In July 2022, preliminary topline results from the Accelerating COVID-19 Therapeutic Interventions and until August 29, 2017,Vaccines-5 (“ACTIV-5”) and Big Effect Trial, in the “B” arm of the trial (“BET-B”), referred to as the ACTIV-5/BET-B trial, were released. The study was primarily focusedsponsored and funded by the National Institutes of Health (“NIH”) and evaluated lenzilumab in combination with remdesivir, compared to placebo and remdesivir, in hospitalized COVID-19 patients. Based on the development necessarypreliminary topline results, the trial did not achieve statistical significance on the primary endpoint, although the preliminary topline results did indicate that lenzilumab demonstrated a positive trend in mortality. The Company continues to seeksupport NIH’s further analysis of the data and obtain approval bya global group of leading institutions and research networks has indicated interest in including lenzilumab in their large-scale, multinational studies of COVID-19. Tocilizumab and baricitinib demonstrated mortality benefit following inclusion in REMAP-CAP and RECOVERY, despite having failed to do so in smaller studies.
In connection with the United States Food and Drug Administration (“FDA”) for benznidazole and the subsequent commercialization, if approved. According to FDA issued guidance, benznidazole is eligible for review pursuant to a 505(b)(2) regulatory pathway as a potential treatment for Chagas disease and, if it became the first FDA-approved treatment for Chagas disease,release of preliminary topline data from ACTIV-5/BET-B, the Company would have been eligibleannounced a strategic realignment of its pipeline and resources and its regulatory strategy. The Company plans to receive a Priority Review Voucher (“PRV”).
See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Company’s 2021 Annual Report on Form 10-K for additional information regarding the business.
Liquidity and Going Concern
The Condensed Consolidated Financial Statements for the three and nine months ended September 30, 20172022 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 ofHowever, the Company to meethas incurred net losses since its inception, and has negative operating cash flows and its total liabilities of $24.1 million at September 30, 2017 andexceed total assets. These conditions raise substantial doubt about the Company’s ability to continue as a going concern is dependent upon the availabilityconcern.
| 8 |
As of future funding. The financial statements do not include any adjustments that might be necessary ifSeptember 30, 2022, the Company is unablehad cash and cash equivalents of $24.7 million. Considering the Company’s current cash resources and its current and expected levels of operating expenses for the next twelve months, which includes combined accounts payable and accrued expenses recorded in the Company’s condensed consolidated balance sheets as of September 30, 2022 of $75.5 million, certain of which are in dispute, and manufacturing commitments of $3.2 million during the remaining three months of 2022, $2.3 million for 2023, and $3.8 million thereafter (see Note 6 below), the Company requires additional capital to continue asfund the Company’s planned operations. The Company intends to seek to defer payments, negotiate lower amounts or pursue other courses of action for certain commitments and amounts owed to manufacturing and other partners at September 30, 2022. In order to remain a going concern. See Note 12 – “Subsequent Events.”
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements and include all adjustments necessary for the presentation of the Company’s condensed consolidated financial position, results of operations and cash flows for the periods presented.
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly ownedwholly-owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The December 31, 20162021 Condensed Consolidated Balance Sheet was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2017,2022, or for any other future annual or interim period. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s 20162021 Annual Report on Form 10-K (the “2016 Annual Report”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes judgment is involved in determiningaccounting for the valuationdetermination of the financing derivative, therevenue recognition, fair value-based measurement of stock-based compensation accruals and warrant valuations.accruals. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements.
2. Summary of Significant Accounting Policies
The filing was madeCompany’s significant accounting policies are detailed in the United States Bankruptcy Courtits Annual Report on Form 10-K for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS)).
| Nine Months ended | ||||
| (in thousands) | September 30, 2016 | |||
| Upfront fee | $ | 191 | ||
| Commitment fee | 150 | |||
| Beneficial conversion feature | 484 | |||
| Legal fees | 802 | |||
| Total Credit Agreement expense | $ | 1,627 | ||
| Three months ended | Three months ended | |||||||
| (in thousands) | September 30, 2017 | September 30, 2016 | ||||||
| Legal fees | $ | 97 | $ | 224 | ||||
| Professional fees | 5 | 203 | ||||||
| Total reorganization items, net | $ | 102 | $ | 427 | ||||
| Nine months ended | Nine months ended | |||||||
| (in thousands) | September 30, 2017 | September 30, 2016 | ||||||
| Legal fees | $ | 263 | $ | 4,780 | ||||
| Professional fees | 26 | 1,159 | ||||||
| Debtor-in-possession financing costs | - | 1,143 | ||||||
| Beneficial conversion on debtor-in-possession financing | - | 484 | ||||||
| Fair value of shares issued to officer and directors for service in bankruptcy | - | 700 | ||||||
| Gain on lease termination | - | (227 | ) | |||||
| Total reorganization items, net | $ | 289 | $ | 8,039 | ||||
3. Potentially Dilutive Securities
The Company’s potentialpotentially dilutive securities, which include stock options restrictedand warrants and shares of common stock units and warrants,issuable upon conversion of convertible debt, have been excluded from the computation of diluted net loss per common share as the effect of including those securities would be to reduce the net loss per common share and be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in each period presented.
The following outstanding potentially dilutive securities have been excluded from the computations of diluted net loss per common share:
| As of September 30, | As of September 30, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Options to purchase common stock | 2,578,948 | 2,036,177 | 8,291,826 | 4,144,864 | ||||||||||||
| Restricted stock units | — | 3,750 | ||||||||||||||
| Warrants to purchase common stock | 356,193 | 331,193 | 31,238 | 31,238 | ||||||||||||
| Convertible debt | - | 510,986 | ||||||||||||||
| 2,935,141 | 2,371,060 | 8,323,064 | 4,687,088 | |||||||||||||
4. License Revenue
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total investments | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Reported as: | ||||||||||||||||
| Cash and cash equivalents | $ | — | ||||||||||||||
| Restricted cash, long-term | 101 | |||||||||||||||
| Total investments | $ | 101 | ||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total investments | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Reported as: | ||||||||||||||||
| Cash and cash equivalents | $ | — | ||||||||||||||
| Restricted cash, long-term | 101 | |||||||||||||||
| Total investments | $ | 101 | ||||||||||||||
On November 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.
Fair Value Measurements as of September 30, 2017 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total assets measured at fair value | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
Fair Value Measurements as of December 31, 2016 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total assets measured at fair value | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
As consideration for the license, the Licensee has agreed to pay the Company (i) an up-front license fee of $6.0 million, payable promptly following the execution of the License Agreement, provideswhich was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based on achievement by the Company of two specified milestones in the U.S., of which the first milestone was met in the first quarter of 2021 and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021, and (iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that the Company will supply lenzilumab to the Licensee for a credit facility inminimum of 7.5 years at a cost-plus basis from an existing or future manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.
Since the original principal amountprovision of $3,315,000, provides an original discount equalthe license and the cooperation and assistance to $265,000 (the “Upfront Fee”) and requires the paymentbe provided by the Company to the Term Loan LendersLicensee with regulatory authorities in the Territory and the Company’s obligation to serve on a joint steering committee (the “Services”) are considered a single performance obligation, the $6.0 million upfront payment (or $4.5 million net of a commitment fee equalwithholding taxes and other fees and royalties) and the first milestone payment of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties, are being recognized as revenue ratably over the performance period, the expected period over which the Company expects the Services to $153,000. In accordance withbe performed (the “Performance Period”). Through June 30, 2022, revenue was being amortized through March 31, 2023, the termsexpected end of the Term Loan Credit Agreement,performance period. During the quarter ended September 30, 2022, the performance period was reevaluated, and the estimated end date of the performance period was adjusted to December 31, 2025. The change in estimate resulted in a decrease of $0.8 million in quarterly license revenue, as compared to amounts that would have been recorded under the previous timeline. Therefore, the Company usedrecognized license revenue totaling approximately $0.2 million and $2.3 million in the proceedsthree and nine months ended September 30, 2022, respectively, and $1.0 million and $2.6 million in the three and nine months ended September 30, 2021, respectively. Prospective periods will reflect the impact of this change in estimate.
Licensee’s purchases of lenzilumab for development purposes or for commercial requirements, represent options under the agreement and revenues will therefore be recognized when control of the term loan (the “December 2016 Term Loan”) for general working capital, the paymentproduct is transferred to Licensee.
Contract Liabilities
A contract liability of certain fees and expenses owed to BHCMF and the Term Loan Lenders and other costs incurred in the ordinary course of business. Dr. Chappell, one of the Company’s former directors, is an affiliate of each of BHCMF, BHC and Cheval.
The following table presents changes in the
| Balance at January 1, 2022 | $ | 5,163 | ||
| Deductions for performance obligations satisfied: | ||||
| In current period | (2,293 | ) | ||
| Balance at September 30, 2022 | $ | 2,870 |
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5. Long-Term Debt
Secured Term Loan Facility
On March 10, 2021, the Company executed the Loan and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the “Term Loan”) which provided a loan in the accompanying Condensed Statements of Operations and Comprehensive Loss.
Interest expense related to the Term Loan Lenders a commitment fee of $263,000. In accordance with the terms of the Term Loan Credit Agreement, the Company used the proceeds from the Grid Advances for general working capital, the payment of certain feeswas $1.3 million and expenses owed to the Agent and the Term Loan Lenders in connection with the Term Loan Credit Agreement and other costs incurred in the ordinary course of business. Aside from the increase in the principal amount extended, the Second Amendment did not modify any of the terms under the Term Loan Credit Agreement, all of which will be applicable to the Grid Advances extended to the Company by the Term Loan Lenders.
6. Commitments and Contingencies
Eversana Agreement
On January 10, 2021, the Company announced that it had entered into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”) pursuant to which Eversana will provide the Company multiple services from its integrated commercial platform in preparation for the potential commercialization of lenzilumab.
Under the Eversana Agreement, Eversana will provide the Company with services in connection with the potential launch of lenzilumab. Eversana services during 2021 comprised marketing, market access, consulting, field solutions, field operations, health economics and medical affairs. Additional services may be negotiated by the parties and set forth in statements of work delivered in accordance with the Eversana Agreement.
On September 21, 2021, the Company notified Eversana that due to the EUA status in the U.S., it was terminating the initial statement of work related to commercialization support of lenzilumab for the treatment of COVID-19 in the United States. Eversana is disputing the termination notice and has requested payment of approximately $4.5 million it has asserted the Company owes for services rendered from April 1, 2021 to September 30, 2021. The Company has disputed this assertion and Eversana has filed for arbitration to resolve this dispute. See Note 10 below for more information on this dispute.
Manufacturing Agreements
The Company has entered into agreements with several contract manufacturing organizations (“CMOs”) to manufacture bulk drug substance (“BDS”) and to provide fill/finish services or drug product (“DP”) for lenzilumab for a potential launch of lenzilumab in anticipation of an EUA or CMA. The Company has also entered into agreements for packaging of the drug. These agreements include upfront amounts prior to commencement of manufacturing and progress payments through the course of the manufacturing process and payments for technology transfer. Since September 9, 2021, the Company has amended, and in some cases canceled, certain of these agreements, some of which were contingent on EUA, in an effort to reduce its future spending on lenzilumab production. More recently, the Company has sought to mitigate its financial commitments by ceasing additional manufacturing of lenzilumab in connection with its realignment plan. As of September 30, 2022, the Company estimates that its commitments remaining to be incurred under these agreements are approximately $3.2 million for the remaining three months of 2022, $2.3 million for 2023, and $3.8 million thereafter. The Company intends to seek to defer these and other payments, negotiate lower amounts or pursue other courses of action for these amounts, but the Company’s efforts may not be successful.
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The Company believes it has sufficient supply to conduct its contemplated clinical development efforts. The Company estimates the number of vials required per patient in its clinical trials is between 48 and 150. The Company has stopped all manufacturing of lenzilumab, with the exception of batches in process at one of its CMOs, Catalent Pharma Solutions, LLC (“Catalent”). As of October 31, 2022, there were an additional approximately 630,000 lenzilumab vials either in production or available for storage at Catalent. If the Company is unable to obtain regulatory approval for lenzilumab prior to the expiration of the shelf life at that time, the remaining inventory will not be available for commercial use. Catalent has notified the Company that it claims the Company is in breach of its manufacturing agreement with Catalent and has stopped all manufacturing activities being performed under the agreement. The parties are negotiating a resolution; however, approximately 630,000 lenzilumab vials at Catalent may not be released if the Company is unable to reach an agreement with Catalent.
Another 594,000 lenzilumab vials are in production at one of the Company’s other CMOs, Thermo Fisher Scientific, Inc. (“Thermo”), for which material has not yet been released by the Company because the batches produced are out of specification. Nonetheless, Thermo has notified the Company that they have stopped production and have recently filed a lawsuit against the Company in Delaware Superior Court for $25.9 million. The Company denies Thermo’s claims and assertions and intends to vigorously defend against them. See Note 10 below for more information on this dispute.
7. Stockholders’ Equity
Controlled Equity Offering
On December 31, 2020, the Company entered into a Sales Agreement with Cantor, under which the Company could issue and sell, from time-to-time, shares of the Company’s common stock, having an aggregate gross sales price of up to $100 million through Cantor, as the sales agent. On April 14, 2022, the Company filed a prospectus in respect of the Sales Agreement which provides the Company with the ability to offer and sell shares of common stock having an aggregate offering price of up to an additional $75.0 million. During the three and nine months ended September 30, 2022, under the Sales Agreement, the Company issued and sold 47,837,197 shares of its common stock for net proceeds of $20.0 million, and 55,052,506 shares of its common stock for net proceeds of $41.8 million, respectively. During the three and nine months ended September 30, 2021, under the Sales Agreement, the Company issued and sold 600,933 shares of its common stock for net proceeds of $3.9 million, and 2,397,791 shares of its common stock for net proceeds of $40.0 million, respectively. No shares have been sold under the Sales Agreement subsequent to September 30, 2022.
2021 Underwritten Public Offering
On March 30, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Jefferies LLC, Credit Suisse Securities (USA) LLC and Cantor, as representatives of the several underwriters, in connection with the public offering of 5,000,000 shares of our common stock. In addition, we granted the underwriters a 30-day option to purchase an additional 750,000 shares of our common stock. The initial offering closed on April 5, 2021. On May 3, 2021, we closed on the sale of an additional 427,017 shares of our common stock related to the exercise of the underwriters’ 30-day option. The aggregate gross proceeds from the sale of the 5,427,017 shares in the offering, inclusive of the additional shares purchased by the underwriters, were approximately $100.4 million. The net proceeds from this offering, after deducting underwriting discounts and offering costs, were approximately $94.2 million.
8. Stock-Based Compensation
A summary of stock option activity for the nine months ended September 30, 2022 under all the Company’s options plans is as follows:
| Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2016 | 1,835,835 | $ | 4.15 | |||||||||||||
| Outstanding at January 1, 2022 | 4,429,906 | $ | 7.89 | |||||||||||||
| Granted | 615,000 | 2.92 | 4,708,969 | $ | 0.57 | |||||||||||
| Exercised | - | - | - | $ | - | |||||||||||
| Cancelled (forfeited) | (17,905 | ) | 3.29 | (820,024 | ) | $ | 4.37 | |||||||||
| Cancelled (expired) | (87 | ) | 4.24 | (27,025 | ) | $ | 13.64 | |||||||||
| Outstanding at March 31, 2017 | 2,432,843 | $ | 3.85 | |||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Cancelled (forfeited) | (3,895 | ) | 3.20 | |||||||||||||
| Cancelled (expired) | - | - | ||||||||||||||
| Outstanding at June 30, 2017 | 2,428,948 | $ | 3.85 | |||||||||||||
| Granted | 150,000 | 0.33 | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Cancelled (forfeited) | - | - | ||||||||||||||
| Cancelled (expired) | - | - | ||||||||||||||
| Outstanding at September 30, 2017 | 2,578,948 | $ | 3.65 | |||||||||||||
| Outstanding at September 30, 2022 | 8,291,826 | $ | 4.06 | |||||||||||||
The weighted average fair value of options granted during the three and nine months ended September 30, 20172022 was $0.22 and $1.49$0.47 per share, respectively.share.
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The Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption terms for the nine months ended September 30, 2017:2022:
Nine months Ended September 30, 2017 | ||||
| Exercise price | $ | 2.41 | ||
| Market value | $ | 2.41 | ||
| Risk-free rate | 1.78% to 2.09%% | |||
| Expected term | 5.0 to 6.0 years | |||
| Expected volatility | 83.2% to 87.9% | |||
| Dividend yield | - | |||
| Nine Months Ended | |
| September 30, 2022 | |
| Exercise price | $0.38 - $2.99 |
| Market value | $0.38 - $2.99 |
| Expected term | 6 years |
| Expected volatility | 104% - 109% |
| Risk-free interest rate | 1.59% - 2.89% |
| Expected dividend yield | 0% |
The Company recorded stock-based compensation expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:follows (in thousands):
| Three Months | Nine Months | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Ended September 30, | Ended September 30, | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
| General and administrative | $ | 278 | $ | 273 | $ | 1,477 | $ | 275 | $ | 1,366 | $ | 1,077 | $ | 4,001 | $ | 2,848 | ||||||||||||
| Research and development | 67 | 40 | 296 | 42 | 16 | 357 | 559 | 967 | ||||||||||||||||||||
| $ | 345 | $ | 313 | $ | 1,773 | $ | 317 | |||||||||||||||||||||
| Total stock-based compensation | $ | 1,382 | $ | 1,434 | $ | 4,560 | $ | 3,815 | ||||||||||||||||||||
At September 30, 2017,2022, the Company had $2.5$7.8 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 1.91.7 years. As of September 30, 2022, there were 1,128,365 shares available for grant under the Company’s 2020 Equity Incentive Plan.
9. License and Collaboration Agreements
Clinical Trial Agreement with the National Institute of Allergy and Infectious Diseases
On February 29, 2016,July 24, 2020, the Company entered into a binding letter of intentclinical trial agreement (the “LOI”“ACTIV-5 Clinical Trial Agreement”) with the National Institute of Allergy and Infectious Diseases (“NIAID”), part of NIH, which is part of the U.S. Government Department of Health and Human Services, as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the ACTIV-5 Clinical Trial Agreement, lenzilumab was evaluated in the NIAID-sponsored ACTIV-5/BET-B trial in hospitalized patients with COVID-19. According to the preliminary topline results released in July 2022, the trial did not achieve statistical significance on the primary endpoint. The preliminary topline data showed a non-significant trend toward a reduction in mortality in the overall patient population [HR 0.72]. There were no new safety signals attributed to lenzilumab in the ACTIV-5/BET-B study.
Pursuant to the ACTIV-5 Clinical Trial Agreement, NIAID served as sponsor and was responsible for funding, supervising and overseeing the ACTIV-5/BET-B trial. The Company provided lenzilumab to NIAID without charge and in quantities to ensure a sufficient supply of lenzilumab. The ACTIV-5 Clinical Trial Agreement imposed additional obligations on the Company that are reasonable and customary for clinical trial agreements of this nature, including in respect of compliance with data privacy laws and potential indemnification obligations.
10. Litigation
Eversana Arbitration
On May 19, 2022, Eversana filed a Demand for Arbitration claiming approximately $4.5 million in damages against the Company with the American Arbitration Association entitled Eversana Life Sciences, LLC v. Humanigen, Inc. [(AAA Case No. 01-22-0002-1591)]. The Demand contains two breach of contract claims related to the Eversana Agreement between the parties and a related agreement between the companies’ European subsidiaries, and a claim for unjust enrichment. Eversana asserts that the Company failed to pay it amounts due for work preparing for the potential commercializing of lenzilumab performed between April 1, 2021 and September 30, 2021. An arbitrator has been selected for the matter and the arbitration hearing has been scheduled for August 2023. To date, no discovery has been completed.
The Company denies Eversana’s claims and assertions and will continue to vigorously defend against them.
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Avid Arbitration
On December 17, 2021, Avid Bioservices, Inc. (“Avid”) filed a Demand for Arbitration claiming more than $20.5 million in damages against the Company with the American Arbitration Association entitled, Avid Bioservices, Inc. v. Humanigen, Inc. (AAA Case No. 01-21-0018-0523). The Demand contains three claims for: (1) Breach of Contract concerning the Process Development and Manufacturing Master Services Agreement; (2) Anticipatory Breach of Contract concerning the Capacity Expansion and Contribution/Commitment letter; and (3) Trade Libel and Commercial Disparagement. Avid claims that the Company canceled the contract after Avid was unable to successfully produce any full batches of lenzilumab BDS, but that the Company still owes the full amount due under the contract for all batches under the contract. Avid blamed its failed attempts on a subcontractor. To date, the Company has paid Avid $10.6 million, despite Avid not being able to produce any full BDS batches. Avid has since dismissed its second claim relating to Anticipatory Breach of Contract.
On January 6, 2022, the Company filed an Answer to Avid’s Demand, denying the allegations and asserting affirmative defenses. On July 1, 2022, the Company filed its own claims against Avid for: (1) Breach of Contract; (2) Declaratory Relief; and (3) Unfair Business Practices.
The Company denies Avid’s claims and assertions and will continue to vigorously defend against them.
Savant Litigation
The Company was previously involved in litigation against Savant Neglected Diseases, LLC (“Savant”). The LOI provided that the Company would acquire certain worldwide rights relating to benznidazole (the “Compound”) from Savant. Under the LOI, the Company made a non-refundable deposit to Savant of $500,000, which was credited towards the Initial Payment (as defined below), and agreed to make monthly payments to Savant equal to $87,500 for development services performed by Savant relating to the Compound.
Thermo Litigation
Thermo has granted Savant certain “piggyback” registration rights for the shares issuable under the Warrant.
Securities Class Action Litigation
On August 26, 2022, a putative securities class action complaint captioned Pieroni v. Humanigen Inc., et al., Case No. 22-cv-05258, was filed in the United States District Court for the Northern District of California (the “Class Action Court”), alleging violations of the federal securities laws by the Company, Herb Cross and Martin Shkreli, the Company’s former Chairman and Chief Executive Officer. On December 23, 2015, a putative class action lawsuit was filedNew Jersey against the Company, in the Class Action Court (captioned Sciabacucchi v. KaloBios Pharmaceuticals, Inc. et al., 3:15-cv-05992-CRB), similarly alleging violations of the federalits Chief Executive Officer, Dr. Cameron Durrant, and its former Chief Financial Officer, Timothy Morris. On October 17, 2022, a second putative securities laws by the Company and Mr. Shkreli. On December 31, 2015, a putative class action lawsuit was filed against the Company in the Class Action Court (captioned Isenseecomplaint captioned Greenbaum v. KaloBios Pharmaceuticals,Humanigen Inc., et al., Case No. 15-cv-06331-EJD) also alleging violation of the federal securities laws by the Company, a former officer and Mr. Shkreli. On April 18, 2016, an amended complaint22-cv-06118, was filed in the Isensee suit, adding Herb Cross and Ronald Martell as defendants. On April 28, 2016,United States District Court for the Class Action Court consolidated these cases (the “Securities Class Action Litigation”) and appointed certain plaintiffs as the lead plaintiffs. The lead plaintiffs in the Securities Class Action Litigation were seeking damagesDistrict of $20.0 million on behalf of all the affected members of the class represented in the Securities Class Action Litigation, (the “Securities Class Action Members”).
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| Table of Contents |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10‑Q10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021. This Quarterly Report on Form 10-Q contains statements that discuss future events or expectations, projections of results of operations or financial condition, trends in our business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other comparable words. These statements may relate to, among other things, our expectations regarding the scope, progress, timing, expansion, and costs of researching, developing and commercializing our product candidates; our intentexpectations relating to in-licenseregulatory pathways to emergency use or acquire additional product candidates; ourother conditional marketing authorizations and the opportunity to benefit from various regulatory incentives; expectations for our financial results, revenue, operating expenses and other financial measures in future periods; and the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements. Actual events orrequirements; and our exploration of strategic alternatives. Among the factors that could cause actual results mayto differ materially dueare the factors discussed under “Risk Factors” in “Part I, Item 1A–- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and the additional or modified risk factors disclosed in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2022 and this Quarterly Report on Form 10-Q. Some additional factors that could cause actual results to known and unknown risks, uncertainties and other factors such as:differ include:
| our |
| ● | our ability to successfully execute the strategic realignment of |
| ● | our ability to identify and execute upon a strategic transaction to maximize value for our stakeholders; |
| ● | the timing of the initiation, enrollment and completion and results of ongoing or planned clinical trials; |
| ● | our ability to obtain |
| ● | our ability to resolve disputes with certain Contract Manufacturing Organizations (“CMOs”) regarding our obligations to make payments to them despite their failure to produce lenzilumab within contractual specifications, and our ability to defer payments, negotiate lower amounts or seek other courses of action for certain amounts accrued at September 30, 2022; |
| ● | our ability to cure the breach of the Multiple Facility Clinical Supply and Services Agreement (the “MSA”) with Catalent Pharma Solutions, LLC (“Catalent”) to prevent termination of the MSA; |
| ● | our ability to research, develop and commercialize our product candidates, including our ability to do so after our competitors have developed and commercialized competing products or alternative therapies; |
| ● | the |
| our ability to |
| our ability to |
| our ability to attain market exclusivity and/or to obtain, maintain, protect and enforce our intellectual |
| our ability to |
| the outcome of pending, threatened or future |
| changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the various regulatory incentives, |
| ● | our ability to regain and maintain compliance with the listing requirements of the Nasdaq Capital Market; and |
| ● | the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing. |
These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Risk Factors” discussed in Part II, Item 1A of this
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Overview
We are intended to be subject to protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995
We are focusing our efforts on the development of $259.5 millionour lead product candidate, lenzilumab. Lenzilumab is a monoclonal antibody that has been demonstrated to neutralize human GM-CSF, a cytokine that we believe leads to the overproduction of monocytes which are responsible for CMML and is of critical importance in the hyperinflammatory cascade, sometimes referred to as CRS or cytokine storm, associated with aGvHD associated with bone marrow transplants. As previously announced in July 2022, we are currently executing a strategic realignment of September 30, 2017.our pipeline and resources. Our strategic realignment plans include accelerating the development of LENZ in CMML, for which the PREACH-M study is already underway, and continuing our plans for the RATinG study in aGvHD, as these studies are majority funded by our partners. In addition, we are currently assessing requests for IIT of lenzilumab in combination with CAR-T therapies. The previously planned Company-sponsored study of lenzilumab with certain CAR-T therapies has been terminated. We expectalso plan to continue to incur net losses for the foreseeable future as we develop our drug candidates, expand clinical trials for our drug candidatesdevelopment of iFab, an EpAh-3 targeted monoclonal antibody currently in clinicalPhase 1 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 extentas part of any future losses or when we will receive revenue or become profitable, if at all.
PREACH-M Study
We are currently evaluating lenzilumab for the treatment of high-risk CMML in patients with NRAS, KRAS, and CBL genetic mutations in an ongoing Phase 2 study, known as “PREcision Approach to Chronic Myelomonocytic Leukemia” or “PREACH-M.” The PREACH-M study is being conducted in partnership with the South Australian Health & Medical Research Institute (“SAHMRI”) and the University of Adelaide. The study is currently enrolling at sites in Australia and New Zealand. As of November 8, 2022, seven lenzilumab-treated patients have been enrolled in the study and followed for multiple cycles, with what we believe to be encouraging results.
We will provide lenzilumab for this study and the majority of the study costs will be borne by the partner and funded by a grant from the Medical Research Futures Fund, a research fund set up by the Australian Government.
RATinG Study
We are currently evaluating lenzilumab for the early treatment of aGvHD in patients undergoing bone marrow transplants in a Phase 2/3 potentially registrational trial, known as the “RATinG” study. The study is being conducted by the IMPACT Partnership, a collection of 22 stem cell transplant centers located in the United Kingdom. Recruitment for the RATinG study is temporarily halted due to an administrative issue and we are currently unable to estimate when the first patient will be enrolled in the study.
We will provide lenzilumab for the study including the cost of import, labeling and distribution of the study drug, and support certain laboratory tests related to the study, but the majority of the study costs will be borne by the IMPACT Partnership. The goal of the study is to determine the efficacy and safety of lenzilumab in reducing non-relapse mortality at six months.
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Market Opportunity in CMML and Related Hematological Cancers
Clonal cytogenic abnormalities are commonly seen in CMML patients. RAS (Retrovirus-Associated DNA Sequence) mutations, which make leukemic cells hyperresponsive to GM-CSF, are seen in approximately 50% of CMML patients and are the anticipated target patient population for lenzilumab. The incidence of new CMML patients in the U.S., UK, and Australia is about 1,700 patients annually.1 RAS mutations, which may drive GM-CSF hyperresponsiveness, are also seen in additional myeloid hematological malignancies including juvenile myelomonocytic leukemia (“JMML”), myelodysplastic syndromes (“MDS”) and acute myeloid leukemia (“AML”), totaling approximately 4,000 new cases annually in the U.S. We believe success with CMML may provide proof of principle for targeting RAS pathway mutations in myeloid leukemias with lenzilumab and allow us to develop, and if successful, commercialize lenzilumab in these additional patient populations.
As a treatment for a rare disease, lenzilumab may qualify for certain regulatory and commercial benefits that may accelerate development and approval. Pricing and reimbursement for rare diseases are traditionally higher than treatments for more common diseases and can exceed $100,000 per year.
We are assessing regulatory pathways that may enable early results to support a regulatory submission and potential approval by the Therapeutic Goods Administration in Australia, which could be expanded through Project Orbis, an international regulatory agency collaboration, to the United States and the United Kingdom.
There have been no new therapeutic agents for patients with high-risk CMML in 30 years2 and independent publications have demonstrated the key role of GM-CSF and RAS pathway mutations in this and other cancers, including JMML, myelodysplastic syndromes, myeloproliferative neoplasms, and acute myeloid leukemia.3,4,5
A clinical protocol is also being developed for JMML with NRAS, KRAS, PTPN11 and/or NF1 genetic mutations.
Lenzilumab for COVID-19
As previously disclosed, in July 2022, preliminary topline results from the Accelerating COVID-19 Therapeutic Interventions and Vaccines-5 (“ACTIV-5”) and Big Effect Trial, in the “B” arm of the trial (“BET-B”), referred to as the ACTIV-5/BET-B trial, were released. The study was sponsored and funded by the National Institutes of Health (“NIH”) and evaluated lenzilumab in combination with remdesivir, compared to placebo and remdesivir, in hospitalized COVID-19 patients. Based on preliminary topline results, the trial did not achieve statistical significance on the primary endpoint, although the preliminary topline results did indicate that lenzilumab demonstrated a positive trend in mortality. We continue to support NIH’s further analysis of the data and a global group of leading institutions and research networks has indicated interest in including lenzilumab in their large-scale, multinational studies of COVID-19. Tocilizumab and baricitinib demonstrated mortality benefit following inclusion in REMAP-CAP and RECOVERY having failed to do so in smaller studies.
With the recent preliminary topline results from the ACTIV-5/BET-B trial, we are executing the strategic realignment plan to deemphasize the deployment of certain resources for the development of lenzilumab for COVID-19 and currently do not plan to pursue regulatory pathways, pending further data from ACTIV-5/BET-B or a future large-scale study; the Named Patient program in select European Countries has been terminated.
With the exception of lenzilumab batches in process, we plan to stop the manufacturing of lenzilumab and consolidate the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future use.
1 Incidence extrapolated by applying American Cancer Society incidence rate of four per one million people to the population of U.S., UK, and Australia. https://www.cancer.org/cancer/chronic-myelomonocytic-leukemia/about/key-statistics.html
2Aim of first-ever CMML study – to improve survival. Leukaemia Foundation. (2021, October 11). Retrieved July 21, 2022, from https://www.leukaemia.org.au/stories/aim-of-first-ever-cmml-study-to-improve-survival/
3 Gupta, A. et al. (2021, February 28). Juvenile myelomonocytic leukemia-A comprehensive review and recent advances in management. American Journal of Blood Research, 11(1), 1–21. Retrieved July 21, 2022, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8010610/pdf/ajbr0011-0001.pdf
4 Padron, E., et al. (2013, June 20). GM-CSF–dependent PSTAT5 sensitivity is a feature with therapeutic potential in chronic myelomonocytic leukemia. Blood, 121(25), 5068–5077. https://doi.org/10.1182/blood-2012-10-460170
5 Emanuel, P. D., et al. (1991, March 1). Selective hypersensitivity to granulocyte-macrophage colony-stimulating factor by juvenile chronic myeloid leukemia hematopoietic progenitors. Blood, 77(5), 925–929. https://doi.org/10.1182/blood.v77.5.925.925
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C-SMART Study
As of the end of July 2022, the C-SMART study in cancer patients with COVID-19 ceased taking on any new patients in all arms of the trial and is being concluded. The investigational product is in the process of being destroyed, due to COVID-19 being deprioritized by us and the Australian Government.
Phase 1 Study by South Korean Partners
In May 2022, our partners in South Korea dosed the final healthy volunteer of the 20 required for their Phase 1 bridging study. This study is being conducted to explore the safety, tolerability, and pharmacokinetic (“PK”) properties of lenzilumab and compare it between Koreans and Caucasians.
Review of Strategic Options and Alternatives
We have engaged SC&H Capital, an affiliate of SC&H Group, (“SC&H”) to advise us on exploration of strategic options. SC&H is an investment banking and advisory firm providing merger and acquisition (M&A), financial restructuring and related business advisory solutions. SC&H will act as our advisor as we explore strategic options to maximize value around lenzilumab and ifabotuzumab. We also intend to evaluate a full range of strategic alternativesoptions to address, satisfy, defer or respondrestructure our accounts payable and accrued liabilities to our lack of liquidity to repay our outstanding term loansmanufacturing and other obligations. If we are able to successfully reach agreement with our Term Loan Lenders and are also able to successfully obtain additional financing, theparties.
Our review of strategic options and alternatives could result in, among other things, pursuit of a litigation strategy relating to our benznidazole intellectual property rights, a sale, merger, consolidation or business combination, asset divestiture, partnering, licensing or other collaboration agreements, or potential acquisitions, recapitalizations or recapitalizations,restructurings, in one or more transactions, or continuing to operate with our current business plan and strategy. executing our strategic realignment plan discussed above. We may incur substantial expenses associated with identifying, evaluating and pursuing potential strategic alternatives. Our board of directors has not set a timetable for the conclusion of its review of strategic alternatives, and there can be no assurances asassurance that this process will result in any transaction to whether any of these may be successfully implemented. If we are not successful in reaching agreement withmaximize value for our Term Loan Lenders, we may have to file a second petition for bankruptcy.stakeholders. See Part II, Item 1A, “Risk Factors.”
Nasdaq Listing Deficiencies
As previously reported, we have received two notices from The Nasdaq Stock Market, LLC regarding our failures to satisfy the $1 minimum bid price and $35 million total market value of listed securities standards for continued listing. As disclosed, we have 180 days from the date of the applicable notice to cure each deficiency. In addition, our common stock may be subject to immediate delisting from the Nasdaq Capital Market if our common stock has a closing bid price of $0.10 or less for any ten consecutive trading days. See Part II, Item 1A, “Risk Factors.”
Our Pipeline
Our product candidates are in the clinical stage of development and require substantial time, resources, research and development, and regulatory approval prior to commercialization. Our current pipeline is depicted below:
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Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States,U.S., or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value-based measurement of stock-based compensation, accruals and warrant valuations.accruals. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity and financial condition.
There were no significant and material changes in our critical accounting policies and use of estimates during the three and nine months ended September 30, 2017,2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our 20162021 Annual Report on Form 10-K, (File No. 001-35798), filed with the SEC on March 9, 2017.1, 2022.
Results of Operations
At September 30, 20172022, we had an accumulated deficit of $259.5 million primarily as$686.2 million. Since inception, we have recognized a resultnominal amount of research and development and general and administrative expenses. While we may in the future generate revenue from a variety of sources, includingpayments for license fees, milestone payments, and research and development payments in connection with strategic partnerships, ouror collaboration fees. Our product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product sales, particularly because most of our product candidates are at an early stage of development.sales. 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. Our ability to continue as a going concern depends on our ability to attain a significant amount of additional financing, as more fully described under “—Liquidity and Capital Resources” and in “Risk Factors” in Item 1A of Part II below.
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Comparison of Three and Nine Months Ended September 30, 2022 and 2021
The following table summarizes the results of our operations duringfor the periods indicated (amounts in thousands, except percentages):
| Three Months Ended September 30, | Increase/ (Decrease) | Nine Months Ended September 30, | Increase/ (Decrease) | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | Amount | % | 2022 | 2021 | Amount | % | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||
| License revenue | $ | 221 | $ | 1,036 | $ | (815 | ) | (79 | ) | $ | 2,293 | $ | 2,558 | $ | (265 | ) | (10 | ) | ||||||||||||||
| Total revenue | 221 | 1,036 | (815 | ) | 2,293 | 2,558 | (265 | ) | ||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Research and development | 18,929 | 60,811 | (41,882 | ) | (69 | ) | 62,587 | 183,757 | (121,170 | ) | (66 | ) | ||||||||||||||||||||
| General and administrative | 4,013 | 6,204 | (2,191 | ) | (35 | ) | 12,307 | 19,228 | (6,921 | ) | (36 | ) | ||||||||||||||||||||
| Total operating expenses | 22,942 | 67,015 | (44,073 | ) | (66 | ) | 74,894 | 202,985 | (128,091 | ) | (63 | ) | ||||||||||||||||||||
| Loss from operations | (22,721 | ) | (65,979 | ) | (43,258 | ) | (66 | ) | (72,601 | ) | (200,427 | ) | (127,826 | ) | (64 | ) | ||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest expense | (1,298 | ) | (751 | ) | 547 | 73 | (2,800 | ) | (1,516 | ) | 1,284 | 85 | ||||||||||||||||||||
| Other income (expense), net | 326 | (9 | ) | (335 | ) | (3,722 | ) | 281 | (1,166 | ) | (1,447 | ) | (124 | ) | ||||||||||||||||||
| Net loss | $ | (23,693 | ) | $ | (66,739 | ) | $ | (43,046 | ) | (64 | ) | $ | (75,120 | ) | $ | (203,109 | ) | $ | (127,989 | ) | (63 | ) | ||||||||||
Revenue
Revenue in the three and nine months ended September 30, 2016 primarily related2022 and 2021, represents license revenue under the license agreement (the “South Korea Agreement”) with KPM Tech Co., Ltd. (“KPM”) and its affiliate, Telcon RF Pharmaceutical, Inc. (together with KPM, the “Licensee”) described in more detail in Note 4 to our statusthe Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Through June 30, 2022, revenue was being amortized through March 31, 2023, the expected end of the performance period. During the quarter ended September 30, 2022, the performance period was reevaluated, and the estimated end date of the performance period was adjusted to December 31, 2025. The change in estimate resulted in a decrease of $0.8 million in quarterly license revenue, as a debtorcompared to amounts that would have been recorded under the previous timeline. Therefore, we recognized license revenue totaling approximately $0.2 million and $2.3 million in possession and other matters in connection with our Chapter 11 bankruptcy proceedings, in addition to our efforts to obtain certain rights related to our former lead product candidate benznidazole. Our operations during the three and nine months ended September 30, 2017, which are now largely related to advancing our development programs, have changed substantially from the same period2022, respectively, and $1.0 million and $2.6 million in 2016. Accordingly, comparisons of our operations and results for the three and nine months ended September 30, 2017 to our operations and results2021, respectively. Prospective periods will reflect the impact of this change in the prior year periods may only provide a limited benefit, and similarly should not be relied on as an indicator of our future operations or results.estimate.
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 began tracking our external costs by project beginning January 1, 2008, and 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 |
| the cost of acquiring and manufacturing clinical trial, pre-commercial and other |
| 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‑basedstock-based compensation charges, travel costs, lab supplies, overhead expenses such as rent and utilities, and externaltravel costs not allocated to one of our clinical programs. Internal research and development costs generally benefit multiple projects and are not separately tracked per project.
The following table shows our total research and development expenses for the three and nine months ended September 30, 20172022 and 2016:2021:
| Three Months Ended Septmber 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| External Costs | ||||||||||||||||
| Lenzilumab | $ | 18,553 | $ | 59,950 | $ | 60,972 | $ | 181,089 | ||||||||
| Ifabotuzumab | 138 | 25 | 321 | 75 | ||||||||||||
| Internal costs | 238 | 836 | 1,294 | 2,593 | ||||||||||||
| Total research and development | $ | 18,929 | $ | 60,811 | $ | 62,587 | $ | 183,757 | ||||||||
| For the | For the | |||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| External Costs | ||||||||||||||||
| KB001 | $ | - | $ | 5 | $ | - | $ | 10 | ||||||||
| Lenzilumab | 528 | 99 | 1,713 | 215 | ||||||||||||
| Ifabotuzumab | 25 | 30 | 120 | 176 | ||||||||||||
| Benznidazole | 3,138 | 829 | 6,956 | 5,024 | ||||||||||||
| Internal costs | 116 | 778 | 1,539 | 2,380 | ||||||||||||
| Total research and development | $ | 3,807 | $ | 1,741 | $ | 10,328 | $ | 7,805 | ||||||||
Research and development expenses decreased by $41.9 million from $60.8 million for the three months ended September 30, 2021 to $18.9 million for the three months ended September 30, 2022 and decreased by $121.2 million from $183.8 million for the nine months ended September 30, 2021 to $62.6 million for the nine months ended September 30, 2022. The decrease in the three months ended September 30, 2022 as compared to September 30, 2021 is primarily due to a $38.4 million decrease in lenzilumab manufacturing costs and $1.5 million in clinical trial expenses, while the decrease in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is primarily due to a $108.7 million decrease in lenzilumab manufacturing costs, a $6.8 million decrease in clinical trial expenses as the LIVE-AIR study has been completed and the CAR-T trial was terminated in Q3 2022, as part of our plan to reduce costs, and a $2.4 million decrease in consulting expenses.
We expect our research and development costs will continue to decrease in 2022 as compared to 2021. We have sought to mitigate our financial commitments by ceasing additional manufacturing of lenzilumab, certain operational activities, and reducing staff and consultants in connection with our realignment plan. Our earlier mitigation efforts included the amendment or in some cases cancelation of certain of our agreements with CMOs for future manufacturing work, some of which were contingent on an EUA, in an effort to reduce our future spending. We incurred cancellation fees for several of these modifications. We also have disputed several invoices for cancellation fees and for production batches for lenzilumab that had been submitted by CMOs that failed to produce lenzilumab within our stated release specifications, but our mitigation efforts may not be successful to recoup any such loss of lenzilumab bulk drug substance (“BDS”) or drug product (“DP”). See Notes 6 and 10 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information on these disputes.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs (including stock-based compensation), professional fees for legal and patent expenses, insurance, consulting, audit, and tax services, rentinvestor relations costs, and other general operating expenses not otherwise included in research and development.
General and 2016
| Three Months Ended September 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2017 | 2016 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 3,807 | $ | 1,741 | $ | 2,066 | 119 | |||||||||
| General and administrative | 1,993 | 2,453 | (460 | ) | (19 | ) | ||||||||||
| Loss from operations | (5,800 | ) | (4,194 | ) | 1,606 | 38 | ||||||||||
| Interest expense | (1,269 | ) | (30 | ) | 1,239 | 4,130 | ||||||||||
| Other income (expense), net | (14 | ) | 128 | 142 | 111 | |||||||||||
| Reorganization items, net | (102 | ) | (427 | ) | (325 | ) | (76 | ) | ||||||||
| Net loss | $ | (7,185 | ) | $ | (4,523 | ) | $ | 2,662 | 59 | |||||||
Interest Expense
Interest expense for both periods is primarily related to the Loan and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the “Term Loan”). Interest expense related to the Term Loan was $1.3 million milestone achievedand $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $2.8 million for the nine months ended September 30, 2022 as compared to $1.5 million for the nine months ended September 30, 2021. Interest expense in the three months ended September 30, 2022 included $1.2 million in unamortized loan fees recognized in connection with the loan payoff. We drew the initial $25.0 million under the Term Loan on March 29, 2021. After giving effect to payment of fees and expenses associated with the draw, we received net proceeds of approximately $24.4 million.
In July 2017.2022, we paid $26.7 million in full settlement of the Term Loan with Hercules. See Note 105 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for moreadditional information regarding the milestone achievement in July 2017.
Other expense, net for the three months ended September 30, 2017 consists of foreign currency losses related to the payment of vendor invoices in foreign currencies. Income (Expense), Net
Other income (expense), net for the three months ended September 30, 2016 primarily consists of foreign currency gains related to the payment of bankruptcy liabilities in foreign currencies.
| Nine Months Ended September 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2017 | 2016 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 10,328 | $ | 7,805 | $ | 2,523 | 32 | |||||||||
| General and administrative | 5,987 | 6,169 | (182 | ) | (3 | ) | ||||||||||
| Loss from operations | (16,315 | ) | (13,974 | ) | 2,341 | 17 | ||||||||||
| Interest expense | (2,245 | ) | (76 | ) | 2,169 | 2,854 | ||||||||||
| Other income (expense), net | (38 | ) | 128 | 166 | 130 | |||||||||||
| Reorganization items, net | (289 | ) | (8,039 | ) | $ | (7,750 | ) | (96 | ) | |||||||
| Net loss | $ | (18,887 | ) | $ | (21,961 | ) | $ | (3,074 | ) | (14 | ) | |||||
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| Table of Contents |
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through proceeds from the public offerings of our common stock, private placements of our common and preferred stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against lines of credit, and receipts from agreements with Sanofi and Novartis.the proceeds under the South Korea Agreement. At September 30, 2017,2022, we had cash and cash equivalents of $1.1$24.7 million. AsIn the nine-month period ended September 30, 2022, we sold an aggregate of November 1655,052,506 shares of our common stock under the Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), 2017, we had cash and cash equivalentsraising net proceeds of approximately $145,000.$41.8 million. No shares have been sold under the Sales Agreement subsequent to September 30, 2022.
Primary Sources of Contents
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
| Nine Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (62,128 | ) | $ | (151,786 | ) | ||
| Financing activities | 16,837 | 160,549 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (45,291 | ) | $ | 8,763 | |||
| Nine Months Ended September 30, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (12,311 | ) | $ | (17,948 | ) | ||
| Investing activities | - | 92 | ||||||
| Financing activities | 10,500 | 12,330 | ||||||
| Net decrease in cash and cash equivalents | $ | (1,811 | ) | $ | (5,526 | ) | ||
Net cash used in operating activities was $12.3$62.1 million and $17.9 million for the nine months ended September 30, 2017 and 2016, respectively. The primary use of cash in 2017 was to fund our operations related to the development of our product candidates, whereas the primary use of cash in 2016 was to fund our operations related to the Plan. Cash used in operating activities of $12.3$151.8 million for the nine months ended September 30, 2017 primarily related to our net loss of $18.9 million, adjusted for non-cash items, such as $1.8 million in stock based compensation, $2.2 million in noncash interest expense2022 and net increases in working capital items, primarily $2.3 million of Accrued expenses.
Cash used in operating activities was $0.1 million for the nine months ended September 30, 2016, primarily related to the reduction in restricted cash in connection with the termination of our former office lease in South San Francisco. There was no Net cash provided by investing activities for the nine months ended September 30, 2017.
Net cash provided by financing activities was $16.8 million for the nine months ended September 30, 2022 and consists of net proceeds of $41.8 million from the issuance of common stock in connection with the Sales Agreement with Cantor, offset by the Hercules loan repayment of $25.0 million.
Net cash provided by financing activities was $160.5 million for the nine months ended September 30, 2021 and consists primarily of net proceeds of approximately $94.2 million related to the debtor-in-possession and equity bankruptcy financings.
Recent Financings
Controlled Equity Offering
On December 2016,31, 2020, we entered into the Sales Agreement with Cantor, under which we could issue and sell shares of our common stock, having an aggregate gross sales price of up to $100 million through Cantor, as sales agent. On April 14, 2022, we filed a Creditprospectus in respect of the Sales Agreement which provides us with the ability to offer and Securitysell shares of common stock having an aggregate offering price of up to an additional $75.0 million. As mentioned above, for the nine-month period ended September 30, 2022, we issued and sold 55,052,506 shares of our common stock under the Sales Agreement, (the “Term Loan Credit Agreement”) providingraising net proceeds of $41.8 million, and for an original $3.0 million credit facility (the “December 2016 Term Loan”),the nine-month period ended September 30, 2021, we issued and sold 2,397,791 shares of our common stock under the Sales Agreement, raising net proceeds of certain fees$40.0 million. The ability to continue to utilize the Sales Agreement at terms acceptable to us and expenses. in sufficient quantities relies on future market conditions that are uncertain and cannot be relied upon. See “Risk Factors” in Item 1A of Part II below.
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2021 Underwritten Public Offering
On March 21, 2017,30, 2021, we entered into an amendmentunderwriting agreement with Jefferies LLC, Credit Suisse Securities (USA) LLC and Cantor, as representatives of the several underwriters, in connection with the public offering of 5,000,000 shares of our common stock. In addition, we granted the underwriters a 30-day option to purchase an additional 750,000 shares of our common stock. The initial offering closed on April 5, 2021. On May 3, 2021, we closed on the sale of an additional 427,017 shares of our common stock related to the exercise of the underwriters’ 30-day option. The aggregate gross proceeds from the sale of the 5,427,017 shares in the offering, inclusive of the additional shares purchased by the underwriters, were approximately $100.4 million. The net proceeds from this offering, after deducting underwriting discounts and offering costs, were approximately $94.2 million.
Term Loan with Hercules
On March 10, 2021, we entered into the Term Loan Credit Agreementwith Hercules which provided us with the ability to obtaindraw an additional $5.5initial amount of $25.0 million, (the “March 2017 Term Loan”), netwhich we drew on March 29, 2021. In July 2022, we paid $26.7 million in full settlement 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 (the “July 2017 Term Loan” and together with the December 2016 Term Loan and the March 2017 Term Loan, the “Term Loans”), net of certain fees and expenses, providing additional working capital. As of September 30, 2017, we had received the entire amount available under the July 2017 Term Loan, bringing the total principal amount of the Term Loans to $14.7 million. The outstanding balance of $16.1 million under the Term Loans, including accrued interest and fees, became due on October 31, 2017. On October 31, 2017, we obtained a short-term extension from our Term Loan Lenders of the maturity of our obligations under the Term Loan Credit Agreement until November 10, 2017. On November 16, 2017, we obtained an additional short-term extension of the maturity of our obligations under the Term Loan Credit Agreement. The extension agreed with the Term Loan Lenders extends the maturity date of our obligations under the Term Loan Credit Agreement to the earlier of (i) December 1, 2017, or (ii) the date that we consummate one or more alternative transactions with the Term Loan Lenders. Aside from the extension of the Maturity Date, the extensions did not modify any of the terms under the Term Loan Credit Agreement.
Liquidity and Manufacturing Commitments
As of September 30, 2022, we were ablehad cash and cash equivalents of $24.7 million. Considering our current cash resources and our current and expected levels of operating expenses for the next twelve months, which includes our combined accounts payable and accrued expenses as of September 30, 2022 of $75.5 million, certain of which are in dispute, and our manufacturing commitments of $3.2 million for the remaining three months of 2022, $2.3 million for 2023, and $3.8 million thereafter related to reach agreement with the Term Loan Lenders,our manufacturing agreements, as further described below (see “–Contracts”), we wouldrequire substantial additional capital to continue as a going concernfund our planned operations and capital requirements. We intend to support our business efforts, including obtaining regulatory approvals for our product candidates, clinical trialsseek to defer these and other studies, and, if approved,payments, negotiate lower amounts or seek other courses of action, which may include legal recourse for the commercialization of our product candidates. The amount of capital we would require and the timing of our need for additional capital will depend on many factors, including:
Contracts
Eversana Agreement
On January 13, 2016, our common stock was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the ticker symbol KBIOQ. On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of our common stock, and the delisting was effective on February 5, 2016. On June 30, 2016, upon emergence from bankruptcy, the ticker symbol for the trading of our common stock on the over-the-counter market reverted back to KBIO. On June 26, 201710, 2021, we began trading on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following the effectiveness of our previously reported name change, our common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”. Although our common stock is eligible to trade in the OTCQB Venture Market, trading is limited and an active market for our common stock may never develop in the future, which could harm our ability to raise capital to continue to fund operations.
On September 21, 2021, we entered into a Registration Rights Agreement (the "ELOC RRA”) with Aperture, pursuantnotified Eversana that due to whichthe EUA status in the U.S., we granted to Aperture certain registration rightswere terminating the initial statement of work related to the shares issuable in accordance with the ELOC Purchase Agreement. Under the ELOC RRA, we agreed to use our commercially reasonable efforts to prepare and file with the SEC one or more registration statementscommercialization support of lenzilumab for the purposetreatment of registeringCOVID-19 in the resaleUnited States. Eversana is disputing the termination notice and has requested payment of the maximum shares issuable pursuantapproximately $4.5 million it has asserted we owe for services rendered from April 1, 2021 to the ELOC Purchase Agreement.
Manufacturing Agreements
We entered into agreements with several CMOs to manufacture BDS and fill/finish DP for our lenzilumab clinical trial activities in COVID-19 as well as to manufacture BDS and DP for a potential launch of lenzilumab in anticipation of an EUA or CMA, should one have been obtained in that indication. We also entered into agreements for packaging of the drug. These agreements provided for upfront amounts prior to commencement of manufacturing and progress payments through the course of the manufacturing process and payments for technology transfer. Certain of these CMOs were unsuccessful in their efforts to manufacture some batches of lenzilumab to our specifications for various reasons.
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We believe we have sufficient supply to conduct our contemplated clinical development efforts. We estimate the number of vials required per patient in our clinical trials is between 48 and 150. We have stopped all manufacturing of lenzilumab, with the exception of batches in process at one of our CMOs, Catalent Pharma Solutions, LLC (“Catalent”). As of October 31, 2022, there were an additional approximately 630,000 lenzilumab vials either in production or available for storage at Catalent. If we are unable to obtain regulatory approval for lenzilumab prior to the expiration of the shelf life at that time, the remaining inventory will not be available for commercial use. Catalent has notified us that it claims we are in breach of our manufacturing agreement with Catalent and has stopped all manufacturing activities being performed under the agreement. The parties are negotiating a resolution; however, approximately 630,000 lenzilumab vials at Catalent may not be released if we are unable to reach an agreement with Catalent.
Another 594,000 lenzilumab vials are in production at one of our other CMOs, Thermo Fisher Scientific, Inc. (“Thermo”), for which material has not yet been released by us because the batches produced are out of specification. Nonetheless, Thermo has notified us that they have stopped production and have recently filed a lawsuit against us in Delaware Superior Court for $25.9 million. We deny Thermo’s claims and assertions and will vigorously defend against them.
See Notes 6 and 10 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information regardingon these disputes.
Please see our Form 10-K for the ELOC Purchaseyear ended December 31, 2021, Part I, Item 1A - Risk Factors—“Risks Related to Our Efforts to Develop Lenzilumab for COVID-19— Manufacturing efforts relating to our lenzilumab program in COVID-19 have been extremely costly and inefficient in producing treatments for use in our clinical development program or potential sale.”
License Agreements
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.
Outlicensing Agreements
The South Korea Agreement
On November 3, 2020, we entered into a License Agreement (the “South Korea Agreement”) with KPM and Telcon (together, the “Licensee”). Pursuant to the South Korea Agreement, among other things, we granted the Licensee a license under certain patents and other intellectual property to develop and commercialize our lead product candidate, lenzilumab (the “Product”), for treatment of COVID-19 pneumonia, in South Korea and the ELOC RRA.Philippines (the “Territory”), subject to certain reservations and limitations. The Licensee will be responsible for gaining regulatory approval for, and subsequent commercialization of, lenzilumab in those territories.
As consideration for the license, the Licensee has agreed to pay us (i) an up-front license fee of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties), payable promptly following the execution of the License Agreement, which was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based on our achievement of two specified milestones in the U.S., of which the first milestone was met in the first quarter of 2021 and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021,and (iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that we will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost-plus basis from an existing or future manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.
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.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We currently have no off-balance sheet arrangements, suchare a smaller reporting company as structured finance, special purpose entitiesdefined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or variable interest entities.the Exchange Act, and are not required to provide the information specified under this item.
| Item 4. | Controls and |
We maintain disclosure controls and procedures” as (as defined in Rules 13a‑Exchange Act Rule 13a–15(e) and 15d‑15(e) promulgated15d-15(e)) that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Actrules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Evaluation of disclosure controls and procedures. As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, andwho is also acting as our Chief Financial Officer, has evaluatedof the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.Quarterly Report on Form 10-Q. Based uponon the evaluationforegoing, our Chief Executive Officer, andwho is also acting as our Chief Financial Officer concluded that theour disclosure controls and procedures were effective as of September 30, 2017 to ensure that information required to be disclosed inat the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.reasonable assurance level.
Changes in Internal Control Over Financial Reporting
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings. |
Please
see Note| Item 1A. | Risk Factors. |
Our operations and financial results are subject to various risks and uncertainties, including those described in the Superior CourtPart I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the Stateyear ended December 31, 2021, which could adversely affect our business, financial condition, results 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 10 - “Savant Arrangements” to the accompanying condensed consolidated financial statements 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 $500,000 deductible under the MDC. The Company asserts that it is entitled to offset $2 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.
Preliminary topline results from the share ownershipACTIV-5/BET-B trial did not achieve statistical significance on the primary endpoint. As a result, we have recently announced a strategic realignment of our existing stockholders will be significantly diluted.
As previously disclosed, preliminary topline results from the ACTIV-5/BET-B trial did not achieve statistical significance on the primary endpoint. As a result, we will deemphasize the deployment of certain resources for the development of lenzilumab for COVID-19, as described in Part I, Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In July 2022, we announced a strategic realignment of our accesspipeline and resources. Key elements of our strategic realignment plan are further described in Part I, Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations. Among other things, we plan to capital fundingaccelerate the development of lenzilumab in CMML, a rare blood cancer, for which the PREACH-M study is uncertain.
Our forward-looking business operations are dependent on our pre-clinical and clinical trials;
Our forward-looking business operations will depend on the success of lenzilumab as a therapy for CMML, aGvHD and other non-COVID-19 related indications, and our other product candidates, lenzilumab and ifabotuzumab.candidates. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates.candidates for these or any other indications.
We have a limited pipeline of product candidates and arewe do not conductingplan to conduct active research at this time for discovery of new molecules or antibodies. We are currently dependentSince our announcement in July 2022 that preliminary topline results from the ACTIV-5/BET-B trial did not achieve statistical significance on the successful continued development and regulatory approval of our current product candidates for our future business success. Since the FDA’s August 29, 2017 announcement,primary endpoint, our primary focus has shifted to investing our time and financial resources on executing our strategic realignment plan, which contemplates investigator-initiated studies of lenzilumab as a therapy for CMML and other non-COVID-19 related indications, including aGvHD and CAR-T therapy, and our limited work around iFab. This recent realignment of our pipeline may make it more difficult for investors to be able to evaluate our business and prospects.
As further described in Part I, Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations, primary elements of our strategic realignment plan include accelerating the development of lenzilumab in CMML, a rare blood cancer, for which the PREACH-M study is already underway, and ifabotuzumab.
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The future clinical, regulatory and commercial success of our product candidatesrealigned strategic plan for lenzilumab is subject to a number of risks, including the following:
| we may not have sufficient financial and other resources to |
| ● | we will not control the |
| we may not be able to provide acceptable evidence of safety and efficacy for our product candidates; |
| the results of our clinical trials or collaborations may not meet the level of statistical or clinical significance, or product safety, required |
| we may not be able to obtain, maintain and enforce our patents and other intellectual property rights; and |
| we may not be able to obtain and maintain commercial manufacturing arrangements with third-party manufacturers or establish commercial-scale manufacturing capabilities. |
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.
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.
Our development programs in CMML and aGvHD are several years from potential commercialization. We do not anticipate any cash flow from revenues in the foreseeable future. Accordingly, we need to obtain additional financing to fund our operations and, if we are unable to obtain such financing, we may be unable to continue to operate as a going concern.
As previously reported, during 2021 and through July 2022, we incurred significant costs associated with our development program for lenzilumab in COVID-19. Given that the preliminary topline results from the ACTIV-5/BET-B trial showed that lenzilumab did not achieve statistical significance in respect of the primary endpoint of the trial, and with the information currently available, we no longer expect to be positioned to receive an EUA or other regulatory approval for, or to commercialize or receive revenues from, lenzilumab for COVID-19 in the foreseeable future.
As of September 30, 2022, our liabilities exceeded our cash and cash equivalents by $53.6 million. Not included in total liabilities as of September 30, 2022 is approximately $9.3 million in remaining commitments to be incurred under existing agreements.
With our development pipeline in the early stages, we need to obtain additional financing to execute our strategic realignment plan and continue as a going concern. We intend to attempt to finance future cash needs through the Sales Agreement, if trading volumes and market prices support such sales, or other public or private equity offerings, license agreements, grant financing, convertible debt, other debt financings, collaborations, or strategic alliances or licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. Our ability to raise capital on favorable terms in the near future has been adversely impacted by the results from the ACTIV-5/BET-B trial, which had a material and adverse impact on our stock price. The ability to continue to utilize the Sales Agreement at terms acceptable to us and in sufficient quantities relies on future market conditions that are uncertain and cannot be relied upon.
We also intend to attempt to defer payments, negotiate lower amounts or seek resolution or other courses of action for certain commitments and amounts owed to manufacturing and other partners at September 30, 2022, as further described in Part I, Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations. In order to remain a going concern and execute our strategic realignment plan, we must successfully renegotiate these amounts owed and remaining commitments, and settle disputes, including current and potential future arbitration and litigation. There can be no assurance that we will be successful in reducing or deferring amounts owed or that we can remain a going concern long enough to realize the clinical milestones envisioned under the strategic realignment plan, which may in turn allow us to raise additional capital.
Our current capital resources are not sufficient to fund our operations for the next twelve months, making it critical for us to raise additional funds. These conditions raise substantial doubt about our ability to continue as a going concern.
The consolidated financial statements for the three and nine months ended September 30, 2022 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. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
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In addition, the presence of the explanatory paragraph about our ability to continue as a going concern in our financial statements could also make it more difficult to raise the capital necessary to address our current needs.
If we fail to regain and maintain compliance with the requirements for continued listing on the Nasdaq Capital Market, our common stock could be delisted from trading, which would adversely affect the liquidity of our common stock and our ability to raise additional capital or enter into strategic transactions.
On August 24, 2022, Nasdaq notified us that, for 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule. If we do not regain compliance by February 20, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Bid Price Rule, and provide written notice of our intention to cure the deficiency during the second compliance period. In order to regain compliance, the bid price of our common stock must close at a price of at least $1.00 per share for a minimum of 10 consecutive trading days. If we do not comply with the Bid Price Rule within the allotted compliance periods, including any extensions granted by the Nasdaq, then Nasdaq will provide notice to us that our common stock will be delisted. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance with the minimum bid price requirement during the 180-day compliance period, secure a second period of 180 days to regain compliance or maintain compliance with the other Nasdaq listing requirements.
On October 3, 2022, Nasdaq notified us that, for 30 consecutive business days, our minimum market value of listed securities (“MVLS”) had closed below the minimum requirement of $35 million for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Rule”). In accordance with the Nasdaq Listing Rule 5810(c)(3)(C), we were provided 180 calendar days, or until April 3, 2023, to regain compliance with the MVLS Rule. In order to regain compliance, our MVLS must close at or above $35 million for a minimum of 10 consecutive business days. If we do not comply with the MVLS Rule by April 3, 2023, then Nasdaq will give notice to us that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance with the minimum MVLS requirement during the 180-day compliance period.
As of the date of this Quarterly Report on Form 10-Q, we have not yet regained compliance with the Bid Price Rule or the MVLS Rule. Delisting from Nasdaq could adversely affect our ability to consummate a strategic transaction and raise additional financing through the public or private sale of equity securities, and would significantly affect the ability of investors to trade our securities and negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees and the loss of institutional investor interest.
If our common stock has a closing bid price of $0.10 or less for any ten consecutive trading days our common stock may be subject to immediate delisting from the Nasdaq Capital Market.
While there is a grace period of 180 days to regain compliance with the Bid Price Rule and MVLS Rule, our common stock may be subject to immediate delisting from the Nasdaq Capital Market if our common stock has a closing bid price of $0.10 or less for any ten consecutive trading days. As of November 10, 2022, the closing bid price for our common stock was $0.14.
We may be required to complete a reverse stock split to regain compliance with Nasdaq listing rules and we cannot predict the effect that any reverse stock split will have on the market price for shares of our common stock.
We may complete a reverse stock split in order to regain compliance with the Bid Price Rule. We cannot predict the effect that a reverse stock split will have on the market price for shares of our common stock, and the history of similar reverse stock splits for companies in like circumstances has varied. Some investors may have a negative view of a reverse stock split. Even if a reverse stock split has a positive effect on the market price for shares of our common stock, performance of our business and financial results, general economic conditions and the market perception of our business, and other adverse factors which may not be in our control could lead to a decrease in the price of our common stock following the reverse stock split.
Furthermore, even if the reverse stock split does result in an increased market price per share of our common stock, the market price per share following the reverse stock split may not increase in proportion to the reduction of the number of shares of our common stock outstanding before the implementation of the reverse stock split. Accordingly, even with an increased market price per share, the total market capitalization of shares of our common stock after a reverse stock split could be lower than the total market capitalization before the reverse stock split. Also, even if there is an initial increase in the market price per share of our common stock after a reverse stock split, the market price may not remain at that level.
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If the market price of shares of our common stock declines following a reverse stock split, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the reverse stock split due to decreased liquidity in the market for our common stock. Accordingly, the total market capitalization of our common stock following the reverse stock split could be lower than the total market capitalization before the reverse stock split.
We are currently exploring strategic alternatives, 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 value for our stockholders. If we are unsuccessful in identifying and completing any strategic alternative, we may have to pursue a reorganization under the federal bankruptcy code if we are not able to raise additional capital and/or manage our liabilities in a way that permits us to continue as a going concern.
We have engaged SC&H Capital, an affiliate of SC&H Group, to advise us as we explore strategic alternatives to maximize value around lenzilumab and ifabotuzumab and to address, satisfy, defer or restructure our accounts payable and accrued liabilities to manufacturing and other parties. The process of exploring strategic alternatives may be time consuming, and our board of directors has not set a timetable for the conclusion of its review of strategic alternatives.
Our review of strategic options and 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, recapitalizations or restructurings, in one or more transactions, or continuing to operate with our current business plan and executing our strategic realignment plan discussed above. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction.
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 are unsuccessful in identifying and completing any strategic alternative, or in addressing, satisfying, deferring or restructuring our accounts payable and accrued liabilities to manufacturing and other parties, we may have to pursue a reorganization under the federal bankruptcy code.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
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| Item 6. | Exhibits. |
| 101.INS | XBRL Instance | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as |
**Indicates management contract or compensatory plan.
***The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HUMANIGEN, INC. | |||
| Date: November | By: | /s/ Cameron Durrant | |
| Cameron Durrant | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| | |||
| Date: November 14, 2022 | By: | /s/ Cameron Durrant | |
| Cameron Durrant | |||
| Acting Chief Financial Officer | |||
| (Principal | |||
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