EDGAR 10-K Filing

Company CIK: 1293310
Filing Year: 2023
Filename: 1293310_10-K_2023_0001214659-23-004512.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
Overview
We are a clinical stage biopharmaceutical company, developing our portfolio of proprietary Humaneered® anti-inflammatory immunology and immuno-oncology monoclonal antibodies. Our proprietary, patented Humaneered technology platform is a method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed for therapeutic use, particularly with acute and chronic conditions. We have developed or in-licensed targets or research antibodies, typically from academic institutions, and then applied our Humaneered technology to optimize them. Our lead product candidate, lenzilumab, and our other product candidate, ifabotuzumab (“iFab”), are Humaneered monoclonal antibodies. Our Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and have a high affinity for their target. In addition, we believe our Humaneered antibodies offer further important advantages, such as high potency, a slow off-rate and a lower likelihood to induce an inappropriate immune response or infusion related reaction.
Pursuant to our previously reported strategic realignment plan, we are developing our lead product candidate, lenzilumab (“LENZ®”). 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 thought to be responsible for chronic myelomonocytic leukemia (“CMML”), a rare blood cancer and may be of critical importance in acute graft versus host disease (“aGvHD”) associated with bone marrow transplants. Our strategic realignment plans include accelerating the development of LENZ in CMML, for which the PREACH-M study is underway, and continuing our plans for the RATinG study in aGvHD, as these studies are majority funded by our partners. A leading network of centers, The Mayo Clinics, is currently progressing with an IIT of lenzilumab in combination with CAR-T therapies. We are also developing iFab, an EpAh-3 targeted monoclonal antibody, currently in Phase 1 development, as part of an antibody drug conjugate (“ADC”), for certain solid tumors.
Recent Developments
Our current capital resources are not sufficient to fund our operations for the remainder of 2023. Accordingly, as previously disclosed, we have been pursuing strategic alternatives and seeking to raise additional capital and settle or otherwise resolve payment disputes and other ongoing arbitration and litigation.
We have executed a non-binding letter of intent and are engaged in exclusive negotiations relating to a proposed business combination with a privately held biopharmaceutical company (the “Partner Company”). The proposed terms for the business combination contemplate a tax-free stock-for-stock merger, as a result of which we would issue shares of our capital stock to stockholders of the Partner Company which are expected to represent roughly two times the number of our currently outstanding shares of common stock.
We cannot assure you that we and the Partner Company will enter into a definitive agreement for the proposed transaction, and the final form and terms of any such transaction may be materially different from the terms described above. Our ability to enter into a definitive agreement is subject to conditions, including that we have received binding commitments for investment of additional capital that will be necessary to fund the operations of the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national securities exchange, as well as customary matters such as approval of the terms of the definitive agreement by the Partner Company’s board of directors and stockholders. Certain of these conditions will be out of our control. Accordingly, we cannot provide any assurance that we will effect the proposed business combination and related financing transactions. If we are unable to complete the proposed transactions or identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to pursue a reorganization or seek other protection under the federal bankruptcy code.
See “Risk Factors” beginning on page 22 of this Form 10-K for further discussion of the risks surrounding the proposed transaction and our company.
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 pipeline is depicted below:
Lenzilumab
We are developing lenzilumab for potential commercial use in several indications:
● as a therapeutic for chronic myelomonocytic leukemia (“CMML”).
● for the prevention and/or treatment of acute graft versus host disease (“aGvHD”) associated with bone marrow transfers; and
● as a prophylactic companion for certain chimeric antigen receptor therapy (“CAR-T”) programs.
2022 Developments
In July 2022, 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. The topline results showed the trial did not achieve statistical significance on the primary endpoint, although the topline results did indicate that lenzilumab demonstrated a positive trend in mortality. A global group of leading institutions and research networks has indicated interest in including lenzilumab in their large-scale, multinational studies of COVID-19, pending an uptick in ICU admissions. Tocilizumab and baricitinib demonstrated mortality benefit following inclusion in REMAP-CAP and RECOVERY, despite having failed to do so in smaller studies.
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 unless further data from ACTIV-5/BET-B or a future large-scale study merit such an approach. The Named Patient program in select European Countries has been terminated. With the exception of the one lenzilumab batch in process, we have discontinued the manufacturing of lenzilumab and are consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future use.
Through partners in Australia, we initiated a study of lenzilumab in cancer patients with COVID-19. The trial, known as C-SMART was a multi-center, four arm trial, which aimed to evaluate several different immune modulating drugs for prevention and treatment of COVID-19 in the cancer population. The investigational product is in the process of being destroyed, due to COVID-19 being deprioritized by us and the Australian Government.
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 was conducted to explore the safety, tolerability, and pharmacokinetic (“PK”) properties of lenzilumab and compare it between Koreans and Caucasians. The clinical study report has been completed and the degree of exposure was observed to be higher in Koreans than in Caucasians. Lenzilumab was safe and well tolerated in both Koreans and Caucasians.
Lenzilumab in CMML and Related Hematological Cancers
Scientific Rationale
We believe that lenzilumab holds promise in CMML, a rare form of hematologic cancer with a three-year overall survival rate of 20% and median overall survival of 20 months. Standard therapies yield a complete response rate (“CR”) plus partial response rate (“PR”) in the 10-17% range. CMML is a clonal stem cell disorder of which monocytosis is a key feature. Clonal cytogenic abnormalities are commonly seen in CMML patients. RAS 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. CMML has features of myelodysplastic syndrome (“MDS”), including abnormal, dysplastic bone marrow cells; cytopenia; transfusion dependence; and of myeloproliferative neoplasms, including overproduction of white blood cells, organomegaly (e.g., splenomegaly and hepatomegaly) and extramedullary disease. Independent publications have demonstrated the key role of GM-CSF and RAS pathway mutations in this and other cancers, including JMML, MDS, myeloproliferative neoplasms, and AML.1,2,3
Our Development Program
In a Phase 1 study conducted by Mayo Clinic, three of six patients with NRAS/KRAS/CBL mutations demonstrated a clinical response to lenzilumab by the MDS/MPN International Working Group criteria. This study identified the Maximum Tolerated Dose (“MTD”) or recommended Phase 2 dose of lenzilumab, and assessed lenzilumab’s safety, pharmacokinetics, and clinical activity. Final results of this study were presented at the 2019 ASH Annual Meeting and published in blood.
Building on this successful Phase 1 study in CMML, we are running a Phase 2 study in combination with azacitidine in newly diagnosed high-risk CMML patients who express NRAS/KRAS/CBL mutations which are known to be hypersensitive to GM-CSF and therefore may lend themselves to responsiveness to lenzilumab treatment. The Phase 2 study, known as “PREcision Approach to Chronic Myelomonocytic Leukemia” or “PREACH-M”, 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 with additional enrollment anticipated at sites in New Zealand. As of March 16, 2023, 13 lenzilumab-treated patients have been enrolled in the study of a total of 15 patients and followed for multiple cycles, with what are believed to be encouraging results. An abstract for the PREACH-M trial has been accepted to the American Association for Cancer Research with a poster presentation scheduled for April 17, 2023.4 We are providing lenzilumab for this study and the majority of the study costs are being borne by the partner and funded by a grant from the Medical Research Futures Fund, a research fund set up by the Australian Government.
As a treatment for a rare disease, lenzilumab may qualify for certain regulatory and commercial benefits that may accelerate development and approval. 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. In addition, we are evaluating approaches to FDA directly.
_____________________________
1 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
2 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
3 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
4 Hiwase, D. et al. (2023, April 17). A phase 2/3, multicenter trial of lenzilumab and azacitidine in chronic myelomonocytic leukemia: The PREACH-M trial. https://www.abstractsonline.com/pp8/#!/10828/presentation/10428
A clinical protocol has been developed for a study in juvenile myelomonocytic leukemia (“JMML”) an ultra-orphan and devastating condition affecting young children.
Our Commercial Opportunity
The incidence of new CMML patients in the US, UK, and Australia is about 1,700 patients annually.5 RAS mutations, which drive GM-CSF hyperresponsiveness, are also seen in additional myeloid hematological malignancies including JMML, myelodysplastic syndromes (“MDS”) and acute myeloid leukemia (“AML”), totaling approximately 4,000 new cases annually in the US. 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 ourselves or through a partner, in these additional patient populations. About 15 to 20% of CMML cases progress to AML. According to the American Cancer Society, approximately 1,100 individuals in the US are newly diagnosed annually with CMML, with the majority of these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants.
For FDA approval, a confirmatory study in the US may be required and we plan to seek regulatory guidance from the agency with interim results from PREACH-M.
Pricing and reimbursement for rare diseases are traditionally higher than treatments for more common diseases. There have been no new therapeutic agents for patients with high-risk CMML in 30 years.6
_____________________________
5 Incidence extrapolated by applying American Cancer Society incidence rate of four per one million people to the population of US, UK, and Australia. https://www.cancer.org/cancer/chronic-myelomonocytic-leukemia/about/key-statistics.html
6 Aim 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/
Lenzilumab in Acute GvHD
Scientific Rationale
Allogeneic hematopoietic stem cell therapy (“HSCT”), a potentially curative therapy for patients with hematological cancers, involves transferring stem cells from a healthy donor to the patient. HSCT has demonstrated effectiveness in treating these cancers. Allogeneic HSCT typically involves multiple steps:
● Collecting blood from a healthy donor;
● Processing the donor’s blood to remove the stem cells before returning the rest of the donor’s blood back to the donor;
● Pre-conditioning the patient with high-dose chemotherapy and/or radiation; and
● Infusing the donor’s stem cells into the patient to allow for the production of new blood cells.
Although a potentially life-saving treatment for patients suffering from hematological cancers, between 40-60% of patients receiving HSCT treatments experience acute or chronic GvHD, which together carries a 50% mortality rate. After being transplanted into the patient, donor-derived T cells are responsible for mediating the beneficial graft versus leukemia (“GvL”) effect. In many cases, however, donor-derived T cells that remain within the graft itself have also been linked to destruction of healthy tissue in the patient (the host), with particular risk of destroying cells in the patient’s skin, gut, and liver, resulting in aGvHD. Although depleting donor grafts of T cells can prevent or reduce the risk of aGvHD, this results in a reduced GvL effect, thereby having a detrimental impact on the efficacy of the allogeneic HSCT treatment itself and leading to increased relapse rates.
Despite new therapies, there remains a significant unmet medical need for an agent that can uncouple the beneficial GvL effect from harmful aGvHD. In December 2022, the FDA approved Orencia (abatacept) from Bristol Myers Squibb for the prevention of aGvHD and in 2019 Jakafi (ruxolitinib) from Incyte Corporation was approved for steroid-refractory aGvHD. Other treatments include pre-conditioning regimens for HSCT treatments that can vary significantly by treatment centers, including by unapproved, or “off-label,” use of agents that have been approved by FDA for other uses only.
We believe that GM-CSF neutralization with lenzilumab has the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. The technology was featured in a November 2018 research article published in Science Translational Medicine, where the authors demonstrated in a murine model of GvHD, that donor T cell-derived GM-CSF drives GvHD through activation, expansion, and trafficking of myeloid cells but has no effect on the GvL response. Neutralization of GM-CSF (either using a neutralizing antibody or through GM-CSF gene knock-out) was able to uncouple the myeloid-mediated immunopathology resulting in GvHD from the T cell-mediated control of leukemic cells. This discovery provides a mechanistic proof-of-concept for neutralizing GM-CSF to prevent GvHD without compromising, and potentially improving, the GvL effect in patients undergoing allogeneic HSCT. Corroborating data related to the critical effect GM-CSF has on GvHD development in HSCT was published in blood advances in October 2019 by Gartlan et al.
Our Development Program
We believe that GM-CSF neutralization using lenzilumab has the potential to make allogeneic HSCT safer and more effective. Similar to GM-CSF neutralization with lenzilumab breaking the efficacy/toxicity linkage with CAR-T therapy, GM-CSF neutralization has demonstrated potential to attenuate acute GvHD while maintaining the beneficial GvL effect in patients undergoing allogeneic HSCT. We believe lenzilumab has potential to prevent or reduce aGvHD in allogeneic HSCT, thereby making allogeneic HSCT safer as a potentially curative therapy for patients with hematological cancers.
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. We anticipate the first patient dosing in this study to occur in the second quarter of 2023 . We are providing lenzilumab for the study including the cost of import, labeling and distribution of the study drug, and support for 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.
Our Commercial Opportunity
The overall number of allogeneic HSCT treatments continues to increase annually in the US and abroad. According to the Center for International Blood & Bone Marrow Transplant Research (“CIBMTR”), in 2019, approximately 10,000 allogeneic HSCT treatments were expected to be performed in the US, with similar trends expected in Europe (Phelan, et al Current use and outcome of hematopoietic stem cell transplantation: CIBMTR US summary slides 2020). The cost of managing these patients in the first year is estimated at approximately $400,000.
Lenzilumab in CAR-T
Scientific Rationale
FDA-approved CAR-T therapies have demonstrated the effectiveness of using targeted immuno-cellular engineering to cause a patient’s own T-cells to fight certain cancers that have not responded to standard therapies. T-cells are often called the “workhorses” of the immune system because of their role in coordinating the immune response and killing cells infected by pathogens and cancer cells. As depicted below, each of the FDA-approved CAR-T therapies are currently a one-time treatment that involves multiple steps:
● Harvesting white blood cells from the patient’s blood, also known as apheresis;
● Engineering T-cells within this population to express cancer-specific receptors;
● Increasing and purifying the number of genetically re-engineered T-cells; and
● Infusing the functional cancer-specific T-cells back into the patient to allow for expansion and targeting the cancer cells.
As of the date of this filing, six CAR-T therapies have been approved by FDA: Gilead/Kite’s Yescarta, and Tecartus, Novartis’s Kymriah, Johnson & Johnson’s Carvykti, Bristol Myers Squibb’s Breyanzi and Abecma, which seek to treat forms of B-cell and plasma cell cancers such as various types of NHL, including DLBCL, Follicular Lymphoma (“FL”) Mantle Cell Lymphoma (“MCL”), adult acute lymphoblastic leukemia (“ALL”), and multiple myeloma. Although patients suffering from these aggressive cancers frequently undergo multiple treatments, including chemotherapy, radiation and targeted therapy including stem cell transplants, the five-year survival rate has been severely limited and patients who do not respond to, or have relapsed following at least two courses of standard treatment, have no other treatment options and a very poor outcome. According to multiple sources, specifically US governmental sources, including the Surveillance, Epidemiology, and End Results (“SEER”) program of the National Cancer Institute, which is one source of epidemiologic information on the incidence and survival rates of cancer in the US, we estimate the US incidence of DLBCL to be approximately 24,000 patients annually, FL to be approximately 16,000 patients annually, ALL to be approximately 7,000 patients annually and MCL to be approximately 4,000 patients annually.
The FDA-approved CAR-T therapies have significant limitations. Despite the exciting prospects for treating patients with limited options, significant and potentially life-threatening side-effects are associated with CAR-T therapy, including Immune Effector Cell Associated Neurotoxicity (“ICANS”) and CRS. While there may be individual differences between CAR-T therapy products, the overall toxicity profile is generally consistent with that reported for Yescarta and Tecartus, and it is known that various development-stage BCMA and other CAR-T therapies are hampered by the emergence of ICANS, CRS and other serious and potentially fatal side-effects. In addition, durable efficacy is an area that could be improved upon.
Both ICANS and CRS are caused by a large-scale release of pro-inflammatory cytokines and chemokines induced by the CAR-T therapy and remain significant unmet needs. Because ICANS and CRS can be life-threatening and have proven fatal in many instances, and because each product bears a “Boxed Warning” from FDA (the strictest FDA warning label intended to alert patients and providers about serious and life-threatening risks associated with a particular drug), patients seeking to benefit from CAR-T therapy, generally may only do so if the treatment center is in compliance with the Risk Evaluation and Mitigation Strategy (“REMS”) program required by FDA.
REMS is a drug safety program that FDA requires certain medications with serious safety concerns to adhere to strict on-going monitoring and reporting and is intended to assist and train certified treatment centers on the management of these serious side-effects. We believe the REMS requirement may have adversely impacted both market uptake and usage to date.
According to the original package inserts for Yescarta and Tecartus, 81% (NHL), 81% (MCL), 87% (ALL) of patients treated in the clinical trial setting experienced ICANS (with up to 35% of cases being severe, or grade >3). The package insert for Yescarta was later updated to include the use of prophylactic corticosteroids across all approved indications. The update was based on the safety update from Cohort 6 of the ZUMA-1 study which showed that in 39 patients, prophylactic or early use of corticosteroids resulted in neurological events (Grade ≥3) in 13% of patients and 0% of the patients had CRS (Grade ≥3). These original rates may be more prevalent in practice. Moreover, based on feedback from leading treatment centers in the US, approximately 30% to 40% of patients receiving CAR-T therapy require admission to the ICU and in some cases require an extended stay, with multiple interventions, including ventilator support and other supportive measures, to be urgently administered to manage these side-effects. Some patients can suffer seizures, coma, brain swelling, heart arrhythmias, organ failure and serious and life-threatening clotting disorders, not only causing more complex and potentially fatal medical consequences, but significantly adding to the cost of patient care. These can be particularly challenging and concerning issues, especially in younger patients.
Our Development Program
We believe lenzilumab has the potential to improve the efficacy and safety of CAR-T therapy and that the use of lenzilumab may minimize or eradicate the incidence, frequency, duration and/or severity of ICANS and/or CRS that frequently appear in CAR-T patients. In addition, lenzilumab may lead to an improvement in durable efficacy.
Accordingly, we have identified lenzilumab as a potential companion treatment alongside certain CD19-targeted CAR-T cell therapies. GM-CSF neutralization may enhance CAR-T proliferation and effector functions and potentially confer additional benefits in terms of durable efficacy and healthcare resource utilization. Preclinical data generated in collaboration with the Mayo Clinic, which was published in blood, a premier journal in hematology, indicates that the use of lenzilumab in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies.
Lenzilumab has been studied in a multi-center Phase 1b trial as a sequenced therapy with Yescarta to prevent CRS and ICANS in patients with relapsed or refractory diffuse large B-cell lymphoma (“DLBCL”) (NCT04314843), for which we announced positive results in April 2021. Pursuant to our strategic realignment plan, the previously planned Company-sponsored study of lenzilumab with certain CAR-T therapies, known as SHIELD, has been terminated. A leading network of centers, The Mayo Clinics, is currently progressing with an IIT of lenzilumab in combination with CAR-T therapies.
Our Commercial Opportunity
Revenues from the sales of approved CAR-T therapies were valued at approximately $2.19 billion in 2022. We estimate globally over 15,000 patients have been treated with CAR-T therapies. Analysts predict that Yescarta only will reach peak sales in excess of $1.5 billion as additional patients become eligible for treatment. We believe lenzilumab has the ability to transform CAR-T therapy and potentially a broad range of other T-cell engaging therapies, including both autologous and allogeneic cell transplantation. There is a direct correlation between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities, including ICANS and CRS.
We believe that our GM-CSF pathway science, assets and expertise create two technology platforms to assist in the development of next-generation CAR-T therapies:
● Lenzilumab has the potential to be used in combination with any FDA-approved or development stage T-cell therapy, including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic HSCT such as bone marrow transplants, to make these treatments safer and more effective.
● In addition, our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.
Ifabotuzumab
Ifabotuzumab is a Humaneered monoclonal antibody, formerly referred to as KB004, which targets the EphA3 receptor, and in which the antibody carbohydrate chains lack fucose, thereby enhancing the targeted cell-killing activity of the antibody. We believe that ifabotuzumab as part of an antibody drug conjugate has the potential for treating solid tumors. In 2006, we entered into a license agreement with Ludwig Institute of Cancer Research (“LICR”) pursuant to which LICR granted certain exclusive rights to the ifabotuzumab prototype (referred to as IIIA4) as well as EphA3 intellectual property.
Ifabotuzumab binds to EphA3, which plays an important role in cell positioning and tissue organization during fetal development but is not thought to be expressed nor play a significant role in healthy adults. EphA3 is a tyrosine kinase receptor, aberrantly expressed on the tumor vasculature and tumor stroma in several solid tumors including melanoma, breast cancer, small and non-small cell lung cancer (“SCLC” and “NSCLC”), colorectal cancer, gastric cancer, renal cancer, glioblastoma multiforme (“GBM”), and prostate cancer, making it an attractive target for a range of cancers. Publications related to certain cancers have indicated that EphA3 tumor cell expression correlates with cancer growth and a poor prognosis. EphA3 appears to be critically involved in maintaining tumor cells in a less differentiated state by modulating mitogen-activated protein kinase signaling. EphA3 knockdown or depletion of EphA3-positive tumor cells may reduce tumorigenic potential to a degree comparable to treatment with a therapeutic radiolabeled EphA3-specific monoclonal antibody. We believe EphA3 is a functional, targetable receptor in solid tumors. A study published in December 2018 in ‘Cancers’ showed that an antibody drug conjugate (“ADC”) comprising IIIA4 (a predecessor monoclonal antibody and prototype for ifabotuzumab) showed significant survival benefit in mice with GBM.
Anti-EphA3 treatment has shown encouraging preclinical results in multiple experiment types, including patient primary tumor cell assays, colony forming assays, and xenograft mouse models. Upon binding to EphA3, ifabotuzumab causes cell killing to occur either through antibody-dependent, cell-mediated cytotoxicity or through direct apoptosis, and in the case of tumor neovasculature, through cell rounding and blood vessel disruption. Given the expression pattern of EphA3 in multiple tumor types, ifabotuzumab may have the potential to kill cancer cells and the tumor stem cell microenvironment, providing for long-term responses while sparing normal cells.
On April 10, 2021, we presented top-line results from the Phase 1 safety and bioimaging trial of ifabotuzumab in patients with GBM at the American Association for Cancer Research 2021 Annual Meeting. The Phase 1 study primarily sought to determine the safety and recommended Phase 2 dose of ifabotuzumab in patients with GBM, the most frequent and lethal primary brain neoplasm, with 5-year survival rates of 10%. There were no dose-limiting toxicities observed and all adverse events were readily manageable. Additional studies are being planned to evaluate ifabotuzumab as an ADC in patients with solid tumors, such as, colon, breast, prostate, and pancreatic cancer. These studies include the Olivia Newton-John Cancer Research Institute which plans to conduct a Phase 1b dose-escalation and imaging study in non-CNS solid tumors that is scheduled to begin in 2023.
HGEN005
HGEN005 is a Humaneered monoclonal antibody, formerly referred to as KB005, which selectively targets the eosinophil receptor EMR1. HGEN005 is being explored as a potential treatment for a range of eosinophilic diseases including eosinophilic leukemia both as an optimized naked antibody and as the backbone for a novel CAR-T construct.
A major limitation of current eosinophil-targeted therapies is incomplete depletion of tissue eosinophils and/or lack of cell selectivity. Eosinophils are a type of white blood cell. If too many eosinophils are produced in the body, chronic inflammation and tissue and organ damage may result. The origin and development of eosinophilic disorders is mostly due to eosinophils infiltrating tissue. EMR1 is expressed exclusively on eosinophils, making it an ideal target for the treatment of eosinophilic disorders. Regardless of the eosinophilic disorder, mature eosinophils express EMR1 in tissue, blood and bone marrow in patients with eosinophilia. We believe that because of its high selectivity, HGEN005 has significant potential to treat serious eosinophil diseases.
In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced Natural Killer (“NK”) of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. The development of HGEN005 is on hold while we focus on lenzilumab and ifabotuzumab.
Intellectual Property
Intellectual property is an important part of our strategy and has been a key focus area for Humanigen. We have and continue to file aggressively on our own inventions and in-license intellectual property and technology as it relates to our therapeutic interests. We believe that we are a leader in the field of GM-CSF neutralization in particular, and in targeting EphA3.
Licensing and Collaborations
The Mayo Foundation for Medical Education and Research
On June 19, 2019, we entered into the Mayo Agreement with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. The license covers various patent applications and know-how developed by Mayo Foundation in collaboration with us. These licensed technologies complement and broaden our position in the GM-CSF neutralization space and expand our discovery platform aimed at improving CAR-T to include gene-edited CAR-T cells. The Mayo Agreement requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
The term of the Mayo Agreement runs from May 29, 2019 until the later of: (i) the expiration date of the last to expire of the patent rights granted; or (ii) the conclusion of a period of ten (10) years from the date of the first commercial sale, subject to termination rights specified in the agreement.
The University of Zurich
On July 19, 2019, we entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich (“UZH”). Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization. The Zurich Agreement covers various patent applications filed by UZH which complement and broaden our position in the application of GM-CSF neutralization and expands our development platform to include improving allogeneic HSCT.
The Zurich Agreement required an initial one-time payment of $100,000, which we paid to UZH on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
The term of the Zurich Agreement runs from July 19, 2019 until the expiration date of the longest-lived patent right, subject to termination rights specified in the agreement.
Clinical Trial Agreement with the National Institute of Allergy and Infectious Diseases
On July 24, 2020, we entered into a clinical trial agreement (the “Clinical Trial Agreement”) with NIAID, part of the National Institutes of Health, which is part of the United States Government Department of Health and Human Services, as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the Clinical Trial Agreement, lenzilumab was evaluated in the NIAID-sponsored ACTIV-5/ BET in hospitalized patients with COVID-19. The ACTIV-5/BET-B study protocol was modified to include baseline CRP below 150 mg/L (the CRP subgroup) as the primary analysis population. The topline results showed the trial did not achieve statistical significance on the primary endpoint, although the topline results did indicate that lenzilumab demonstrated a positive trend in mortality. Pursuant to the Clinical Trial Agreement, NIAID served as sponsor and was responsible for supervising and overseeing ACTIV-5/BET-B. We provided lenzilumab to NIAID without charge and in quantities to ensure a sufficient supply of lenzilumab.
The Ludwig Institute for Cancer Research
In 2004, we entered into a license agreement with the Ludwig Institute for Cancer Research (“LICR”) pursuant to which LICR granted to us an exclusive license for intellectual property rights and materials related to chimeric anti-GM-CSF antibodies that formed the basis for lenzilumab. Under the agreement, we were granted an exclusive license to develop antibodies related to LICR’s antibodies against GM-CSF. We are responsible for using commercially reasonable efforts to research, develop, and sell lenzilumab. We pay LICR a quarterly license fee and are obligated to pay to LICR a royalty from 1.5% to 3% of net sales of licensed products, subject to certain potential offsets and deductions. Our royalty obligation applies on a country-by-country and licensed product-by-licensed product basis, and will begin on the first commercial sale of a licensed product in a given country and end on the later of the expiration of the last to expire patent covering a licensed product in a given country (which in the US is currently expected in 2029 for the composition of matter and 2038 for methods of use in CAR-T) or 10 years from first commercial sale of such licensed product in the country. We must also pay to LICR a certain percentage of sublicensing revenue received by us. Payments made to LICR under this license for each of the twelve months ended December 31, 2022 and 2021 were $0.1 million.
Other License Agreements
LICR and ifabotuzumab
In 2006, we entered into a license agreement with LICR pursuant to which LICR granted to us certain exclusive rights to the ifabotuzumab prototype (IIIA4) which targets EphA3 and EphA3-related intellectual property. Under the agreement, we obtained rights to develop and commercialize products made through use of licensed patents and any improvements thereto, including human or Humaneered antibodies that bind to or modulate EphA3. We paid LICR an upfront option fee of $0.05 million and a further $0.05 million upon our exercise of the option for the exclusive license outlined above. We are responsible for contingent milestone payments of less than $2.5 million and royalties of 3% of net sales subject to certain potential offsets and deductions. In addition, we are obligated to pay to LICR a percentage of certain payments we receive from any sublicensee in consideration for a sublicense. Our royalty obligation exists on a country-by-country and licensed product-by-licensed product basis, which will begin on the first commercial sale and end on the later of the expiration of the last to expire patent covering such licensed product in such country, which in the US is currently expected in 2031, or 10 years from first commercial sale of such licensed product in such country.
BioWa and Lonza
In 2010, we entered into a license agreement with BioWa, Inc. (“BioWa”), and Lonza Sales AG (“Lonza”) pursuant to which BioWa and Lonza granted us a non-exclusive, royalty-bearing, sub-licensable license under certain know-how and patents related to antibody expression and antibody-dependent cellular cytotoxicity enhancing technology using BioWa and Lonza’s Potelligent® CHOK1SV technology. This technology is used to enhance the cell killing capabilities of antibodies and is currently used by us in connection with our development of ifabotuzumab. Under this agreement, we owe annual license fees, milestone payments in connection with certain regulatory and sales milestones and royalties in the low single digits on net sales of products developed under the agreement. The agreement expires upon the expiration of royalty payment obligations under the agreement, is terminable at will by us upon written notice, is terminable by BioWa and Lonza if we challenge or otherwise oppose any licensed patents under the agreement and is terminable by either party upon the occurrence of an uncured material breach or insolvency.
Patents and Trade Secrets
We use a combination of patent, trade secret and other intellectual property protections to protect our product candidates and platforms. We will be able to protect our product candidates from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our technology is effectively maintained as trade secrets. Intellectual property is an important part of our strategy. We have and continue to file aggressively on our own inventions and in-licensed intellectual property and technology as it relates to our therapeutic interests. Our success will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of patents covering lenzilumab, ifabotuzumab, HGEN005, our Humaneered technology, and our GM-CSF gene-editing CAR-T platform technologies, to preserve trade secrets and proprietary know how, and to operate without infringing the patents and proprietary rights of third parties. We actively seek patent protection, if available, in the US and select foreign countries for the technology we develop. We have 140 registered patents, including 16 registered in the US and 124 registered in foreign countries. Of the 140 registered patents, 101 are owned by us, 29 are owned jointly with a third party and 10 are exclusively licensed from a third party. We also have 86 patent applications pending globally, of which 46 are owned by us, 13 are owned jointly with a third party and 27 are exclusively licensed from a third party.
Using our Humaneered technology, we have developed and own two composition of matter US patents covering lenzilumab and related anti-GM-CSF antibodies that provide patent protection through April 2029, a granted composition of matter patent in 15 European countries and certain foreign countries, and have four US patents, one foreign patent, and 14 additional pending patent applications in the US, 55 foreign patent applications, and three PCT international patent application covering various methods of treatment, including in the CAR-T space covering a broad and comprehensive range of approaches to neutralizing GM-CSF, including the use of GM-CSF k/o CAR-T cells, which, if granted, are expected to confer protection to at least September 2039.
We developed and own an issued US composition of matter patent covering ifabotuzumab and related anti-EphA3 antibodies, which is currently expected to expire in 2031, and own 22 foreign patents to anti-EphA3 antibodies and therapeutic uses, in addition to owning three US patents and jointly owning one US patent to therapeutic methods using anti-EphA3 antibodies, two European patents validated in 22 countries, and five foreign patents owned jointly with a third party covering methods of treatment with anti-EphA3 antibodies. The one US and 40 foreign patents to our Humaneered technology cover methods of producing human antibodies that are very specific for target antigens using only a small region from mouse antibodies.
Manufacturing and Raw Materials
We outsource all development activities, including the development of formulation prototypes. We do not have, nor do we plan to have, any manufacturing facilities. Instead, we have adopted a manufacturing strategy of contracting with third party contract manufacturing organizations (“CMOs”) for the manufacture of bulk drug substance (“BDS”) and fill, finish, labeling, packaging and distribution work for our product candidates. We believe our outsourcing approach allows us to maintain a leaner staff and a more flexible infrastructure, allowing us to focus our expertise on developing our products.
In 2020 and the first half of 2021, we were aggressive in pursuing manufacturing slots for lenzilumab in contemplation of its potential commercialization under an EUA in the US or an equivalent authorization in the UK and EU. Please refer to “Part II, Item 7. Management’s Discussion and Analysis” for a further discussion of the costs we incurred in these efforts. Our production efforts were less successful than we had anticipated, as we experienced shortages of raw materials and critical components necessary for our manufacturing processes, delays in production and availability of manufacturing slots and failures in production at the BDS and DP level resulting in lower than anticipated yields. Further, certain of our CMOs had difficulties in producing BDS within specifications or were unable to produce BDS on a timely basis due to challenges in the supply of materials used in the production process. We have amended, and in some cases canceled, certain of these CMO agreements. More recently, we have settled our disputes with two of our CMOs. See Note 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information on these settlement agreements.
In connection with our realignment to deemphasize the deployment of certain resources for the development of lenzilumab for COVID-19, with the exception of one lenzilumab batch in process, we have discontinued the manufacturing of lenzilumab and are consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future use. We believe we have sufficient drug product for our currently planned clinical trials.
Sales and Marketing
We intend to outsource our sales and marketing infrastructure necessary to market and sell our products, if authorized or approved. As our drug candidates progress, we may also seek strategic alliances and partnerships with third parties including those with existing infrastructure and with government bodies.
Competition
We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties to develop a potential treatment for hematologic cancers, and to develop potential biologic therapies to make allogeneic HSCT and CAR-T therapy safer and more effective, in addition to recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying to a large extent on our drug approvals or on our biologics approvals, or with generic copies of our product approved by FDA, as bio-similars, referencing our drug products. Many of our potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours.
Competition for the treatment of solid tumors varies by tumor type. Surgery and/or radiation treatment is typically the first-line therapy, followed by chemotherapy. Chemotherapy may be used as front-line treatment in the case of inoperable tumors and targeted therapies may be used as second-line therapy for specific solid tumors that exhibit certain mutations. There are currently no known therapies that target EpAh3 antigen.
Lenzilumab and CMML competition
CMML is currently treated via stem cell transplant, surgery or chemotherapy, typically azacytidine or decitabine. According to clinicaltrials.gov, there are a limited number of studies exclusively studying CMML. Most studies that include CMML also include other oncological conditions. Two Phase 2 open-label studies are focused exclusively on CMML, exploring the use of cobimetinib (Genentech, Inc.) and ruxolitinib (Incyte Corporation) with each study enrolling 29 patients.
Lenzilumab and aGvHD competition
The current standard of care for aGvHD is systemic steroids and for steroid refractory disease, ruxolitinib. Abatacept is approved for prevention of aGvHD in combination with MTX and CNI.
Lenzilumab and CAR-T-related toxicities competition
Medicines used to manage ICANS and CRS, such as tocilizumab and corticosteroids, have not adequately controlled the side-effects, and steroids may have a detrimental impact on the efficacy of the CAR-T therapy itself while tocilizumab may increase the risk of CAR-T therapy induced ICANS and is correlated with an increased risk of infections, including severe infections. Further, these medicines have not undergone prospective clinical trials for use in this patient population. Tocilizumab is not approved for prevention of CRS, nor is it approved for either prevention or treatment of ICANS.
Government Regulation
Drug Development and Approval in the US
As a biopharmaceutical company operating in the US, we are subject to extensive regulation by FDA and by other federal, state, and local regulatory agencies. FDA regulates biological products such as our product candidates under the US Federal Food and Cosmetic Act (“FDCA”), the Public Health Service Act (“PHSA”) and their implementing regulations. These laws and regulations set forth, among other things, requirements for preclinical and clinical testing, development, approval, labeling, manufacture, storage, record keeping, reporting, distribution, import, export, advertising, and promotion of our products and product candidates. Under the PHSA, in most circumstances an FDA-approved BLA is required to market a biological product, or biologic, in the US Biologics receive 12 years market exclusivity from first licensure.
Emergency Use Authorization
FDA’s EUA authority allows the agency to facilitate greater availability and use of medical countermeasures, including biologics, when the Secretary of Health and Human Services (“HHS”) has declared that circumstances exist that justify such authorization. Under such circumstances, companies may request an EUA to permit the marketing and use of a product before that product has received FDA approval, or to permit the otherwise unapproved use of an approved product. FDA may only issue an EUA if it concludes that: the chemical, biological, radiological or nuclear agent referred to in the HHS Secretary’s public health emergency declaration is capable of causing a serious or life-threatening disease; the product at issue “may be effective” to prevent, diagnose, or treat serious or life-threatening diseases or conditions that can be caused by that agent or to mitigate a disease or condition caused by an FDA-regulated product used to diagnose, treat, or prevent a disease or condition caused by that agent; and that there are no adequate, approved, and available alternatives. The EUA “may be effective” standard requires a lower level of evidence than the “effectiveness” standard required for a BLA.
An EUA is not a permanent marketing authorization. Rather, an EUA may be terminated once the Secretary of HHS declares that the public health emergency is terminated; when a product that is marketed under an EUA obtains full marketing approval (for example, under a BLA); or when circumstances change (such as, for example, new data emerge that change the risk-benefit calculation). As a practical matter, where the HHS Secretary declares an end to the public health emergency that gave rise to FDA’s EUA authority, the Secretary must provide advance notice that allows for disposition of an unapproved product. As of late January 2022, the Biden Administration has indicated it intends to let the coronavirus public health emergency expire in May 2023. If and when this public health emergency is terminated, the EUA landscape will change. Products currently marketed under a COVID-related EUA will eventually lose their marketing eligibility, although HHS will provide advance notice and is likely to allow time for the disposition of unapproved products and/or their transition to a different status.
Applications Relying on the Applicant’s Clinical Data
The approval process for a BLA under the PHSA requires the conduct of extensive studies and the submission of large amounts of data by the applicant. The biologic development process for these applications will generally include the following phases:
Preclinical Testing. Before testing any new biologic in human subjects in the US, a company must generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological studies in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with FDA’s Good Laboratory Practice (“GLP”) regulations and the US Department of Agriculture’s Animal Welfare Act.
IND Application. Human clinical trials in the US cannot commence until an IND application is submitted and becomes effective. A company must submit preclinical testing results to FDA as part of the IND application, and FDA must evaluate whether there is an adequate basis for testing the product in initial clinical studies in human volunteers. Unless FDA raises concerns, the IND application becomes effective 30 days following its receipt by FDA. Once human clinical trials have commenced, FDA may stop the clinical trials by placing them on “clinical hold” because of concerns about the safety of the product being tested, or for other reasons.
Clinical Trials. Clinical trials involve the administration of the product to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring regulations and Good Clinical Practice (“GCP”) requirements, which establish standards for conducting, recording data from, and reporting the results of clinical trials. GCP requirements are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected.
Clinical trials must be conducted under protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is submitted to FDA as part of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an Institutional Review Board (“IRB”), at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the US. Data from a foreign study not conducted under an IND application may be submitted in support of a BLA if the study was conducted in accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain details about active clinical trials and clinical trial results on the government website clinicaltrials.gov.
Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another and, notably, in the CAR-T setting, FDA has granted approval to all six currently marketed CAR-T therapies (Gilead/Kite’s Yescarta, and Tecartus, Novartis’ Kymriah, Johnson & Johnson’s Carvykti, and Bristol Myers Squibb’s Breyanzi and Abecma) based on Phase 2 data and to tocilizumab without any prospective data in the CAR-T setting:
∙ Phase 1 clinical trials include the initial administration of the investigational product to humans, typically to a small group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase I clinical trials generally are intended to determine the metabolism and pharmacologic actions of the product, the side-effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
∙ Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range, and to gather additional information relating to safety and potential adverse effects.
∙ Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended to gather additional information about safety and effectiveness necessary to evaluate the product’s overall risk-benefit profile, and to provide a basis for physician labeling. Generally, Phase 3 clinical development programs consist of expanded, large-scale studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug at the proposed dosing regimen, or with the safety, purity, and potency of a biological product.
∙ FDA does not always require every approved therapy to complete Phase 1 through 3 studies to secure approval. Approval through expedited routes is at the discretion of FDA.
The sponsoring company, FDA, or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit, or prevent regulatory approval.
BLA Submission and Review
After completing clinical testing of an investigational biologic product, a sponsor must prepare and submit a BLA for review and approval by FDA. A BLA is a comprehensive, multi-volume application that must include, among other things, sufficient data establishing the safety, purity and potency of the proposed biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling. When a BLA is submitted, FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, FDA may refuse to accept the application for filing and may request additional information, in which case the application must be resubmitted with the supplemental information and review of the application is delayed.
FDA performance goals, which are target dates and other aspirational measures of agency performance to which the agency, Congressional representatives, and industry agree through negotiations that occur every five years, generally provide for action on BLA applications within 10 months of submission or 10 months from acceptance for filing for an original BLA. FDA is not expected to meet those target dates for all applications, however, and the deadline may be extended in certain circumstances, such as when the applicant submits new data late in the review period. In practice, the review process is often significantly extended by FDA requests for additional information or clarification. In some circumstances, FDA can expedite the review of new biologics deemed to qualify for priority review, such as those intended to treat serious or life-threatening conditions that demonstrate the potential to address unmet medical needs. In those cases, the targeted action date is six months from submission, or for biologics constituting original biological products, six months from the date that FDA accepts the application for filing.
As part of its review, FDA may refer a BLA to an advisory committee for evaluation and a recommendation as to whether the application should be approved. Although FDA is not bound by the recommendation of an advisory committee, the agency usually has followed such recommendations. FDA may also determine that a REMS program is necessary to ensure that the benefits of a new product outweigh its risks, and that the product can therefore be approved. A REMS program may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the product, depending on what FDA considers necessary for the safe use of the product. Under the Pediatric Research Equity Act, a BLA must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug or biological product in relevant pediatric populations, unless the requirement is waived or deferred. Receiving orphan drug designation from FDA is one situation where such a requirement may be waived.
After review of a BLA, FDA may determine that the product cannot be approved, or may determine that it can only be approved if the applicant cures deficiencies in the application, in which case the agency endeavors to provide the applicant with a complete list of the deficiencies in correspondence known as a Complete Response Letter (“CRL”). A CRL may request additional information, including additional preclinical or clinical data. Even if such additional information and data are submitted, FDA may decide that the BLA still does not meet the standards for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than the sponsor interprets them. Additionally, as a condition of approval, FDA may impose restrictions that could affect the commercial success of a drug or require post-approval commitments, including the completion within a specified time period of additional clinical studies, which often are referred to as “Phase IV” studies or “post-marketing requirements.” Obtaining regulatory approval often takes several years, involves the expenditure of substantial resources, and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials.
Post-approval modifications to the drug or biologic product, such as changes in indications, labeling, or manufacturing processes or facilities, may require a sponsor to develop additional data or conduct additional preclinical or clinical trials. The proposed changes would need to be submitted in a new or supplemental BLA, which would then require FDA approval.
Regulatory Exclusivities
Biologics Price Competition and Innovation Act
In 2010, the Biologics Price Competition and Innovation Act (“BPCIA”) was enacted, creating an abbreviated approval pathway for biologic products that are biosimilar to, and possibly interchangeable with, reference biological products licensed under a BLA. The BPCIA also provides innovator manufacturers of original reference biological products 12 years of exclusive use from first licensure before biosimilar versions can be licensed in the US. This means that FDA may not approve an application for a biosimilar version of a reference biological product until 12 years after the date of first licensure of the reference biological product (with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results reported to FDA), although a biosimilar application may be submitted four years after the date of first licensure of the reference biological product. Additionally, the BPCIA establishes procedures by which the biosimilar applicant must provide information about its application and product to the reference product sponsor, and by which information about potentially relevant patents is shared and litigation over patents may proceed in advance of approval of the biosimilar product, although the interpretation of those procedures has been subject to litigation and appears to continue to evolve. The BPCIA also provides a period of exclusivity for the first biosimilar to be determined by FDA to be interchangeable with the reference product.
FDA approved the first biosimilar product under the BPCIA in 2015, and the agency continues to refine the procedures and standards it will apply in implementing this approval pathway. FDA has released guidance documents interpreting specific aspects of the BPCIA in the years since. We would expect lenzilumab, ifabotuzumab and HGEN005, as biologics, to each receive at least 12 years exclusivity from first licensure if they are approved.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act, a BLA must contain data adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, FDA, and FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan. FDA or the applicant may request an amendment to the plan at any time.
For products intended to treat a serious or life-threatening disease or condition, FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-Phase I meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.
FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after licensing of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in Food and Drug Administration Safety and Innovation Act (“FDASIA”). Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications. Any company that submits a BLA three years after the date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is intended for the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing, safety and preliminary potency to inform pediatric labeling for the product. Deferrals and waivers as described above are also available.
Pediatric exclusivity is another type of exclusivity in the US and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by a further six months. This is not a patent term extension, but it effectively extends the regulatory period during which FDA cannot license another application.
Orphan Drug Designation
The Orphan Drug Act provides incentives for the development of therapeutic products intended to treat rare diseases or conditions. Rare diseases and conditions generally are those affecting less than 200,000 individuals in the US, but also include diseases or conditions affecting more than 200,000 individuals in the US if there is no reasonable expectation that the cost of developing and making available in the US a drug for such disease or condition will be recovered from sales in the US of such product.
If a sponsor demonstrates that a therapeutic product, including a biological product, is intended to treat a rare disease or condition, and meets certain other criteria, FDA grants orphan drug designation to the product for that use. FDA may grant multiple orphan designations to different companies developing the same product for the same indication, until the one company is the first to be able to secure successful approval for that product. The first product approved with an orphan drug designated indication is granted seven years of orphan drug exclusivity from the date of approval for that indication. During that period, FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. FDA can also revoke a product’s orphan drug exclusivity under certain circumstances, including when the holder of the approved orphan drug application is unable to assure the availability of sufficient quantities of the product to meet patient needs.
A sponsor of a product application that has received an orphan drug designation is also granted tax incentives for clinical research undertaken to support the application. In addition, FDA will typically coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion to grant marketing approval based on more limited product safety and efficacy data than would ordinarily be required, based on the limited size of the applicable patient population.
Expedited Programs for Serious Conditions
FDA has implemented a number of expedited programs to help ensure that therapies for serious or life-threatening conditions, and for which there is unmet medical need, are approved and available to patients as soon as it can be concluded that the therapies’ benefits justify their risks. Among these programs are the following:
Fast Track Designation
FDA may designate a product for fast-track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition and where non-clinical or clinical data demonstrates the potential to address unmet medical need for such a disease or condition. A product can also receive fast track review if it receives breakthrough therapy designation.
For fast-track products, sponsors may have greater interactions with FDA and FDA may initiate review of sections of a fast-track product’s application before the application is complete, also referred to as a ‘rolling review’. This rolling review may be available if FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast-track product may be effective. The sponsor must also provide, and FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. Furthermore, FDA’s time period goal for reviewing a fast-track application does not begin until the last section of the complete application is submitted. Finally, the fast-track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the features of fast-track designation, as well as more intensive FDA interaction and guidance. FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design efficient clinical trials.
Accelerated Approval
Under the accelerated approval pathway, FDA may approve a drug or biologic based on a surrogate endpoint that is reasonably likely to predict clinical benefit; qualifying products must target a serious or life-threatening illness and provide meaningful therapeutic benefit to patients over existing treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would allow FDA to withdraw the product from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by FDA.
Priority Review
FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. FDA generally determines, on a case-by-case basis, whether the proposed product represents a significant improvement in safety and effectiveness when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications and will shorten FDA’s goal for acting on a marketing application from the standard targeted ten months to a target of six months review.
Created in 2012 under the FDASIA and extended with the 21st Century Cures Act in 2016, FDA is authorized under section 529 of the FDCA to grant a PRV to BLA sponsors receiving FDA approval for a product to treat a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the US, and where more than 50% of the patients affected are aged from birth to 18 years. We believe that our product candidates which may assist with the treatment of rare pediatric cancers or other rare pediatric diseases may qualify for a PRV under this program, depending on the indication.
The PRV program allows the voucher holder to obtain priority review for a product application that would otherwise not receive priority review, shortening FDA’s target review period to a targeted six months following acceptance of filing of an NDA or BLA, or four months shorter than the standard review period. The voucher may be used by the sponsor who receives it, or it may be sold to another sponsor for use in that sponsor’s own marketing application. The sponsor who uses the voucher is required to pay additional user fees on top of the standard user fee for reviewing an NDA or BLA.
We anticipate submitting applications for one or more of these expedited programs and the targeted therapeutic indications.
Regenerative Medicine Advanced Therapy Designation
Recently, through the 21st Century Cures Act (the “Cures Act”), Congress also established another expedited program, called a RMAT designation. The Cures Act directs FDA to facilitate an efficient development program for and expedite review of RMATs. To qualify for this program, the product must be a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or a combination of such products, and not a product solely regulated as a human cell and tissue product. The product must be intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence must indicate that the product has the potential to address an unmet need for such disease or condition. Advantages of the RMAT designation include all the benefits of the fast track and breakthrough therapy designation programs, including early interactions with FDA. These early interactions may be used to discuss potential surrogate or intermediate endpoints to support accelerated approval.
Post-Licensing Regulation
Once a BLA is approved and a product marketed, a sponsor will be required to comply with all regular post-licensing regulatory requirements as well as any post-licensing requirements that FDA may have imposed as part of the licensing process. The sponsor will be required to report, among other things, certain adverse reactions and manufacturing problems to FDA, provide updated safety and potency or efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies and are subject to periodic unannounced inspections by FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Changes to the manufacturing processes are strictly regulated and often require prior FDA approval before being implemented. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”) and its implementing regulations, as well as the Drug Supply Chain Security Act (“DSCA”), which regulate the distribution and tracing of prescription drug samples at the federal level and set minimum standards for the regulation of distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Drug Development and Approval in Australia, the European Union and United Kingdom
In order to market a drug product outside of the United States, a company must comply with a variety of foreign regulatory requirements governing clinical studies, product approval, and commercial sale and distribution of the product. Regardless of whether a company obtains FDA approval for the product, it must obtain any necessary approvals from foreign regulatory authorities prior to commencing clinical trials or marketing the product in the relevant countries. The approval process and regulatory requirements vary significantly across jurisdictions, and the time to approval and marketing may be longer or shorter than that required for FDA approval.
European Union
The process governing approval of medicinal products in the European Union generally follows the same lines as in the United States. It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the EU. As in the United States, the EU also has a standard marketing authorization approval process and a conditional authorization process that can be used to bring medicine to the market more quickly during a public health emergency.
As in the US, companies may apply for designation of a product as an orphan drug for the treatment of a specific indication in the EU before the application for marketing authorization is made. Orphan drugs in Europe receive economic and marketing benefits, including up to 11 years of exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.
In the EU, companies developing a new medicinal product must agree to a Pediatric Investigation Plan (“PIP”) with EMA and must conduct pediatric clinical trials in accordance with that PIP, unless a deferral or waiver applies, (e.g., because the relevant disease or condition occurs only in adults). Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month extension of the protection under a supplementary protection certificate (if any is in effect at the time of approval) or, in the case of orphan medicinal products, a two-year extension of the orphan market exclusivity.
European Union - Conditional Marketing Authorization
The EMA may grant a conditional marketing authorization for medicines that address unmet needs, on the basis of less comprehensive clinical data than normally required, where the benefit of immediate availability of the medicine outweighs the risk inherent in the fact that additional data are still required. Drugs for human use, including orphan drugs, are eligible for conditional marketing authorization if they are intended to treat, prevent, or diagnose serious debilitating or life-threatening diseases, if: (1) the risk-benefit balance of the product is positive; (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical study data; (3) unmet medical needs will be fulfilled; and (4) the benefit to the public health of the immediate availability on the market of the product outweighs the risk inherent in the need for additional data. Conditional marketing authorization, which may specify additional requirements regarding completion of ongoing or new studies and collection of pharmacovigilance data, is valid for one year, and may be renewed annually if the risk-benefit balance remains positive, and after assessment of the need for additional or modified conditions.
The United Kingdom
Since the exit of the UK from the European Union, Great Britain (England, Scotland, and Wales) is no longer covered by EU procedures for the grant of marketing authorizations and a separate marketing authorization will be required to market drugs (Northern Ireland is covered by the centralized authorization procedure and can be covered under the decentralized or mutual recognition procedures). It will be necessary for applicants to make a separate application to the UK Medicines and Healthcare products Regulatory Agency ("MHRA") for a UK marketing authorization.
MHRA has introduced a national conditional marketing authorization scheme for new drugs in Great Britain. This scheme has the same eligibility criteria as the EU scheme and is intended for drugs that fulfill an unmet medical need, such as drugs for serious and life-threatening diseases where no satisfactory treatment methods are available or where the product offers a major therapeutic advantage.
Gaining orphan drug designation in Great Britain following Brexit is based on the prevalence of the condition in Great Britain (rather than in the EU). It is, therefore, possible that conditions that are currently designated as orphan conditions in Great Britain will no longer be and that conditions that are not currently designated as orphan conditions in the EU will be designated as such in Great Britain. Unlike in the EU, applications for orphan drug designation in Great Britain are reviewed in parallel with the corresponding marketing authorization application.
Australia
The Therapeutic Goods Administration (“TGA”) governs the review and approval of medicinal products for human use in Australia, and the processes and requirements for such. Generally, the requirements are similar to those in the US, UK and Europe. There are three regulatory product approval pathways; standard, priority, and provisional. The priority review pathway offers an expedited review potential for products that treat, prevent or diagnose a life-threatening or seriously debilitating condition. The goal for priority review is to decrease overall time to approval by 3 months. Both standard and priority review pathways require full and complete electronic Common Technical Document (“eCTD”) submissions. The provisional approval pathway allows for submission of preliminary or limited clinical data in cases whereby data demonstrates the medicine is likely to provide a significant improvement in efficacy or safety for a serious condition, and there is a substantiated plan to provide more comprehensive data within at least 6 years. TGA also offers Orphan Drug Designations which are associated with certain financial incentives for serious conditions in limited populations.
Employees and Human Capital Resources
As of December 31, 2022, we employed six full-time employees, and no part-time employees, the majority of whom work remotely in various locations throughout the United States and the world. In addition, we contract with several part-time independent consultants performing manufacturing, supply chain, quality assurance and control, regulatory and clinical development, intellectual property, public relations, and finance and accounting functions. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good.
Information about our Executive Officers
The following sets forth the names, ages and current positions of our executive officers as of March 16, 2023.
Cameron Durrant, M.D., MBA, age 62, has served as our Chairman of our Board since January 2016, as our Chief Executive Officer since March 2016 and as our Acting Chief Financial Officer since October 2022. In addition, Dr. Durrant served as our Interim Chief Financial Officer from July 1, 2019 to July 31, 2020. He previously has been a senior executive at Johnson and Johnson, Pharmacia Corporation, GSK and Merck. Dr. Durrant currently serves on the boards of directors of two privately held healthcare companies. Dr. Durrant earned his medical degree from the Welsh National School of Medicine, Cardiff, UK, his DRCOG from the Royal College of Obstetricians and Gynecologists, London, UK, his MRCGP from the Royal College of General Practitioners, London, UK, and his MBA from Henley Management College, Oxford, UK. He was elected as a Fellow of the Learned Society of Wales in 2022.
Dale Chappell, M.D., MBA, age 52, was appointed as our Chief Scientific Officer on July 6, 2020. Dr. Chappell is the managing member of BH Management, a private investment manager that specializes in biopharmaceuticals and a significant stockholder, a position he has held since 2002. Since April 2015, Dr. Chappell has served as CEO, President and CFO of Cheval US Holdings, Inc., a private investment company with holdings in the hospitality industry. Previously, Dr. Chappell was an associate with Chilton Investment Company, covering healthcare, and an analyst at W.P. Carey & Company. Dr. Chappell, who received his MD from Dartmouth Medical School and his MBA from Harvard Business School, began his career as a Howard Hughes Medical Institute fellow at the National Cancer Institute where he studied tumor immunology, worked as a researcher in the labs of Dr. Steven A. Rosenberg (widely thought of as one of the pioneers in CAR-T therapy) and Dr. Nicholas P. Restifo (a leading researcher in the field of immunology) and is published in the field of GM-CSF. Dr. Chappell served as a member of the Board from June 2016 to November 2017. Prior to joining Humanigen in a full-time role as our Chief Scientific Officer, Dr. Chappell advised and consulted with management as our ex-officio chief scientific officer.
Edward P. Jordan, MBA, age 55, was appointed as our Chief Commercial Officer on August 24, 2020. Mr. Jordan has more than two decades of commercial operations experience at leading biotechnology and pharmaceutical companies, having launched over a dozen products and developed new therapeutic markets in the US and abroad. From 2016 until joining Humanigen, Mr. Jordan served as Senior Vice President of DBV Technologies, where he built the North American commercial organization in preparation for the launch of a lifesaving pediatric biologic. Prior to DBV Technologies, from January 2014 to July 2015, Mr. Jordan was the Senior Vice President, Hematology and Oncology Sales and Marketing at AMAG Pharmaceuticals. Prior to AMAG Pharmaceuticals, Mr. Jordan served in executive roles at Teva Pharmaceuticals. Mr. Jordan began his career at Schering-Plough, prior to the acquisition by Merck, and spent 18 years in sales and marketing leadership positions. Mr. Jordan received dual undergraduate degrees from The University of Rhode Island and an MBA from Southern New Hampshire University.
Available Information
We were incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001. Effective August 7, 2017, we changed our legal name to Humanigen, Inc. Our principal executive offices are located at 830 Morris Turnpike, 4th Floor, Short Hills, NJ 07078 and our telephone number is (973) 200-3010. Our website address is www.humanigen.com. Our common stock is currently listed on the Nasdaq Capital Market under the symbol HGEN. We operate in a single segment.
Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains the reports, proxy and information statements, and other information we electronically file with or furnish to the SEC, located at www.sec.gov.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition, results of operations, and the trading price of our common stock, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in or incorporated by reference into this Annual Report on Form 10-K and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risks Related to the Proposed Business Combination and our Exploration of Strategic Alternatives
While we have entered into a non-binding letter of intent and are involved in exclusive negotiations with the Partner Company relating to a proposed business combination transaction, we cannot assure you that the proposed business combination and related financing transactions contemplated thereby will be consummated or, that if such transactions are consummated, they will yield value for our stockholders. If we are unable to complete the proposed business combination and related financing transactions, or to identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to pursue a reorganization or seek other protection under the Bankruptcy Code.
As disclosed elsewhere in this Annual Report on Form 10-K, we have executed a non-binding letter of intent and are engaged in exclusive negotiations relating to a proposed business combination with the Partner Company. We cannot assure you that we and the Partner Company will agree to terms and enter into a definitive agreement for the proposed transaction on a timely basis or at all, which remains subject to satisfactory due diligence and further negotiation, among other things. Accordingly, the final form and terms of any such transaction may be materially different from the terms outlined in this Annual Report on Form 10-K. Our ability to enter into a definitive agreement is subject to conditions, including that we have received binding commitments for investment of additional capital that will be necessary to fund the operations of the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national securities exchange, as well as customary matters such as approval of the terms of the definitive agreement by the Partner Company’s board of directors and stockholders. We also will be required to obtain the approval of our stockholders prior to the issuance of more than 20% of our common stock in the proposed business combination and related financing transactions in accordance with applicable Nasdaq listing rules, and for an amendment to our charter to effect a reverse stock split or increase in our authorized capital stock. Certain of these conditions will be out of our control. Accordingly, we cannot provide any assurance that we will consummate the proposed business combination and related financing transactions in the time frame or in the manner currently anticipated, or at all.
Further, even if we are able to agree to terms with the Partner Company and to consummate the business combination and related financing transactions, there is no guarantee that the terms will be favorable to our stockholders or that we will recognize the anticipated benefits of the transaction. Regardless of whether we consummate the proposed business combination, the adverse pressures we have experienced may continue or intensify, and we may continue to face all of the risks identified in this section entitled “Risk Factors” going forward. In addition, public announcements or updates regarding any strategic transactions, financings or other strategic options and alternatives could result in volatility in the price of shares of our common stock and dramatic spikes in trading volume.
If we are unable to complete the proposed business combination and related financing transactions or identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to seek protection from our creditors by filing a voluntary petition for relief under the Bankruptcy Code in order to implement a restructuring plan or liquidation under Chapters 11 or 7 of the Bankruptcy Code (“Bankruptcy Protection”), respectively, or we may be subject to an involuntary petition in bankruptcy. Given our lack of liquidity, it is reasonably likely that any such bankruptcy filing would result in a complete loss of value for holders of our common stock.
Future sales or issuances of substantial amounts of our common stock or convertible equity securities, including, potentially, as a result of the proposed business combination with the Partner Company and related financing transactions, could result in significant dilution to our current stockholders.
The proposed terms of the potential business combination with the Partner Company contemplate a stock-for-stock merger, as a result of which we would issue shares of our capital stock to stockholders of the Partner Company which are expected to represent roughly two times the number of our currently outstanding shares of common stock. Additionally, in connection with the proposed business combination, we intend to raise additional capital that will be necessary to fund the operations of the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national securities exchange. If additional shares of our capital stock are issued in connection with the proposed business combination or additional capital is raised through the sale of common stock or convertible equity securities in the related financing transaction, or if additional shares are issued in another strategic or financing transaction, the issuance of those securities could result in significant dilution to our current stockholders by causing a reduction in their proportionate ownership and voting power.
The pursuit of additional capital and strategic alternatives, including the proposed business combination with the Partner Company and the related financing transaction, has and will continue to consume a substantial portion of the time and attention of our management and require additional capital resources and may be disruptive to our business, which could have a material adverse effect on our business, financial condition and results of operations.
We are not able to predict with certainty the amount of time and resources necessary to successfully execute and consummate the proposed business combination with the Partner Company, or any other strategic alternative, or to obtain additional financing. The diversion of management’s attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations. The additional expense we accrue in connection with our review of strategic alternatives and pursuit of additional capital may materially adversely impact our financial condition and partially offset the value of any strategic alternative we execute or additional financing we obtain.
Risks Related to our Financial Condition, Need for Additional Capital and Ability to Continue as a Going Concern
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. If we are unsuccessful in raising additional capital, we may elect or be required to seek Bankruptcy Protection.
Our current capital resources are not sufficient to fund our operations for the remainder of 2023, making it critical for us to raise additional funds. These conditions raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we can remain a going concern long enough to consummate a strategic transaction, including the proposed business combination with the Partner Company, or to realize the clinical milestones envisioned under the strategic realignment plan, which may in turn allow us to raise additional capital. In order to remain a going concern, we must also successfully settle disputes, including current and potential future arbitration and litigation.
Accordingly, our forward-looking business operations are dependent on our ability to raise additional capital and manage our liabilities to certain contract manufacturing and other partners. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If we are unsuccessful in accomplishing these objectives, we may not be able to continue our operations as a going concern and may elect or be required to seek Bankruptcy Protection, or we may be subject to an involuntary petition in bankruptcy. Given our lack of liquidity, it is reasonably likely that any such bankruptcy filing would result in a complete loss of value for holders of our common stock.
SEC regulations may limit the amount of funds we can raise during any 12-month period pursuant to our Form S-3. As of the filing of this Annual Report on Form 10-K, we are subject to General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, and the amount of funds we can raise through primary public offerings of securities in any 12-month period using our Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. We will continue to be limited by the Baby Shelf Rule until such time as our public float exceeds $75 million. If we are required to file a new registration statement on another form, we may incur additional costs and be subject to delays due to review by SEC staff.
The consolidated financial statements for the year ended December 31, 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. 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.
Further, doubts about our ability to continue as a going concern could impact our relationships with our development partners and other third parties and our ability to obtain, maintain or renew contracts with them, or negatively impact our negotiating leverage with such parties, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, any loss of key personnel, employee attrition or material erosion of employee morale arising out of doubts about our ability to operate as a going concern could have a material adverse effect on our ability to effectively conduct our business, and could impair our ability to execute our strategic realignment plan and implement our business objectives, thereby having a material adverse effect on our business, financial condition and results of operations.
Currently pending, threatened or future litigation, arbitration, governmental proceedings or inquiries could result in material adverse consequences, including judgments or settlements, and adversely affect our ability to continue as a going concern.
We are currently, and may from time-to-time become, involved in lawsuits, arbitration and other legal or governmental proceedings. See Item 3 - Legal Proceedings to this Annual Report on Form 10-K and Note 11 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding currently pending litigation and arbitration that could have a material impact on us. Many of these matters raise complicated factual and legal issues and are subject to uncertainties and complexities, all of which make the matters costly to address. The timing of the final resolutions to any such lawsuits, inquiries, and other legal proceedings is uncertain.
The possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our consolidated financial condition, results of operations and cash flows, and our ability to continue as a going concern. Unless we are able to obtain additional financing, given our current lack of liquidity, it is reasonably likely that any adverse judgment, settlement, or court order requiring the payment of a significant amount of damages would require us to seek Bankruptcy Protection.
In addition, currently pending litigation or arbitration could also make it more difficult for us to raise the capital necessary to address our current needs and to consummate a strategic transaction, as the uncertainty of any such litigation or arbitration may deter potential investors from participating in any financing and potential prospects from entering into any definitive agreement for a strategic transaction with us.
If we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings.
If we file for protection under the Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the high costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the Bankruptcy Code to terminate contracts without first seeking bankruptcy court approval; the ability of third parties to force us to into Chapter 7 proceedings rather than Chapter 11 proceedings and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for us. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.
In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary to pursue Bankruptcy Protection under Chapter 7 of the Bankruptcy Code for all or a part of our businesses.
In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern.
Risks Related to Our Continued Listing on the Nasdaq Capital Market
The suspension and delisting of our common stock on the Nasdaq Capital Market has been stayed during the pendency of our appeal before a Nasdaq Hearings Panel scheduled for April 6, 2023 and subsequent determination from the Nasdaq Hearings Panel as to the delisting of our common stock. There can be no assurance that the Nasdaq Hearings Panel will decide in our favor and provide additional time for us to regain compliance with the requirements for continued listing on the Nasdaq Capital Market. If our appeal is denied, our common stock will be subject to immediate delisting from the Nasdaq Capital Market.
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. We did not regain compliance by February 20, 2023. On February 21, 2023, we received a letter from the Staff of Nasdaq notifying us that we had not regained compliance with the minimum bid price requirement as of February 20, 2023 and that we were not eligible for a second 180-day extension period, and that accordingly our common stock would be delisted unless we were to appeal successfully to a Nasdaq Hearings Panel. The Nasdaq Staff’s letter specifically noted that the Company does not comply with the stockholders’ equity initial listing requirement for the Nasdaq Capital Market. The total market value of the Company’s listed securities also remains below the $35 million requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Rule”).
We have appealed the delisting determination to a Nasdaq Hearings Panel, which hearing is currently scheduled for April 6, 2023. In our submission to Nasdaq, we outlined our plans and requested additional time to regain compliance with the Bid Price Rule, the MVLS Rule and other applicable requirements. There can be no assurance that the Nasdaq hearings panel will decide in our favor and provide additional time for us to pursue the proposed business combination and related financing transactions or otherwise to regain compliance with the requirements for continued listing on The Nasdaq Capital Market.
Even if our appeal before the Nasdaq Hearings Panel is successful, if we fail to regain and maintain compliance with the requirements for continued listing on the Nasdaq Capital Market during any extension period that may be granted by the Nasdaq Hearings Panel in its discretion, our common stock will be subject to suspension from trading and delisting, which would adversely affect the liquidity of our common stock and our ability to raise additional capital.
Delisting from Nasdaq could adversely affect our ability to consummate a strategic transaction, including the proposed business combination with the Partner Company, 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.
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 March 16, 2023, the closing bid price for our common stock was $0.16.
Even if we regain compliance with the Bid Price Rule and the MVLS Rule, Nasdaq may subsequently delist our common stock if we fail to comply with ongoing listing standards going forward.
The Nasdaq Capital Market’s rules for listed companies require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock. In addition to specific listing and maintenance standards, the Nasdaq Capital Market has broad discretionary authority over the continued listing of securities, which it could exercise with respect to the listing of our common stock.
As a listed company, we are required to meet the continued listing requirements applicable to all Nasdaq Capital Market companies. Even if we were to regain compliance with the Bid Price Rule and the MVLS Rule previously described, if we fail to meet any Nasdaq Capital Market listing requirement going forward, our common stock may be subject to delisting, as applied by the Nasdaq Capital Market in its discretion. If our common stock is delisted in the future, it is not likely that we will be able to list our common stock on another national securities exchange on a timely basis or at all and, as a result, we expect our securities would be quoted on an over-the-counter market; however, if this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, in the event of such delisting, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. Delisting could also have other negative results, including the potential loss of confidence by employees and the loss of institutional investor interest.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on the Nasdaq Capital Market, shares of our common stock qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on the Nasdaq Capital Market, our securities would not qualify as covered securities under the statute, and we would be subject to regulation in each state in which we offer our securities.
Further, there can be no assurance that an active trading market for our common stock will be sustained despite our listing on the Nasdaq Capital Market.
We will 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.
The compliance plan that we submitted for consideration by the Nasdaq Hearings Panel contemplates, among other initiatives, that we will 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.
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.
Risks Related to our Strategic Realignment Plan
Our forward-looking business operations are dependent on our ability to successfully execute our strategic realignment plan, raise additional capital and manage our liabilities in a way that permits us to continue as a going concern. If we are unsuccessful in accomplishing these objectives, we may elect or be required to seek Bankruptcy Protection.
As previously disclosed, topline results from the ACTIV-5/BET-B trial did not achieve statistical significance on the primary endpoint. As a result, we have deemphasized the deployment of certain resources for the development of lenzilumab for COVID-19 as per the strategic realignment of our pipeline and resources, as announced in July 2022. In accordance with our strategic realignment plan, among other things, we have accelerated the development of lenzilumab in CMML, a rare blood cancer, for which the PREACH-M study is already underway, and continued our plans for the RATinG study in aGvHD, for which we anticipate the first patient to be dosed in the second quarter of 2023. We also intend to assess and support further clinical assessment of lenzilumab for prevention of CAR-T therapy related toxicities and potential improvement in durable efficacy through an IIT. In accordance with our strategic realignment plan, we have significantly reduced our go-forward, cash-based research and development and general and administrative expenses. Accordingly, our forward-looking business operations are dependent on our ability to raise additional capital and manage our liabilities to certain contract manufacturing and other partners in such a way as to permit us to execute our strategic realignment plan. If we are unsuccessful in accomplishing these objectives, we may not be able to continue our operations as a going concern and may elect or be required to seek Bankruptcy Protection.
Our forward-looking business operations will primarily depend on the success of lenzilumab as a therapy for CMML, aGvHD and other non-COVID-19 related indications for lenzilumab and oncology indications for ifabotuzumab, all of which are in the early stages of development and are several years from potential commercialization. We do not anticipate any cash flow from product revenues in the foreseeable future. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates for these or any other indications.
We have a limited pipeline of product candidates and we do not plan to conduct active research at this time for discovery of new molecules or antibodies. We are currently focused 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 oncology indications for ifabotuzumab. The recent realignment of our pipeline may make it more difficult for investors to be able to evaluate our business and prospects.
Our current development programs for lenzilumab, including our lead development programs for lenzilumab in CMML and aGvHD, and for ifabotuzumab are in the early stages of development and will require substantial clinical development, testing, and regulatory approval prior to commercialization. Accordingly, we do not anticipate any cash flow from product revenues in the foreseeable future. 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 will need to successfully enroll and complete clinical trials with lenzilumab for CMML, aGvHD and CAR-T therapy, and with ifabotuzumab, and obtain regulatory approval or other expedited authorization to market these products. With respect to the ongoing PREACH-M study of lenzilumab for the treatment of high-risk CMML, there can be no assurance that additional patients will be enrolled in the PREACH-M study, that the interim results will be favorable or that regulatory authorities will agree that a modified trial design will be sufficient for registration and approval. In addition, recruitment for the RATinG study of lenzilumab in aGvHD was previously halted due to an administrative issue. Although recruitment has since resumed and we anticipate the first patient to be dosed in this study in the second quarter of 2023, any additional delays or halts in the recruitment of additional patients in this study or otherwise may impact the ability of the sponsor to complete this clinical trial on a timely basis or at all.
The future clinical, regulatory and commercial success of our realigned strategic plan for lenzilumab and ifabotuzumab is subject to a number of risks, including the following:
● The sponsors of the studies may not be able to enroll adequate numbers of eligible patients in the clinical trials proposed to be conducted;
● we may not have sufficient financial and other resources to fund our obligations under these collaborations;
● we will not control the conduct, timing or release of data from the studies sponsored by investigators;
● 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 to move to the next stage of development or, ultimately, obtain marketing approval from applicable regulatory authorities;
● 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.
In addition, delays related to the initiation of planned and future clinical trials, interruptions in the supply of raw materials or products, delay in the collection of clinical trial data, and impaired regulatory activities may impact our ability, or the ability of our partners, to complete clinical trials. There can be no assurance 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.
Risks Related to Our Common Stock
A significant portion of our total outstanding shares are, or may be, eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell shares, could depress the market price of our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities. In addition, holders of a substantial number of shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
In addition, certain shares of our common stock that are currently outstanding but have not been registered for resale may currently be sold under Rule 144 of the Securities Act. Sales of a substantial number of these shares in the public market, or the perception that those sales may occur, could cause the market price of our common stock to decline.
Any material weaknesses in our internal control over financial reporting that we may identify in the future could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.
If we were to identify any material weaknesses or significant deficiencies in our internal controls over financial reporting in the future, our operating results might be harmed, we may fail to meet our reporting obligations or fail to prevent or detect material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that internal control over our financial reporting is effective. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties or stockholder litigation, which could have an adverse effect on our results of operations and the market price of our common stock.
In addition, if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
We have never paid and do not intend to pay cash dividends and, consequently, the ability to achieve a return on any investment in our common stock will depend on appreciation in the price of our common stock.
We have never paid cash dividends on any of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. Therefore, a holder of our stock is not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, the ability to receive a return on an investment in our common stock will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which it was purchased.
Anti-takeover provisions in our charter documents and Delaware law, could discourage, delay, or prevent a change in control of our company and may affect the trading price of our common stock.
We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
Our Amended and Restated Certificate of Incorporation, as amended (the “Charter”), and our Second Amended and Restated Bylaws (the “Bylaws”) may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our Charter and Bylaws:
● provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
● do not provide stockholders with the ability to cumulate their votes; and
● require advance notification of stockholder nominations and proposals.
In addition, our Charter permits the Board to issue up to 25 million shares of preferred stock with such powers, rights, terms and conditions as may be designated by the Board upon the issuance of shares of preferred stock at one or more times in the future. Specifically, the Charter permits the Board to approve the future issuance of all or any shares of the preferred stock in one or more series, to determine the number of shares constituting any series and to determine any voting powers, conversion rights, dividend rights, and other designations, preferences, limitations, restrictions and rights relating to such shares without any further authorization by our stockholders. The Board’s power to issue preferred stock could have the effect of delaying, deterring or preventing a transaction or a change in control of our company that might otherwise be in the best interest of our stockholders.
Other Risks Related to Our Business and Industry
The adoption of CAR-T therapies as the potential standard of care for treatment of certain cancers is uncertain, and dependent on the efforts of a limited number of market entrants, and if not adopted as anticipated, the market for lenzilumab in the context of a companion treatment alongside CAR-T therapies or next-generation gene-edited CAR-T therapies may be limited or not develop.
Through an IIT being led by Mayo Clinic, we are seeking to advance the development of lenzilumab to address, among other things, the serious and potentially fatal side effects, specifically ICANS and CRS, associated with CAR-T therapies and to improve the efficacy of these treatments. We, through our collaboration with Mayo Clinic, are also working to create next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies. Although six CAR-T therapies have been approved by FDA to date, the use of engineered T cells as a potential cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers, payers and others in the medical community.
If the medical and payer community is not sufficiently persuaded of the safety, efficacy and cost-effectiveness of CAR-T therapy and the potential advantages of using lenzilumab compared to existing and future therapeutics, and there is not significant market acceptance of CAR-T therapy as the standard of care for treatment of certain cancers, the market for lenzilumab in the context of a companion treatment alongside CAR-T therapies or next-generation gene-edited CAR-T therapies may be limited or not develop.
CAR-T therapies currently in early development purport to incorporate technology that may minimize or eliminate the adverse side-effects, such as ICANS and CRS, and improve on efficacy, that we believe have impaired the uptake of the approved CAR-T therapies. If these developing therapies are proven safer and equally or more efficacious in their proposed indications and approved for use by FDA and other regulatory agencies, the market growth for the currently approved CAR-T therapies may be limited, impairing demand for lenzilumab as a companion therapy alongside CAR-T therapy.
In recent years, several biotechnology companies describing business plans focusing on development of CAR-T therapies have described their belief that their therapies will not result in the same level of ICANS or CRS as has been experienced in use of previously FDA-approved CAR-T therapies. If new CAR-T therapies with lower occurrences of CRS and ICANS are approved, the market for lenzilumab in conjunction with CAR-T therapy may be diminished. Any such failure of a market for lenzilumab to develop could adversely affect uptake of lenzilumab. In addition, if new CAR-T therapies that offer improved efficacy, either with or without improved safety, are approved, the market for lenzilumab which is used in conjunction with CAR-T therapy may be diminished if such CAR-T therapy is used in preference to existing CAR-T therapy. For more information regarding FDA-approved CAR-T therapies, see “Item 1. Business-Lenzilumab in CAR-T.”
There is a limited amount of information about us upon which investors can evaluate our product candidates and business prospects, including because we have recently implemented a strategic realignment of our pipeline, have a limited operating history developing product candidates, and we have not yet successfully commercialized any products, and have a relatively small management team.
Our primary focus is developing our proprietary monoclonal antibody portfolio, primarily lenzilumab and iFab. Our limited operating history developing clinical-stage product candidates may make it more difficult for us to succeed or for investors to be able to evaluate our business and prospects. In addition, we have limited experience in development activities, or seeking and obtaining regulatory approvals, even though our executives have had relevant experience at other companies. We currently have six full-time employees and therefore are heavily dependent on external consultants and expert vendors for clinical, scientific, contract manufacturing and regulatory expertise. To execute our business plan, we will need to successfully:
● execute our product candidate development activities, including successfully completing our clinical trial programs, including those conducted under our collaborations and partnerships;
● obtain required regulatory approvals or authorizations for the development and commercialization of our product candidates;
● manage our costs and expenses related to clinical trials, regulatory approvals, manufacturing and commercialization;
● secure substantial additional funding;
● develop and maintain successful strategic relationships;
● build and maintain a strong intellectual property portfolio;
● build and maintain appropriate clinical, sales, manufacturing, distribution, and marketing capabilities on our own or through third parties; and
● gain market acceptance and favorable reimbursement status for our product candidates.
If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business, or continue our operations.
In addition to our collaborations with the Mayo Clinic, IMPACT Partnership, SAHMRI and the University of Adelaide, and the Olivia Newton-John Cancer Research Centre, we may, in the future, seek to enter into collaborations with other third parties for the discovery, development and commercialization of our product candidates. If our collaborators cease development efforts under our collaboration agreements, or if any of those agreements are terminated, these collaborations may fail to lead to commercial products, and we may never receive milestone payments or future royalties under these agreements.
We may in the future seek to enter into agreements with other third-party collaborators for research, development and commercialization of our therapeutic technologies or product candidates. Biopharmaceutical companies are our likely future collaborators for any marketing, distribution, development, licensing, or broader collaboration arrangements. If we fail to enter into future collaborations on commercially reasonable terms, or at all, or such collaborations are not successful, we may not be able to execute our strategy to develop our product candidates or therapies that we believe could benefit from the resources of either larger biopharmaceutical companies or those specialized in a particular area of relevance.
With respect to our existing collaboration agreements, we have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Moreover, our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates pose the following risks to us, among others:
● collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
● collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on preclinical studies or clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
● collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
● collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
● collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
● collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability;
● collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
● disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and
● collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.
As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner or at all. Any failure to successfully develop or commercialize our product candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Moreover, to the extent that any of our existing or future collaborators were to terminate a collaboration agreement, we may be forced to independently develop these product candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and defending intellectual property rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change to our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.
We have relied and may in the future rely on third parties to conduct IITs of our products, which is cost-effective for us but affords the investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the data generated from their efforts.
We have relied and may in the future rely on third parties to conduct and sponsor clinical trials relating to lenzilumab, our GM-CSF gene knockout platform and our other immunotherapy product candidates, iFab and HGEN005. Such IITs may provide us with valuable clinical data that can inform our future development strategy in a cost-efficient manner, but we do not control the design or conduct of the IITs, and it is possible that FDA or non-US regulatory authorities will not view these IITs as providing adequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.
These arrangements provide us limited information rights with respect to the IITs, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the IITs. However, we would not have control over the timing and reporting of the data from IITs, nor would we own the data from the IITs. If we are unable to confirm or replicate the results from the IITs or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development. Further, if investigators or institutions breach their obligations with respect to the clinical development of our product candidates, or if the data proves to be inadequate compared to the first-hand knowledge we might have gained had the IITs been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.
If the third parties conducting our clinical trials do not conduct the trials in accordance with our agreements with them, our ability to pursue our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.
We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these trials is uncertain and may occur on substantially different timing from our estimates. We also use Contract Research Organizations (“CROs”) to conduct our clinical trials and rely on medical institutions, clinical investigators, CROs, and consultants to conduct our trials in accordance with our clinical protocols and regulatory requirements. Our CROs, investigators, and other third parties play a significant role in the conduct of these trials and subsequent collection and analysis of data.
There is no guarantee that CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fails to meet expected deadlines, fails to adhere to our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time-to-time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.
We may experience delays in commencing or conducting our clinical trials, in receiving data from third parties or in the continuation or completion of clinical testing, which could result in increased costs to us, delay our ability to generate product candidate revenue or, ultimately, render us unable to complete the development and commercialization of our product candidates.
We have product candidates in clinical development and preclinical development. To obtain marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Before we can initiate clinical trials in the US for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of an IND application, along with other information including information about product candidate chemistry, manufacturing, and controls and our proposed clinical trial protocol.
In order to continue with our testing programs already underway, we are required to report or provide information to appropriate regulatory authorities, and any failure to timely submit such reports or information will delay our plans for our clinical trials. If third parties conducting our trials do not make the required data available to us, we will likely have to identify and contract with another third party or develop necessary preclinical and clinical data on our own, which will lead to significant delays. In addition, FDA may require us to conduct additional preclinical testing for any product candidate before it allows us to initiate clinical testing under any IND application, which may lead to additional delays. Moreover, despite the presence of an active IND application for a product candidate, clinical trials can be delayed for a variety of reasons, including delays in:
● identifying, recruiting, enrolling and retaining or replacing qualified subjects to participate in a clinical trial, which may be slower than anticipated due to the number of companies and institutions competing for subjects in clinical studies with similar patient populations;
● identifying, recruiting, and training suitable clinical investigators;
● reaching agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time-to-time, and may vary significantly among different CROs and trial sites;
● obtaining and maintaining sufficient quantities of a product candidate for use in clinical trials;
● obtaining and maintaining Institutional Review Board (“IRB”) or ethics committee approval to conduct a clinical trial at an existing or prospective site;
● developing any companion diagnostic necessary to ensure the study enrolls the target population;
● being required by FDA to add more patients or sites or to conduct additional trials; or
● FDA placing a clinical trial on hold.
Clinical trials may also be delayed as a result of ambiguous or negative interim results. Further, a clinical trial may be suspended or terminated by us, an IRB, an ethics committee, or a data safety monitoring committee overseeing the clinical trial, any of our clinical trial sites with respect to that site, or FDA or other regulatory authorities, due to several factors, including unforeseen safety issues, known safety issues that occur at a greater frequency or severity than we anticipate, any determination that the clinical trial presents unacceptable health risks, or lack of adequate funding.
Any delays in our clinical trials may delay or preclude our ability to further develop or pursue regulatory approval for our product candidates. Changes in US and foreign regulatory requirements and guidance also may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect the costs, timing, and likelihood of a successful completion of a clinical trial.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or do not meet the standard for acceptability by regulatory authorities or if there are safety concerns, we may:
● be delayed in obtaining marketing approval for our product candidates;
● not obtain marketing approval or expedited marketing approval at all;
● obtain approval for indications or patient populations that are not as broad as intended or desired;
● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
● be subject to additional post-marketing testing requirements; or
● have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. We may also determine to change the design or protocol of one or more of our clinical trials, including to add additional arms or patient populations, which could result in increased costs and expenses and/or delays. If we or any future development partners experience delays in the completion of, or if we or any future development partners must terminate, any clinical trial of any product candidate, our ability to obtain regulatory approval for that product candidate will be delayed and the commercial prospects, if any, for the product candidate may suffer as a result. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Interim, top-line, ad-hoc, retrospective, exploratory or preliminary data from our clinical trials that we announce or publish from time-to-time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time-to-time, we may publicly disclose preliminary, top-line or other data from clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a full analysis of all data related to the particular trial. We may also seek to publish additional ad-hoc, retrospective or exploratory data. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to evaluate all data fully and carefully. As a result, such results that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results once additional data have been received and fully evaluated. Such data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, top-line, or preliminary data should be viewed with caution until the final data are available. Such data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between such data and final data could significantly harm our business prospects. Further, disclosure of interim, top-line or preliminary data by us or by our competitors could result in volatility in the price of shares of our common stock and dramatic spikes in trading volume.
In addition, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product, and our business in general. FDA’s action to decline our initial request for EUA for lenzilumab in COVID-19 patients represents a manifestation of this risk. In addition, the information we choose to publicly disclose or to publish via a preprint publication regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, product candidate, or our business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our current or any of our future product candidate, our business, operating results, prospects or financial condition may be harmed.
Our business could target benefits from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, and priority review, but we may not ultimately qualify for or benefit from these incentives.
We may seek various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated approval, priority review and Priority Review Vouchers (“PRVs”), where available, that provide for certain periods of exclusivity, expedited review and/or other benefits, and we may also seek similar designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether or not products qualify for such regulatory incentives and benefits. We cannot guarantee that we will be able to receive orphan drug status from FDA or equivalent regulatory designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may provide certain potential benefits such as more frequent meetings with FDA to discuss the development plan, intensive guidance on an efficient drug development program, and potential eligibility for rolling review or priority review. Legislative developments in the US, including proposed legislation that would restrict eligibility for PRVs, may affect our ability to qualify for these programs in the future.
Even if we are successful in obtaining beneficial regulatory designations by FDA or any other regulatory agency for our product candidates, such designations may not lead to faster development or regulatory review or approval and does not increase the likelihood that our product candidates will receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product candidates or compete with such competitors, which would adversely impact our business, financial condition or results of operations.
Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated delays, may prevent the receipt of the required approvals to commercialize our product candidates, or may result in substantial harm to our business if we fail to comply with these requirements.
The clinical development, approval, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing, and distribution of our product candidates are subject to extensive regulation by FDA in the US and by comparable authorities in foreign markets. In the US, we are not permitted to market our product candidates until we receive regulatory approval or other expedited authorization, such as EUA, from FDA. The process of obtaining regulatory approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target indications. Approval policies or regulations may change, and FDA has substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. FDA or other comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons, including:
● such authorities may disagree with the design or implementation of our or any future development partners’ clinical trials;
● such authorities may not accept clinical data from trials that are conducted at clinical facilities or in countries where the standard of care is potentially different from the US;
● the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
● we or any future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
● such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
● such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or any future development partners contract for clinical and commercial supplies; or
● the approval policies or regulations of such authorities may significantly change in a manner rendering our or any future development partners’ clinical data insufficient for approval.
With respect to foreign markets, approval procedures vary widely among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative review periods, and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals may delay or prevent us or any future development partners from commercializing our product candidates.
If we receive regulatory approval for our product candidates, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued safety reporting requirements, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates, may be subject to product recalls, import and export restrictions or seizures, and/or may be subject to civil and/or criminal penalties.
The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate we or any future development partners advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Drug development has substantial inherent risk. We or any future development partners will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are effective, with a favorable benefit-risk profile, for use in their target populations for their intended indications before we can seek regulatory approvals for their commercial sale. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of development, including after commencement of any of our clinical trials. Success in early clinical trials does not mean that later clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing. Furthermore, our future trials will need to demonstrate sufficient safety and efficacy for approval by regulatory authorities in larger patient populations. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, only a small percentage of drugs under development result in the submission of an NDA or BLA to FDA, and even fewer are approved for commercialization.
We face risks associated with clinical operations abroad, which may adversely affect our financial condition and results of operations, and we may not be able to receive conditional marketing or other approvals for our product candidates in markets outside the US.
Partners are conducting or planning to conduct clinical trials involving lenzilumab in the UK, Korea and Australia, as well as potentially in other countries. We have not received any authorization or approval to sell our product candidates in any country but would expect to commence commercial operations, through a partner or on our own, only after such authorization or approval were received. As with our development programs in the US, our product candidates must be approved for marketing and sale by regulatory authorities in each jurisdiction to which we may apply for approval and, once approved, are subject to extensive regulation by regulatory agencies in other countries. Any future marketing applications we file may not be approved by the regulatory authorities on a timely basis, or at all. Even if marketing approval is granted for these products, there may be significant limitations on their use. We cannot state with certainty when or whether any of our product candidates under development will be approved by any foreign regulators or launched; whether we will be able to develop, license or acquire additional product candidates or products; or whether any products, once launched, will be commercially successful.
International operations involve risks that are different from those faced in the US and would subject us to complex and frequently changing laws and regulations, including differing labor laws, such as the United Kingdom (“UK”) Modern Slavery Act. In addition, operations abroad are accompanied by certain financial, political, economic and other risks, including those listed below:
● Foreign Currency Exchange: Operations internationally may subject us to risks related to foreign currency exchange risks as we make payments, or incur obligations, denominated in foreign currencies. We cannot predict future fluctuations in the foreign currency exchange rates of the US dollar. If the US dollar appreciates significantly against certain currencies and our practices do not sufficiently offset the effects of such appreciation, our results of operations would be adversely affected, and our stock price may decline.
● Anti-Bribery: We are subject to the US Foreign Corrupt Practices Act and similar worldwide anti-bribery laws that will govern our international operations with respect to payments to government officials. Our international operations would be heavily regulated and require significant interaction with foreign officials. In certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than local custom. In addition, despite our efforts, our policies and procedures may not protect us from reckless or criminal acts committed by persons who act on our behalf. Enforcement activities under anti-bribery laws could subject us to administrative and legal proceedings and actions, which could result in civil and criminal sanctions, including monetary penalties and exclusion from health care programs.
Other risks inherent in conducting foreign operations include:
● International operations, including any use of third-party manufacturers, distributors, CROs and collaboration arrangements outside the US, expose us to increased risk of theft of our intellectual property and other proprietary technology, particularly in jurisdictions with less robust intellectual property protections than the US, as well as restrictive government actions against our intellectual property and other foreign assets such as nationalization, expropriation or the imposition of compulsory licenses.
● We may be subject to protective economic policies taken by foreign governments, such as trade protection measures and import and export licensing requirements, which may result in the imposition of trade sanctions or similar restrictions by the US or other governments.
● Our foreign operations, third-party manufacturers, CROs or strategic partners could be subject to business interruptions for which we or they may be uninsured or inadequately insured.
● Our operations may also be adversely affected if there is political instability or disruption in any other geographic region where we may have operations, which could impact our ability to do business in those areas.
If we were to encounter any of these risks, our foreign operations may be adversely affected, which could have an adverse effect on our overall business and results of operations.
If we fail to attract and retain key management and clinical development personnel, or if the attention of such personnel is diverted, we may be unable to successfully manage our business and develop or commercialize our product candidates.
We will need to effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts. As a company with a limited number of personnel, we are heavily affected by turnover and highly dependent on the expertise of the members of our senior management. If we are unable to provide competitive compensation to these employees, it may be difficult to retain them. For 2022, the Board of Directors froze the salary levels of all employees; however, stock option grants were awarded for 2022 and were intended to enhance the Company’s ability to retain its executive officers and provide them continuing incentives to execute against our strategic realignment plan. There can be no assurance that these decisions will not have a negative impact on the retention of our employees. Furthermore, we rely on third party consultants for a variety of services. We cannot predict the impact of the loss of such individuals or the loss of services of any of our other senior management, should they occur, or the difficulty in replacing such individuals. Such losses could delay or prevent the further development and potential commercialization of our product candidates and, if we are not successful in finding suitable replacements, could harm our business.
If our competitors develop similar or comparable treatments for the target indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated to be safer or more effective than our product candidates, or if FDA approves generic or biosimilar competitors to our products post-approval, our commercial opportunity will be reduced or eliminated.
We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties in immunotherapy and oncology treatments and in recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying on our biologics approvals under section 351(k) of the Public Health Service Act, or with generic copies of our products approved by FDA under an abbreviated new drug application (“ANDA”), referencing our drug products. We believe that competitors are actively developing competing products to our product candidates. See “Item 1. Business-Competition” for a discussion of competition with respect to our current product candidates.
Many of our competitors and potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing, and achieving widespread market acceptance for our products. If a competitor obtains approval for an orphan drug that is the same drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate supply of its product to patients after approval. In addition, our competitors’ products may be more effective or more effectively marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.
The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions. The more established companies may have a competitive advantage over us due to their size, cash flows, institutional experience and historical corporate reputation.
We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our products and rely completely on third parties to manufacture drug product, which could adversely impact our business.
The process of manufacturing our products is complex, costly, highly regulated, and subject to several risks. As such, we have no present plan or intention of developing in-house manufacturing capabilities for nonclinical, clinical or commercial scale production, and are wholly dependent on third party contract manufacturers for the timely supply of adequate quantities of our products which meet or exceed requisite quality and production standards for use in clinical and nonclinical studies. Our dependence on CMOs increases our manufacturing risks, including the possible breach of the manufacturing agreement by the CMO, the possible cancellation, delay or modification of any contracted manufacturing slots by the CMO, or the termination or nonrenewal of the agreement by the CMO at a time that is costly or inconvenient for us, and could adversely affect our ability to develop and commercialize our product candidates on a timely basis. In addition, in order to balance risk and conserve financial and human resources, we have and may continue from time-to-time to defer commitment to production of product, which could result in delays to the continued progress of our clinical and nonclinical testing.
We, and our CMOs, must comply with extensive Good Manufacturing Practices (“cGMP”) regulations and are subject to inspections by FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. If, as a result of these inspections, a regulatory authority determines that the equipment, facilities, laboratories or processes do not comply with applicable regulations and conditions of product approval, the regulatory authority may suspend the manufacturing operations. Suppliers of key components and materials must also be named in the EUA, BLA or other marketing authorization application filed with the regulatory authority for any product candidate for which we are seeking marketing approval, and significant delays can occur if the qualification of a new supplier is required. Foreign agencies have not inspected the Catalent site in Madison, WI. This site is the primary source of BDS for lenzilumab.
We, and our CMOs, may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. Any failure to follow cGMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our products as a result of a failure of our or our CMOs’ facilities, could significantly impair our ability to develop and commercialize our products, including leading to significant delays in the availability of products for our clinical studies or the termination or hold of a clinical study, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Further, we may have to pay the costs of manufacturing any batch produced by a CMO that fails to pass quality inspection or meet regulatory approval.
Significant noncompliance with manufacturing regulations could also result in the imposition of sanctions, including injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, adverse publicity, and criminal prosecutions, any of which could damage our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our products and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution. Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. Once our product candidates are approved, we may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
In addition, the manufacturing facilities in which our products are made could be adversely affected by equipment failures, plant closures, capacity constraints, competing customer priorities or changes in corporate strategy or priorities, process changes or failures, changes in business models or operations, materials or labor shortages, natural disasters, power failures and numerous other factors.
Our third-party manufacturers are independent entities subject to their own unique operational and financial risks that are out of our control. Additionally, our third-party manufacturers may only be able to produce some of our products at one or a limited number of facilities and, therefore, we have limited manufacturing capacity for certain products, and we may not be able to locate additional or replacement facilities on a reasonable basis or at all. Our sales of such products could also be adversely impacted by our reliance on such limited number of facilities. To the extent these risks materialize and affect their performance obligations to us, our financial results may be adversely affected.
If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients, healthcare payers and the medical community, the revenue that it generates may be limited.
Even if our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payers, and the medical community. Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary for commercial success. The degree of market acceptance of any approved product candidates will depend on several factors, including:
● the efficacy and safety as demonstrated in clinical trials;
● the clinical indications for which the product candidate is approved;
● acceptance by physicians, major operators of hospitals and clinics, and patients of the product candidate as a safe and effective treatment;
● the potential and perceived advantages of product candidates over alternative treatments;
● the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
● the cost of treatment in relation to alternative treatments;
● the availability of adequate reimbursement and pricing by payers;
● relative convenience and ease of administration;
● the prevalence and severity of adverse events;
● the effectiveness of our sales and marketing efforts; and
● the ability to manage any unfavorable publicity relating to the product candidate.
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payers, and patients, we may not generate sufficient revenue from that product candidate and may not become or remain commercially attractive as a standalone indication for that product.
Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.
Market acceptance and sales of our product candidates will depend significantly on the availability of adequate insurance coverage and reimbursement from third-party payers for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the third-party payer’s determination that use of a product candidate is:
● a covered benefit under its health plan;
● safe, effective, and medically necessary;
● appropriate for the specific patient;
● cost-effective; and
● neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product candidate from a government or other third-party payer is a time-consuming and costly process that could require us to provide supporting scientific, clinical, and cost effectiveness data for the use of our product candidates to the payer. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available only to limited levels or with restrictions, we may not be able to commercialize certain of our product candidates profitably, or at all, even if approved.
In the US and in certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could affect our ability to sell our product candidates profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methods for many product candidates under Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal and state initiatives designed to reduce payment for pharmaceuticals.
As a result of legislative proposals and the trend toward managed health care in the US, third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved product candidates for medical indications other than those for which FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. We could be subject to pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative proposals as well as country, regional, or local healthcare budget limitations. Similar concerns about the costs of treatment have been raised in Europe, the United Kingdom and Australia.
We face potential product liability exposure and, if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
The use of our product candidates in clinical trials and the sale of any product candidates for which we may obtain marketing approval expose us to the risk of product liability claims. Product liability claims may be brought against us or any future development partners by participants enrolled in our clinical trials, patients, health care providers, or others using, administering, or selling our product candidates. If we cannot successfully defend ourselves against any such claims, or have insufficient insurance protection, we would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
● withdrawal of clinical trial participants;
● termination of clinical trial sites or entire trial programs;
● costs of related litigation;
● substantial monetary awards to trial participants or other claimants;
● decreased demand for our product candidates and loss of revenue;
● impairment of our business reputation;
● diversion of management and scientific resources from our business operations; and
● the inability to commercialize our product candidates.
We have obtained limited product liability insurance coverage for our clinical trials domestically and in selected foreign countries where we are conducting clinical trials. As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance coverage for product candidates to include the sale of commercial products if we obtain marketing approval for our product candidates in development; however, we may be unable to obtain commercially reasonable product liability insurance for any product candidates approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our working capital and adversely affect our business.
Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees or consultants could include intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, failure to provide accurate information to FDA or comparable foreign regulatory authorities, failure to comply with manufacturing standards, failure to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, failure to report financial information or data accurately, violations of anti-bribery laws, or failure to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee or consultant misconduct could also involve the improper use of confidential information obtained in the course of our business, which could result in civil or criminal legal actions, regulatory sanctions, or serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics and other corporate policies, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
We may encounter difficulties in managing our growth and expanding our operations successfully.
As we seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing, and sales capabilities, and contract with third parties to provide these capabilities for us. If and as our operations expand, we may need to manage additional relationships with various development partners, suppliers, and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend in part on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively. We may not be able to accomplish these tasks and our failure to accomplish any of them could prevent us from successfully growing our company.
We and any current or future development partners, third-party manufacturers and suppliers may use hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could be time consuming or costly.
We and any current or future development partners, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our development partners, third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
Legislative or regulatory healthcare reforms in the countries where we may seek drug approval may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market, and distribute our products after approval is obtained.
From time-to-time, legislation is drafted and introduced in various countries that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, regulatory agency guidance may be revised or reinterpreted by such agencies in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product candidates. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of health care and containing or lowering the overall cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations, and other payers of healthcare services to contain or reduce costs of health care may adversely affect:
● the demand for any drug products for which we may obtain regulatory approval;
● our ability to set a price that we believe is fair for our product candidates;
● our ability to gain reimbursement at commercially acceptable levels;
● our ability to generate revenue and achieve or maintain profitability;
● the level of taxes that we are required to pay; and
● the availability of capital.
In addition, such changes could, among other things, require:
● changes to manufacturing methods;
● additional studies, including clinical studies;
● recall, replacement, or discontinuance of one or more of our products; and
● additional record-keeping.
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory approvals for any future products would harm our business, financial condition, and results of operations.
We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any future development partners are successful in commercializing our products, regulatory authorities would require that we and any future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, a regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.
Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or the BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that any of our product candidates, such as lenzilumab, iFab and/or HGEN005, if approved as biological products under a BLA, should qualify for the 12-year period of exclusivity. However, there is a risk that FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Finally, there is a risk that the 12-year exclusivity period could be reduced which could negatively affect our products.
In addition, foreign regulatory authorities may also provide for exclusivity periods for approved biological products. For example, biological products in Europe may be eligible for a 10-year period of exclusivity. However, biosimilar products have been approved under a sub-pathway of the centralized procedure since 2006. The pathway allows sponsors of a biosimilar product to seek and obtain regulatory approval based in part on the clinical trial data of an originator product to which the biosimilar product has been demonstrated to be “similar.” In many cases, this allows biosimilar products to be brought to market without conducting the full suite of clinical trials typically required of originators. It is unclear whether we and any future development partners would face competition to our products in European markets sooner than anticipated.
We may in the future be subject to various US federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.
If one or more of our product candidates is approved, we will likely be subject to the various US federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid, or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Many states have similar laws that apply to their state health care programs as well as private payers. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.
The False Claims Act imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The False Claims Act has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The False Claims Act includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws, then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.
State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans or corporate integrity agreements, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.
Even if regulatory authorization or approval were received for lenzilumab or any other product candidate, the later discovery of previously unknown problems associated with the use of lenzilumab or other product may result in restrictions, including withdrawal of the product from the market, and lead to significant liabilities and reputational damage.
Serious adverse or undesirable side effects may emerge or be identified during later stages of development of our products that were not observed in earlier stages. If our product candidates, either alone or in combination with other therapeutics, are associated with serious adverse events or undesirable side effects or unacceptable drug interactions in clinical trials or have characteristics that are unexpected in clinical trials or preclinical testing, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In pharmaceutical development, many compounds that initially show promise in early-stage or clinical testing are later found to cause side effects that prevent further development of the compound. In addition, if third parties manufacture or use our product candidates without our permission, and generate adverse events or unacceptable side effects, this could also have an adverse impact on our development efforts.
Unacceptable adverse events caused by any of our product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and could result in the denial of regulatory approval by the applicable regulatory authorities for any or all targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product candidate and generating revenue from its sale. We have not yet successfully completed testing of any of our product candidates for the treatment of the indications for which we intend to seek approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in individuals who receive any of our product candidates. Even if lenzilumab or any other products are approved, if previously unknown problems with the product or its manufacture are subsequently discovered, we may be restricted or prohibited from marketing or manufacturing such product and/or may be subject to substantial liabilities, which may adversely affect our ability to generate revenue and our financial condition.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be subject to certain limitations.
We have incurred substantial losses during our history and do not expect to become profitable in the foreseeable future and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. The Tax Cuts and Jobs Act, enacted in 2017, limited the use of net operating loss carryforwards for periods beginning after 2017 to eighty percent of taxable income in the period to which the losses were carried. However, this limitation on the use of the carryforwards was eliminated by the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act) for tax years beginning before January 1, 2021. In addition, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the utilization of net operating loss carryforwards. Under Section 382, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have recently and in the past experienced ownership changes that have resulted in limitations on the use of a portion of our net operating loss carryforwards. If we experience further ownership changes our ability to utilize our net operating loss carryforwards could be further limited.
We rely completely on third parties to supply drug substance and manufacture drug product for our clinical trials and preclinical studies and intend to rely on other third parties to produce commercial supplies of product candidates, and our dependence on third parties could adversely impact our business.
We are dependent on third-party suppliers. If our third-party suppliers do not supply sufficient quantities for product candidates to us on a timely basis and in accordance with applicable specifications and other regulatory requirements including Process Performance Qualification, or PPQ, we may be unable to supply our product candidates in development for clinical trials or ship them to customers, if authorized or approved for commercial use. We regularly evaluate potential alternate sources of supply of raw materials, various components used in production, drug substance and drug product, but there can be no assurance that any such suppliers would be available, acceptable, or successful.
We will also rely on our CMOs to purchase from third-party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials. There are a small number of suppliers for certain capital equipment and raw materials used to manufacture our product candidates. We do not have any control over the process or timing of the acquisition of these raw materials by our contract manufacturers. Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay completion of that clinical trial, product candidate testing, and potential regulatory approval of that product candidate.
In addition, a significant portion of the raw materials and intermediates used to manufacture our product candidates are supplied by third-party manufacturers and corporate partners outside of the US. As a result, any political or economic factors in a specific country or region, including any changes in or interpretations of trade regulations, compliance requirements or tax legislation, that would limit or prevent third parties outside of the US from supplying these materials could adversely affect our ability to conduct our pending or contemplated clinical trials.
We may not be successful in establishing and maintaining development partnerships and licensing agreements, which could adversely affect our ability to develop and commercialize product candidates.
Part of our strategy is to enter into development partnerships and licensing agreements. We face significant competition in seeking appropriate partners and the negotiation process is time consuming and complex. Even if we are successful in securing a development partnership, we may not be able to continue it. Moreover, we may not be successful in our efforts to establish a development partnership or other alternative arrangements for any of our other existing or future product candidates and programs because, among other reasons, our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish new development partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such development partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing. In addition, our ability to enforce our partners’ obligations under any future collaboration efforts may be limited due to time and resource constraints, competing corporate priorities of our future partners, and other factors.
If we fail to establish and maintain additional development partnerships related to our product candidates:
● the development and commercialization of our current or future product candidates may be terminated or delayed;
● our cash expenditures related to development of certain of our current or future product candidates would increase significantly and we may need to seek additional financing;
● we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted; and
● we will bear all of the risk related to the development of any such product candidates.
Our or any new partner’s failure to develop, manufacture or effectively commercialize our product would result in a material adverse effect on our business and results of operations and would likely cause our stock price to decline.
We currently have no internal sales and marketing capabilities and will rely on third parties to market and sell our product candidates if we attain regulatory approval for commercialization. We or they may not be able to effectively market and sell any such product candidates.
We currently do not have internal sales and marketing infrastructure in place that would be necessary to sell and market products and we may choose to not build this capability in-house. As is the case with many, if not most, small companies seeking to commercialize their products and who have not yet partnered with a larger biotech or pharmaceutical company, we plan to outsource logistics and distribution services. There can be no assurance that any such partner will be effective in distributing any of our product candidates, if approved.
If we or any of our potential partners fail to hire, train, retain and manage qualified sales personnel, market our product successfully or on a cost-effective basis, our ability to generate revenue will be limited and we will need to identify and retain an alternative third-party, or develop our own sales and marketing capability. The establishment of an in-house sales and marketing operation can be expensive and time consuming and could delay any product candidate launch.
Risks Related to Intellectual Property
If we fail to obtain, maintain and adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish, and our business and competitive position would suffer.
Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors and licensees to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We have an active patent protection program that includes filing patent applications on new compounds, formulations, delivery systems and methods of making and using products and prosecuting these patent applications in the US and abroad. As patents issue, we also file continuation applications as appropriate. Although we have taken steps to build what we believe to be a strong patent portfolio, we cannot predict:
● the degree and range of protection any patents will afford us against competitors, including whether third parties find ways to invalidate or otherwise circumvent our licensed patents;
● if and when patents will issue in the US or any other country;
● whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications;
● whether we will need to initiate litigation or administrative proceedings to protect our intellectual property rights, which may be costly whether we win or lose;
● whether any of our patents will be challenged by our competitors alleging invalidity or unenforceability and, if opposed or litigated, the outcome of any administrative or court action as to patent validity, enforceability or scope;
● whether a competitor will develop a similar compound that is outside the scope of protection afforded by a patent or whether the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;
● whether there were activities previously undertaken by a licensor that could limit the scope, validity or enforceability of licensed patents and intellectual property; or
● whether a competitor will assert infringement of its patents or intellectual property, whether or not meritorious, and what the outcome of any related litigation or challenge may be.
Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors, sublicensees and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all employees, consultants and board members to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired, and our business and competitive position would suffer.
Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.
Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication and avoid infringing the proprietary rights of others. Our patent rights, and the patent rights of biopharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. These uncertainties also mean that any patents that we own or may obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Patents already issued to us, or our pending applications may become subject to dispute, and any dispute could be resolved against us.
If some or all of our or any licensor’s patents expire or are invalidated or are found to be unenforceable, or if some or all of our patent applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard to written description or enablement by the specification, or if we are prevented from asserting that the claims of an issued patent cover a product of a third party, we may be subject to competition from third parties with products in the same class of products as our product candidates or products with the same active pharmaceutical ingredients as our product candidates, including in those jurisdictions in which we have no patent protection.
Our commercial success will depend in part on obtaining and maintaining patent and trade secret protection for our product candidates, as well as the methods for treating patients in the product indications using these product candidates. We will be able to protect our product candidates and the methods for treating patients in the applicable product indications using these product candidates from unauthorized use by third parties only to the extent that we or any licensor owns or controls such valid and enforceable patents or trade secrets.
Even if our product candidates and the methods for treating patients for prescribed indications using these product candidates are covered by valid and enforceable patents and have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount of time. Our and any licensor’s ability to obtain patents can be highly uncertain and involve complex and in some cases unsettled legal issues and factual questions. Furthermore, different countries have different procedures for obtaining patents, and patents issued in different countries provide different degrees of protection against the use of a patented invention by others. Therefore, if the issuance to us or any licensor, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the utility, written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the US and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
We may be subject to competition from third parties with products in the same class of products as our product candidates, or products with the same active pharmaceutical ingredients as our product candidates in those jurisdictions in which we have no patent protection. Even if patents are issued to us or any licensor regarding our product or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid or unenforceable on a variety of grounds, including lack of utility, lack sufficient written description or enablement, utility, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors devise ways of making or using these products without legally infringing our patents. The current US regulatory environment may have the effect of encouraging companies to challenge branded drug patents or to create non-infringing versions of a patented product in order to facilitate the approval of ANDAs for generic substitutes. These same types of incentives encourage competitors to submit NDAs that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.
If we infringe the rights of third parties, we could be prevented from selling products and be forced to defend against litigation and pay damages.
There is a risk that we may be inadvertently infringing the proprietary rights of third parties because numerous US and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of our development and manufacturing efforts. Others might have been the first to make the inventions covered by each of our or any licensor’s pending patent applications and issued patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to us or any licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization, formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to pay substantial damages or take other actions that are adverse to our business.
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and may have to:
● obtain licenses, which may not be available on commercially reasonable terms, if at all;
● redesign our products or processes to avoid infringement, which may not be possible or could require substantial funds and time;
● stop using the subject matter claimed in patents held by others, which could cause us to lose the use of one or more of our drug candidates;
● pay damages royalties, or other amounts; or
● grant a cross license to our patents to another patent holder.
We expect that, as our drug candidates move further into clinical trials and commercialization and our public profile is raised, we will be more likely to be subject to such claims.
We may fail to comply with any of our obligations under existing agreements pursuant to which we license or have otherwise acquired rights or technology, which could result in the loss of rights or technology that are material to our business.
We are a party to technology licenses and have acquired certain assets and rights that are important to our business and we may enter into additional licenses or acquire additional assets and rights in the future. We currently hold licenses from Ludwig Institute for Cancer Research (“LICR”), BioWa, Inc. (“BioWa”), Lonza Sales AG (“Lonza”), Mayo Foundation (“Mayo”) and the University of Zurich (“UZH”). These licenses impose various commercial, contingent payments, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license or take back rights or assets, in which event we would lose valuable rights under our collaboration agreements, potential claims and our ability to develop product candidates.
We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.
As is common in the biotechnology and pharmaceutical industry, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants were previously employed at or may have previously or may be currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may become subject to claims that our company or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and we intend to seek patent protection only in selected countries. Our intellectual property rights in some countries outside the US can be less extensive than those in the US. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the US. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the US, or from selling or importing products made using our inventions in and into the US or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the US. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
General Risk Factors
Our internal computer systems, or those of our third-party vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.
Our internal computer systems and those of our current and any future third-party vendors, collaborators and other contractors or consultants are vulnerable to damage or interruption from computer viruses, computer hackers, malicious code, employee theft or misuse, denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we seek to protect our information technology systems from system failure, accident and security breach, if such an event were to occur and cause interruptions in our operations, it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions. For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. If we were to experience a significant cybersecurity breach of our information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counterparties and data subjects could be material. In addition, our remediation efforts may not be successful. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, we could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our or our third-party vendors’, collaborators’ or other contractors’ or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability including litigation exposure, penalties and fines, we could become the subject of regulatory action or investigation, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed. Any of the above could have a material adverse effect on our business, financial condition, results of operations or prospects.
Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, inventory and cargo, auto, workers’ compensation, products liability, and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant, uninsured liability may require us to pay substantial amounts, which would adversely affect our working capital and results of operations.
Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
We are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial condition, results of operations or prospects.
In the US, various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establish privacy and security standards that limit the use and disclosure of protected health information and require the implementation of safeguards to protect the privacy, integrity and availability of protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. If we fail to comply with applicable HIPAA privacy and security standards, we could face civil and criminal penalties. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to our operations.
Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international, or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
Internationally, laws, regulations and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, the E.U. General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the European Commission’s jurisdictional reach of its laws and adds a broad array of requirements for handling personal data. EU member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds to and/or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of the EU member states governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training associates and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation and our relationship with our customers, as well as proceedings or litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our principal executive offices are located at 830 Morris Turnpike, 4th Floor, Short Hills, New Jersey 07078. We lease the office in Short Hills, New Jersey and another office in Burlingame, California, which leases will expire on August 31, 2023 and September 30, 2023, respectively. We believe these leased offices are in satisfactory condition and are suitable for the conduct of our business.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
From time-to-time we may be involved in legal proceedings relating to intellectual property, commercial, employment and other matters arising in the ordinary course of business. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows. Please see the matters under the caption “Part II.-Item 8. Financial Statements and Supplementary Data-Note 11. Litigation.”

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is currently listed on the Nasdaq Capital Market under the symbol “HGEN”. As of March 16, 2023, we had 119,080,135 shares of common stock outstanding held by approximately 31 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We anticipate that we will retain all available funds and any future earnings to support our operations and finance the growth and development of our business and, therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
None.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Part I, Item 1A - Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical stage biopharmaceutical company, developing our portfolio of proprietary Humaneered® anti-inflammatory immunology and immuno-oncology monoclonal antibodies. Our proprietary, patented Humaneered technology platform is a method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed for therapeutic use, particularly with acute and chronic conditions. We have developed or in-licensed targets or research antibodies, typically from academic institutions, and then applied our Humaneered technology to optimize them. Our lead product candidate, lenzilumab, and our other product candidate, ifabotuzumab (“iFab”), are Humaneered monoclonal antibodies. Our Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and have a high affinity for their target. In addition, we believe our Humaneered antibodies offer further important advantages, such as high potency, a slow off-rate and a lower likelihood to induce an inappropriate immune response or infusion related reaction.
Pursuant to our previously reported strategic realignment plan, we are developing our lead product candidate, lenzilumab (“LENZ®”). 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 chronic myelomonocytic leukemia (“CMML”), a rare blood cancer and is of critical importance in acute graft versus host disease (“aGvHD”) associated with bone marrow transplants. 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. A leading network of centers, The Mayo Clinics, is currently progressing with an investigator-initiated trial (“IIT”) of lenzilumab in combination with CAR-T therapies. We are also developing iFab, an EpAh-3 targeted monoclonal antibody, currently in Phase 1 development, as part of an antibody drug conjugate (“ADC”), for certain solid tumors.
Our Pipeline
In addition to our lead product candidate, lenzilumab, our development portfolio features our other two product candidates, ifabotuzumab and HGEN005, all of which are Humaneered monoclonal antibodies. Please refer to “Item 1. Business-Our Pipeline” for a detailed discussion of our development programs.
2022 Developments
In July 2022, 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. The topline results show the trial did not achieve statistical significance on the primary endpoint, although the topline results did indicate that lenzilumab demonstrated a positive trend in mortality. A global group of leading institutions and research networks has indicated interest in including lenzilumab in their large-scale, multinational studies of COVID-19, pending an uptick in ICU admissions. Tocilizumab and baricitinib demonstrated mortality benefit following inclusion in REMAP-CAP and RECOVERY having failed to do so in smaller studies.
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 unless further data from ACTIV-5/BET-B or a future large-scale study merit such an approach. The Named Patient program in select European Countries has been terminated. With the exception of one lenzilumab batch in process, we have discontinued the manufacturing of lenzilumab and are consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future use.
Through partners in Australia, we initiated a study of lenzilumab in cancer patients with COVID-19. The trial, known as C-SMART was a multi-center, four arm trial, which aimed to evaluate several different immune modulating drugs for prevention and treatment of COVID-19 in the cancer population. The investigational product is in the process of being destroyed, due to COVID-19 being deprioritized by us and the Australian Government.
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 was conducted to explore the safety, tolerability, and pharmacokinetic (“PK”) properties of lenzilumab and compare it between Koreans and Caucasians. The clinical study report has been completed and the degree of exposure was observed to be higher in Koreans than in Caucasians. Lenzilumab was safe and well tolerated in both Koreans and Caucasians.
PREACH-M Study
We are currently evaluating lenzilumab for the treatment of high-risk CMML in patients with NRAS/ KRAS/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 with additional enrollment anticipated at sites in New Zealand. As of March 16, 2023, 13 lenzilumab-treated patients have been enrolled in the study of a total of 15 patients and followed for multiple cycles, with what are believed to be encouraging results. An abstract for the PREACH-M trial has been accepted to the American Association for Cancer Research with a poster presentation scheduled for April 17, 2023. We are providing lenzilumab for this study and the majority of the study costs are being 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. We anticipate the first patient dosing in this study to occur in the second quarter of 2023 . We are providing 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.
Market Opportunity in CMML and Related Hematological Cancers
Clonal cytogenic abnormalities are commonly seen in CMML patients. RAS 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 US, UK, and Australia is about 1,700 patients annually. 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 US. 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 ourselves or through a partner, in these additional patient populations. About 15 to 20% of CMML cases progress to AML. According to the American Cancer Society, approximately 1,100 individuals in the US are newly diagnosed annually with CMML, with the majority of these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants.
For FDA approval, a confirmatory study in the US may be required and we plan to seek regulatory guidance from the agency with interim results from PREACH-M. 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.
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 years and independent publications have demonstrated the key role of GM-CSF and RAS pathway mutations in this and other cancers, including JMML, MDS, myeloproliferative neoplasms, and AML.
A clinical protocol has been developed for a study in JMML, an ultra-orphan and devastating condition affecting young children.
Review of Strategic Options and Alternatives
As previously reported, during 2022 we 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 has acted as our advisor as we explore strategic options to maximize value around lenzilumab and ifabotuzumab. We also have considered and pursued a full range of options to raise additional capital and to address, satisfy, defer or restructure our accounts payable and accrued liabilities to manufacturing and other parties.
We have executed a non-binding letter of intent and are engaged in exclusive negotiations relating to a proposed business combination with a privately held biopharmaceutical company (the “Partner Company”). The proposed terms for the business combination contemplate a tax-free stock-for-stock merger, as a result of which we would issue shares of our capital stock to stockholders of the Partner Company which are expected to represent roughly two times the number of our currently outstanding shares of common stock.
We cannot assure you that we and the Partner Company will enter into a definitive agreement for the proposed transaction, and the final form and terms of any such transaction may be materially different from the terms described above. Our ability to enter into a definitive agreement is subject to conditions, including that we have received binding commitments for investment of additional capital that will be necessary to fund the operations of the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national securities exchange, as well as customary matters such as approval of the terms of the definitive agreement by the Partner Company’s board of directors and stockholders. Certain of these conditions will be out of our control. Accordingly, we cannot provide any assurance that we will effect the proposed business combination or related financing transactions. If we are unable to complete the proposed transactions or identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to pursue a reorganization or seek other protection under the federal bankruptcy code. See Part I, Item 1A, “Risk Factors.”
Nasdaq Listing Deficiencies
As previously reported, we have received two notices from The Nasdaq Stock Market, LLC (“Nasdaq”) 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 had 180 days from the date of the applicable notice to cure each deficiency. On February 21, 2023, we received a letter from the Listing Qualifications Department (the “Staff”) of Nasdaq notifying us that we had not regained compliance with the minimum bid price requirement as of February 20, 2023 and that we were not eligible for a second 180-day extension period. The letter specifically noted that we do not comply with the stockholders’ equity initial listing requirement for The Nasdaq Capital Market. The total market value of our listed securities also remains below the $35 million requirement for continued listing on The Nasdaq Capital Market. On March 2, 2023, the Nasdaq Hearings Panel (the “Panel”) granted our request for a hearing to appeal the determination from the Staff. The hearing before the Panel has been scheduled for April 6, 2023. 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 I, Item 1A, “Risk Factors.”
Critical Accounting Policies and Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the US, or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, the fair value-based measurement of stock-based compensation and 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 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.
While our significant accounting policies are described in more detail in Note 2 to our Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
Accrued Research and Development Expenses
As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Some of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees to:
∙ contract research organizations and other service providers in connection with clinical studies;
∙ contract manufacturers in connection with the production of lenzilumab, including cancellation and termination charges and charges for product that does not meet specifications; and
∙ vendors in connection with preclinical development activities.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing these costs, we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period.
Stock-Based Compensation
Our stock-based compensation expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the combined historical stock volatilities of our own common stock and that of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to rely solely on the volatility of our own common stock. To estimate the expected term, we have opted to use the simplified method, which is the use of the midpoint of the vesting term and the contractual term. If any of the assumptions used in the Black-Scholes option pricing model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.
Revenue Recognition
Our revenue to date has been generated primarily through license agreements and research and development collaboration agreements. We have recorded revenue from licensing of $2.5 million and $3.6 million for the years ending December 31, 2022 and 2021, respectively. We recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of ASC 606, we perform the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied.
Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or guaranteed license fees, collaborative research funding, and various milestone and future product royalty or profit-sharing payments.
The fair value of deliverables under the arrangement may be derived using a best estimate of selling price if vendor specific objective evidence and third-party evidence is not available. Deliverables under the arrangement will be separate units of accounting if a delivered item has value to the customer on a standalone basis and if the arrangement includes a general right of return for the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control.
We recognize upfront license payments as revenue upon delivery of the license only if the license has standalone value from any undelivered performance obligations and that value can be determined. The undelivered performance obligations typically include manufacturing or development services or research and/or steering committee services. If the fair value of the undelivered performance obligations can be determined, then these obligations would be accounted for separately. If the license is not considered to have standalone value, then the license and other undelivered performance obligations would be accounted for as a single unit of accounting. In this case, the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed or deferred indefinitely until the undelivered performance obligation is determined.
Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed, and revenue will be recognized. Revenue is recognized using a proportional performance or straight-line method. The proportional performance method is used when the level of effort required to complete performance obligations under an arrangement can be reasonably estimated. The amount of revenue recognized under the proportional performance method is determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of milestones, by the ratio of the level of effort performed to date to the estimated total level of effort required to complete performance obligations under the arrangement. If we cannot reasonably estimate the level of effort to complete performance obligations under an arrangement, we recognize revenue under the arrangement on a straight-line basis over the period we are expected to complete our performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement.
Our collaboration agreements typically entitle us to additional payments upon the achievement of development, regulatory and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in our revenue calculation. Typically, these milestones are not considered probable at the inception of the collaboration. As such, milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved. If the milestone is achieved during the performance period, then we will only recognize revenue to the extent of the proportional performance achieved at that date, or the proportion of the straight-line basis achieved at that date, and the remainder will be recorded as deferred revenue to be amortized over the remaining performance period. If the milestone is achieved after the performance period has completed and all performance obligations have been delivered, then we will recognize the milestone payment as revenue in its entirety in the period the milestone was achieved.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. We do not believe that the impact of recently issued standards that are not yet effective will have a material impact on our financial position or results of operations upon adoption.
Results of Operations
At December 31, 2022, we had an accumulated deficit of $681.8 million. Since inception, we have recognized a nominal amount of revenue from payments for license or collaboration fees. Our product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product 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” below and in “Risk Factors” in Item 1A of Part I above.
Comparison of Years Ended December 31, 2022 and 2021
The following table summarizes the results of our operations for the periods indicated (amounts in thousands, except percentages):
Year Ended December 31, Increase/ (Decrease)
Amount %
Revenue:
License revenue $ 2,514 $ 3,595 $ (1,081 ) (30 )
Total revenue 2,514 3,595 (1,081 ) (30 )
Operating expenses:
Research and development 55,210 213,115 (157,905 ) (74 )
General and administrative 15,608 23,252 (7,644 ) (33 )
Total operating expenses 70,818 236,367 (165,549 ) (70 )
Loss from operations (68,304 ) (232,772 ) (164,468 ) (71)
Other income (expense):
Interest expense (2,918 ) (2,264 )
Other income (expense), net (1,613 ) 2,105
Net loss $ (70,730 ) $ (236,649 ) $ (165,919 ) (70 )
Revenue
Revenue in the fiscal years ended December 31, 2022 and 2021 represents license revenue under the license agreement (the “South Korea Agreement”) with KPM and its affiliate, Telcon, (together with KPM, the “Licensee”), described in more detail in Note 3 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. License revenue decreased $1.1 million in 2022 from $3.6 million for the year ended December 31, 2021 to $2.5 million for the year ended December 31, 2022. 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 compared to amounts that would have been recorded under the previous timeline. Prospective periods will reflect the impact of this change in 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. 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 our pre-clinical activities;
● the cost of acquiring and manufacturing clinical trial, pre-commercial and other materials, the cost to transfer the manufacturing process for bulk drug substance and fill/finish production, development of and periodic performance of a variety of tests and assays for stability, release, comparability and product characterization, costs associated with quality management, the preparation of documents and information necessary to file with regulatory authorities; and
● other costs associated with development activities, including additional studies.
Other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees, stock-based compensation charges, and travel 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 a summary of our research and development expenses for the years ended December 31, 2022 and 2021 (in thousands):
Year Ended December 31,
(in thousands)
External Costs
Lenzilumab $ 53,092 $ 210,129
Ifabotuzumab
Internal costs 1,576 2,874
Total research and development $ 55,210 $ 213,115
Research and development expenses decreased by $157.9 million from $213.1 million for the year ended December 31, 2021 to $55.2 million for the year ended December 31, 2022. The decrease is primarily due to a $142.7 million decrease in lenzilumab manufacturing costs, a $8.3 million decrease in clinical trial expenses, primarily due to the completion of the LIVE-AIR study and the termination of the CAR-T trial in the third quarter of 2022, as part of our plan to reduce costs, and a $3.6 million decrease in consulting expenses.
We expect our development costs will decrease in 2023 as compared to 2022. In connection with our realignment to deemphasize the deployment of certain resources for the development of lenzilumab for COVID-19, with the exception of one lenzilumab batch in process, we have discontinued the manufacturing of lenzilumab and are consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future use. We believe we have sufficient drug product for our currently planned clinical trials.
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, investor relations costs, and other general operating expenses not otherwise included in research and development.
General and administrative expenses decreased by $7.7 million from $23.3 million for the year ended December 31, 2021, to $15.6 million for the year ended December 31, 2022. The decrease for the year ended December 31, 2022, is primarily due to decreases of $7.3 million in consulting expenses and $1.3 million in investor and public relations expenses partially offset by a $1.1 million increase in non-cash stock-based compensation expense. We expect that our overall general and administrative expenses may decrease in the near-term due to our realignment plan designed to significantly reduce our go-forward, cash-based general and administrative expenses; however, our ongoing litigation costs may more than offset any such expense reductions.
Interest Expense
Interest expense for the years ended December 31, 2022 and 2021 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 increased $0.6 million from $2.3 million for the year ended December 31, 2021 to $2.9 million for the year ended December 31, 2022. Interest expense in the year ended December 31, 2022 included $1.2 million in unamortized loan fees recognized in connection with the loan payoff in July 2022. 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.
Other Income (Expense), net
Other income (expense), net increased by $2.1 million for the year ended December 31, 2022, primarily due to litigation settlement costs incurred in the year ended December 31, 2021.
Income Taxes
As of December 31, 2022, we had net operating loss carryforwards of approximately $166.2 million to offset future federal income taxes which expire in the years 2024 through 2037, and approximately $542.9 million that may offset future state income taxes which expire in the years 2028 through 2042. We also have federal net operating loss carryforwards generated in the years 2018 through 2022 of $375.3 million that have no expiration date. Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they are utilized. At December 31, 2022, we recorded a 100% valuation allowance against our deferred tax assets of approximately $171.4 million, as at that time our management believed it was uncertain that they would be fully realized. If we determine in the future that we will be able to realize all or a portion of our deferred tax assets, an adjustment to our valuation allowance would increase net income in the period in which we make such a determination.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through proceeds from the public offerings of our common stock, private placements of our common and preferred stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against lines of credit, and with the proceeds under the South Korea Agreement. At December 31, 2022, we had cash and cash equivalents of $10.2 million. In the year ended December 31, 2022, we sold an aggregate of 55,052,506 shares of our common stock under the Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), raising net proceeds of approximately $41.8 million after deducting underwriting discounts and offering costs. In the year ended December 31, 2021, we sold an aggregate of 6,408,087 shares of our common stock under the Sales Agreement, raising net proceeds of approximately $65.7 million. No shares have been sold under the Sales Agreement subsequent to December 31, 2022.
Primary Sources of and Uses of Cash
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below ($000’s):
Twelve Months Ended December 31,
(In thousands)
Net cash (used in) provided by:
Operating activities $ (76,698 ) $ (184,045 )
Financing activities 16,837 186,324
Net (decrease) increase in cash and cash equivalents $ (59,861 ) $ 2,279
Net cash used in operating activities was $76.7 million and $184.0 million for the years ended December 31, 2022 and 2021, respectively. Cash used in operating activities of $76.7 million for the year ended December 31, 2022, primarily related to our net loss of $70.7 million, adjusted for non-cash items, such as $5.8 million in stock-based compensation, and a net change in operating assets and liabilities of $11.8 million, including a $4.2 million decrease in accounts payable, a $5.1 million decrease in accrued expenses and a $2.5 million decrease in deferred revenue. Cash used in operating activities of $184.0 million for the year ended December 31, 2021, primarily related to our net loss of $236.6 million, adjusted for non-cash items, such as $5.4 million in stock-based compensation, a net increase in operating assets and liabilities of $46.6 million and other non-cash items of $0.6 million.
Net cash provided by financing activities was $16.8 million for the year ended December 31, 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 $186.3 million for the year ended December 31, 2021 and consisted primarily of net proceeds of approximately $94.2 million related to the sale of 5,427,017 shares of our common stock in connection with an underwritten public offering, $65.7 million received from the issuance of common stock in connection with the Sales Agreement, $24.4 million in net proceeds received from the Term Loan, and $2.0 million received from the exercise of stock options.
Recent Financings
Controlled Equity Offering
On December 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 prospectus in respect of the Sales Agreement which provides us with the ability to offer and sell shares of common stock having an aggregate offering price of up to an additional $75.0 million. As mentioned above, for the year ended December 31, 2022, we issued and sold 55,052,506 shares of our common stock under the Sales Agreement, raising net proceeds of $41.8 million, and for the year ended December 31, 2021, we issued and sold 6,408,087 shares of our common stock under the Sales Agreement, raising net proceeds of $65.7 million. Our ability to continue to utilize the Sales Agreement at terms acceptable to us and in sufficient quantities will be subject to the Baby Shelf Rule (as defined and described in “Risk Factors” in Item 1A of Part I above), and also relies on future market conditions that are uncertain and cannot be relied upon. See “Risk Factors” in Item 1A of Part I above.
2021 Underwritten Public Offering
On March 30, 2021, we entered into an 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.
Term Loan with Hercules
On March 10, 2021, we entered into the Term Loan with Hercules which provided us with the ability to draw an initial amount of $25.0 million, which we drew on March 29, 2021. In July 2022, we paid $26.7 million in full settlement of the Term Loan with Hercules. See Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on the Term Loan.
Liquidity and Manufacturing Commitments
As of December 31, 2022, we had cash and cash equivalents of $10.2 million; combined accounts payable and accrued expenses of $55.3 million, certain of which were in dispute; and manufacturing commitments of $2.6 million for the remainder of 2023 with no significant commitments thereafter, as further described below (see “- Contracts”). We intend to seek to defer these disputed payment obligations, negotiate lower amounts or seek other courses of action, which may include legal recourse for the amounts in question.
Subsequent to December 31, 2022, as previously reported we paid $3.0 million to conditionally resolve previously reported disputes between the Company and Avid arising pursuant to the commercial agreements between the two parties. See Note 11 to the Consolidated Financial Statements for additional information. Our cash and cash equivalents were approximately $3 million as of March 30, 2023, after giving effect to this payment and other uses of funds in conducting our business and pursuing strategic alternatives. Our capital resources are not sufficient to fund our operations for the remainder of 2023.
Our ability to enter into a definitive agreement with the Partner Company for the strategic transaction described above is subject to numerous conditions, including (among others) that we have received binding commitments for investment of additional capital that will be necessary to enable us to fund the operations of the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national securities exchange. We cannot provide any assurance that we will be able to raise sufficient funds to permit us to effect the proposed business combination. If we are unable to complete the proposed transactions or identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to pursue a reorganization or seek other protection under the federal bankruptcy code. If the proposed business combination with the Partner Company and related financing is completed, we would expect to issue a significant number of shares of common stock and/or convertible equity securities to the stockholders of the Partner Company as discussed above and to new investors in the financing, each of which would have a significant dilutive effect on our existing stockholders.
See Part I, Item 1A, “Risk Factors” in this Form 10-K for further discussion of the risks surrounding the proposed transaction and our company.
Contracts
Eversana Agreement
On January 10, 2021, we announced that we had entered into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”) pursuant to which Eversana will provide us with services in connection with the potential launch of lenzilumab.
On September 21, 2021, we notified Eversana that due to the EUA status in the US, we were 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 we owe for services rendered from April 1, 2021 to September 30, 2021. We have disputed this assertion and Eversana has filed for arbitration to resolve this dispute. See Note 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.
Manufacturing Agreements
We entered into agreements with several CMOs to manufacture BDS and fill/finish DP for our lenzilumab clinical trial activities . 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. We have amended, and in some cases canceled, certain of these agreements. In addition, we have sought to mitigate our financial commitments by ceasing additional manufacturing of lenzilumab in connection with our realignment plan and, more recently, we have settled our disputes with two of our CMOs. See Note 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information on these settlement agreements.
We believe we have sufficient supply to conduct our contemplated clinical development efforts. We have discontinued the manufacturing of lenzilumab, with the exception of one batch in process at one of our CMOs, Catalent Pharma Solutions, LLC (“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.
There is significant drug product that was 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 have filed a countersuit against Thermo for breach of contract seeking more than $37.5 million. We deny Thermo’s claims and assertions and will vigorously defend against them. See Notes 7 and 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.
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.
License with the Mayo Foundation for Medical Education and Research
On June 19, 2019, we entered into the Mayo Agreement with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. Pursuant to the Mayo Agreement, we were required to pay $0.2 million to the Mayo Foundation within six months of the effective date of the Mayo Agreement, or upon completion of a qualified financing, whichever is earlier. We paid the initial payment following completion of the Private Placement. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
License with the University of Zurich
On July 19, 2019, we entered into the Zurich Agreement with University of Zurich (“UZH”). Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization. The Zurich Agreement required an initial one-time payment of $0.1 million, which we paid to UZH on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as milestones and royalties upon the achievement of certain regulatory and commercialization milestones.
Out-licensing 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 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 US, 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.
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. To date, requests for production and objections thereto have been exchanged. The arbitration hearing is currently set for August 2023. The Company denies Eversana’s claims and assertions and will continue to vigorously defend against them.
Avid Settlement
On February 21, 2023, the Company and Avid Bioservices, Inc. (“Avid”) entered into a Settlement Agreement (the “Settlement Agreement”) providing for a conditional resolution of certain previously reported disputes between the Company and Avid arising pursuant to the commercial agreements between the two parties (collectively, the “Lenzilumab Disputes”).
Pursuant to the Settlement Agreement, the Company made a one-time payment of $3.0 million to Avid (the “Settlement Payment”). In addition, the parties mutually agreed that, effective upon the expiration of 120 days from the date of the Settlement Agreement and only if Humanigen has not by such date filed for or been placed into bankruptcy or commenced an assignment for the benefit of creditors or other insolvency proceeding, the parties will dismiss the pending Lenzilumab Disputes and release and discharge each other from all existing claims, demands, causes of actions, charges and grievances of any kind arising out of, or relating to, the Lenzilumab Disputes and the commercial agreements between the parties, which were terminated in accordance with their respective terms.
Catalent Settlement
On December 16, 2022, the Company and Catalent entered into a Settlement Agreement (the “Settlement Agreement”) resolving certain previously reported disputes between the Company and Catalent that had arisen under the Multiple Facility Clinical Supply and Services Agreement (the “MSA”) dated July 31, 2020, by and between Catalent and the Company, pursuant to which Catalent had agreed to perform certain services relating to the manufacturing of lenzilumab, the Company’s lead product candidate.
Pursuant to the Settlement Agreement, the Company agreed to make a one-time payment of $12 million (the “Settlement Payment”) to Catalent in full satisfaction of all of the Company’s payment obligations under the MSA for products and prior services, as well as cancellation fees Catalent claimed to be owed. In consideration of its receipt of the Settlement Payment, which the Company made on December 22, 2022, Catalent waived and released Catalent’s rights to pursue all payments, claims, or invoices for such products and services and cancellation fees, as well as for some limited additional work to be performed by Catalent, quantified at approximately $23.5 million in the aggregate.
The terms and conditions of the MSA generally will remain in full force and effect with respect to any ongoing activities and additional work to be performed by Catalent.
Savant Litigation
The Company was previously involved in litigation against Savant Neglected Diseases, LLC (“Savant”). In March 2022, the Company and Savant reached a confidential settlement. Accordingly, the litigation involving Savant was dismissed on March 31, 2022.
Thermo Litigation
Thermo has notified the Company that they have stopped production and have issued a demand for payment for unreleased batches of product. There is significant drug product that was in production at Thermo for which material has not yet been released by the Company because the batches produced are out of specification. On October 24, 2022, Thermo filed a lawsuit against the Company in Delaware Superior Court (Patheon Biologics, Inc. v. Humanigen, Inc., Case No. N22C-10-185 MMJ) for $25.9 million. The Company has filed a countersuit against Thermo for breach of contract seeking more than $37.5 million. The Company denies Thermo’s claims and assertions and will vigorously defend against them.
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 District of New Jersey against the Company, its Chief Executive Officer, Dr. Cameron Durrant, and its former Chief Financial Officer, Timothy Morris. On October 17, 2022, a second putative securities class action complaint captioned Greenbaum v. Humanigen Inc., et al., Case No. 22-cv-06118, was filed in the United States District Court for the District of New Jersey against the Company, Dr. Durrant, Mr. Morris, and the Company’s Chief Scientific Officer, Dale Chappell. The complaints assert claims and seek damages for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The two actions have been consolidated and a single lead plaintiff and co-lead law firms have been appointed. The Company anticipates filing a Motion to Dismiss in late May 2023. The Company believes that the allegations in the putative complaints are without merit and will vigorously defend against them.
Shareholder Derivative Litigation
On January 19, 2023, a derivative lawsuit captioned Chul Yang derivatively on behalf of Humanigen, Inc. v. Durrant, et al., Case No. 2:23-cv-00235, was filed in the United States District Court for the District of New Jersey against the company’s Chief Executive Officer, Dr. Cameron Durrant, its former Chief Financial Officer, Timothy Morris, and each of its Directors. The complaint asserts claims and seeks damages against all of the defendants for alleged violations of section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, and against Dr. Durrant and Mr. Morris for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company anticipates this matter being stayed pending initial rulings in the consolidated securities class action matter. The Company believes that the allegations in the derivative action are without merit and will vigorously defend against them.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and The Report of Independent Registered Public Accounting Firm are included in this Annual Report on Form 10-K on pages through.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, who is also acting as our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, who is also acting as our Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer, who is also acting as our Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our Chief Executive Officer, who is also acting as our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our Chief Executive Officer, who is also acting as our Chief Financial Officer, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated Framework. Based on that assessment and using the COSO criteria, our Chief Executive Officer, who is also acting as our Chief Financial Officer, concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission applicable to smaller reporting companies that permit us to provide only management's report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained in our definitive proxy statement for our 2023 annual meeting of stockholders under the captions “ELECTION OF DIRECTORS”, “INFORMATION ABOUT OUR EXECUTIVE OFFICERS” and “INFORMATION REGARDING THE BOARD AND CORPORATE GOVERNANCE” is hereby incorporated by reference, or if the 2023 definitive proxy statement is not filed within 120 days after December 31, 2022, then we will include such information in a Form 10-K/A we will file with the SEC within such timeframe. Certain other information relating to our Executive Officers appears in Part I of this Annual Report on Form 10-K under the heading “Information about our Executive Officers.”

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information contained in our definitive proxy statement for our 2023 annual meeting of stockholders under the caption “EXECUTIVE COMPENSATION” is hereby incorporated by reference, or if the 2023 definitive proxy statement is not filed within 120 days after December 31, 2022, then we will include such information in a Form 10-K/A we will file with the SEC within such timeframe.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained in our definitive proxy statement for our 2023 annual meeting of stockholders under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is hereby incorporated by reference, or if the 2023 definitive proxy statement is not filed within 120 days after December 31, 2022, then we will include such information in a Form 10-K/A we will file with the SEC within such timeframe.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained in our definitive proxy statement for our 2023 annual meeting of stockholders under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” and “DIRECTOR INDEPENDENCE” is hereby incorporated by reference, or if the 2023 definitive proxy statement is not filed within 120 days after December 31, 2022, then we will include such information in a Form 10-K/A we will file with the SEC within such timeframe.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in our definitive proxy statement for our 2023 annual meeting of stockholders under the caption “RATIFICATION OF HORNE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is hereby incorporated by reference, or if the 2023 definitive proxy statement is not filed within 120 days after December 31, 2022, then we will include such information in a Form 10-K/A we will file with the SEC within such timeframe.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Financial Statements-See Index to Consolidated Financial Statements at Part I, Item 8 on page of this Annual Report on Form 10-K.
(2) All financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the financial statements or the Notes thereto.
(3) See exhibits listed under Part (b) below.
(b) Exhibits:
Incorporated by Reference
Filed or
Exhibit No.
Exhibit Description
Form+
Date
Number
Furnished
Herewith
3.1
Amended and Restated Certificate of Incorporation of the Registrant.
8-K
July 6, 2016
3.1
3.1.1
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant.
8-K
August 7, 2017
3.1
3.1.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended.
8-K
February 28, 2018
3.1
3.1.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended
8-K
September 11, 2020
3.1
3.2
Second Amended and Restated Bylaws of the Registrant.
8-K
August 7, 2017
3.2
4.1
Warrant to Purchase Stock, by and between the Registrant and MidCap Financial SBIC, LP, dated as of June 19, 2013.
8-K
June 24, 2013
10.2
4.2
Registration Rights Agreement, dated as of February 27, 2018, by and among the Registrant and Black Horse Capital Master Fund, Black Horse Capital, Cheval Holdings, Ltd., and Nomis Bay LTD.
10-Q
May 8, 2018
4.6
4.3
Registration Rights Agreement, dated as of June 2, 2020, by and among the Registrant and the investors party thereto.
S-1
June 15, 2020
10.21
4.4
Description of Securities.
10-K
March 10, 2021
4.5
10.1**
2012 Equity Incentive Plan, as amended and restated.
10-Q
August 10, 2015
10.2
10.1.1**
Amendment to the 2012 Equity Incentive Plan, dated as of September 13, 2016.
S-8
(File No. 333-214110)
October 14, 2016
10.2
10.1.2**
Amendment to the 2012 Equity Incentive Plan, effective March 9, 2018.
10-Q
May 8, 2018
10.2
10.2**
Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan.
10-12G
(File No. 000-54735)
June 12, 2012
10.8
10.3**
Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan (Outside Directors).
10-K
March 13, 2014
10.37
10.4**
Form of Notice of Stock Unit Award under the 2012 Equity Incentive Plan.
8-K
April 24, 2015
10.1
Incorporated by Reference
Filed or
Exhibit No.
Exhibit Description
Form+
Date
Number
Furnished
Herewith
10.5**
Form of Director and Officer Indemnification Agreement.
10-K
March 10, 2021
10.5
10.6
Development and License Agreement, dated May 11, 2004, by and between the Registrant and the Ludwig Institute for Cancer Research.
10-12G/A
(File No. 000-54735)
August 7, 2012
10.13
10.7
License Agreement, dated April 7, 2006, by and between the Registrant and the Ludwig Institute for Cancer Research.
10-12G/A
(File No. 000-54735)
August 7, 2012
10.14
10.7.1
Amendment to License Agreement, dated October 9, 2008, by and between the Registrant and the Ludwig Institute for Cancer Research.
10-Q
May 8, 2014
10.8
10.7.2
Amendment to License Agreement, dated June 8, 2011, by and between the Registrant and the Ludwig Institute for Cancer Research.
10-Q
May 8, 2014
10.9
10.8†
Non-Exclusive License Agreement, dated October 15, 2010, by and between the Registrant, BioWa, Inc. and Lonza Sales AG.
10-12G/A
(File No. 000-54735)
September 12, 2012
10.16
10.9
Clinical Trial Agreement, dated as of July 24, 2020, by and between the Registrant and The National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), as represented by the Division of Microbiology and Infectious Diseases (DMID).
8-K
July 30, 2020
10.1
10.10**
Humanigen, Inc. 2020 Omnibus Incentive. Compensation Plan, effective September 11, 2020.
8-K
September 11, 2020
10.1
10.11**
Form of Incentive Stock Option Award Agreement under 2020 Omnibus Incentive Plan.
10-Q
August 12, 2021
10.1
10.12**
Form of Non-qualified Stock Option Award. Agreement under 2020 Omnibus Incentive Plan.
10-Q
August 12, 2021
10.2
10.13**
Amended and Restated Employment Agreement, dated as of October 29, 2020, by and between the Registrant and Dr. Cameron Durrant.
10-K
March 10, 2021
10.14
10.14**
Amended and Restated Employment Agreement, dated as of September 24, 2020, by and between the Registrant and Dr. Dale Chappell.
10-K
March 10, 2021
10.17
10.15††
License Agreement, dated as of November 3, 2020, by and among the Registrant, KPM Tech Co., Ltd and Telcon RF Pharmaceutical, Inc.
10-K
March 10, 2021
10.18
10.16††
Master Services Agreement effective as of January 8, 2021 between the Registrant and EVERSANA Life Science Services, LLC.
8-K
January 14, 2021
10.1
Incorporated by Reference
Filed or
Exhibit No.
Exhibit Description
Form+
Date
Number
Furnished
Herewith
10.17§
Loan and Security Agreement, dated March 10, 2021, by and between the Registrant and Hercules Capital, Inc.
10-Q
May 13, 2021
10.3
10.18§
First amendment to Loan and Security Agreement, dated as of April 23, 2022, by and between the Registrant and Hercules Capital, Inc.
10-Q
May 5, 2022
10.1
10.19**
Description of Registrant’s Director Compensation Policy.
10.20††
Settlement Agreement dated as of December 16, 2022, by and between the Registrant and Catalent Pharma Solutions, LLC
X
21.1
List of Subsidiaries.
X
23.1
Consent of Horne LLP.
X
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)or 15d-14(a) of the Securities Exchange Act of 1934, as amended.
X
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.
X
32.1***
Certification of Chief Executive Officer pursuant to 18 USC. §1350.
X
32.2***
Certification of Chief Financial Officer pursuant to 18 USC. §1350.
X
101.INS
XBRL Instance Document-The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
**Indicates management contract or compensatory plan.
***The certifications attached as Exhibits 32.1 and 32.2 that accompanies this Annual Report on Form 10-K 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 Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
†Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
††Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company will furnish supplementally an unredacted copy of such exhibit to the Securities and Exchange Commission or its staff upon request.
§ Schedules omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule upon request by the SEC.