HUMANIGEN, INC - Annual Report: 2016 (Form 10-K)

our lack of revenues, history of operating losses, limited cash reserves and ability to obtain additional capital to develop and commercialize our product candidates, including the additional capital which will be necessary to complete the clinical trials that we have initiated or plan to initiate, and continue as a going concern;

our ability to execute our strategy and business plan;

our ability to list our common stock on a national securities exchange, whether through a new listing or by completing a reverse merger or other strategic transaction;

the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders;

the availability of a 505(b)(2) development pathway for the potential approval by FDA of our benznidazole candidate as a treatment for Chagas disease remaining acceptable to FDA in the future;

the fact that a 505(b)(2) pathway does not assure a product candidate will be deemed safe or effective, or that FDA approval will be obtained;

the requirement that we be first to receive FDA approval for benznidazole as a treatment for Chagas disease as a prerequisite to our ability to apply for or receive a Priority Review Voucher in respect of that candidate;

the potential timing and outcomes of clinical studies of benznidazole, lenzilumab, ifabotuzumab or any other product candidates and the uncertainties inherent in clinical testing;

the commercial viability of our proposed drug pricing program;

our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend;

the potential, if any, for future development of any of our present or future products;

our ability to successfully progress, partner or complete further development of our programs;

our ability to identify and develop additional products;

our ability to attain market exclusivity or to protect our intellectual property;

competition; and

changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the various regulatory incentives at the center of our strategy, or the imposition of regulations that affect our products.

Develop and support the commercialization of benznidazole for the treatment of the neglected Chagas disease.  We believe that benznidazole as a treatment for Chagas disease is a model opportunity to deliver on our strategy to provide treatments for patients with neglected and rare diseases. Chagas disease affects an estimated 8 to10 million people globally, including approximately 300,000 or more people in the United States according to U.S. Centers for Disease Control and Prevention, or CDC, and is responsible for an estimated 12,500 annual global deaths. Nevertheless, there are currently no approved drugs in the United States for the treatment of Chagas disease. We believe that manufacturing issues have in the past led to an uncertain and inconsistent worldwide drug supply of benznidazole. On June 30, 2016, we acquired certain worldwide rights related to benznidazole for human use from Savant. We are now working to develop benznidazole for the treatment of Chagas disease in order to seek and obtain FDA approval. Based on the outcome and minutes from a meeting with FDA on December 6, 2016, we believe that benznidazole is eligible for approval under Section 505(b)(2) of the U.S. Federal Food, Drug, and Cosmetic Act, or the FDCA, pursuant to which an applicant may rely on investigations not conducted by or for the applicant to show that a drug is safe and effective and that we may receive a PRV if our version of benznidazole is the first version approved by FDA. We also believe that benznidazole is eligible for a five-year period of marketing exclusivity as a new chemical entity, if approved, under the Drug Price Competition and Patent Term Restoration Act, commonly referred to as the Hatch-Waxman Act.  We may seek fast track status, as well as orphan drug designation for benznidazole, the latter of which could confer seven years of marketing exclusivity, lead to a waiver of the NDA submission fee and confer various other benefits.

Develop and support the commercialization of lenzilumab for the treatment of CMML and JMML.  Lenzilumab has shown a favorable safety profile to date and has been studied in more than 90 human subjects in clinical studies in either healthy adults or adults with autoimmune diseases. We completed Phase 1 and Phase 1/2 clinical trials of lenzilumab’s precursor, KB002, a Phase 2 clinical trial of lenzilumab in patients with severe asthma and the run‑in safety portion of a Phase 2 clinical trial in patients with rheumatoid arthritis, but no longer plan to develop lenzilumab for these indications. In July 2016, we initiated dosing in a Phase 1 clinical trial in patients with CMML to identify the maximum tolerated dose (“MTD”) or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity. Further, we may initiate a study of lenzilumab in JMML, a rare pediatric form of leukemia, where the primary treatment alternative, in some patients who would qualify, would be a bone marrow stem cell transplant. We believe that both CMML and JMML would qualify as orphan conditions, and we intend to seek orphan designation for lenzilumab for one or both of these conditions. The mechanism of action of lenzilumab may also prove to be of value in multiple other rare and orphan conditions. Further, if FDA agrees that JMML is a rare pediatric disease and qualifies for priority review, we may receive a PRV if lenzilumab is approved by FDA for use in JMML. In addition, we may seek breakthrough therapy status which, if granted, would be associated with a fast track pathway, or separately we may submit for a fast track pathway if breakthrough therapy status is not granted.

Partner ifabotuzumab for the treatment of serious pulmonary conditions and rare adult and pediatric solid tumors and hematologic cancers.  Prior to our bankruptcy and reorganization, we began enrolling patients in the Phase 2 cohort expansion portion of our Phase 1/2 clinical trial for ifabotuzumab as a potential therapeutic for myelodysplastic syndrome, or MDS, and myelofibrosis. We suspended this study in connection with our bankruptcy and reorganization.  Consistent with our strategic focus, we are now evaluating opportunities to partner ifabotuzumab in rare solid tumors like glioblastoma, pediatric cancers and certain rare hematologic cancer indications. There is also early data in serious pulmonary conditions. We believe that some of these conditions would qualify as orphan conditions, and ifabotuzumab may receive orphan designation for these conditions for the company developing it. Further, if FDA agrees that the pediatric uses qualify as rare pediatric diseases, ifabotuzumab may receive a PRV if approved by FDA for use in these rare pediatric conditions.

In-license or acquire additional products and product candidates that align with our mission to treat neglected and rare diseases.  We intend to identify and in-license or acquire additional product candidates across various stages of development that treat neglected and rare diseases, including pediatric conditions. With this strategic focus, we believe we will have the opportunity to benefit from various regulatory incentives, such as orphan drug designations and exclusivities, PRVs where available, and FDA’s expedited programs, such as fast track, breakthrough therapy designation and priority review. The Orphan Drug Act provides incentives for the development of drugs and biological products intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States, or those affecting more than that number but for which there is no reasonable expectation that the cost of developing and making the drug available in the United States for such disease or condition will be recovered from sales in the United States of such drug.  If a sponsor demonstrates that a drug or biologic is intended to treat a rare disease or condition, FDA generally grants orphan drug designation to the product for that use, as long as other requirements are met, including that the drug is not the same drug as an already approved drug for the same rare disease or condition.  The benefits of orphan drug status include research and development tax credits, exemptions from user fees, and if the sponsor is the first to obtain approval for that drug product for the rare disease or condition, seven years of exclusivity during which FDA generally may not approve any other application for the same product for the same indication.  While we do not know if it will be the case for any product candidates that we pursue, product candidates with orphan designations appear to have higher rates of approval, faster trials and shorter FDA review time. Under the FDCA, FDA is also authorized to award a PRV upon the approval of a new drug application, or NDA, or a biologic license application, or BLA, for neglected tropical disease and rare pediatric disease product candidates that meet certain criteria. PRVs can be used for the acceleration of review and approval of a different product candidate by several months. A PRV may be used by the company that obtains it or it may be sold or transferred to another sponsor that may use it to obtain priority review for a different application. We may also seek product candidates that could qualify for FDA’s expedited programs, namely priority review, fast track, breakthrough therapy and accelerated approval, or for regulatory exclusivities and other incentives provided for new chemical entities and qualified infectious disease products. The opportunity and benefits of these programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and in certain instances provide us with multiple paths for value creation.

When products are approved for marketing, apply our Responsible Pricing Model.  We intend to responsibly price any approved products. We define ‘responsible pricing’ as affordable for patients and payers, transparent for stakeholders, and delivering a reasonable return for us and our shareholders. We plan to price our products at overall cost, plus a reasonable and transparent profit margin, if and when they are approved. We will intend to publicly share the key elements that make up the pricing of our products and seek input from key stakeholders on what would constitute a reasonable return. We do not intend to take arbitrary price increases on our products and plan to limit any increase to no more than the rate of inflation or Consumer Price Index and to no more than once a year, if at all. With respect to benznidazole, we plan to ensure patients, irrespective of their ability to pay, will have access to benznidazole, if and when we receive approval of benznidazole for the treatment of Chagas disease in the United States. In developing countries, we plan to make benznidazole available at or near cost and plan to work with partners on creating access programs to ensure patients in need receive the medication.

retention of identical target epitope specificity of the starting antibody and frequent generation of higher affinity antibodies;

very-near-to-human germ line sequence, which we believe means our Humaneered antibodies are less likely to induce an inappropriate immune response in broad patient populations when used chronically than chimeric or conventionally humanized antibodies;

antibodies with physiochemical properties that facilitate process development and formulation (lack of aggregation at high concentration);

high solubility;

high antibody expression yields; and

an optimized antibody processing time of three to six months.

manage our spending as costs and expenses increase due to clinical trials, regulatory approvals, manufacturing and commercialization;

secure substantial additional funding;

Appointed as Chairman January 7, 2016 and as Chief Executive Officer on March 1, 2016.

Appointed as Chief Operating Officer on February 1, 2016 and promoted to Chief Scientific Officer on September 13, 2016.

Appointed as Interim Chief Financial Officer on October 14, 2016.

The amounts in this column represent the aggregate grant date fair value of stock awards granted to Dr. Durrant related to his service during bankruptcy proceedings, computed in accordance with FASB ASC Topic 718. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of all assumptions made by us in determining the grant date fair value of our equity awards.

The amounts in this column represent the aggregate grant date fair value of option awards granted to each named executive officer, computed in accordance with FASB ASC Topic 718. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of all assumptions made by us in determining the grant date fair value of our equity awards.

Amounts reflected in this column for fiscal year 2016 are (a) for Dr. Durrant, $16,833 in Board fees paid to Dr. Durrant prior to his becoming Chairman and Chief Executive Officer and (b) for Mr. Tousley, $333,788 in consulting fees for services rendered in 2016, pursuant to his Engagement Agreement.

The Board has not yet determined Dr. Durrant’s bonus for 2016. The Board expects to determine Dr. Durrant’s bonus during March 2017, and will file a Current Report on Form 8-K to report any bonus awarded, including the portion of any such bonus to be paid in shares of the Company’s common stock. Dr. Durrant has agreed to defer receipt of any bonus that may be approved by the Board pending completion of a fundraising transaction.

Board of Directors member: $40,000;

Audit committee member: $10,000;

Audit committee chair: $20,000;

Compensation committee member: $6,000;

Compensation committee chair: $12,000;

Nominating and corporate governance committee member: $4,000; and

Nominating and corporate governance committee chair: $8,000.

Mr. Moradi resigned from the Board of Directors upon emergence from bankruptcy on June 30, 2016.

The amounts in this column reflect retainers earned under the Board of Directors Compensation Program for fiscal year 2016.

The amounts in this column represent the aggregate grant date fair value of option awards to purchase 100,000 shares of our common stock granted to each director on September 13, 2016, computed in accordance with FASB ASC Topic 718. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of all assumptions made by us in determining the grant date fair value of our equity awards. As of December 31, 2016, Messrs. Morris, Barliant, Chappell and Friedberg held outstanding options to purchase 100,000 shares of our common stock. Mr. Moradi held no options to purchase shares of common stock.

On June 30, 2016 Ronald Barliant and David Moradi were granted 93,786 shares of common stock each related to their service during bankruptcy proceedings.  The closing market price on June 30, 2016 was $4.49 per share. The amounts in this column represent the aggregate grant date fair value of such stock awards, computed in accordance with FASB ASC Topic 718.

each stockholder or group of stockholders known by us to be the beneficial owner of more than 5% of our common stock;

each of our directors;

each of our named executive officers; and

all of our current directors and executive officers as a group.

Number of shares based solely on information reported on the Schedule 13D filed with the SEC on July 11, 2016, reporting beneficial ownership as of June 30, 2016, by BHC, BHCMF, Cheval, Black Horse Capital Management LLC, or BH Management, and Dale Chappell.  According to the report, BHC has sole voting and dispositive power with respect to 872,977 shares, BHCMF has shared voting and dispositive power with respect to 2,040,463 shares, Cheval has shared voting and dispositive power with respect to 2,035,318 shares, BH Management has sole voting and dispositive power with respect to 2,908,295 shares and Dr. Chappell has shared voting and dispositive power with respect to 4,948,758 shares.  The business address of each of BHC, BHCMF, BH Management and Dr. Chappell is c/o Opus Equum, Inc. P.O. Box 788, Dolores, Colorado 81323. The business address of Cheval is P.O Box 309G, Ugland House, Georgetown, Grand Cayman, Cayman Islands KY1-1104.

Number of shares based solely on information reported on the Schedule 13D filed with the SEC on July 13, 2016, reporting beneficial ownership as of July 7, 2016, by Nomis.  Nomis has sole voting and dispositive power over all 3,719,006 shares. The business address of Nomis is Penboss Building 50 Parliament St., Hamilton, Bermuda HM12.

Number of shares based solely on information reported on the Schedule 13G filed with the SEC on February 14, 2017. Nantahala Capital Management, LLC (“Nantahala”) and its managing members, Wilmot B. Harkey and Daniel Mack, share voting and dispositive power with respect to the shares. The business address of each of Nantahala, Mr. Harkey and Mr. Mack is 19 Old Kings Highway South, Suite 200, Darien, Connecticut 06820.

Number of shares based solely on information reported on the Schedule 13G filed with the SEC on August 16, 2016, reporting beneficial ownership as of June 30, 2016 by Kapil Dhar, Sable Fiduciary Limited, or Sable, and Cortleigh Limited, or Cortleigh. Mr. Dhar, Sable and Cortleigh have shared voting and dispositive power with respect to the shares. The business address of each of Mr. Dhar, Sable and Cortleigh is 4th Floor, Rodus Building, Road Reef, Road Town, Tortola, British Virgin Islands.

Includes options to purchase 260,755 shares of common stock that may be exercised within 60 days of March 7, 2017.

Represents shares reserved for issuance under the 2001 Stock Plan and the 2012 Equity Incentive Plan, as amended and restated. On September 13, 2016, the Board approved an amendment to the 2012 Equity Incentive Plan (the “Equity Plan Amendment”) to increase the number of shares of our common stock available for issuance under the 2012 Equity Plan by 3,000,000 shares. The Equity Plan Amendment was not approved by our stockholders. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of the material features of the 2012 Equity Incentive Plan.

Fees for services consist of tax compliance, including the preparation and review of federal and state tax returns.

Audit fees in 2015 include fees billed or incurred by E&Y for professional services rendered in connection with the review of our 2015 quarterly reports on Form 10-Q and a progress payment towards a 2015 audit, not completed before E&Y's resignation.

(a)

The following documents are filed as part of this report:

Financial Statements—See Index to Consolidated Financial Statements at Part I, Item 8 on page F-1 of this Annual Report on Form 10-K.

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.

See the accompanying Index to Exhibits filed as a part of this Annual Report, which list is incorporated by reference in this Item.

(b)

See the accompanying Index to Exhibits filed as a part of this Annual Report.

(c)

Other schedules are not applicable.