HUMANIGEN, INC - Annual Report: 2021 (Form 10-K)

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FORM 10-K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35798

HUMANIGEN, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0557236
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
830 Morris Turnpike, 4th Floor
Short Hills, NJ07078
(Address of Principal Executive Offices) (Zip Code)
(973) 200-3100
(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HGEN	The Nasdaq Stock Market LLC

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

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TABLE OF CONTENTS

 

Humanigen, Inc.

Form 10-K

Index

 

				Page
		Summary of Principal Risk Factors
Part I
Item 1.		Business		5
Item 1A.		Risk Factors		28
Item 1B.		Unresolved Staff Comments		52
Item 2.		Properties		52
Item 3.		Legal Proceedings		52
Item 4.		Mine Safety Disclosures		52
Part II
Item 5.		Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		53
Item 6.		Reserved		53
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		53
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		63
Item 8.		Financial Statements and Supplementary Data		63
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		63
Item 9A.		Controls and Procedures		63
Item 9B.		Other Information		64
Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		64
Part III
Item 10.		Directors, Executive Officers and Corporate Governance		65
Item 11.		Executive Compensation		65
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		65
Item 13.		Certain Relationships and Related Transactions, and Director Independence		65
Item 14.		Principal Accountant Fees and Services		65
Part IV
Item 15.		Exhibits and Financial Statement Schedules		66
Item 16.		Form 10-K Summary		69
		Signatures		69

 

 

SUMMARY OF PRINCIPAL RISK FACTORS

 

This summary briefly states the principal risks and uncertainties facing our business that could affect our common stock, which are only a select portion of those risks. A more complete statement of those risks and uncertainties is set forth in “Part I, Item 1A - Risk Factors” of this report. This summary is qualified in its entirety by that more complete statement. You should carefully read the entire statement and “Risk Factors” when considering the risks and uncertainties as part of your evaluation of an investment in our common stock.

 

·

The U.S. Food and Drug Administration (“FDA”) declined our initial request for Emergency Use Authorization (“EUA”) for lenzilumab as a therapy for hospitalized patients with COVID-19. The Medicines and Healthcare Products Regulatory Agency (“MHRA”) also has not approved our application for marketing authorization of lenzilumab in this indication. We are continuing to pursue an authorization or approval for lenzilumab’s use in hospitalized patients with COVID-19 in the United States (“U.S.”), United Kingdom (“UK”) and European Union (“EU”) but may not obtain one.

·

Results from the ACTIV-5/BET-B (as defined below) trial will be critically important for the future viability of our development program of lenzilumab as a therapy for hospitalized patients with COVID-19. If the results from such trial are not confirmatory of the findings of the C-reactive protein level (“CRP”) subgroup from the LIVE-AIR study (as defined below), we would either conduct a new clinical trial of our own or abandon this development program altogether. Even if the results of such trial are favorable and are included in an amendment to our initial EUA application, there can be no assurance that FDA will agree with our efficacy claim or that we will obtain EUA.

·

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 as a going concern. We expect the results of the ACTIV-5/BET-B (as defined below) trial to be important to investors in evaluating future financings we may undertake. If the results from such trial are not confirmatory of the findings of the CRP subgroup from the LIVE-AIR study (as defined below), our ability to obtain financing may be further impaired.

·

Our commercial opportunity in COVID-19 or other indications may be reduced or eliminated if competing products for the same segment of patients that lenzilumab targets are authorized or approved.

·

Manufacturing efforts in respect of lenzilumab have been extremely costly and inefficient in producing treatments for use in our clinical development program or potential sale. We are subject to a multitude of manufacturing risks and rely completely on third parties to manufacture drug product and supply drug substance. We may not be able to obtain materials or supplies necessary to conduct clinical trials or, following requisite regulatory authorizations or approvals, to manufacture and sell our products.

·

Interim, top-line or preliminary data from our clinical trials that we announce 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. Disclosure of such data by us, including data from the ACTIV-5/BET-B (as defined below) trial, or by our competitors could result in volatility in the price of shares of our common stock and dramatic spikes in trading volume.

·

If an authorization or approval is granted for lenzilumab, we may be unable to accurately predict demand for lenzilumab or to produce sufficient quantities on a timely basis to meet demand.

·

There can be no assurance that lenzilumab, even if approved or authorized, would ever become profitable, due to government or healthcare provider or payer interest and public perception regarding vaccines and treatments for COVID-19 related complications.

·

We currently have no internal sales and marketing capabilities and will rely on third parties to market and sell lenzilumab if we attain authorization or approval for its commercialization, and any product candidates we may successfully develop. We or they may not be able to effectively market and sell any such product candidates.

·

We have a history of operating losses and we may never become profitable.

·

The adoption of chimeric antigen receptor T-cell (“CAR-T”) therapies as the potential standard of care for treatment of certain cancers is uncertain, and dependent on the efforts of a limited number of market entrants, and if not adopted as anticipated, the market for lenzilumab or next-generation gene-edited CAR-T therapies may be limited or not develop.

·

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.

·

There is a limited amount of information about us upon which investors can evaluate our product candidates and business.

·

If our current and any future 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 experience delays in commencing or conducting our planned or contemplated clinical trials, which may render us unable to complete the development and commercialization of our product candidates.

 

 

·

Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated delays, and may prevent the receipt of the required approvals to commercialize our product candidates.

·

If we fail to attract and retain key management and clinical development personnel, or if the attention of such personnel is diverted, we may be unable to successfully manage our business.

·

We may encounter difficulties in managing our growth and expanding our operations successfully, including internationally if lenzilumab is authorized or approved in any foreign country or market.

·

Currently pending, threatened or future litigation, arbitration, governmental proceedings or inquiries could result in material adverse consequences, including judgments or settlements.

·

We may not be able to obtain, maintain, enforce or protect our intellectual property rights in the U.S. and throughout the world.

·

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

·

Our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to significantly influence all matters submitted to stockholders for approval.

·

Raising additional funds by issuing equity securities will cause dilution to our existing stockholders.

 

 

PART I

 

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 two product candidates, ifabotuzumab (“iFab”) and HGEN005, 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.

 

We are focusing our efforts on the development of our lead product candidate, lenzilumab. Lenzilumab is a monoclonal antibody that has been demonstrated to neutralize human granulocyte-macrophage colony-stimulating factor (“GM-CSF”), a cytokine that we believe is of critical importance in the hyperinflammatory cascade, sometimes referred to as cytokine release syndrome (“CRS”) or cytokine storm, associated with COVID-19, chimeric antigen receptor T-cell (“CAR-T”) therapy and acute Graft versus Host Disease (“aGvHD”) associated with bone marrow transplants.

 

Our Pipeline

 

Our product candidates are in the clinical stage of development and require substantial time, resources, research and development, and regulatory approval prior to commercialization. Our current pipeline is depicted below:

 

 

 

 

 

 

Lenzilumab

 

We are developing lenzilumab for potential commercial use in several indications:

 

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as a therapeutic for patients newly hospitalized with COVID-19;

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as a prophylactic companion for certain chimeric antigen receptor therapy (“CAR-T”) programs;

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for the prevention and/or treatment of acute graft versus host disease (“aGvHD”) associated with bone marrow transfers; and

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as a therapeutic for chronic myelomonocytic leukemia (“CMML”).

 

Our development programs in COVID-19, CAR-T and aGvHD are complementary in that all are focused on preventing or reducing cytokine storm in those disease states. It is possible that results observed from the Phase 3 trials in COVID-19 described below may be predictive of results in these other settings, which are also characterized by cytokine storm.

 

Lenzilumab in COVID-19

 

Scientific Rationale

 

Following the emergence of the SARS-CoV-2 virus that leads to the condition referred to as COVID-19, scientific literature suggested that GM-CSF is critical for the initiation of the hyperinflammatory cascade experienced by many hospitalized patients characterized in the later and sometimes fatal stages by lung dysfunction and, in many patients, multi-organ impairment. Multiple publications have pointed to GM-CSF as being a signature cytokine in this process, with elevated GM-CSF levels correlated to poorer outcomes, including ventilator use, Intensive Care Unit (“ICU”) admission, and mortality.

 

The severe clinical features associated with some COVID-19 infections result from an inflammation-induced lung injury which may require supplemental oxygen through a nasal cannula, non-invasive or invasive mechanical ventilation or Extra Corporeal Mechanical Oxygenation (“ECMO”) and sometimes ICU care. This lung injury is a result of a hyperinflammatory dysregulation of the immune system and associated with cytokine storm. The lung injury that leads to death is not directly related to the virus but appears to be a result of a hyper-reactive immune response to the virus triggering a cytokine storm that can continue even after viral titers remain stable or even begin to fall. 

 

CRS is characterized by an elevation of inflammatory cytokines resulting in fever, hypotension, capillary leak syndrome, pulmonary edema, disseminated intravascular coagulation, respiratory failure, and Acute Respiratory Distress Syndrome (“ARDS”). The development of CRS as a direct result of immune hyper-stimulation has been previously described in patients with autoimmune and lymphoproliferative diseases, as well as in patients with B-cell malignancies receiving CAR-T therapy. Over the last several years, preclinical studies and correlative science from clinical trials in CAR-T therapy have shed light on the pathophysiology, development, characterization, and management of CRS.

 

CRS is also characterized by activation of myeloid cells and release of inflammatory cytokines, including GM-CSF, monocyte chemoattractant protein-1 (MCP-1), macrophage inflammatory protein 1α (MIP-1α), interferon gamma-induced protein 10 (IP-10), interleukin-6 (IL-6), and interleukin-1 (IL-1). The cascade, once initiated, can quickly evolve into a cytokine storm, resulting in further activation, expansion and trafficking of myeloid cells, leading to abnormal endothelial activation, increased vascular permeability, and disseminated intravascular coagulation.

 

Data from National Scientific Review (2020, Vol. 7, No. 6) titled “Pathogenic T-cells and inflammatory monocytes incite inflammatory storms in severe COVID-19 patients”, supports the hypothesis that GM-CSF induced cytokine storm immune mechanisms have contributed to patient mortality with the current pandemic strain. We believe that there is increasing acceptance that this pathophysiology may be responsible for worsening of clinical status and poor outcomes. The authors noted that steroid treatment in such cases has been disappointing in terms of outcome but suggested that a monoclonal antibody that targets GM-CSF may prevent or curb the hyper-active immune response caused by COVID-19 in this setting. Several publications point to GM-CSF as a so-called ‘signature cytokine’ including the largest inflammatory marker study in over 600 patients from a multicenter study in the UK. (Uncontrolled Innate and Impaired Adaptive Immune Responses in Patients with COVID-19 ARDS, deProst et al, AJRCCM Articles in Press., American Thoracic Society, August 31, 2020, 10.1164/rccm.202005-1885OC) (The dysregulated innate immune response in severe COVID-19 pneumonia that could drive poorer outcome, Blot et al. J Transl Med (2020) 18:457) (Elevated antiviral, myeloid and endothelial inflammatory markers in severe COVID-19, Openshaw et al, MedRxIV, doi). In March 2021, Thwaites RS et al and several, ISARIC4C (Coronavirus Clinical Characterisation Consortium) investigators published “Inflammatory profiles across the spectrum of disease reveal a distinct role for GM-CSF in severe COVID-19”, in Science Immunology, further confirming elevated GM-CSF levels are correlated with COVID-19 mortality (doi: 10.1126/sciimmunol.abg9873. PMID: 33692097; PMCID: PMC8128298).

 

 

Our Development Program

 

In response to the scientific literature, we designed and conducted a Phase 3 clinical trial of lenzilumab in newly hospitalized COVID-19 patients, which we refer to as the “LIVE-AIR” study, to examine whether lenzilumab’s neutralization of human GM-CSF could prevent or reduce poor outcomes associated with COVID-19.

 

The LIVE-AIR study enrolled 520 patients in 35 sites in the U.S. and Brazil who were at least 18 years of age; experienced blood oxygen saturation (“SpO₂”) of less than or equal to 94%; or required low-flow supplemental oxygen, or high-flow oxygen support, or non-invasive positive pressure ventilation; and were hospitalized but did not require invasive mechanical ventilation (“IMV”). Following enrollment, subjects were randomized to receive three infusions of either lenzilumab or placebo, with each infusion separated by eight hours over a 24-hour period. The primary objective was to assess whether lenzilumab, in addition to standard of care, which included dexamethasone (or other steroids) and/or remdesivir, could prevent or alleviate the immune-mediated cytokine storm and improve survival without ventilation (“SWOV”) (sometimes referred to as “ventilator-free survival”). SWOV is a composite endpoint of time to death and time to IMV and SWOV is an important composite clinical endpoint that measures mortality, mechanical ventilation.

 

The LIVE-AIR Phase 3 randomized, double-blind, placebo-controlled trial investigated the efficacy and safety of lenzilumab to assess the potential for lenzilumab to improve the likelihood of SWOV, beyond standard supportive care, in hospitalized subjects with severe COVID-19. Subjects with COVID-19 (n=520), >18 years, and ≤94% oxygen saturation on room air and/or requiring supplemental oxygen, but not invasive mechanical ventilation, were randomized to receive lenzilumab (600 mg, n=261) or placebo (n=259) via three intravenous infusions administered 8 hours apart. Subjects were followed through Day 28 following treatment.

 

In March 2021, we announced results from our LIVE-AIR study. Baseline demographics were comparable between the two modified intention-to-treat (“mITT”) populations: male, 65%; mean age, 61 years; mean BMI, 33 kg/m²; median CRP, 79 mg/L; CRP was <150 mg/L in 77.9% of subjects. The most common comorbidities were hypertension (66%), obesity (55%), diabetes (53%), chronic kidney disease (14%), and coronary artery disease (14%). Subjects received steroids (94%), remdesivir (72%), or both (69%). Lenzilumab improved the likelihood of SWOV by 54% in the mITT population (HR: 1.54; 95%CI: 1.02-2.32, p=0.040) compared to placebo. SWOV also relatively improved by 82% in subjects who received both corticosteroids and remdesivir (1.82; 1.16-2.86, nominal p=0.0092); by 3.04-fold in subjects with CRP<150 mg/L and age <85 years (3.04; 1.68–5.51, nominal p=0.0003). Survival was improved by 2.22-fold in subjects with CRP<150 mg/L and age <85 years (2.22; 1.07-4.67, nominal p=0.034).

 

Lenzilumab improved SWOV in hospitalized, hypoxic subjects with COVID-19 pneumonia over and above treatment with remdesivir and/or corticosteroids. Subjects with C-reactive protein level (“CRP”)<150 mg/L and age <85 years demonstrated an improvement in survival and had the greatest benefit from lenzilumab.

 

Following completion of the LIVE-AIR study, we commenced a series of efforts to attain authorization to commercialize lenzilumab for use in hospitalized COVID-19 patients in the United States and other territories. We filed an application for Emergency Use Authorization (“EUA”) with U.S. Food and Drug Administration (“FDA”) at the end of May 2021. We also submitted an application for marketing authorization of lenzilumab in hospitalized COVID-19 patients to Medicines and Healthcare products Regulatory Agency (“MHRA”) of the United Kingdom and conducted a series of exploratory discussions with representatives of European Medicines Agency (“EMA”) regarding our potential submission of lenzilumab for marketing authorization in the European Union. In addition, we commenced significant manufacturing efforts in support of potential commercialization, as described below under “—Manufacturing and Raw Materials.”

 

On September 8, 2021, FDA declined our EUA request, stating in its letter that it was unable to conclude that the known and potential benefits of lenzilumab outweigh the known and potential risks of its use as a treatment for COVID-19. In addition to raising similar concerns around efficacy, MHRA requested further information related to clinical, manufacturing and quality processes.

 

The results from the LIVE-AIR study were published in the peer-reviewed journal, The Lancet Respiratory Medicine (“The Lancet”), on December 1, 2021. Per the Lancet paper, the implication from all the available evidence is that “Lenzilumab significantly improved survival without invasive mechanical ventilation in hospitalized patients with COVID-19 who were treated concurrently with other available therapies”. The Lancet paper concluded that “LIVE-AIR showed that lenzilumab treatment of hospitalized patients with COVID-19 can improve the likelihood of survival without the need for mechanical ventilation, with a safety profile similar to that of placebo”. As a result, we continue to believe in the potential therapeutic benefits of lenzilumab and remain committed to our efforts to develop lenzilumab for patients hospitalized with COVID-19.

 

The next anticipated step in our development program for lenzilumab in COVID-19 is the release of 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, which is sponsored and funded by the National Institutes of Health (“NIH”). This study is evaluating lenzilumab in combination with remdesivir, compared to placebo and remdesivir, in hospitalized COVID-19 patients as described more fully below. We provided lenzilumab for the study.

 

 

A retrospective analysis of the LIVE-AIR study suggested that patients under the age of 85 and with a baseline CRP below 150 mg/L (the “CRP subgroup”) appeared to derive the greatest benefit from lenzilumab, therefore, the ACTIV-5/BET-B study protocol was modified to include baseline CRP below 150 mg/L as the primary analysis population. The ACTIV-5/BET-B study has reached its target enrollment with over 400 patients enrolled that met this criterion. Topline results from ACTIV-5/BET-B are expected to be released late in the first quarter or early in the second quarter of 2022. If confirmatory of the results of the findings of the CRP subgroup from the LIVE-AIR study, we plan to include the results from ACTIV-5/BET-B in an amendment to our EUA submission, and to include these results in a responsive submission to MHRA along with certain performance process qualification (“PPQ”) data around drug product batches, in the second quarter of 2022. In addition, as a result of feedback received from representatives of EMA, if the ACTIV-5/BET-B data are confirmatory of the results of the findings of the CRP subgroup from the LIVE-AIR study, we intend to submit a Conditional Marketing Authorization (“CMA”) for lenzilumab with an Accelerated Approval request to EMA later in 2022.

 

Through partners in Australia, we have also initiated a study of lenzilumab in cancer patients with COVID-19. The trial, known as C-SMART (“COVID-19 Prevention and Treatment in Cancer; a Sequential Multiple Assignment Randomized Trial”), is a multi-center, four arm trial, which aims to evaluate several different immune modulating drugs for prevention and treatment of COVID-19 in the cancer population. C-SMART will include 2,282 cancer patients at risk of, or known positive for, COVID-19 infection. The study contemplates prophylaxis of 957 patients with IFN-alpha, 957 patients on placebo; post-exposure prophylaxis of 85 patients with IFN-alpha, 85 patients on placebo; 63 COVID-19 hospitalized patients on selinexor, 85 patients on placebo; 36 COVID-19 hospitalized pneumonia on lenzilumab and 36 patients on placebo. The C-SMART study is led by the National Centre for Infections in Cancer at the Peter MacCallum Cancer Centre and will be conducted at five Australian sites in Melbourne and Sydney. The study is supported by a grant from the Australian Government's Medical Research Future Fund.

 

In addition, our partners in South Korea are conducting a Phase 1 bridging study in 20 healthy volunteers. This Phase 1 clinical study is being conducted to explore the safety, tolerability, and pharmacokinetic (“PK”) properties of lenzilumab and compare it between Koreans and Caucasians.

 

Our Commercial Opportunity

 

If an EUA in the U.S. or equivalent marketing authorization in the EU or UK were granted, we intend to commercialize lenzilumab for COVID-19. Our goal would be to position lenzilumab as a front-line therapeutic for use in hypoxic COVID-19 patients.

 

Lenzilumab is intended to be used in patients hospitalized for COVID-19 with oxygen saturation levels below 94%. Since the beginning of the pandemic through January 31, 2022 over 4.3 million patients have been hospitalized and the current number of hospitalized patients is estimated by the CDC to be over 120,000. As of the end of January 2022, the vaccination rate in the United States is over 80%; however, given the emergence of new variants, waning protection from vaccinations and boosters, lack of efficacy from neutralizing monoclonals primarily due to emerging variants and potential limited efficacy of some oral anti-virals, and the 20% of people that remain unvaccinated, we believe patients infected with COVID-19 will continue to be admitted to the hospital for treatment, particularly immunocompromised populations. Scientists and experts have stated beliefs that the COVID-19 pandemic will become endemic. Hospitalization rates due to influenza over the past decade have ranged from 140,000 to 800,000 per year. We believe the commercial opportunity to treat COVID-19 hospitalized patients with lenzilumab will continue to exceed 100,000 patients in the U.S. on an annual basis in the future.

 

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;

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Engineering T-cells within this population to express cancer-specific receptors;

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Increasing and purifying the number of genetically re-engineered T-cells; and

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Infusing the functional cancer-specific T-cells back into the patient to allow for expansion and targeting the cancer cells.

 

 

 

 

 

As of the date of this filing, five CAR-T therapies have been approved by FDA: Gilead/Kite’s Yescarta, and Tecartus, Novartis’s Kymriah, Bristol Myers Squibb’s Breyanzi  and Abecma, which seek to treat forms of B-cell cancers such as various types of NHL, including DLBCL, Follicular Lymphoma (“FL”) Mantle Cell Lymphoma (“MCL”) and adult acute lymphoblastic leukemia (“ALL”) that are refractory or in second or later stage relapse. Although patients suffering from these aggressive cancers frequently undergo multiple treatments, including chemotherapy, radiation and targeted therapy including stem cell transplants, the five-year survival rate has been severely limited and patients who do not respond to, or have relapsed following at least two courses of standard treatment, have no other treatment options and a very poor outcome. According to U.S. governmental sources, including the Surveillance, Epidemiology, and End Results (“SEER”) program of the National Cancer Institute, which is a source of epidemiologic information on the incidence and survival rates of cancer in the U.S., based on incidence data, we estimate that there are 21,000 patients per year in the U.S. with B-cell DLBCL and FL (Yescarta) and 7,000 with MCL and ALL (Tecartus). The number of patients eligible for Yescarta and Tecartus will be lower than the incidence rate as only patients who have failed at least two prior systemic therapies are currently eligible for CAR-T therapy. In addition, both Yescarta and Breyanzi have reported positive data in second line therapy for (r/r) B-cell NHL. If CAR-T therapy is approved as a second line option versus stem cell transplantation, additional patients may be eligible for treatment. Moreover, there are multiple B-cell maturation antigen (“BCMA”) targeted CAR-T therapies in Phase 2 development for relapsed or refractory multiple myeloma and several other novel CAR-T therapies targeting various antigens and neo-antigens in development for a number of hematologic and solid cancers.

 

The five 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 Tescartus, and it is known that various development-stage BCMA and other CAR-T therapies are hampered by the emergence of cytokine storm, ICANS and other serious and potentially fatal side-effects.

 

Both CRS and ICANS are caused by a large-scale release of pro-inflammatory cytokines and chemokines induced by the CAR-T therapy and remain significant unmet needs that must be addressed. 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 Yescarta and Tescartus, 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. For example, each hospital and its associated clinics are required to have a minimum of two doses of tocilizumab available on-site for each patient for the potential treatment of moderate to severe cases of CRS. We believe the REMS requirement may have adversely impacted both market uptake and usage to date.

 

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 recently 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% or patients and 0% of the patients had CRS. These original rates may be more prevalent in practice, despite the availability and utilization of tocilizumab and corticosteroids. Moreover, based on feedback from leading treatment centers in the U.S., approximately 30% to 60% of patients receiving CAR-T therapy require admission to the ICU and in some cases require an extended stay, with multiple interventions, including ventilator support and other supportive measures, to be urgently administered to manage these side-effects. Some patients can suffer seizures, coma, brain swelling, heart arrhythmias, organ failure and serious and life-threatening clotting disorders, not only causing more complex and potentially fatal medical consequences, but significantly adding to cost of patient care. These can be particularly challenging and concerning issues, especially in younger and pediatric patients.

 

Our Development Program

 

There are currently no FDA-approved products for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment of CAR-T therapy related ICANS. Tocilizumab, among other indications, is approved for the treatment of CAR-T induced severe CRS. 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.

 

Accordingly, we are developing lenzilumab as a treatment for cytokine storm associated with ICANS and CRS in certain CD19-targeted CAR-T cell therapies. Further, GM-CSF neutralization may enhance CAR-T proliferation and effector functions and potentially confer additional benefits in terms of durable efficacy and healthcare resource utilization. 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. We intend to initiate a randomized, placebo-controlled, double-blind, registrational, Phase 3 study to evaluate the efficacy and safety of lenzilumab combined with Yescarta and Tecartus CAR-T therapies in non-Hodgkin lymphoma in 2022. This study is known as SHIELD (Study on How to Improve Efficacy and toxicity with Lenzilumab in DLBCL and other NHL patients treated with CAR-T therapy). We have alignment with FDA on the design of the Phase 3 study. Following a dose run-in period in approximately 25 patients, we currently plan to enroll more than 150 patients in the study. SHIELD will study lenzilumab for the prevention of CAR-T therapy-related toxicities including ICANS and CRS.

 

Our Commercial Opportunity

 

Revenues from the sales of the five approved CAR-T therapies exceeded $1.7 billion in 2021. We estimate that over 3,000 patients were treated with CAR-T therapy in 2021. Analysts predict that Yescarta only will reach peak sales in excess of $1.5 billion as additional patients become eligible for treatment. We believe we have 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:

 

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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.

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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.

 

 

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. As depicted below, allogeneic HSCT involves multiple steps:

 

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Collecting blood from a healthy donor;

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Processing the donor’s blood to remove the stem cells before returning the rest of the donor’s blood back to the donor;

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Pre-conditioning the patient with high-dose chemotherapy and/or radiation; and

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Infusing the donor’s stem cells into the patient to allow for the production of new blood cells.

 

 

 

 

Although a potentially life-saving treatment for patients suffering from hematological cancers, between 40-60% of patients receiving HSCT treatments experience acute or chronic aGvHD, 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. The FDA has recently 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 cytokine storm may be responsible, at least in part, for the emergence of GvHD in this setting. 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. Accordingly, we aim to position lenzilumab as a “must have” companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment option in patients identified as high risk for GvHD. 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 plan to study lenzilumab as a companion to allogeneic HSCT for patients with hematological cancers. We plan to commence a Phase 2/3 potentially registrational trial for lenzilumab to treat patients who have undergone allogeneic HSCT who are at high and intermediate risk for aGvHD, known as the RATinG study. The study will be conducted by the IMPACT Partnership, a collection of 22 stem cell transplant centers located in the United Kingdom and is expected to begin enrollment in the first half of 2022. We will provide lenzilumab for the study including the cost of import, labeling and distribution of the study drug, and support certain laboratory tests related to the study, but the majority of the study costs will be borne by the IMPACT Partnership. The goal of the trial, as it is currently contemplated, would be to determine the efficacy and safety of lenzilumab in reducing non-relapse mortality at six months.

 

Our Commercial Opportunity

 

The overall number of allogeneic HSCT treatments continues to increase annually in the U.S. 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 U.S., with similar trends expected in Europe (Phelan, et al Current use and outcome of hematopoietic stem cell transplantation: CIBMTR US summary slides 2020).

 

Lenzilumab in CMML

 

Scientific Rationale

 

We believe that lenzilumab also holds promise in CMML, a rare form of hematologic cancer with no FDA-approved treatment options and a three-year overall survival rate of 20% and median overall survival of 20 months. CMML is a clonal stem cell disorder of which monocytosis is a key feature. Approximately 40% of CMML patients carry NRAS/KRAS/CBL mutations which are associated with GM-CSF hypersensitivity. CMML has features of myelodysplastic syndrome (“MDS”), including abnormal, dysplastic bone marrow cells; cytopenia; transfusion dependence; and of myeloproliferative neoplasms, including overproduction of white blood cells, organomegaly (e.g., splenomegaly and hepatomegaly) and extramedullary disease. About 15 to 20% of CMML cases progress to acute myeloid leukemia, or AML. According to the American Cancer Society, approximately 1,100 individuals in the United States are newly diagnosed annually with CMML, with the majority of these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants.

 

Our Development Program

 

In a Phase 1 study, 3 of 6 patients with NRAS/KRAS/CBL mutations demonstrated a clinical response to lenzilumab by the MDS/MPN International Working Group criteria. The Phase 1 clinical trial in patients with CMML 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 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 has begun enrollment at five sites in Australia and the first patient has been dosed. We will provide lenzilumab for this study and the majority of the study costs will be borne by the partner and funded by a grant from the Medical Research Futures Fund, a research fund set up by the Australian Government. 

 

 

Given our interest in developing lenzilumab to prevent CRS/cytokine storm in COVID-19 as well as in the treatment of rare cancers and other orphan conditions such as aGvHD and CMML, we believe that we have the opportunity to benefit from various regulatory and commercial incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, priority review and accelerated approval.

 

 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 2022.

 

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 to ameliorate cytokine storm as it relates to COVID-19, CAR-T and GvHD. 

 

 

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 is being 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 ACTIV-5/BET-B study has reached its target enrollment with over 400 patients enrolled that met this criterion and we anticipate top-line data in late first quarter or early second quarter of 2022.

 

 Pursuant to the Clinical Trial Agreement, NIAID serves as sponsor and is 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 U.S. is currently expected in 2029 for the composition of matter and 2038 for methods of use in CAR-T) or 10 years from first commercial sale of such licensed product in the country. We must also pay to LICR a certain percentage of sublicensing revenue received by us. Payments made to LICR under this license for each of the twelve months ended December 31, 2021 and 2020 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 U.S. is currently expected in 2031, or 10 years from first commercial sale of such licensed product in such country.

 

BioWa and Lonza

 

In 2010, we entered into a license agreement with BioWa, Inc. (“BioWa”), and Lonza Sales AG (“Lonza”) pursuant to which BioWa and Lonza granted us a non-exclusive, royalty-bearing, sub-licensable license under certain know-how and patents related to antibody expression and antibody-dependent cellular cytotoxicity enhancing technology using BioWa and Lonza’s Potelligent^® CHOK1SV technology. This technology is used to enhance the cell killing capabilities of antibodies and is currently used by us in connection with our development of ifabotuzumab. Under this agreement, we owe annual license fees, milestone payments in connection with certain regulatory and sales milestones and royalties in the low single digits on net sales of products developed under the agreement. The agreement expires upon the expiration of royalty payment obligations under the agreement, is terminable at will by us upon written notice, is terminable by BioWa and Lonza if we challenge or otherwise oppose any licensed patents under the agreement and is terminable by either party upon the occurrence of an uncured material breach or insolvency.

 

Patents and Trade Secrets

 

We use a combination of patent, trade secret and other intellectual property protections to protect our product candidates and platforms. We will be able to protect our product candidates from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our technology is effectively maintained as trade secrets. Intellectual property is an important part of our strategy. We have and continue to file aggressively on our own inventions and in-license intellectual property and technology as it relates to our therapeutic interests. Our success will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of patents covering lenzilumab, ifabotuzumab, HGEN005, our Humaneered technology, and our GM-CSF gene-editing CAR-T platform technologies, to preserve trade secrets and proprietary know how, and to operate without infringing the patents and proprietary rights of third parties. We actively seek patent protection, if available, in the U.S. and select foreign countries for the technology we develop. We have 131 registered patents, including 16 registered in the U.S. and 115 registered in foreign countries. Of the 131 registered patents, 107 are owned by us, 9 are owned jointly with a third party and 15 are exclusively licensed from a third party. We also have 79 patent applications pending globally, of which 33 are owned by us, 20 are owned jointly with a third party and 26 are exclusively licensed from a third party. 

 

Using our Humaneered technology, we have developed and own two composition of matter U.S. patents covering lenzilumab and related anti-GM-CSF antibodies that provide patent protection through April 2029, a granted composition of matter patent in 15 European countries and certain foreign countries, and have four U.S. patents and nine additional pending patent applications in the U.S., 21 foreign patent applications, and one PCT international patent application covering various methods of treatment, including in the CAR-T space covering a broad and comprehensive range of approaches to neutralizing GM-CSF, including the use of GM-CSF k/o CAR-T cells, which, if granted, are expected to confer protection to at least September 2039. We also have one currently pending foreign patent application that is jointly owned with a third party for anti-EphA3 antibodies and their use, and we developed and own an issued U.S. composition of matter patent covering ifabotuzumab and related anti-EphA3 antibodies, which is currently expected to expire in 2031, and own 22 foreign patents to anti-EphA3 antibodies and therapeutic uses, in addition to owning four U.S. patents to therapeutic methods using anti-EphA3 antibodies, one European patent to be validated in 19 countries, and seven foreign patents owned jointly with a third party covering methods of treatment with anti-EphA3 antibodies. The two U.S. and 45 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.

 

 

The successful execution of our manufacturing strategy is a key component of our overall business strategy, as we believe that our ability to obtain regulatory approval for lenzilumab to be used commercially depends at least in part on our ability to demonstrate to regulators that we will be able to scale the manufacturing to produce a sufficient quantity of dosages to address the potential demand for the product. Our experience has been that the overall time to manufacture a 2-to-4-thousand-liter batch of lenzilumab BDS at an existing CMO and to complete the fill, finish, labeling and packaging of the vials is approximately 6 to 9 months. Accordingly, our reliance on CMOs requires us to carefully plan the availability of manufacturing slots and the availability of drug for investigation in preclinical and clinical trials and, potential commercialization. Further, our current agreements with CMOs represent large financial commitments, including upfront amounts prior to commencement of manufacturing and progress payments through the course of the manufacturing process and include payments for the initial technology transfer, which takes several months in advance of any manufacturing taking place. For a description of risks related to our manufacturing strategy, including our complete reliance on CMOs, see “Item 1A. Risk Factors.”

 

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 U.S. 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.

 

In addition, MHRA in the UK has advised us that it requires certain validation work to be conducted related to production of lenzilumab prior to potential approval for sale. Guidance from FDA is that validation is not required for materials produced for sale under EUA, that validation could be completed and submitted as part of the subsequent regulatory process and that lenzilumab made prior to validation may be available for sale under an EUA, if FDA were to grant such an authorization. For lenzilumab for which no validation is planned, FDA would rely on a comparability report to ensure lenzilumab would be available for sale under an EUA. As of February 15, 2022, lenzilumab treatments for approximately 67,000 patients were in various stages of the validation process and another approximately 24,000 lenzilumab treatments had been produced, or were in process of being produced, for which we do not plan to complete validation. Another 41,000 treatments are in production at one of our CMOs for which material has not yet been released, and which may require reprocessing prior to release. At this time, it is not possible to predict if these 41,000 treatments would be released and available for sale if authorization or approval for lenzilumab were to be attained.

 

We have sought to mitigate our financial commitments while continuing to position lenzilumab for a future authorization or approval in the U.S., EU and UK. Our mitigation efforts included the amendment or in some cases cancelation of certain of our agreements with CMOs for future manufacturing work, some of which were contingent on EUA, in an effort to reduce our future spending. We incurred cancellation fees for several of these modifications. We also have disputed several invoices for cancellation fees and for production batches for lenzilumab that had been submitted by CMOs that failed to produce BDS within our stated release specifications, but our mitigation efforts may not be successful to recoup any such loss of lenzilumab BDS or DP. See Item 3. 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 more information on these disputes. In the event of authorization by MHRA, EMA, or FDA, we anticipate that the demand for commercial product could exceed the in process and planned production of lenzilumab through 2022. We intend to seek additional manufacturing capacity if authorization is obtained. We expect to use a portion of the revenues generated from commercial sale of lenzilumab following receipt of a regulatory authorization to support our efforts to expand production capacity in 2023 and beyond.

 

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 potential biologic therapies to treat COVID-19, to make CAR-T therapy and allogeneic HSCT safer and more effective and to develop a potential treatment for hematologic cancers, in addition to recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying to a large extent on our drug approvals or on our biologics approvals, or with generic copies of our product approved by FDA, as bio-similars, referencing our drug products. Many of our potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours.

 

 

The current standard of care for aGvHD is daily systemic steroids, with a patient response rate of approximately 50%. CMML is currently treated via stem cell transplant, surgery or chemotherapy, typically azacytidine or decitabine. 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 COVID-19 competition

 

There are currently no FDA-approved immunomodulators for the prevention of the hyperinflammatory state associated with COVID-19; however, Emergency Use Authorization has been granted to tocilizumab and baricitinib, two compounds that are approved for certain inflammatory conditions. The NIH treatment guidelines for therapeutic management of hospitalized adults with COVID-19 (as of December 2021) are shown below:

 

 

 

 

Lenzilumab and CAR-T-related toxicities competition

 

There are currently no FDA-approved products for the prevention or treatment of ICANS or for the prevention of CRS associated with CAR-T therapy. 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 only approved for the treatment of severe cases of CRS, but is not approved for prevention of CRS, nor is it approved for either prevention or treatment of ICANS.

 

 

Other experimental approaches being explored include development of next-generation, CAR-T constructs, including introducing suicide genes into CAR-T cells using herpes simplex virus thymidine kinase (“HSV-TK”) or inducible caspase-9 (“iCasp9”) genes with “on / off” switches, incorporating a co-stimulatory molecule into T-cells, using RNA-guided DNA targeting technology or other epitope-based / gene-editing technology. While it is possible that some of these approaches could result in lower rates of ICANS and/or CRS, preliminary data suggests that improvements in the safety profile are associated with lower rates of efficacy and durable response. This is not surprising given the linkage that has been shown to exist between CAR-T cell expansion, efficacy and toxicity. There are also several other anti-GM-CSF compounds that are in various stages of development, however the focus of these compounds appears to be in chronic autoimmune disorders such as rheumatoid arthritis, ankylosing spondylitis, giant cell arteritis and related disorders.

  

Government Regulation

 

Drug Development and Approval in the U.S.

 

As a biopharmaceutical company operating in the U.S., we are subject to extensive regulation by FDA and by other federal, state, and local regulatory agencies. FDA regulates biological products such as our product candidates under the U.S. Federal Food and Cosmetic Act (“FDCA”), the Public Health Service Act (“PHSA”) and their implementing regulations. 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 U.S. Biologics receive 12 years market exclusivity from first licensure. During the COVID-19 public health emergency, however, FDA has certain authority, under the FDCA and The Pandemic and All Hazards Preparedness Reauthorization Act of 2013, to bypass the BLA pathway and issue an EUA for certain medical products, including biologics, intended for use during the emergency. An EUA, once issued for a biologic, lasts only for a limited amount of time, after which a BLA will be required for continued marketing.

 

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. FDA assesses the potential effectiveness of a possible EUA product on a case-by-case basis using a risk-benefit analysis. In deciding whether to authorize emergency use, FDA will evaluate whether the known and potential benefits of the product outweigh the known and potential risks, taking into account the totality of the scientific evidence. Such evidence may include clinical trial data, in vivo efficacy data from animal models, and in vitro data. Even where a product “may be effective,” FDA may only issue an EUA if there is no adequate, approved, and available alternative to the candidate product, either because there is no alternative product at all or because of, for example, an insufficient supply of an approved alternative to meet the emergency need; contraindications for use of an approved product in certain populations or circumstances; or the agent at issue in the public health emergency is resistant to approved and available products.

 

When an EUA is issued, FDA will typically limit or restrict the amount of promotional activity that may be conducted for the medical product granted an EUA and may reissue an EUA to change the terms based on a change in circumstances, such as the emergence of new clinical trial data that change the risk-versus-benefit analysis.

 

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.

 

 

Applications Relying on the Applicant’s Clinical Data

 

The approval process for a BLA under the PHSA requires the conduct of extensive studies and the submission of large amounts of data by the applicant. The biologic development process for these applications will generally include the following phases:

 

Preclinical Testing. Before testing any new biologic in human subjects in the U.S., a company must generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological studies in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with FDA’s Good Laboratory Practice (“GLP”) regulations and the U.S. Department of Agriculture’s Animal Welfare Act.

 

IND Application. Human clinical trials in the U.S. cannot commence until an IND application is submitted and becomes effective. A company must submit preclinical testing results to FDA as part of the IND application, and FDA must evaluate whether there is an adequate basis for testing the product in initial clinical studies in human volunteers. Unless FDA raises concerns, the IND application becomes effective 30 days following its receipt by FDA. Once human clinical trials have commenced, FDA may stop the clinical trials by placing them on “clinical hold” because of concerns about the safety of the product being tested, or for other reasons.

 

Clinical Trials. Clinical trials involve the administration of the product to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring regulations and Good Clinical Practice (“GCP”) requirements, which establish standards for conducting, recording data from, and reporting the results of clinical trials. GCP requirements are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected.

 

Clinical trials must be conducted under protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is submitted to FDA as part of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an Institutional Review Board (“IRB”), at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study not conducted under an IND application may be submitted in support of a BLA if the study was conducted in accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain details about active clinical trials and clinical trial results on the government website clinicaltrials.gov.

 

Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another and, notably, in the CAR-T setting, FDA has granted approval to all five currently marketed CAR-T therapies (Gilead/Kite’s Yescarta, and Tecartus, Novartis’s Kymriah 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:

 

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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.

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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.

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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.

 

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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 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 U.S. This means that FDA may not approve an application for a biosimilar version of a reference biological product until 12 years after the date of 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 U.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from 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 U.S., but also include diseases or conditions affecting more than 200,000 individuals in the U.S. if there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease or condition will be recovered from sales in the U.S. of such product.

 

If a sponsor demonstrates that a therapeutic product, including a biological product, is intended to treat a rare disease or condition, and meets certain other criteria, FDA grants orphan drug designation to the product for that use. FDA may grant multiple orphan designations to different companies developing the same product for the same indication, until the one company is the first to be able to secure successful approval for that product. The first product approved with an orphan drug designated indication is granted seven years of orphan drug exclusivity from the date of approval for that indication. During that period, FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. FDA can also revoke a product’s orphan drug exclusivity under certain circumstances, including when the holder of the approved orphan drug application is unable to assure the availability of sufficient quantities of the product to meet patient needs.

 

 

A sponsor of a product application that has received an orphan drug designation is also granted tax incentives for clinical research undertaken to support the application. In addition, FDA will typically coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion to grant marketing approval 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 4 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 21^st Century Cures Act in 2016, FDA is authorized under section 529 of the FDCA to grant a PRV to BLA sponsors receiving FDA approval for a product to treat a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the U.S., and where more than 50% of the patients affected are aged from birth to 18 years. We believe that our product candidates which may assist with the treatment of rare pediatric cancers or other rare pediatric diseases may qualify for a PRV under this program, depending on the indication.

 

The PRV program allows the voucher holder to obtain priority review for a product application that would otherwise not receive priority review, shortening FDA’s target review period to a targeted six months following acceptance of filing of an NDA or BLA, or four months shorter than the standard review period. The voucher may be used by the sponsor who receives it, or it may be sold to another sponsor for use in that sponsor’s own marketing application. The sponsor who uses the voucher is required to pay additional user fees on top of the standard user fee for reviewing an NDA or BLA.

 

We anticipate submitting applications for one or more of these expedited programs 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 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.

 

 

The EU’s Clinical Trials Regulation (“CTR”) went into effect on January 31, 2022. The CTR repeals the Clinical Trials Directive (“CTD”) and national implementing legislation in EU Member States, which previously regulated clinical trials in the EU. The evaluation, authorization, and supervision of clinical trials are the responsibilities of EU Member States and European Economic Area (EEA) countries. Prior to the CTR, clinical trial sponsors had to submit clinical trial applications separately to regulatory authorities in each country to gain regulatory approval to conduct clinical trials. The new CTR aims to harmonize the process for assessment and supervision of clinical trials by enabling sponsors to submit a single online application for approval to run a clinical trial in several European countries, making it more efficient to carry out such multinational trials. A three-year phased-in transition period has been established.

 

Traditional marketing authorization in the EU may be obtained under a centralized procedure, a decentralized procedure, or a mutual recognition procedure. The data requirements and standards governing drug authorization are the same in the EU regardless of the authorization route.

 

The centralized procedure provides for a grant of a single marketing authorization that is valid for all EU Member States. Under the centralized procedure, drug companies submit a single marketing authorization application to European Medicines Agency (“EMA”). EMA’s Committee for Medicinal Products for Human Use (“CMPH”) will carry out a scientific assessment of the application and recommend whether or not the drug should be marketed. The European Commission will then make a legally binding decision based on the CMPH recommendation. Once granted by the European Commission, the centralized marketing authorization is valid in all EU Member States and in European Economic Area countries, although decisions about pricing and reimbursement will take place at the national and regional level before a medicine will be made available in a particular EU country. The centralized procedure is mandatory for drugs that contain a new active substance to treat certain condition (such as cancer); drugs derived from biotechnology processes, such as genetic engineering; advanced-therapy medicines, such as gene-therapy; orphan medicines for rare diseases; and some veterinary medicines. It is optional for other drugs.

 

The decentralized procedure allows an applicant to apply for simultaneous authorization by more than one EU Member State where a drug product has not yet been authorized by any EU Member State and does not fall within the mandatory scope of the centralized procedure. Under the decentralized procedure, one of the proposed EU Member States is asked by the applicant to act as a Reference Member State (“RMS”). The RMS conducts the initial evaluation of the product and issues a draft assessment report and related materials. The assessment report is submitted to the other “Concerned Member States” (“CMS”) who must decide whether to approve the report and related materials or to ask further questions and/or raise objections. If all issues are resolved and the application is successful, each Member State will then issue a Marketing Authorization for the product permitting it to be marketed in their country. If a CMS cannot approve the assessment report and related materials due to concerns regarding potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all Member States.

 

Finally, the Mutual Recognition Procedure must be used when a product has already been authorized in at least one Member State on a national basis and the Marketing Authorization Holder wishes to obtain a marketing authorization for the same product in at least one other Member State. The Member State that has already authorized the product (known as the RMS) submits its evaluation of the product to one or more other Concerned Member States, which are then asked to mutually recognize the marketing authorization of the RMS. If the application it successful, the Concerned Member State(s) will then issue a marketing authorization permitting the marketing of the product in their country.

 

As in the U.S., 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 enjoy 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). The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. 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. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.

 

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.

 

 

During the COVID-19 pandemic, EMA is using the conditional marketing authorization procedure to expedite the approval of safe and effective COVID-19 treatments and vaccines in the EU. In a public health emergency such as the pandemic, the conditional marketing authorization procedure can be combined with a rolling review of data during the development of a promising medication to further expedite evaluation.

 

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. For a period of two years from January 1, 2021, MHRA may rely on a decision taken by the European Commission on the approval of a new marketing authorization in the centralized procedure, in order to more quickly grant a new Great Britain marketing authorization. A separate application, however, is still required. There is currently no procedure for mutual EU/UK recognition of new medicinal products.

 

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. MHRA may grant a conditional marketing authorization where comprehensive clinical data is not yet complete, but it is judged that such data will become available soon. The marketing authorization application must still contain adequate evidence of safety and efficacy to enable MHRA to conclude that the risk-benefit balance of the drug is positive. MHRA may take into account the designation by EMA (or another jurisdiction) of a drug as eligible for conditional marketing authorization, but MHRA will make the final decision on eligibility of the product under the Great Britain framework. Conditional marketing authorizations will be valid for one year and will be renewable annually.

 

With the exit of the UK from the European Union, the UK will not be implementing the CTR and the UK provisions implementing the current law as set out in the CTD will continue to apply until amended by the UK.

 

Data exclusivity periods in the United Kingdom are currently in line with those in the European Union; however, the Trade and Cooperation Agreement that outlines the future trading relationship between the UK and EU provides that the periods for both data and market exclusivity are to be determined by domestic law; therefore, exclusivity periods in the two jurisdictions could diverge in the future.

 

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.

 

Employees and Human Capital Resources

 

As of December 31, 2021, we employed 11 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, investor relations, commercial, 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 February 16, 2022.

 

 

Cameron Durrant, M.D., MBA, age 61, has served as our Chairman of our Board since January 2016, and as our Chief Executive Officer since March 2016. In addition, Dr. Durrant served as our Interim Chief Financial Officer from July 1, 2019 to July 31, 2020. From May 2014 to January 2016, Dr. Durrant served as Founder and Director of Taran Pharma Limited, a private semi-virtual specialty pharma company developing and registering treatments in Europe for orphan conditions. Dr. Durrant served as President and Chief Executive Officer of ECR Pharmaceuticals Co., Inc., a subsidiary of Hi-Tech Pharmacal Co., Inc., from September 2012 to April 2014 until its acquisition by Akorn. He previously has been a senior executive at Johnson and Johnson, Pharmacia Corporation, GSK and Merck. Dr. Durrant was a director of Immune Pharmaceuticals Inc. from July 2014 to September 2018 and 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.

 

Timothy Morris, CPA, age 60, joined Humanigen as Chief Operating and Financial Officer on August 1, 2020. Prior to assuming his position as a Humanigen officer, Mr. Morris served as a member of our Board since June 2016. Mr. Morris served as the Chief Financial Officer of Iovance Biotherapeutics, Inc., a biopharmaceutical company, from August 2017 until June 2020. From March 2014 to June 2017, Mr. Morris served as Chief Financial Officer and Head of Business Development of AcelRx Pharmaceuticals, Inc., a specialty pharmaceutical company. From November 2004 to December 2013, Mr. Morris served as Senior Vice President Finance and Global Corporate Development, Chief Financial Officer of VIVUS, Inc. a biopharmaceutical company. Mr. Morris received his BS in Business with an emphasis in Accounting from California State University, Chico, and is a Certified Public Accountant (Inactive).

 

Dale Chappell, M.D., MBA, age 51, 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 U.S. 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 54, 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 U.S. 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.

 

Adrian Kilcoyne, MD, MBA, MPH, age 51, was appointed as our Chief Medical Officer on April 21, 2021. Dr. Kilcoyne has significant global pharmaceutical and biotechnology industry experience and an extensive clinical background. From June 2019 until joining Humanigen, Dr. Kilcoyne served as Vice President of Oncology Global Medical Affairs, AstraZeneca most recently as Head of Evidence Generation and External Alliances, where he oversaw the global evidence strategy across the company’s entire oncology portfolio. Previously, Dr. Kilcoyne held several leadership positions at Celgene Corporation including Executive Medical Director, Global Lymphoma Program Lead, Clinical Research and Development, overseeing the development of lenalidomide in DLBCL and worked closely on the development of Breyanzi. Dr. Kilcoyne graduated from Trinity College, Dublin and holds a MSc in Public Health from the London School of Hygiene and Tropical Medicine, along with a MSc in Business Administration from the Warwick Business School.

 

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, 4^th 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

 

Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, 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 Our Business and Industry

 

Risks Related to Our Efforts to Develop Lenzilumab for COVID-19

 

FDA declined our initial request for emergency use authorization for lenzilumab as a therapy for hospitalized patients with COVID-19. The MHRA also has not approved our application for marketing authorization of lenzilumab in this indication. We are continuing to pursue an authorization or approval for lenzilumab’s use in hospitalized patients with COVID-19 in the U.S., UK and EU, but may not obtain one.

 

On September 8, 2021, FDA informed us that it had declined to issue an EUA for lenzilumab for patients hospitalized with COVID-19. FDA has advised us that we will need to submit further safety and efficacy data in an amended application for EUA. Likewise, MHRA raised a number of questions in its review of our application for marketing authorization, including around efficacy, to which we need to respond. It is possible, but not assured, that the 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, being conducted by NIH, if confirmatory of the findings of the CRP subgroup from the LIVE-AIR study, may support our efficacy claim in such a way as to support an amendment to the EUA application and our response to MHRA. In addition, if the results from ACTIV-5/BET-B are not confirmatory of the results of the findings of the CRP subgroup from the LIVE-AIR study, we would either conduct a new clinical trial of our own or abandon this development program altogether. Unfavorable results likely would have a material and adverse impact on our stock price and ability to obtain future financing needed to continue as a going concern, as well.

 

If ACTIV-5/BET-B results confirm our findings from the CRP subgroup from the LIVE-AIR study, we may be required to obtain and submit additional information related to the Chemistry Manufacturing and Control (“CMC”) aspects of lenzilumab production before we attain EUA or any other authorization or approval. We are in the process of obtaining additional CMC information but there is no assurance as to exactly when or if we will generate sufficient information to satisfy regulatory requirements.

 

More broadly, in the context of EUA or any other request for a conditional marketing authorization or approval, there is no requirement that FDA or any regulatory body reach a favorable conclusion about our submissions. A myriad of factors, including the regulator’s assessment of the urgency of the need for a therapeutic such as lenzilumab; the efficacy of lenzilumab in new or different variants that have emerged or may evolve; and other factors such as the development of more efficacious vaccines or therapies, may influence a regulator’s decision on any submissions we may make.

 

Furthermore, if an EUA is granted to permit lenzilumab to be commercialized for use in the treatment of COVID-19, the authorization would only remain in effect while a “Public Health Emergency” is underway and might be expressly conditioned or limited by FDA. An EUA, if granted, could also be terminated if, in the future, there are changes in available data that bear on the risk-benefit analysis, or if alternative approved products become available.

 

Accordingly, it is possible that FDA and other regulatory authorities may not authorize or approve lenzilumab for the treatment of COVID-19, or that any such authorization or approval, if granted, may have significant limitations on its use or subsequently be rescinded or terminated. We may never successfully commercialize lenzilumab for use in COVID-19 patients or realize a return on our significant investment in the development, supply, and commercialization of lenzilumab for this purpose.

 

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.

 

During 2021, we incurred significant costs associated with our development program for lenzilumab in COVID-19 without attaining a regulatory authorization or approval to commercialize it. Our liquidity position is highly constrained as a result. We need to obtain additional financing to pursue the development of lenzilumab and our other product candidates pending our ability to commence commercialization and begin generating revenues from product sales if lenzilumab were to be authorized or approved by a regulatory agency.

 

 

Until we can generate a sufficient amount of revenue, we intend to attempt to finance future cash needs through our at-the-market offering program or other public or private equity offerings, license agreements, grant financing and support from governmental agencies, convertible debt, other debt financings, collaborations, strategic alliances, extending and managing amounts owed to vendors and marketing, supply, distribution or licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. We expect that the results of the ACTIV-5/BET-B trial will be important to potential investors in evaluating an investment in our company. Accordingly, our ability to raise capital on favorable terms in the future is linked closely to the success of that trial, which we cannot assure. Unfavorable results likely would have a material and adverse impact on our stock price and ability to obtain future financing.

 

If we are unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern.

 

The consolidated financial statements for the year ended December 31, 2021 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.

 

Our commercial opportunity in COVID-19 may be reduced or eliminated if competing products for the same segment of patients that lenzilumab targets are authorized or approved.

 

We may not be successful in attaining any authorization or approval for lenzilumab in hospitalized COVID-19 patients before competitors receive authorization or approval of competitive therapeutics. In addition, vaccines, neutralizing antibodies, and oral antivirals which have been granted EUA and/or FDA approval to prevent COVID-19 may indirectly compete for the same patients by preventing hospitalization. As discussed in greater detail under “Item 1. Business—–Lenzilumab and COVID-19 Competition,” several neutralizing antibodies have been approved to prevent progression in the early stages of infection, multiple vaccines and boosters have been authorized by FDA and other regulatory agencies, and there are numerous other companies working on therapies and/or vaccines to treat COVID-19. If additional competing therapies and/or vaccines are approved, such approval could have a material adverse impact on our ability to attain regulatory approvals needed to commercialize lenzilumab as a therapy for COVID-19.

 

Manufacturing efforts relating to our lenzilumab program in COVID-19 have been extremely costly and inefficient in producing treatments for use in our clinical development program or potential sale.

 

Our complete reliance on third-party manufacturers to produce lenzilumab subjects us to a number of risks, as described in more detail under “—Other Risks Related to Our Business and Industry” below. We believe that our ability to obtain the requisite regulatory authorizations or approvals to permit lenzilumab to be used commercially for hospitalized patients with COVID-19 depends at least in part on our ability to demonstrate that we will be able to scale the manufacturing to produce a sufficient quantity of treatments, satisfying all applicable process performance qualification (“PPQ”) requirements, to address the potential demand for the product. Our efforts to develop that manufacturing scale have been impaired by the following:

 

·

We have experienced and expect to continue to experience shortages of raw materials and critical components necessary for our manufacturing processes.

·

We struggled to reserve manufacturing slots at our CMOs. During the latter half of 2020, and continuing into 2021, it was and continues to be more challenging and expensive to obtain these slots due to increased demand for production at our CMOs, many of which also manufacture vaccines and other therapeutics.

·

Even after being reserved and paid for, the manufacturing slots for which we contracted were in some cases displaced as mandated from Rated Orders issued under the U.S Defense Production Act (“DPA”). This displacement risk has caused us to expend significant efforts to manage our supply chain and add additional CMOs.

·

Some of our CMOs struggled or outright failed to produce lenzilumab meeting our specifications. The process of manufacturing biologics is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral, foreign substances or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We lost batches of lenzilumab BDS to several of these disruptive errors, which has limited the number of potential treatments on hand. In addition, two of our CMOs have denied responsibility for the challenges they experienced and are demanding payment despite not delivering usable BDS; these payment demands, if resolved adversely to us, would further impair our liquidity.

 

 

·

Subsequent to FDA’s declination to grant EUA following our initial request, we took action to cancel future manufacturing slots. While some in-process work is continuing, we do not yet have any capacity reserved for lenzilumab production beyond 2022, nor do we have agreements in place for the commercial production of lenzilumab. Accordingly, our ability to scale our manufacturing could be delayed if we were to attain a regulatory authorization or approval to commercialize lenzilumab in hospitalized COVID-19 patients later in 2022.

 

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, including results from patients with baseline CRP levels <150 mg/L. 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 fully and carefully evaluate all data. 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, as we experienced following our announcement of top-line data from the LIVE-AIR study in March 2021.

 

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 represents a dramatic 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 our future product candidate, our business, operating results, prospects or financial condition may be harmed.

 

Target enrollment in the ACTIV-5/BET-B study has been reached in the primary analysis group (CRP<150 mg/L < 85 years old). Analysis of data can begin once the database lock has occurred. The NIH controls the data analysis and we may be unable to influence the timeline for completion. The primary endpoint is based on an assessment 29 days after treatment, and accordingly we believe top-line data from this study could be available in late first quarter or early in the second quarter of 2022, but the NIH may choose to wait until day 60 to complete their analysis. In addition, the COVID-19 pandemic, and in particular the widespread transmission of the omicron variant even among vaccinated people, has had a significant negative impact on worker productivity. It is possible that, due to COVID-19 or other reasons, the timeline to collect and analyze the data from ACTIV-5/BET-B may be delayed, causing the anticipated timeline to slip. There can be no assurance that we will be able to report top-line results within the timeline established by our guidance or that the top-line results will be consistent with the final results as reported after Day 60.

 

We cannot predict public reaction or the impact on the market price of our common stock once further announcements regarding lenzilumab or developments from ACTIV-5/BET-B are announced. Given the attention being paid to the COVID-19 pandemic and the public scrutiny of COVID-19 development announcements and data releases to date, any public announcements we make in the coming months regarding the ongoing development and regulatory process for lenzilumab may attract significant attention and scrutiny and as a result, the price of our common stock may be volatile during this time. 

 

If an authorization or approval were granted for lenzilumab, we may be unable to accurately predict demand for lenzilumab or to produce sufficient quantities on a timely basis to meet demand.

 

If lenzilumab were authorized or approved for commercial use, we may be unsuccessful in estimating user demand and may not be effective in matching inventory levels and locations to actual end user demand, in particular if the COVID-19 pandemic, including emerging variants, is effectively contained or the risk of patients being hospitalized as a result of coronavirus infection is significantly diminished. In addition, adverse changes in economic conditions, increased competition, including through approved/authorized vaccines or other therapeutics (including neutralizing antibodies and oral antivirals), or other factors may cause hospitals or other users or distributors of lenzilumab to reduce inventories of our products, which would reduce their orders for lenzilumab, even if end user demand has not changed. As a result, our revenues could be difficult to predict and vulnerable to extreme fluctuations.

 

 

There can be no assurance that lenzilumab, even if approved, would ever become profitable, due to government or healthcare provider or payer interest and public perception regarding vaccines and treatments for COVID-19 related complications.

 

As a result of the emergency situations in many countries, there is a heightened risk that a COVID-19 therapy or other treatments for COVID-19 symptoms may be subject to adverse governmental actions in certain countries, including intellectual property expropriation, compulsory licenses, strict price controls or other actions. Additionally, we may need, or we may be required by governmental or non-governmental authorities, to set aside specific quantities of doses of lenzilumab for designated purposes or geographic areas. We may face challenges related to the allocation of supply of lenzilumab, particularly with respect to geographic distribution. Thus, even if lenzilumab is approved, such governmental actions may limit our ability to recoup our current and future expenses incurred to develop and commercialize lenzilumab.

 

Furthermore, public sentiment regarding commercialization of a COVID-19 therapy or other treatment may limit or negate our ability to generate revenues from sales of lenzilumab. If authorized or approved, we may face significant public attention and scrutiny over any future business models and pricing decisions with respect to lenzilumab. If we are unable to successfully manage these risks, we could face significant reputational harm, which could negatively affect the price of our common stock.

 

We currently have no internal sales and marketing capabilities and will rely on third parties to market and sell lenzilumab if we attain an EUA or other regulatory approval for its commercialization, and any product candidates we may successfully develop. 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 have entered into an arrangement to outsource logistics and distribution services as described under “Item 1. Business—Sales and Marketing.” There can be no assurance that our partner will be effective in distributing lenzilumab.

 

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.

 

Other Risks Related to Our Business and Industry

 

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.

 

We have incurred net losses in nearly every year since our inception. For the year ended December 31, 2021, we incurred a net loss of $236.6 million, and we have an accumulated deficit of $611.1 million as of December 31, 2021. Since inception, we have recognized a nominal amount of revenue from payments for license or collaboration fees, $3.6 million of which was recognized in the year ended December 31, 2021. We expect to make substantial expenditures and incur additional operating losses in the future to further develop and commercialize our product candidates. Our accumulated deficit is expected to increase significantly as we continue our development and clinical trial efforts. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing our product candidates, either alone or with third parties. We do not currently have the required approvals to market any of our product candidates and we may never receive them. We may not be profitable even if we or any future development partners succeed in commercializing any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

 

Our business depends on the success of our current product candidates. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates.

 

We have a limited pipeline of product candidates and we do not plan to conduct active research at this time for discovery of new molecules or antibodies. We depend on the successful development and attainment of regulatory authorization or approval of our current product candidates for our future business success. The future clinical, regulatory and commercial success of our product candidates is subject to a number of risks, including the following:

 

·

we may not be able to enroll adequate numbers of eligible patients in the clinical trials we propose to conduct, whether alone or through collaborations;

 

 

·

we may not have sufficient financial and other resources to fund our clinical trials or collaborations;

·

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 FDA;

·

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, the fluid and unpredictable nature of the COVID-19 pandemic may affect our ability to conduct our ongoing clinical trials, delay the initiation of planned and future clinical trials, cause interruptions in the supply of raw materials or products, delay the collection of clinical trial data, and disrupt regulatory activities. Accordingly, we cannot assure you that our product candidates will be successfully developed or commercialized. If we or any future development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize one or more of our product candidates, we may not be able to generate sufficient revenue to continue our business.

 

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. 

 

The adoption of CAR-T therapies as the potential standard of care for treatment of certain cancers is uncertain, and dependent on the efforts of a limited number of market entrants, and if not adopted as anticipated, the market for lenzilumab or next-generation gene-edited CAR-T therapies may be limited or not develop.

 

We are seeking to advance the development of lenzilumab to address, among other things, the serious and potentially fatal side effects, 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 five 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 or next-generation gene-edited CAR-T therapies may be limited or not develop, and our stock price could be adversely affected.

 

CAR-T therapies currently in early development purport to incorporate technology that may minimize or eliminate the adverse side-effects, namely 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.

 

In recent years, several biotechnology companies describing business plans focusing on development of CAR-T therapies have completed or announced they are pursuing initial public offerings (“IPOs”). Several of these companies 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. While these products are in early-stage development, the data is limited and these products have not yet been approved for use by FDA, if 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 our stock price. 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.”

 

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 U.S., 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 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.

 

There is a limited amount of information about us upon which investors can evaluate our product candidates and business prospects, including because we have a limited operating history developing product candidates, 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, as an early-stage clinical development company, we have limited experience in development activities, including conducting clinical trials, or seeking and obtaining regulatory approvals, even though our executives have had relevant experience at other companies. We currently have ten 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;

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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;

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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 NIH, 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 other therapeutic technologies or product candidates. Biopharmaceutical companies are our likely future collaborators for any marketing, distribution, development, licensing, or broader collaboration arrangements. If we fail to enter into future collaborations on commercially reasonable terms, or at all, or such collaborations are not successful, we may not be able to execute our strategy to develop our product candidates or therapies that we believe could benefit from the resources of either larger biopharmaceutical companies or those specialized in a particular area of relevance.

 

With respect to our existing 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;

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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on preclinical studies or clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;

 

 

·

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

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collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability;

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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

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disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and

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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

 

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 Investigator Sponsored Trials (“ISTs”) of our products, which is cost-effective for us but affords the investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the data generated from their efforts.

 

We have relied and may in the future rely on third parties to conduct and sponsor clinical trials relating to lenzilumab, our GM-CSF gene knockout platform and our other immunotherapy product candidates, iFab and HGEN005. Such ISTs may provide us with valuable clinical data that can inform our future development strategy in a cost-efficient manner, but we do not control the design or conduct of the ISTs, and it is possible that FDA or non-U.S. regulatory authorities will not view these ISTs as providing adequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.

 

These arrangements provide us limited information rights with respect to the ISTs, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the ISTs. However, we would not have control over the timing and reporting of the data from ISTs, nor would we own the data from the ISTs. If we are unable to confirm or replicate the results from the ISTs or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development. Further, if investigators or institutions breach their obligations with respect to the clinical development of our product candidates, or if the data proves to be inadequate compared to the first-hand knowledge, we might have gained had the ISTs been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.

 

If the third parties conducting our clinical trials do not conduct the trials in accordance with our agreements with them, our ability to pursue our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.

 

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these trials is uncertain and may occur on substantially different timing from our estimates. We also use CROs to conduct our clinical trials and rely on medical institutions, clinical investigators, CROs, and consultants to conduct our trials in accordance with our clinical protocols and regulatory requirements. Our CROs, investigators, and other third parties play a significant role in the conduct of these trials and subsequent collection and analysis of data.

 

 

There is no guarantee that NIH, any CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fails to meet expected deadlines, fails to adhere to our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time-to-time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.

 

We may experience delays in commencing or conducting our clinical trials, in receiving data from third parties or in the continuation or completion of clinical testing, which could result in increased costs to us, delay our ability to generate product candidate revenue or, ultimately, render us unable to complete the development and commercialization of our product candidates.

 

We have product candidates in clinical development and preclinical development. 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 U.S. 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:

 

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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;

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identifying, recruiting, and training suitable clinical investigators;

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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;

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obtaining and maintaining Institutional Review Board (“IRB”) or ethics committee approval to conduct a clinical trial at an existing or prospective site;

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developing any companion diagnostic necessary to ensure the study enrolls the target population;

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being required by FDA to add more patients or sites or to conduct additional trials; or

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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 U.S. and foreign regulatory requirements and guidance also may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect the costs, timing, and likelihood of a successful completion of a clinical trial.

 

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or do not meet the standard for acceptability by regulatory authorities or if there are safety concerns, we may:

 

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be delayed in obtaining marketing approval for our product candidates;

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not obtain marketing approval or EUA at all;

 

 

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obtain approval for indications or patient populations that are not as broad as intended or desired;

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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

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be subject to additional post-marketing testing requirements; or

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have the product removed from the market after obtaining marketing approval.

 

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.

 

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 U.S. and by comparable authorities in foreign markets. In the U.S., we are not permitted to market our product candidates until we receive regulatory approval or other 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:

 

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such authorities may disagree with the design or implementation of our or any future development partners’ clinical trials;

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such authorities may not accept clinical data from trials that are conducted at clinical facilities or in countries where the standard of care is potentially different from the U.S.;

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the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;

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we or any future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

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such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

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such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or any future development partners contract for clinical and commercial supplies; or

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the approval policies or regulations of such authorities may significantly change in a manner rendering our or any future development partners’ clinical data insufficient for approval.

 

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 lenzilumab in COVID-19 patients in markets outside the U.S.

 

Partners are conducting or planning to conduct clinical trials involving lenzilumab in the UK, Korea and Australia, as well as potentially in other countries in patients with COVID-19 and other indications. In addition, we are working to seek CMA for lenzilumab in hospitalized COVID-19 patients in the European Union and the United Kingdom. We have not received any authorization or approval to sell lenzilumab 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 U.S., 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. We anticipate that we may file for marketing approval in additional countries and for additional indications and products over the next several years. These and 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 U.S. 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:

 

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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 U.S. dollar. If the U.S. 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.

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Anti-Bribery: We are subject to the U.S. 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:

 

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International operations, including any use of third-party manufacturers, distributors, CROs and collaboration arrangements outside the U.S., 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 U.S., as well as restrictive government actions against our intellectual property and other foreign assets such as nationalization, expropriation or the imposition of compulsory licenses.

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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 U.S. or other governments.

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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.

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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 2021, the Board of Directors froze the salary levels of all but one employee who was promoted and did not award any cash bonuses for 2021 performance, opting instead to grant options to employees to purchase shares of common stock in satisfaction of amounts earned under the Company's 2021 annual incentive 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 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.

 

As is the case with MHRA, we are required to provide information from the PPQ runs at certain CMOs. It is our belief that lenzilumab manufactured at CMOs that have not completed PPQ will not be available for commercial sale in the UK. Historically, FDA provided guidance that we would not have to complete PPQ at all of our CMOs and that we could rely on compatibility reports to sell product under EUA. We believe EMA may require PPQ information similar to the requirements from MHRA. We do not know if FDA’s position on the PPQ requirement has changed. If FDA requires similar PPQ information, our ability to commercialize a significant amount of the lenzilumab produced to date will be limited.

 

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.

 

In addition, we, our third-party suppliers and our CMOs have experienced disruptions in supply of product candidates and/or procuring items that are essential for our research, development and manufacturing activities, including raw materials and components used in the manufacturing of our product candidates for which there have been shortages because of ongoing efforts to address the COVID-19 pandemic. These delays have impacted our overall manufacturing supply chain operations to date, and while we continue to explore back up or alternative sources of supply, any future disruption in the supply chain from the COVID-19 outbreak, or any continued outbreak, could have a material adverse impact on our clinical trial plans, manufacturing activities and business operations.

 

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 U.S. 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 U.S., third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved product candidates for medical indications other than those for which FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. We could be subject to pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative proposals as well as country, regional, or local healthcare budget limitations. Similar concerns about the costs of treatment have been raised in Europe and the United Kingdom.

 

 

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. As our operations expand, we expect that we will need to manage additional relationships with various development partners, suppliers, and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend in part on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively. We may not be able to accomplish these tasks and our failure to accomplish any of them could prevent us from successfully growing our company. 

 

 

We and any 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 U.S. may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market, and distribute our products after approval is obtained.

 

From time-to-time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product candidates. 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, FDA and foreign regulatory authorities would require that we and any future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA or a foreign regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.

 

 

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

 

With the enactment of the Biologics Price Competition and Innovation Act of 2009, or the BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as ‘‘interchangeable’’ based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

 

We believe that any of our product candidates, 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 U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.

 

If one or more of our product candidates is approved, we will likely be subject to the various U.S. federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid, or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Many states have similar laws that apply to their state health care programs as well as private payers. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.

 

The False Claims Act imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The False Claims Act has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The False Claims Act includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws, then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.

 

State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans or corporate integrity agreements, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.

 

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 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. In addition, as further discussed above, our third-party suppliers have experienced disruptions in supply of product and/or procuring essential items as a result of supply chain issues caused by the COVID-19 pandemic. 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 U.S. 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 U.S. 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.

 

Currently pending, threatened or future litigation, arbitration, governmental proceedings or inquiries could result in material adverse consequences, including judgments or settlements.

 

We are, or may from time-to-time become, involved in lawsuits and other legal or governmental proceedings. See Item 3. 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 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.

 

Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our consolidated financial condition, results of operations and cash flows. Any judgment against us, the entry into any settlement agreement, or the imposition of any fine could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

The terms of our loan agreement with Hercules may restrict our current and future operations, particularly our ability to respond to changes in business or to take certain actions, including to pay dividends to our stockholders.

 

On March 10, 2021, we entered into the Loan and Security Agreement with Hercules Capital, Inc. (the “Term Loan”) with a scheduled maturity date of March 1, 2025. As described in more detail in Note 5 to the Consolidated Financial Statements, the Term Loan contains, and any future indebtedness we incur will likely contain, a number of restrictive covenants that impose operating restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests.

 

A breach of any of these covenants could result in an event of default under the Loan Agreement. Upon the occurrence of such an event of default, Hercules may, at its discretion, accelerate and demand payment of all or any part of the outstanding advances, together with a prepayment charge, end of term charge, and all interest due and payable under the Term Loan. Hercules also may seek to realize on the collateral we have pledged as security for the Term Loan. If our indebtedness is accelerated, we cannot assure you that we will have sufficient assets to repay the indebtedness. The restrictions and covenants in the Term Loan and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities.

 

We review and explore strategic alternatives on an on-going basis, but there can be no assurance that we will be successful in identifying or completing any strategic alternative, and any such strategic alternative, including future acquisitions of and investments in new businesses, could impact our business and financial condition.

 

We regularly review strategic alternatives to ensure our current structure optimizes our ability to execute our strategic plan and to maximize stockholder value. The review of strategic alternatives could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture, partnering, licensing or other collaboration agreements, or potential acquisitions of or investments in new businesses or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction.

 

 

The process of exploring strategic alternatives may be time consuming, disruptive to our business operations and divert the attention of management, and if we are unable to effectively manage the process or successfully integrate any acquired personnel or operations, our business, financial condition and results of operations could be adversely affected. We also cannot assure that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will perform as expected, will realize the expected benefits, synergies, or developments or that it will provide greater value to our stockholders than that reflected in our current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business or product candidates and the availability of financing to potential buyers on reasonable terms. 

 

In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. To the extent we finance any acquisition or other strategic alternative in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with shares of our common or preferred stock, it could be dilutive to our current stockholders. To the extent we finance any acquisition or investment with the proceeds from the incurrence of debt, this would increase our level of indebtedness and could negatively affect our liquidity, credit rating and restrict our operations. Moreover, we may face contingent liabilities in connection with any acquisitions or investments.

 

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 U.S. 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 U.S. 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 U.S. and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.

 

We may be subject to competition from third parties with products in the same class of products as our product candidates, or products with the same active pharmaceutical ingredients as our product candidates in those jurisdictions in which we have no patent protection. Even if patents are issued to us or any licensor regarding our product or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid or unenforceable on a variety of grounds, including lack of utility, lack sufficient written description or enablement, utility, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors devise ways of making or using these products without legally infringing our patents. The current U.S. regulatory environment may have the effect of encouraging companies to challenge branded drug patents or to create non-infringing versions of a patented product in order to facilitate the approval of ANDAs for generic substitutes. These same types of incentives encourage competitors to submit NDAs that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.

 

If we infringe the rights of third parties, we could be prevented from selling products and be forced to defend against litigation and pay damages.

 

There is a risk that we may be inadvertently infringing the proprietary rights of third parties because numerous U.S. 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 U.S. can be less extensive than those in the U.S. 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 U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the U.S. 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 U.S. 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.

 

Risks Related to Our Common Stock

 

A significant portion of our total outstanding shares are 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.

 

 

We have also entered into a Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), under which we may issue and sell from time-to-time shares of common stock through Cantor, as sales agent. Sales of a substantial number of shares under the Sales Agreement, or the perception that those sales may occur, could cause the market price of our common stock to decline. See Notes 8 and 13 to the Consolidated Financial Statements for additional information regarding the Sales Agreement and our sales of common stock pursuant to the Sales Agreement.

 

Further, certain shares of our common stock that are currently outstanding but have not been registered for resale may currently be sold under Rule 144 under the Securities Act or 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.

 

Despite our listing on the Nasdaq Capital Market, there can be no assurance that an active trading market for our common stock will develop or be sustained, and the Nasdaq Capital Market may subsequently delist our common stock if we fail to comply with ongoing listing standards.

 

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. If we fail to meet those standards, as applied by the Nasdaq Capital Market in its discretion, our common stock may be subject to delisting. We intend to take all commercially reasonable actions to maintain our Nasdaq listing. 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 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.

 

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.

 

Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.

 

To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance could result in further dilution to our stockholders by causing a reduction in their proportionate ownership and voting power.

 

Any future debt financing may involve covenants that restrict our operations, including, among other restrictions, limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. In addition, if we raise additional funds through licensing arrangements, it may be necessary to grant potentially valuable rights to our product candidates or grant licenses on terms that are not favorable to us.

 

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.

 

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 U.S., 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.

 

On August 10, 2021, we were notified that the production website used by one of our service providers to prepare for FDA’s decision regarding our EUA request for lenzilumab had been compromised and source code from the website was posted on various internet message boards. Our service provider has taken additional security measures to ensure that drafts and other unapproved materials are no longer visible to the public. Despite additional security measures taken by our service provider, there can be no assurance that their information systems, or any materials prepared in advance by us, or any of our service providers related to potential regulatory decisions would not be compromised, stolen, copied or manipulated. We remind investors that information posted online may be false, misleading or inaccurate. We undertake no obligation to review and/or correct false, misleading, or inaccurate information posted, published or disclosed other than that information made available by us in formal submissions to the SEC.

 

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

 

None.

 

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, 2022, respectively. We believe these leased offices are in satisfactory condition and are suitable for the conduct of our business. 

 

ITEM 3.  LEGAL PROCEEDINGS

 

Please see Note 11 to the Consolidated Financial Statements for a summary of material pending legal proceedings. As further described in Note 11, one of our CMOs filed a demand for arbitration, claiming more than $20.5 million in damages. The demand is for breach of contract and trade defamation relating to their inability to perform. The CMO claims that we cancelled the contract after the CMO was unable to successfully produce any full batches of lenzilumab BDS, but that we still owe the full amount due under the contract for all batches never produced. The CMO blamed its failed attempts on a subcontractor. To date, we have paid this CMO $10.6 million, despite it not being able to produce any full BDS batches. We intend to vigorously defend against these claims and to assert our own claims against this CMO.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

 

Not applicable.

 

 

PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is currently listed on the Nasdaq Capital Market under the symbol “HGEN”. As of February 16, 2022, we had 65,329,177 shares of common stock outstanding held by approximately 33 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.

 

Reverse Stock Split

 

Effective as of 4:30 p.m. Eastern Time on September 11, 2020, we amended our charter to effect a reverse stock split at a ratio of 1-for-5. Unless stated otherwise, all share data in this Annual Report on Form 10-K have been adjusted, as appropriate, to reflect the reverse stock split.

 

ITEM 6.  RESERVED  

 

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 (known as “LENZ” in the U.S.), and our other two product candidates, ifabotuzumab (“iFab”) and HGEN005, 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.

 

We are focusing our efforts on the development of our lead product candidate, lenzilumab. Lenzilumab is a monoclonal antibody that has been demonstrated to neutralize human granulocyte-macrophage colony-stimulating factor (“GM-CSF”), a cytokine that we believe is of critical importance in the hyperinflammatory cascade, sometimes referred to as cytokine release syndrome (“CRS”) or cytokine storm, associated with COVID-19, chimeric antigen receptor T-cell (“CAR-T”) therapy and acute Graft versus Host Disease (“aGvHD”) associated with bone marrow transplants.

 

We have completed a Phase 3 registrational trial with lenzilumab in newly hospitalized COVID-19 patients and announced positive topline data from the study known as “LIVE-AIR” in March 2021. Following completion of the LIVE-AIR study, we commenced a series of efforts to attain authorization to commercialize lenzilumab for use in hospitalized COVID-19 patients in the United States and other territories. We filed an application for Emergency Use Authorization (“EUA”) with U.S. Food and Drug Administration (“FDA”) at the end of May 2021. We also submitted an application for marketing authorization of lenzilumab in hospitalized COVID-19 patients to Medicines and Healthcare products Regulatory Agency (“MHRA”) of the United Kingdom and conducted a series of exploratory discussions with representatives of European Medicines Agency (“EMA”) regarding our potential submission of lenzilumab for marketing authorization in the European Union. In addition, we commenced significant manufacturing efforts in support of potential commercialization, as described in “Item 1. Business—Manufacturing and Raw Materials.”

 

On September 8, 2021, FDA declined our EUA request, stating in its letter that it was unable to conclude that the known and potential benefits of lenzilumab outweigh the known and potential risks of its use as a treatment for COVID-19. In addition to raising similar concerns around efficacy, MHRA requested further information related to clinical, manufacturing and quality processes. Despite these regulatory setbacks, we continue to believe in its potential therapeutic benefits and remain committed to bringing lenzilumab to patients hospitalized with COVID-19.

 

 

The next anticipated step in our development program for lenzilumab in COVID-19 is the release of results from the Accelerating COVID-19 Therapeutic Interventions and Vaccines (“ACTIV”)-5 and Big Effect Trial, in the “B” arm of the trial (“BET-B”), referred to as the ACTIV-5/BET-B trial, which is sponsored and funded by the National Institutes of Health (“NIH”). This study is evaluating lenzilumab in combination with remdesivir, compared to placebo and remdesivir, in hospitalized COVID-19 patients, as more fully described below. We provided lenzilumab for the study.

 

A retrospective analysis of the LIVE-AIR study suggested that patients under the age of 85 and with a baseline CRP below 150 mg/L (the “CRP subgroup”) appeared to derive the greatest benefit from lenzilumab, therefore, the ACTIV-5/BET-B study protocol was modified to include baseline CRP below 150 mg/L as the primary analysis population. The ACTIV-5/BET-B study has reached its target enrollment with over 400 patients enrolled that met this criterion. Topline results from ACTIV-5/BET-B are expected to be released late in the first quarter or early in the second quarter of 2022. If confirmatory of the findings of the CRP subgroup from the LIVE-AIR study, we plan to include the results from ACTIV-5/BET-B in an amendment to EUA submission, and to include these results in a responsive submission to MHRA along with certain performance process qualification (“PPQ”) data around drug product batches, in the second quarter of 2022. In addition, as a result of feedback received from representatives of EMA, if the ACTIV-5/BET-B data are confirmatory of the results of the findings of the CRP subgroup from the LIVE-AIR study, we intend to submit a Conditional Marketing Authorization (“CMA”) for lenzilumab with an Accelerated Approval request to EMA later in 2022.

  

We believe that we have built a strong intellectual property position in the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain to COVID-19, CAR-T, aGvHD and multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may be driven by GM-CSF.

 

Development Programs

 

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.

 

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 U.S., or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the 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:

 

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contract research organizations and other service providers in connection with clinical studies;

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contract manufacturers in connection with the production of lenzilumab, including cancellation and termination charges and charges for product that does not meet specifications; and

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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 $3.6 million and $0.3 million for the years ending December 31, 2021 and 2020, respectively. Commencing January 1, 2018, we recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of ASC 606, 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, 2021, we had an accumulated deficit of $611.1 million, primarily as a result of research and development and general and administrative expenses. Since inception, we have recognized a nominal amount of revenue from payments for license or collaboration fees, $3.6 million of which was recognized in the year ended December 31, 2021. While we may in the future generate additional revenue from a variety of sources, including license fees, milestone payments, and research and development payments in connection with strategic partnerships, our product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product sales. 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.

 

Comparison of Years Ended December 31, 2021 and 2020

 

The following table summarizes the results of our operations for the periods indicated (amounts in thousands, except percentages): 

 

		Year Ended December 31,								Increase/ (Decrease)
		2021				2020				Amount				%
Revenue:
License revenue		$	3,595			$	312			$	3,283				1,052
Total revenue			3,595				312				3,283				1,052
Operating expenses:
Research and development			213,115				72,713				140,402				193
General and administrative			23,252				15,797				7,455				47
Total operating expenses			236,367				88,510				147,857				167
Loss from operations			(232,772	)			(88,198	)			(144,574	)			164
Other expense:
Interest expense			(2,264	)			(1,336	)			(928	)			69
Other expense, net			(1,613	)			(1	)			(1,612	)			*
Net loss		$	(236,649	)		$	(89,535	)		$	(147,114	)			164

 

* Percentage is not meaningful

 

Revenue

 

Revenue in the fiscal years ended December 31, 2021 and 2020 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 increased $3.3 million in 2021 from $0.3 million for the year ended December 31, 2020 to $3.6 million for the year ended December 31, 2021.

 

 

Research and Development Expenses

 

Conducting research and development is central to our business model. We expense both internal and external research and development costs as incurred. We track external research and development costs incurred by project for each of our clinical programs. Our external research and development costs consist primarily of:

 

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expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials and our pre-clinical activities;

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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, cancellation and termination charges and charges for failed batches; and

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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, 2021 and 2020 (in thousands):

 

		Year Ended December 31,
(in thousands)		2021				2020
External Costs
Lenzilumab		$	210,129			$	71,341
Ifabotuzumab			112				225
Internal costs			2,874				1,147
Total research and development		$	213,115			$	72,713

 

Research and development expenses increased by $140.4 million from $72.7 million for the year ended December 31, 2020 to $213.1 million for the year ended December 31, 2021. The increase is primarily due to an increase of $143.9 million in lenzilumab manufacturing costs, including consulting fees, and a $1.7 million increase in internal costs, primarily compensation-related, partially offset by a $5.2 million reduction in clinical trial expenses for lenzilumab.

 

We expect our development costs will decrease in 2022 as compared to 2021. We have sought to mitigate our financial commitments while continuing to position lenzilumab for a future authorization or approval in the U.S., EU and UK. Our mitigation efforts included the amendment or in some cases cancelation of certain of our agreements with CMOs for future manufacturing work, some of which were contingent on EUA, in an effort to reduce our future spending. We incurred cancellation fees for several of these modifications. We also have disputed several invoices for cancellation fees and for production batches for lenzilumab that had been submitted by CMOs that failed to produce BDS within our stated release specifications, but our mitigation efforts may not be successful to recoup any such loss of lenzilumab BDS or DP. See Item 3. 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 more information on these disputes. In the event of authorization by MHRA, EMA, or FDA, we anticipate that the demand for commercial product could exceed the in-process and planned production of lenzilumab through 2022. We intend to seek additional manufacturing capacity if authorization is obtained. We expect to use a portion of the revenues generated from commercial sale of lenzilumab following receipt of a regulatory authorization to support our efforts to expand production capacity in 2023 and beyond.

 

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, consulting, audit and tax services, public, governmental and investor relations costs, and other general operating expenses not otherwise included in research and development.

 

 

General and administrative expenses increased by $7.5 million from $15.8 million for the year ended December 31, 2020, to $23.3 million for the year ended December 31, 2021. The increase for the year ended December 31, 2021, is primarily due to increases in consulting and other professional services fees of $6.4 million, personnel-related expenses of $2.9 million, including $2.3 million in non-cash stock-based compensation expense, primarily attributable to new hires since the first quarter of 2020, an increase of $0.8 million in business insurance, and other net increases in general and administrative expenses of $0.8 million, all in support of our increased operating activities to support the trial for COVID-19 and prepare for potential commercialization of lenzilumab, partially offset by a decrease in public and investor relations expenses of $3.4 million. We expect our overall general and administrative costs to decrease in the near-term until and if authorization is received in the UK, EU, or U.S.

 

Interest Expense

 

Interest expense increased $1.0 million from $1.3 million for the year ended December 31, 2020 to $2.3 million for the year ended December 31, 2021. Interest expense for the year ended December 31, 2021 primarily related to the Loan and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the “Term Loan”). On March 29, 2021, we borrowed $25.0 million under the Term Loan. See Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on the Term Loan. Interest expense for the year ended December 31, 2020 primarily related to our previously outstanding debt. In June 2020, we paid off substantially all of our debt with proceeds from the private placement of our common stock.

 

Other Expense, net

 

Other expense increased by $1.6 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to litigation costs.

 

Income Taxes

 

As of December 31, 2021, we had net operating loss carryforwards of approximately $166.2 million to offset future federal income taxes which expire in the years 2022 through 2037, and approximately $522.5 million that may offset future state income taxes which expire in the years 2028 through 2041. We also have federal net operating loss carryforwards generated in the years 2018 through 2021 of $346.9 million that have no expiration date as a result of the tax law changes signed into law on December 22, 2017. Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they are utilized. At December 31, 2021, we recorded a 100% valuation allowance against our deferred tax assets of approximately $150.6 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 more recently, with the proceeds under the South Korea Agreement. Specifically, under the South Korea Agreement, we received a $6.0 million upfront payment (or $4.5 million, net of withholding taxes and other fees and royalties) in the fourth quarter of 2020 and the first milestone payment of $6.0 million (or $4.5 million, net of withholding taxes and other fees and royalties) which was met in the first quarter of 2021 and received in the second quarter of 2021. In the first quarter of 2021, we borrowed $25.0 million under the Term Loan. In the second quarter of 2021, we sold an aggregate of 5,427,017 shares of our common stock in connection with an underwritten public offering, raising net proceeds of approximately $94.2 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 in connection with our Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), raising net proceeds of approximately $65.7 million after deducting underwriting discounts and offering costs. At December 31, 2021, we had cash and cash equivalents of $70.0 million. Subsequent to December 31, 2021 and through the date of this filing, as disclosed in Note 13 to the Consolidated Financial Statements included in this Annual Report on Form 10-K, we issued and sold 1,301,548 shares of common stock pursuant to the Sales Agreement and raised net proceeds of approximately $3.7 million, after deducting fees and expenses.

 

 

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)		2021				2020
Net cash (used in) provided by:
Operating activities		$	(184,045	)		$	(69,852	)
Investing activities			-				(20	)
Financing activities			186,324				137,466
Net increase in cash and cash equivalents		$	2,279			$	67,594

 

 Net cash used in operating activities was $184.0 million and $69.9 million for the years ended December 31, 2021 and 2020, respectively. 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. Cash used in operating activities in 2020 primarily related to our net loss of $89.5 million, adjusted for non-cash items, such as $2.1 million in stock-based compensation, changes in operating assets and liabilities of $16.5 million and other non-cash items of $1.0 million.

 

Net cash used in investing activities was $0 and $20 thousand for the years ended December 31, 2021 and 2020, respectively. Cash used in investing activities for the year ended December 31, 2020 consisted of the purchase of website domain names for future use.

 

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.

 

Net cash provided by financing activities was $137.5 million for the year ended December 31, 2020 and consisted primarily of $67.0 million received from the issuance of common stock in the 2020 Private Placement (as defined below) in June 2020, $72.7 million received from the issuance of common stock in the 2020 Underwritten Offering (as defined below) in September 2020, $0.5 million received from the issuance of the 2020 Convertible Notes, $0.6 million received from the exercise of stock options, $0.3 million received from the issuance of the 2020 Bridge Notes and $0.1 million received from the issuance of common stock under the equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”), offset by $0.5 million for the payoff of the 2020 Convertible Notes, $2.4 million for the payoff of the 2019 and 2020 Bridge Notes and $0.8 million for the payoff of the Notes payable to vendors.

 

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 through Cantor, as sales agent. During the period from January 1, 2021 through 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. See Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to the Sales Agreement.  

 

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. We may become entitled to draw another $20.0 million under the Term Loan through June 15, 2022, at the discretion of Hercules if we request additional funding in support of our strategic initiatives, although there can be no assurances that Hercules would agree to provide such additional funding. See Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on the Term Loan.

 

 

2020 Underwritten Public Offering

 

On September 17, 2020, we entered into an underwriting agreement with J.P. Morgan Securities LLC and Jefferies LLC, as representatives of the several underwriters, in connection with the public offering of 8,000,000 million shares of Humanigen’s common stock (the “2020 Underwritten Offering”). In addition, we granted the underwriters a 30-day option to purchase an additional 1,200,000 shares of common stock, which option was exercised in full by the underwriters on September 18, 2020.

 

As a result of the pricing of the public offering, our common stock commenced trading on the Nasdaq Capital Market.

 

The aggregate gross proceeds from the sale of the full 9,200,000 shares in the offering were approximately $78.2 million. We used the proceeds from the offering to support our manufacturing, production and commercial preparation activities relating to lenzilumab as a potential therapy for COVID-19 patients and for working capital and other general corporate purposes.

 

2020 Private Placement

 

On June 1, 2020, we entered into a securities purchase agreement with certain accredited investors to complete a private placement of our common stock (the “Private Placement”). The closing of the Private Placement occurred on June 2, 2020 (the “Closing Date”). At the closing, we issued and sold 16,505,743 shares of our common stock (the “Shares”) at a purchase price of $4.35 per share, for aggregate gross proceeds of approximately $71.8 million. We used a portion of the proceeds to retire the following indebtedness:

 

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the outstanding principal amount and accrued and unpaid interest on Humanigen’s convertible promissory notes issued in March 2020, which approximated $0.5 million, were repaid in full, and the notes were extinguished;

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the outstanding principal and accrued and unpaid interest, amounting to approximately $2.4 million, on short-term, secured bridge loans made to Humanigen in 2019 and 2020 were repaid in full and the related liens were released; and

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the remaining outstanding principal and accrued and unpaid interest, amounting to approximately $0.8 million, on certain notes payable to vendors in accordance with the bankruptcy plan.

 

We used the remaining proceeds from the Private Placement to fund our Phase 3 study of lenzilumab in COVID-19, to secure manufacturing capacity, to progress Chemistry, Manufacturing and Controls (“CMC”) work, to prepare for commercialization in the event of approval of lenzilumab for use in COVID-19 patients, our collaboration agreement with Kite Pharmaceuticals, Inc., and other development programs, as well as for working capital and other general corporate purposes. See Note 11 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for material information regarding two complaints filed against us in connection with the Private Placement.

 

Liquidity and Going Concern

 

We continue to advance our efforts in support of the development of lenzilumab as a therapy for hospitalized COVID-19 patients. As of December 31, 2021, we had cash and cash equivalents of $70.0 million. On September 8, 2021, FDA declined to approve our EUA for lenzilumab. As more fully described in this Annual Report on Form 10-K under “Item 1. Business—Manufacturing and Raw Materials”, we have entered into agreements with several CMOs to provide manufacturing, fill/finish and packaging services for lenzilumab. While we remain committed to our ongoing efforts seeking authorization or approval for commercial use of lenzilumab to treat hospitalized COVID-19 patients in the US, EU, UK and other territories, we have amended, and in some cases canceled, certain of these agreements, some of which were contingent on EUA, in an effort to reduce our future spending on lenzilumab production until and if authorization is received in the UK, EU, or U.S. (See Note 7 to the Consolidated Financial Statements included in this Annual Report on Form 10-K). These changes may limit future production of lenzilumab but because most of our manufacturing agreements required payment of upfront fees upon execution and payments against performance of the services to be provided, often over a lengthy performance period, the changes are expected to decrease our manufacturing costs beginning in 2022.

 

 

Considering our current cash resources and our current and expected levels of operating expenses, which includes our combined accounts payable and accrued expenses as of December 31, 2021 of $64.6 million, and our capital commitments of $63.4 million during 2022 related to our manufacturing agreements, as further described below (see “–Capital Commitments and Capital Resources”),we expect to need additional capital to fund our planned operations and capital requirements for the next twelve months. We may seek to raise such additional capital through public or private equity offerings, including under the Sales Agreement with Cantor, grant financing and support from governmental agencies, convertible debt, additional borrowings under our Term Loan with Hercules at the discretion of Hercules, borrowings under other debt financings, collaborations, strategic alliances and marketing, supply, distribution, or licensing arrangements. Subsequent to December 31, 2021 and through the date of this filing, as disclosed in Note 13 to the Consolidated Financial Statements included in this Annual Report on Form 10-K, we issued and sold 1,301,548 shares of common stock pursuant to the Sales Agreement and raised net proceeds of approximately $3.7 million, after deducting fees and expenses. While we believe these plans to raise additional funds will alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, these plans are not entirely within our control and cannot be assessed as being probable of occurring. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs, our commercialization efforts or our manufacturing commitments and capacity. In addition, if we raise additional funds through collaborations, strategic alliances or marketing, supply, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

 

We expect that the results of the ACTIV-5/BET-B trial will be important to potential investors in evaluating an investment in our company. Accordingly, our ability to raise capital on favorable terms in the future is linked closely to the success of that trial, which we cannot assure. Unfavorable results likely would have a material and adverse impact on our stock price and ability to obtain future financing.

 

If we are unsuccessful in our efforts to raise additional capital, based on our current and expected levels of operating expenses our current capital will not be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern.

 

Capital Commitments and Capital Resources

 

On September 8, 2021, FDA declined to approve our application for EUA for the use of lenzilumab for the treatment of COVID-19.

 

To support our development efforts for lenzilumab and potential commercialization upon approval under an EUA, CMA or MAA, we have entered into agreements with several organizations for contract manufacturing services, as more fully described in this Annual Report on Form 10-K under “Item 1. Business—Manufacturing and Raw Materials.”

 

While we remain committed to completing regulatory processes underway seeking marketing authorization for lenzilumab to treat hospitalized COVID-19 patients in the U.S., EU, UK and other territories, subsequent to FDA’s decision to decline to approve our application for EUA for the use of lenzilumab we amended, and in some cases terminated, certain of our manufacturing agreements, some of which were contingent on EUA, in an effort to reduce our future spending on lenzilumab production until and if authorization is received in the UK, EU, or U.S. These changes will significantly limit future production of lenzilumab but because most of our manufacturing agreements required payment of upfront fees upon execution and payments against performance of the services to be provided, often over a lengthy performance period, the changes are expected to decrease our manufacturing costs beginning in 2022. We intend to seek additional manufacturing capacity if authorization is obtained. As of December 31, 2021, we estimate that our commitments remaining to be incurred under these agreements will amount to approximately $63.4 million during 2022, $4.6 million during 2023, and $7.4 million thereafter. Certain of these commitments and amounts accrued at year-end are in dispute and we intend to defer these payments, negotiate lower amounts or seek legal recourse for the amounts in question. If marketing authorization or approval for lenzilumab were granted, we would expect to be able to satisfy certain of the cash requirements associated with our future manufacturing commitments from revenues from the commercial sale of lenzilumab, supplemented as necessary with proceeds from the sale of our equity securities; the incurrence of debt; upfront and milestone payments from licensees; and government funding or financial support, if offered.

  

See “Contracts” below for additional information.

 

Other significant contractual cash requirements as of December 31, 2021 include payments for principal and interest on the Term Loan. Our current and long-term obligations related to the Term Loan are outlined in Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

  Other Financings

 

See Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding our other financings.

 

 

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 U.S., 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 $4.0 million it has asserted we owe for services rendered from April 1, 2021 to September 30, 2021. We have disputed this assertion and are working to resolve this dispute.

 

Manufacturing Agreements

 

We have entered into agreements with several CMOs to manufacture bulk drug substance (“BDS”) and fill/finish/drug product (“DP”) for our lenzilumab clinical trial activities in COVID-19 as well as to manufacture BDS and DP for a potential launch of lenzilumab in anticipation of an EUA or CMA in 2021. We have also entered into agreements for packaging of the drug. These agreements represent large commitments, including upfront amounts prior to commencement of manufacturing and progress payments through the course of the manufacturing process and include payments for technology transfer. Certain of these CMOs have been unsuccessful in their efforts to manufacture some batches of lenzilumab to our specifications for various reasons. We are working with one of these CMOs to determine if batches of BDS manufactured by them will be usable in the future or, if not, whether other financial recompense will be offered to us.

 

Please see “Part I, Item 1A - Risk Factors—Risks Related to Our Efforts to Develop Lenzilumab for COVID-19— Manufacturing efforts relating to our lenzilumab program in COVID-19 have been extremely costly and inefficient in producing treatments for use in our clinical development program or potential sale.”

 

License Agreements

 

We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones.

 

We record upfront and milestone payments made to third parties under licensing arrangements as an expense. Upfront payments are recorded when incurred and milestone payments are recorded when the specific milestone has been achieved.

 

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.

 

Outlicensing Agreements

 

The South Korea Agreement

 

On November 3, 2020, we entered into a License Agreement (the “South Korea Agreement”) with KPM and Telcon (together, the “Licensee”). Pursuant to the South Korea Agreement, among other things, we granted the Licensee a license under certain patents and other intellectual property to develop and commercialize our lead product candidate, lenzilumab (the “Product”), for treatment of COVID-19 pneumonia, in South Korea and the Philippines (the “Territory”), subject to certain reservations and limitations. The Licensee will be responsible for gaining regulatory approval for, and subsequent commercialization of, lenzilumab in those territories.

 

 

As consideration for the license, the Licensee has agreed to pay us (i) an up-front license fee of $6.0 million(or $4.5 million net of withholding taxes and other fees and royalties), payable promptly following the execution of the License Agreement, which was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based on our achievement of two specified milestones in the U.S., of which the first milestone was met in the first quarter of 2021 and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021,and (iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that we will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost-plus basis from an existing or future manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.

 

Indemnification

 

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

 

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

 

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 F-1 through F-29.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. 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 and our Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.

 

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 and our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our Chief Executive Officer and 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 and our Chief Financial Officer concluded that, as of December 31, 2021, our internal control over financial reporting was effective.

 

The Company’s independent registered public accounting firm, HORNE LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears on page F-4 of this Form 10-K.

 

 

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, 2021 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

 

None. 

 

ITEM 9C.  DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

 

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information contained in our definitive proxy statement for our 2022 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. 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

 

The information contained in our definitive proxy statement for our 2022 annual meeting of stockholders under the caption “EXECUTIVE COMPENSATION” is hereby incorporated by reference.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information contained in our definitive proxy statement for our 2022 annual meeting of stockholders under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is hereby incorporated by reference.

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information contained in our definitive proxy statement for our 2022 annual meeting of stockholders under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” and “DIRECTOR INDEPENDENCE” is hereby incorporated by reference.

 

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information contained in our definitive proxy statement for our 2022 annual meeting of stockholders under the caption “RATIFICATION OF HORNE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is hereby incorporated by reference.

 

 

PART IV

 

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 F-1 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†		Common Stock Purchase Warrant, dated June 30, 2016, by and between the Registrant and Savant Neglected Diseases, LLC.		10-Q		September 23, 2016		4.1
4.3		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
4.4		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
4.5		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**		Employment Agreement dated as of August 1, 2020, by and between the Registrant and Timothy Morris.		10-K		March 10, 2021		10.15
10.15**		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
10.16††		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
10.17		Amended and Restated Cooperative Research and Development Agreement, dated as of January 21, 2021, by and among the Registrant, Joint Program Executive Office for Chemical, Biological, Radiological, and Nuclear Defense and Nuclear Defense and Biomedical Advanced Research and Development Authority, Office of the Assistant Secretary for Preparedness and Response		10-K		March 10, 2021		10.19
10.18††		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
10.19§		Loan and Security Agreement, dated March 10, 2021, by and between the Registrant and Hercules Capital, Inc.		10-Q		May 13, 2021		10.3
10.20**		Description of Registrant’s Director Compensation Policy								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 U.S.C. §1350.								X
32.2***		Certification of Chief Financial Officer pursuant to 18 U.S.C. §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
104		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.

 

 

ITEM 16.  FORM 10-K SUMMARY.

 

None.

 

SIGNATURES

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 2022.

 

	Humanigen, Inc.
	By:	/s/ Cameron Durrant, M.D., MBA
		Cameron Durrant, M.D., MBA Chief Executive Officer and Chairman of the Board of Directors

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

Signature		Title		Date
/s/ Cameron Durrant
Cameron Durrant, M.D., MBA		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)		February 28, 2022
/s/ Timothy Morris
Timothy Morris, CPA		Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)		February 28, 2022
/s/ Ronald Barliant
Ronald Barliant, JD		Director		February 28, 2022
/s/ Rainer Boehm
Rainer Boehm, M.D.		Director		February 28, 2022
/s/ Cheryl Buxton
Cheryl Buxton		Director		February 28, 2022
/s/ Dale Chappell
Dale Chappell, M.D., MBA		Director		February 28, 2022
/s/ John Hohneker
John Hohneker, M.D.		Director		February 28, 2022
/s/ Kevin Xie, Ph.D.
Kevin Xie, Ph.D.		Director		February 28, 2022

 

 

Reports of Independent Registered Public Accounting Firm	F-2

(PCAOB ID 171)

Consolidated Balance Sheets as of December 31, 2021 and 2020	F-5
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020	F-6
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020	F-8
Notes to Consolidated Financial Statements	F-9

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		December 31, 2021				December 31, 2020
Assets
Current assets:
Cash and cash equivalents		$	70,016			$	67,737
Prepaid expenses and other current assets			955				475
Total current assets			70,971				68,212
Other assets			90				90
Total assets		$	71,061			$	68,302
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable		$	44,698			$	15,366
Accrued expenses			19,882				3,175
Deferred revenue			4,145				1,874
Total current liabilities			68,725				20,415
Non-current liabilities:
Deferred revenue			1,018				2,342
Long-term debt			25,006				-
Total liabilities			94,749				22,757
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
Common stock, $0.001 par value: 225,000,000 shares authorized at December 31, 2021 and December 31, 2020; 64,027,629 and 51,626,508 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively			64				52
Additional paid-in capital			587,327				419,923
Accumulated deficit			(611,079	)			(374,430	)
Total stockholders’ equity (deficit)			(23,688	)			45,545
Total liabilities and stockholders’ equity (deficit)		$	71,061			$	68,302

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		Twelve Months Ended December 31,
		2021				2020
Revenue:
License revenue		$	3,595			$	312
Total revenue			3,595				312
Operating expenses:
Research and development			213,115				72,713
General and administrative			23,252				15,797
Total operating expenses			236,367				88,510
Loss from operations			(232,772	)			(88,198	)
Other expense:
Interest expense			(2,264	)			(1,336	)
Other expense, net			(1,613	)			(1	)
Net loss		$	(236,649	)		$	(89,535	)
Basic and diluted net loss per common share		$	(4.04	)		$	(2.42	)
Weighted average common shares outstanding used to calculate basic and diluted net loss per common share			58,533,637				36,963,030

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																		Total
										Additional								Stockholders’
		Common Stock								Paid-In				Accumulated				Equity
		Shares				Amount				Capital				Deficit				(Deficit)
Balances at January 1, 2020			22,806,890			$	22			$	270,555			$	(284,895	)		$	(14,318	)
Issuance of common stock, net of expenses			25,745,744				27				139,733				-				139,760
Issuance of common stock for conversion of debt			2,397,916				3				4,313				-				4,316
Issuance of common stock in exchange for services			45,064				-				302				-				302
Issuance of stock options for payment of compensation			-				-				180				-				180
Issuance of common stock for payment of compensation			17,317				-				78				-				78
Issuance of warrant for services			-				-				2,070				-				2,070
Issuance of common stock upon option exercise			390,668				-				572				-				572
Issuance of common stock upon warrant exercise			222,909				-				10				-				10
Stock-based compensation expense			-				-				2,110				-				2,110
Net loss			-				-				-				(89,535	)			(89,535	)
Balances at December 31, 2020			51,626,508				52				419,923				(374,430	)			45,545
Issuance of common stock, net of expenses			11,835,104				12				159,903				-				159,915
Issuance of stock options for payment of compensation			-				-				168				-				168
Issuance of common stock upon option exercise			566,017				-				1,965				-				1,965
Stock-based compensation expense			-				-				5,368				-				5,368
Net loss			-				-				-				(236,649	)			(236,649	)
Balances at December 31, 2021			64,027,629			$	64			$	587,327			$	(611,079	)		$	(23,688	)