| Item 1. | Financial Statements |
Humanigen, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
| |
June 30, 2022 | | |
December 31, 2021 | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 47,046 | | |
$ | 70,016 | |
Prepaid expenses and other current assets | |
| 2,313 | | |
| 955 | |
Total current assets | |
| 49,359 | | |
| 70,971 | |
| |
| | | |
| | |
Other assets | |
| 90 | | |
| 90 | |
Total assets | |
$ | 49,449 | | |
$ | 71,061 | |
| |
| | | |
| | |
Liabilities and stockholders’ deficit | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 56,665 | | |
$ | 44,698 | |
Accrued expenses | |
| 14,395 | | |
| 19,882 | |
Long-term debt, current portion | |
| 2,839 | | |
| - | |
Deferred revenue | |
| 3,091 | | |
| 4,145 | |
Total current liabilities | |
| 76,990 | | |
| 68,725 | |
Non-current liabilities: | |
| | | |
| | |
Deferred revenue | |
| - | | |
| 1,018 | |
Long-term debt, net of current portion | |
| 22,547 | | |
| 25,006 | |
Total liabilities | |
| 99,537 | | |
| 94,749 | |
| |
| | | |
| | |
Stockholders’ deficit: | |
| | | |
| | |
Common stock, $0.001 par value: 225,000,000 shares authorized at | |
| | | |
| | |
June 30, 2022 and December 31, 2021; 71,242,938 and 64,027,629 shares issued
and outstanding at June 30, 2022 and December 31, 2021, respectively | |
| 71 | | |
| 64 | |
Additional paid-in capital | |
| 612,347 | | |
| 587,327 | |
Accumulated deficit | |
| (662,506 | ) | |
| (611,079 | ) |
Total stockholders’ deficit | |
| (50,088 | ) | |
| (23,688 | ) |
Total liabilities and stockholders’ deficit | |
$ | 49,449 | | |
$ | 71,061 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenue: | |
| | |
| | |
| | |
| |
License revenue | |
$ | 1,036 | | |
$ | 1,036 | | |
$ | 2,072 | | |
$ | 1,522 | |
Total revenue | |
| 1,036 | | |
| 1,036 | | |
| 2,072 | | |
| 1,522 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 26,438 | | |
| 63,012 | | |
| 43,658 | | |
| 122,946 | |
General and administrative | |
| 3,949 | | |
| 8,076 | | |
| 8,294 | | |
| 13,024 | |
Total operating expenses | |
| 30,387 | | |
| 71,088 | | |
| 51,952 | | |
| 135,970 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (29,351 | ) | |
| (70,052 | ) | |
| (49,880 | ) | |
| (134,448 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (768 | ) | |
| (746 | ) | |
| (1,502 | ) | |
| (765 | ) |
Other expense, net | |
| (30 | ) | |
| (5 | ) | |
| (45 | ) | |
| (1,157 | ) |
Net loss | |
$ | (30,149 | ) | |
$ | (70,803 | ) | |
$ | (51,427 | ) | |
$ | (136,370 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per common share | |
$ | (0.43 | ) | |
$ | (1.20 | ) | |
$ | (0.75 | ) | |
$ | (2.45 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding used to
calculate basic and diluted net loss per common share | |
| 70,670,971 | | |
| 58,843,567 | | |
| 68,137,762 | | |
| 55,735,008 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Operating activities: | |
| | | |
| | |
Net loss | |
$ | (51,427 | ) | |
$ | (136,370 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock based compensation expense | |
| 3,178 | | |
| 2,381 | |
Non-cash interest expense related to debt financing | |
| 380 | | |
| 187 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other assets | |
| (1,358 | ) | |
| (629 | ) |
Accounts payable | |
| 11,967 | | |
| 21,878 | |
Accrued expenses | |
| (5,487 | ) | |
| 5,750 | |
Deferred revenue | |
| (2,072 | ) | |
| 3,019 | |
Net cash used in operating activities | |
| (44,819 | ) | |
| (103,784 | ) |
| |
| | | |
| | |
Financing activities: | |
| | | |
| | |
Net proceeds from issuance of common stock | |
| 21,849 | | |
| 130,278 | |
Proceeds from exercise of stock options | |
| - | | |
| 1,861 | |
Net proceeds from issuance of long-term debt | |
| - | | |
| 24,444 | |
Net cash provided by financing activities | |
| 21,849 | | |
| 156,583 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (22,970 | ) | |
| 52,799 | |
Cash and cash equivalents, beginning of period | |
| 70,016 | | |
| 67,737 | |
Cash and cash equivalents, end of period | |
$ | 47,046 | | |
$ | 120,536 | |
| |
| | | |
| | |
Supplemental cash flow disclosure: | |
| | | |
| | |
Cash paid for interest | |
$ | 943 | | |
$ | 393 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Deficit)
(in thousands, except share data)
(Unaudited)
| |
Three and Six Months Ended June 30, 2022 | |
| |
| | |
| | |
| | |
| | |
Total | |
| |
| | |
| | |
Additional | | |
| | |
Stockholders’ | |
| |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Equity | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
(Deficit) | |
Balances at January 1, 2022 | |
| 64,027,629 | | |
$ | 64 | | |
$ | 587,327 | | |
$ | (611,079 | ) | |
$ | (23,688 | ) |
Issuance of common stock, net of expenses | |
| 5,926,748 | | |
| 6 | | |
| 18,368 | | |
| - | | |
| 18,374 | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 1,543 | | |
| - | | |
| 1,543 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (21,278 | ) | |
| (21,278 | ) |
Balances at March 31, 2022 | |
| 69,954,377 | | |
| 70 | | |
| 607,238 | | |
| (632,357 | ) | |
| (25,049 | ) |
Issuance of common stock, net of expenses | |
| 1,288,561 | | |
| 1 | | |
| 3,474 | | |
| - | | |
| 3,475 | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 1,635 | | |
| - | | |
| 1,635 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (30,149 | ) | |
| (30,149 | ) |
Balances at June 30, 2022 | |
| 71,242,938 | | |
$ | 71 | | |
$ | 612,347 | | |
$ | (662,506 | ) | |
$ | (50,088 | ) |
| |
Three and Six Months Ended June 30, 2021 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
Additional | | |
| | | |
Total | |
| |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balances at January 1, 2021 | |
| 51,626,508 | | |
$ | 52 | | |
$ | 419,923 | | |
$ | (374,430 | ) | |
$ | 45,545 | |
Issuance of common stock, net of expenses | |
| 1,796,858 | | |
| 2 | | |
| 36,104 | | |
| - | | |
| 36,106 | |
Issuance of common stock upon option exercise | |
| 233,323 | | |
| - | | |
| 429 | | |
| - | | |
| 429 | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 510 | | |
| - | | |
| 510 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (65,567 | ) | |
| (65,567 | ) |
Balances at March 31, 2021 | |
| 53,656,689 | | |
| 54 | | |
| 456,966 | | |
| (439,997 | ) | |
| 17,023 | |
Issuance of common stock, net of expenses | |
| 5,427,017 | | |
| 5 | | |
| 94,167 | | |
| - | | |
| 94,172 | |
Issuance of common stock upon option exercise | |
| 319,153 | | |
| - | | |
| 1,432 | | |
| - | | |
| 1,432 | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 1,871 | | |
| - | | |
| 1,871 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (70,803 | ) | |
| (70,803 | ) |
Balances at June 30, 2021 | |
| 59,402,859 | | |
$ | 59 | | |
$ | 554,436 | | |
$ | (510,800 | ) | |
$ | 43,695 | |
See accompanying notes.
Humanigen, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Description of the Business
The Company is a clinical stage biopharmaceutical company, developing
its portfolio of proprietary Humaneered® anti-inflammatory immunology and immuno-oncology monoclonal antibodies. The Company’s
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. Humanigen has developed or
in-licensed targets or research antibodies, typically from academic institutions, and then applied its Humaneered technology to optimize
them. The Company’s lead product candidate, lenzilumab, or LENZ®, and its other product candidate, ifabotuzumab (“iFab”),
are Humaneered monoclonal antibodies. The Company’s Humaneered antibodies are closer to human antibodies than chimeric or conventionally
humanized antibodies and have a high affinity for their target. In addition, the Company believes its 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 reactions.
In July 2022, preliminary topline results from
the Accelerating COVID-19 Therapeutic Interventions and Vaccines-5 (“ACTIV-5”) and Big Effect Trial, in the “B”
arm of the trial (“BET-B”), referred to as the ACTIV-5/BET-B trial, were released. The study was sponsored and funded by the
National Institutes of Health (“NIH”) and evaluated lenzilumab in combination with remdesivir, compared to placebo and remdesivir,
in hospitalized COVID-19 patients. Based on the preliminary topline results, the trial did not achieve statistical significance on the
primary endpoint, although did indicate that lenzilumab demonstrated a positive trend in mortality. The Company continues to support NIH’s
further analysis of the data and lenzilumab has interest from a global group of leading institutions and research networks to include
lenzilumab in their large-scale, multinational studies of COVID-19. Tocilizumab and baricitinib demonstrated mortality benefit following
inclusion in such studies having failed to do so in smaller studies.
The Company announced a strategic realignment
of its pipeline and resources and is reconsidering its regulatory strategy. The Company plans to accelerate the development of lenzilumab
in chronic myelomonocytic leukemia (“CMML”), a rare blood cancer, for which the PREACH-M study is already underway, and to
continue its plans for the RATinG study in acute graft versus host disease (“aGvHD”) that occurs in patients undergoing bone
marrow transplant, that is expected to enroll its first patient in the third quarter of 2022. These studies are majority funded by the
Company’s partners. In addition, the Company is currently assessing requests for investigator-initiated trials (“IIT”s)
of lenzilumab in combination with CAR-T therapies; the previously planned SHIELD study of lenzilumab with certain CAR-T therapies has
been terminated pursuant to the strategic realignment plan. The Company also plans to continue the development of iFab, an EpAh-3 targeted
monoclonal antibody currently in Phase 1 development, as part of an antibody drug conjugate (“ADC”), for certain solid tumors.
Under the realignment plan, the Company will deemphasize the deployment of certain resources for the development of lenzilumab for COVID-19
and currently does not plan to file for Emergency Use Authorization (“EUA”) in the United States in 2022. The Company had
previously planned to respond to the rolling review written questions received last year from the Medicines and Healthcare Products Regulatory
Agency (“MHRA”) following receipt of the results from the ACTIV-5/BET-B trial but does not plan to respond to these written
questions in 2022. The Company no longer intends to submit a Conditional Marketing Authorization (“CMA”) for lenzilumab with
an Accelerated Approval request to the European Medicines Agency (“EMA”) in 2022.The Named Patient program in select European
Countries will be terminated. With the exception of lenzilumab batches in process, the Company plans to stop the manufacturing of lenzilumab.
The Company plans to consolidate the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for
potential future use.
As
of July 22, 2022, there are approximately 11,500 lenzilumab treatments in production.
Approximately 65,800 lenzilumab treatments will be stored and 9,000 treatments are being sent for destruction as a
result of expiry of drug substance (an intermediate step to final drug product). Current shelf life of drug product is 36 months
and bulk drug substance is 12 months. One of the Company’s Contract Manufacturing Organizations
(“CMOs”), Catalent Pharma Solutions, LLC (“Catalent”),
has notified the Company that it is in breach of its manufacturing agreement with Catalent and has issued a demand for payment for outstanding
amounts owed. Catalent has demanded payment of the past due balance of $12.8 million by August 8, 2022 to cure this breach and has threatened
to cancel the manufacturing agreement if payment is not made (See Note 11 below). Unless the Company complies with their demand for payment,
it is unlikely the Company will be able to utilize the treatments in production and treatments for which production has been completed.
Another 33,000 treatments are in production at one of the Company’s CMOs, Thermo Fisher Scientific, Inc. (“Thermo”),
for which material has not yet been released by the Company, and which may require reprocessing prior to release. Thermo has notified
the Company that they have stopped production and have issued a demand for payment. The Company has disputed the amounts owed to Thermo
as a result of Thermo’s failure to produce usable material within stated release specifications. At this time, it is unlikely
that these 33,000 treatments would be released by the Company. Inventory of treatments produced at our CMOs for which
the process has not been validated or released will likely be destroyed in the future if no potential commercial use is found.
See Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in Item 7 of the Company’s 2021 Annual Report on Form 10-K for additional information regarding
the business.
Liquidity and Going Concern
The Condensed Consolidated Financial Statements
for the three and six months ended June 30, 2022 were prepared on the basis of a going concern, which contemplates that the Company will
be able to realize assets and discharge liabilities in the normal course of business. However, the Company has incurred net losses
since its inception, and has negative operating cash flows and its total liabilities exceed total assets. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
As of June 30, 2022, the Company had cash and cash equivalents
of $47.0 million. In July 2022, as part of its strategic realignment plan, as stated in Notes 5 and 11, the Company paid amounts owed
under the Loan and Security Agreement with Hercules as agent for its affiliates serving as lenders thereunder (the “Term Loan”)
of $26.7 million in full settlement of the remaining outstanding principal balance, accrued interest, the end of term fee (less a $0.1
million reduction) and waiver of the $0.4 million prepayment fee, fully extinguishing and terminating the Term Loan in the process.
Considering the Company’s current cash resources and its current and expected levels of operating expenses for the next twelve months, which includes combined accounts payable and accrued expenses recorded in the Company’s condensed consolidated balance sheets as of June 30, 2022 of $71.1 million, and its non-manufacturing commitments of $0.3 million and manufacturing commitments of $36.5 million during the remaining six months of 2022, $7.6 million for 2023, and $6.6 million thereafter (see Note 6 below), the Company requires additional capital to fund the Company’s planned operations. Certain of these commitments and amounts accrued at June 30, 2022 are in dispute. The Company intends to seek to defer payments, negotiate lower amounts or pursue other courses of action for certain commitments and amounts owed to manufacturing and other partners at June 30, 2022. In order to remain a going concern and execute its strategic realignment plan, the Company must successfully renegotiate these amounts owed and remaining commitments, and settle disputes, including current and potential future arbitration and litigation. Management will seek to raise such additional capital through public or private equity offerings, including under the Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), grant financing, convertible and other debt financings, collaborations, strategic alliances, or licensing arrangements. Subsequent to June 30, 2022 and through August 10, 2022, as disclosed in Note 11 below, the Company issued and sold 33,628,000 shares of common stock pursuant to the Sales Agreement and received net proceeds of approximately $15.9 million, after deducting fees and expenses. Additional funds may not be available when the Company needs them on terms that are acceptable to the Company, or at all. If adequate funds are not available, the Company may be required to delay or reduce the scope of or eliminate one or more of its research or development programs, its commercialization efforts or its manufacturing commitments and capacity. In addition, if the Company raises additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, the Company may have to relinquish rights to its technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to the Company. While management believes its realignment plans and its plans to raise additional funds will alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, these plans are not entirely within the Company’s control and cannot be assessed as being probable of occurring.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial
information and on a basis consistent with the annual consolidated financial statements and include all adjustments necessary for the
presentation of the Company’s condensed consolidated financial position, results of operations and cash flows for the periods presented.
The Condensed Consolidated Financial Statements include the accounts
of the Company and its wholly-owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company
will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The December 31, 2021 Condensed Consolidated Balance Sheet was derived from the audited financial statements
but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results
to be expected for the year ending December 31, 2022, or for any other future annual or interim period. The accompanying unaudited Condensed
Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and the related notes
thereto included in the Company’s 2021 Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the Condensed Consolidated
Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes judgment
is involved in accounting for the determination of revenue recognition, fair value-based measurement of stock-based compensation and accruals.
The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed
Consolidated Financial Statements.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are detailed
in its Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to the Company’s
significant accounting policies during the six months ended June 30, 2022, from those previously disclosed in its 2021 Annual Report on
Form 10-K.
3. Potentially Dilutive Securities
The Company’s potentially dilutive securities, which include
stock options and warrants and shares of common stock issuable upon conversion of convertible debt, have been excluded from the computation
of diluted net loss per common share as the effect of including those securities would be to reduce the net loss per common share and
be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in each period
presented.
The following outstanding potentially dilutive securities have
been excluded from the computations of diluted net loss per common share:
| |
As of June 30, | |
| |
2022 | | |
2021 | |
Options to purchase common stock | |
| 4,685,634 | | |
| 4,113,958 | |
Warrants to purchase common stock | |
| 31,238 | | |
| 51,238 | |
Convertible debt | |
| 510,986 | | |
| 510,986 | |
| |
| 5,227,858 | | |
| 4,676,182 | |
4. License Revenue
On November 3, 2020, the Company entered
into a License Agreement (the “South Korea Agreement”) with KPM Tech Co., Ltd. (“KPM”) and its affiliate, Telcon
RF Pharmaceutical, Inc. (together with KPM, the “Licensee”). Pursuant to the South Korea Agreement, among other things, the
Company granted the Licensee a license under certain patents and other intellectual property to develop and commercialize lenzilumab 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
the Territory.
As consideration for the license, the
Licensee has agreed to pay the Company (i) an up-front license fee of $6.0 million, payable promptly following the execution of the License
Agreement, which was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based on achievement
by the Company of two specified milestones in the U.S., of which the first milestone was met in the first quarter of 2021 and $6.0 million
(or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021, and (iii) subsequent
to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea
and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that the Company
will supply lenzilumab to the Licensee for a 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.
Since the provision of the license
and the cooperation and assistance to be provided by the Company to the Licensee with regulatory authorities in the Territory and the
Company’s obligation to serve on a joint steering committee (the “Services”) are considered a single performance obligation,
the $6.0 million upfront payment (or $4.5 million net of withholding taxes and other fees and royalties) and the first milestone payment
of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties, are being recognized as revenue ratably over the
performance period through March 2023, the expected period over which the Company conservatively expects the Services to be performed (the “Performance Period”). Therefore, the Company recognized license revenue totaling
approximately $1.0 million and $2.1 million in the three and six months ended June 30, 2022, respectively, and $1.0 million and $1.5 million
in the three and six months ended June 30, 2021, respectively.
Licensee’s purchases of lenzilumab
for development purposes or for commercial requirements, represent options under the agreement and revenues will therefore be recognized
when control of the product is transferred to Licensee.
Contract Liabilities
A
contract liability of $3.1 million was recorded on the Condensed Consolidated Balance Sheets as deferred revenue as of June 30, 2022 related
to the South Korea agreement. There were no contract asset or deferred contract acquisition costs as of June 30, 2022 associated with
the South Korea agreement.
The following table presents changes in
the Company’s contract liability for the six months ended June 30, 2022 (in thousands):
Balance at January 1, 2022 | |
$ | 5,163 | |
Deductions for performance obligations satisfied: | |
| | |
In current period | |
| (2,072 | ) |
Balance at June 30, 2022 | |
$ | 3,091 | |
5. Long-Term Debt
Secured Term Loan Facility
On March 10, 2021, the Company executed
the Term Loan which provided a loan in the aggregate principal amount of up to $80 million, in three tranches. On March 29, 2021, the
Company drew the initial $25.0 million tranche under the Term Loan. After giving effect to payment of fees and expenses associated with
the draw, the Company received net proceeds of approximately $24.4 million. The Term Loan bore interest at a floating rate equal to the
greater of either (i) 8.75% plus the prime rate as reported in The Wall Street Journal minus 3.25%, or (ii) 8.75%. The Company was initially
obligated to make monthly payments of accrued interest under the Term Loan commencing on the initial borrowing date and continuing to
April 1, 2023, followed by monthly installments of principal and interest until March 1, 2025. In July 2022, the Company prepaid $25.0 million
of outstanding principal, together with approximately $1.7 million of accrued interest, fees and other amounts, due under the Term
Loan. In connection with the prepayment, the Term Loan with Hercules was terminated, and all obligations, liens and security interests
under the Term Loan were released, discharged and satisfied (see Note 11). By retiring the Term Loan, the Company is able to reduce
future cash payments for interest and enhance its ability to generate additional liquidity from its intellectual property by removing
the loan’s collateral requirements.
Interest expense related to the Term Loan was $0.8 million and
$1.5 million for the three and six months ended June 30, 2022, respectively, and the effective interest rate was approximately 9.7% and
9.4% for the three and six months ended June 30, 2022, respectively. Interest expense related to the Term Loan was $0.6 million for both
the three- and six-month periods ended June 30, 2021, and the effective interest rate was approximately 9.0% in both periods.
6. Commitments and Contingencies
Eversana Agreement
On January 10, 2021, the Company announced that it had entered
into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”)
pursuant to which Eversana will provide the Company multiple services from its integrated commercial platform in preparation for the potential
commercialization of lenzilumab.
Under the Eversana Agreement, Eversana will provide the Company
with services in connection with the potential launch of lenzilumab. Eversana services during 2021 comprised marketing, market access,
consulting, field solutions, field operations, health economics and medical affairs. Additional services may be negotiated by the parties
and set forth in statements of work delivered in accordance with the Eversana Agreement.
On September 21, 2021, the Company notified Eversana that due
to the EUA status in the U.S., it was terminating the initial statement of work related to commercialization support of lenzilumab for
the treatment of COVID-19 in the United States. Eversana is disputing the termination notice and has requested payment of approximately
$4.0 million it has asserted the Company owes for services rendered from April 1, 2021 to September 30, 2021. The Company has disputed
this assertion and Eversana has filed for arbitration to resolve this dispute. See Note 10 below for more information on this dispute.
Manufacturing Agreements
The Company has entered into agreements with several CMOs to
manufacture bulk drug substance (“BDS”) and to provide fill/finish services or drug product (“DP”) for lenzilumab
for a potential launch of lenzilumab in anticipation of an EUA or CMA. The Company has also entered into agreements for packaging of the
drug. These agreements include upfront amounts prior to commencement of manufacturing and progress payments through the course of the
manufacturing process and payments for technology transfer. Since September 9, 2021, the Company has amended, and in some cases canceled,
certain of these agreements, some of which were contingent on EUA, in an effort to reduce its future spending on lenzilumab production. More recently, the Company has
sought to mitigate its financial commitments by ceasing additional manufacturing of lenzilumab in connection with its realignment plan.
As of June 30, 2022, the Company estimates that its commitments remaining to be incurred under these agreements are approximately $36.5
million for the remaining six months of 2022, $7.6 million for 2023, and $6.6 million thereafter. Certain of these commitments and amounts
accrued at June 30, 2022 are in dispute. The Company intends to seek to defer these and other payments, negotiate lower amounts or pursue
other courses of action for these amounts, but the Company’s efforts may not be successful. See Notes 10 and 11 below
for more information on these disputes.
7. Stockholders’ Equity
Controlled Equity Offering
On December 31, 2020, the Company entered into a Sales Agreement
with Cantor, under which the Company could issue and sell, from time-to-time, shares of the Company’s common stock, having an aggregate
gross sales price of up to $100 million through Cantor, as the sales agent. On April 14, 2022, the Company filed a prospectus in respect
of the Sales Agreement which provides the Company with the ability to offer and sell shares of common stock having an aggregate offering
price of up to $75.0 million. During the three and six months ended June 30, 2022, under the Sales Agreement, the Company issued and sold
1,288,561 shares of its common stock for net proceeds of $3.5 million, and 7,215,309 shares of its common stock for net proceeds of $21.8
million, respectively. During the three and six months ended June 30, 2021, under the Sales Agreement, the Company issued and sold 1,796,858
shares of its common stock for net proceeds of $36.1 million. As of June 30, 2022, the Company had the ability to offer and sell shares
of common stock having an aggregate offering price of up to $84.8 million under the Sales Agreement (see Note 11).
2021 Underwritten Public Offering
On March 30, 2021, the Company entered into an underwriting agreement
(the “Underwriting Agreement”) with Jefferies LLC, Credit Suisse Securities (USA) LLC and Cantor, as representatives of the
several underwriters, in connection with the public offering of 5,000,000 shares of our common stock. In addition, we granted the underwriters
a 30-day option to purchase an additional 750,000 shares of our common stock. The initial offering closed on April 5, 2021. On May 3,
2021, we closed on the sale of an additional 427,017 shares of our common stock related to the exercise of the underwriters’ 30-day
option. The aggregate gross proceeds from the sale of the 5,427,017 shares in the offering, inclusive of the additional shares purchased
by the underwriters, were approximately $100.4 million. The net proceeds from this offering, after deducting underwriting discounts and
offering costs, were approximately $94.2 million.
8. Stock-Based Compensation
A summary of stock option activity for the six months ended June
30, 2022 under all the Company’s options plans is as follows:
| |
Options | | |
Weighted
Average Exercise
Price | |
Outstanding at January 1, 2022 | |
| 4,429,906 | | |
$ | 7.89 | |
Granted | |
| 350,078 | | |
$ | 2.99 | |
Exercised | |
| - | | |
$ | - | |
Cancelled (forfeited) | |
| (67,325 | ) | |
$ | 15.09 | |
Cancelled (expired) | |
| (27,025 | ) | |
$ | 13.64 | |
Outstanding at June 30, 2022 | |
| 4,685,634 | | |
$ | 7.39 | |
The weighted average fair value of options granted during the
six months ended June 30, 2022 was $2.41 per share.
The Company valued the options granted using the Black-Scholes
options pricing model and the following weighted-average assumption terms for the six months ended June 30, 2022:
| |
Six Months Ended |
| |
June 30, 2022 |
Exercise price | |
2.99 |
Market value | |
2.99 |
Expected term | |
6 years |
Expected volatility | |
104% |
Risk-free interest rate | |
1.59% |
Expected dividend yield | |
-% |
The Company recorded stock-based compensation expense in the
Condensed Consolidated Statements of Operations as follows (in thousands):
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
General and administrative | |
$ | 1,341 | | |
$ | 1,407 | | |
$ | 2,635 | | |
$ | 1,771 | |
Research and development | |
| 294 | | |
| 464 | | |
| 543 | | |
| 610 | |
Total stock-based compensation | |
$ | 1,635 | | |
$ | 1,871 | | |
$ | 3,178 | | |
$ | 2,381 | |
At June 30, 2022, the Company had $9.7 million of total unrecognized
stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average
period of 1.5 years. As of June 30, 2022, there were 4,734,557 shares available for grant under the Company’s 2020 Equity Incentive
Plan (See Note 11).
9. License and Collaboration Agreements
Kite Agreement
On May 30, 2019, the Company entered into a collaboration agreement
(the “Kite Agreement”) with Kite Pharmaceuticals, Inc. (“Kite”), pursuant to which the Company and Kite were conducting
a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including
diffuse large B-cell lymphoma (“DLBCL”). On April 19, 2021, the Company announced positive preliminary data from this study.
As a result of this positive preliminary data and the conclusion of the Phase 1b portion of the study, the Company elected to terminate
the clinical collaboration agreement with Kite. Enrollment in the Phase 1b portion of the study is closed and the study itself has been
closed. The effective date of termination of the clinical collaboration with Kite was December 31, 2021. The Company had intended to initiate
a Company-sponsored, registrational Phase 3 study with Yescarta and Tecartus, commercially available CD19 CAR-T therapies, in non-Hodgkin
lymphoma in 2022; however, as part of its strategic realignment plan, that study has been terminated and the Company instead intends to
assess and support further clinical assessment of lenzilumab for prevention of CAR-T therapy related toxicities through an IIT for which
it will provide lenzilumab.
Clinical Trial Agreement with the National Institute of Allergy and Infectious
Diseases
On July 24, 2020, the Company entered into a clinical trial agreement
(the “ACTIV-5 Clinical Trial Agreement”) with the National Institute of Allergy and Infectious Diseases (“NIAID”),
part of NIH, which is part of the U.S. Government Department of Health and Human Services, as represented by the Division of Microbiology
and Infectious Diseases. Pursuant to the ACTIV-5 Clinical Trial Agreement, lenzilumab was evaluated in the NIAID-sponsored ACTIV-5/BET-B
trial in hospitalized patients with COVID-19. The ACTIV-5/BET-B study protocol was modified to focus on patients with a baseline CRP below
150 mg/L (the CRP subgroup) as the primary analysis population. According to the preliminary topline results released in July 2022, the
trial did not achieve statistical significance on the primary endpoint, which was defined as the proportion of patients with baseline
CRP<150 mg/L and age<85 years, alive and without mechanical ventilation through Day 29. The preliminary topline data showed a non-significant
trend toward a reduction in mortality in the overall patient population [HR 0.72]. There were no new safety signals attributed to lenzilumab
in the ACTIV-5/BET-B study.
Pursuant to the ACTIV-5 Clinical Trial Agreement, NIAID served
as sponsor and was responsible for funding, supervising and overseeing the ACTIV-5/BET-B trial. The Company provided lenzilumab to NIAID
without charge and in quantities to ensure a sufficient supply of lenzilumab. The ACTIV-5 Clinical Trial Agreement imposed additional
obligations on the Company that are reasonable and customary for clinical trial agreements of this nature, including in respect of compliance
with data privacy laws and potential indemnification obligations.
10. Litigation
Eversana Arbitration
On May 19, 2022, Eversana filed a Demand for Arbitration
claiming approximately $4.4 million in damages against the Company with the American Arbitration Association entitled, Eversana Life Sciences,
LLC. v. Humanigen, Inc. (AAA Case No. 01-21-0018-0523). The Demand contains two breach of contract claims related to the Eversana Agreement
between the parties and a related agreement between the companies’ European subsidiaries, and a claim for unjust enrichment. Eversana
asserts that the Company failed to pay it amounts due for work preparing for the potential commercializing of lenzilumab performed between
April 1, 2021 and September 30, 2021. The Company denies Eversana’s claims and assertions that amounts are owing and is prepared
to defend itself vigorously.
Avid Arbitration
On December 17, 2021, Avid Bioservices, Inc. (“Avid”)
filed a Demand for Arbitration claiming more than $20.5 million in damages against the Company with the American Arbitration Association
entitled, Avid Bioservices, Inc. v. Humanigen, Inc. (AAA Case No. 01-21-0018-0523). The Demand contains three claims for: (1) Breach
of Contract concerning the Process Development and Manufacturing Master Services Agreement; (2) Anticipatory Breach of Contract concerning
the Capacity Expansion and Contribution/Commitment letter; and (3) Trade Libel and Commercial Disparagement. Avid claims that the Company
canceled the contract after Avid was unable to successfully produce any full batches of lenzilumab BDS, but that the Company still owes
the full amount due under the contract for all batches under the contract. Avid blamed its failed attempts on a subcontractor. To date,
the Company has paid Avid $10.6 million, despite Avid not being able to produce any full BDS batches.
On January 6, 2022, the Company filed an Answer to Avid’s
Demand, denying the allegations and asserting affirmative defenses. On July 1, 2022, the Company filed its own lawsuit against Avid in
Orange County Superior Court asserting claims for: (1) Breach of Contract; (2) Declaratory Relief; and (3) Unfair Business Practices.
Savant Litigation
The Company was
previously involved in litigation against Savant Neglected Diseases, LLC (“Savant”). In March 2022, the Company and Savant
reached a confidential settlement. Accordingly, the litigation involving Savant was dismissed on March 31, 2022.
11. Subsequent Events
In July 2022, the Company prepaid the remaining outstanding principal
balance, equal to $25.0 million, together with approximately $1.7 million of accrued interest, fees and other amounts due under the Term
Loan with Hercules. In connection with the prepayment, the Term Loan with Hercules was terminated, and all obligations, liens and security
interests under the Term Loan were released, discharged and satisfied.
In July 2022, the Company issued 4,358,891 stock option awards
intended to enhance the Company’s ability to retain its employees and provide them continuing incentives to execute against the
strategic realignment plan, and in recognition of the commitments of the directors in developing and overseeing the same. Accordingly,
as of the date of this filing, there were 375,666 shares available for grant under the Company’s 2020 Equity Incentive Plan.
Subsequent to June 30, 2022 and through August 10, 2022, the Company issued and sold 33,628,000 shares of common stock under the Sales Agreement for net proceeds of $15.9 million. As of August 10, 2022, the Company had the ability to offer and sell shares of common stock having an aggregate offering price of up to $68.4 million.
On July 29, 2022, Catalent provided formal notice of payment breach and demand for full payment from the Company under the Multiple Facility Clinical Supply and Services Agreement ( the “MSA”) between Catalent and the Company, dated as of July 31, 2020. Catalent has demanded payment of the past due balance of $12.8 million by August 8, 2022 to cure this breach. If the Company does not cure this payment breach, Catalent shall, among other things, be entitled to terminate the MSA by providing further notice of such termination to the Company. The Company continues to negotiate with Catalent but has been unable to reach an agreement.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following discussion and
analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q
and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. This Quarterly Report on Form 10-Q contains statements
that discuss future events or expectations, projections of results of operations or financial condition, trends in our business, business
prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements”
by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “intends,” “potential” or “continue”
or the negative of those words and other comparable words. These statements may relate to, among other things, our expectations regarding
the scope, progress, timing, expansion, and costs of researching, developing and commercializing our product candidates; our expectations
relating to regulatory pathways to emergency use or other conditional marketing authorizations and the opportunity to benefit from various
regulatory incentives; expectations for our financial results, revenue, operating expenses and other financial measures in future periods;
and the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements.
Among the factors that could cause actual results to differ materially are the factors discussed under “Risk Factors” in “Part
I, Item 1A–- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and the additional
or modified risk factors disclosed in this Quarterly Report on Form 10-Q and each subsequently filed Quarterly Report on Form 10-Q. Some
additional factors that could cause actual results to differ include:
| ● | our ability to attain the significant amount of additional financing we need to continue as a going concern on favorable terms or at all; |
| ● | our ability to successfully execute the strategic realignment of our pipeline and resources; |
| ● | the timing of the initiation, enrollment and completion and results of ongoing or planned clinical trials; |
| ● | our ability to obtain sponsorship from a third party for inclusion of lenzilumab, or LENZ®, in a large multi-center
platform trial to study the effects of lenzilumab on patients with COVID-19; |
| ● | our ability to resolve disputes with certain Contract Manufacturing Organizations (“CMOs”) regarding our obligations to
make payments to them despite their failure to produce lenzilumab within contractual specifications, and our ability to defer payments,
negotiate lower amounts or seek other courses of action for certain other commitments and amounts accrued at June 30, 2022; |
| ● | our ability to cure the breach of the Multiple Facility Clinical Supply and Services Agreement (the “MSA”)
with Catalent Pharma Solutions, LLC (“Catalent”) to prevent termination of the MSA; |
| ● | our ability to research, develop and commercialize our product candidates, including our ability to do so after our competitors have
developed and commercialized competing products or alternative therapies; |
| ● | the ability of partners to initiate and conduct the PREACH-M and RATinG studies of lenzilumab in chronic myelomonocytic leukemia (“CMML”)
and in patients at risk of acute Graft versus Host Disease (“aGvHD”), respectively, as currently planned; |
| ● | our ability to assess and support further clinical assessment of lenzilumab with commercially available chimeric antigen receptor
T-cell (“CAR-T”) therapies in non-Hodgkin lymphoma through an investigator-initiated trial (“IIT”); |
| ● | increasing levels of market acceptance of CAR-T therapies and stem cell transplants and the development of a market for lenzilumab
in these therapies; |
| ● | our ability to maintain licenses with third parties; |
| ● | our ability to attain market exclusivity and/or to obtain, maintain, protect and enforce our intellectual property and to operate
our business without infringing, misappropriating or otherwise violating, the intellectual property rights of others; |
| ● | the outcome of pending, threatened or future litigation or arbitration; |
| ● | acquisitions or in-licensing or out-licensing transactions that we may pursue may fail to perform as expected; |
| ● | changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the various regulatory
incentives, or the imposition of regulations that affect our products; and |
| ● | the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing. |
These are only some of the factors that may affect
the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause
actual results to vary materially from those anticipated in the forward-looking statements, see “Risk Factors” in Item 1A
of Part II below and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. You should review
these risk factors, together, for a more complete understanding of the risks associated with an investment in our securities. However,
we operate in a competitive and rapidly changing environment and new risks and uncertainties emerge, are identified or become apparent
from time-to-time. It is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements
contained in this Form 10-Q. You should be aware that the forward-looking statements contained in this Form 10-Q are based on our current
views and assumptions. We undertake no obligation to revise or update any forward-looking statements made in this Form 10-Q to reflect
events or circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events, except as required
by law.
Overview
We are a clinical stage biopharmaceutical
company, developing our portfolio of proprietary Humaneered® anti-inflammatory immunology and immuno-oncology monoclonal
antibodies. Our proprietary, patented Humaneered technology platform is a method for converting existing antibodies (typically murine)
into engineered, high-affinity human antibodies designed for therapeutic use, particularly with acute and chronic conditions. We have
developed or in-licensed targets or research antibodies, typically from academic institutions, and then applied our Humaneered technology
to optimize them. Our lead product candidate, lenzilumab, and our other product candidate, ifabotuzumab (“iFab”), are Humaneered
monoclonal antibodies. Our Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and
have a high affinity for their target. In addition, we believe our Humaneered antibodies offer further important advantages, such as high
potency, a slow off-rate and a lower likelihood to induce an inappropriate immune response or infusion related reaction.
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 GM-CSF,
a cytokine that we believe leads to the overproduction of monocytes which are responsible for CMML and is of critical importance in the
hyperinflammatory cascade, sometimes referred to as CRS or cytokine storm, associated with aGvHD associated with bone marrow transplants.
Market Opportunity in CMML and Related Hematological Cancers
Clonal cytogenic abnormalities are commonly
seen in CMML patients. RAS (Retrovirus-Associated DNA Sequence) mutations, which make leukemic cells hyperresponsive to GM-CSF, are
seen in approximately 30%-40% of CMML patients and are the anticipated target patient population for lenzilumab. The incidence of
new CMML patients in the U.S., UK, and Australia is about 1,700 patients annually.1 RAS mutations, which may drive GM-CSF
hyperresponsiveness, are also seen in additional myeloid hematological malignancies including juvenile myelomonocytic leukemia
(“JMML”), myelodysplastic syndromes (“MDS”) and acute myeloid leukemia (“AML”), totaling over
4,500 new cases annually in the U.S. We believe success with CMML may provide proof of principle for targeting RAS pathway mutations
in myeloid leukemias with lenzilumab and allow us to develop, and if successful, commercialize lenzilumab in these additional
patient populations.
As a treatment for a rare disease, lenzilumab may
qualify for certain regulatory and commercial benefits that may accelerate development and approval. Pricing and reimbursement for rare
diseases are traditionally higher than treatments for more common diseases and can exceed $100,000 per year.
Together with the Principal Investigator, we are
assessing regulatory pathways that may enable early results to support a regulatory submission and potential approval by the Therapeutic
Goods Administration in Australia, which could be expanded through Project Orbis, an international regulatory agency collaboration, to
the United States and the United Kingdom.
There have been no new therapeutic agents for patients
with high-risk CMML in 30 years2 and independent
publications have demonstrated the key role of GM-CSF and RAS pathway mutations in this and other cancers, including (“JMML”),
myelodysplastic syndromes, myeloproliferative neoplasms, and acute myeloid leukemia.3,4,5
A clinical protocol is also being developed for
JMML with NRAS, KRAS, PTPN11 and/or NF1 genetic mutations.
1
Incidence extrapolated by applying American Cancer Society incidence rate of four per one million people to the population of U.S., UK,
and Australia. https://www.cancer.org/cancer/chronic-myelomonocytic-leukemia/about/key-statistics.html
2
Aim of first-ever CMML study – to improve survival. Leukaemia Foundation. (2021, October 11). Retrieved July 21, 2022, from
https://www.leukaemia.org.au/stories/aim-of-first-ever-cmml-study-to-improve-survival/
3
Gupta, A. et al. (2021, February 28). Juvenile myelomonocytic leukemia-A comprehensive review and recent advances in management. American
Journal of Blood Research, 11(1), 1–21. Retrieved July 21, 2022, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8010610/pdf/ajbr0011-0001.pdf
4
Padron, E., et al. (2013, June 20). GM-CSF–dependent PSTAT5 sensitivity is a feature with therapeutic potential in chronic myelomonocytic
leukemia. Blood, 121(25), 5068–5077. https://doi.org/10.1182/blood-2012-10-460170
5
Emanuel, P. D., et al. (1991, March 1). Selective hypersensitivity to granulocyte-macrophage colony-stimulating factor by juvenile chronic
myeloid leukemia hematopoietic progenitors. Blood, 77(5), 925–929. https://doi.org/10.1182/blood.v77.5.925.925
Recent Developments
In July 2022, we announced a strategic
realignment of our pipeline and resources. We plan to accelerate the development of LENZ in CMML, a rare blood cancer, for which the
PREACH-M study is already underway, and to continue our plans for the RATinG study in aGvHD that occurs in patients undergoing bone
marrow transplant, which is expected to enroll its first patient in the third quarter of 2022. These studies are majority funded by
our partners. In addition, we are currently assessing requests for IIT of lenzilumab in combination with CAR-T therapies; the
previously planned SHIELD study of lenzilumab with certain CAR-T therapies has been terminated. We also plan to continue the
development of iFab, an EpAh-3 targeted monoclonal antibody currently in Phase 1 development, as part of an antibody drug conjugate
(“ADC”), for certain solid tumors.
Key elements
of the strategic realignment plan include:
| ● | Advancing and expanding the ongoing PREACH-M study of lenzilumab for the treatment of high-risk
CMML in patients with NRAS, KRAS, and CBL genetic mutations to more rapidly reach the initial clinical assessment of this open-label study,
once sufficient patients have received 3 cycles of treatment with lenzilumab in addition to azacitidine. Three lenzilumab-treated patients
have been enrolled in the study and followed for multiple cycles, with what we believe to be encouraging results. |
| ● | Continuing to execute the RATinG study for lenzilumab for the early treatment of aGvHD with
the goal of reporting a planned interim assessment of the first 20 patients in the second quarter of 2023. |
| ● | Assessing and supporting further clinical assessment of lenzilumab for prevention of CAR-T therapy
related toxicities through an IIT. |
| ● | Seeking potential inclusion of lenzilumab in an international, large-scale COVID-19 platform study through
partnership. |
| ● | Significantly reducing our go-forward, cash-based research and development and general and administrative
expenses. |
| ● | Eliminating long-term debt on the balance sheet by fully retiring our senior secured term loan,
reducing interest expense, and enhancing our ability to generate additional liquidity from our intellectual property by freeing it from
the loan’s collateral requirements. |
In July 2022,
preliminary topline results from the Accelerating COVID-19 Therapeutic Interventions and Vaccines-5 (“ACTIV-5”) and Big Effect
Trial, in the “B” arm of the trial (“BET-B”), referred to as the ACTIV-5/BET-B trial, were released. The study
was sponsored and funded by the National Institutes of Health (“NIH”) and evaluated lenzilumab in combination with remdesivir,
compared to placebo and remdesivir, in hospitalized COVID-19 patients. Based on preliminary topline results, the trial did not achieve
statistical significance on the primary endpoint, although did indicate that lenzilumab demonstrated a positive trend in mortality.
We continue to support NIH’s further analysis of the data and lenzilumab has interest from a global group of leading institutions
and research networks to include lenzilumab in their large-scale, multinational studies of COVID-19. Tocilizumab and baricitinib demonstrated
mortality benefit following inclusion in such studies having failed to do so in smaller studies. With the recent preliminary topline results
from the ACTIV-5/BET-B trial, we are reconsidering our regulatory strategy. Under the realignment plan, we will deemphasize the deployment
of certain resources for the development of lenzilumab for COVID-19 and currently do not plan to file for Emergency Use Authorization
(“EUA”) in the United States in 2022. We had previously planned to respond to the rolling review written questions
received last year from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) following receipt of the results
from the ACTIV-5/BET-B trial but do not plan to respond to these written questions in 2022. We no longer intend to submit a Conditional
Marketing Authorization (“CMA”) for lenzilumab with an Accelerated Approval request to European Medicines Agency (“EMA”)
in 2022. The Named Patient program in select European Countries will be terminated. With the exception of lenzilumab batches in process,
we plan to stop the manufacturing of lenzilumab. We plan to consolidate the remaining inventory of lenzilumab bulk drug substance and
drug product in a central location for potential future use.
In July 2022, we paid $25.0 million of outstanding
principal, together with approximately $1.7 million of accrued interest, fees and other amounts, due under the Term Loan with Hercules.
In connection with the prepayment, the Term Loan with Hercules was terminated, and all obligations, liens and security interests under
the Term Loan were released, discharged and satisfied. See Notes 5 and 11 to the Condensed Consolidated Financial Statements of this Quarterly
Report on Form 10-Q for additional information on the Term Loan.
As of the end of July
2022, the C-SMART study in cancer patients with COVID-19 will not be taking on any new patients in all arms of the trial and is being
brought to a conclusion, due to changes in COVID-19 treatment in Australia. As no patients have been entered into the lenzilumab arm,
due to low numbers of cancer patients being hospitalized with COVID-19 and associated logistics issues, we aim to utilize the investigational
product as part of a larger Victorian Government-funded trial.
In May 2022, our partners
in South Korea dosed the final healthy volunteer of the 20 required for their Phase 1 bridging study. This study is being conducted to
explore the safety, tolerability, and pharmacokinetic (“PK”) properties of lenzilumab and compare it between Koreans and Caucasians.
With the trial now fully enrolled, we anticipate the results will be available in the fourth quarter of 2022.
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:
![](https://content.edgar-online.com/edgar_conv_img/2022/08/12/0001214659-22-010013_chartpg18.jpg)
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared
in accordance with accounting principles generally accepted in the U.S., or GAAP. The preparation of our financial statements in conformity
with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved
in determining revenue recognition, 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 Condensed Consolidated
Financial Statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which
may also have a material adverse effect on our statements of operations, liquidity and financial condition.
There were no significant and material changes
in our critical accounting policies and use of estimates during the six months ended June 30, 2022, as compared to those disclosed in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies
and Use of Estimates” in our 2021 Annual Report on Form 10-K, filed with the SEC on March 1, 2022.
Results of Operations
At June 30, 2022, we had an accumulated deficit
of $662.5 million. Since inception, we have recognized a nominal amount of revenue from payments for license or collaboration fees. Our
product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product sales.
Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance
that we will ever generate significant revenue or profits. Our ability to continue as a going concern depends on our ability to attain
a significant amount of additional financing, as more fully described below under “—Liquidity and Capital Resources”
and in “Risk Factors” in Item 1A of Part II below.
Comparison of Three and Six Months Ended June 30, 2022 and 2021
The following table summarizes the results of
our operations for the periods indicated (amounts in thousands, except percentages):
| |
Three Months Ended June 30, | | |
Increase/ (Decrease) | | |
Six Months Ended June 30, | | |
Increase/ (Decrease) | |
(in thousands) | |
2022 | | |
2021 | | |
Amount | | |
% | | |
2022 | | |
2021 | | |
Amount | | |
% | |
Revenue: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
License revenue | |
$ | 1,036 | | |
$ | 1,036 | | |
$ | - | | |
| | | |
$ | 2,072 | | |
$ | 1,522 | | |
$ | 550 | | |
| 36 | |
Total revenue | |
| 1,036 | | |
| 1,036 | | |
| - | | |
| | | |
| 2,072 | | |
| 1,522 | | |
| 550 | | |
| 36 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 26,438 | | |
| 63,012 | | |
| (36,574 | ) | |
| (58 | ) | |
| 43,658 | | |
| 122,946 | | |
| (79,288 | ) | |
| (64 | ) |
General and administrative | |
| 3,949 | | |
| 8,076 | | |
| (4,127 | ) | |
| (51 | ) | |
| 8,294 | | |
| 13,024 | | |
| (4,730 | ) | |
| (36 | ) |
Total operating expenses | |
| 30,387 | | |
| 71,088 | | |
| (40,701 | ) | |
| (57 | ) | |
| 51,952 | | |
| 135,970 | | |
| (84,018 | ) | |
| (62 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (29,351 | ) | |
| (70,052 | ) | |
| (40,701 | ) | |
| (58 | ) | |
| (49,880 | ) | |
| (134,448 | ) | |
| (84,568 | ) | |
| (63 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other expense: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (768 | ) | |
| (746 | ) | |
| 22 | | |
| 3 | | |
| (1,502 | ) | |
| (765 | ) | |
| 737 | | |
| 96 | |
Other expense, net | |
| (30 | ) | |
| (5 | ) | |
| 25 | | |
| 500 | | |
| (45 | ) | |
| (1,157 | ) | |
| (1,112 | ) | |
| (96 | ) |
Net loss | |
$ | (30,149 | ) | |
$ | (70,803 | ) | |
$ | (40,654 | ) | |
| (57 | ) | |
$ | (51,427 | ) | |
$ | (136,370 | ) | |
$ | (84,943 | ) | |
| (62 | ) |
Revenue
Revenue in
the three and six months ended June 30, 2022 and 2021, represents license revenue under the license agreement (the “South Korea
Agreement”) with KPM Tech Co., Ltd. (“KPM”) and its affiliate, Telcon RF Pharmaceutical, Inc. (together with KPM, the
“Licensee”) described in more detail in Note 4 to the Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q. License revenue was $1.0 million and $2.1 million for the three and six months ended June 30, 2022, respectively,
as compared to $1.0 million and $1.5 million for the three and six months ended June 30, 2021, respectively.
Research and Development Expenses
Conducting research and development is central
to our business model. We expense both internal and external research and development costs as incurred. We track external research and
development costs incurred by project for each of our clinical programs. Our external research and development costs consist primarily
of:
| ● | expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical
trials and our pre-clinical activities; |
| ● | the cost of acquiring and manufacturing clinical trial, pre-commercial and other materials, the cost to transfer the manufacturing
process for bulk drug substance and fill/finish production, development of and periodic performance of a variety of tests and assays for
stability, release, comparability and product characterization, costs associated with quality management, the preparation of documents
and information necessary to file with regulatory authorities; and |
| ● | other costs associated with development activities, including additional studies. |
Other research and development costs consist primarily
of internal research and development costs such as salaries and related fringe benefit costs for our employees, stock-based compensation
charges, and travel costs not allocated to one of our clinical programs. Internal research and development costs generally benefit multiple
projects and are not separately tracked per project.
The following table shows our total research and
development expenses for the three and six months ended June 30, 2022 and 2021:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
External Costs | |
| | | |
| | | |
| | | |
| | |
Lenzilumab | |
$ | 25,971 | | |
$ | 61,913 | | |
$ | 42,419 | | |
$ | 121,139 | |
Ifabotuzumab | |
| 25 | | |
| 25 | | |
| 183 | | |
| 50 | |
Internal costs | |
| 442 | | |
| 1,074 | | |
| 1,056 | | |
| 1,757 | |
Total research and development | |
$ | 26,438 | | |
$ | 63,012 | | |
$ | 43,658 | | |
$ | 122,946 | |
Research and development expenses decreased by
$36.6 million from $63.0 million for the three months ended June 30, 2021 to $26.4 million for the three months ended June 30, 2022 and
decreased by $79.2 million from $122.9 million for the six months ended June 30, 2021 to $43.7 million for the six months ended June 30,
2022. The decrease in the three months ended June 30, 2022 as compared to June 30, 2021 is primarily due to a $34.6 million decrease in
lenzilumab manufacturing costs, while the decrease in the six months ended June 30, 2022 compared to the six months ended June 30, 2021
is primarily due to a $70.3 million decrease in lenzilumab manufacturing costs, a $5.4 million decrease in clinical trial expenses as
the LIVE-AIR study has been completed and the first patient has not yet been dosed in the CAR-T trial and a $1.0 million decrease in consulting
expenses.
We expect our research and development costs will
continue to decrease in 2022 as compared to 2021. We have sought to mitigate our financial commitments by ceasing additional manufacturing
of lenzilumab, certain operational activities, and reducing staff and consultants in connection with our realignment plan. Our earlier
mitigation efforts included the amendment or in some cases cancelation of certain of our agreements with CMOs for future manufacturing
work, some of which were contingent on an EUA, in an effort to reduce our future spending. We incurred cancellation fees for several of
these modifications. We also have disputed several invoices for cancellation fees and for production batches for lenzilumab that had been
submitted by CMOs that failed to produce lenzilumab within our stated release specifications, but our mitigation efforts may not be successful
to recoup any such loss of lenzilumab bulk drug substance (“BDS”) or drug product (“DP”). See Notes 6, 10 and
11 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information on these disputes.
General and Administrative Expenses
General and administrative expenses consist principally
of personnel-related costs (including stock-based compensation), professional fees for legal and patent expenses, insurance, consulting,
audit, investor relations costs, and other general operating expenses not otherwise included in research and development.
General and administrative expenses decreased
by $4.2 million from $8.1 million for the three months ended June 30, 2021 to $3.9 million for the three months ended June 30, 2022
and decreased by $4.7 million from $13.0 million for the six months ended June 30, 2021 to $8.3 million for the six months ended
June 30, 2022. The decrease for the three months ended June 30, 2022, is primarily due to decreases of $2.9 million in consulting
expenses, $0.5 million in compensation-related expenses, $0.4 million in investor and public relations expenses and $0.2 million in
professional fees, while the decrease for the six months ended June 30, 2022, is primarily due to decreases of $4.2 million in
consulting expenses and $0.8 million in investor and public relations expenses partially offset by a $0.4 million increase in
compensation related expenses, primarily non-cash stock-based compensation expense. We expect that our overall general and
administrative costs may decrease in the near-term due to our realignment plan designed to significantly reduce our go-forward,
cash-based general and administrative expenses.
Interest Expense
Interest expense for both periods is primarily
related to the Loan and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the “Term
Loan”). Interest expense was $0.8 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, while
interest expense increased to $1.5 million for the six months ended June 30, 2022 as compared to $0.6 million for the six months ended
June 30, 2021, as we drew the initial $25.0 million under the Term Loan on March 29, 2021. After giving effect to payment of fees and
expenses associated with the draw, we received net proceeds of approximately $24.4 million.
In July 2022, we paid $26.7 million in full settlement
of the Term Loan with Hercules. See Notes 5 and 11 to the Condensed Consolidated Financial Statements of this Quarterly Report on Form
10-Q for additional information on the Term Loan.
Other Expense
Other expense decreased by $1.1 million for the
six months ended June 30, 2022, primarily due to litigation settlement costs incurred in the prior year period.
Liquidity and Capital Resources
Since our inception, we have financed our operations
primarily through proceeds from the public offerings of our common stock, private placements of our common and preferred stock, debt financings,
interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against lines of credit, and with the
proceeds under the South Korea Agreement. At June 30, 2022, we had cash and cash equivalents of $47.0 million. In the first half of 2022,
we sold an aggregate of 7,215,309 shares of our common stock under the Controlled Equity OfferingSM Sales Agreement (the “Sales
Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), raising net proceeds of approximately $21.8 million.
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:
| |
Six Months Ended June 30, | |
(In thousands) | |
2022 | | |
2021 | |
Net cash (used in) provided by: | |
| | | |
| | |
Operating activities | |
$ | (44,819 | ) | |
$ | (103,784 | ) |
Financing activities | |
| 21,849 | | |
| 156,583 | |
Net increase (decrease) in cash and cash equivalents | |
$ | (22,970 | ) | |
$ | 52,799 | |
Net
cash used in operating activities was $44.8 million and $103.8 million for the six months ended June 30, 2022 and 2021, respectively.
Cash used in operating activities of $44.8 million for the six months ended June 30, 2022, primarily related to our net loss of $51.4
million, adjusted for non-cash items, such as $3.2 million in stock-based compensation, and a net change in operating assets and liabilities
of $3.1 million, including a $12.0 million increase in accounts payable and a $5.5 million decrease in accrued expenses.
Cash used in operating activities of $103.8 million
for the six months ended June 30, 2021, primarily related to our net loss of $136.4 million, adjusted for non-cash items, such as $2.4
million in stock-based compensation, and a net change in operating assets and liabilities of $30.0 million, including a $21.9 million
increase in accounts payable and a $5.8 million increase in accrued expenses.
Net cash provided by financing activities was $21.8
million for the six months ended June 30, 2022 and consists of net proceeds from the issuance of common stock in connection with the Sales
Agreement with Cantor.
Net cash provided by financing activities was $156.6
million for the six months ended June 30, 2021 and consists 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, $36.1 million received from the issuance of
common stock in connection with the Sales Agreement with Cantor, $24.4 million in net proceeds received from the Term Loan, and $1.9 million
received from the exercise of stock options.
Recent Financings
Controlled Equity Offering
On December 31, 2020, we entered into the Sales
Agreement with Cantor, under which we could issue and sell shares of our common stock, having an aggregate gross sales price of up to
$100 million through Cantor, as sales agent. On April 14, 2022, we filed a prospectus in respect of the Sales Agreement which provides
us with the ability to offer and sell shares of common stock having an aggregate offering price of up to $75.0 million. As mentioned above,
for the first half of 2022, we issued and sold 7,215,309 shares of our common stock under the Sales Agreement, raising net proceeds of
$21.8 million, and for the first half of 2021, we issued and sold 1,796,858 shares of our common stock under the Sales Agreement, raising
net proceeds of $36.1 million. Subsequent to June 30, 2022 and through August 10, 2022, as disclosed in Note 11 below, the Company issued
and sold 33,628,000 shares of common stock pursuant to the Sales Agreement and received net proceeds of approximately $15.9 million, after
deducting fees and expenses. As of August 10, 2022, we had the ability to offer and sell shares of common stock having an aggregate offering
price of up to $68.4 million under the Sales Agreement. The ability to continue to utilize the Sales Agreement at terms acceptable to
us and in sufficient quantities relies on future market conditions that are uncertain and cannot be relied upon. See “Risk Factors”
in Item 1A of Part II below.
2021 Underwritten Public Offering
On March 30, 2021, we entered into an underwriting
agreement with Jefferies LLC, Credit Suisse Securities (USA) LLC and Cantor, as representatives of the several underwriters, in connection
with the public offering of 5,000,000 shares of our common stock. In addition, we granted the underwriters a 30-day option to purchase
an additional 750,000 shares of our common stock. The initial offering closed on April 5, 2021. On May 3, 2021, we closed on the sale
of an additional 427,017 shares of our common stock related to the exercise of the underwriters’ 30-day option. The aggregate gross
proceeds from the sale of the 5,427,017 shares in the offering, inclusive of the additional shares purchased by the underwriters, were
approximately $100.4 million. The net proceeds from this offering, after deducting underwriting discounts and offering costs, were approximately
$94.2 million.
Term Loan with Hercules
On March 10, 2021, we
entered into the Term Loan with Hercules which provided us with the ability to draw an initial amount of $25.0 million, which we drew
on March 29, 2021. In July 2022, we paid $26.7 million in full settlement of the Term Loan with Hercules. See Notes 5 and 11 to the Condensed
Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information on the Term Loan.
Liquidity and Manufacturing Commitments
As of June 30, 2022, we had cash and cash equivalents
of $47.0 million and paid $26.7 million in full settlement of the Term Loan with Hercules in July 2022, fully extinguishing and terminating
the Term Loan in the process. Considering our current cash resources and our current and expected levels of operating expenses for the
next twelve months, which includes our combined accounts payable and accrued expenses as of June 30, 2022 of $71.1 million, and our non-manufacturing
commitments of $0.3 million and manufacturing commitments of $36.5 million for the remaining six months of 2022, $7.6 million for 2023,
and $6.6 million thereafter related to our manufacturing agreements, as further described below (see “–Contracts”),
we require additional capital to fund our planned operations and capital requirements. Certain of these commitments and amounts accrued
at June 30, 2022 are in dispute. We intend to seek to defer these and other payments, negotiate lower amounts or seek other courses of
action, which may include legal recourse for the amounts in question. We will seek to raise additional capital through public or private
equity offerings, including under the Sales Agreement with Cantor, grant financing, convertible and other debt financings, collaborations,
strategic alliances, or licensing arrangements. Subsequent to June 30, 2022 and through August 10, 2022, as disclosed in Note 11 to the
Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, the Company issued and sold 33,628,000 shares of common
stock pursuant to the Sales Agreement and received net proceeds of approximately $15.9 million, after deducting fees and expenses. 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 licensing arrangements with third parties, we may have to relinquish rights to our technologies, future revenue streams or product
candidates or to grant licenses on terms that may not be favorable to us. While we believe our strategic realignment plan and our 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 at this time. 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.
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
Eversana has filed for arbitration to resolve this dispute. See Note 10 to the Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q for additional information.
Manufacturing Agreements
We entered into agreements with several CMOs to
manufacture BDS and fill/finish DP for our lenzilumab clinical trial activities in COVID-19 as well as to manufacture BDS and DP for a
potential launch of lenzilumab in anticipation of an EUA or CMA, should one have been obtained in that indication. We also entered into
agreements for packaging of the drug. These agreements provided for upfront amounts prior to commencement of manufacturing and progress
payments through the course of the manufacturing process and payments for technology transfer. Certain of these CMOs were unsuccessful
in their efforts to manufacture some batches of lenzilumab to our specifications for various reasons. As of July 22, 2022, there are approximately
11,500 lenzilumab treatments in production. Approximately 65,800 lenzilumab treatments are being stored and 9,000 treatments are being
sent for destruction as a result of expiry of drug substance (an intermediate step to final drug product). Current shelf life of drug
product is 36 months and bulk drug substance is 12 months. One of our CMOs, Catalent Pharma Solutions, LLC (“Catalent”),
has notified us that we are in breach of contract and has issued a demand for payment for outstanding amounts owed. Catalent has
demanded payment of the past due balance of $12.8 million by August 8, 2022 to cure this breach and has threatened to cancel the manufacturing
agreement if payment is not made. See Notes 10 and 11 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form
10-Q for additional information. Unless we comply with Catalent’s demands, it is unlikely that we will be able to utilize treatments
in production and treatments for which production has been completed. Another 33,000 treatments are in production at one of our CMOs,
Thermo Fisher Scientific, Inc. (“Thermo”), for which material has not yet been released by us, and which may require
reprocessing prior to release. We have disputed the amounts owed to Thermo as a result of Thermo’s failure to produce usable material
within stated release specifications. See Note 1 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q
for additional information. At this time, it is unlikely that these 33,000 treatments would be released by us. Inventory of treatments
produced at our CMOs for which the process has not been validated or released will likely be destroyed in the future if no potential commercial
use is found.
Please see our Form 10-K for the year ended December
31, 2021, Part I, Item 1A - Risk Factors—“Risks Related to Our Efforts to Develop Lenzilumab for COVID-19— Manufacturing
efforts relating to our lenzilumab program in COVID-19 have been extremely costly and inefficient in producing treatments for use in our
clinical development program or potential sale.”
License Agreements
We are obligated to make future payments to third
parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement
of certain development and commercialization milestones.
We record upfront and milestone payments made to
third parties under licensing arrangements as an expense. Upfront payments are recorded when incurred and milestone payments are recorded
when the specific milestone has been achieved.
Outlicensing Agreements
The South Korea Agreement
On November 3, 2020, we
entered into a License Agreement (the “South Korea Agreement”) with KPM and Telcon (together, the “Licensee”).
Pursuant to the South Korea Agreement, among other things, we granted the Licensee a license under certain patents and other intellectual
property to develop and commercialize our lead product candidate, lenzilumab (the “Product”), for treatment of COVID-19 pneumonia,
in South Korea and the 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.