| Item 1. | Financial Statements |
Humanigen, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 3,096 | | |
$ | 10,155 | |
| Prepaid expenses and other current assets | |
| 1,930 | | |
| 950 | |
| Total current assets | |
| 5,026 | | |
| 11,105 | |
| | |
| | | |
| | |
| Other assets | |
| 90 | | |
| 90 | |
| Total assets | |
$ | 5,116 | | |
$ | 11,195 | |
| | |
| | | |
| | |
| Liabilities and stockholders’ deficit | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 38,392 | | |
$ | 40,520 | |
| Accrued expenses | |
| 14,021 | | |
| 14,791 | |
| Deferred revenue | |
| 883 | | |
| 883 | |
| Total current liabilities | |
| 53,296 | | |
| 56,194 | |
| Non-current liabilities: | |
| | | |
| | |
| Deferred revenue | |
| 1,545 | | |
| 1,766 | |
| Total liabilities | |
| 54,841 | | |
| 57,960 | |
| | |
| | | |
| | |
| Stockholders’ deficit: | |
| | | |
| | |
| Common stock, $0.001 par value: 225,000,000 shares authorized at | |
| | | |
| | |
March 31, 2023 and December 31, 2022; 119,080,135 shares issued and outstanding at March 31, 2023 and December 31, 2022 | |
| 119 | | |
| 119 | |
| Additional paid-in capital | |
| 636,147 | | |
| 634,925 | |
| Accumulated deficit | |
| (685,991 | ) | |
| (681,809 | ) |
| Total stockholders’ deficit | |
| (49,725 | ) | |
| (46,765 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 5,116 | | |
$ | 11,195 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Revenue: | |
| | |
| |
| License revenue | |
$ | 221 | | |
$ | 1,036 | |
| Total revenue | |
| 221 | | |
| 1,036 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Research and development | |
| 737 | | |
| 17,220 | |
| General and administrative | |
| 3,719 | | |
| 4,345 | |
| Total operating expenses | |
| 4,456 | | |
| 21,565 | |
| | |
| | | |
| | |
| Loss from operations | |
| (4,235 | ) | |
| (20,529 | ) |
| | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | |
| Interest expense | |
| (18 | ) | |
| (734 | ) |
| Other income (expense), net | |
| 71 | | |
| (15 | ) |
| Net loss | |
$ | (4,182 | ) | |
$ | (21,278 | ) |
| | |
| | | |
| | |
Basic and diluted net loss per common share | |
$ | (0.04 | ) | |
$ | (0.32 | ) |
| | |
| | | |
| | |
Weighted average common shares outstanding used to calculate basic and diluted net loss per common share | |
| 119,080,135 | | |
| 65,590,724 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Operating activities: | |
| | | |
| | |
| Net loss | |
$ | (4,182 | ) | |
$ | (21,278 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Stock based compensation expense | |
| 1,222 | | |
| 1,543 | |
| Non-cash interest expense related to debt financing | |
| - | | |
| 187 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Prepaid expenses and other assets | |
| (980 | ) | |
| (1,332 | ) |
| Accounts payable | |
| (2,128 | ) | |
| 3,175 | |
| Accrued expenses | |
| (770 | ) | |
| (701 | ) |
| Deferred revenue | |
| (221 | ) | |
| (1,036 | ) |
| Net cash used in operating activities | |
| (7,059 | ) | |
| (19,442 | ) |
| | |
| | | |
| | |
| Financing activities: | |
| | | |
| | |
| Net proceeds from issuance of common stock | |
| - | | |
| 18,374 | |
| Net cash provided by financing activities | |
| - | | |
| 18,374 | |
| | |
| | | |
| | |
| Net decrease in cash and cash equivalents | |
| (7,059 | ) | |
| (1,068 | ) |
| Cash and cash equivalents, beginning of period | |
| 10,155 | | |
| 70,016 | |
| Cash and cash equivalents, end of period | |
$ | 3,096 | | |
$ | 68,948 | |
| | |
| | | |
| | |
| Supplemental cash flow disclosure: | |
| | | |
| | |
| Cash paid for interest | |
$ | - | | |
$ | 550 | |
See accompanying notes.
Humanigen, Inc.
Condensed Consolidated Statements of Stockholders’
Deficit
(in thousands, except share data)
(Unaudited)
| | |
Three Months Ended March 31, 2023 | |
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balances at January 1, 2023 | |
| 119,080,135 | | |
$ | 119 | | |
$ | 634,925 | | |
$ | (681,809 | ) | |
$ | (46,765 | ) |
| Stock-based compensation expense | |
| - | | |
| - | | |
| 1,222 | | |
| - | | |
| 1,222 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (4,182 | ) | |
| (4,182 | ) |
| Balances at March 31, 2023 | |
| 119,080,135 | | |
$ | 119 | | |
$ | 636,147 | | |
$ | (685,991 | ) | |
$ | (49,725 | ) |
| | |
Three Months Ended March 31, 2022 | |
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| | |
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 | ) |
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.
The Company is developing lenzilumab in chronic
myelomonocytic leukemia (“CMML”), a rare blood cancer, for which the Precision Approach to Chronic Myelomonocytic Leukemia
(“PREACH-M”) study is underway, and is continuing its plans for the Risk Adapted Therapy in Acute GvHD (“RATinG”)
study in acute graft versus host disease (“aGvHD”) that occurs in patients undergoing bone marrow transplant, as these studies
are majority funded by its partners. In April 2023, the Company announced that as of December 31, 2022, eleven subjects had been dosed
with lenzilumab and with current standard of care, azacytidine, in the PREACH-M study. Six subjects were evaluable based on at least three
months of follow-up, including those with high risk CMML, and all demonstrated clinical benefit. In addition, LENZ appeared to be well-tolerated.
The Company anticipates the first patient dosing in the RATinG study to occur in the second quarter of 2023. A leading network of centers,
The Mayo Clinics, is currently progressing with an investigator-initiated trial (“IIT”) of lenzilumab in combination with
CAR-T therapies. With the exception of the one lenzilumab batch in process, the Company has discontinued the manufacturing of lenzilumab
and is consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future
use. The Company is also developing iFab, an EpAh-3 targeted monoclonal antibody, currently in Phase 1 development, as part of an antibody
drug conjugate (“ADC”), for certain solid tumors.
See Management’s Discussion and Analysis
of Financial Condition and Results of Operations included in Item 7 of the Company’s 2022 Annual Report on Form 10-K for additional
information regarding the business.
Liquidity and Going Concern
The Condensed Consolidated Financial Statements
for the three months ended March 31, 2023 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 March 31, 2023, the Company had cash and
cash equivalents of $3.1 million. Considering the Company’s current cash resources and its current and expected levels of operating
expenses for the next twelve months, which includes combined accounts payable and accrued expenses recorded in the Company’s consolidated
balance sheets as of March 31, 2023 of $52.4 million, certain of which are in dispute, and manufacturing commitments of $1.8 million for
the remaining nine months of 2023, with no significant commitments thereafter (see Note 6 below), the Company requires additional capital
to fund the Company’s planned operations. The Company intends to seek to defer payments, negotiate lower amounts or pursue other
courses of action for certain amounts owed to manufacturing and other partners at March 31, 2023. In order to remain a going concern,
the Company must successfully renegotiate these amounts owed, and settle disputes, including current and potential future arbitration
and litigation. During 2022, the Company engaged SC&H Capital, an affiliate of SC&H Group, Inc.(“SC&H”), to advise
the Company on exploration of strategic options to maximize value around its development pipeline. The Company has not set a timetable
for the conclusion of its review of strategic alternatives, and there can be no assurance that this process will result in any transaction.
As previously reported, the Company has executed
a non-binding letter of intent and is engaged in exclusive negotiations relating to a proposed business combination with a privately held
biopharmaceutical company, which contemplates a tax-free stock-for-stock merger. The Company is seeking external financing in connection
with the potential business combination. There can be no assurance that the potential business combination or financing will be consummated
on favorable terms or at all.
The Company also may seek to raise 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 involving LENZ and iFab. 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 and may not be able to continue as a going concern. 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 US generally accepted accounting principles (“US 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, 2022 Condensed Consolidated Balance Sheet was derived from the audited
financial statements but does not include all disclosures required by US GAAP. These interim financial results are not necessarily indicative
of the results to be expected for the year ending December 31, 2023, 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 2022 Annual Report on Form 10-K.
The preparation of financial statements in conformity
with US 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, 2022. There have been no significant changes to the Company’s
significant accounting policies during the three months ended March 31, 2023, from those previously disclosed in its 2022 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 March 31, | |
| | |
2023 | | |
2022 | |
| Options to purchase common stock | |
| 7,177,605 | | |
| 4,712,659 | |
| Warrants to purchase common stock | |
| 31,238 | | |
| 31,238 | |
| Convertible debt | |
| - | | |
| 510,986 | |
| | |
| 7,208,843 | | |
| 5,254,883 | |
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
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 US, of which the first milestone was met in the first quarter of 2021 and $6.0 million (or
$4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021, and (iii) subsequent to
the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea
and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that 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, were initially being recognized as revenue ratably over the performance
period through March 2023 (the “Performance Period”), the expected period over which the Company conservatively expected the
Services to be performed with approval in the Territory expected by the end of March 2023. During the quarter ended September 30, 2022,
the performance period was reevaluated, and the estimated end date of the performance period was adjusted to December 31, 2025. The change
in estimate resulted in a decrease of $0.8 million in quarterly license revenue as compared to amounts that would have been recorded under
the previous timeline. Therefore, the Company recognized license revenue totaling approximately $0.2 million and $1.0 million in the three
months ended March 31, 2023 and 2022, 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 $2.4
million was recorded on the Condensed Consolidated Balance Sheets as deferred revenue as of March 31, 2023 related to the South Korea
agreement. There were no contract asset or deferred contract acquisition costs as of March 31, 2023 associated with the South Korea agreement.
The following table presents
changes in the Company’s contract liability for the three months ended March 31, 2023 (in thousands):
| Balance at January 1, 2023 | |
$ | 2,649 | |
| Deductions for performance obligations satisfied: | |
| | |
| In current period | |
| (221 | ) |
| Balance at March 31, 2023 | |
$ | 2,428 | |
5. Long-Term Debt
Secured Term Loan Facility
On March 10, 2021, the Company executed the Loan
and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the “Term Loan”) which
provided a loan in the aggregate principal amount of up to $80.0 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. Interest expense related to the Term Loan, recorded during the three
months ended March 31, 2022, was approximately $0.7 million and the effective interest rate was 9.25%.
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.
6. Commitments and Contingencies
Manufacturing Agreements
As of March 31, 2023, the Company estimates that
its commitments remaining to be incurred under its contract manufacturing organization (“CMO”) agreements are approximately
$1.8 million for the remaining nine months of 2023 with no significant commitments thereafter.
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. During the three months ended March 31,
2022, the Company issued and sold 5,926,748 shares of its common stock under the Sales Agreement for net proceeds of $18.4 million. No
shares were sold under the Sales Agreement during the three months ended March 31, 2023.
8. Stock-Based Compensation
A summary of stock option activity for the three
months ended March 31, 2023 under all the Company’s options plans is as follows:
| | |
Options | | |
Weighted
Average Exercise
Price | |
| Outstanding at January 1, 2023 | |
| 7,472,056 | | |
$ | 4.23 | |
| Granted | |
| - | | |
$ | - | |
| Exercised | |
| - | | |
$ | - | |
| Cancelled (expired) | |
| (294,451 | ) | |
$ | 6.43 | |
| Outstanding at March 31, 2023 | |
| 7,177,605 | | |
$ | 4.14 | |
The Company recorded stock-based compensation
expense in the Condensed Consolidated Statements of Operations as follows (in thousands):
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| General and administrative | |
$ | 1,105 | | |
$ | 1,294 | |
| Research and development | |
| 117 | | |
| 249 | |
| Total stock-based compensation | |
$ | 1,222 | | |
$ | 1,543 | |
At March 31, 2023, the Company had $4.7 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 1.3 years. As of March 31, 2023, there were 2,061,764 shares available for grant under the
Company’s 2020 Equity Incentive Plan.
9. Litigation
Eversana Arbitration
On May 19, 2022, Eversana Life Science Services, LLC (“Eversana”)
filed a Demand for Arbitration claiming approximately $4.5 million in damages against the Company with the American Arbitration Association
entitled Eversana Life Sciences, LLC v. Humanigen, Inc. (AAA Case No. 01-22-0002-1591). The Demand contains two breach of contract
claims related to the Eversana Agreement between the parties and a related agreement between the companies’ European subsidiaries,
and a claim for unjust enrichment. Eversana asserts that the Company failed to pay it amounts due for work preparing for the potential
commercializing of lenzilumab performed between April 1, 2021 and September 30, 2021. The Company and Eversana have agreed in principle
on a conditional resolution of the matters being disputed and are negotiating a formal settlement agreement. The settlement agreement
is expected to provide that the Company will, subject to its receipt of adequate proceeds from a financing transaction, make a one-time
payment to Eversana of $750,000 and, in connection with such payment, the parties will dismiss the pending arbitration and release and
discharge each other from all existing claims, demands, causes of actions, charges and grievances of any kind arising out of, or relating
to, the commercial agreements between the parties. There can be no assurances that a settlement agreement will be reached on these terms.
If a settlement is not completed, the Company intends to vigorously defend against Eversana’s claims.
Avid Settlement
On February 21, 2023, the Company and Avid Bioservices,
Inc. (“Avid”) entered into a Settlement Agreement (the “Avid Settlement Agreement”) providing for a conditional
resolution of certain previously reported disputes between the Company and Avid arising pursuant to the commercial agreements between
the two parties (collectively, the “Lenzilumab Disputes”).
Pursuant to the Settlement Agreement, the Company
made a one-time payment of $3.0 million to Avid (the “Settlement Payment”). In addition, the parties mutually agreed that,
effective upon the expiration of 120 days from the date of the Settlement Agreement and only if Humanigen has not by such date filed for
or been placed into bankruptcy or commenced an assignment for the benefit of creditors or other insolvency proceeding, the parties will
dismiss the pending Lenzilumab Disputes and release and discharge each other from all existing claims, demands, causes of actions, charges
and grievances of any kind arising out of, or relating to, the Lenzilumab Disputes and the commercial agreements between the parties,
which were terminated in accordance with their respective terms.
Thermo Litigation
On October 24, 2022, one of the Company’s former CMOs, Thermo
Fisher Scientific, Inc. (“Thermo”) filed a lawsuit against the Company in Delaware Superior Court (Patheon Biologics, Inc.
v. Humanigen, Inc., Case No. N22C-10-185 MMJ) for $25.9 million. The Company has filed a countersuit against Thermo for breach of
contract seeking more than $37.5 million. The Company and Thermo have agreed in principle on a conditional resolution of the matters being
disputed and are negotiating a formal settlement agreement. The settlement agreement is expected to provide that the Company will, subject
to its receipt of adequate proceeds from a financing transaction, make $8.0 million of payments to Thermo and, in connection with such
payments, the parties will dismiss the pending litigation and release and discharge each other from all existing claims, demands, causes
of actions, charges and grievances of any kind arising out of, or relating to, the commercial agreements between the parties. There can
be no assurances that a settlement agreement will be reached on these terms. If a settlement is not completed, the Company intends to
vigorously defend against Thermo’s claims.
Securities Class Action Litigation
On August 26, 2022, a putative securities class action complaint captioned
Pieroni v. Humanigen Inc., et al., Case No. 22-cv-05258, was filed in the United States District Court for the District of New
Jersey against the Company, its Chief Executive Officer, Dr. Cameron Durrant, and its former Chief Financial Officer, Timothy Morris.
On October 17, 2022, a second putative securities class action complaint captioned Greenbaum v. Humanigen Inc., et al., Case No.
22-cv-06118, was filed in the United States District Court for the District of New Jersey against the Company, Dr. Durrant and the Company’s
Chief Scientific Officer, Dale Chappell. The complaints assert claims and seek damages for alleged violations of sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The two actions have been consolidated into a single action
captioned In re Humanigen, Inc. Securities Litigation, Case No. 2:22-cv-05258 and co-lead plaintiffs and co-lead law firms have
been appointed. The Company believes that the allegations in the putative complaints are without merit and will vigorously defend against
them.
Shareholder Derivative Litigation
On January 17, 2023, a derivative lawsuit captioned Chul Yang derivatively
on behalf of Humanigen, Inc. v. Durrant, et al., Case No. 2:23-cv-00235, was filed in the United States District Court for the District
of New Jersey against the company’s Chief Executive Officer, Dr. Cameron Durrant, its former Chief Financial Officer, Timothy Morris,
and each of its Directors. The complaint asserts claims and seeks damages against all of the defendants for alleged violations of section
14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, breach of fiduciary duty, unjust enrichment, abuse
of control, gross mismanagement, and waste of corporate assets, and against Dr. Durrant and Mr. Morris for alleged violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. This matter has been stayed pending initial
rulings in the consolidated securities class action matter. The Company believes that the allegations in the putative derivative action
are without merit and will vigorously defend against them.
| 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, 2022 (the “2022 Annual Report”). 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 forward-looking statements
are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are
in some cases beyond our control. 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 marketing authorization and the opportunity to benefit from various regulatory incentives; expectations for our financial
results, revenue, operating expenses and other financial measures in future periods; the adequacy of our sources of liquidity to satisfy
our working capital needs, capital expenditures, and other liquidity requirements; and our exploration of strategic alternatives. 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 the 2022 Annual Report, 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, and the availability of future financing; |
| ● | our ability to complete the proposed business combination and related financing transactions described in the 2022 Annual Report under
“Item 1. Business – Overview”, or to identify and execute upon another strategic transaction or alternative to maximize
value for our stakeholders; |
| ● | our ability to demonstrate by August 21, 2023, and thereafter maintain compliance with, the listing requirements of the Nasdaq Capital
Market; |
| ● | the outcome of pending, threatened or future litigation or arbitration; |
| ● | our ability to resolve pending or threatened litigation regarding payment disputes with certain Contract Manufacturing Organizations
(“CMOs”) and other parties, and our ability to defer payments, negotiate lower amounts or successfully pursue other courses
of action for certain amounts accrued at March 31, 2023; |
| ● | 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 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 (as described below) of lenzilumab in chronic myelomonocytic
leukemia (“CMML”) and in patients with acute Graft versus Host Disease (“aGvHD”), respectively, as currently planned; |
| ● | our ability to assess and support further clinical assessment of lenzilumab as a companion therapy 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; |
| ● | our ability to achieve collaborations, strategic alliances, or licensing arrangements for lenzilumab; |
| ● | 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 the 2022 Annual Report. 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 granulocyte-macrophage
colony-stimulating factor (“GM-CSF”), a cytokine that we believe leads to the overproduction of monocytes which are responsible
for CMML, a rare blood cancer and is of critical importance in aGvHD associated with bone marrow transplants.
We are currently developing lenzilumab in CMML
for which the Precision Approach to Chronic Myelomonocytic Leukemia (“PREACH-M”) study is underway, and we are continuing
plans for the Risk Adapted Therapy in Acute GvHD (“RATinG”) study in aGvHD, as these studies are majority funded by our partners.
In April 2023, we announced that as of December
31, 2022, eleven subjects had been dosed with lenzilumab and with current standard of care, azacytidine, in the PREACH-M study. Six subjects
were evaluable based on at least three months of follow-up, including those with high risk CMML, and all demonstrated clinical benefit.
In addition, lenzilumab appeared to be well-tolerated. We anticipate the first patient dosing in the RATinG study to occur in the second
quarter of 2023.
A leading network of centers, The Mayo Clinics,
is currently progressing with an IIT of lenzilumab in combination with CAR-T therapies. We are also developing iFab, an EpAh-3 targeted
monoclonal antibody, currently in Phase 1 development, as part of an antibody drug conjugate (“ADC”), for certain solid tumors.
Recent Developments
Our current capital resources are not sufficient
to fund our operations for the remainder of 2023. Accordingly, as previously disclosed, we have been pursuing strategic alternatives and
seeking to raise additional capital and settle or otherwise resolve payment disputes and other ongoing arbitration and litigation.
As previously reported, during 2022 we engaged
SC&H Capital, an affiliate of SC&H Group, (“SC&H”) to advise us on exploration of strategic options. SC&H
is an investment banking and advisory firm providing merger and acquisition (M&A), financial restructuring and related business advisory
solutions. SC&H has acted as our advisor as we explore strategic options to maximize value around lenzilumab and ifabotuzumab. We
also have considered and pursued a full range of options to raise additional capital and to address, satisfy, defer or restructure our
accounts payable and accrued liabilities to manufacturing and other parties.
We have executed a non-binding letter of intent
and are engaged in exclusive negotiations relating to a proposed business combination with a privately held biopharmaceutical company
(the “Partner Company”). The proposed terms for the business combination contemplate a tax-free stock-for-stock merger, as
a result of which we would issue shares of our capital stock to stockholders of the Partner Company which are expected to represent roughly
two times the number of our currently outstanding shares of common stock.
We cannot assure you that we and the Partner Company
will enter into a definitive agreement for the proposed transaction, and the final form and terms of any such transaction may be materially
different from the terms described above. Our ability to enter into a definitive agreement is subject to conditions, including that we
have received binding commitments for investment of additional capital that will be necessary to fund the operations of the combined company
going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market or another national
securities exchange, as well as customary matters such as approval of the terms of the definitive agreement by the Partner Company’s
board of directors and stockholders. Certain of these conditions will be out of our control. Accordingly, we cannot provide any assurance
that we will effect the proposed business combination or related financing transactions. If we are unable to complete the proposed transactions
or identify and complete another strategic or financing transaction in the first half of 2023, we may elect or be required to pursue a
reorganization or seek other protection under the federal bankruptcy code. See Part I, Item 1A, “Risk Factors” to the 2022
Annual Report.
Our Pipeline
Our product candidates are in the clinical stage
of development and require substantial time, resources, research and development, and regulatory approval prior to commercialization.
Our pipeline is depicted below:
Nasdaq Listing Deficiencies
As previously reported, we have received two notices
from The Nasdaq Stock Market, LLC (“Nasdaq”) regarding our failures to satisfy the $1 minimum bid price and $35 million total
market value of listed securities standards for continued listing. On April 18, 2023, we were notified that we had been granted an extension
until August 21, 2023 to demonstrate compliance with all applicable requirements for listing of our common stock on Nasdaq by the Nasdaq
Hearings Panel (the “Panel”), subject to our compliance with the Panel’s requirements for periodic updates relating
to the status of our progress against achievement of the compliance plan presented at the April 6, 2023 hearing with the Panel. There
can be no assurance that we will be successful in our execution of the compliance plan or otherwise regain compliance with the applicable
Nasdaq listing requirements within the extended compliance period. In addition, our common stock may be subject to immediate delisting
from the Nasdaq Capital Market if our common stock has a closing bid price of $0.10 or less for any ten consecutive trading days. See
Part I, Item 1A, “Risk Factors” to the 2022 Annual Report.
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 US, or GAAP. The preparation of our financial statements in conformity
with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the 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 three months ended March 31, 2023, 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 the 2022 Annual Report.
Results of Operations
At March 31, 2023, we had an accumulated deficit
of $686.0 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. 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. Our ability to continue as a going concern depends
on our ability to attain a significant amount of additional financing, as more fully described under “—Liquidity and Capital
Resources” below and in “Risk Factors” in the 2022 Annual Report.
Comparison of Three Months Ended March 31, 2023 and 2022
The following table summarizes the results of
our operations for the periods indicated (amounts in thousands, except percentages):
| | |
Three Months Ended March 31, | | |
Increase/ (Decrease) | |
| (in thousands) | |
2023 | | |
2022 | | |
Amount | | |
% | |
| Revenue: | |
| | |
| | |
| | |
| |
| License revenue | |
$ | 221 | | |
$ | 1,036 | | |
$ | (815 | ) | |
| (79 | ) |
| Total revenue | |
| 221 | | |
| 1,036 | | |
| (815 | ) | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
| 737 | | |
| 17,220 | | |
| (16,483 | ) | |
| (96 | ) |
| General and administrative | |
| 3,719 | | |
| 4,345 | | |
| (626 | ) | |
| (14 | ) |
| Total operating expenses | |
| 4,456 | | |
| 21,565 | | |
| (17,109 | ) | |
| (79 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (4,235 | ) | |
| (20,529 | ) | |
| (16,294 | ) | |
| (79 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (18 | ) | |
| (734 | ) | |
| (716 | ) | |
| (98 | ) |
| Other income (expense), net | |
| 71 | | |
| (15 | ) | |
| (86 | ) | |
| (573 | ) |
| Net loss | |
$ | (4,182 | ) | |
$ | (21,278 | ) | |
$ | (17,096 | ) | |
| (80 | ) |
Revenue
Revenue in the three months ended March 31, 2023
and 2022, 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 $0.2 million for the
three months ended March 31, 2023, as compared to $1.0 million for the three months ended March 31, 2022. The decrease in revenue for
the three months ended March 31, 2023, compared to March 31, 2022, is due to a change in the length of the performance period in the third
quarter of 2022, as described in more detail in Note 4 to the Condensed Consolidated Financial Statements included in this Quarterly Report
on Form 10-Q.
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 months ended March 31, 2023 and 2022:
| | |
Three Months Ended March 31, | |
| (in thousands) | |
2023 | | |
2022 | |
| External Costs | |
| | | |
| | |
| Lenzilumab | |
$ | 489 | | |
$ | 16,448 | |
| Ifabotuzumab | |
| 26 | | |
| 158 | |
| Internal costs | |
| 222 | | |
| 614 | |
| Total research and development | |
$ | 737 | | |
$ | 17,220 | |
Research and development expenses decreased by
$16.5 million from $17.2 million for the three months ended March 31, 2022 to $0.7 million for the three months ended March 31, 2023.
The decrease is primarily due to a $13.9 million decrease in lenzilumab manufacturing costs and a $2.6 million decrease in clinical trial
expenses as the LIVE-AIR study has been completed.
We expect our development costs will decrease in
2023 as compared to 2022. In connection with our realignment to deemphasize the deployment of certain resources for the development of
lenzilumab for COVID-19, with the exception of one lenzilumab batch in process, we have discontinued the manufacturing of lenzilumab and
are consolidating the remaining inventory of lenzilumab bulk drug substance and drug product in a central location for potential future
use. We believe we have sufficient drug product for our currently planned clinical trials.
General and Administrative Expenses
General and administrative expenses consist principally
of personnel-related costs (including stock-based compensation), professional fees for legal and patent expenses, insurance, consulting,
audit, investor relations costs, and other general operating expenses not otherwise included in research and development.
General and administrative expenses decreased by
$0.6 million from $4.3 million for the three months ended March 31, 2022 to $3.7 million for the three months ended March 31, 2023. The
decrease for the three months ended March 31, 2023, is primarily due to a reduction in headcount in 2023 as compared to 2022. We expect
our overall general and administrative costs to continue to decrease as compared to 2022.
Interest Expense
Interest expense for the three months ended March
31, 2022 related to the Loan and Security Agreement with Hercules Capital as agent for its affiliates serving as lenders thereunder (the
“Term Loan”). See Note 5 to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional
information on the Term Loan.
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 March 31, 2023, we had cash and cash equivalents of $3.1 million. In the first quarter
of 2022, we sold an aggregate of 5,926,748 shares of our common stock under the Sales Agreement for net proceeds of $18.4 million. No
shares were sold under the Sales Agreement in the first quarter of 2023.
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:
| | |
Three Months Ended March 31, | |
| (In thousands) | |
2023 | | |
2022 | |
| Net cash (used in) provided by: | |
| | | |
| | |
| Operating activities | |
$ | (7,059 | ) | |
$ | (19,442 | ) |
| Financing activities | |
| - | | |
| 18,374 | |
| Net decrease in cash and cash equivalents | |
$ | (7,059 | ) | |
$ | (1,068 | ) |
Net cash used in operating activities was $7.1
million and $19.4 million for the three months ended March 31, 2023 and 2022, respectively. Cash used in operating activities of $7.1
million for the three months ended March 31, 2023, primarily related to our net loss of $4.2 million, adjusted for non-cash items, such
as $1.2 million in stock-based compensation, and a net change in operating assets and liabilities of $4.1 million.
Cash used in operating activities of $19.4 million
for the three months ended March 31, 2022, primarily related to our net loss of $21.3 million, adjusted for non-cash items, such as $1.5
million in stock-based compensation, and a net change in operating assets and liabilities of $0.1 million.
There were no financing activities for the three
months ended March 31, 2023. Net cash provided by financing activities was $18.4 million for the three months ended March 31, 2022 and
consists of net proceeds received from the issuance of common stock in connection with the Sales Agreement with Cantor.
Liquidity and Manufacturing Commitments
As of March 31, 2023, we had cash and cash equivalents
of $3.1 million; combined accounts payable and accrued expenses of $52.4 million, certain of which were in dispute; and manufacturing
commitments of $1.8 million for the remainder of 2023 with no significant commitments, thereafter, as further described below (see “–
Contracts”). We intend to seek to defer these disputed payment obligations, negotiate lower amounts or seek other courses of action,
which may include legal recourse for the amounts in question. Our capital resources are not sufficient to fund our operations for the
remainder of 2023.
Our ability to enter into a definitive agreement
with the Partner Company for the strategic transaction described above is subject to numerous conditions, including (among others) that
we have received binding commitments for investment of additional capital that will be necessary to enable us to fund the operations of
the combined company going forward and enable the combined company to maintain a listing of its common stock on the Nasdaq Capital Market
or another national securities exchange. We cannot provide any assurance that we will be able to raise sufficient funds to permit us to
effect the proposed business combination. If we are unable to complete the proposed transactions or identify and complete another strategic
or financing transaction in the first half of 2023, we may elect or be required to pursue a reorganization or seek other protection under
the federal bankruptcy code. If the proposed business combination with the Partner Company and related financing is completed, we would
expect to issue a significant number of shares of common stock and/or convertible equity securities to the stockholders of the Partner
Company as discussed above and to new investors in the financing, each of which would have a significant dilutive effect on our existing
stockholders.
See Part I, Item 1A, “Risk Factors”
in the 2022 Annual Report for further discussion of the risks surrounding the proposed transaction and our company.
Contracts
Eversana Agreement
On January 10, 2021, we announced that we had entered
into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”)
pursuant to which Eversana will provide us with services in connection with the potential launch of lenzilumab.
On September 21, 2021, we notified Eversana that due to the Emergency
Use Authorization status in the US, we were terminating the initial statement of work related to commercialization support of lenzilumab
for the treatment of COVID-19 in the United States. Eversana disputed the termination notice and requested payment of approximately $4.5
million it asserted we owed for services rendered from April 1, 2021 to September 30, 2021. We have agreed in principle on a conditional
resolution of the matters being disputed with Eversana and are negotiating a formal settlement agreement. See Note 9 to the Condensed
Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information.
Manufacturing Agreements
We entered into agreements with several CMOs to
manufacture bulk drug substance (“BDS”) and fill/finish/drug product (“DP”) for our lenzilumab clinical trial
activities. We also entered into agreements for packaging of the drug. These agreements provided for upfront amounts prior to commencement
of manufacturing and progress payments through the course of the manufacturing process and payments for technology transfer. Certain of
these CMOs were unsuccessful in their efforts to manufacture some batches of lenzilumab to our specifications for various reasons. We
have amended, and in some cases canceled, certain of these agreements. In addition, we have sought to mitigate our financial commitments
by ceasing additional manufacturing of lenzilumab in connection with our realignment plan and, more recently, we have settled our disputes
with two of our CMOs. See Note 11 to the Consolidated Financial Statements in the 2022 Annual Report for more information on these settlement
agreements.
We believe we have sufficient supply to conduct
our contemplated clinical development efforts. We have discontinued the manufacturing of lenzilumab, with the exception of one batch in
process at one of our CMOs, Catalent Pharma Solutions, LLC (“Catalent”). If we are unable to obtain regulatory approval for
lenzilumab prior to the expiration of the shelf life at that time, the remaining inventory will not be available for commercial use.
There is significant drug product
that was in production at one of our other CMOs, Thermo Fisher Scientific, Inc. (“Thermo”), for which material has not yet
been released by us because the batches produced are out of specification. Nonetheless, Thermo has notified us that they have stopped
production and have recently filed a lawsuit against us in Delaware Superior Court for $25.9 million. We have filed a countersuit against
Thermo for breach of contract seeking more than $37.5 million. We have agreed in principle on a conditional resolution of the matters
being disputed with Thermo and are negotiating a formal settlement agreement. See Note 9 to the Condensed Consolidated Financial Statements
of this Quarterly Report on Form 10-Q for additional information.
Please see our Form 10-K for the year ended December
31, 2022, Part I, Item 1A - Risk Factors—“Risks Related to our Financial Condition, Need for Additional Capital and Ability
to Continue as a Going Concern— Currently pending, threatened or future litigation, arbitration, governmental proceedings or inquiries
could result in material adverse consequences, including judgments or settlements, and adversely affect our ability to continue as a going
concern.”
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 US, of which the first milestone was met
in the first quarter of 2021 and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in
the second quarter of 2021, and (iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties
on the net sales of lenzilumab in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance
obligations. It is expected that we will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost-plus basis from an existing
or future manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.
Indemnification
In the normal course of business, we enter into
contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure
under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To
date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record
charges in the future as a result of these indemnification obligations.