UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
FORM 10-K
 
(Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2017
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
Commission File Number: 001-35798
 
HUMANIGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
77-0557236
(I.R.S. Employer
Identification No.)
  
1000 Marina Boulevard, Ste. 250
Brisbane, CA 94005
(Address of Principal Executive Offices) (Zip Code)
 
(650) 243-3100
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
None.
  
Securities registered pursuant to Section 12(g) of the Act:  
Common Stock, $0.001 par value.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer (Do
not check if a smaller
reporting company) ☐
Smaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒  No ☐
 
The aggregate market value of the registrant’s voting stock held by non-affiliates as of June 30, 2017, was approximately $11,552,504 based on the closing price of $1.90 of the Common Stock of the registrant as reported on the OTCQB Venture Market operated by OTC Markets Group, Inc. on such date.  As of March 23, 2018, there were 109,207,786 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.  
 

 
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TABLE OF CONTENTS
 
Humanigen, Inc.
Form 10-K
Index
 
           
 
    
    
    
Page
 
Part I 
 
 
 
5
 
Item 1. 
 
 
5
 
Item 1A. 
 
 
24
 
Item 1B. 
 
 
51
 
Item 2. 
 
 
51
 
Item 3. 
 
 
51
 
Item 4. 
 
 
53
 
Part II 
 
 
 
54
 
Item 5. 
 
 
54
 
Item 6. 
 
 
54
 
Item 7. 
 
 
55
 
Item 7A. 
 
 
69
 
Item 8. 
 
 
69
 
Item 9. 
 
 
69
 
Item 9A. 
 
 
69
 
Item 9B. 
 
 
70
 
Part III
 
 
 
71
 
Item 10. 
 
 
71
 
Item 11. 
 
 
74
 
Item 12. 
 
 
78
 
Item 13. 
 
 
80
 
Item 14. 
 
 
80
 
Part IV 
 
 
 
82
 
Item 15. 
 
 
82
 
Item 16. 
   
82
 
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
This Annual Report on Form 10-K 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, expansion, and costs of researching, developing and commercializing our product candidates; our 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. Actual events or results may differ materially due to known and unknown risks, uncertainties and other factors such as:
 
·
our lack of revenues, history of operating losses, bankruptcy, limited cash reserves and ability to obtain additional capital to develop and commercialize our product candidates, including the additional capital which will be necessary to complete the clinical trials that we have initiated or plan to initiate, and continue as a going concern;
·
the effect on our stock price and the significant dilution to the share ownership of our existing stockholders that has resulted from conversion of the term loans into equity of the company or that may result in the future upon additional issuances of our equity securities;
·
our ability to execute our new strategy and business plan focused on developing our proprietary monoclonal antibody portfolio;
·
our ability to list our common stock on a national securities exchange, whether through a new listing or by completing a reverse merger or other strategic transaction;
·
the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders;
·
the potential timing and outcomes of clinical studies of lenzilumab, ifabotuzumab or any other product candidates and the uncertainties inherent in clinical testing;
·
our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend;
·
the potential, if any, for future development of any of our present or future products;
·
our ability to successfully progress, partner or complete further development of our programs;
·
our ability to identify and develop additional products;
·
our ability to attain market exclusivity or to protect our intellectual property;
·
our ability to reach agreement with a partner to effect a successful commercialization of any of our product candidates;
·
the outcome of pending or future litigation;
·
the ability of the Black Horse Entities (as defined below) to exert control over all matters of the Company, including their ability to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction;
·
competition; and
·
changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the various regulatory incentives, or the imposition of regulations that affect our products.
 
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These are only some of the factors that may affect the forward-looking statements contained in this annual report. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Annual Report on Form 10-K. You should review these risk factors 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 annual report. You should be aware that the forward-looking statements contained in this annual report are based on our current views and assumptions. We undertake no obligation to revise or update any forward-looking statements made in this annual report 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. The forward-looking statements in this annual report are intended to be subject to protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
 
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PART I
 
ITEM 1.  BUSINESS
 
Overview

We are a biopharmaceutical company pursuing cutting-edge science to develop our proprietary monoclonal antibodies for immunotherapy and oncology treatments. Our lead product candidate is lenzilumab (formerly known as KB003).  We have begun work with leading key opinion leaders in the chimeric antigen receptor T-cell, or CAR-T, therapy field to advance lenzilumab into phase 1b/2 trials for the prevention of neurotoxicity and potentially cytokine release syndrome, or CRS, associated with CAR-T therapy.  There are currently no FDA-approved products for the prevention or treatment of neurotoxicity or prevention of CRS associated with CAR-T therapy.  Additionally, lenzilumab is currently in a phase 1 trial for the treatment of chronic myelomonocytic leukemia, or CMML, and potentially subsequent trials for the treatment of juvenile myelomonocytic leukemia, or JMML, both of which are rare hematologic cancers with high unmet medical need. We are exploring partnering opportunities to enable development of ifabotuzumab (another of our proprietary monoclonal antibodies, formerly known as KB004), as a potential CAR construct and for the potential treatment of certain rare solid and hematologic cancers and other serious diseases.  With a focus on preventing serious and potentially life-threatening side-effects associated with CAR-T therapy and other high-unmet-need conditions for which there are no FDA-approved therapies, we also believe we have the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation and accelerated approval.

We were incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. We completed our initial public offering in January 2013. Effective August 7, 2017, we changed our legal name to Humanigen, Inc.

We have undergone a significant transformation since December 2015. As a result of challenges facing us at the time, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On June 30, 2016, our Second Amended Plan of Reorganization, dated May 9, 2016, as amended (the “Plan”), became effective and we emerged from our Chapter 11 bankruptcy proceedings. For further information on our bankruptcy and emergence from bankruptcy, see “Bankruptcy.”

From the time of our emergence from bankruptcy to August 29, 2017, our lead product candidate was benznidazole for the treatment of Chagas disease, a parasitic illness that can lead to serious and potentially life-threatening long-term heart, intestinal and neurological problems. On June 30, 2016, we acquired certain worldwide rights to benznidazole from Savant Neglected Diseases, LLC, or Savant, and until August 29, 2017, we were primarily focused on the development necessary to seek and obtain approval by the United States Food and Drug Administration, or FDA, for benznidazole and the subsequent commercialization, if approved.  According to FDA-issued guidance, benznidazole is eligible for review pursuant to a 505(b)(2) regulatory pathway as a potential treatment for Chagas disease and, if it became the first FDA-approved treatment for Chagas disease, we would have been eligible to receive a Priority Review Voucher, or PRV.

However, on August 29, 2017, the FDA announced it had granted accelerated and conditional approval of a benznidazole therapy manufactured by Chemo Research, S.L., or Chemo, for the treatment of Chagas disease and had awarded that manufacturer a neglected tropical disease PRV. Chemo’s benznidazole also received Orphan Drug designation. As a result of FDA’s actions and because we no longer expected to be eligible to receive a PRV with our own benznidazole candidate for the treatment of Chagas disease, we immediately ceased development for benznidazole and began assessing a full range of options with respect to our benznidazole assets and development program. We also began an accelerated scientific assessment of emerging new possibilities for our monoclonal antibody assets and development programs, including potential prophylaxis of CAR-T-related toxicities as the first CAR-T products began receiving approval for marketing in the US.
 
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On December 21, 2017, we reached an agreement with our Term Loan Lenders (as defined below) on a series of transactions, including the transfer and assignment of all of our assets related to benznidazole to an affiliate of one of the Term Loan Lenders, providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under our Term Loan Credit Agreement (as defined below). We refer to these transactions herein as the “Restructuring Transactions.” On February 27, 2018, we completed the Restructuring Transactions. For further information regarding the Restructuring Transactions, see “The Restructuring Transactions.”

Since the FDA’s August 29, 2017 announcement relating to benznidazole, we have shifted our primary focus toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab and ifabotuzumab, for use in addressing serious and potentially life-threatening unmet needs in oncology. Both of these product candidates are in the early stage of development and will require substantial time, expenses, clinical development, testing, and regulatory approval prior to commercialization. Furthermore, neither of these product candidates has advanced into a pivotal registration study and it may be years before such a study is initiated, if at all.

Lenzilumab is a recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine in the inflammatory cascade associated with CAR-T-related side effects and in the growth of certain hematologic malignancies, solid tumors and other serious conditions. We expect to study lenzilumab’s potential in reducing adverse events associated with CAR-T therapy. We have begun to explore lenzilumab’s effectiveness in preventing or ameliorating neurotoxicity associated with CAR-T therapy, and potentially CRS. In addition, we continue dosing in a Phase 1 clinical trial in patients with CMML to identify the maximum tolerated dose, or MTD, or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity.  We have fully enrolled the total 12 patients in the 200, 400 and 600 mg dose cohorts of our CMML trial, and are currently evaluating subjects in the highest dose cohort of 600 mg for continuing accrual. We also plan to review preliminary safety and efficacy results and anticipate completion of the ad hoc interim analysis in the first half of 2018. We may also use the interim data from the lenzilumab CMML Phase 1 study to determine the feasibility of rapidly commencing a Phase 1 study in JMML patients, or to explore progressing the CMML development program. JMML is a rare pediatric cancer, is associated with poor outcomes and a very high unmet medical need for which there are no FDA-approved therapies.

Ifabotuzumab is an anti-Ephrin Type-A receptor 3, or EphA3, mAb that has the potential to offer a novel approach to treating solid tumors and hematologic malignancies, serious pulmonary conditions and as a CAR construct. Ifabotuzumab, to our knowledge, is the only anti-EphA3 compound in development.  EphA3 is aberrantly expressed on the surface of tumor cells and stroma cells in certain cancers. We have completed the Phase 1 dose escalation portion of a Phase 1/2 clinical trial in ifabotuzumab in multiple hematologic malignancies for which the preliminary results were published in the journal Leukemia Research in 2016.  An investigator-sponsored Phase 0/1 radiolabeled imaging trial of ifabotuzumab in glioblastoma multiforme, a particularly aggressive and deadly form of brain cancer, has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia.   We are currently exploring partnering opportunities to enable further development of ifabotuzumab.

Lenzilumab and ifabotuzumab were each developed with our proprietary, patent-protected Humaneered® technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use, typically for chronic conditions.

Our Strategy
 
We are a biopharmaceutical company pursuing cutting-edge science to develop our proprietary monoclonal antibodies for immunotherapy and oncology treatments.  We plan to achieve our objectives through the following strategies, which we believe reflect an innovative and responsible business model:
 
·
Develop lenzilumab for the prevention and treatment of serious and potentially life-threatening CAR-T-related side effects.  Lenzilumab is a Humaneered recombinant monoclonal antibody that neutralizes soluble GM-CSF, a critical cytokine involved in the development of serious side-effects associated with CAR-T therapy. GM-CSF is an upstream driver in the paths of multiple diseases. Recent science shows that GM-CSF is the key initiator of inflammatory side-effects, neurotoxicity and CRS, associated with groundbreaking CAR-T cancer therapy. Lenzilumab has shown a favorable safety profile to date and has been studied in more than 100 human subjects in clinical studies - one Phase 1 and two Phase 2 clinical trials - in either healthy adults or adults with various diseases. We also have completed Phase 1 and Phase 1/2 clinical trials in 76 patients with lenzilumab’s chimeric precursor, KB002. The lenzilumab Phase 2 studies included patients with severe asthma and the run‑in safety portion of a clinical trial in patients with rheumatoid arthritis. The severe asthma study demonstrated efficacy in patients with eosinophilic asthma, but we did not continue the programs due to strategic considerations and decisions. Pre-clinical animal model work assessing lenzilumab in CAR-T toxicities is being completed. We, in conjunction with leading key opinion leaders are designing a Phase 1b/2 study to explore lenzilumab as a prophylactic treatment to minimize neurotoxicity associated with CAR-T therapy.
 
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·
Development of lenzilumab for the treatment of CMML and JMML. In July 2016, we initiated dosing in a Phase 1 clinical trial in patients with CMML to identify the maximum tolerated dose (“MTD”) or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity. Further, we may initiate a study of lenzilumab in JMML, a rare pediatric form of leukemia, where the primary treatment alternative, in patients who would qualify, would be a bone marrow stem cell transplant. We believe that both CMML and JMML would qualify as orphan conditions, and we intend to seek orphan designation for lenzilumab for both of these conditions. The mechanism of action of lenzilumab may also prove to be of value in multiple other autoimmune rare and orphan conditions. If FDA agrees that JMML is a rare pediatric disease and qualifies for priority review, we may receive a PRV if lenzilumab is approved by FDA for use in JMML. In addition, we may seek breakthrough therapy status which, if granted, would confer various benefits, including a fast track pathway, or separately we may submit for a fast track pathway if breakthrough therapy status is not granted.
 
·
Partner ifabotuzumab for the treatment of rare adult and pediatric solid tumors and hematologic cancers and serious pulmonary conditions and as a CAR construct. Consistent with our strategic focus, we are now evaluating opportunities to partner ifabotuzumab in rare solid tumors like glioblastoma, pediatric cancers and certain rare hematologic cancer indications. Serious pulmonary conditions also could be a target, according to early data. We believe that some of these conditions would qualify for orphan designation, and ifabotuzumab may receive orphan designation for these conditions. In addition, we are exploring various other opportunities in the oncology field that would utilize ifabotuzumab as the basis of the therapy. These include developing a CAR construct, which could be used as a therapeutic CAR-T therapy; developing bi-specific antibody constructs including ifabotuzumab; utilizing ifabotuzumab as part of a radiopharmaceuticals therapeutic approach; and utilizing ifabotuzumab as part of an Antibody Drug Conjugate, or ADC. We are in discussions with various parties related to these additional opportunities which leverage ifabotuzumab as a platform monoclonal antibody.

Lenzilumab

Overview and Mechanism of Action

Lenzilumab, previously referred to as KB003, is a recombinant antibody designed to target and neutralize human GM‑CSF, a central actor in leukocyte differentiation, autoimmunity and inflammation. We used our proprietary and patented Humaneered antibody development platform to develop lenzilumab. There is extensive evidence linking GM-CSF expression to serious and potentially life-threatening side-effects in CAR-T therapy. Our primary focus for lenzilumab is exploring its potential to prevent and ameliorate CAR-T-related neurotoxicity and CRS. We are also developing lenzilumab for use in patients with CMML and are assessing plans to investigate its potential use in patients with JMML. In CAR-T related side effects, GM-CSF initiates a signaling cascade of inflammation that results in the trafficking and recruitment of myeloid cells to the tumor site. These myeloid cells produce the cytokines observed in neurotoxicity and CRS, perpetuating the inflammatory cascade. Peer-reviewed publications in leading journals by well-recognized clinical experts have shown that GM-CSF is a biomarker present in patients who suffer serious neurotoxicity as a side-effect of CAR-T therapy. The GM-CSF receptor is expressed on myeloblasts and other progenitor cells, and binding results in differentiation and maturation into monocytes. GM‑CSF is an important part of an inflammatory cascade that stimulates white blood cells (granulocytes, including eosinophils, neutrophils, and macrophages) and maintains them in an active state during infection. However, excessive GM‑CSF may be involved in tissue damage associated with inflammatory diseases. The results of anti‑GM‑CSF in ex-vivo studies suggest lenzilumab has potential in preventing neurotoxicity associated with CAR-T therapy and certain oncology conditions, including CMML and JMML, as well as asthma, RA and other arthritides.
 
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Lenzilumab is a Humaneered version of KB002, a low picomolar affinity, novel chimeric mAb that we licensed from Ludwig Institute for Cancer Research, or LICR. Data from our single‑dose, Phase 1 and Phase 1/2 clinical trials with KB002 supported our clinical trials with lenzilumab. In these studies, KB002 appeared to be well tolerated. Lenzilumab targets the same binding site as KB002 and has been shown to be functionally similar and appeared generally safe in previous clinical trials. See “Intellectual Property” Ludwig Institute for Cancer Research for further information on our license with LICR.

Development Program

We believe that a strong scientific rationale exists for lenzilumab to play an important role in making CAR-T therapy safer, more effective and more routine.  CAR-T cell therapy is currently limited by the risk of life-threatening neurotoxicity and CRS. Both Kymriah® and Yescarta® carry black box warnings in their labels for neurotoxicity and CRS. In the case of more severe neurotoxicity and/or CRS, patients may need to be treated on the Intensive Care Unit, or ICU, in the hospital. Because of the seriousness of these cases, which can affect between approximately 30 – 50 percent of patients receiving CAR-T, physicians planning to administer CAR-T may have to reserve an ICU bed for patients prior to treatment. This can create a significant bottleneck in relation to the hospital’s ability to administer CAR-T. Side effects associated with CAR-T may limit the number of patients that can be treated with CAR-T and also the dosage that can be safely administered affecting efficacy.  We believe higher doses of CAR-T may be more efficacious but can also be associated with a greater risk of side-effects.

Actemra (tocilizumab) is an IL-6 receptor antagonist that was recently approved by the FDA for the treatment of severe life-threatening CRS based on a retrospective analysis of pooled outcome data from CAR-T clinical trials of 45 pediatric and adult patients treated with Actemra with or without high-dose corticosteroids. There were no prospective, randomized controlled trials conducted to evaluate the safety and efficacy of tocilizumab for the treatment of severe CRS. Moreover, clinical experience has proven that tocilizumab is not effective for the treatment of neurotoxicity and cases of CRS refractory to tocilizumab have been reported underscoring the need for additional, more effective management strategies to prevent the onset of CAR-T induced neurotoxicity and CRS. It is important to note that tocilizumab is not approved for the prevention of CRS nor for the prevention or treatment of neurotoxicity. Studies have shown that administering tocilizumab prophylactically increases the number of patients who suffer serious neurotoxicity compared with those patients not receiving tocilizumab prophylactically. Further, tocilizumab is not approved for the treatment of mild or moderate cases of CRS.
 
Lenzilumab is in development to specifically address this unmet need and robust scientific rationale exists to support GM-CSF neutralization as a validated target in this setting.  In December 2017, we held a scientific advisory board with leading key opinion leaders in the CAR-T field to validate the scientific rationale of studying lenzilumab’s anti-GM-CSF mechanism to stop CAR-T-related toxicity.  Based on feedback received from the advisory board, we created our lenzilumab development plan to study prevention of the onset of CAR-T-induced neurotoxicity while maintaining or improving CAR-T expansion, persistence and anti-tumor response and potentially reducing the need or duration for ICU stay. To that end, we started preclinical work using validated CRS animal models at the Mayo Clinic. In addition we have begun work with leading key opinion leaders, including MD Anderson Cancer Center, to advance lenzilumab into phase 1b/2 trials for the prevention of neurotoxicity and potentially CRS associated with CAR-T therapy. We expect this trial to start in the summer of 2018. We have benchmarked the studies undertaken in the CAR-T space and regulatory strategies employed and intend to leverage this knowledge in our clinical development and regulatory plans.
 
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We also believe lenzilumab has potential as a therapy for CMML, a rare form of hematologic cancer with no FDA-approved treatment options and a three-year overall survival rate of 20% and median overall survival of 20 months, and JMML, a rare pediatric form of leukemia.  CMML is a clonal stem cell disorder of which monocytosis is a key feature.  CMML has features of MDS, including abnormal, dysplastic bone marrow cells; cytopenia; transfusion dependence; and myeloproliferative neoplasms, including overproduction of white blood cells, organomegaly such as splenomegaly and hepatomegaly and extramedullary disease. Approximately 15% to 20% of CMML cases progress to acute myeloid leukemia, or AML. According to the American Cancer Society, approximately 1,100 individuals in the US are newly diagnosed annually with CMML, with the majority of these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants. Preclinical studies have shown lenzilumab can cause apoptosis in CMML cells by depriving them of GM-CSF. In July 2016, we initiated dosing in a Phase 1 clinical trial in patients with CMML to identify the MTD or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity. The study has fully enrolled 12 patients. Depending on the results of the CMML study, we also intend to investigate the potential treatment of JMML, a rarer disease, with lenzilumab.  There are approximately 420 new cases of JMML annually in the US and the disease mostly affects children aged four and younger. We believe that lenzilumab may be eligible for a rare pediatric disease priority review voucher if approved for JMML. We also believe lenzilumab in CMML or JMML could qualify for orphan drug designation and potentially several other FDA incentives.
 
An IND for a Phase 1/2 CMML monotherapy study of lenzilumab is in effect. In July 2016, we began to enroll patients in a multicenter, open-label, repeat-dose, Phase 1 study consisting of a dose escalation phase and a dose expansion phase to evaluate the safety, pharmacokinetics, and clinical activity of lenzilumab in patients with previously-treated CMML who are no longer responsive to previous treatment.  The primary endpoint of this study is the safety of lenzilumab, as measured by the number of participants with adverse events, at various doses in order to determine a recommended Phase 2 dose. The secondary endpoint is the clinical activity of lenzilumab, as measured by changes in spleen size, blood and bone marrow measurements of disease, clinical symptoms and other measures.

Previous clinical studies of lenzilumab include a repeat‑dose, Phase 2 clinical trial of lenzilumab in RA with the inclusion of a safety run‑in portion. On completing the safety run-in portion of this trial, which showed lenzilumab to be well tolerated with no clinically significant adverse events, we reassessed the increasingly competitive RA market and chose to redirect our study of lenzilumab to severe asthma patients inadequately controlled by corticosteroids. Results from a subsequent randomized, double‑blinded, placebo‑controlled, repeat dose, intravenous Phase 2 clinical trial of asthma, revealed that the primary endpoint was not met, although a significant effect was shown in certain pre‑specified subgroups, such as those with eosinophilic asthma. As a result of a strategic shift by the company, we terminated development of lenzilumab in severe asthma.

Ifabotuzumab

Ifabotuzumab is a Humaneered mAb in which the carbohydrate chains lack fucose, thereby enhancing the targeted cell-killing activity of the antibody. In 2006, we entered into a license agreement with LICR pursuant to which LICR granted to us certain exclusive rights to the ifabotuzumab prototype and EphA3 intellectual property.

Ifabotuzumab binds to the EphA3 receptor, which plays an important role in cell positioning and tissue organization during fetal development, but is not thought to play a significant role in healthy adults. EphA3 is a tyrosine kinase receptor aberrantly expressed on the tumor cell surface in a number of hematologic malignancies and solid tumors, and is also expressed on the stem cell compartment. This compartment includes malignant stem cells, the vasculature that feeds them, and the stromal cells that protect them. EphA3 expression has been documented in a number of tumor types, including AML, chronic myelogenous leukemia, chronic lymphocytic leukemia, MDS, myelofibrosis, multiple myeloma, melanoma, breast cancer, non-small cell lung cancer, colorectal cancer, gastric cancer, renal cancer, glioblastoma, and prostate cancer. Publications related to certain cancers have indicated that EphA3 tumor cell expression correlates with cancer growth and a poor prognosis.  EphA3 is overexpressed in GBM and, in particular, in the most aggressive mesenchymal subtype.  Importantly, EphA3 is highly expressed on the tumor-initiating cell population in glioma and appears critically involved in maintaining tumor cells in a less differentiated state by modulating mitogen-activated protein kinase signaling. EphA3 knockdown or depletion of EphA3-positive tumor cells may reduce tumorigenic potential to a degree comparable to treatment with a therapeutic radiolabelled EphA3-specific monoclonal antibody. Thus, EphA3 may emerge as a functional, targetable receptor in GBM as well as certain lymphomas and leukemias.
 
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Anti-EphA3 treatment has shown encouraging preclinical results in multiple experiment types, including patient primary tumor cell assays, colony forming assays, and xenograft mouse models. Upon binding to EphA3, ifabotuzumab causes cell killing to occur either through antibody-dependent, cell-mediated cytotoxicity, or ADCC, or through direct apoptosis, and in the case of tumor neovasculature, through cell rounding and blood vessel disruption. Given the differential expression pattern of EphA3, ifabotuzumab may have the potential to kill cancer cells and the tumor stem cell microenvironment, providing for long-term responses while sparing normal cells. By developing ifabotuzumab as the backbone for a next generation CAR construct, we may have the ability to target both the tumor and tumor vasculature in a novel manner and build on the experience with current second generation CD19 CAR-T cell therapies.  An investigator-sponsored Phase 0/1 radiolabeled imaging trial of ifabotuzumab in glioblastoma multiforme, a particularly aggressive and deadly form of brain cancer, has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia. On December 5, 2017, the first patient received ifabotuzumab in a trial that, according to the investigators, will seek to confirm the safety of ifabotuzumab and potentially determine the best dose to effectively penetrate brain tumors. Currently, three patients have received ifabotuzumab in this study and the investigators expect approximately 12 patients to participate in the trial, for which eligibility criteria are recurrent GBM and receipt of only one type of chemotherapy for disease recurrence. Consistent with our new strategic focus, we are now evaluating wider opportunities to partner ifabotuzumab. We are in early discussions with separate and various parties to leverage the unique features of ifabotuzumab to:

·
Construct a CAR product to potentially be used as CAR-T therapy;
·
Develop bi-specific antibodies; and
·
Form part of a radiopharmaceutical therapeutic.

Prior to our bankruptcy, we were conducting a Phase 1/2 trial of ifabotuzumab in multiple hematologic malignancies.  The most common adverse event attributed to ifabotuzumab in our previous trial was infusion reactions (chills, fever, nausea, hypertension, and rapid heart rate) which is an expected safety finding based on the mechanism of action. The majority of infusion reactions were mild-to-moderate in severity and resolved with temporary stoppage of infusion and/or use of medications to treat symptoms. In 2014, we completed the Phase 1 dose escalation portion of our study, primarily treating patients with AML as well as patients with MDS and myelofibrosis.  We suspended enrollment in that study due to the bankruptcy filing in December 2015.

Our Humaneered Technology
 
Our proprietary and patented Humaneered technology platform is a method for converting existing antibodies (typically murine) into engineered, high‑affinity human antibodies designed for therapeutic use, particularly for chronic conditions.  We have developed or in‑licensed targets or research (mouse) antibodies, typically from academic institutions, and then applied our Humaneered technology to them. Lenzilumab and ifabotuzumab are both Humaneered antibodies or antibody fragments. Together, our Humaneered antibodies have been tested clinically in more than 200 patients with no evidence of serious immunogenicity. We believe our Humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies, are prone to being rejected less and may bind better to the target. Specifically, our Humaneered technology generates an antibody from an existing antibody with the required specificity as a starting point and, we believe, provides the following:
     
·
retention of identical target epitope specificity of the starting antibody and frequent generation of higher affinity antibodies;
·
very-near-to-human germ line sequence, which we believe means our Humaneered antibodies are less likely to induce an inappropriate immune response in broad patient populations when used chronically than chimeric or conventionally humanized antibodies, which has proven to be the case in clinical studies;
 
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·
antibodies with physiochemical properties that facilitate process development and formulation (lack of aggregation at high concentration);
·
high solubility;
·
high antibody expression yields; and
·
an optimized antibody processing time of three to six months.

In March 2007, we granted Novartis a non-exclusive license to our proprietary Humaneered technology after applying this technology to several antibodies for them. Under the license agreement, Novartis is able to develop antibodies to create its own therapeutics. In each case, we demonstrated the robustness and versatility of the technology by creating Humaneered antibodies with increased affinity. As we are focused on progressing our current portfolio of antibodies through clinical development and out-licensing, we are not currently dedicating additional resources to the research of additional Humaneered antibodies.

Intellectual Property

Licensing and Collaborations

Savant Agreement
 
On June 30, 2016, we entered into an Agreement for the Manufacture, Development and Commercialization of Benznidazole for Human Use, or the MDC Agreement, with Savant, pursuant to which we acquired certain worldwide rights relating to benznidazole, including certain regulatory and non-intellectual property assets related to benznidazole , any product containing benznidazole and an exclusive license for certain intellectual property assets, including know-how and processes, relating to benznidazole. Savant retains the right to use the licensed intellectual property for veterinary uses. The MDC Agreement provides that we may jointly conduct development activities with Savant with respect to any product containing benznidazole, while we will be solely responsible for commercializing the product. As described above, we are no longer performing any work in respect of benznidazole.
      
As required by the MDC Agreement, we made payments to Savant totaling $2.7 million, consisting of the remaining portion of an initial payment (excluding a previously paid deposit of $0.5 million) in the amount of $2.5 million, an initial monthly joint development program cost payment of $0.1 million, and reimbursement of $0.1 million of Savant’s legal fees. The MDC Agreement provided for regulatory and other milestone payments of up to $21 million if we received approval from FDA and from other non-US regulatory agencies and certain other contingent payments.  Additionally, we would pay Savant royalties in the mid-teens on any net sales of any benznidazole product on a product-by-product and country-by-country basis, which royalty will be reduced to the high single digits in the United States if a PRV was not granted subsequent to regulatory approval of any benznidazole product.  The MDC Agreement also provided that Savant is entitled to a portion of the amount we would receive upon the sale, if any, of a PRV regarding any benznidazole product. In addition, we also entered into a security agreement pursuant to which we granted Savant a continuing senior security interest in the assets and rights acquired by us pursuant to the MDC Agreement and certain future assets developed from those acquired assets.  On August 29, 2017 we ceased development for benznidazole and do not anticipate further obligations under the MDC.

In July 2017, we commenced litigation against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement.  Savant has asserted counterclaims for breaches of contract under the MDC Agreement and the Security Agreement.  The dispute primarily concerns our right under the MDC Agreement to offset certain costs incurred by us in excess of the agreed upon budget against payments due Savant.  The aggregate cost overages as of December 31, 2017 that we assert are Savant’s responsibility total approximately $3.4 million, net of a $0.5 million deductible.  We assert that we are entitled to offset $2 million in milestone payments due Savant against the cost overages, such that as of December 31, 2017, Savant owed us approximately $1.4 million in cost overages.
 
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The Ludwig Institute for Cancer Research

In May 2004, we entered into a license agreement with the Ludwig Institute for Cancer Research, or LICR, pursuant to which LICR granted to us an exclusive license under intellectual property rights and materials related to chimeric anti-GM-CSF antibodies that formed the basis for the lenzilumab development program. Under the agreement, we were granted an exclusive license to develop antibodies related to LICR’s antibodies against GM-CSF. We are responsible for using commercially reasonable efforts to research, develop, and sell lenzilumab. We pay LICR a quarterly license fee and are obligated to pay to LICR a royalty from 1.5% to 3% of net sales of licensed products, subject to certain potential offsets and deductions. Our royalty obligation applies on a country-by-country and licensed product-by-licensed product basis, and will begin on the first commercial sale of a licensed product in a given country and end on the later of the expiration of the last to expire patent covering a licensed product in a given country (which in the United States, is currently expected in 2024) or 10 years from first commercial sale of such licensed product in the country. We must also pay to LICR a certain percentage of sublicensing revenue received by us. Aggregate payments made to LICR under this license through December 31, 2017 amounted to $1.7 million.

Other Material License Agreements

Novartis

In April 2007, we entered into an agreement with Novartis granting a non-exclusive license to our proprietary Humaneered technology for use at Novartis’ research sites to develop human antibodies for therapeutic indications. Under the agreement, Novartis was excluded from using the technology against certain targets until March 2012. In accordance with the terms of the agreement, Novartis paid us $30 million and we transferred the know‑how related to making Humaneered antibodies to enable Novartis to internally make its own antibodies. This agreement will remain in effect until the expiration of the last to expire licensed patent, which is currently expected to expire in 2025 in the United States.

LICR and ifabotuzumab

In 2006, we entered into a license agreement with LICR pursuant to which LICR granted to us certain exclusive rights to the ifabotuzumab prototype and EphA3-related intellectual property. Under the agreement, we obtained rights to develop and commercialize products made through use of licensed patents and any improvements thereto, including human or Humaneered antibodies that bind to or modulate EphA3. We paid LICR an upfront option fee of $0.05 million and a further $0.05 million upon our exercise of the option for the exclusive license outlined above. We are responsible for contingent milestone payments of less than $2.5 million and royalties of 3% of net sales subject to certain potential offsets and deductions. In addition, we are obligated to pay to LICR a percentage of certain payments we receive from any sublicensee in consideration for a sublicense. Our royalty obligation exists on a country‑by‑country and licensed product‑by‑licensed product basis, which will begin on the first commercial sale and end on the later of the expiration of the last to expire patent covering such licensed product in such country, which in the United States is currently expected in 2031, or 10 years from first commercial sale of such licensed product in such country. Aggregate payments made to LICR under this license through December 31, 2017 amounted to $0.6 million.

BioWa and Lonza

In October 2010, we entered into a license agreement with BioWa, Inc., or BioWa, and Lonza Sales AG, or Lonza, pursuant to which BioWa and Lonza granted us a non-exclusive, royalty-bearing, sub-licensable license under certain know-how and patents related to antibody expression and antibody-dependent cellular cytotoxicity enhancing technology using BioWa and Lonza’s Potelligent® CHOK1SV technology.  This technology is used to enhance the cell killing capabilities of antibodies and is currently used by us in connection with our development of ifabotuzumab. Under this agreement, we owe annual license fees, milestone payments in connection with certain regulatory and sales milestones and royalties in the low single digits on net sales of products developed under the agreement. The agreement expires upon the expiration of royalty payment obligations under the agreement, is terminable at will by us upon written notice, is terminable by BioWa and Lonza if we challenge or otherwise oppose any licensed patents under the agreement, and is terminable by either party upon the occurrence of an uncured material breach or insolvency. Three of the United States patents that we license from BioWa, Inc. are the subject of ongoing litigation in U.S. District Court for the Northern District of California, in which BioWa alleges infringement of its patents.  The defendant in that case has asserted, among its counterclaims, that the patents are invalid. The defendants also petitioned the United States Patent and Trademark Office for inter partes review on the validity of the same three patents, but that request has been denied. The litigation continues with a trial set to begin in June 2018.
 
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Patents and Trade Secrets

We use a combination of patent, trade secret and other intellectual property protections to protect our product candidates. We will be able to protect our product candidates from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our technology is effectively maintained as trade secrets. Patent and trade secrets are an important element of our business. Our success will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of patents covering lenzilumab and ifabotuzumab and our Humaneered technology, to preserve trade secrets and proprietary know how, and to operate without infringing the patents and proprietary rights of third parties. We actively seek patent protection, if available, in the United States and select foreign countries for the technology we develop. We have 60 registered patents, including 18 registered in the U.S. and 42 registered in foreign countries. Of the 60 registered patents, 41 are owned by us, 5 are owned jointly with a third party, and 17 are exclusively licensed from a third party.  We also have 17 patent applications pending globally.

Using our Humaneered technology, we developed and own a composition of matter patent covering lenzilumab and related anti-GM CSF antibodies that provide patent protection through April 2029 and have additional pending patents in the United States and a number of foreign countries covering various methods of treatment, including in the CAR-T space. We also have current and pending patent applications in the United States and selected foreign countries for anti-EphA3 antibodies and their use, and we developed and own an issued U.S. composition of matter patent covering ifabotuzumab and related anti-EphA3 antibodies, which is currently expected to expire in 2030. The patents to our Humaneered technology cover methods of producing human antibodies that are very specific for target antigens using only a small region from mouse antibodies.

We cannot be certain that any of our pending patent applications, or those of our licensors, will result in issued patents. In addition, because the patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions, the patents we own and license, or any further patents we may own or license, may not prevent other companies from developing similar or therapeutically equivalent products.  Patents also will not protect our products if competitors devise ways of making or using these products without legally infringing our patents.  In recent years, several companies have been extremely aggressive in challenging patents covering pharmaceutical products, and the challenges have often been successful. We cannot be assured that our patents will not be challenged by third parties or that we will be successful in any defense we undertake. Failure to successfully defend a patent challenge could materially and adversely affect our business.

In addition, changes in patent laws, rules or regulations or in their interpretations by the courts may materially diminish the value of our intellectual property or narrow the scope of our patent protection, which could have a material adverse effect on our business and financial condition.

We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information by requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and confidentiality agreements and our employees to execute assignment of invention agreements to us on commencement of their employment. Agreements with our employees also prevent them from bringing any proprietary rights of third parties to us. We also require confidentiality or material transfer agreements from third parties that receive our confidential data or materials.
 
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Research and Development

We have previously dedicated a significant portion of our resources to our efforts to develop our product candidates, particularly lenzilumab and our former lead product candidate, benznidazole.  We incurred research and development expenses of $11.2 million and $10.4 million during the years ended December 31, 2017 and 2016, respectively.  We anticipate that a significant portion of our operating expenses will continue to be related to clinical development in 2018 as we focus on the development of lenzilumab and ifabotuzumab. We do not currently plan to devote significant or any resources to pure research activities.

Manufacturing

We outsource basic development activities, including the development of formulation prototypes, and have adopted a manufacturing strategy of contracting with third parties for the manufacture of drug substance and product. Additional contract manufacturers are used to fill, label, package, and distribute investigational drug products. This allows us to maintain a more flexible infrastructure while focusing our expertise on developing our products.

Sales and Marketing
 
We do not currently have the sales and marketing infrastructure in place that would be necessary to sell and market products. As our drug candidates progress, while we may build the infrastructure that would be needed to successfully market and sell any successful drug candidate on our own, we currently anticipate seeking strategic alliances and partnerships with third parties.  The establishment of a sales and marketing operation can be expensive, complicated and time consuming and could delay any product candidate launch.
 
Competition

We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties for therapies for neglected and rare diseases and in recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying to a large extent on our drug approvals or on our biologics approvals, or with generic copies of our product approved by FDA under an abbreviated new drug application, or ANDA, referencing our drug products. Many of our potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do.

In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing, and achieving widespread market acceptance for our products.  In addition, our competitors’ products may be more effective or more effectively marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our product candidates.  Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.

The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions.  The more established companies may have a competitive advantage over us due to their size, cash flows, institutional experience and historical corporate reputation.
 
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Lenzilumab and CAR-T-related toxicities competition
 
Two significant ongoing concerns for clinicians and FDA regarding CAR-T therapy are neurologic toxicity (NT) and CRS. Both Kymriah and Yescarta carry black box warnings in their labels for NT and CRS.
 
There are no approved therapies for the prevention of CAR-T-induced NT and CRS. The CAR-T-cell-therapy-associated TOXicity (CARTOX) Working Group of the FDA currently recommends intensive monitoring, accurate grading and aggressive supportive care, with anti-IL-6 therapy (Genentech’s Actemra, tocilizumab, IL-6-receptor monoclonal antibody that blocks IL-6) and/or corticosteroids. These treatments are reserved for severe cases of CRS to reduce the morbidity and mortality associated with CAR-T cell therapy.  Since corticosteroids suppress T-cell function and/or induce T-cell apoptosis, they limit the effectiveness of CAR-T cell therapy; thus use of corticosteroids is limited to only severe cases of CRS refractory to Actemra and severe cases of NT without concurrent CRS. Actemra has been found to be not effective in the prevention or management of CAR-T-induced NT.  In fact, serum IL-6 levels have been shown to increase shortly after administration of Actemra which may increase passive diffusion of IL-6 into the CNS and thereby may increase the risk of NT.
   
FDA approval of Actemra, with or without high dose corticosteroids, for the management of severe cases of CRS was announced in conjunction with approval of Kymriah solely as part of its Risk Evaluation and Mitigation Strategy (REMS) program based on a retrospective analysis of 45 patients across CAR-T clinical trials despite the lack of an IND, NDA or conduct of a prospective trial of Actemra in this setting. Tocilizumab is not approved for the prevention of CRS nor for the prevention or treatment of NT.  Tocilizumab is also not approved for the treatment of mild or moderate cases of CRS.
   
There are no alternative options, to our knowledge, in clinical stage development at this time for the prevention or management of these CAR-T-induced toxicities.  Several experimental approaches are in development in an effort to bring forward next-generation, potentially safer CAR constructs, including introducing suicide genes into CAR-T cells using herpes simplex virus thymidine kinase (HSV-TK) or inducible caspase-9 (iCasp9) genes with “ON / OFF” switches, RNA-guided DNA targeting technology such as CRISPR/Cas9 system or other epitope-based / gene-editing technology. However, these are all still in early stage development.
   
Lenzilumab and CMML/JMML Competition
 
Stem cell transplant is the only current way to treat and potentially cure patients with CMML or JMML. Typically, adult patients with CMML who are unsuitable for stem cell transplants are frequently treated with injectable formulations of Celgene’s Vidaza® (azacitidine) or Otsuka America Pharmaceutical’s Dacogen® (decitabine), both of which are available as generic formulations.  Given the potential of lenzilumab to also improve constitutional symptoms of patients with CMML or JMML, combination therapy with azacitidine or decitabine may be warranted.  Some patients with high white blood cell counts are treated with hydroxyurea, which was introduced in the 1960s and is available in generic formulations and under the brand names Droxia® and Hydrea®.  There are also several compounds in various stages of development for the treatment of CMML alone or in combination with azacitidine or decitabine, including Celgene’s CC-486 (oral azacitidine) and Revlimid® (lenalidomide), Novartis and Glaxosmithkline’s Promacta® (eltrombopag), Novartis’ Farydak® (panobinostat), Astex Pharmaceutical’s ASTX727, Incyte Corporation and Novartis’ Jafaki® (ruxolitinib), Millenium Pharmaceuticals’s pevonedistat, Stemline Therapeutics’ SL-401 and Kura Oncology’s tipifarnib, amongst others.
 
Ifabotuzumab Competition
 
Glioblastoma (GBM) is the most common primary brain cancer.  Standard treatment involves surgical resection, followed by radiation and temozolomide chemotherapy. Avastin®, lomustine and carmustine are also used to treat recurrent brain cancer. Numerous drugs are under development for GBM and other brain tumors. Therapy is rarely curative due to the infiltrative nature of these tumors and their resistance to radiation and chemotherapy. Immunotherapy with genetically modified T cells expressing chimeric antigen receptors (CARs) targeting interleukin IL-13Rα2, epidermal growth factor receptor variant III (EGFRvIII), or human epidermal growth factor receptor 2 (HER2) has shown promise for the treatment of gliomas in preclinical models. But targeting IL-13Rα2 and EGFRvIII is associated with the development of antigen loss variants.
 
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Government Regulation

Drug Development and Approval in the U.S.

As a biopharmaceutical company operating in the United States, we are subject to extensive regulation by FDA and by other federal, state, and local regulatory agencies. FDA regulates our products under the United States Federal Food and Cosmetic Act, or FDCA, the Public Health Service Act, or the PHSA, and their implementing regulations. Under the FDCA, new drugs marketed in the United States generally must be FDA-approved under an NDA. Under the PHSA, an FDA-approved BLA is required to market a biological product, or biologic, in the United States. These laws and regulations set forth, among other things, requirements for preclinical and clinical testing, development, approval, labeling, manufacture, storage, record keeping, reporting, distribution, import, export, advertising, and promotion of our products and product candidates.

Applications Relying on the Applicant’s Clinical Data

The approval process for a full NDA under Section 505(b)(1) of the FDCA, containing full reports of investigations of safety and effectiveness for the product, and BLAs under the PHSA require the conduct of extensive studies and the submission of large amounts of data by the applicant. The drug development process for these applications will generally include the following phases:

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

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

Clinical Trials.  Clinical trials involve the administration of the drug to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring regulations and Good Clinical Practice, or GCP, requirements, which establish standards for conducting, recording data from, and reporting the results of clinical trials. GCP requirements are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected.
 
Clinical trials must be conducted under protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is submitted to FDA as part of the IND. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an Institutional Review Board, or IRB, at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events.  Foreign studies conducted under an IND must meet the same requirements that apply to studies being conducted in the United States.  Data from a foreign study not conducted under an IND may be submitted in support of an NDA or BLA if the study was conducted in accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain details about active clinical trials and clinical trial results on the government website clinicaltrials.gov.
 
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Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another:

·
Phase 1 clinical trials include the initial administration of the investigational drug to humans, typically to a small group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase 1 clinical trials generally are intended to determine the metabolism and pharmacologic actions of the drug, the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.

·
Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population, and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range, and to gather additional information relating to safety and potential adverse effects.

·
Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended to gather additional information about safety and effectiveness necessary to evaluate the drug’s overall risk-benefit profile, and to provide a basis for physician labeling.  Generally, Phase 3 clinical development programs consist of expanded, large-scale studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug at the proposed dosing regimen, or with the safety, purity, and potency of a biological product.

The sponsoring company, FDA, or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical trials.  Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit, or prevent regulatory approval.

NDA/BLA Submission and Review

After completing clinical testing of an investigational drug or biologic product, a sponsor must prepare and submit an NDA or BLA for review and approval by FDA. NDAs and BLAs are comprehensive, multi-volume applications that include, among other things, the results of preclinical and clinical studies, information about the product’s composition, and the sponsor’s plans for manufacturing, packaging, and labeling the product.  When an NDA or BLA is submitted, FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, FDA may refuse to file the application and may request additional information, in which case the application must be resubmitted with the supplemental information and review of the application is delayed.

FDA performance goals, which are target dates and other aspirational measures of agency performance to which the agency, Congressional representatives, and industry agree through negotiations that occur every five years, generally provide for action on NDA and BLA applications within 10 months of submission or 10 months from acceptance for filing for an NDA involving a new molecular entity or for an original BLA.  FDA is not expected to meet those target dates for all applications, however, and the deadline may be extended in certain circumstances, such as when the applicant submits new data late in the review period.  In practice, the review process is often significantly extended by FDA requests for additional information or clarification. In some circumstances, FDA can expedite the review of new drugs and biologics deemed to qualify for priority review, such as those intended to treat serious or life threatening conditions that demonstrate the potential to address unmet medical needs.  In those cases, the targeted action date is six months from submission, or for drugs constituting new molecular entities and biologics constituting original biological products, six months from the date that FDA accepts the application for filing.
 
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As part of its review, FDA may refer an NDA or BLA to an advisory committee for evaluation and a recommendation as to whether the application should be approved. Although FDA is not bound by the recommendation of an advisory committee, the agency usually has followed such recommendations. FDA may also determine that a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to ensure that the benefits of a new product outweigh its risks, and that the product can therefore be approved. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug, depending on what FDA considers necessary for the safe use of the drug. Under the Pediatric Research Equity Act, NDAs and BLAs must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug or biological product in relevant pediatric populations, unless the requirement is waived or deferred. Receiving orphan drug designation from FDA is one situation where such a requirement may be waived.

After review of an NDA or BLA, FDA may determine that the product cannot be approved, or may determine that it can only be approved if the applicant cures deficiencies in the application, in which case the agency endeavors to provide the applicant with a complete list of the deficiencies in correspondence known as a Complete Response Letter, or CRL. A CRL may request additional information, including additional preclinical or clinical data. Even if such additional information and data are submitted, FDA may decide that the NDA still does not meet the standards for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than the sponsor interprets them. Additionally, as a condition of approval, FDA may impose restrictions that could affect the commercial success of a drug or require post-approval commitments, including the completion within a specified time period of additional clinical studies, which often are referred to as “Phase 4” studies or “post-marketing requirements.” Obtaining regulatory approval often takes a number of years, involves the expenditure of substantial resources, and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials.

Post-approval modifications to the drug or biologic product, such as changes in indications, labeling, or manufacturing processes or facilities, may require a sponsor to develop additional data or conduct additional preclinical or clinical trials. The proposed changes would need to be submitted in a new or supplemental NDA or BLA, which would then require FDA approval.

Regulatory Exclusivities

Biologics Price Competition and Innovation Act

In 2010, the Biologics Price Competition and Innovation Act, or BPCIA, was enacted, creating an abbreviated approval pathway for biologic products that are biosimilar to, and possibly interchangeable with, reference biological products licensed under a BLA. The BPCIA also provides innovator manufacturers of original reference biological products 12 years of exclusive use before biosimilar versions can be licensed in the United States. This means that FDA may not approve an application for a biosimilar version of a reference biological product until 12 years after the date of approval of the reference biological product (with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results reported to FDA), although a biosimilar application may be submitted four years after the date of licensure of the reference biological product. Additionally, the BPCIA establishes procedures by which the biosimilar applicant must provide information about its application and product to the reference product sponsor, and by which information about potentially relevant patents is shared and litigation over patents may proceed in advance of approval, although the interpretation of those procedures has been subject to litigation and appears to continue to evolve. The BPCIA also provides a period of exclusivity for the first biosimilar to be determined by FDA to be interchangeable with the reference product.

FDA approved the first biosimilar product under the BPCIA in 2015, and the agency continues to refine the procedures and standards it will apply in implementing this approval pathway. FDA has released guidance documents interpreting specific aspects of the BPCIA in each of the last four years.
 
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Orphan Drug Designation

The Orphan Drug Act provides incentives for the development of drugs and biological products intended to treat rare diseases or conditions.  Rare diseases and conditions generally are those affecting less than 200,000 individuals in the United States, but also include diseases or conditions affecting more than 200,000 individuals in the United States if there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

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

A sponsor of a product application that has received an orphan drug designation is also granted tax incentives for clinical research undertaken to support the application. In addition, FDA will typically coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion to grant marketing approval on the basis of more limited product safety and efficacy data than would ordinarily be required, based on the limited size of the applicable patient population.

Expedited Programs for Serious Conditions

FDA has implemented a number of expedited programs to help ensure that therapies for serious or life-threatening conditions, and for which there is unmet medical need, are approved and available to patients as soon as it can be concluded that the therapies’ benefits justify their risks. Among these programs are the following:

Fast Track Designation

FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition and where non-clinical or clinical data demonstrates the potential to address unmet medical need for such a disease or condition. A product can also receive fast track review if it is designated as a Qualified Infectious Disease Product, or QIDP, or receives breakthrough therapy designation.

For fast track products, sponsors may have greater interactions with FDA and FDA may initiate review of sections of a fast track product’s NDA before the application is complete, also referred to as a ‘rolling review’. This rolling review may be available if FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. Furthermore, FDA’s time period goal for reviewing a fast track application does not begin until the last section of the complete NDA is submitted. Finally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
 
Breakthrough Therapy Designation
 
A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the features of fast track designation, as well as more intensive FDA interaction and guidance. FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design efficient clinical trials.
 
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Accelerated Approval

Under the accelerated approval pathway, FDA may approve a drug or biologic based on a surrogate endpoint that is reasonably likely to predict clinical benefit; qualifying products must target a serious or life-threatening illness and provide meaningful therapeutic benefit to patients over existing treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by FDA.

Priority Review

FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. FDA generally determines, on a case-by-case basis, whether the proposed drug represents a significant improvement in safety and effectiveness when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and will shorten FDA’s goal for taking action on a marketing application from the standard ten months to a target of an accelerated six months.

Created in 2012 under the Food and Drug Administration Safety and Innovation Act, or FDASIA, and extended with the 21st Century Cures Act in 2016, FDA is authorized under section 529 of the FDCA to grant a PRV to NDA or BLA sponsors who receive approval for a product to treat a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the U.S., and where more than 50% of the patients affected are aged from birth to 18 years. We believe that lenzilumab or other future product candidates that we may develop or acquire may qualify for a PRV under this program.

The PRV program allows the voucher holder to obtain priority review for a product application that would otherwise not receive priority review, shortening FDA’s target review period to a targeted six months following acceptance of filing of the NDA, or four months shorter than the standard review period. The voucher may be used by the sponsor who receives it, or it may be sold to another sponsor for use in that sponsor’s own marketing application. The sponsor who uses the voucher is required to pay additional user fees on top of the standard user fee for reviewing an NDA or BLA.
 
Regenerative Medicine Advanced Therapy Designation
 
Recently, through the 21st Century Cures Act, or Cures Act, Congress also established another expedited program, called a Regenerative Medicine Advanced Therapy, or RMAT, designation. The Cures Act directs the FDA to facilitate an efficient development program for and expedite review of RMATs. To qualify for this program, the product must be a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or a combination of such products, and not a product solely regulated as a human cell and tissue product. The product must be intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence must indicate that the product has the potential to address an unmet need for such disease or condition. Advantages of the RMAT designation include all the benefits of the Fast Track and breakthrough therapy designation programs, including early interactions with the FDA. These early interactions may be used to discuss potential surrogate or intermediate endpoints to support accelerated approval.
 
Employees

As of December 31, 2017, we had approximately 6 full time equivalents performing various functions, including 4 full time employees, with the remainder consisting of consultants performing mainly regulatory and clinical development functions. None of our employees are represented by labor unions or covered by collective bargaining agreements.  We consider our relationship with our employees to be good.
 
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Bankruptcy

In January 2015, shortly after announcing that our Phase 2 clinical trial of a former drug candidate had not met its primary or secondary endpoints, we implemented a cost reduction plan that primarily consisted of workforce reductions. On November 5, 2015, as part of a further effort to reduce operating costs, we announced a restructuring plan that would reduce our workforce and change the focus of our development programs. The restructuring plan provided that we would pursue strategic alternatives, such as our potential sale or a sale of our assets or further restructuring efforts. On November 13, 2015, we announced that after discussions of various strategic alternatives, we concluded that it was unlikely that a viable transaction could be reached within the timeframe allowed by our then-limited cash resources.

On November 18, 2015, an outside investor group acquired a majority of our outstanding shares and one of the investors was appointed our Chief Executive Officer and Chairman. In December 2015, we issued and sold shares of common stock to investors in a private placement, whom we refer to as the PIPE Investors. Shortly thereafter, on December 17, 2015, our then-Chief Executive Officer and Chairman was arrested on charges of securities fraud, securities fraud conspiracy and wire fraud conspiracy, unrelated to our Company. This individual was immediately terminated as our Chief Executive Officer and resigned from our board of directors. Three other directors and our Interim Chief Financial Officer resigned between December 17 and December 28, 2015. Our independent registered accounting firm also resigned on December 8, 2015. Finally, in December 2015, three putative class action lawsuits were filed against us and certain of the PIPE Investors threatened litigation against us for return of the funds they paid in the private placement.

As a result of these events and other challenges facing us at the time, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the United States Bankruptcy Court for the District of Delaware, or the Bankruptcy Court (Case No. 15-12628 (LSS)). During the pendency of our bankruptcy proceedings, we entered into a Debtor-in-Possession Credit and Security Agreement, or the Credit Agreement, with a group of lenders, or the DIP Lenders, pursuant to which we received $3 million for working capital, bankruptcy-related costs, costs related to our plan of reorganization, payment of certain fees to the lenders and other costs associated with the ordinary course of business. On April 1, 2016, we also entered into a Securities Purchase Agreement, or the SPA, with the DIP Lenders. The SPA provided for the sale of our common stock, with share amounts subject to calculation as provided in the SPA, in respect of exit financing in the amount of $11 million to be received upon the Effective Date of the Plan, as defined below. These transactions were approved by the Bankruptcy Court.

On May 9, 2016, we filed with the Bankruptcy Court a Second Amended Plan of Reorganization, or the Plan, and related amended disclosure statement pursuant to Chapter 11 of the Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan.

On June 30, 2016 (the “Effective Date”), the Plan became effective and we emerged from our Chapter 11 bankruptcy proceedings. In connection with the emergence, we entered into the MDC Agreement with Savant, pursuant to which we acquired certain worldwide rights relating to benznidazole. On the Effective Date, pursuant to the SPA and in repayment of our obligations under the Credit Agreement, we issued an aggregate of 9,497,515 shares of our common stock to the DIP Lenders. In accordance with the Plan, we also distributed cash payments and issued, or became obligated to issue, promissory notes and shares of our common stock to certain other parties.

Restructuring Transactions

On December 1, 2017, our obligations matured under the Credit and Security Agreement dated December 21, 2016, as amended on March 21, 2017 and on July 8, 2017 (the “Term Loan Credit Agreement”) with Black Horse Capital Master Fund Ltd., as administrative agent and lender (“BHCMF”), Black Horse Capital LP, as a lender (“BHC”), Cheval Holdings, Ltd., as a lender (“Cheval” and collectively with BHCMF and BHC, the “Black Horse Entities”) and Nomis Bay LTD, as a lender (“Nomis” and, together with the Black Horse Entities, the “Term Loan Lenders”).
 
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On December 21, 2017, we entered into a Securities Purchase and Loan Satisfaction Agreement (the “Purchase Agreement”) and a Forbearance and Loan Modification Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Restructuring Agreements”), each with the Term Loan Lenders, in connection with a series of transactions providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement and the infusion of $3.0 million of new capital. As of February 27, 2018, the date the Restructuring Transactions were completed, the aggregate amount of our obligations under the Term Loan Credit Agreement, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each as discussed below) and all accrued interest and fees, approximated $18.4 million (the “Term Loans”).

On February 27, 2018 (the “Restructuring Effective Date”), the Restructuring Transactions were completed in accordance with the Restructuring Agreements. As a result, on the Restructuring Effective Date, we: (i) in exchange for the satisfaction and extinguishment of the entire $18.4 million balance of the Term Loans, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each as discussed below) and all accrued interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848 shares of our common stock (the “New Lender Shares”), and (b) transferred and assigned to an entity owned 70% by Nomis Bay and 30% by us (the “JV Entity”), all of our assets related to benznidazole (the “Benz Assets”), our former drug candidate, capable of being so assigned; and (ii) issued to Cheval an aggregate of 32,028,669 shares of our common stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the “New Common Shares”) for total consideration of $3.0 million (collectively, the “Restructuring Transactions”), $1.5 million of which we received on December 22, 2017 in the form of a bridge loan (the “Bridge Loan”).
 
On the Restructuring Effective Date, the aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to the Black Horse Entities, including the Bridge Loan and all accrued interest and fees, approximated $9.9 million, and (ii) previously owed to Nomis Bay, including certain advances previously extended to us by Nomis Bay totaling $0.1 million (the “Claims Advances”) and all accrued interest and fees, approximated $8.5 million. In addition, on the Restructuring Effective Date, (i) each of the Term Loan Credit Agreement, all promissory notes issued thereunder and the Intellectual Property Security Agreement, dated as of December 21, 2016, by and between us and the Term Loan Lenders, were terminated and are of no further force or effect, and (ii) and all security interests of the Black Horse Entities and Nomis Bay in our assets were released. Although the Term Loans were satisfied and extinguished, if the JV Entity (at the election of Nomis Bay) elects to keep the Benz Assets after the Restructuring Effective Date, Nomis Bay will be obligated to pay or cause the JV Entity to pay $0.3 million in legal fees and expenses owed by us to our litigation counsel, which remain unpaid in our Accounts payable.
 
Upon completion of the Restructuring Transactions, Nomis Bay held 33,573,530 of our common stock, or approximately 31.4% of our outstanding common stock, and the Black Horse Entities collectively held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock.  Accordingly, the completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change in control of our company, as the Black Horse Entities and their affiliates owning more than a majority of our outstanding common stock. Dr. Dale Chappell, a member of our board of directors from June 30, 2016 until November 10, 2017, controls the Black Horse Entities and accordingly, will be able to exert control over matters of our company and will be able to determine all matters of our company requiring stockholder approval.

Available Information
 
Our principal offices are located at 1000 Marina Boulevard, Suite 250, Brisbane, CA  94005-1878, and our telephone number is (650) 243‑3100. Our website address is www. humanigen.com. Our common stock is currently traded on the OTCQB Venture Market. We operate in a single segment.
 
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Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our web site at www.humanigen.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
 
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ITEM 1A.  RISK FACTORS
 
Risks Related to Our Business and Industry
 
We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.
 
We have incurred net losses each year since our inception except for the year ended December 31, 2007. For the fiscal year ended December 31, 2017 we incurred a net loss of $21.9 million, and we have an accumulated deficit of $262.5 million as of December 31, 2017. Furthermore, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under the Bankruptcy Code. On June 30, 2016, our Second Amended Plan of Reorganization, or the Plan, dated May 9, 2016, as amended, became effective and we emerged from our Chapter 11 bankruptcy proceedings. See “Bankruptcy” in Item 1 of this Annual Report and see “Risks Related to Our Bankruptcy” below for further information on our bankruptcy and emergence from bankruptcy.
 
To date, we have only recognized revenue from payments for funded research and development and for license or collaboration fees. We expect to make substantial expenditures and incur additional operating losses in the future to further develop and commercialize our product candidates. Our accumulated deficit is expected to increase significantly as we continue our development and clinical trial efforts. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing our product candidates, either alone or with third parties. We do not currently have the required approvals to market any of our product candidates and we may never receive them. We may not be profitable even if we or any future development partners succeed in commercializing any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
 
We will need substantial additional capital to develop and commercialize our product candidates and to continue as a going concern, and our access to capital funding is uncertain.
 
Despite completing the Restructuring Transactions, we will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for lenzilumab or other product candidates, clinical trials and other studies, and, if approved, the commercialization of our product candidates. The amount of capital we will require and the timing of our need for additional capital will depend on many factors, including:
 
the type, number, timing, progress, costs, and results of the product candidate development programs that we are pursuing or may choose to pursue in the future;
the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials;
the timing of and costs involved in obtaining regulatory approvals;
our ability to re-list our common stock on a national securities exchange, whether through a new listing or by completing a strategic transaction;
our ability to establish and maintain development partnering arrangements and any associated funding;
the emergence of competing products or technologies and other adverse market developments;
the costs of maintaining, expanding, and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
the resources we devote to marketing, and, if approved, commercializing our product candidates;
the scope, progress, expansion and costs of manufacturing our product candidates; and
the costs associated with being a public company.
 
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We will need to seek additional financing from a number of sources, including, but not limited to, the sale of equity or debt securities, strategic collaborations, and licensing of our product candidates. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business, financial condition and results of operations. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies, product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic transaction that could result in, among other things, a sale, merger, consolidation or business combination.
 
If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months.  These conditions raise substantial doubt about our ability to continue as a going concern.
 
Our auditor has expressed substantial doubt about our ability to continue as a going concern and absent additional financing we may be unable to remain a going concern.
 
If we are unsuccessful in our efforts to raise additional capital, including in the immediate future, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months.  These conditions raise substantial doubt about our ability to continue as a going concern. The Report of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K includes an explanatory paragraph about our ability to continue as a going concern.
 
The Consolidated Financial Statements for the year ended December 31, 2017 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business.  Our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding.  The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
In addition, our current financial situation, and the presence of the explanatory paragraph about our ability to continue as a going concern, could also make it more difficult to raise the capital necessary to address our current needs.
 
We are exploring strategic alternatives, but there can be no assurance that we will be successful in identifying or completing any strategic alternative or that any such strategic alternative will yield additional value for our stockholders. 

We have an ongoing review of strategic alternatives to ensure our current structure optimizes our ability to execute our strategic plan and to maximize stockholder value. The review of strategic alternatives could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture, partnering, licensing or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction.
 
In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in our current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.
   
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Our business is solely dependent on the success of our current product candidates, lenzilumab and ifabotuzumab. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates.
   
We have a limited pipeline of product candidates and are not conducting active research at this time for discovery of new molecules or antibodies. We are currently dependent on the successful continued development and regulatory approval of our current product candidates for our future business success. Since the FDA’s August 29, 2017 announcement relating to benznidazole, our primary focus has shifted to investing our time and financial resources in the development of lenzilumab and ifabotuzumab.  We will need to successfully enroll and complete clinical trials of lenzilumab and ifabotuzumab, and potentially obtain regulatory approval to market these products. The future clinical, regulatory and commercial success of our product candidates is subject to a number of risks, including the following:
 
·
we may not be able to enroll adequate numbers of eligible patients in the clinical trials we propose to conduct;
·
we may not have sufficient financial and other resources to complete the clinical trials;
·
we may not be able to provide acceptable evidence of safety and efficacy for our product candidates;
·
the results of our clinical trials may not meet the level of statistical or clinical significance, or product safety, required by FDA for marketing approval;
·
we may not be able to obtain, maintain and enforce our patents and other intellectual property rights; and
·
we may not be able to obtain and maintain commercial manufacturing arrangements with third-party manufacturers or establish commercial-scale manufacturing capabilities.
 
Furthermore, even if we do receive regulatory approval to market any of our product candidates, any such approval may be subject to limitations on the indicated uses for which we may market the product. If any of our product candidates are unsuccessful, that could have a substantial negative impact on our business.
 
Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot assure you that our product candidates will be successfully developed or commercialized.  If we or any future development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, one or more of our product candidates, we may not be able to generate sufficient revenue to continue our business.
 
Our product candidates are at an early stage of development and may not be successfully developed or commercialized.
 
Our product candidates are in the early stage of development and will require substantial clinical development, testing, and regulatory approval prior to commercialization. None of our product candidates have advanced into a pivotal study and it may be years before such a study is initiated, if at all. Of the large number of drugs in development, only a small percentage successfully complete FDA regulatory approval process and are commercialized. We have discontinued the development of prior product candidates after they failed to meet clinical endpoints in non-pivotal trials. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot assure you that our product candidates will be successfully developed or commercialized. If we or any future development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, one or more of our product candidates, we may not be able to generate sufficient revenue to continue our business.
 
Our business could target benefits from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, and priority review, but we may not ultimately qualify for or benefit from these arrangements.
 
We may seek various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated approval, priority review and PRVs, where available, that provide for certain periods of exclusivity, expedited review and/or other benefits, and we may also seek similar designations elsewhere in the world.  Often, regulatory agencies have broad discretion in determining whether or not products qualify for such regulatory incentives and benefits. We cannot guarantee that we will be able to receive orphan drug or NCE status from FDA or equivalent regulatory designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may provide certain potential benefits such as more frequent meetings with FDA to discuss the development plan, intensive guidance on an efficient drug development program, and potential eligibility for rolling review or priority review. Legislative developments in the U.S., including recent proposed legislation that would restrict eligibility for PRVs, may affect our ability to qualify for these programs in the future.
 
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Even if we are successful in obtaining beneficial regulatory designations by FDA or other regulatory agency for our product candidates, such designations may not lead to faster development or regulatory review or approval, and it does not increase the likelihood that our product candidates will receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product candidates or compete with such competitors, which would adversely impact our business, financial condition or results of operations.
 
There is a limited amount of information about us upon which investors can evaluate our product candidates and business prospects, including because we have a limited operating history developing product candidates, have not yet successfully commercialized any products, have changed our strategy and our management team, and emerged from bankruptcy.
 
On August 29, 2017, we shifted our primary focus toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab and ifabotuzumab, for use in addressing significant unmet needs in oncology and CAR-T therapy.  Our relatively new team, new strategic business focus and limited operating history developing clinical-stage product candidates may make it difficult for us to succeed or for investors to be able to evaluate our business and prospects. In addition, as an early-stage clinical development company, we have limited experience in development activities, including conducting clinical trials, or seeking and obtaining regulatory approvals. We are also heavily dependent at this time on external consultants for scientific, clinical manufacturing and regulatory expertise. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in the biopharmaceutical area. For example, to execute our business plan we will need to successfully:
 
execute our product candidate development activities, including successfully completing our clinical trial programs;
obtain required regulatory approvals for the development and commercialization of our product candidates;
manage our spending as costs and expenses increase due to clinical trials, regulatory approvals, manufacturing and commercialization;
secure substantial additional funding;
develop and maintain successful strategic relationships;
build and maintain a strong intellectual property portfolio;
build and maintain appropriate clinical, sales, manufacturing, distribution, and marketing capabilities on our own or through third parties; and
gain market acceptance and favorable reimbursement status for our product candidates.
 
If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business, or continue our operations.
 
We have and may continue to experience delays in commencing or conducting our clinical trials, in receiving data from third parties or in the continuation or completion of clinical testing, which could result in increased costs to us and delay our ability to generate product candidate revenue.
 
Before we can initiate clinical trials in the United States for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of an IND, along with other information including information about product candidate chemistry, manufacturing, and controls and our proposed clinical trial protocol. For our programs already underway, we are required to report or provide information to appropriate regulatory authorities in order to continue with our testing programs. If we are unable to make timely regulatory submissions for any of our programs, it will delay our plans for our clinical trials.  If those third parties do not make the required data available to us, we will likely have to identify and contract with another third party, and/or develop all necessary preclinical and clinical data on our own, which will lead to significant delays and increase development costs of the product candidate. In addition, FDA may require us to conduct additional preclinical testing for any product candidate before it allows us to initiate clinical testing under any IND, which may lead to additional delays and increase the costs of our preclinical development. Moreover, despite the presence of an active IND for a product candidate, clinical trials can be delayed for a variety of reasons, including delays in:
 
identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;
identifying, recruiting, and training suitable clinical investigators;
 
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time, and may vary significantly among different CROs and trial sites;
obtaining and maintaining sufficient quantities of a product candidate for use in clinical trials, either as a result of transferring the manufacturing of a product candidate to another site or manufacturer, deferring ordering or production of product in order to conserve resources or mitigate risk, having product in inventory become no longer suitable for use in humans, or other reasons that reduce or delay availability of drug supply;
obtaining and maintaining institutional review board, or IRB, or ethics committee approval to conduct a clinical trial at an existing or prospective site;
retaining or replacing participants who have initiated a clinical trial but may withdraw due to adverse events from the therapy, insufficient efficacy, fatigue with the clinical trial process, or personal issues;
developing any companion diagnostic necessary to ensure that the study enrolls the target population; or
undergoing a clinical trial put on clinical hold at any time by FDA during product candidate development.
 
Once a clinical trial has begun, recruitment and enrollment of subjects may be slower than we anticipate. Numerous companies and institutions are conducting clinical studies in similar patient populations which can result in competition for qualified patients. In addition, clinical trials will take longer than we anticipate if we are required, or believe it is necessary, to enroll additional subjects. Clinical trials may also be delayed as a result of ambiguous or negative interim results. Further, a clinical trial may be suspended or terminated by us, an IRB, an ethics committee, or a data safety monitoring committee overseeing the clinical trial, any of our clinical trial sites with respect to that site, or FDA or other regulatory authorities, due to a number of factors, including:
 
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
inspection of the clinical trial operations or clinical trial site by FDA or other regulatory authorities;
inability to provide timely supply of drug product;
unforeseen safety issues, known safety issues that occur at a greater frequency or severity than we anticipate, or any determination that the clinical trial presents unacceptable health risks; or
lack of adequate funding to continue the clinical trial.
 
Additionally, if any future development partners do not develop the licensed product candidates in the time and manner that we expect, or at all, the clinical development efforts related to these licensed product candidates could be delayed or terminated. In addition, our ability to enforce our partners’ obligations under any future collaboration efforts may be limited due to time and resource constraints, competing corporate priorities of our future partners, and other factors.
 
Any delays in the commencement of our clinical trials may delay or preclude our ability to further develop or pursue regulatory approval for our product candidates. Changes in U.S. and foreign regulatory requirements and guidance also may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect the costs, timing, and likelihood of a successful completion of a clinical trial. If we or any future development partners experience delays in the completion of, or if we or any future development partners must terminate, any clinical trial of any product candidate our ability to obtain regulatory approval for that product candidate will be delayed and the commercial prospects, if any, for the product candidate may suffer as a result. In addition, many of these factors may also ultimately lead to the denial of regulatory approval of a product candidate.
 
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Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated delays, or may prevent the receipt of the required approvals to commercialize our product candidates.
 
The clinical development, approval, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing, and distribution of our product candidates are subject to extensive regulation by FDA in the United States and by comparable authorities in foreign markets. In the United States, we are not permitted to market our product candidates until we receive regulatory approval from FDA. The process of obtaining regulatory approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target indications. Approval policies or regulations may change and FDA has substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.  FDA or other comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons, including:
 
such authorities may disagree with the design or implementation of our or any future development partners’ clinical trials;
we or any future development partners may be unable to demonstrate to the satisfaction of FDA or other regulatory authorities that a product candidate is safe and effective for any indication;
such authorities may not accept clinical data from trials that are conducted at clinical facilities or in countries where the standard of care is potentially different from the United States;
the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
we or any future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
such authorities may disagree with our interpretation of data from preclinical studies or clinical;
such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or any future development partners contract for clinical and commercial supplies; or
the approval policies or regulations of such authorities may significantly change in a manner rendering our or any future development partners’ clinical data insufficient for approval.
 
With respect to foreign markets, approval procedures vary widely among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative review periods, and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us, or any future development partners from commercializing our product candidates.
 
The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate we or any future development partners advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
 
Drug development has substantial inherent risk. We or any future development partners will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are effective, with a favorable benefit-risk profile, for use in their target populations for their intended indications before we can seek regulatory approvals for their commercial sale. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of development, including after commencement of any of our clinical trials. Success in early clinical trials does not mean that later clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing. In addition, serious adverse or undesirable side effects may emerge or be identified during later stages of development that were not observed in earlier stages. Furthermore, our future trials will need to demonstrate sufficient safety and efficacy for approval by regulatory authorities in larger patient populations. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, only a small percentage of drugs under development result in the submission of a New Drug Application or Biologic License Application, or BLA, to FDA and even fewer are approved for commercialization.
 
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If we fail to attract and retain key management and clinical development personnel, or if the attention of such personnel is diverted, we may be unable to successfully manage our business and develop or commercialize our product candidates.
 
We will need to effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts. As a company with a limited number of personnel, we are heavily affected by turnover and highly dependent on the expertise of the members of our senior management, in particular our Chief Executive Officer, Dr. Cameron Durrant.  Furthermore, we rely on third party consultants for a variety of services. We cannot predict the impact of the loss of such individuals or the loss of services of any of our other senior management, should they occur, or the difficulty in replacing such individuals. Such losses could delay or prevent the further development and potential commercialization of our product candidates and, if we are not successful in finding suitable replacements, could harm our business.
 
In addition, at the closing of the Restructuring Transactions, Dr. Durrant entered into a consulting agreement with the JV Entity controlled by Nomis Bay pursuant to which Dr. Durrant agreed, for a period of up to two years, to furnish information and provide assistance to the JV Entity in connection with its exploration of potential claims versus third parties relating to the Benz Assets. Dr. Durrant is only required to provide these services to the extent that he can do so without (x) in his good faith, reasonable determination, materially adversely affecting his other business or employment obligations or (y) breaching any contractual arrangement relating to his other business or employment obligations. Nevertheless, performance of these consulting obligations could divert his attention away from our business, which could impair our ability to successfully pursue our strategy and our drug development programs.
 
Any product candidate we or any future development partner may advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent its regulatory approval or commercialization or limit its commercial potential.
 
Unacceptable adverse events caused by any of our product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and could result in the denial of regulatory approval by FDA or other regulatory authorities for any or all targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product candidate and generating revenue from its sale.
 
We have not yet successfully completed testing of any of our product candidates for the treatment of the indications for which we intend to seek approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in individuals who receive any of our product candidates. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product candidates.
 
If our competitors develop treatments for the target indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated to be safer or more effective than our product candidates, or if FDA approves generic competitors to our products post-approval, our commercial opportunity will be reduced or eliminated.
 
We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties in immunotherapy and oncology treatments and in recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying to a large extent on our drug approvals under section 505(b)(2) of the FDCA or on our biologics approvals under section 351(k) of the Public Health Service Act, or with generic copies of our products approved by FDA under an abbreviated new drug application, or ANDA, referencing our drug products. We believe that competitors are actively developing competing products to our product candidates.  See “Competition” in Item 1 of this Annual Report for a discussion of competition with respect to our current product candidates.
 
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Many of our competitors and potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing, and achieving widespread market acceptance for our products.  If a competitor obtains approval for an orphan drug that is the same drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate supply of its product to patients after approval.  In addition, our competitors’ products may be more effective or more effectively marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our product candidates.  Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.
 
The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions.  The more established companies may have a competitive advantage over us due to their size, cash flows, institutional experience and historical corporate reputation.
 
We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our products.
 
We are, and will for the foreseeable future continue to be, wholly dependent on third party contract manufacturers for the timely supply of adequate quantities of our products which meet or exceed requisite quality and production standards for use in clinical and nonclinical studies. Given the extensive risks, scope, complexity, cost, regulatory requirements and commitment of resources associated with developing the capabilities to manufacture one or more of our products, we have no present plan or intention of developing in-house manufacturing capabilities for nonclinical, clinical or commercial scale production, beyond our current supervision and management of our third-party contract manufacturers. In addition, in order to balance risk and conserve financial and human resources, we have and may continue from time to time to defer commitment to production of product, which could result in delays to the continued progress of our clinical and nonclinical testing.
 
In addition to the foregoing, the process of manufacturing our products is complex, highly regulated and subject to several risks, including but not limited to the following:
 
·
We, and our contract manufacturers, must comply with FDA’s current Good Manufacturing Practice, or cGMP, regulations and guidance. We, and our contract manufacturers, may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We, and our contract manufacturers, are subject to inspections by FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to comply with regulatory requirements, or a failure to pass any regulatory authority inspection, could significantly impair our ability to develop and commercialize our products, including leading to significant delays in the availability of products for our clinical studies or the termination or hold on a clinical study, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, adverse publicity, and criminal prosecutions, any of which could damage our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our products and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.  Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
 
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·
The manufacturing facilities in which our products are made could be adversely affected by equipment failures, plant closures, capacity constraints, competing customer priorities or changes in corporate strategy or priorities, process changes or failures, changes in business models or operations, materials or labor shortages, natural disasters, power failures and numerous other factors.
 
·
We are wholly dependent upon third party CMOs for the timely supply of adequate quantities of requisite quality product for our nonclinical, clinical and, if approved by regulatory authorities, commercial scale production.
 
·
The process of manufacturing biologics is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
 
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If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients, healthcare payers and the medical community, the revenue that it generates may be limited.
 
Even if our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payers, and the medical community. Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary for commercial success. The degree of market acceptance of any approved product candidates will depend on a number of factors, including:
 
the efficacy and safety as demonstrated in clinical trials;
the clinical indications for which the product candidate is approved;
acceptance by physicians, major operators of hospitals and clinics, and patients of the product candidate as a safe and effective treatment;
the potential and perceived advantages of product candidates over alternative treatments;
the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
the cost of treatment in relation to alternative treatments;
the availability of adequate reimbursement and pricing by third parties and government authorities;
relative convenience and ease of administration;
the prevalence and severity of adverse events;
the effectiveness of our sales and marketing efforts; and
unfavorable publicity relating to the product candidate.
 
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payers, and patients, we may not generate sufficient revenue from that product candidate and may not become or remain profitable.
 
Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.
 
Market acceptance and sales of our product candidates will depend significantly on the availability of adequate insurance coverage and reimbursement from third-party payers for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the third-party payer’s determination that use of a product candidate is:
 
a covered benefit under its health plan;
safe, effective, and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
   
Obtaining coverage and reimbursement approval for a product candidate from a government or other third-party payer is a time-consuming and costly process that could require us to provide supporting scientific, clinical, and cost effectiveness data for the use of our product candidates to the payer. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available only to limited levels or with restrictions, we may not be able to commercialize certain of our product candidates profitably, or at all, even if approved.
 
In the United States and in certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could affect our ability to sell our product candidates profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methods for many product candidates under Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal and state initiatives designed to reduce payment for pharmaceuticals.
 
As a result of legislative proposals and the trend toward managed health care in the United States, third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved product candidates for medical indications other than those for which FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. We could be subject to pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative proposals as well as country, regional, or local healthcare budget limitations.
 
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If we are unable to establish sales and marketing capabilities or fail to enter into agreements with third parties to market and sell any product candidates we may successfully develop, we may not be able to effectively market and sell any such product candidates.
 
We do not currently have the sales and marketing infrastructure in place that would be necessary to sell and market products. As our drug candidates progress, while we may build the infrastructure that would be needed to successfully market and sell any successful drug candidate, we currently anticipate seeking strategic alliances and partnerships with third parties, particularly for any drug candidates that we determine would require larger sales efforts.  The establishment of a sales and marketing operation can be expensive and time consuming and could delay any product candidate launch.
 
Governments may impose price controls, which may adversely affect our future profitability.
 
We intend to seek approval to market our future product candidates in the United States and potentially in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
 
We face potential product liability exposure and, if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
 
The use of our product candidates in clinical trials and the sale of any product candidates for which we may obtain marketing approval expose us to the risk of product liability claims. Product liability claims may be brought against us or any future development partners by participants enrolled in our clinical trials, patients, health care providers, or others using, administering, or selling our product candidates. If we cannot successfully defend ourselves against any such claims, or have insufficient insurance protection, we would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
 
withdrawal of clinical trial participants;
termination of clinical trial sites or entire trial programs;
costs of related litigation;
substantial monetary awards to trial participants or other claimants;
decreased demand for our product candidates and loss of revenue;
impairment of our business reputation;
diversion of management and scientific resources from our business operations; and
the inability to commercialize our product candidates.
     
We have obtained limited product liability insurance coverage for our clinical trials domestically and in selected foreign countries where we are conducting clinical trials. As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance coverage for product candidates to include the sale of commercial products if we obtain marketing approval for our product candidates in development; however, we may be unable to obtain commercially reasonable product liability insurance for any product candidates approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our working capital and adversely affect our business.
 
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Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
 
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability, and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Our recent history may result in an increase in premium costs or otherwise affect the terms of coverage available to us. Any significant, uninsured liability may require us to pay substantial amounts, which would adversely affect our working capital and results of operations.
 
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards, which could have a material adverse effect on our business.
 
We are exposed to the risk of employee fraud or other misconduct.  Misconduct by employees could include intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, failure to provide accurate information to FDA or comparable foreign regulatory authorities, failure to comply with manufacturing standards, failure to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, failure to report financial information or data accurately, violations of anti-bribery laws, or failure to disclose unauthorized activities to us.  In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices.  These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.  Employee misconduct could also involve the improper use of confidential information obtained in the course of our business, which could result in civil or criminal legal actions, regulatory sanctions, or serious harm to our reputation.  We have adopted a Code of Business Conduct and Ethics and other corporate policies, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.  If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
 
We may encounter difficulties in managing our growth and expanding our operations successfully.
 
As we seek to advance our product candidates through clinical trials we will need to expand our development, regulatory, manufacturing, marketing, and sales capabilities, and contract with third parties to provide these capabilities for us. As our operations expand we expect that we will need to manage additional relationships with various development partners, suppliers, and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend in part on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively. We may not be able to accomplish these tasks and our failure to accomplish any of them could prevent us from successfully growing our company.
 
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We and any future development partners, third-party manufacturers and suppliers use hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could be time consuming or costly.
 
We and any future development partners, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our development partner, third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
 
Our internal computer systems, or those of our future development partners, third-party clinical research organizations or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
 
Despite the implementation of security measures, our internal computer systems and those of our development partners, third-party clinical research organizations and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed.
 
Healthcare reform measures, when implemented, could hinder or prevent our commercial success.
 
There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of health care and containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations, and other payers of healthcare services to contain or reduce costs of health care may adversely affect:
 
the demand for any drug products for which we may obtain regulatory approval;
our ability to set a price that we believe is fair for our product candidates;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
  
We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
     
If we and any future development partners are successful in commercializing our products, FDA and foreign regulatory authorities would require that we and any future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA or a foreign regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.
 
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Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
 
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or the BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as ‘‘interchangeable’’ based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
 
We believe that any of our product candidates approved as biological products under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Finally, there is a risk that the 12-year exclusivity period could be reduced which could negatively affect our products.
 
In addition, foreign regulatory authorities may also provide for exclusivity periods for approved biological products. For example, biological products in Europe may be eligible for a 10-year period of exclusivity. However, biosimilar products have been approved under a sub-pathway of the centralized procedure since 2006. The pathway allows sponsors of a biosimilar product to seek and obtain regulatory approval based in part on the clinical trial data of an originator product to which the biosimilar product has been demonstrated to be ‘‘similar.’’ In many cases, this allows biosimilar products to be brought to market without conducting the full suite of clinical trials typically required of originators. It is unclear whether we and our development partner would face competition to our products in European markets sooner than anticipated.
 
We may in the future be subject to various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.
 
If one or more of our product candidates is approved, we will likely be subject to the various U.S. federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payers. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.
 
The False Claims Act imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The False Claims Act has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The False Claims includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws, then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.
 
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State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans or Corporate Integrity Agreements, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.
 
Also, the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on our business, results of operations and reputation.
 
Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market, and distribute our products after approval is obtained.
 
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
 
changes to manufacturing methods;
additional studies, including clinical studies;
recall, replacement, or discontinuance of one or more of our products; and
additional record-keeping.
  
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory approvals for any future products would harm our business, financial condition, and results of operations.
     
Even if we are able to obtain regulatory approval for our product candidates, we will continue to be subject to ongoing and extensive regulatory requirements, and our failure to comply with these requirements could substantially harm our business.
 
If we receive regulatory approval for our product candidates, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued safety reporting requirements, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls or seizures.
 
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If FDA approves any of our product candidates, the labeling, manufacturing, packaging, storage, distribution, export, adverse event reporting, storage, advertising, promotion and record-keeping for our products will be subject to extensive regulatory requirements. Violations of these regulatory requirements or the subsequent discovery of previously unknown problems with the products, including adverse events of unanticipated severity or frequency, may result in:
 
the issuance of warning or untitled letters;
requirements to conduct post-marking clinical trials;
restrictions on the marketing and distribution of the product, including potential withdrawal of the product from the market;
suspension of ongoing clinical trials;
the issuance of product recalls, import and export restrictions, seizures, and detentions; and
the issuance of injunctions, or imposition of other civil and/or criminal penalties.
   
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
 
We have incurred substantial losses during our history and do not expect to become profitable in the foreseeable future and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ‘‘ownership change’’ (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have recently and in the past experienced ownership changes that have resulted in limitations on the use of a portion of our net operating loss carryforwards. On February 27, 2018, upon the closing of the Restructuring Transactions, we experienced an ownership change that may result in limitations on the use of a portion of our net operating losses.  If we experience further ownership changes our ability to utilize our net operating loss carryforwards could be further limited.
 
Risks Related to Our Bankruptcy

Despite having emerged from bankruptcy, we cannot be certain that the residual effects of the bankruptcy proceedings will not adversely affect our operations going forward.

Because of the residual risks and uncertainties associated with Chapter 11 bankruptcy proceedings, the ultimate impact of events that occurred in connection with, or that may occur subsequent to, these proceedings will have on our reputation, business, financial condition and results of operations cannot be accurately predicted or quantified. Due to uncertainties, many risks exist, including the following:

key business partners could terminate their relationships or require financial assurances or enhanced performance;
the ability to renew existing contracts and negotiate favorable terms from suppliers, partners and others may be adversely affected;
the ability to attract, motivate and/or retain key executives and employees may be adversely affected;
employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and
other costs of operations, including obtaining insurance, could be more expensive.
   
The occurrence of one or more of these events, or others related to our emergence from bankruptcy, could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy proceedings will not adversely affect our operations in the future.
 
Allowance of claims by the Bankruptcy Court could materially exceed our estimated liability and adversely affect our financial condition.
 
The reconciliation of certain proofs of claim filed against us in the Bankruptcy Case is ongoing.  As of December 31, 2017, approximately $0.5 million in claims remain subject to review and reconciliation. As of December 31, 2017, we have recorded $0.06 million related to these claims in Accounts payable and Notes payable to vendors, which represents management’s best estimate of claims to be allowed by the Bankruptcy Court.
 
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Despite management’s best estimate of claims to be allowed by the Bankruptcy Court, we may be ultimately unsuccessful in our attempt to have certain proofs of claim that we believe are subject to objection or otherwise improperly filed to be disallowed, reduced or reclassified by the Bankruptcy Court.  The allowance of claims by the Bankruptcy Court could materially exceed our estimated liability and adversely affect our business, financial condition, and results of operations. In addition, we may identify additional liabilities during this process that will need to be recorded or reclassified to liabilities subject to compromise. The resolution of such claims could result in material adjustments to our financial statements.
 
For additional information, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Our actual financial results may vary significantly from the projections filed with the Bankruptcy Court and, as a result of our bankruptcy, our historical financial information is not comparable to future financial information.
 
In connection with the Plan, we were required to prepare projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon emergence from bankruptcy. These projections were limited by the information available to us as of the date they were prepared and reflected numerous assumptions concerning anticipated future performance and prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize. Projections are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks. Therefore, variations from the projections may be material. These projections were prepared solely for the purpose of the bankruptcy proceedings, have not been incorporated into this report, have not been, and will not be, updated on an ongoing basis and should not be considered or relied upon by investors.
 
Additionally, as a result of the consummation of the Plan and the transactions contemplated thereby, our financial condition and results of operations from and after our emergence from bankruptcy may not be comparable to the financial condition or results of operations reflected in our historical financial statements.
 
Risks Related to Our Dependence on Third Parties
 
We rely on third parties to conduct our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.
 
We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these trials is uncertain and may occur on substantially different timing from our estimates. We also use CROs to conduct our clinical trials and rely on medical institutions, clinical investigators, CROs, and consultants to conduct our trials in accordance with our clinical protocols and regulatory requirements. Our CROs, investigators, and other third parties play a significant role in the conduct of these trials and subsequent collection and analysis of data.
 
There is no guarantee that any CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fails to meet expected deadlines, fails to adhere to our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.
 
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We rely completely on third parties, most of which are sole source suppliers, to supply drug substance and manufacture drug product for our clinical trials and preclinical studies and intend to rely on other third parties to produce commercial supplies of product candidates, and our dependence on third parties could adversely impact our business.
 
We are completely dependent on third-party suppliers, most of which are sole source suppliers of the drug substance and drug product for our product candidates. We are continually evaluating potential alternate sources of supply but there can be no assurance that any such suppliers would be available, acceptable or successful.  From time to time, we experience delays from our drug substance suppliers. To date, such delays have been manageable.  However, if these third-party suppliers do not supply sufficient quantities for product candidates to us on a timely basis and in accordance with applicable specifications and other regulatory requirements, there could be a significant interruption of our supplies, which would adversely affect clinical development of the product candidate, including affecting our ability to enroll in and timely progress clinical trials. Furthermore, if any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and with regulatory requirements, we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates.
 
We will also rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials. There are a small number of suppliers for certain capital equipment and raw materials used to manufacture our product candidates. We do not have any control over the process or timing of the acquisition of these raw materials by our contract manufacturers. Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay completion of that clinical trial, product candidate testing, and potential regulatory approval of that product candidate.
 
We do not expect to have the resources or capacity to commercially manufacture any of our proposed product candidates if approved, and will likely continue to be dependent on third-party manufacturers. Our dependence on third parties to manufacture and supply us with clinical trial materials and any approved product candidates may adversely affect our ability to develop and commercialize our product candidates on a timely basis.
 
We may not be successful in establishing and maintaining additional development partnerships and licensing agreements, which could adversely affect our ability to develop and commercialize product candidates.
 
Part of our strategy is to enter into development partnerships and licensing agreements. We face significant competition in seeking appropriate partners and the negotiation process is time consuming and complex. Even if we are successful in securing a development partnership, we may not be able to continue it. For example, in 2017, we terminated certain of our licensing agreements for KB001-A, a discontinued drug candidate. We cannot predict the impact of that decision on the likelihood of our ability to enter into future partnerships for our programs. Moreover, we may not be successful in our efforts to establish a development partnership or other alternative arrangements for any of our other existing or future product candidates and programs because, among other reasons, our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish new development partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such development partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing. Any delay in entering into new development partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market.
 
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Moreover, if we fail to establish and maintain additional development partnerships related to our product candidates:
 
the development of our current or future product candidates may be terminated or delayed;
our cash expenditures related to development of certain of our current or future product candidates would increase significantly and we may need to seek additional financing;
we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted; and
we will bear all of the risk related to the development of any such product candidates.
      
Our or any new partner’s failure to develop, manufacture or effectively commercialize our product would result in a material adverse effect on our business and results of operations and would likely cause our stock price to decline.
 
Risks Related to Intellectual Property
 
If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish, and our business and competitive position would suffer.
 
Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors and licensees to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We have an active patent protection program that includes filing patent applications on new compounds, formulations, delivery systems and methods of making and using products and prosecuting these patent applications in the United States and abroad. As patents issue, we also file continuation applications as appropriate. Although we have taken steps to build a strong patent portfolio, we cannot predict:
 
·
the degree and range of protection any patents will afford us against competitors, including whether third parties find ways to invalidate or otherwise circumvent our licensed patents;
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if and when patents will issue in the United States or any other country;
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whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications;
·
whether we will need to initiate litigation or administrative proceedings to protect our intellectual property rights, which may be costly whether we win or lose;
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whether any of our patents will be challenged by our competitors alleging invalidity or unenforceability and, if opposed or litigated, the outcome of any administrative or court action as to patent validity, enforceability or scope;
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whether a competitor will develop a similar compound that is outside the scope of protection afforded by a patent or whether the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;
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whether there were activities previously undertaken by a licensor that could limit the scope, validity or enforceability of licensed patents and intellectual property; or
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whether a competitor will assert infringement of its patents or intellectual property, whether or not meritorious, and what the outcome of any related litigation or challenge may be.
  
Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors, sublicensees and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all employees, consultants and board members to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.  These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired, and our business and competitive position would suffer.
 
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 Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.
 
Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication and avoid infringing the proprietary rights of others. Our patent rights, and the patent rights of biopharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. These uncertainties also mean that any patents that we own or may obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us.
 
If some or all of our or any licensor’s patents expire or are invalidated or are found to be unenforceable, or if some or all of our patent applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard to written description or enablement by the specification, or if we are prevented from asserting that the claims of an issued patent cover a product of a third party, we may be subject to competition from third parties with products in the same class of products as our product candidates or products with the same active pharmaceutical ingredients as our product candidates, including in those jurisdictions in which we have no patent protection.
 
Our commercial success will depend in part on obtaining and maintaining patent and trade secret protection for our product candidates, as well as the methods for treating patients in the product indications using these product candidates. We will be able to protect our product candidates and the methods for treating patients in the applicable product indications using these product candidates from unauthorized use by third parties only to the extent that we or our exclusive licensor owns or controls such valid and enforceable patents or trade secrets.
 
Even if our product candidates and the methods for treating patients for prescribed indications using these product candidates are covered by valid and enforceable patents and have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount of time. Our and any licensor’s ability to obtain patents can be highly uncertain and involve complex and in some cases unsettled legal issues and factual questions. Furthermore, different countries have different procedures for obtaining patents, and patents issued in different countries provide different degrees of protection against the use of a patented invention by others. Therefore, if the issuance to us or any licensor, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the utility, written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
 
We may be subject to competition from third parties with products in the same class of products as our product candidates, or products with the same active pharmaceutical ingredients as our product candidates in those jurisdictions in which we have no patent protection.  Even if patents are issued to us or any licensor regarding our product or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid or unenforceable on a variety of grounds, including lack of utility, lack sufficient written description or enablement, utility, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors devise ways of making or using these products without legally infringing our patents. The current U.S. regulatory environment may have the effect of encouraging companies to challenge branded drug patents or to create non-infringing versions of a patented product in order to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of incentives encourage competitors to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.
 
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If we infringe the rights of third parties, we could be prevented from selling products and be forced to defend against litigation and pay damages.
   
There is a risk that we are infringing the proprietary rights of third parties because numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of our development and manufacturing efforts. Others might have been the first to make the inventions covered by each of our or any licensor’s pending patent applications and issued patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to us or any licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization, formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to pay substantial damages or take other actions that are adverse to our business.
   
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and may have to:
 
·
obtain licenses, which may not be available on commercially reasonable terms, if at all;
·
redesign our products or processes to avoid infringement, which may not be possible or could require substantial funds and time;
·
stop using the subject matter claimed in patents held by others, which could cause us to lose the use of one or more of our drug candidates;
·
pay damages royalties, or other amounts; or
·
grant a cross license to our patents to another patent holder.
   
We expect that, as our drug candidates move further into clinical trials and commercialization and our public profile is raised, we will be more likely to be subject to such claims.
 
We may fail to comply with any of our obligations under existing agreements pursuant to which we license or have otherwise acquired rights or technology, which could result in the loss of rights or technology that are material to our business.
 
We are a party to technology licenses and have acquired certain assets and rights that are important to our business and we may enter into additional licenses or acquire additional assets and rights in the future. We currently hold licenses from LICR, BioWa, and Lonza. These licenses impose various commercial, contingent payments, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license or take back rights or assets, in which event we would lose valuable rights under our collaboration agreements, potential claims and our ability to develop product candidates.
 
We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.
 
As is common in the biotechnology and pharmaceutical industry, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants were previously employed at, or may have previously or may be currently providing consulting services to, other biotechnology or pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that our company or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.
 
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We may not be able to protect our intellectual property rights throughout the world.
 
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and we intend to seek patent protection only in selected countries. Our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
 
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
 
Risks Related to Our Common Stock
 
The Black Horse Entities own more than a majority of our outstanding common stock and will be able to exert control over all matters subject to stockholder approval.
 
The completion of the Restructuring Transactions on February 27, 2018 resulted in a change in control of our company, as the issuance of the New Common Shares to the Black Horse Entities resulted in the Black Horse Entities and their affiliates owning more than a majority of our outstanding common stock. As of February 27, 2018, the Black Horse Entities collectively held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock, and Dr. Chappell, a member of our board of directors from June 30, 2016 until November 10, 2017, who controls  the Black Horse Entities, nor has the ability to elect all of the members of our board of directors and thereby to control our management and affairs, including determinations with respect to entry into new lines of business, borrowings, and issuances of common stock or other securities, as well as the outcome of all matters requiring stockholder approval and the ability to cause or prevent a change of control of our company.  The control possessed by Dr. Chappell could prevent or discourage unsolicited acquisition proposals or offers for our common stock that may be in the best interest of our other stockholders.

The interests of the Black Horse Entities may not in all cases be aligned with the interests of our other stockholders. For example, a sale of a substantial number of shares of our common stock in the future by the Black Horse Entities could cause our stock price to decline. Additionally, the Black Horse Entities are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Accordingly, the Black Horse Entities may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition, Black Horse Entities may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to holders of our common stock.
 
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The concentration of our common stock owned by insiders may limit the ability of our other stockholders to influence corporate matters and may contribute to volatility in our stock price.
 
We have a relatively small public float due to the ownership percentage of our executive officers and directors, and greater than 5% stockholders.  Our directors, executive officers, and the holders of more than 5% of our common stock together with their affiliates beneficially own approximately 94.3% of our common stock as of February 27, 2018. Some of these persons or entities may have interests that are different from our other stockholders.  As of February 27, 2018, Nomis Bay held 33,573,530 shares of our common stock, or approximately 31.4% of our outstanding common stock, and the Black Horse Entities collectively held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock. This significant concentration of ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders.
 
As a result of our small public float, our common stock may be less liquid and have greater stock price volatility than the common stock of companies with broader public ownership. In addition, the trading of a relatively small volume of shares of our common stock may result in significant volatility in our stock price. If and to the extent ownership of our common stock becomes more concentrated, whether due to increased ownership by our directors and executive officers or other principal stockholders, any future repurchase of our common stock, or other factors, our public float would further decrease, which in turn would likely result in increased stock price volatility. Additionally, because a large amount of our stock is closely held, we may experience low trading volume or large fluctuations in share price and volume due to large sales by our principal stockholders.
 
There is a limited trading market for our securities. An active trading market for our common stock may not develop or be sustained and the market price of our securities is subject to volatility.
 
Trading in our common stock is limited and we cannot predict whether an active market for our common stock will ever develop in the future. In the absence of an active trading market:
 
investors may have difficulty buying and selling shares of our common stock;
market visibility for shares of our common stock may be limited;
a lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common stock; and
significant sales of our common stock, or the expectation of these sales, could materially and adversely affect the market price of our common stock.
 
An inactive market may also impair our ability to raise capital to continue as a going concern and to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.
 
No assurance can be given that an active market will develop for the common stock or as to the liquidity of the trading market for the common stock. The common stock may be traded only infrequently in transactions arranged through brokers or otherwise, and reliable market quotations may not be available.
 
Our ability to re-list our common stock on a national securities exchange is subject to us meeting applicable listing criteria.
   
If we are able to raise the necessary capital, we intend to apply for our common stock to be re-listed on a national securities exchange. In addition, we are exploring strategic transactions to affect a listing on a national securities exchange, including by completing a reverse merger or sale. However, no assurances can be given regarding our ability to achieve a listing in a timely manner or at all. Each national securities exchange requires companies desiring to list their common stock to meet certain listing criteria including total number of stockholders, minimum stock price, total value of public float, and in some cases total shareholders equity and market capitalization. Our failure to meet such applicable listing criteria will prevent us from listing our common stock on a national securities exchange.
 
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Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
 
To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance could result in further dilution to our stockholders.
 
Any future debt financing may involve covenants that restrict our operations, including, among other restrictions, limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. In addition, if we raise additional funds through licensing arrangements, it may be necessary to grant potentially valuable rights to our product candidates or grant licenses on terms that are not favorable to us.
 
We have identified material weaknesses in our internal control over financial reporting and may be unable to maintain effective control over financial reporting.
 
In the course of the preparation and external audit of our consolidated financial statements for the fiscal year ended December 31, 2017, we and our independent registered public accounting firm identified a “material weakness” in our internal control over financial reporting related to our limited number of accounting and financial reporting personnel. A material weakness in internal control over financial reporting is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We identified an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel.
 
During 2018, we intend to work to remediate the material weaknesses identified above, which could include the addition of accounting and financial reporting personnel and/or the engagement of accounting and personnel consultants on a limited-time basis until we add a sufficient number of personnel. However, our current financial position could make it difficult for us to add the necessary resources.
 
Any material weaknesses in our internal control over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.
 
If we are unable to remediate our material weakness over financial controls or we identify other material weaknesses or significant deficiencies in the future, our operating results might be harmed, we may fail to meet our reporting obligations or fail to prevent or detect material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that internal control over our financial reporting is effective. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties or stockholder litigation, which could have an adverse effect on our results of operations and the market price of our common stock.
 
In addition, if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
 
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Our stock price is volatile and purchasers of our common stock could incur substantial losses.
 
The market price of our common stock may fluctuate significantly in response to a number of factors. These factors include those discussed in this “Risk Factors” section of this Annual Report on Form 10-K and others such as:
 
delay or failure in initiating or completing preclinical studies or clinical trials, or unsatisfactory results of these trials and the resulting impact on ongoing product development;
the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders;
our ability to re-list our common stock on a national securities exchange, whether through a new listing or by completing a strategic transaction;
announcements regarding equity or debt financing transactions;
sales or potential sales of substantial amounts of our common stock or securities convertible into our common stock;
announcements about us or about our competitors including clinical trial results, regulatory approvals, or new product candidate introductions;
developments concerning our development partner, licensors or product candidate manufacturers;
litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
conditions in the pharmaceutical or biotechnology industries and the economy as a whole;
governmental regulation and legislation;
recruitment or departure of members of our board of directors, management team or other key personnel;
changes in our operating results;
any financial projections we may provide to the public, any changes in these projections, our failure to meet these projections, or changes in recommendations by any securities analysts that elect to follow our common stock;
change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; and
price and volume fluctuations in the overall stock market or resulting from inconsistent trading volume levels of our shares.
  
In recent years, the stock market in general, and the market for pharmaceutical and biotechnological companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance.
 
Our common stock may be considered to be a “penny stock” and, as such, any market for our common stock may be further limited by certain SEC rules applicable to penny stocks.
 
To the extent the price of our common stock remains below $5.00 per share, our common stock may be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common stock and limit the liquidity of our common stock.
 
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In addition, under applicable SEC rules and interpretations, issuers of penny stocks are subject to disclosure requirements that can increase the cost and complexity of registering shares for sale in a public offering, including a public offering proposed to be made to facilitate sales by existing stockholders. These penny stock disclosure requirements may pose challenges or impediments to achieving our goals of increasing our public float and the liquidity of the trading market for our shares.
 
Substantial future sales of shares by existing stockholders, or the perception that such sales may occur, could cause our stock price to decline.
 
If our existing stockholders, particularly our directors, executive officers and the holders of more than 5% of our common stock, or their affiliates or associates, sell substantial amounts of our common stock in the public market, or are perceived by the public market as intending to sell substantial amounts of our common stock, the trading price of our common stock could decline significantly. As of March 23, 2018, we had 109,207,786 shares of common stock outstanding, of which 100,683,750 shares were held by directors, officers and stockholders who hold greater than 5% of our common stock.
 
If securities analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
 
The trading market for a company’s common stocks often is based in part on the research and reports that securities and industry analysts publish about the company.  We are not currently aware of any well-known analysts that are covering our common stock, and without analyst coverage it could be hard to generate interest in investments in our common stock.  Furthermore, if analyst coverage does develop, and an analyst downgrades our stock or publishes unfavorable research about our business, or if our clinical trials or operating results fail to meet the analysts’ expectations, our stock price would likely decline.
 
We have never paid and do not intend to pay cash dividends and, consequently, your ability to achieve a return on your investment in our common stock will depend on appreciation in the price of our common stock.
 
We have never paid cash dividends on any of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. Therefore, you are not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on an investment in our common stock will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which you purchased it.
 
Anti-takeover provisions in our charter documents and Delaware law, could discourage, delay, or prevent a change in control of our company and may affect the trading price of our common stock.
 
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
 
Our amended and restated certificate of incorporation, as amended (the “Charter”), and our second amended and restated bylaws (the “Bylaws”) may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our Charter and Bylaws:
 
provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
do not provide stockholders with the ability to cumulate their votes; and
require advance notification of stockholder nominations and proposals.
 
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In addition, effective February 26, 2018, our Charter permits the Board to issue up to 25,000,000 shares of Preferred Stock, with such powers, rights, terms and conditions as may be designated by the Board upon the issuance of shares of Preferred Stock at one or more times in the future. Specifically, the Charter permits the Board to approve the future issuance of all or any shares of the Preferred Stock in one or more series, to determine the number of shares constituting any series and to determine any voting powers, conversion rights, dividend rights, and other designations, preferences, limitations, restrictions and rights relating to such shares without any further authorization by our stockholders. The Board’s power to issue Preferred Stock could have the effect of delaying, deterring or preventing a transaction or a change in control of our company that might otherwise be in the best interest of our stockholders.
 
We are an emerging growth company and the extended transition period for complying with new or revised financial accounting standards and reduced disclosure and governance requirements applicable to emerging growth companies could make our common stock less attractive to investors.
 
We are an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We plan to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
 
For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). If we do, the information that we provide stockholders may be different than what is available with respect to other public companies.
 
Investors could find our common stock less attractive because we will rely on these exemptions, which may make it more difficult for investors to compare our business with other companies in our industry. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, it may be difficult for us to raise additional capital as and when we need it. If we are unable to do so, our financial condition and results of operations could be materially and adversely affected.
 
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) December 31, 2018, the end of the fiscal year following the fifth anniversary of the first sale of our common equity securities pursuant to an effective registration statement filed under the Securities Act.
 
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ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.  PROPERTIES
 
We lease a facility in Brisbane, California.  The lease commenced in April 2016 and was to expire in March 2017. On February 16, 2017, we amended the lease to extend the term of the lease for an additional period of eighteen months such that the lease will expire on September 30, 2018.
 
ITEM 3.  LEGAL PROCEEDINGS
 
Bankruptcy Proceedings
 
We filed for protection under Chapter 11 of Title 11 of the United States Code on December 29, 2015, in the United States Bankruptcy Court for the District of Delaware, or the Bankruptcy Court (Case No. 15-12628 (LSS).  Our Second Amended Plan of Reorganization, dated May 9, 2016, as amended, or the Plan, was approved by the Bankruptcy Court on June 16, 2016 and went effective on June 30, 2016, or the Effective Date.  As of the Effective Date, approximately 195 proofs of claim were outstanding (including claims that were previously identified on the Schedules) totaling approximately $32.0 million.
 
The reconciliation of certain proofs of claim filed against us in the Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and Other Subordinated Claims, is ongoing.  As a result of its examination of the claims, we may ask the Bankruptcy Court to disallow, reduce, reclassify or otherwise adjudicate certain claims we believe are subject to objection or otherwise improper.  Under the terms of the Plan, we had until December 27, 2016 to file additional objections to disputed claims, subject to our right to seek an extension of this deadline from the Bankruptcy Court.  By Order, dated February 6, 2017, the Bankruptcy Court extended the claims objection deadline to June 26, 2017. By Order dated July 10, 2017, the Bankruptcy Court extended the claims objection deadline to September 25, 2017. By Order dated October 23, 2017, the Bankruptcy Court extended the claims objection deadline to December 26, 2017.  By Order dated January 19, 2018, the Bankruptcy Court extended the claims objection deadline to March 26, 2018.  We may compromise certain claims with or without specific prior approval of the Bankruptcy Court as set forth in the Plan and may identify additional liabilities that will need to be recorded or reclassified to liabilities subject to compromise. The resolution of such claims could result in material adjustments to our financial statements.

As of December 31, 2017, approximately $0.5 million in claims remain subject to review and reconciliation. We may file objections to these claims after we complete the reconciliation process. As of December 31, 2017, we have recorded $0.06 million related to these claims in Accounts payable and Notes payable to vendors, which represents our best estimate of claims to be allowed by the Bankruptcy Court.

Savant Litigation

On July 10, 2017, we filed a complaint against Savant Neglected Diseases, LLC (“Savant”) in the Superior Court for the State of Delaware, New Castle County (the “Delaware Court”).  KaloBios Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD.  We asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 6 - “Savant Arrangements” to the accompanying condensed consolidated financial statements for more information about the MDC Agreement.  We allege that Savant has breached its MDC Agreement obligations to pay cost overages that exceed a budgetary threshold as well as other related MDC Agreement representations and obligations. In the litigation, we have alleged that as of June 30, 2017, Savant was responsible for aggregate cost overages of approximately $3.4 million, net of a $0.5 million deductible under the MDC.   We assert that we are entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant owed us approximately $1.4 million.
 
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On July 12, 2017, Savant removed the case to the United States District Court for the District of Delaware, claiming that the action is related to or arises under the bankruptcy court case from which we emerged in July 2016. On July 27, 2017, Savant filed an Answer and Counterclaims.  Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming that we breached its obligations to pay the milestone payments and other related representations and obligations.

On August 1, 2017, we moved to remand the case back to the Delaware Superior Court. Briefing on that motion is completed and awaiting determination by the Bankruptcy Court.

On August 2, 2017, Savant sent a foreclosure notice to us, demanding that we provide the Collateral as defined in the Security Agreement for inspection and possession on August 9, 2017, with a public sale to be held on September 1, 2017.  We moved for a Temporary Restraining Order, or TRO, and Preliminary Injunction in the bankruptcy court on August 4, 2017.  Savant responded on August 7, 2017.  On August 7, 2017, the bankruptcy court granted our motion for a TRO, entering an order prohibiting Savant from collecting on or selling the Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies under the MDC Agreement or the Security Agreement.  The parties have stipulated to continue the provisions of the TRO in full force and effect until further order of the appropriate court.
 
On January 22, 2018, Savant wrote to the Bankruptcy Court requesting dissolution of the TRO.  On January 29, 2018, the Bankruptcy Court granted the Motion to Remand and denied Savant’s request to dissolve the TRO, ordering that any request to dissolve the TRO be made to the Delaware Superior Court.
 
On February 13, 2018 Savant made a letter request to the Delaware Superior Court to dissolve the TRO.  Also on February 13, 2018, Humanigen filed its Answer and Affirmative defenses to Savant’s Counterclaims.  On February 15, 2018 Humanigen filed a letter opposition to Savant’s request to dissolve the TRO and requesting a status conference.  There have been no further proceedings in this matter to date.
 
BioWa, Inc. Litigation

On October 17, 2016, Kyowa Hakko Kirin Co., Ltd. and BioWa, Inc. filed a patent infringement Complaint in the U.S. District Court for the Northern District of California against Aragen Bioscience, Inc. and Transposagen Biopharmaceuticals, Inc. ("Defendants"), alleging infringement of three United States Patents that are currently licensed to Humanigen, Inc. (Captioned as Kyowa Hakko Kirin Co. Ltd. and BioWa, Inc. v. Aragen Bioscience, Inc. and Transposagen Biopharmaceuticals, Inc., Case No. 3:16-cv-05993-JD (N.D. Cal.)). On January 17, 2017, the Defendants filed an Amended Answer and Counterclaims. One of the Defendants’ counterclaims sought a declaratory judgment that the three asserted patents are invalid. Since then, the litigation has been ongoing and trial is scheduled to begin on June 25, 2018. Fact discovery recently closed, and expert discovery is currently taking place. No dispositive motions have yet been filed. In April 2017, Defendants filed petitions in the U.S. Patent and Trademark Office ("USPTO") for inter partes review ("IPR") of the same three patents asserted in the district court patent infringement litigation. In October 2017, the USPTO's Patent Trial and Appeal Board ("PTAB") declined to institute IPR of the patents, holding that Defendants had not shown a reasonable likelihood that they would prevail in showing the unpatentability of even one of the challenged patent claims. In November 2017, Defendants filed requests for rehearing of the PTAB's decision not to institute IPR, and the PTAB denied those requests as well. The PTAB's decision cannot be appealed.
 
 Releases, Exculpation, Injunction and Discharge Provisions

Section 10.3 of the Plan provides certain releases, including the following: (i) releases by us, subject to certain exclusions, of claims and causes of action against (a) our officers, directors, employees, advisors and certain related persons who acted in such capacity on or after the Petition Date and (b) the Black Horse Entities and Nomis, as well as their respective current and former directors and officers, partners, advisors and certain other related parties, or collectively, the Released Parties; (ii) releases by holders of claims and interests, subject to certain exclusions, of claims and causes of action against us and Released Parties; (iii) mutual releases between us and the PIPE Claimants, for the benefit of each and certain related parties, as contemplated by the PIPE Settlement; and (iv) releases as contemplated by the Securities Class Action Settlement. All our claims and causes of action or those of our bankruptcy estate not expressly released by us under the Plan or pursuant to another Bankruptcy Court order are expressly reserved to us under the Plan.
 
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The Plan also contains certain exculpation provisions, which include exculpation from liability, subject to certain exceptions for acts and omissions that are the result of willful misconduct or gross negligence, in favor of us and our directors, officers, employees, advisors and certain other related persons and entities who served in such capacity on or after the Petition Date relating to the bankruptcy proceedings, the negotiation and formulation of the Plan and the related disclosure statement, and the confirmation, consummation and administration of the Plan.

The Plan provides for a discharge of all claims against us to the fullest extent provided under section 1141(d)(1)(A) of the Bankruptcy Code.

Additional Information

For additional information on the foregoing bankruptcy proceeding, including with respect to our bankruptcy related financing arrangements, our arrangements with Savant and details on the Governance Agreement, see Note 2, 6 and 10 to our Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, which are incorporated by reference into this Item.

 
ITEM 4.  MINE SAFETY DISCLOSURES
 
None.
 
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PART II
 
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information
 
Our common stock is currently quoted on the OTCQB Venture Market operated by OTC Markets Group, Inc. under the symbol “HGEN”. From January 13, 2016 to June 25, 2017, our common stock was quoted on the OTC Pink marketplace operated OTC Markets Group, Inc. Previously, our common stock was listed on the NASDAQ Global Market under the symbol “KBIO” from its beginning of trading on January 31, 2013 through January 13, 2016.  Prior to January 31, 2013, there was no public market for our common stock.
 
The following table sets forth the high and low intraday sale prices per share of our common stock for the quarterly periods beginning January 1, 2016 through January 13, 2016 as reported by The NASDAQ Global Market. The following table also sets forth the high and low intraday sales prices per share of our common stock for the quarterly periods beginning January 14, 2016 through December 31, 2017 based on information provided by OTC Markets Group, Inc. The over-the-counter market quotations set forth for our common stock reflect  inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
   
High
   
Low
 
2017
           
4th Quarter
 
$
1.00
   
$
0.13
 
3rd Quarter
 
$
2.60
   
$
0.23
 
2nd Quarter
 
$
2.98
   
$
1.51
 
1st Quarter
 
$
4.50
   
$
1.90
 
                 
2016
               
4th Quarter
 
$
4.75
   
$
2.17
 
3rd Quarter
 
$
6.00
   
$
3.18
 
2nd Quarter
 
$
8.70
   
$
2.51
 
1st Quarter
 
$
23.59
   
$
1.02
 
   
Holders of Common Stock
 
As of March 23, 2018, we had 109,207,786 shares of common stock outstanding held by approximately 43 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
 
Dividend Policy
 
We have never declared or paid any cash dividends. We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business, and therefore do not anticipate paying any cash dividends in the foreseeable future.  
 
ITEM 6.  SELECTED FINANCIAL DATA
 
Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this Item. 
 
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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis together with our Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report on Form 10‑K. This discussion contains forward‑looking statements that involve risks and uncertainties. For additional discussion, see “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS” above.
 
Overview
 
We were incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. We completed our initial public offering in January 2013. Effective August 7, 2017, we changed our legal name to Humanigen, Inc.
 
We have undergone significant changes since December 2015. As a result of challenges facing us at the time, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On June 30, 2016, our Second Amended Plan of Reorganization, dated May 9, 2016, as amended, or the Plan, became effective and we emerged from our Chapter 11 bankruptcy proceedings. For further information on our bankruptcy and emergence from bankruptcy, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .
On January 13, 2016, our common stock was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the ticker symbol KBIOQ.  On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of our common stock, and the delisting was effective on February 5, 2016.  On June 30, 2016, upon emergence from bankruptcy, the ticker symbol for the trading of our common stock on the over-the-counter market reverted back to KBIO. On June 26, 2017 our common stock began trading on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following effectiveness of our previously reported name change to Humanigen, Inc., our common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”.

From the time of our emergence from bankruptcy to August 29, 2017, our lead product candidate was benznidazole for the treatment of Chagas disease, a parasitic illness that can lead to long-term heart, intestinal and neurological problems. On June 30, 2016, we acquired certain worldwide rights to benznidazole from Savant Neglected Diseases, LLC, or Savant, and until August 29, 2017, we were primarily focused on the development necessary to seek and obtain approval by the United States Food and Drug Administration, or FDA, for benznidazole and the subsequent commercialization, if approved.  According to FDA-issued guidance, benznidazole is eligible for review pursuant to a 505(b)(2) regulatory pathway as a potential treatment for Chagas disease and, if it became the first FDA-approved treatment for Chagas disease, we would have been eligible to receive a Priority Review Voucher (“PRV”).

However, on August 29, 2017, the FDA announced it had granted accelerated and conditional approval of a benznidazole therapy manufactured by Chemo Research, S.L., or Chemo, for the treatment of Chagas disease and had awarded that manufacturer a neglected tropical disease PRV. Chemo’s benznidazole also received Orphan Drug designation. As a result of FDA’s actions and because we no longer expected to be eligible to receive a PRV with our own benznidazole candidate for the treatment of Chagas disease, we immediately ceased development for benznidazole and began assessing a full range of options with respect to our benznidazole assets and development program. We also began an accelerated scientific assessment of emerging new possibilities for our monoclonal antibody assets and development programs

On December 21, 2017, we reached an agreement with our Term Loan Lenders (as defined below) on a series of transactions, including the transfer and assignment of all of our assets related to benznidazole to an affiliate of one of the Term Loan Lenders, providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under our Term Loan Credit Agreement (as defined below). We refer to these transactions herein as the “Restructuring Transactions.” On February 27, 2018, we completed the Restructuring Transactions. For further information regarding the Restructuring Transactions, see “Liquidity and Capital Resources” and “Item 1. Business – Restructuring Transactions.”
 
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Since the FDA’s August 29, 2017 announcement relating to benznidazole, we have shifted our primary focus toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab (formerly known as KB003) and ifabotuzumab (formerly known as KB004), for use in addressing significant unmet needs in oncology. Both of these product candidates are in the early stage of development and will require substantial time, expenses, clinical development, testing, and regulatory approval prior to commercialization. Furthermore, neither of these product candidates has advanced into a pivotal registration study and it may be years before such a study is initiated, if at all.

Lenzilumab is a recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine in the inflammatory cascade associated with CAR-T-related side effects and in the growth of certain hematologic malignancies, solid tumors and other serious conditions. We expect to study lenzilumab’s potential in reducing serious and life-threatening adverse events associated with CAR-T therapy. We have begun to explore lenzilumab’s effectiveness in preventing or ameliorating neurotoxicity associated with CAR-T therapy, and potentially cytokine release syndrome or CRS. In addition, we continue dosing in a Phase 1 clinical trial in patients with CMML to identify the maximum tolerated dose, or MTD, or recommended Phase 2 dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity.  We have fully enrolled the total of 12 patients in the 200, 400 and 600 mg dose cohorts of our CMML trial, and are currently evaluating subjects in the highest dose cohort of 600 mg for continuing accrual. We also plan to review preliminary safety and efficacy results and anticipate completion of the ad hoc interim analysis in the first half of 2018. We may also use the interim data from the lenzilumab CMML Phase 1 study to determine the feasibility of rapidly commencing a Phase 1 study in JMML patients, or to explore progressing directly the CMML development program. JMML is a rare pediatric cancer, is associated with a very high unmet medical need and there are no FDA-approved therapies.

Ifabotuzumab is an anti-Ephrin Type-A receptor 3, or EphA3, mAb that has the potential to offer a novel approach to treating solid tumors and hematologic malignancies, serious pulmonary conditions and as a CAR construct. EphA3 is aberrantly expressed on the surface of tumor cells and stroma cells in certain cancers. We have completed the Phase 1 dose escalation portion of a Phase 1/2 clinical trial in ifabotuzumab in multiple hematologic malignancies for which the preliminary results were published in the journal Leukemia Research in 2016.  An investigator-sponsored Phase 0/1 radio-labeled imaging trial of ifabotuzumab in glioblastoma multiforme, a particularly aggressive and deadly form of brain cancer, has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia.   We are currently exploring partnering opportunities to enable further development of ifabotuzumab.

 Lenzilumab and ifabotuzumab were each developed with our proprietary, patent-protected Humaneered® technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use, typically for chronic conditions.

We have incurred significant losses and had an accumulated deficit of $262.5 million as of December 31, 2017.  We expect to continue to incur net losses for the foreseeable future as we develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, expand our development activities and seek regulatory approvals. Significant capital is required to continue to develop and to launch a product and many expenses are incurred before revenue is received, if any. We are unable to predict the extent of any future losses or when we will receive revenue or become profitable, if at all.
 
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Despite completing the Restructuring Transactions, we will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, clinical trials and other studies, and, if approved, the commercialization of our product candidates. We anticipate that we will seek additional financing from a number of sources, including, but not limited to, the sale of equity or debt securities, strategic collaborations, and licensing of our product candidates. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business, financial condition and results of operations. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies, product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic transaction that could result in, among other things, a sale, merger, consolidation or business combination.
 
If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months.  These conditions raise substantial doubt about our ability to continue as a going concern. The Report of Independent Registered Public Accounting Firm at the beginning of the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K includes an explanatory paragraph about our ability to continue as a going concern.
 
The consolidated financial statements for the year ended December 31, 2017 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business.  Our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding.  The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value‑based measurement of stock‑based compensation, accruals and warrant valuations. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the consolidated financial statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity and financial condition.
 
We are an emerging growth company under the JOBS Act. Emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
 
While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
 
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Accrued Research and Development Expenses
 
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Some of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees to:
 
·
contract research organizations and other service providers in connection with clinical studies;
·
contract manufacturers in connection with the production of clinical trial materials; and
·
vendors in connection with preclinical development activities.

We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing these costs, we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period.
 
Stock‑Based Compensation
 
Our stock‑based compensation expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black‑Scholes option pricing model and is recognized as expense over the requisite service period. The Black‑Scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock. To estimate the expected term, we have opted to use the simplified method, which is the use of the midpoint of the vesting term and the contractual term. If any of the assumptions used in the Black‑Scholes option pricing model changes significantly, stock‑based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre‑vesting termination behavior of employees. To the extent our actual forfeiture rate is different from our estimate, stock‑based compensation expense is adjusted accordingly.
 
Revenue Recognition
 
Our contract revenue to date has been generated primarily through license agreements and research and development collaboration agreements. Contract revenue may include nonrefundable, non‑creditable upfront fees, funding for research and development efforts, and milestone or other contingent payments for achievements with regards to our licensed products. We did not materially modify any previous material collaboration agreements or enter into any new such agreements from 2011 through the end of 2016.  All collaboration agreements have been accounted for in accordance with the accounting guidance applicable to such arrangements prior to our adoption of Accounting Standards Update, or ASU, 2009‑13, Multiple‑Deliverable Revenue Arrangements, and ASU 2010‑17, Revenue Recognition—Milestone Method, each of which we adopted on a prospective basis on January 1, 2011.
 
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We recognize revenue when persuasive evidence of an arrangement exists, transfer of technology has been completed, services have been performed or products have been delivered, the fee is fixed and determinable, and collection is reasonably assured.
 
For multiple element arrangements, we evaluate whether the components of each arrangement are to be accounted for as separate units of accounting based on certain criteria. Upfront payments for licensing our intellectual property to date have not been separable from the activity of providing research and development services because the license has not been assessed to have stand‑alone value separate from the research and development services provided. Such upfront payments are recorded as deferred revenue in the balance sheet and are recognized as contract revenue over the contractual or estimated substantive performance period, which is consistent with the term of the research and development obligations contained in the research and development collaboration agreement.
 
Payments resulting from our research and development efforts under license agreements are recognized as the activities are performed and are presented on a gross basis. Revenue is recorded gross because we act as a principal, with discretion to choose suppliers, bear credit risk, and perform part of the services.
 
Substantive, at‑risk milestone payments are recognized as revenue when the milestone is achieved and collectability is reasonably assured. When contingent payments are not for substantive and at‑risk milestones, revenue is recognized over the estimated remaining term of the related service period or, if there are no continuing performance obligations under the arrangement, upon receipt provided that collection is reasonably assured and other revenue recognition criteria have been satisfied.
 
Financial Reporting in Reorganization
 
Liabilities subject to compromise is our estimate of known or potential pre-petition claims to be resolved in connection with our Chapter 11 bankruptcy case (the “Bankruptcy Case”). Such claims remain subject to future adjustments. Payment terms for liabilities subject to compromise are established as part of the Plan.
 
We applied Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations, which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. It requires that the financial statements for periods subsequent to the Chapter 11 filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the Consolidated Statements of Operations and Comprehensive Loss. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be subject to a plan of reorganization must be reported at the amounts expected to be allowed in the Company’s Chapter 11 case, even if they may be settled for lesser amounts as a result of the plan of reorganization or negotiations with creditors. In addition, cash used by reorganization items are disclosed separately in the Consolidated Statements of Cash Flow.
 
In conjunction with our exit from bankruptcy on June 30, 2016, we reclassified $4.8 million of Liabilities subject to compromise in the amounts of $2.8 million, $0.8 million and $1.2 million to Accounts payable, Accrued expenses and Notes payable to vendors, respectively. For the year ended December 31, 2016, we paid approximately $3.4 million related to Liabilities subject to compromise, issued $1.2 million in promissory notes to vendors, wrote off approximately $0.3 million in deferred rent liabilities related to its lease termination and reversed approximately $0.1 million in accrued expenses related to a claim that has been denied by the court, which as discussed above, were previously included in Liabilities subject to compromise. As of December 31, 2016, approximately $0.4 million and $1.2 million remain in Accounts payable and Notes payable to vendors, respectively. As of December 31, 2017, approximately $0.06 million and $1.3 million remain in Accounts payable and Notes payable to vendors, respectively. Remaining amounts will be paid based on terms of the Plan.
 
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Reorganization items, net consisted of the following charges ($000’s):
   
   
Year ended December 31,
 
   
2017
   
2016
 
Legal fees
 
$
297
   
$
4,870
 
Professional fees
   
34
     
1,218
 
Debtor-in-possession financing  costs
   
-
     
1,143
 
Beneficial conversion on debtor-in-possession financing
   
-
     
484
 
Fair value of shares issued to officer and directors for service in bankruptcy
   
-
     
700
 
Gain on lease termination
   
-
     
(227
)
Total reorganization items, net
 
$
331
   
$
8,188
 
   
Recently Issued Accounting Pronouncements
 
 For a discussion of new accounting pronouncements, see Note 3, Summary of Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.
 
Results of Operations
 
General
 
We have not generated net income from operations, except for the year ended December 31, 2007, during which we recognized a one‑time license payment from Novartis. At December 31, 2017, we had an accumulated deficit of $262.5 million, primarily as a result of research and development and general and administrative expenses as well as costs incurred in reorganization. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, and research and development payments in connection with strategic partnerships, our product candidates are at an early stage of development and may never be successfully developed or commercialized. 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.
 
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. We began tracking our external costs by project beginning January 1, 2008, and we have continued to refine our systems and our methodology in tracking external research and development costs. 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 a substantial portion of our preclinical activities;
·
the cost of acquiring and manufacturing clinical trial and other materials; and
·
other costs associated with development activities, including additional studies.
 
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Other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees (such as workers compensation and health insurance premiums), stock‑based compensation charges, travel costs, lab supplies, overhead expenses such as rent and utilities, and external 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 years ended December 31, 2017 and 2016 ($000’s):
 
   
Year Ended December 31,
 
   
2017
   
2016
 
External Costs
           
   KB001
 
$
-
   
$
22
 
   Lenzilumab
   
2,271
     
304
 
   Ifabotuzumab
   
145
     
214
 
   Benznidazole
   
6,959
     
5,543
 
Internal costs
   
1,790
     
4,366
 
Total research and development
 
$
11,165
   
$
10,449
 
   
We expect to continue to incur substantial expenses related to our research and development activities for the foreseeable future as we continue product development including our development efforts for lenzilumab in the prevention of neurotoxicity and potentially CRS associated with CAR-T-cell treatment and in CMML.  Depending on the results of our development efforts we expect to incur substantial costs to prepare for potential clinical trials and activities for lenzilumab.

General and Administrative Expenses
 
General and administrative expenses consist principally of personnel‑related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise included in research and development. For the years ended December 31, 2017 and 2016, general and administrative expenses were $7.million and $8.4 million, respectively.
 
Comparison of Years Ended December 31, 2017 and 2016 ($000’s)
 
   
Year Ended December 31,
   
Increase/ (Decrease)
 
   
2017
   
2016
   
$'s
   
%
 
Operating expenses:
                       
Research and development
 
$
11,165
   
$
10,449
   
$
716
     
7
 
General and administrative
   
7,866
     
8,376
     
(510
)
   
(6
)
Loss from operations
   
(19,031
)
   
(18,825
)
   
206
     
1
 
Interest expense
   
(3,056
)
   
(131
)
   
2,925
     
2,233
 
Other income, net
   
431
     
125
     
306
     
245
 
Reorganization items, net
   
(331
)
   
(8,188
)
   
(7,857
)
   
(96
)
Net loss
 
$
(21,987
)
 
$
(27,019
)
 
$
(5,032
)
   
(19
)
   
Research and development expenses increased $0.7 million in 2017 from $10.4 million for the year ended December 31, 2016 to $11.2 million for the year ended December 31, 2017. The increase is primarily attributable to increased spending of $1.9 million on lenzilumab primarily related to the CMML study and $1.4 million on benznidazole development for Chagas disease. We expect our research and development expenses will decrease in 2018 compared to 2017, primarily due to the discontinuation of development of benznidazole.
 
General and administrative expenses decreased $0.5 million in 2017 from $8.4 million for the year ended December 31, 2016 to $7.9 million for the year ended December 31, 2017. The decrease in general and administrative expenses is primarily attributable to lower insurance and accounting services costs. We expect our general and administrative expenses to continue to decrease in 2018 as compared to 2017 levels.
 
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Reorganization items, net decreased $7.9 million in 2017, from $8.2 million for the year ended December 31, 2016 to $0.3 million for the year ended December 31, 2017.   Reorganization items, net for the year ended December 31, 2016 primarily consisted of amounts incurred related to the Plan in 2016, including legal fees of $4.9 million, $1.2 million in other professional fees, $0.7 million related to the fair value of common shares issue to our CEO and two directors for their service in bankruptcy, $1.1 million in legal and other costs related to the debtor-in-possession financing, $0.5 million related to the beneficial conversion expense recognized in connection with the debtor-in-possession financing, offset by a net gain on the termination of the South San Francisco lease of $0.2 million.  Reorganization items, net for the year ended December 31, 2017 primarily consisted of legal fees.

Interest expense of $0.13 million recognized for the year ended December 31, 2016 is comprised of $0.05 million related to the debtor-in-possession financing entered into on April 1, 2016, $0.06 million related to the promissory notes issued to certain vendors in accordance with the Plan and $0.02 million related to interest and loan issuance costs related to the Term Loans (as defined below).  Interest expense recognized of $3.0 million for the year ended December 31, 2017 is comprised of $2.9 million related to interest and loan issuance costs related to the Term Loans and $0.1 million related to the promissory notes issued to certain vendors in accordance with the Plan.
 
Other income, net for the year ended December 31, 2017 primarily consisted of settlements for a reduction in amounts owed to certain vendors. Other income, net for the year ended December 31, 2016 primarily consisted of foreign currency gains related to the payment of bankruptcy liabilities.
 
Income Taxes
 
As of December 31, 2017, we had net operating loss carryforwards of approximately $166 million to offset future federal income taxes which expire in the years 2021 through 2037, and approximately $156 million that may offset future state income taxes which expire in the years 2018 through 2037. Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they are utilized. At December 31, 2017, we recorded a 100% valuation allowance against our deferred tax assets of approximately $52 million, as at that time our management believed it was uncertain that they would be fully realized. If we determine in the future that we will be able to realize all or a portion of our deferred tax assets, an adjustment to our valuation allowance would increase net income in the period in which we make such a determination.
 
Liquidity and Capital Resources
 
Since our inception, we have financed our operations primarily through proceeds from the public offerings and private placements of our common stock, private placements of our preferred stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, borrowings against lines of credit, and receipts from agreements with Sanofi and Novartis. At December 31, 2017, we had cash and cash equivalents of $0.7 million.  As of March 23, 2018, we had cash and cash equivalents of $1.6 million.
 
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The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below ($000’s):
   
   
Year Ended December 31,
 
   
2017
   
2016
 
             
Net cash (used in) provided by:
           
   Operating activities
 
$
(14,249
)
 
$
(20,961
)
   Investing activities
   
-
     
103
 
   Financing activities
   
12,080
     
15,333
 
Net decrease in cash and cash equivalents
 
$
(2,169
)
 
$
(5,525
)
 
Net cash used in operating activities was $14.2 million and $21.0 million for the years ended December 31, 2017 and 2016, respectively. The primary use of cash in 2016 was to fund our operations related to the Plan. Cash used in operating activities of $21.0 million for the year ended December 31, 2016 primarily related to our net loss of $27.0 million, adjusted for non-cash items, such as $1.6 million related to reorganization items related to the debtor-in-possession financing, $1.4 million related to the issuance of stock to our CEO and two directors, $0.4 million related to the issuance of warrants to Savant in connection with the acquisition of certain rights related to the benznidazole license, $0.2 million related to a net gain on lease termination, other non-cash items of $1.2 million and net cash outflows of $1.6 million related to changes in operating assets and liabilities, primarily Liabilities subject to compromise, Accounts payable and Accrued expenses.  Cash used in operating activities in 2017 primarily related to our net loss of $21.9 million, adjusted for non-cash items, such as $3.0 million in noncash interest expense, $2.1 million in stock-based compensation, and net increases in working capital items, primarily $2.6 million of Accrued expenses.
 
Net cash provided by investing activities was $0.1 million for the year ended December 31, 2016, primarily related to the reduction in restricted cash related to the termination of our office lease in South San Francisco.
 
Net cash provided by financing activities was $12.1 million for the year ended December 31, 2017 related to the Term Loans (as defined below).  Net cash provided by financing activities was $15.3 million for the year ended December 31, 2016 related to the debtor-in-possession and bankruptcy-related equity financings and proceeds from the Term Loans (as defined below).
 
In connection with our emergence from bankruptcy, we closed an $11 million financing that provided the funds required to enable our exit from Chapter 11 as well as to fund our current working capital needs. In December 2016, we entered into a Credit and Security Agreement (as amended, the “Term Loan Credit Agreement”) providing for an original $3.0 million credit facility (the “December 2016 Term Loan”), net of certain fees and expenses. On March 21, 2017, we entered into an amendment to the Term Loan Credit Agreement to obtain an additional $5.5 million (the “March 2017 Term Loan”), net of certain fees and expenses, providing additional working capital. On July 8, 2017, we entered into a second amendment to the Term Loan Credit Agreement to obtain an additional $5.0 million (the “July 2017 Term Loan”), net of certain fees and expenses, providing additional working capital. As of the third quarter of 2017, we had received the entire amount available under the Term Loan Credit Agreement.

On December 21, 2017, we entered into a Securities Purchase and Loan Satisfaction Agreement (the “Purchase Agreement”) and a Forbearance and Loan Modification Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Restructuring Agreements”), each with the Term Loan Lenders, in connection with a series of transactions providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement and the infusion of $3.0 million of new capital. The Restructuring Transactions were completed on February 27, 2018.  For additional information regarding the Restructuring Transactions, see “Restructuring Transactions” in Item 1 of this Annual Report on Form 10-K.
 
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Despite completing the Restructuring Transactions, we will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, lenzilumab and ifabotuzumab, clinical trials and other studies, and, if approved, the commercialization of our product candidates. The amount of capital we will require and the timing of our need for additional capital will depend on many factors, including:

·
the type, number, timing, progress, costs, and results of the product candidate development programs that we are pursuing or may choose to pursue in the future;
·
the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials;
·
the timing of and costs involved in obtaining regulatory approvals;
·
the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders;
·
our ability to re-list our common stock on a national securities exchange, whether through a new listing or by completing a strategic transaction;
·
our ability to establish and maintain development partnering arrangements and any associated funding;
·
the emergence of competing products or technologies and other adverse market developments;
·
the costs of maintaining, expanding, and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
·
the resources we devote to marketing, and, if approved, commercializing our product candidates;
·
the scope, progress, expansion and costs of manufacturing our product candidates; and
·
the costs associated with being a public company.
  
We are pursuing efforts to raise additional capital from a number of sources, including, but not limited to, the sale of equity or debt securities, strategic collaborations, and licensing of our product candidates. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business, financial condition and results of operations. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies, product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic transaction that could result in, among other things, a sale, merger, consolidation or business combination.

If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital will not be sufficient to fund our operations for the next twelve months.  These conditions raise substantial doubt about our ability to continue as a going concern.
 
Our common stock currently trades on the OTCQB Venture Market under the ticker symbol “HGEN”. Although our common stock is listed for quotation on the OTCQB Venture Market, trading is limited and an active market for our common stock may never develop in the future, which could harm our ability to raise capital to continue to fund operations.
 
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 Contractual Obligations and Commitments
 
The following table summarizes our contractual obligations at December 31, 2017 and the effect such obligations are expected to have on our liquidity and cash flow in future years. ($000’s)
 
   
Total
   
Less than
1 year
   
1 to 3
years
   
4 to 5
years
   
After 5
years
 
Lease obligations
 
$
202
   
$
202
   
$
-
   
$
-
   
$
-
 
Principal Payments on term loans
   
16,308
     
16,308
     
-
     
-
     
-
 
Interest payments on term loans
   
1,032
     
1,032
     
-
     
-
     
-
 
Commitment fees on term loans
   
678
     
678
     
-
     
-
     
-
 
Principal payments on notes payable to vendors
   
1,174
     
-
     
1,174
     
-
     
-
 
Interest payments on notes payable to vendors
   
177
     
-
     
177
     
-
     
-
 
Total
 
$
19,571
   
$
18,220
   
$
1,351
   
$
-
   
$
-
 
 
Operating Leases
 
Per the terms of our former lease agreement, we had the option to terminate the lease after 36 months, subject to additional fees and expenses. In March 2016, we entered into a termination agreement, or the Lease Termination Agreement, related to the lease of this facility. The Lease Termination Agreement, approved by order of the Bankruptcy Court issued March 15, 2016, waived all damages related to early termination of the lease, relieved us of March rental expenses and set an effective termination date of March 31, 2016.
 
Concurrent with the termination of this lease, we entered into a lease agreement for a new facility in Brisbane, California. The new lease commenced in April 2016 and was to expire on March 31, 2017. On February 16, 2017, we amended the lease to extend the term of the lease for an additional period of eighteen months such that the lease will expire on September 30, 2018. The minimum lease payments presented in the table above include payments due under the amended lease that expires on September 30, 2018.
 
2016 Financing Transactions
 
2016 Credit Agreement
 
On April 1, 2016,  we entered into the Credit Agreement with Black Horse Capital Master Fund Ltd., as administrative agent and lender (“BHCMF” or “Agent”), Black Horse Capital LP, as a lender (“BHC”), Cheval Holdings, Ltd., as a lender (“Cheval”) and Nomis Bay LTD, as a lender (“Nomis” and, together with BHCMF, BHC and Cheval, the “Lenders”). The Credit Agreement provided for a debtor-in-possession credit facility in the original principal amount of $3.0 million (the “Term Loan”). The Credit Agreement provided that the Term Loan will be made by the Lenders at an original discount equal to $0.2 million (the “Upfront Fee”) and required the payment by us to the Lenders of a commitment fee equal to $0.2 million (the “Commitment Fee”). In accordance with the terms of the Credit Agreement, we used the proceeds of the Term Loan for working capital, bankruptcy-related costs, costs related to our plan of reorganization, the payment of certain fees and expenses owed to BHCMF and the Lenders in connection with the Credit Agreement and other costs incurred in the ordinary course of business.

The Credit Agreement provided that the outstanding principal balance of the Term Loan, plus accrued and unpaid interest, plus the Upfront Fee, plus the Commitment Fee and all other non-contingent obligations would mature on the earlier of an event of default under the Credit Agreement or the effective date of our plan of reorganization.  The Maturity Date was deemed to occur simultaneously with the Effective Date and, accordingly, on June 30, 2016, 2,350,480 shares of common stock were issued to the Lenders in repayment of our debt obligations under the Credit Agreement, including 201,436 shares to BHC, 470,096 shares to BHCMF, 503,708 shares to Cheval, 940,192 shares to Nomis and 235,048 shares to Cortleigh Limited (“Cortleigh”).  Pursuant to the terms of the Credit Agreement, we also paid $0.4 million to BHC in payment of its fees and expenses and $0.3 million to Nomis in payment of its fees and expenses.
 
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2016 Securities Agreement
 
 Also on April 1, 2016, we entered into the Securities Purchase Agreement, or the SPA, with the Lenders. The SPA provides for the sale to the Lenders on the closing date of an aggregate of 5,885,000 shares of common stock, subject to adjustment as provided in the SPA, in respect of exit financing in the amount of $11 million (the “Exit Financing”) plus an exit financing commitment fee of $0.8 million payable by us to the Lenders, plus payment to the Lenders of their fees and expenses incurred in connection with the Exit Financing and the SPA. Nomis subsequently assigned twenty percent (20%) of its interest in the shares of common stock to be purchased by Nomis under the SPA and the Credit Agreement to Cortleigh (collectively with the Lenders, the “Purchasers”).

The issuance of the shares contemplated by the SPA was consummated on the Effective Date, and we issued to the Purchasers an aggregate of 7,147,035 shares of common stock for an aggregate purchase price of $11 million, including 612,501 shares to BHC, 1,429,407 shares to BHCMF, 1,531,610 shares to Cheval, 2,858,814 shares to Nomis and 714,703 shares to Cortleigh.  Pursuant to the terms of the SPA, we paid $0.4 million to BHC in payment of its fees and expenses and $0.3 million to Nomis in payment of its fees and expenses.

Notes Payable to Vendors

On June 30, 2016, we issued promissory notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Plan.  The notes are unsecured, bear interest at 10% per annum and are due and payable in full, including principal and accrued interest on June 30, 2019.  As of December 31, 2017, we have accrued $0.2 million in interest related to these promissory notes.


Term Loans

On December 21, 2016, we entered into a Credit and Security Agreement,, as amended on March 21, 2017 and on July 8, 2017 (as amended, the “Term Loan Credit Agreement”), with BHCMF, as administrative agent and lender, and lenders BHC, Cheval and Nomis Bay (collectively the “Term Loan Lenders”).  The Term Loan Credit Agreement provided for the following term loans (the “Term Loans”) in 2017 and 2016 ($000’s):
    
Term Loan
 
Proceeds
to
Company
   
Fees
   
Original
Principal
Amount
   
Commitement
Fee Due at
Maturity
   
Total Due
at
Maturity
 
December 2016 Loan
 
$
2,993
   
$
322
   
$
3,315
   
$
153
   
$
3,468
 
March 2017 Loan
   
5,500
     
478
     
5,978
     
275
     
6,253
 
July 2017 Loan
   
5,000
     
435
     
5,435
     
250
     
5,685
 

In accordance with the terms of the Term Loan Credit Agreement, we used the proceeds of the Term Loans for general working capital, the payment of certain fees and expenses owed to BHCMF and the Term Loan Lenders and other costs incurred in the ordinary course of business. Dr. Chappell, one our former directors, is an affiliate of each of BHCMF, BHC and Cheval. On November 9, 2017, Dr. Chappell resigned from the Board, effective immediately.

The Term Loans bore interest at 9.00% and were subject to certain customary representations, warranties and covenants, as set forth in the Term Loan Credit Agreement.
 
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Upon the occurrence of any event of default set forth in the Term Loan Credit Agreement, BHCMF had the option of terminating the Term Loan Credit Agreement and declaring all of the Company’s obligations immediately payable. The occurrence of an event of default caused the Term Loans to bear interest at a rate per annum equal to 14.00%.

Our obligations under the Term Loan Credit Agreement were secured by a first priority interest in all of our real and personal property, subject only to certain carve outs and permitted liens, as set forth in the Term Loan Credit Agreement.

The outstanding principal balance of the Term Loans, plus accrued interest and fees, were due on the earlier of acceleration after an event of default under the Term Loan Credit Agreement, or October 31, 2017.  On October 31, 2017, we obtained a short-term extension of the maturity of our obligations under the Term Loans. On November 16, 2017, we obtained an additional short-term extension of the maturity of our obligations under the Term Loans.

On December 1, 2017, our obligations matured under the Term Loan Credit Agreement. On December 21, 2017, we agreed to enter into a series of transactions (as further described below, the “Restructuring Transactions”) providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement between us and the Term Loan Lenders, and the infusion into the company of $3.0 million of new capital.

The following chart shows the components of our Term Loans (including the Bridge Loan and the Claims Advances, as discussed below) as of December 31, 2017 and 2016 ($000’s):
 

 
As of December 31, 2017
                             
   
Original
Principal
Amount
   
Accrued
Interest
   
Loan
Balance
   
Fees
   
Balance
Due
 
December 2016 Loan
 
$
3,315
   
$
324
   
$
3,639
   
$
153
   
$
3,792
 
March 2017 Loan
   
5,978
     
452
     
6,430
     
275
     
6,705
 
July 2017 Loan
   
5,435
     
249
     
5,684
     
250
     
5,934
 
Bridge Loan
   
1,500
     
6
     
1,506
     
-
     
1,506
 
Claims Advances Loan
   
80
     
1
     
81
     
-
     
81
 
Totals
 
$
16,308
   
$
1,032
   
$
17,340
   
$
678
   
$
18,018
 
                                         
As of December 31, 2016
                                       
   
Original
Principal
Amount
   
Accrued
Interest
   
Loan
Balance
   
Unamortized
Fees
   
Balance
Due
 
December 2016 Loan
 
$
3,315
   
$
8
   
$
3,323
   
$
(307
)
 
$
3,016
 
  
The Restructuring Transactions were completed on February 27, 2018.  For additional information regarding the Restructuring Transactions, see “Restructuring Transactions” in Item 1 of this Annual Report on Form 10-K.

On March 12, 2018, we issued 2,445,557 shares of our common stock for total proceeds of $1.1 million to accredited investors.
 
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Contracts
 
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.

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.
 
Off‑Balance Sheet Arrangements
 
We currently have no off‑balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities.
 
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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this Item.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Our Consolidated Financial Statements and The Report of Independent Registered Public Accounting Firm are included in this Annual Report on Form 10-K on pages F-1 through F-34.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
 
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, and in light of the weaknesses in our internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) under the Exchange Act). Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control—Integrated Framework. Based on that assessment and using the COSO criteria, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of December 31, 2017, our internal control over financial reporting was not effective because of the material weaknesses described below.
 
A material weakness is defined as “a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.”
 
The ineffectiveness of our internal control over financial reporting at December 31, 2017, was due to an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel.
 
During 2018, we intend to work to remediate the material weaknesses identified above, which could include the addition of accounting and financial reporting personnel and/or the engagement of accounting and personnel consultants on a limited-time basis until we add a sufficient number of personnel. However, our current financial position could make it difficult for us to add the necessary resources.
 
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This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to a transition period established by the Jumpstart Our Business Startups Act, or JOBS Act, for emerging growth companies.

Changes in Internal Control Over Financial Reporting
 
Other than as described above, there has been no change in our internal control over financial reporting during the quarter ended December 31, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Inherent Limitations of Controls
 
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost‑benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision‑making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost‑effective control system, misstatements due to error or fraud may occur and not be detected.
 
ITEM 9B.  OTHER INFORMATION
 
None.
 
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PART III
 
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Directors
 
The following table sets forth the names, ages and current positions of members of the Board of Directors, or the Board, of Humanigen, Inc., or the Company or us.  Following the table is biographical information for each director, including information on specific experiences, qualifications and skills that support the conclusion that the director should currently serve on the Board.
 
Name
 
Age
 
Principal Occupation
 
Director
Since
Cameron Durrant, M.D., MBA
 
57
 
Chairman and Chief Executive Officer, Humanigen, Inc.
 
2016
Ronald Barliant, JD
 
72
 
Of Counsel, Goldberg Kohn, Ltd.
 
2016
Timothy Morris, CPA
 
56
 
Chief Financial Officer, Iovance Biotherapeutics, Inc.
 
2016
Rainer Boehm, M.D., MBA
 
57
 
Former Chief Commercial and Medical Officer and interm Chief Executive Officer at Novartis Pharmaceuticals
 
2018
Robert Savage, MBA
 
64
 
President, Chief Executive Officer and Chairman Strategic Imagery, LLC
 
2018
  
Cameron Durrant, M.D., MBA, has served as a member and Chairman of our Board since January 2016, and as our Chief Executive Officer since March 2016. From May 2014 to January 2016, Dr. Durrant served as Founder and Director of Taran Pharma Limited, a private semi-virtual specialty pharma company developing and registering treatments in Europe for orphan conditions. Dr. Durrant served as President and Chief Executive Officer of ECR Pharmaceuticals Co., Inc., a subsidiary of Hi-Tech Pharmacal Co., Inc., from September 2012 to April 2014. From January 2010 to September 2012, Dr. Durrant served as a consultant to several biopharma companies, as the Founder, CEO, CFO and director of PediatRx, Inc. and on the boards of several privately-held healthcare companies. He previously served as CEO of PediaMed Pharmaceuticals and has been a senior executive at Johnson and Johnson, Pharmacia Corporation, GSK and Merck.  Dr. Durrant has been a director of Immune Pharmaceuticals Inc. since July 2014 and serves on the boards of directors of several privately held healthcare companies.  Dr. Durrant earned his medical degree from the Welsh National School of Medicine, Cardiff, UK, his DRCOG from the Royal College of Obstetricians and Gynecologists, London, UK, his MRCGP from the Royal College of General Practitioners, London, UK, his DipCH from the Melbourne Academy, Australia and his MBA from Henley Management College, Oxford, UK. Dr. Durrant brings to the Board extensive experience as a pharma/biotech entrepreneur, operating executive and board member, as well as his day to day operating experience as our Chief Executive Officer.
 
Ronald Barliant, JD, has served as a member of our Board since January 2016. Mr. Barliant has been Of Counsel to Goldberg Kohn, Ltd. since January 2016, and immediately prior to that had served as a principal in Goldberg Kohn’s Bankruptcy & Creditors’ Rights Group since September 2002. He previously served as U.S. bankruptcy judge for the Northern District of Illinois from 1988 to 2002.  Mr. Barliant has represented debtors and creditors in complex bankruptcy cases, and counseled major financial institutions, business firms and boards of directors in connection with workouts.  He is a member of the board of directors of a closely held information technology company and the board of the estate representative supervising the liquidation of assets in the Global Crossing case.  Mr. Barliant brings to the Board valuable experience gained from a distinguished career as a counselor to numerous boards, considered judgment and experience with bankruptcy in the bankruptcy setting, which continues to be relevant as we address the finalization of matters related to our emergence from bankruptcy.
 
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Timothy Morris, CPA has served as a member of our Board since June 2016.  Mr. Morris has served as the Chief Financial Officer of Iovance Biotherapeutics, Inc., a biopharmaceutical company, since August 2017.  From March 2014 to June 2017 Mr. Morris served as Chief Financial Officer and Head of Business Development of AcelRx Pharmaceuticals, Inc., a specialty pharmaceutical company. From November 2004 to December 2013, Mr. Morris served as Senior Vice President Finance and Global Corporate Development, Chief Financial Officer of VIVUS, Inc. a biopharmaceutical company.  Mr. Morris received his BS in Business with an emphasis in Accounting from California State University, Chico, and is a Certified Public Accountant (Inactive).  Mr. Morris brings to the Board valuable operational experience with public companies in the biopharmaceutical industry, particularly in the areas of finance and corporate development.
 
Rainer Boehm, M.D., MBA has served as a member of our Board since February 2018.  Mr. Boehm has been a biopharmaceutical industry leader for more than three decades. At Novartis for 29 years, he held roles of increasing responsibility culminating with his position as Chief Commercial and Medical Affairs Officer and as ad interim CEO of Novartis’ pharmaceuticals division. His background spans senior leadership, marketing, sales and medical affairs positions in both oncology and pharmaceuticals and he has led regions around the world, including North America, Asia and all emerging markets. Mr. Boehm has overseen the launch and commercialization of many new drugs in his career, including blockbuster breakthroughs Cosentyx and Entresto, and major oncology brands including Afinitor, Exjade, Tasigna, Femara, Zometa and Glivec. Mr. Boehm also currently serves on the board of directors for Cellectis, a clinical-stage biopharmaceutical company focused on immunotherapies based on gene-edited CAR-T cells; as an advisor in leadership development for senior executives at the GLG Institute in New York City; and as a consultant to healthcare companies. He graduated from the medical school at the University of Ulm in Germany and received his MBA from Schiller University at the Strasbourg campus in France. Mr. Boehm was introduced to the Board by Dr. Durrant as a potential candidate and was elected after a review of the above qualifications. Mr. Boehm brings to the Board significant knowledge and experience within the biopharmaceutical industry, as well as financial acumen and operational experience.
 
Robert Savage, MBA, has served as a member of our Board since March 2018. Mr. Savage is a seasoned executive with more than 40 years of experience in marketing, sales, drug development, operations and business development in the pharmaceutical and biotechnological industries. Moreover, Mr. Savage has served on 12 boards over two decades helping to guide companies and organizations, both public and private.  Recently, he has been a director at Depomed, from October 2016 to August 2017; The Medicines Company, from 2003 – 2016; Medworth Acquisition Corporation, from 2013 – 2015; Savient Pharmaceuticals, Inc., from 2012 – 2013; and Epicept Corporation, from 2004 – 2013.  He has led multinational groups to successfully execute on corporate strategies to develop, launch and market multiple pharmaceutical brands with sales exceeding $4 billion. Currently, Mr. Savage is the president, chief executive officer and chairman of Strategic Imagery, LLC. He served as group vice president and president, worldwide general therapeutics & inflammation business, at Pharmacia Corporation from 2002 until its acquisition by Pfizer. Prior to his work with Pharmacia, Mr. Savage held leadership positions at Johnson & Johnson, where he was the worldwide chairman of the pharmaceuticals group, with prior senior roles at Ortho-McNeil Pharmaceuticals and Hoffman La-Roche. Mr. Savage earned his MBA in international marketing from Rutgers University in New Jersey. He received his BS in biology from Upsala College.
 
Additional Information. Upon the emergence from our bankruptcy on June 30, 2016, Dr. Durrant and Messrs. Barliant and Morris were designated (in the case of Dr. Durrant and Mr. Barliant) or appointed (in the case of Mr. Morris) to serve on our Board pursuant to the terms of the Stock Purchase Agreement discussed in Item 13 below.  Accordingly, Dr. Durrant continued to serve on the Board as a joint designee of the Black Horse Entities and Nomis Bay, and Mr. Barliant was designated by the Black Horse Entities.  Mr. Morris was appointed by Nomis Bay.
 
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Executive Officers
 
The following table sets forth the names, ages and current positions of each of our current executive officers. Following the table is biographical information for each executive officer not currently serving as a director.
   
Name
 
Age
 
Position
Cameron Durrant, M.D., MBA
 
                      57
 
Chief Executive Officer
Greg Jester
 
                      50
 
Chief Financial Officer
   
Cameron Durrant, M.D, MBA has served as our Chief Executive Officer since March 2016.  See “Directors” for Dr. Durrant’s biographical information.
 
Greg Jester has served as of Chief Financial Officer since September 2017. Prior to his appointment as Chief Financial Officer, Mr. Jester served as Vice President, Finance, for Tris Pharma, Inc., a specialty pharmaceutical company, from May 2015 to August 2017. From August 2014 to May 2015, Mr. Jester served as interim controller for Virtus Pharmaceuticals, LLC, a $40 million generic pharmaceutical company. He also served as a financial consultant to Cormedix, Inc., a publicly traded commercial drug device company, from March 2014 to August 2014. From July 2013 to December 2013, Mr. Jester served as Chief Financial Officer and Partner for Madden Global Solutions, Inc., a food brokerage serving warehouse club and chain drug stores, and served as Chief Financial Officer of House Party, Inc., a social media marketing company, from January 2011 to June 2013. Mr. Jester has held CFO roles at numerous private and publicly-owned pharmaceutical companies, including Alvogen Group Inc. and Innovive Pharmaceuticals, Inc. Mr. Jester holds a Bachelor of Science in business administration from the University of Richmond.
   
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our directors, executive officers and 10% stockholders to file reports of ownership of our equity securities. To our knowledge, based solely on review of the copies of such reports furnished to us related to the year ended December 31, 2017, all such reports were made on a timely basis, except that a Form 3 and a Form 4 were filed late by Mr. Jester in connection with his appointment as our Chief Financial Officer in September 2017 and the corresponding grant of stock options to purchase 150,000 shares of our common stock in connection with such appointment on September 5, 2017.

Code of Ethics
 
We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and principal financial officer. The Code of Business Conduct is posted on our website at http://ir.humanigen.com/corporate-governance.cfm.  
 
Audit Committee Matters
 
We have established an audit committee of the Board, which is currently comprised of Mr. Morris, as chair of the Committee, Mr. Boehm, and Mr. Savage. The Board has determined that Mr. Morris is an audit committee financial expert. Because we are not listed on a national securities exchange and there are no listing standards applicable to us, the Board makes determinations as to director independence based on the definition under the NASDAQ rules.  Consistent with the discussion in Item 13 below regarding director independence, the Board has determined that each member of the Audit Committee is currently independent.
 
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 ITEM 11.  EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following summary compensation table shows, for the fiscal years ended December 31, 2017 and December 31, 2016, information regarding the compensation awarded to, earned by or paid to our most highly compensated executive officers for 2017, and all individuals serving as our principal financial officer during the fiscal year ended December 31, 2017. We refer to these officers as our “named executive officers.”
  
                   
    
 
All
   
       
    
 
    
 
Stock
 
Option
 
Other
 
    
       
Salary
 
Bonus
 
Awards
 
Awards
 
Compensation
 
Total
Name and Principal Position
 
Year
 
($)
 
($)(8)
 
($)(5)
 
($)(6)
 
($)(7)
 
($)
Cameron Durrant, M.D., MBA (1)
 
2017
 
         600,000
 
      180,000
 
                  -
 
                       -
 
                            -
 
          780,000
Chairman & Chief Executive Officer
 
2016
 
         500,000
 
      126,000
 
      608,768
 
        2,312,588
 
                   16,833
 
       3,564,189
Morgan Lam (2)
 
2017
 
         380,000
 
                  -
 
                  -
 
           190,440
 
                            -
 
          570,440
Former Chief Scientific Officer
 
2016
 
         357,500
 
        70,000
 
                  -
 
           221,720
 
                            -
 
          649,220
Greg Jester (3)
 
2017
 
           96,667
 
      145,000
 
                  -
 
             33,120
 
                            -
 
          274,787
Chief Financial Officer
                           
David L. Tousley, MBA, CPA (4)
 
2017
 
              -
 
              -
 
                  -
 
           184,920
 
                 310,385
 
          495,305
 Former Interim Chief Financial Officer
 
2016
 
                -
 
              -
 
                  -
 
                  -
 
                 333,788
 
          333,788
   
(1)
Appointed as Chairman January 7, 2016 and as Chief Executive Officer on March 1, 2016.
(2)
Appointed as Chief Operating Officer on February 1, 2016 and promoted to Chief Scientific Officer on September 13, 2016. Mr. Lam resigned as Chief Scientific Officer effective January 15, 2018.
(3)
Appointed Chief Financial Officer on September 5, 2017.
(4)
Appointed as Interim Chief Financial Officer on October 14, 2016. Mr. Tousley resigned as Interim Chief Financial Officer effective August 11, 2017.
(5)
The amounts in this column represent the aggregate grant date fair value of stock awards granted to Dr. Durrant related to his service during bankruptcy proceedings, computed in accordance with FASB ASC Topic 718. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of all assumptions made by us in determining the grant date fair value of our equity awards.
(6)
The amounts in this column represent the aggregate grant date fair value of option awards granted to each named executive officer, computed in accordance with FASB ASC Topic 718. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of all assumptions made by us in determining the grant date fair value of our equity awards.
(7)
Amounts reflected in this column for fiscal year 2016 are (a) for Dr. Durrant, $16,833 in Board fees paid to Dr. Durrant prior to his becoming Chairman and Chief Executive Officer.  Amounts for Mr. Tousley represent consulting fees for services rendered in 2017 and 2016, pursuant to his Engagement Agreement.
(8)
For calendar year 2016, Dr. Durrants bonus opportunity was pro-rated for the period commencing July 1, 2016 and ending on December 31, 2016.  The target bonus opportunity for calendar year 2016 amounted to $180,000.  The Board determined Dr. Durrant’s bonus for 2016 to be $126,000, for which we have recorded an accrual for this amount in the Consolidated Financial Statements for the year ended December 31, 2016 and 2017. The Compensation Committee of the Board determined Dr. Durrant’s bonus for calendar year 2017 to be $180,000. Dr. Durrant has agreed to defer receipt of the bonus pending completion of a fundraising transaction.  Mr. Jester received 100% of his bonus in immediately exercisable stock options.  The number of options granted was based on the grant date fair value as of March 9, 2018, reflecting a 10-year term.
 
Narrative to Summary Compensation Table
 
We offer stock options to our employees, including our named executive officers, as the long-term incentive component of our compensation program. Our stock options allow our employees to purchase shares of our common stock at a price equal to the fair market value of our common stock on the date of grant.
 
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In 2017, we issued stock options to certain of our named executive officers.  On February 21, 2017, Mr. Lam was issued stock options to purchase 100,000 shares of our common stock at an exercise price of $2.92. The options were to vest and become exercisable in 12 equal quarterly increments beginning on April 1, 2017. Mr. Lam’s options were determined to have a grant date fair value of $0.2 million. Mr. Lam resigned effective January 15, 2018. As a result as of January 15, 2018 all of Mr. Lam’s unvested options were forfeited.  All remaining vested options will be forfeited on March 16, 2018 unless exercised.

On September 5, 2017, Mr. Jester was issued stock options to purchase 150,000 shares of our common stock at an exercise price of $0.33. The options will vest and become exercisable in 12 equal quarterly increments beginning on October 1, 2017. Mr. Jester’s options were determined to have a grant date fair value of $0.03 million.

On February 21, 2017, Mr. Tousley was issued stock options to purchase 100,000 shares of our common stock at an exercise price of $2.92. Mr. Tousley’s options were determined to have a grant date fair value of $0.2 million.  These options were fully vested on the grant date and, unless exercised, will be forfeited on August 10, 2018.

Outstanding Equity Awards at 2017 Fiscal Year End
 
The following table shows certain information regarding outstanding equity awards held by our named executive officers as of December 31, 2017.
  
       
Option Awards
                             
       
Number of
   
Number of
          
       
Securities
   
Securities
          
       
Underlying
   
Underlying
          
       
Unexercised
   
Unexercised
   
Option
 
Option
       
Options
   
Options
   
Exercise
 
Expiration
Name
     
Exercisable
   
Unexercisable
   
Price ($)
 
Date
Cameron Durrant, M.D., MBA
(1)
     
434,592
     
608,430
   
$
3.38
 
9/13/2026
Morgan Lam
(2) 
     
1,875
     
3,125
   
$
4.72
 
6/1/2025
 
(3) 
     
8,333
     
91,667
   
$
3.38
 
9/13/2026
 
(4) 
     
24,999
     
75,001
   
$
2.92
 
2/20/2027
Greg Jester
(5) 
     
12,500
     
137,500
   
$
0.33
 
9/4/2027
David L. Tousley, MBA, CPA
(6)
     
100,000
     
100,000
   
$
2.92
 
2/20/2027
  
(1)
On September 13, 2016, Dr. Durrant was issued stock options to purchase 1,043,022 shares of the Company’s common stock at an exercise price of $3.38. The options will vest and become exercisable in 12 equal quarterly increments beginning on October 1, 2016.
(2)
On June 1, 2015, Mr. Lam was issued stock options to purchase 5,000 shares of the Company’s common stock at an exercise price of $4.72. One quarter of the options vested on June 1, 2016 and the remaining options will vest and become exercisable in 36 equal monthly increments thereafter. Mr. Lam resigned effective January 15, 2018 and all remaining unvested options were forfeited.  All remaining vested options will be forfeited on March 16, 2018 unless exercised.
(3)
On September 13, 2016, Mr. Lam was issued stock options to purchase 100,000 shares of the Company’s common stock at an exercise price of $3.38. The options were to vest and become exercisable in 12 equal quarterly increments beginning on October 1, 2016. Mr. Lam resigned effective January 15, 2018 and all remaining unvested options were forfeited.  All remaining vested options will be forfeited on March 16, 2018 unless exercised.
(4)
On February 21, 2017, Mr. Lam was issued stock options to purchase 100,000 shares of the Company’s common stock at an exercise price of $2.92.  The options were to vest and become exercisable in 12 equal quarterly increments beginning April 1, 2017.  Mr. Lam resigned effective January 15, 2018 and all remaining unvested options were forfeited.  All remaining vested options will be forfeited on March 16, 2018 unless exercised.
 
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(5)
On September 5, 2017, Mr. Jester was issued stock options to purchase 150,000 shares of the Company’s common stock at an exercise price of $0.33.  The options will vest and become exercisable in 12 equal quarterly increments beginning on October 1, 2017.
(6)
On February 21, 2017, Mr. Tousley was issued stock options to purchase 100,000 shares of our common stock at an exercise price of $2.92.  The options were fully vested on the grant date.  Mr. Tousley resigned August 11, 2017.  All remaining vested options will be forfeited August 10, 2018 unless exercised.
  
Retirement Benefits
 
We have established a 401(k) tax-deferred savings plan, which permits participants, including our named executive officers, to make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code. We are responsible for administrative costs of the 401(k) plan. We may, in our discretion, make matching contributions to the 401(k) plan. No employer contributions have been made to date.
 
Employment Agreement with Dr. Durrant

On September 13, 2016, we entered into a new employment agreement with Cameron Durrant, MD, our chairman and chief executive officer (the Agreement). The Agreement provides for an initial annual base salary for Dr. Durrant of $600,000 as well as eligibility for an annual bonus targeted at 60% of his salary based on the achievements of objectives set and agreed to by the Board. Such bonus may be a mix of cash and stock, as determined by the Board in its sole discretion. For calendar year 2016, Dr. Durrants bonus opportunity was pro-rated for the period commencing July 1, 2016 and ending on December 31, 2016.  The target bonus opportunity for calendar year 2016 amounted to $180,000.  The Board determined Dr. Durrant’s bonus for 2016 to be $126,000, for which we have recorded an accrual for this amount in the Consolidated Financial Statements for the year ended December 31, 2016 and 2017. The Compensation Committee of the Board determined Dr. Durrant’s bonus for calendar year 2017 to be $180,000.  Both amounts are expected to be paid in cash.  Dr. Durrant has agreed to defer receipt of the bonus pending completion of a fundraising transaction. Dr. Durrant is entitled to participate in our benefit plans available to other executives, including its retirement plan and health and welfare programs.

Under the Agreement, Dr. Durrant is entitled to receive certain benefits upon termination of employment under certain circumstances. If we terminate Dr. Durrants employment for any reason other than Cause, or if Dr. Durrant resigns for Good Reason (each as defined in the Agreement), Dr. Durrant will receive twelve months of base salary then in effect and the amount of the actual bonus earned by Dr. Durrant under the agreement for the year prior to the year of termination, pro-rated based on the portion of the year Dr. Durrant was employed by us during the year of termination.

The Agreement additionally provides that if Dr. Durrant resigns for Good Reason or we or our successor terminates his employment within the three month period prior to and the 12 month period following a Change in Control (as defined in the Agreement), we must pay or cause its successor to pay Dr. Durrant a lump sum cash payment equal to two times (a) his annual salary as of the day before his resignation or termination plus (b) the aggregate bonus received by Dr. Durrant for the year preceding the Change in Control or, if no bonus had been received, at minimum 50% of the target bonus. In addition, upon such a resignation or termination, all outstanding stock options held by Dr. Durrant will immediately vest and become exercisable.
  
Offer Letter with Mr. Jester
 
In connection with his appointment as CFO, we entered into an offer letter with Mr. Jester (the “Offer Letter”) pursuant to which Mr. Jester will be eligible to receive the following compensation: (i) an initial annual base salary of $290,000; (ii) an annual bonus pursuant to the Company’s annual bonus plan for executive officers, as then in effect, with a maximum bonus (if any) equal to 50% of Mr. Jester’s salary for the bonus period; and (iii) certain medical, retirement and other benefits generally available to the Company’s other employees. Under the Offer Letter, Mr. Jester was also eligible to receive stock options to purchase 150,000 shares of the Company’s common stock pursuant to the terms and conditions set forth in a stock option agreement governed by the Company’s 2012 Equity Incentive Plan.
 
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Engagement Agreement with Mr. Tousley
    
Mr. Tousley served as interim Chief Financial Officer pursuant to an engagement agreement (the “Engagement Agreement”) between himself and the Company until his resignation effective August 11, 2017. Under the Engagement Agreement, we paid Mr. Tousley at a rate of $225 per hour and reimbursed him for all travel and out of pocket expenses incurred in connection therewith.
 
2012 Equity Incentive Plan
 
On September 13, 2016, the Board approved an amendment to our 2012 Equity Plan to increase the number of shares of our common stock available for issuance under the 2012 Equity Plan by 3,000,000 shares and to increase the annual maximum aggregate number of shares subject to stock option awards that may be granted to any one person under the Equity Plan from 125,000 to 1,100,000.  On March 9, 2018, the Board approved an amendment to our 2012 Equity Plan to increase the number of shares of our common stock available for issuance under the 2012 Equity Plan by 16,050,000 shares.
 
Director Compensation
 
Pursuant to our Director Compensation Program, each member of our Board of Directors during 2017 who was not our employee was eligible to compensation for his service, as follows.  At the option of the director, such fees were payable in cash or immediately exercisable stock options having a grant date fair value equal to the equivalent cash compensation owed.
 
·
Board of Directors member: $40,000;
·
Audit committee member: $10,000;
·
Audit committee chair: $20,000;
·
Compensation committee member: $6,000;
·
Compensation committee chair: $12,000;
·
Nominating and corporate governance committee member: $4,000; and
·
Nominating and corporate governance committee chair: $8,000.
  
  The following table shows for the fiscal year ended December 31, 2017 certain information with respect to the compensation of our non-employee directors:
     
   
Fees Earned
                         
   
or Paid
   
Option
   
Stock
   
All Other
       
   
in Cash
   
Awards
   
Awards
   
Compensation
   
Total
 
Name
 
($)(1)
   
($)
   
($)
   
($)
   
($)
 
Timothy Morris, CPA(2)
   
72,000
     
-
     
-
     
-
     
72,000
 
Ronald Barliant, JD(3)
   
64,000
     
-
     
-
     
-
     
64,000
 
Dale Chappell, M.D., MBA (4)
   
30,000
     
-
     
-
     
-
     
30,000
 
Ezra Friedberg (5)
   
40,500
     
-
     
-
     
-
     
40,500
 
 
 
(1)
The amounts in this column reflect retainers earned under the Board of Directors Compensation Program for fiscal year 2017.
(2)
Mr. Morris elected to receive 50% of his director compensation in immediately exercisable stock options and 50% in cash.  The number of options granted was based on the grant date fair value as of March 9, 2018, reflecting a ten year term.
(3)
Mr. Barliant elected to receive 100% of his director compensation in immediately exercisable stock options.  The number of options granted was based on the grant date fair value as of March 9, 2018, reflecting a ten year term.
(4)
Dr. Chappell resigned from the Board of Directors on November 9, 2017.  In light of his status as a controlling stockholder, Dr. Chappell agreed to forego any separate compensation for his service on the Board of Directors.
(5)
Mr. Friedberg resigned from the Board of Directors on November 9, 2017.
 
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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Security Ownership Information
 
The following table presents information regarding beneficial ownership of our common stock as of March 23, 2018 by:
 
·
each stockholder or group of stockholders known by us to be the beneficial owner of more than 5% of our common stock;
·
each of our directors;
·
each of our named executive officers; and
·
all of our current directors and executive officers as a group.
 
Beneficial ownership is determined in accordance with the rules of the SEC, and thus represents voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
 
Percentage ownership of our common stock is based on 109,207,786 shares of our common stock outstanding as of March 23, 2018.
 
Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of March 23, 2018 are deemed to be outstanding and to be beneficially owned by the person holding the options but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Humanigen, Inc., 1000 Marina Boulevard, Suite 250, Brisbane, CA  94005.
 
Name and Address of Beneficial Owner
 
Shares of
Common
Stock
Beneficially
Owned
   
Percentage
of Shares
Beneficially
Owned
 
5% Stockholders
           
Entities affiliated with Black Horse Capital LP(1)
   
66,870,851
     
61.2
%
Nomis Bay LTD(2)
   
33,573,530
     
30.7
%
Named Executive Officers and Directors
               
Cameron Durrant, M.D., MBA(3)
   
4,390,468
     
4.0
%
Morgan Lam(4)
   
87,810
     
*
 
David L. Tousley, MBA, CPA(5)
   
100,000
     
*
 
Greg Jester(6)
   
488,282
     
*
 
Ronald Barliant, JD(7)
   
300,469
     
*
 
Timothy Morris, CPA (8)
   
138,235
     
*
 
Robert Savage
   
10,000
     
*
 
Rainer Bohem
   
-
     
*
 
All current executive officers and directors as a group (8 persons)(9)
   
5,515,444
     
5.1
%
 
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(1)
Number of shares based solely on information reported on the Schedule 13D filed with the SEC on March 1, 2018, reporting beneficial ownership as of February 27, 2018, by BHC, BHCMF, Cheval, Black Horse Capital Management LLC, or BH Management, and Dale Chappell.  According to the report, BHC has sole voting and dispositive power with respect to 5,996,710 shares, BHCMF has shared voting and dispositive power with respect to 13,997,832 shares, Cheval has shared voting and dispositive power with respect to 46,876,309 shares, BH Management has sole voting and dispositive power with respect to 52,873,019 shares and Dr. Chappell has shared voting and dispositive power with respect to 66,870,851 shares.  The business address of each of BHC, BHCMF, BH Management and Dr. Chappell is c/o Opus Equum, Inc. P.O. Box 788, Dolores, Colorado 81323. The business address of Cheval is P.O Box 309G, Ugland House, Georgetown, Grand Cayman, Cayman Islands KY1-1104.
(2)
Number of shares based solely on information reported on the Schedule 13D filed with the SEC on March 5, 2018, reporting beneficial ownership as of February 27, 2018, by Nomis.  Nomis has sole voting and dispositive power over all 33,573,530 shares. The business address of Nomis is West Essex House, 3rd Floor, 45 Reid Street, Hamilton, Bermuda HM12.
(3)
Includes options to purchase 4,254,885 shares of common stock that may be exercised within 60 days of March 23, 2018.
(4)
Includes options to purchase 87,810 shares of common stock that may be exercised within 60 days of March 23, 2018.
(5)
Includes options to purchase 100,000 shares of common stock that may be exercised within 60 days of March 23, 2018.
(6)
Includes options to purchase 488,282 shares of common stock that may be exercised within 60 days of March 23, 2018.
(7)
Includes options to purchase 300,649 shares of common stock that may be exercised within 60 days of March 23, 2018.
(8)
Includes options to purchase 138,235 shares of common stock that may be exercised within 60 days of March 23, 2018.
(9)
Includes options to purchase 5,088,265 shares of common stock that may be exercised within 60 days of March 23, 2018.
 
 
Equity Compensation Plan Information
 
The following table sets forth information as of December 31, 2017 with respect to shares of common stock that may be issued under our existing equity compensation plans.
 
               
Number of
 
               
Securities
 
               
Remaining
 
   
Number of
 
Weighted-
   
Available for
 
   
Securities to be
 
Average
   
Issuance Under
 
   
Issued Upon
 
Exercise
   
Equity
 
   
Exercise of
 
Price of
   
Compensation
 
   
Outstanding
 
Outstanding
   
Plans (Excluding
 
   
Options,
 
Options,
   
Securities
 
   
Warrants
 
Warrants
   
Reflected in
 
   
and Rights
 
and Rights
   
Column (a))
 
Plan Category
 
(a)
 
(b)
   
(c)
 
Equity compensation plans approved by security holders(1)
   
734,835
   
$
5.33
     
-
 
                         
Equity compensation plans not approved by security holders
   
1,713,548
     
2.97
     
1,286,452
 
Total
   
2,448,383
   
$
3.67
     
1,286,452
 
                                                                          
 
(1)
Represents shares reserved for issuance under the 2001 Stock Plan and the 2012 Equity Incentive Plan, as amended and restated. On September 13, 2016, the Board approved an amendment to the 2012 Equity Incentive Plan (the “Equity Plan Amendment”) to increase the number of shares of our common stock available for issuance under the 2012 Equity Plan by 3,000,000 shares. The Equity Plan Amendment was not approved by our stockholders. See Note 10 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K for a discussion of the material features of the 2012 Equity Incentive Plan.
 
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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Related Party Transactions

Term Loans and Restructuring Transactions

The Restructuring Transactions were completed on February 27, 2018.  For additional information regarding the Restructuring Transactions, see “Restructuring Transactions” in Item 1 of this Annual Report on Form 10-K.

Director Independence
 
We are not currently a listed issuer. However, we use the definition of “independent” set forth in NASDAQ Marketplace rules in determining whether a director is independent in the capacity of director. Consistent with NASDAQ’s independence criteria, our Board has affirmatively determined that each of our current directors, and all of our directors who served in 2017, other than Dr. Chappell and Dr. Durrant, our Chief Executive Officer, is independent. NASDAQ's independence criteria include a series of objective tests, such as that the director is not an employee of the Company and has not engaged in various types of business dealings with us. In addition, as further required by NASDAQ rules, our Board has subjectively determined as to each independent director that no relationship exists that, in the opinion of the board of directors, would interfere with each such person's exercising independent judgment in carrying out his or her responsibilities as a director. In making these determinations on the independence of our directors, our Board considered the relationships that each such director has with us and all other facts and circumstances the board deemed relevant in determining independence, including the beneficial ownership of our capital stock by each such person.
 
We have established an audit committee, a compensation committee and a nominating and corporate governance committee.
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Independent Registered Public Accounting Firm’s Fees
 
The following table represents aggregate fees billed to us for the years ended December 31, 2017 and 2016 by our independent registered accounting firm, HORNE LLP.
 
   
Year ended December 31,
 
   
2017
 
2016
 
Audit fees(1)
 
$
246,354
   
$
250,140
 
Tax fees (2)
   
15,695
     
12,000
 
Total fees
 
$
262,049
   
$
262,140
 
 
(1)
Audit fees in 2017 and 2016 include fees billed or incurred by HORNE LLP for professional services rendered in connection with the annual audit of our Consolidated Financial Statements for each year and the review of our quarterly reports on Form 10-Q and consents associated with registration statements.
(2)
Fees for services consist of tax compliance, including the preparation and review of federal and state tax returns.
 
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All fees described above were pre-approved by the audit committee in accordance with the requirements of Regulation S-X under the Exchange Act.
 
Pre-Approval Policies and Procedures
 
The audit committee’s policy is to pre-approve all audit and permissible non-audit services rendered by our independent registered public accounting firm. The audit committee can pre-approve specified services in defined categories of audit services, audit-related services and tax services up to specified amounts, as part of the audit committee’s approval of the scope of the engagement of our independent registered public accounting firm or on an individual case-by-case basis before our independent registered public accounting firm is engaged to provide a service. The audit committee has determined that the rendering of tax-related services by our independent registered public accounting firm is compatible with maintaining the principal accountant’s independence for audit purposes. Our independent registered public accounting firm has not been engaged to perform any non-audit services other than tax-related services and as indicated above.
 
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PART IV
 
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)          The following documents are filed as part of this report:
 
(1)
Financial Statements—See Index to Consolidated Financial Statements at Part I, Item 8 on page F-1 of this Annual Report on Form 10-K.
 
(2)
All financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the financial statements or the Notes thereto.

(3)
See the accompanying Index to Exhibits filed as a part of this Annual Report, which list is incorporated by reference in this Item.

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

(c)          Other schedules are not applicable. 

ITEM 16.  Form 10-K Summary.
 
None.
 
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SIGNATURES

 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Humanigen, Inc.
 
 
 
 
 
By:
/s/ Cameron Durrant, M.D., MBA
 
Cameron Durrant, M.D., MBA
Chief Executive Officer and Chairman of the Board of
Directors
 

 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
    
Title
 
Date
 
 
 
 
 
 
 
 
 
 
/s/ Cameron Durrant
 
Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
 
March 23, 2018
Cameron Durrant
 
 
 
 
 
 
/s/ Greg Jester
 
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
 
March 23, 2018
Greg Jester
 
 
 
 
 
 
/s/ Ronald Barliant, JD
 
Director
 
March 23, 2018
Ronald Barliant, JD
 
 
 
 
 
 
/s/ Rainer Boehm
 
     
Rainer Boehm
 
Director
 
March 23, 2018
         
/s/ Timothy Morris
 
     
Timothy Morris
 
Director
 
March 23, 2018
         
/s/ Robert G. Savage
 
     
Robert G. Savage
 
Director
 
March 23, 2018
 
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Index to Consolidated Financial Statements
Contents
 
     
    
F-2
 
F-3
 
F-4
 
F-5
 
F-6
 
F-7
 
F-1

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To Shareholders and the Board of Directors of Humanigen, Inc.

Opinion on Financial Statement
 
We have audited the accompanying consolidated balance sheets of Humanigen, Inc. (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, shareholders' equity (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ HORNE LLP

We have served as the Company's auditor since 2015.

Ridgeland, Mississippi
March 27, 2018


F-2

 
Humanigen, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
   
December 31,
   
December 31,
 
   
2017
   
2016
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
737
   
$
2,906
 
Prepaid expenses and other current assets
   
813
     
1,643
 
Total current assets
   
1,550
     
4,549
 
                 
Property and equipment, net
   
19
     
68
 
Restricted cash
   
101
     
101
 
Total assets
 
$
1,670
   
$
4,718
 
 
               
Liabilities and stockholders’ deficit
               
Current liabilities:
               
Accounts payable
 
$
3,330
   
$
4,072
 
Accrued expenses
   
3,307
     
736
 
Term loans payable
   
18,018
     
3,016
 
Total current liabilities
   
24,655
     
7,824
 
Notes payable to vendors
   
1,351
     
1,273
 
Total liabilities
   
26,006
     
9,097
 
 
               
Stockholders’ deficit:
               
  Common stock, $0.001 par value: 85,000,000 shares authorized at December 31,
               
 2017 and December 31, 2016; 14,946,712 and 14,977,397 shares issued and
outstanding at  December 31, 2017 and December 31, 2016, respectively
   
15
     
15
 
  Additional paid-in capital
   
238,246
     
236,216
 
  Accumulated deficit
   
(262,597
)
   
(240,610
)
Total stockholders’ deficit
   
(24,336
)
   
(4,379
)
Total liabilities and stockholders’ deficit
 
$
1,670
   
$
4,718
 
 
See accompanying notes.
 
F-3

 
Humanigen, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)

   
Year Ended December 31,
 
   
2017
   
2016
 
Operating expenses:
           
Research and development
 
$
11,165
   
$
10,449
 
General and administrative
   
7,866
     
8,376
 
Total operating expenses
   
19,031
     
18,825
 
 
               
Loss from operations
   
(19,031
)
   
(18,825
)
 
               
Other expense:
               
Interest expense
   
(3,056
)
   
(131
)
Other income, net
   
431
     
125
 
Reorganization items, net
   
(331
)
   
(8,188
)
Net loss
   
(21,987
)
   
(27,019
)
Other comprehensive income
   
-
     
-
 
Comprehensive loss
 
$
(21,987
)
 
$
(27,019
)
 
               
Basic and diluted net loss per common share
 
$