Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Description of the Business
The Company is a clinical stage biopharmaceutical
company, developing its portfolio of proprietary Humaneered® anti-inflammatory immunology and immuno-oncology monoclonal
antibodies. The Company’s proprietary, patented Humaneered technology platform is a method for converting existing antibodies (typically
murine) into engineered, high-affinity human antibodies designed for therapeutic use, particularly with acute and chronic conditions.
Humanigen has developed or in-licensed targets or research antibodies, typically from academic institutions, and then applied its Humaneered
technology to optimize them. The Company’s lead product candidate, lenzilumab, or LENZ®, and its other two product
candidates, ifabotuzumab (“iFab”) and HGEN005, are Humaneered monoclonal antibodies. The Company’s Humaneered antibodies
are closer to human antibodies than chimeric or conventionally humanized antibodies and have a high affinity for their target. In addition,
the Company believes its Humaneered antibodies offer further important advantages, such as high potency, a slow off-rate and a lower likelihood
to induce an inappropriate immune response or infusion related reactions.
The Company is focusing its efforts on the development
of its lead product candidate, lenzilumab. Lenzilumab is a monoclonal antibody that has been demonstrated to neutralize granulocyte-macrophage
colony-stimulating factor (“GM-CSF”), a cytokine believed to be of critical importance in the hyperinflammatory cascade, sometimes
referred to as cytokine release syndrome (“CRS”) or cytokine storm, which is associated with COVID-19, chimeric antigen receptor
T-cell (“CAR-T”) therapy, acute Graft versus Host Disease (“aGvHD”) associated with bone marrow transplants, as
well as several other conditions. The Company’s development programs in COVID-19, CAR-T and aGvHD are complementary in that all
are focused on preventing or reducing cytokine storm in those disease states.
The Company has completed a Phase 3 registrational
trial with lenzilumab in newly hospitalized COVID-19 patients (known as “LIVE-AIR”) and announced positive topline data in
March 2021. Following completion of the LIVE-AIR study, the Company commenced a series of efforts to attain authorization to commercialize
lenzilumab for use in hospitalized COVID-19 patients in the United States and the United Kingdom. The Company’s regulatory initiatives
have not yet resulted in commercial authorization.
The next anticipated step in the Company’s
development program for lenzilumab in COVID-19 is the release of results from the Accelerating COVID-19 Therapeutic Interventions and
Vaccines-5 (“ACTIV-5”) and Big Effect Trial, in the “B” arm of the trial (“BET-B”), referred to as
the ACTIV-5/BET-B trial, which is sponsored and funded by the National Institutes
of Health (“NIH”). This study is evaluating lenzilumab in combination with remdesivir, compared to placebo and remdesivir,
in hospitalized COVID-19 patients, as more fully described below.
A sub-analysis of the LIVE-AIR study suggested
that patients with a baseline C-reactive protein level (“CRP”) below 150 mg/L (the “CRP subgroup”) appeared to
derive the greatest benefit from lenzilumab; therefore, the ACTIV-5/BET-B study protocol was modified by NIH to include baseline CRP below
150 mg/L as the primary analysis population. The ACTIV-5/BET-B study is fully enrolled with over 400 patients that met this criterion.
Topline results from ACTIV-5/BET-B are expected to be released in the second quarter of 2022. If confirmatory of the findings of the CRP
subgroup from the Company’s LIVE-AIR study, the Company plans to include the results from ACTIV-5/BET-B in an amendment to its Emergency
Use Authorization (“EUA”) submission to the U.S. Food and Drug Administration (“FDA”), and to include these results
in a responsive submission to Medicines and Healthcare products Regulatory Agency (“MHRA”) of the United Kingdom along with
certain performance process qualification (“PPQ”) data around drug product batches, in the second quarter of 2022. In addition,
as a result of feedback received from representatives of European Medicines Agency (“EMA”), if the ACTIV-5/BET-B data are
confirmatory of the results of the findings of the CRP subgroup from the LIVE-AIR study, the Company intends to submit a Conditional Marketing
Authorization (“CMA”) for lenzilumab with an Accelerated Approval request to EMA later in 2022.
See Management’s Discussion and Analysis
of Financial Condition and Results of Operations included in Item 7 of the Company’s 2021 Annual Report on Form 10-K for additional
information regarding the business.
Liquidity and Going Concern
The Condensed Consolidated Financial Statements
for the three months ended March 31, 2022 were prepared on the basis of a going concern, which contemplates that the Company will be able
to realize assets and discharge liabilities in the normal course of business. However, the Company has incurred net losses since
its inception, and has negative operating cash flows and its total liabilities exceed total assets. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
As of March 31, 2022, the Company had cash and
cash equivalents of $68.9 million. The Company continues to advance its efforts in support of the development of lenzilumab as a therapy
for hospitalized COVID-19 patients, as well as in the CAR-T, aGvHD and chronic myelomonocytic leukemia (“CMML”) settings.
On September 8, 2021, FDA declined to authorize the EUA the Company had submitted for lenzilumab in COVID-19 patients. As more fully described
under “Item 1. Business—Manufacturing and Raw Materials.” in the Company’s 2021 Annual Report on Form 10-K, the
Company had entered into agreements with several contract manufacturing organizations (“CMOs”) to provide manufacturing, fill/finish
and packaging services for lenzilumab. While the Company remains committed to its ongoing efforts seeking marketing authorization for
lenzilumab to treat hospitalized COVID-19 patients in the U.S., UK and other territories, since September 9, 2021, the Company amended,
and in some cases canceled, certain of these agreements, some of which were contingent on EUA, in an effort to reduce its future spending
on lenzilumab production until and if authorization is received in the U.S., UK, or European Union (“EU”) (See Note 6 below).
These actions reduced the Company’s manufacturing costs beginning in the fourth quarter of 2021 and will limit future production
of lenzilumab.
Considering the Company’s current cash resources
and its current and expected levels of operating expenses for the next twelve months, which includes combined accounts payable and accrued
expenses recorded in the Company’s condensed consolidated balance sheets as of March 31, 2022 of $67.1 million, and its non-manufacturing
commitments of $1.3 million and manufacturing commitments of $42.6 million during the remaining nine months of 2022, $11.8 million for
2023, and $4.6 million thereafter (see Note 6 below), management expects to need additional capital to fund the Company’s planned
operations. Management may seek to raise such additional capital through public or private equity offerings, including under the Controlled
Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”),
grant financing and support from governmental agencies, convertible and other debt financings, collaborations, strategic alliances and
marketing, supply, distribution, or licensing arrangements. Subsequent to March 31, 2022 and through the date of this filing, as disclosed
in Note 11 below, the Company issued and sold 679,328 shares of common stock pursuant to the Sales Agreement and received net proceeds
of approximately $2.0 million, after deducting fees and expenses. While management believes its plans to raise additional funds will
alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, these plans are
not entirely within the Company’s control and cannot be assessed as being probable of occurring. The Company expects that the results
of the ACTIV-5/BET-B trial will be important to potential investors. The Company’s ability to raise capital on favorable terms in
the near future is linked to the success of that trial, which cannot be assured. Additional funds may not be available when the Company
needs them on terms that are acceptable to the Company, or at all. If adequate funds are not available, the Company may be required to
delay or reduce the scope of or eliminate one or more of its research or development programs, its commercialization efforts or its manufacturing
commitments and capacity. In addition, if the Company raises additional funds through collaborations, strategic alliances or marketing,
supply, distribution, or licensing arrangements with third parties, the Company may have to relinquish rights to its technologies, future
revenue streams or product candidates or to grant licenses on terms that may not be favorable to the Company.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated
Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for
interim financial information and on a basis consistent with the annual consolidated financial statements and include all adjustments
necessary for the presentation of the Company’s condensed consolidated financial position, results of operations and cash flows
for the periods presented.
The Condensed Consolidated Financial Statements
include the accounts of the Company and its wholly-owned subsidiaries. These financial statements have been prepared on a basis that assumes
that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The December 31, 2021 Condensed Consolidated Balance Sheet was derived from the audited
financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative
of the results to be expected for the year ending December 31, 2022, or for any other future annual or interim period. The accompanying
unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements
and the related notes thereto included in the Company’s 2021 Annual Report on Form 10-K.
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the Condensed
Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes
judgment is involved in accounting for the determination of revenue recognition, fair value-based measurement of stock-based compensation
and accruals. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects
cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be
material to the Condensed Consolidated Financial Statements.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies
are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to the Company’s
significant accounting policies during the three months ended March 31, 2022, from those previously disclosed in its 2021 Annual Report
on Form 10-K.
3. Potentially Dilutive Securities
The Company’s potentially dilutive securities,
which include stock options and warrants and shares of common stock issuable upon conversion of convertible debt, have been excluded from
the computation of diluted net loss per common share as the effect of including those securities would be to reduce the net loss per common
share and be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in
each period presented.
The following outstanding potentially dilutive
securities have been excluded from the computations of diluted net loss per common share:
| |
As of March 31, | |
| |
2022 | | |
2021 | |
Options to purchase common stock | |
| 4,712,659 | | |
| 4,224,111 | |
Warrants to purchase common stock | |
| 31,238 | | |
| 51,238 | |
Convertible debt | |
| 510,986 | | |
| 510,986 | |
| |
| 5,254,883 | | |
| 4,786,335 | |
4. License Revenue
On November 3, 2020,
the Company entered into a License Agreement (the “South Korea Agreement”) with KPM Tech Co., Ltd. (“KPM”) and
its affiliate, Telcon RF Pharmaceutical, Inc. (together with KPM, the “Licensee”). Pursuant to the South Korea Agreement,
among other things, the Company granted the Licensee a license under certain patents and other intellectual property to develop and commercialize
lenzilumab for treatment of COVID-19 pneumonia, in South Korea and the Philippines (the “Territory”), subject to certain reservations
and limitations. The Licensee will be responsible for gaining regulatory approval for, and subsequent commercialization of, lenzilumab
in the Territory.
As consideration for
the license, the Licensee has agreed to pay the Company (i) an up-front license fee of $6.0 million, payable promptly following the execution
of the License Agreement, which was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based
on achievement by the Company of two specified milestones in the U.S., of which the first milestone was met in the first quarter of 2021
and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021, and
(iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab
in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected
that the Company will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost-plus basis from an existing or future manufacturer.
The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.
Since the provision of
the license and the cooperation and assistance to be provided by the Company to the Licensee with regulatory authorities in the Territory
and the Company’s obligation to serve on a joint steering committee (the “Services”) are considered a single performance
obligation, the $6.0 million upfront payment (or $4.5 million net of withholding taxes and other fees and royalties) and the first milestone
payment of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties, are being recognized as revenue ratably
over the performance period through March 2023 (the “Performance Period”), the expected period over which the Company conservatively
expects the Services to be performed with approval in the Territory expected by the end of March 2023. Therefore, the Company recognized
license revenue totaling approximately $1.0 million and $0.5 million in the three months ended March 31, 2022 and 2021, respectively.
Licensee’s purchases
of lenzilumab for development purposes or for commercial requirements, represent options under the agreement and revenues will therefore
be recognized when control of the product is transferred to Licensee.
Contract Liabilities
A
contract liability of $4.1 million was recorded on the Condensed Consolidated Balance Sheets as deferred revenue as of March 31, 2022
related to the South Korea agreement. There were no contract asset or deferred contract acquisition costs as of March 31, 2022 associated
with the South Korea agreement.
The following table presents
changes in the Company’s contract liability for the three months ended March 31, 2022 (in thousands):
Balance at January 1, 2022 | |
$ | 5,163 | |
Deductions for performance obligations satisfied: | |
| | |
In current period | |
| (1,036 | ) |
Balance at March 31, 2022 | |
$ | 4,127 | |
5. Long-Term Debt
Secured Term Loan Facility
On March 10, 2021, the Company executed a Loan
and Security Agreement with Hercules as agent for its affiliates serving as lenders thereunder (the “Term Loan”). The Term
Loan provides a loan in the aggregate principal amount of up to $80 million, in three tranches. On March 29, 2021, the Company drew the
initial $25.0 million tranche under the Term Loan. After giving effect to payment of fees and expenses associated with the draw, the Company
received net proceeds of approximately $24.4 million. The Company is no longer entitled to draw the second tranche, which was to be in
the amount of up to $35.0 million, as it did not receive EUA for lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia
by September 15, 2021.
No principal payments will be due during an interest-only
period, commencing on the initial borrowing date and continuing to April 1, 2023, subject to extension to April 1, 2024, and potentially
October 1, 2024, under certain conditions. Following the interest-only period, the outstanding balance of the loan will be required to
be repaid monthly, continuing through the maturity date. The Company will be required to repay amounts borrowed by March 1, 2025, subject
to a one-year extension option that it may exercise if it has received FDA approval of a Biologics License Application (“BLA”)
for the use of lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia, and the FDA-authorized label for lenzilumab
is generally consistent with that sought in the Company’s BLA filing, and the Company has paid Hercules certain fees and expenses
associated with the extension.
While the Term Loan is outstanding, the lenders
will have the right to convert a portion of the principal amount outstanding under the Term Loan (ranging from $5.0 million to $10.0 million
in the aggregate) into shares of the Company’s common stock at a conversion price equal to $19.57 per share, subject to customary
anti-dilution adjustments.
The following table summarizes the outstanding
future payments of principal and interest associated with the Company’s Term Loan as of March 31, 2022 (in thousands):
2022 |
| |
$ | 1,716 | |
2023 |
| |
| 10,842 | |
2024 |
| |
| 13,705 | |
2025 |
| |
| 5,163 | |
Total payments |
| |
| 31,426 | |
Less amount representing interest |
| |
| (4,738 | ) |
Notes payable, gross |
| |
| 26,688 | |
Less: Unamortized portion of EOT
charge |
| |
| (1,123 | ) |
Less: Unamortized discount on notes
payable |
| |
| (141 | ) |
Less: Unamortized debt issuance costs |
| |
| (231 | ) |
Long-term debt |
| |
| 25,193 | |
Less current portion |
| |
| - | |
Long-term debt, net of current portion |
| |
$ | 25,193 | |
Interest expense related to the Term Loan, recorded
during the three months ended March 31, 2022, was approximately $0.7 million and the effective interest rate was 9.25%.
6. Commitments and Contingencies
Eversana Agreement
On January 10, 2021, the Company announced that
it had entered into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”)
pursuant to which Eversana will provide the Company multiple services from its integrated commercial platform in preparation for the potential
commercialization of lenzilumab.
Under the Eversana Agreement, Eversana will provide
the Company with services in connection with the potential launch of lenzilumab. Eversana services during 2021 comprised marketing, market
access, consulting, field solutions, field operations, health economics and medical affairs. Additional services may be negotiated by
the parties and set forth in statements of work delivered in accordance with the Eversana Agreement.
On September 21, 2021, the Company notified Eversana
that due to the EUA status in the U.S., it was terminating the initial statement of work related to commercialization support of lenzilumab
for the treatment of COVID-19 in the United States. Eversana is disputing the termination notice and has requested payment of approximately
$4.0 million it has asserted the Company owes for services rendered from April 1, 2021 to September 30, 2021. The Company has disputed
this assertion and is working to resolve this dispute.
The Eversana Agreement provides for a one-year
term and will renew for subsequent one-year terms unless either party provides a notice of non-renewal. After the first year, the Company
may terminate the Eversana Agreement upon advance written notice to Eversana. The Eversana Agreement contains customary provisions allowing
either party to terminate the Eversana Agreement as a result of certain changes in law and material breaches and certain insolvency events
by or relating to the other party.
The Eversana Agreement imposes customary mutual
obligations on the parties to protect and not disclose the confidential information and intellectual property of the other, and contains
insurance, non-solicitation, indemnification and limitation of liability provisions customary for service contracts of this type.
Manufacturing Agreements
The Company has entered into agreements with several
CMOs to manufacture bulk drug substance (“BDS”) and to provide fill/finish services or drug product (“DP”) for
lenzilumab for a potential launch of lenzilumab in anticipation of an EUA or CMA. The Company has also entered into agreements for packaging
of the drug. These agreements represent large commitments, including upfront amounts prior to commencement of manufacturing and progress
payments through the course of the manufacturing process and include payments for technology transfer. Since September 9, 2021, the Company
has amended, and in some cases canceled, certain of these agreements, some of which were contingent on EUA, in an effort to reduce its
future spending on lenzilumab production until and if authorization is received in the U.S., UK, or EU. These actions reduced the Company’s
manufacturing costs beginning in the fourth quarter of 2021 and will limit future production of lenzilumab. In addition, certain of the
Company’s CMOs have been unsuccessful in their efforts to manufacture some batches of lenzilumab to the Company’s specifications
for various reasons. The Company is working with one of these CMOs to determine if batches of lenzilumab manufactured by them will be
usable in the future or, if not, whether other financial recompense will be offered to the Company. Another CMO was unsuccessful in its
attempts to produce BDS and has filed for arbitration of amounts owed. Mediation efforts were unsuccessful as the CMO insisted on large
cash payments despite its inability to produce any BDS. The Company is contemplating litigation in an effort to recover previous monies
provided to this CMO as prepayment for services and materials and to recover a significant amount of raw materials and components currently
held by this CMO that have been paid for by the Company. As of March 31, 2022, the Company estimates that its commitments remaining to
be incurred under these agreements are approximately $42.6 million for the remaining nine months of 2022, $11.8 million for 2023, and
$4.6 million thereafter. Certain of these commitments and amounts accrued at year-end are in dispute and the Company intends to defer
these payments, negotiate lower amounts or seek other courses of action for the amounts in question.
7. Stockholders’ Equity
Controlled Equity Offering
On December 31, 2020, the Company entered into
a Sales Agreement with Cantor, under which the Company could issue and sell, from time-to-time, shares of the Company’s common stock,
having an aggregate gross sales price of up to $100 million through Cantor, as the sales agent. During the three months ended March 31,
2021, the Company issued and sold 1,796,858 shares of its common stock under the Sales Agreement for net proceeds of $36.1 million. During
the three months ended March 31, 2022, the Company issued and sold 5,926,748 shares of its common stock under the Sales Agreement for
net proceeds of $18.4 million. As of March 31, 2022, the Company had the ability to offer and sell shares of common stock having an aggregate
offering price of up to $13.3 million under the prospectus supplement dated August 13, 2021 to the Company’s prospectus dated September
14, 2020 filed in respect of the Sales Agreement. See Note 11 below for additional information related to the Sales Agreement.
2021 Underwritten Public Offering
On March 30, 2021, the Company entered into an
underwriting agreement (the “Underwriting Agreement”) with Jefferies LLC, Credit Suisse Securities (USA) LLC and Cantor, as
representatives of the several underwriters, in connection with the public offering of 5,000,000 shares of our common stock. In addition,
we granted the underwriters a 30-day option to purchase an additional 750,000 shares of our common stock. The initial offering closed
on April 5, 2021. On May 3, 2021, we closed on the sale of an additional 427,017 shares of our common stock related to the exercise of
the underwriters’ 30-day option. The aggregate gross proceeds from the sale of the 5,427,017 shares in the offering, inclusive of
the additional shares purchased by the underwriters, were approximately $100.4 million. The net proceeds from this offering, after deducting
underwriting discounts and offering costs, were approximately $94.2 million.
8. Stock-Based Compensation
A summary of stock option activity for the three
months ended March 31, 2022 under all the Company’s options plans is as follows:
| |
Options | | |
Weighted
Average Exercise
Price | |
Outstanding at January 1, 2022 | |
| 4,429,906 | | |
$ | 7.89 | |
Granted | |
| 350,078 | | |
$ | 2.99 | |
Exercised | |
| - | | |
$ | - | |
Cancelled (forfeited) | |
| (67,325 | ) | |
$ | 15.09 | |
Cancelled (expired) | |
| - | | |
$ | - | |
Outstanding at March 31, 2022 | |
| 4,712,659 | | |
$ | 7.42 | |
The weighted average fair value of options granted
during the three months ended March 31, 2022 was $2.41 per share.
The Company valued the options granted using the
Black-Scholes options pricing model and the following weighted-average assumption terms for the three months ended March 31, 2022:
|
Three Months Ended |
|
March 31, 2022 |
Exercise price |
2.99 |
Market value |
2.99 |
Expected term |
6 years |
Expected volatility |
104% |
Risk-free interest rate |
1.59% |
Expected dividend yield |
- % |
The Company recorded stock-based compensation expense
in the Condensed Consolidated Statements of Operations as follows (in thousands):
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
General and administrative | |
$ | 1,294 | | |
$ | 364 | |
Research and development | |
| 249 | | |
| 146 | |
Total stock-based compensation | |
$ | 1,543 | | |
$ | 510 | |
At March 31, 2022, the Company had $11.2 million
of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that will be
recognized over a weighted-average period of 1.8 years. As of March 31, 2022, there were 4,714,407 shares available for grant under the
Company’s 2020 Equity Incentive Plan.
9. License and Collaboration Agreements
Kite Agreement
On May 30, 2019, the Company entered into a collaboration
agreement (the “Kite Agreement”) with Kite Pharmaceuticals, Inc. (“Kite”), pursuant to which the Company and Kite
are conducting a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell
lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). On April 19, 2021, the Company announced positive preliminary
data from this study. As a result of this positive preliminary data and the conclusion of the Phase 1b portion of the study, the Company
elected to terminate the clinical collaboration agreement with Kite. Enrollment in the Phase 1b portion of the study is closed and the
study itself shall be closed in 2022. The effective date of termination of the clinical collaboration with Kite was December 31, 2021.
Until the Phase 1b portion of the study is terminated and the last subject transitioned onto the Kite long term follow up protocol, Humanigen
and Kite will cooperate to ensure the orderly wind down of study activities. The Company is preparing to initiate a Company-sponsored,
registrational Phase 3 study with Yescarta and Tecartus, commercially available CD19 CAR-T therapies, in non-Hodgkin lymphoma in 2022.
The Company met with FDA in December 2021 to discuss the study protocol. Modifications to the protocol have been submitted to FDA. The
Company currently plans to enroll more than 160 patients in the study.
Clinical Trial Agreement with the National Institute of Allergy
and Infectious Diseases
On July 24, 2020, the Company
entered into a clinical trial agreement (the “ACTIV-5 Clinical Trial Agreement”) with the National Institute of Allergy and
Infectious Diseases (“NIAID”), part of NIH, which is part of the U.S. Government Department of Health and Human Services,
as represented by the Division of Microbiology and Infectious Diseases. Pursuant to the ACTIV-5 Clinical Trial Agreement, lenzilumab is
being evaluated in the NIAID-sponsored ACTIV-5/BET-B in hospitalized patients with COVID-19. The ACTIV-5/BET-B study protocol was modified
to focus on patients with a baseline CRP below 150 mg/L (the CRP subgroup) as the primary analysis population. The ACTIV-5/BET-B study
is fully enrolled with over 400 patients that met this criterion and the Company anticipates top-line data in the second quarter of 2022.
See Note 1 above for further information regarding ACTIV-5/BET-B.
Pursuant to the ACTIV-5 Clinical Trial Agreement,
NIAID serves as sponsor and is responsible for funding, supervising and overseeing ACTIV-5/BET-B. The Company has been responsible for
providing lenzilumab to NIAID without charge and in quantities to ensure a sufficient supply of lenzilumab. The ACTIV-5 Clinical Trial
Agreement imposes additional obligations on the Company that are reasonable and customary for clinical trial agreements of this nature,
including in respect of compliance with data privacy laws and potential indemnification obligations.
10. Litigation
Avid Arbitration
On December 17, 2021, Avid Bioservices, Inc. (“Avid”)
filed a Demand for Arbitration claiming more than $20.5 million in damages against the Company with the American Arbitration Association
entitled, Avid Bioservices, Inc. v. Humanigen, Inc. (AAA Case No. 01-21-0018-0523). The Demand contains three claims for: (1) Breach
of Contract concerning the Process Development and Manufacturing Master Services Agreement; (2) Anticipatory Breach of Contract concerning
the Capacity Expansion and Contribution/Commitment letter; and (3) Trade Libel and Commercial Disparagement. Avid claims that the Company
canceled the contract after Avid was unable to successfully produce any full batches of lenzilumab BDS, but that the Company still owes
the full amount due under the contract for all batches under the contract. Avid blamed its failed attempts on a subcontractor. To date,
the Company has paid Avid $10.6 million, despite Avid not being able to produce any full BDS batches.
On January 6, 2022, the Company filed an Answer
to Avid’s Demand, denying the allegations and asserting affirmative defenses.
Savant Litigation
The
Company was previously involved in litigation against Savant Neglected Diseases, LLC (“Savant”). In March 2022, the Company
and Savant reached a confidential settlement. Accordingly, the litigation involving Savant was dismissed on March 31, 2022.
Private Placement Litigation
On June 15, 2020, a complaint was filed
against the Company and Dr. Durrant in the Commercial Division of the Supreme Court of the State of New York. The case caption is Alliance
Texas Holdings, LLC et al. v. Humanigen, Inc. et al., Index No. 652490/2020 (“Alliance Texas Holdings Case”). Dr. Durrant
has been dismissed as an individual defendant in the case. The plaintiffs in the Alliance Texas Holdings Case comprise a group of prospective
investors introduced to Humanigen by Noble Capital Markets, Inc. (“Noble”), which had been engaged by the Company as a non-exclusive
placement agent in connection with a private placement of its common stock (the “Private Placement”). The plaintiffs had indicated
interest in purchasing shares of common stock in the Private Placement but, due to the strength of demand for shares from other prospective
investors, the plaintiffs were not allocated any investment amount. The plaintiffs allege that the Company breached a contractual obligation
to deliver shares of common stock to the plaintiffs. The plaintiffs seek to recover for losses due to the Company’s alleged failure
to deliver shares to them and seek equitable relief in the form of specific performance.
On April 19, 2021, the Company and Noble entered
into a confidential settlement agreement in respect of a separate lawsuit brought by Noble related to the Private Placement (the “Noble
Case”) captioned Noble Capital Markets, Inc. v. Humanigen, Inc., Case No. 9:20-CV-81131-WPD, pursuant to which the Noble Case was
dismissed with prejudice.
On February 24, 2022, the Company entered into
a confidential settlement agreement and release with respect to the claims raised in the Alliance Texas Holding Case, pursuant to which
the Alliance Texas Holding Case has been discontinued with prejudice, except as to two Plaintiffs whose claims comprised less than 10%
of the total alleged investments, as to whom the case has been discontinued without prejudice.
11. Subsequent Events
On April 14, 2022, the Company filed a prospectus
in respect of the Sales Agreement which provides the Company with the ability to offer and sell shares of common stock having an aggregate
offering price of up to $75.0 million.
Subsequent to March 31, 2022 and through the
date of this filing, the Company issued and sold 679,328 shares of common stock under the Sales Agreement for net proceeds of
$2.0 million. As of the date of this filing, the Company has the ability to offer and sell shares of common stock having an aggregate
offering price of up to $86.3 million under the prospectus supplement dated August 13, 2021 and the prospectus dated April 14, 2022.