The aggregate market value of the registrant’s voting stock held by non-affiliates as of June 30, 2016, was approximately $24,417,832 based on the closing price of $4.49 of the Common Stock of the registrant as reported on the OTC Pink marketplace operated by OTC Markets Group, Inc. on such date. As of March 7, 2017, there were 14,977,397 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

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~~KaloBios Pharmaceuticals,~~

Humanigen, Inc.

Form 10-K

Index


~~Page~~		Page
Part I			4
Item 1.	Business		4	5
Item 1A.	Risk Factors		26	43
Item 1B.	Unresolved Staff Comments		55	72
Item 2.	Properties		55	72
Item 3.	Legal Proceedings		55	72
Item 4.	Mine Safety Disclosures		57	74
Part II			58
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		58	75
Item 6.	Selected Financial Data		59	76
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		60	77
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		73	95
Item 8.	Financial Statements and Supplementary Data		73	95
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		73	95
Item 9A.	Controls and Procedures		73	95
Item 9B.	Other Information		74	96
Part III			75
Item 10.	Directors, Executive Officers and Corporate Governance		75	97
Item 11.	Executive Compensation		77	99
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		82	104
Item 13.	Certain Relationships and Related Transactions, and Director Independence		84	106
Item 14.	Principal Accountant Fees and Services		87	107
Part IV			89
Item 15.	Exhibits and Financial Statement Schedules		89	108

Item 16.

Form 10-K Summary

89108

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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 ~~intent to in-license or acquire additional product candidates; our~~ opportunity to benefit from various regulatory ~~incentives and the application of our Responsible Pricing Model;~~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 draw on our equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”) or obtain ~~additional~~other capital to develop and commercialize our product candidates, including the additional capital which will be necessary to ~~complete~~pursue the Kite collaboration and undertake the clinical trials that we have initiated or plan to initiate, and continue as a going concern;

·•

our ability to execute our strategy and business ~~plan;~~plan focused on developing our proprietary monoclonal antibody portfolio and our GM-CSF knockout gene-editing CAR-T platform;

·•

our ability to attract and retain other collaborators with development, regulatory and commercialization expertise to pursue the other initiatives in our development pipeline;

•

our ability to successfully pursue the Kite collaboration;

•

our ability to preserve our stock quotation on the OTCQB Venture Market or, in the future, 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 effect on our stock price and the potential dilution to the share ownership of our existing stockholders that may result in the future upon additional issuances of our equity securities, including issuances of our common stock to Lincoln Park under the equity line of credit, or from conversion of our outstanding convertible notes into equity of the company;

•

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 ~~availability~~timing of ~~a 505(b)(2) development pathway for~~ the ~~potential approval by FDA~~initiation, enrollment and completion of ~~our benznidazole candidate as a treatment for Chagas disease remaining acceptable to FDA in the future;~~planned clinical trials;

·•

~~the fact that a 505(b)(2) pathway does not assure a product candidate will be deemed safe or effective, or that FDA approval will be obtained;~~

the requirement that we be first to receive FDA approval for benznidazole as a treatment for Chagas disease as a prerequisite to our ability to apply for or receive a Priority Review Voucher in respect of that candidate;

~~the potential timing and outcomes of clinical studies of benznidazole, lenzilumab, ifabotuzumab or any other product candidates and the uncertainties inherent in clinical testing;~~

~~the commercial viability of our proposed drug pricing program;~~

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;

·•

the evolution of scientific discovery around the coronavirus, COVID-19 and the lung dysfunction resulting in some patients may indicate that cytokine storm is caused or results from something other than GM-CSF levels;

•

increasing levels of market acceptance of CAR-T therapies and the development of a market for lenzilumab in these therapies;

•

our ability to successfully progress, partner or complete further development of our programs;

·•

the potential timing and outcomes of development, preclinical and clinical studies of lenzilumab, ifabotuzumab, HGEN005, any of our CAR-T projects and the uncertainties inherent in development, preclinical and clinical testing;

•

our plans to research, develop and commercialize our product candidates;

•

our ability to identify and develop additional uses for our products;

·•

our ability to attain market exclusivity and/or to protect our intellectual ~~property;~~property and to operate our business without infringing on the intellectual property rights of others;

•

the outcome of pending or future litigation;

•

the ability of our controlling stockholder to influence control over all matters put to a vote of our stockholders, including elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction;

•

our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions;

•

limitations and/or warnings in the label of an approved product candidate;

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~~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, ~~at the center of our strategy,~~ or the imposition of regulations that affect our ~~products.~~products; and

•

the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

These are only some of the factors that may affect the forward-looking statements contained in this 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

During 2019, we completed our transformation into a clinical stage biopharmaceutical company, developing our clinical stage immuno-oncology and immunology portfolio of monoclonal antibodies. We are ~~a biopharmaceutical company focused~~focusing our efforts on ~~developing medicines for patients with neglected and rare diseases, with an ancillary focus on pediatric conditions, and on executing our Responsible Pricing Model in~~ the ~~commercialization~~development of our ~~products that may be approved. Our~~ lead product candidate, lenzilumab, our proprietary Humaneered® (“Humaneered” or “Humaneered®”) anti-human GM-CSF immunotherapy, through a clinical research agreement (the “Kite Agreement”) with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”) to study the effect of lenzilumab on the safety of Yescarta®, axicabtagene ciloleucel (“Yescarta” or “Yescarta®”) including cytokine release syndrome (“CRS”), which is ~~benznidazole~~sometimes also referred to as cytokine storm, and neurotoxicity, with a secondary endpoint of increased efficacy in a multicenter Phase Ib/II clinical trial in adults with relapsed or refractory large B-cell lymphoma. We believe this study, designated the nomenclature ‘ZUMA-19’, may be the basis for the registration of lenzilumab, given the similar trial design to Yescarta’s andNovartis’s Kymriah® (“Kymriah” or “Kymriah®”) registration trials.

We are also exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody, or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage including the prevention and/or treatment of graft-versus-host disease (“GvHD”) while preserving graft-versus-leukemia (“GvL”) benefits in patients undergoing allogeneic HSCT. In this context, GvHD is akin to CRS, or cytokine storm and we believe the mechanism to be driven by GM-CSF levels. The recent coronavirus pandemic which is due to the SARS-CoV-2 virus and leads to the condition referred to as COVID-19, is characterized in the later and sometimes fatal stages by lung dysfunction which is triggered by CRS, or cytokine storm. Recent publications point to GM-CSF being a key cytokine, with elevated levels especially in those patients who transition to the Intensive Care Unit (ICU). We have established several partnerships with leading institutions to advance our innovative pipeline and are in active discussion with several government and commercial organizations.

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

During 2019, we also advanced our preclinical next-generation cell and gene therapies for the treatment of ~~Chagas disease,~~cancers via our novel human granulocyte-macrophage colony-stimulating factor (“GM-CSF”) neutralization and gene-knockout platforms.

As a ~~parasitic~~leader in GM-CSF pathway science, we believe that we have the ability to transform prevention of CRS in SARS-CoV-2 infection. The virus associated with the current COVID-19 pandemic, SARS-Cov-2, is one of a group of several betacoronaviruses, which includes the viruses responsible for Severe Acute Respiratory Syndrome (SARS-CoV) and Middle East Respiratory Syndrome (MERS-CoV). These viruses infect predominantly the lower lung and cause fatal pneumonia. Other coronaviruses infect the upper respiratory tract and cause some cases of the common cold. The clinical course of COVID-19 can be mistaken for influenza infection – patients in both cases often suffer from aches and pains throughout the body, fever, cough and general malaise. COVID-19 is not typically associated with a productive cough – rather it tends to be a dry cough – and sneezing is less common. A nasal or throat swab can be used to test for SARS-CoV-2 infection, and blood tests can be run to check for viral titers. Travel to areas where COVID-19 appears to have a large number of cases and exposure to people who are known to have suffered from the condition or carriers of SARS-CoV-2 also increases the clinical suspicion of possible infection. Data generated during the SARS and MERS outbreaks point to cytokine storm as a phase of the illness which is characterized by an immune hyperactive phase, which then can progress to lung dysfunction and death. The natural history of SARS infection shows viral load actually decreases as patients enter the second phase.

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Source: WHO

Recent data from China and the subject of a pre-publication titled “Aberrant pathogenic GM-CSF+ T cells and inflammatory CD14+CD16+ monocytes in severe pulmonary syndrome patients of a new coronavirus”, supports the hypothesis that cytokine storm-induced immune mechanisms have contributed to patient mortality with the current pandemic strain of coronavirus.

The severe clinical features associated with some COVID-19 infections result from an inflammation-induced lung injury requiring Intensive Care Unit (ICU) care and mechanical ventilation. This lung injury is a result of a cytokine storm resulting from a hyper-reactive immune response. The lung injury that leads to death is not directly related to the virus, but appears to be a result of a hyper-reactive immune response to the virus triggering a cytokine storm that can ~~lead~~continue even after viral titers begin to ~~long-term heart, intestinal~~fall.

The authors noted that steroid treatment in such cases has been disappointing in terms of outcome, but suggested that a monoclonal antibody that targets GM-CSF may prevent or curb the hyper-active immune response caused by COVID-19 in this setting. Humanigen believes that the authors’ findings are worthy of further investigation, suggesting that to reduce or eradicate ICU care and prevent deaths from COVID-19 infection, an intervention may be needed to prevent cytokine storm.

Separate publications confirm that cytokine storm is characterized by surge of high levels of circulating inflammatory cytokines, and is an overreaction of the immune system under the conditions, such as CAR-T therapy and patients infected with SARS-CoV-2. These recent studies revealed that high levels of GM-CSF, along with a few other cytokines, are critically associated with severe clinical complications in COVID-19 patients. High concentration of GM-CSF was found in the plasma of severe and critically ill patients, which account for approximately 20% of all patients, especially in those requiring intensive care.

Lenzilumab has been shown to prevent cytokine storm in animal models and this work has been published in peer reviewed journals. Patients are expected to be enrolled soon in a clinical study to determine lenzilumab’s effect on cytokine storm associated with the hyper-active immune response associated with CAR-T therapy in collaboration with Kite Pharma.

We believe that these new data suggest that GM-CSF may be a critical triggering cytokine in the increased mortality in the current coronavirus pandemic. A potential program in COVID-19 to prevent cytokine storm is complementary to the programs in CAR-T and GvHD, which are also focused on preventing or reducing cytokine storm in those disease states.

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As a leader in GM-CSF pathway science, we believe that we have the ability to transform chimeric antigen receptor T-cell (“CAR-T”) therapy and a broad range of other T-cell engaging therapies, including both autologous and allogeneic cell transplantation. There is a direct correlation between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities (referred to as the efficacy/toxicity linkage).

We believe that our GM-CSF neutralization and gene-editing CAR-T platform technologies have the potential to reduce the inflammatory cascade associated with serious and potentially life-threatening CAR-T therapy-related side-effects while preserving and potentially improving the efficacy of the CAR-T therapy itself, thereby breaking the efficacy/toxicity linkage. Clinical correlative analysis and preclinicalin vivoevidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects, including cytokine release syndrome (CRS) and neurotoxicity (NT). GM-CSF has also been linked to the suppressive myeloid cell axis through recruitment of myeloid-derived suppressor cells (“MDSCs”) that reduce CAR-T cell expansion and hamper CAR-T cell efficacy. Our strategy is to continue to pioneer the use of GM-CSF neutralization and GM-CSF gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated with CAR-T therapy.

We believe that our GM-CSF pathway science, assets and expertise create two technology platforms to assist in the development of next-generation CAR-T therapies. Lenzilumab has the potential to be used in combination with any United States Food and Drug Administration (“FDA”)-approved or development stage T-cell therapy, including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic hematopoietic stem cell therapy (“HSCT”) to make these treatments safer and more effective.

We have utilized a precision medicine approach and personalized the development of lenzilumab based on specific genetic mutations or biomarkers at baseline. We recently reported on a Phase I study of lenzilumab as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and are now planning a potential Phase II study of lenzilumab in combination with azacitidine (current standard therapy) in newly-diagnosed CMML patients with certain genetic mutations. We are also planning a potential Phase II/III study focused on early intervention with lenzilumab in patients at high risk for acute Graft versus Host Disease (GvHD) based on specific biomarkers. We have also reported on a Phase II study in severe asthma utilizing lenzilumab, which showed a statistically significant improvement in efficacy and favorable safety profile in patients with eosinophilic asthma, 21 of whom received lenzilumab vs. 20 patients who received placebo. In addition, our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.

Our immediate focus is combining FDA-approved and development stage CAR-T therapies with lenzilumab, our lead product candidate. A clinical collaboration with Kite was recently announced to evaluate the use of lenzilumab with Yescarta.

We are also creating next-generation combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies to control toxicity. This includes developing ~~one~~our own portfolio of proprietary first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic disorders.

Our Pipeline

Our clinical-stage pipeline comprises a further Phase I study which is almost fully enrolled with ifabotuzumab in GBM and potentially other solid cancers, a Phase Ib/II study which is enrolling alongside YESCARTA in the CAR-T arena (ZUMA-19), an additional Phase II study, in CMML and a Phase II/III study in acute GvHD, the latter two of which are in advanced planning stages. We also have a focus on creating safer and more effective CAR-T therapies in hematologic malignancies and solid tumors via three key modalities:

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Combining FDA-approved and development stage CAR-T therapies with lenzilumab;

Creating next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies; and

Exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments, including allogeneic HSCT.

We are also developing our ~~proprietary monoclonal antibodies,~~own CAR-T programs based on the backbone of ifabotuzumab and HGEN005, in high unmet medical need and rare/orphan oncology conditions.

These product candidates are in the early stage of development and will require substantial time, resources, research and development, and regulatory approval prior to commercialization. Furthermore, none 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. Our current pipeline is depicted below:

Lenzilumab

Lenzilumab neutralizes human GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy (CRS and neurotoxicity) and improve upon the efficacy of CAR-T therapy. This same mechanism we believe to be the causation of CRS/cytokine storm which precedes the decline in lung function seen with severe cases of COVID-19. Preclinical data generated in collaboration with the Mayo Clinic (the “Mayo Clinic”), which was published in ‘blood®’, a premier journal in hematology, indicates that the use of lenzilumab ~~(formerly known as KB003),~~in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies.

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There are currently no products approved by the FDA for the prevention of CRS/cytokine storm associated with COVID-19. Also there are currently no products approved by the FDA for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment of ~~chronic myelomonocytic leukemia,~~CAR-T therapy related NT. We continue to advance the development of lenzilumab in combination with CAR-T therapy through a non-exclusive clinical collaboration with Kite, pursuant to which we are conducting a multi-center Phase Ib/II study of lenzilumab with Kite’s Yescarta in patients with relapsed or ~~CMML,~~refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”) (the “Study”). The Study has been designated the nomenclature ‘ZUMA-19’, consistent with the other Kite CAR-T studies, which also receive a ‘ZUMA’ designation. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety and efficacy of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved by the FDA and is the CAR-T therapy market leader, and our collaboration with Kite is currently the only clinical collaboration which is now enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. We also plan to measure other potentially beneficial effects on efficacy and healthcare resource utilization. In addition, lenzilumab’s success in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers by making the CAR-T therapy capable of being administered, and follow-up care subsequently monitored and managed, potentially on an out-patient basis in certain patients and circumstances. In turn, we believe that delivering such provider and payer benefits might accelerate the use of the CAR-T therapy itself, and thereby permit us to generate further revenues from sales of lenzilumab.

In addition to COVID-19 and CAR-T therapy, we are committed to advancing our diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both autologous and allogeneic next generation CAR-T therapies, bi-specific antibody therapies, as well as other cell-based immunotherapies in development, including allogeneic HSCT, with our current and future partners.

In July 2019, we entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich (“UZH”). Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent or treat GvHD, thereby expanding our development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for patients with hematological cancers. There are currently no FDA-approved agents for the prevention of GvHD nor treatment of GvHD in patients identified as high risk by certain biomarkers. We believe that GM-CSF neutralization with lenzilumab has the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Several recent papers have been published which support this approach, including in Science Translational Medicine in November 2018 and in ‘blood advances’ in October 2019.

We aim to position lenzilumab as a necessary companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment option in patients identified as high risk for GvHD.

Given our interest in developing lenzilumab to prevent CRS/cytokine storm in COVID-19 as well as in 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), for the potential treatment of serious pulmonary conditions and certain rare solid and hematologic cancers and ~~KB001-A which was being developed for the treatment of lung infections related to cystic fibrosis. With a focus on neglected, rare and~~other orphan ~~diseases,~~conditions such as GvHD, we believe that we have the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, ~~accelerated approval,~~ priority review and ~~priority review vouchers, or PRVs, where available,~~accelerated approval.

GM-CSF Gene Knockout

We are advancing our GM-CSF knockout gene-editing CAR-T platform through an exclusive worldwide license agreement (the “Mayo Agreement”) that ~~provide~~we entered into in June 2019 with the Mayo Foundation for Medical Education and Research (the “Mayo Foundation”). Under the Mayo Agreement, we have in-licensed certain ~~periods~~technologies that we believe may be used to create CAR-T cells lackingGM-CSFexpression through various gene-editing tools, including CRISPR-Cas9. We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that improve the efficacy and safety profile of ~~exclusivity, expedited review and/or other benefits.~~CAR-T therapy. In addition, we have and continue to file intellectual property encompassing a broad range of gene-editing approaches related to GM-CSF knockout.

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~~Upon regulatory approval~~

Preclinical data indicates that GM-CSF gene knockout CAR-T cells show improved overall survival in animals compared to wild-type CAR-T cells in addition to the expected benefits of ~~any~~reduced serious side-effects associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase the proportion of fitter T-cells produced during expansion, increase their proliferative potential, and inhibit activation-induced cell death, thereby improving the cancer killing activity of our ~~products,~~engineered CAR-T cells thereby making them more effective and safer in the treatment of cancers. Initial data were published in an abstract that was presented at the December 2019 American Society of Hematology (ASH) meeting and also won an ASH Abstract Achievement award.

We plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products. In addition, we ~~intend~~anticipate that our GM-CSF knockout gene-editing CAR-T platform may be a future backbone for controlling the serious side-effects that hamper CAR-T therapy that lead to ~~apply our Responsible Pricing Model, which focuses on affordability~~serious and sometimes fatal outcomes for patients as a result of the CAR-T therapy itself.

EphA3-CAR: Targeting Tumor Stroma and ~~payers, transparency for all stakeholders,~~Tumor Vasculature

We have begun to generate our own pipeline of CAR-T therapies including an EphA3-CAR-T based on the ifabotuzumab v-region and ~~delivery~~backbone. Ifabotuzumab is a Humaneered anti-EphA3 monoclonal antibody (“EphA3”). Ifabotuzumab has the potential to kill tumor cells by targeting tumor stroma that protects them and the vasculature that feeds them. This unique combination of activities as a backbone of a ~~reasonable return~~CAR-T therapy may provide the potential to generate durable responses in ~~recognition~~a range of solid tumors by targeting the tissues that surround, protect, and nourish a growing cancer.

By developing an EphA3-CAR-T using ifabotuzumab as the backbone, we may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. We are collaborating with the Mayo Clinic and plan to move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing Investigational New Drug (“IND”)-enabling work. We have published initial data from our Phase I study in an abstract that was accepted for the November 2019 Society of Neuro-Oncology (“SNO”) meeting, showing data in glioblastoma multiforme, a form of brain cancer.

EMR1-CAR: Targeting Eosinophils

Our epidermal growth factor-like module containing mucin-like hormone receptor 1 (“EMR1”)-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets epidermal growth factor-like module containing mucin-like hormone receptor 1 (“EMR1”). Our EMR1-CAR-T based on the HGEN005 backbone is another approach in our growing platform of CAR-T therapies. We believe that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.

In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced killing of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. We have engaged with U.S. National Institutes of Health (“NIH”) to discuss expanding the initial work they have conducted utilizing HGEN005 and discussions are underway with a leading center in the U.S. to perform the IND-enabling testing in eosinophilic leukemia, an orphan condition with significant unmet need, as well as with several other potential partners, although we cannot assure you that we will reach any agreements for these next steps.

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CAR-T Overview and Market Opportunity

Development and implementation of individualized treatments based on T-cell therapies has the potential to revolutionize the fight against cancer. The two CAR-T therapies that have been approved by the FDA, Gilead/Kite’s Yescarta and Novartis’s Kymriah, seek to treat forms of B-cell cancers such as various types of Non-Hodgkin Lymphoma (“NHL”), including DLBCL and acute lymphoblastic leukemia (“ALL”) that are refractory or in second or later stage relapse. Although patients suffering from these aggressive cancers frequently undergo multiple treatments, including chemotherapy, radiation and targeted therapy including stem cell transplants, the five-year survival rate has been severely limited and patients who do not respond to, or have relapsed following at least two courses of standard treatment, have no other treatment options and a very poor outcome. According to theSurveillance, Epidemiology, and End Results (“SEER”) program of the ~~risks we~~National Cancer Institute, which is a source of epidemiologic information on the incidence and survival rates of cancer in the U.S., it is estimated that up to 10,000 patients per year in the U.S. with relapsed or refractory (r/r) B-cell NHL and ALL who have failed at least two prior systemic therapies may be eligible for CAR-T therapy. In addition, if CAR-T therapy is approved as an earlier second line option versus stem cell transplantation, an additional 10,000 to 12,000 patients may be eligible for treatment. However, this is predicated on improving the benefit-to-risk profile of CAR-T therapy, addressing the severe life threatening adverse events currently associated with these agents and breaking the efficacy/toxicity linkage

The FDA-approved CAR-T therapies have demonstrated the effectiveness of using targeted immuno-cellular engineering to cause a patient’s own T-cells to fight certain cancers that have not responded to standard therapies. T-cells are ~~taking~~often called the “workhorses” of the immune system because of their role in ~~our development efforts.~~coordinating the immune response and killing cells infected by pathogens and cancer cells. As depicted below, each of the FDA-approved CAR-T therapies is currently a one-time treatment that involves multiple steps:

Harvesting white blood cells from the patient’s blood, also known as apheresis;

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

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

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

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~~Benznidazole is~~

Both Kymriah and Yescarta received FDA approval for adults with r/r DLBCL on the basis of one single-arm Phase II study which served as the pivotal registration trial for each product in this indication, a markedly accelerated process that indicates the FDA’s view of the strong potential of these novel CAR-T therapy treatments to address an ~~oral small molecule antiprotozoal~~unmet need and improve patient outcomes. The number of evaluable patients in the studies that led to FDA approval for Kymriah and Yescarta in large B-cell lymphoma was 68 and 101, respectively. Moreover, Kymriah also received FDA approval for the treatment of ~~Chagas~~pediatrics and adolescents with r/r ALL based on a single phase II study.The Novartis-sponsored Kymriah study in ALL showed that 83% of pediatric and adolescent patients with r/r ALL who received treatment with Kymriah (52 of 63; 95% confidence interval: 71%-91%) achieved acomplete response rate (CR)or a CR with incomplete blood count recovery within three months of infusion. In addition, Novartis announced that no minimal residual disease, a blood marker that indicates potential relapse, was detected among responding patients.The Novartis-sponsored Kymriah study in adults with r/r DLBCL showed that 32% of adults achieved a CR within three months of infusion,which dropped to 30% after six months. In the Kymriah registration study in the DLBCL population, 160 patients were enrolled and 68 were evaluable.

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The single Phase II study that led to the FDA approval of Yescarta in r/r DLBCL showed similarly positive results. The study enrolled 111 patients (101 were evaluable) with large B-cell lymphoma at advanced stages despite having undergone at least two previous treatments, with approximately 20% of patients already having undergone a stem cell transplant.The CR rate within three months of CAR-T treatment, given as a single infusion, was 58%, which dropped to 46% after six months. The CR rate after two years of CAR-T treatment, given as a single infusion, has been reported as 37%.

Encouraged by the success of the Phase II studies, since the initial FDA approvals were granted to Novartis for Kymriah, the CAR-T therapy market has seen rapid expansion, with Gilead/Kite and Novartis and scores of other biotechnology companies actively working to progress CAR-T therapies as potential treatments for numerous blood and solid tumor cancers. The third entrant to the U.S. market, lisocabtagene maraleucel (liso-cel) from BMS, is expected to be approved in 2020.

Kymriah, Yescarta and liso-cel are autologous individualized CD19 targeted CAR-T therapies. Development is also ongoing to move each agent to earlier lines of therapy for DLBCL(rather than as salvage therapy for patients who have exhausted other options), in other types of B-cell NHL and for the treatment of chronic lymphocytic leukemia (“CLL”). According to SEER, as well as the American Cancer Society's Cancer Statistics Center and World Health Organization Union for International Cancer Control, it is estimated that up to 10,000 patients with r/r B-cell hematologic malignancies (including DLBCL, ALL, CLL) per year may potentially benefit from CD19 targeted CAR-T therapies.In addition, if CAR-T therapy is approved as an earlier second-line option versus stem cell transplantation, an additional 10,000 to 12,000 patients may be eligible for treatment.Moreover, there are two B-cell maturation antigen (“BCMA”) targeted CAR-T therapies in phase II development for relapsed or refractory multiple myeloma and several other novel CAR-T therapies targeting various antigens and neo-antigens in development for a number of hematologic and solid cancers. While there may be individual differences between CAR-T therapy products, the overall toxicity profile is generally expected to be generally consistent with that reported for Yescarta and for Kymriah.

Former FDA Commissioner Scott Gottlieb and FDA Center for Biologics Evaluation and Research (CBER) Director Peter Marks detailed plans for the FDA to keep pace with an expected influx of applications for cell and gene therapies over the coming years. Gottlieb and Marks have indicated that by 2020, FDA expects to receive more than 200 active IND applications for cell and gene therapies each year, adding to the 800 active IND applications for such products already filed with FDA. By 2025, they predict that FDA will be approving between 10 and 20 cell and gene therapy products annually. The FDA has also issued final guidance to gene therapy and cell therapy developers, whereby under the Regenerative Medicine Advanced Therapy (“RMAT”) designation, qualified applications will be eligible for FDA priority review and accelerated approval.

The global CAR-T therapy market is projected to grow from approximately $300 million in 2018 to greater than $2 billion in 2021, with continued growth up to $8.5 billion in 2028, according to ‘Evaluatepharma’.

Allogeneic HSCT Overview and Market Opportunity

Allogeneic HSCT, which involves transferring stem cells from a healthy donor to the patient, has demonstrated effectiveness in treating hematological cancers. As depicted below, allogeneic HSCT involves multiple steps:

Collecting blood from a healthy donor;

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

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

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

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The overall number of allogeneic HSCT treatments continues to increase annually in the U.S. and abroad. In 2019, approximately 10,000 allogeneic HSCT treatments are expected to be performed in the U.S., with similar trends expected in Europe.

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Market Opportunity

CAR-T Therapy

The two FDA-approved CAR-T therapies are not without significant limitations. Despite the exciting prospects for treating patients with limited options, significant and potentially life-threatening side-effects from CAR-T therapy, including NT and CRS, remain a significant unmet need that must be addressed.Because NT and CRS can be life-threatening and have proven fatal in many instances, and because each product bears a “Boxed” warning from the FDA (the strictest FDA warning label intended to alert patients and providers about serious and life-threatening risks associated with a particular drug), patients seeking to benefit from Yescarta or Kymriah generally may only do so if the treatment center is in compliance with theRisk Evaluation and Mitigation Strategy (“REMS”) program required by FDA.

REMS is a drug safety program that the FDA can require for certain medications with serious safety concerns to help ensure the benefits of the medication outweigh its risks and are intended to assist and train certified treatment centers on the management of these serious side-effects. For example, each hospital and its associated clinics have a minimum of two doses of tocilizumab available on-site for each patient for the potential treatment of moderate to severe cases of CRS. We believe the REMS requirement may have adversely impacted both market uptake and usage to date. Both CRS and NT are caused by a large-scale release of pro-inflammatory cytokines and chemokines induced by the CAR-T therapy, sometimes referred to as a “cytokine storm”.

According to the package inserts for Yescarta and Kymriah, up to 94% of patients treated with Yescarta or Kymriah in the clinical trial setting experienced CRS (with up to 49% of cases being severe or grade>3 in nature) and up to 87% experienced NT (with up to 31% of cases being severe or grade>3 in nature) despite the availability and utilization of tocilizumab. Moreover, based on feedback from leading treatment centers in the U.S., approximately 30 to 60% of patients receiving CAR-T therapy require admission to the intensive care unit (“ICU”) and in some cases require an extended stay, with multiple interventions, including ventilator support and other supportive measures, to be urgently administered to manage these side-effects.Some patients can suffer seizures, coma, brain swelling, heart arrhythmias, organ failure and serious and life-threatening clotting disorders, not only causing more complex and potentially fatal medical consequences, but significantly adding to cost of patient care. These can be particularly challenging and concerning issues, especially in younger and pediatric patients.

Researchers who evaluated 1,254 patients who underwent CAR-T therapy at 86 hospitals over the past two years reported that the median ICU stay was 15 to 19 days with a median overall cost ranging from $85,726 to $242,730, not including the cost of the CAR-T therapy itself (Harris, et al. TCT 2019 Abstracts 500, 501). In addition,there have also been deaths reported as a result of these serious side-effects. A publication assessing 636 patients who had received either of the two FDA-approved CAR-T therapies (348 patients on Yescarta and 288 on Kymriah) authored by Anand and Burns, et al. in the Journal of Clinical Oncology (37, 2019 (suppl; abstract 2540)) reported that 15% of CAR-T treated patients (10% receiving Yescarta and 21% receiving Kymriah) died from factors not associated with disease progression (i.e., non-relapse mortality) and the primary driver of non-relapse mortality was NT and/or CRS. Therefore these serious side-effects are associated with significant mortality rates, despite the availability of approved supportive care measures, even as CAR-T therapies are administered only in trained and certified treatment centers staffed by experts in the field. We expect that the CAR-T therapies under development may be hampered by the same significant side-effects. If such side-effects can be ameliorated or eradicated, and adequate data is submitted to FDA, the “Black Box” warning and REMS program could potentially be scaled back or removed.

There are currently no FDA-approved products for the prevention or treatment of NT or for the prevention of CRS associated with CAR-T therapy. Medicines used to manage NT and CRS, such as tocilizumab and corticosteroids, have not adequately controlled the side-effects, and steroids may have a detrimental impact on the efficacy of the CAR-T therapy itself while tocilizumab may increase the risk of CAR-T therapy induced NT and is correlated with an increased risk of infections, including severe infections. Further, these medicines have not undergone prospective clinical trials for use in this patient population. Tocilizumab is only approved for the treatment of severe cases of CRS, but is not approved for prevention of CRS, nor is it approved for either prevention or treatment of NT.

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The approval in CRS was granted as a result of case studies and not as a result of a planned, prospective clinical study in this patient population, as would be typical. Studies testing tocilizumab for the prevention of NT have shown tocilizumab to significantly worsen the rate of NT across all grades as well as the more serious grades 3 and above, as compared to the rate in patients who did not receive tocilizumab prophylactically. In addition, recent publications question the efficacy of tocilizumab in CRS. For example, studies testing tocilizumab as a prophylactic therapy for CRS have shown the rates of overall CRS remained unaltered as compared to the rate in patients who did not receive tocilizumab prophylactically (Locke et al. American Society of Hematology (“ASH”) 2017, Abstract 1547). Further, a publication authored by Le, et al. in The Oncologist (2018, 28(8); 943-947) assessing 60 patients who had received either Yescarta or Kymriah and had suffered from CRS having received tocilizumab and/or steroids after the onset of CRS, reported that only approximately half of the patients responded at day 11.

These data, along with the Anand/Burns data and the Locke data discussed above, demonstrate that improvements in the ability to prevent or mitigate NT and CRS are needed. Such improvements would help remove these major impediments to uptake and utility of CAR-T therapies, improve healthcare utilization and improve overall patient outcomes. Managing patients with these side-effects can consume a significant amount of in-hospital resources, including extended stays in the ICU. The primary driver of non-drug related costs associated with CAR-T therapy is the length of stay in the hospital, particularly if this includes ICU admission. Non-drug related costs for patients who develop CRS and/or NT are approximately double that of patients who do not develop these serious toxicities. Further, as the potential benefit of CAR-T therapies are explored in earlier lines of hematologic cancers (rather than as salvage therapy for patients who have exhausted other options), as well as moving use of CAR-T therapies into solid tumors, the need to address serious side-effects becomes paramount.

In addition to improving patient outcomes, the ability to significantly reduce the incidence and severity of NT and prevent CRS associated with CAR-T therapy may offer significant benefits in making these treatments more cost-effective. Hospital reimbursement for patients who are treated only as an out-patient is profoundly different from, and more favorable to the hospital than, the reimbursement afforded to treatments for patients who are admitted or re-admitted to the hospital within a 72 hour period. Unfortunately, at present, the need to identify, treat and manage NT and CRS generally has prevented CAR-T therapies from being administered, and follow-up care monitored and managed, potentially on an out-patient basis.Again, 30-60% of patients receiving CAR-T therapy require admission to the ICU, in some cases requiring an extended stay, with multiple interventions, investigations and treatments needing to be urgently administered.

As a result, in some institutions, the treating physician may require the hospital to reserve a bed in the ICU as a prerequisite to administering the CAR-T therapy in case the patient needs to be hospitalized in an attempt to manage the adverse effects from NT and CRS. At other institutions, the patient is admitted as an in-patient and is required to remain in the hospital for at least a week, with discharge being subject to satisfactory short-term outcomes and no emergence of complications. Even in institutions where the CAR-T therapy is initially administered in an out-patient setting, the patient is closely monitored daily for several weeks and is required to stay within a short distance from the hospital in case the patient needs to be admitted to the hospital on an emergency basis, requiring additional lodging, food and other costs to be incurred by the patient, the payer, or both.In some situations these patients are re-admitted to the hospital on an emergency basis as an in-patient if complications ensue. If a patient is admitted or re-admitted to the hospital as an in-patient, the hospital reimbursement dynamics may change in a manner which is negative for the hospital, the payer and the patient. This dynamic also ~~known~~changes typical hospital reimbursement, depending on when in the treatment cycle the patient is admitted or re-admitted. In addition, certain treatment centers do not accept patients who are not potentially able to be treated as ~~American trypanosomiasis. Benznidazole~~an out-patient and refer such patients to other centers who may be willing to treat them as in-patients, primarily as a result of the reimbursement handicap that would accrue as a result of in-patient coding, billing and reimbursement, which generally leads to the hospital system losing money because of the in-patient care reimbursement.

The reimbursement challenges associated with CAR-T therapies are also proving to be an impediment to greater utilization of Kymriah and Yescarta in Europe and the United Kingdom, where the National Institute of Clinical Excellence (“NICE”) initially recommended that the UK National Health Service not reimburse Yescarta based on their assessment of the cost per quality-adjusted life-year (“QALY”).A key driver of the cost per QALY is in-patient and potential ICU-related costs.This led to Yescarta having to be funded through other mechanisms.A positive recommendation for use of Yescarta within the Cancer Drugs Fund (“CDF”) was subsequently made by the NICE appraisal committee in January 2019, but only in compliance with a managed access agreement. When the data collection period finishes (anticipated by February 2022), the process for exiting the CDF will begin and the review of NICE’s guidance for Yescarta will start.

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While both Kymriah and Yescarta have been approved by European regulators for market authorization, prescriptions have been limited as Kite and Novartis work to establish reimbursement arrangements intended to facilitate access to the treatments on a discounted basis consistent with the governmental mandates to curb healthcare spending. These dynamics, and the additional complexity of treating patients with serious and potentially life-threatening side-effects in the hospital and/or ICU, mean that enabling true out-patient administration and follow-up would confer significant benefits to patients, payers and the hospital system. Lenzilumab, if proven to be able to abrogate these serious side-effects as well as improve efficacy, may offer a solution.

Other T-cell Engaging Therapies

In addition to CAR-T therapy, we are committed to advancing our diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both autologous and allogeneic next generation CAR-T therapies, bi-specific antibody therapies, as well as other cell-based immunotherapies in development, to break the efficacy/toxicity linkage, including for the prevention and/or treatment of GvHD in patients undergoing allogeneic HSCT. Many of these treatment options may lead to serious side-effects and have ample room for improved efficacy.

We believe that GM-CSF neutralization with lenzilumab has ~~undergone numerous clinical trials~~the potential to prevent or reduce GvHD without compromising, and ~~studies that show efficacy against Chagas disease and we believe~~potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Allogeneic HSCT is ~~the current preferred~~a potentially curative therapy for patients with hematological cancers. Although a potentially life-saving treatment for ~~Chagas disease~~patients suffering from hematological cancers, between 40-60% of patients receiving HSCT treatments experience acute or chronic GvHD, which together carries a 50% mortality rate. After being transplanted into the patient, donor-derived T cells are responsible for mediating the beneficial GvL effect. In many cases, however, donor-derived T cells that remain within the graft itself have also been linked to destruction of healthy tissue in the ~~countries where it~~patient (the host), with particular risk of destroying cells in the patient’s skin, gut, and liver, resulting in GvHD. Although depleting donor grafts of T cells can prevent or reduce the risk of GvHD, this results in a reduced GvL effect, thereby having a detrimental impact on the efficacy of the allogeneic HSCT treatment itself and leading to increased relapse rates. We expect that the use of allogeneic HSCT may be hampered by GvHD complications. A recent study published in ‘blood advances’ an official journal of the American Society of Hematology, suggests that neutralizing or blocking GM-CSF may limit or prevent GvHD in the gastrointestinal tract (Gartlan, K., et al, October 8, 2019, vol 3, no.19).

There are currently no FDA-approved agents for the prevention of GvHD, and there is ~~approved. No~~a significant unmet medical need for an agent that can uncouple the beneficial GvL effect from harmful GvHD. At this time, pre-conditioning regimens for HSCT treatments ~~for Chagas disease are~~vary significantly by treatment centers, including by unapproved, or “off-label”, use of agents that have been approved by the ~~United States Food and Drug Administration, or~~ FDA for use in the United States. On June 30, 2016, we acquired certain worldwide rights relating to benznidazole for human use from Savant Neglected Diseases, LLC, or Savant, and we are focused on the development necessary to seek and obtain FDA approval of benznidazole.other uses only. We believe ~~benznidazole as~~there to be a ~~treatment for Chagas disease could qualify for priority review~~significant unmet medical need and lenzilumab, if proven to be able to prevent GvHD in allogeneic HSCTs, may offer a solution.

Preclinical studies have shown lenzilumab can potentially ~~other FDA regulatory incentives, and~~be used to ~~receive a PRV if FDA approves the drug for marketing. Having met face-to-face with FDA~~cause apoptosis in ~~December, 2016, we intend to submit an Investigational New Drug (IND) application for benznidazole to FDA under the 505(b)(2) regulatory pathway during the first half~~CMML cells by depriving them of ~~2017.~~

Lenzilumab is a recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine for the growth of certain hematologic malignancies and solid tumors and may be implicated in other serious conditions. Consistent with our strategic focus on neglected and rare diseases, in July 2016, we initiatedGM-CSF. We completed 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.~~ activity and reported the results at the 2019 American Society of Hematology (ASH) conference.

Our Solution

We ~~may assess interim data from~~believe that our GM-CSF pathway science, assets and expertise create two technology platforms to assist in the ~~lenzilumab CMML Phase I study to determine the feasibility~~development of ~~rapidly commencing a Phase I study in JMML patients, or explore progressing directly with the JMML Phase I study. JMML is associated with a very high unmet medical need and there are no FDA-approved~~next-generation CAR-T therapies.

~~Ifabotuzumab is an anti-EphA3 mAb that~~ Lenzilumab has the potential to ~~offer a novel approach to treating serious pulmonary conditions,~~be used in combination with any FDA-approved or development stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell therapies such as HSCT, to make these treatments safer and more effective. In addition, our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.

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In our review of results of CAR-T clinical trials, as well as preclinical animal models that seek to understand the causation of side-effects, we noted from independent researchers that CAR-T infusion leads to an early rise in levels of soluble GM-CSF, a cytokine that we believe is of critical importance in the inflammatory cascade associated with CAR-T therapy related side-effects. GM-CSF is one of only two cytokines that have been clearly demonstrated to be associated with severe NT and early rise in, and peak levels of, GM-CSF are associated with NT. GM-CSF is also implicated in the growth of certain hematologic malignancies, such as chronic myelomonocytic leukemia (“CMML”), juvenile myelomonocytic leukemia (“JMML”), hemophagocytic lymphohistiocytosis (“HLH”), macrophage activation syndrome (“MAS”), certain solid tumors and ~~hematologic malignancies. EphA3~~other serious conditions, particularly a broad range of auto-immune conditions.Moreover, there is ~~aberrantly expressed on the surface~~an abundance 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 and are evaluating partnering opportunities for ifabotuzumab.

~~We also have an additional drug candidate, KB001-A, a recombinant, PEGylated, anti‑Pseudomonas PcrV high‑affinity Fab antibody~~data demonstrating that ~~we are no longer developing, but which~~GM-CSF is ~~being considered for partnering.~~

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~~Lenzilumab, ifabotuzumab and KB001-A 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 also involves identifying, acquiring, developing and supporting the commercialization of additional treatments for neglected and rare diseases. We believe the treatment of neglected and rare diseases represents an opportunity to enter underserved patient populations and serve specialty markets. We also believe our focus on neglected and rare diseases provides us the opportunity to benefit from various regulatory incentives referenced above. The potential opportunities afforded by these regulatory programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and to apply our Responsible Pricing Model for any of our approved products.

~~Our company has undergone a significant transformation~~upstream in the ~~last year. As a result~~cytokine cascade and that the neutralization of ~~challenges facing us at~~GM-CSF is known to inhibit the ~~time, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under Chapter 11~~release 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 “Bankruptcy.”

~~Our Strategy~~

We are a biopharmaceutical company focused on developing medicines for patients with neglected and rare diseases and using our Responsible Pricing Model for our products that may be approved, with an ancillary interest in pediatric conditions. We plan to achieve our objectives through the following strategies, which we believe reflect an innovative and responsible business model that differentiates our approach from more traditional approaches used by drug development companies:

~~Develop and support the commercialization of benznidazole for the treatment of the neglected Chagas disease~~. We believe that benznidazole as a treatment for Chagas disease is a model opportunity to deliver on our strategy to provide treatments for patients with neglected and rare diseases. Chagas disease affects an estimated 8 to10 million people globally, including approximately 300,000 or more people in the United States according to U.S. Centers for Disease Control and Prevention, or CDC, and is responsible for an estimated 12,500 annual global deaths. Nevertheless, there are currently no approved drugs in the United States for the treatment of Chagas disease. We believe that manufacturing issues have in the past led to an uncertain and inconsistent worldwide drug supply of benznidazole. On June 30, 2016, we acquired certain worldwide rights related to benznidazole for human use from Savant. We are now working to develop benznidazole for the treatment of Chagas disease in order to seek and obtain FDA approval. Based on the outcome and minutes from a meeting with FDA on December 6, 2016, we believe that benznidazole is eligible for approval under Section 505(b)(2) of the U.S. Federal Food, Drug, and Cosmetic Act, or the FDCA, pursuant to which an applicant may rely on investigations not conducted by or for the applicant to show that a drug is safe and effective and that we may receive a PRV if our version of benznidazole is the first version approved by FDA. We also believe that benznidazole is eligible for a five-year period of marketing exclusivity as a new chemical entity, if approved, under the Drug Price Competition and Patent Term Restoration Act, commonly referred to as the Hatch-Waxman Act. We may seek fast track status, as well as orphan drug designation for benznidazole, the latter of which could confer seven years of marketing exclusivity, lead to a waiver of the NDA submission fee and confer various other benefits.

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~~Develop and support the commercialization of lenzilumab for the treatment of CMML and JMML~~. Lenzilumab has shown a favorable safety profile to date and has been studied in more than 90 human subjects in clinical studies in either healthy adults or adults with autoimmune diseases. We completed Phase 1 and Phase 1/2 clinical trials of lenzilumab’s precursor, KB002, a Phase 2 clinical trial of lenzilumab in patients with severe asthma and the run‑in safety portion of a Phase 2 clinical trial in patients with rheumatoid arthritis, but no longer plan to develop lenzilumab for these indications. 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 some 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 one or both of these conditions. The mechanism of action of lenzilumab may also prove to be of value in multiple other rare and orphan conditions. Further, 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 be associated with 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 serious pulmonary conditions and rare adult and pediatric solid tumors and hematologic cancers.~~ Prior to our bankruptcy and reorganization, we began enrolling patients in the Phase 2 cohort expansion portion of our Phase 1/2 clinical trial for ifabotuzumab as a potential therapeutic for myelodysplastic syndrome, or MDS, and myelofibrosis. We suspended this study in connection with our bankruptcy and reorganization. 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. There is also early data in serious pulmonary conditions. We believe that some of these conditions would qualify as orphan conditions, and ifabotuzumab may receive orphan designation for these conditions for the company developing it. Further, if FDA agrees that the pediatric uses qualify as rare pediatric diseases, ifabotuzumab may receive a PRV if approved by FDA for use in these rare pediatric conditions.

~~In-license or acquire additional products and product candidates that align with our mission to treat neglected and rare diseases~~. We intend to identify and in-license or acquire additional product candidates across various stages of development that treat neglected and rare diseases, including pediatric conditions. With this strategic focus, we believe we will have the opportunity to benefit from various regulatory incentives, such as orphan drug designations and exclusivities, PRVs where available, and FDA’s expedited programs, such as fast track, breakthrough therapy designation and priority review. The Orphan Drug Act provides incentives for the development of drugs and biological products intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States, or those affecting more than that number but for which there is no reasonable expectation that the cost of developing and making the drug available in the United States for such disease or condition will be recovered from sales in the United States of such drug. If a sponsor demonstrates that a drug or biologic is intended to treat a rare disease or condition, FDA generally grants orphan drug designation to the product for that use, as long as other requirements are met, including that the drug is not the same drug as an already approved drug for the same rare disease or condition. The benefits of orphan drug status include research and development tax credits, exemptions from user fees, and if the sponsor is the first to obtain approval for that drug product for the rare disease or condition, seven years of exclusivity during which FDA generally may not approve any other application for the same product for the same indication. While we do not know if it will be the case for any product candidates that we pursue, product candidates with orphan designations appear to have higher rates of approval, faster trials and shorter FDA review time. Under the FDCA, FDA is also authorized to award a PRV upon the approval of a new drug application, or NDA, or a biologic license application, or BLA, for neglected tropical disease and rare pediatric disease product candidates that meet certain criteria. PRVs can be used for the acceleration of review and approval of a different product candidate by several months. A PRV may be used by the company that obtains it or it may be sold or transferred to another sponsor that may use it to obtain priority review for a different application. We may also seek product candidates that could qualify for FDA’s expedited programs, namely priority review, fast track, breakthrough therapy and accelerated approval, or for regulatory exclusivities and other incentives provided for new chemical entities and qualified infectious disease products. The opportunity and benefits of these programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and in certain instances provide us with multiple paths for value creation.

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~~When products are approved for marketing, apply our Responsible Pricing Model~~. We intend to responsibly price any approved products. We define ‘responsible pricing’ as affordable for patients and payers, transparent for stakeholders, and delivering a reasonable return for us and our shareholders. We plan to price our products at overall cost, plus a reasonable and transparent profit margin, if and when they are approved. We will intend to publicly share the key elements that make up the pricing of our products and seek input from key stakeholders on what would constitute a reasonable return. We do not intend to take arbitrary price increases on our products and plan to limit any increase to no more than the rate of inflation or Consumer Price Index and to no more than once a year, if at all. With respect to benznidazole, we plan to ensure patients, irrespective of their ability to pay, will have access to benznidazole, if and when we receive approval of benznidazole for the treatment of Chagas disease in the United States. In developing countries, we plan to make benznidazole available at or near cost and plan to work with partners on creating access programs to ensure patients in need receive the medication.

~~Benznidazole~~

~~Overview~~

Benznidazole is an oral small molecule antiprotozoal nitroimidazole derivative for the treatment of Chagas disease that has undergone decades of real-world treatment outside the United States and numerous clinical tests and studies. Chagas disease is a parasitic disease typically transmitted by insects, sometimes by congenital (mother-to-child) transmission during pregnancy, blood transfusions or infected organ transplants, and rarely through oral ingestion of the parasite. While many cases are asymptomatic during the acute phase of the infection which can last several weeks, up to approximately a third of people infected may develop serious complications 10 to 30 years following infection and where people have symptoms, they can persist for years and range from mild to deadly. The disease affects millions of people in the Americas, including an estimated 300,000 in the United States for all phases of the disease. We believe benznidazole is the preferred treatment for Chagas disease where it is approved, but it is not approved for marketing in the United States. Based on clinical trials outside of the United States, we believe that benznidazole has been shownkey downstream cytokines known to be a useful treatment for Chagas disease in the majority of acute phase patients, particularly children, and studies conducted outside the United States suggest possible benefits in some chronically infected patients. On June 30, 2016, we acquired certain worldwide rights relating to benznidazole for human use from Savant. We are working to obtain FDA approval for benznidazole for the treatment of Chagas disease.

~~Chagas Disease~~

~~Chagas disease is a parasitic disease caused by the protozoan~~ ~~Trypanosoma cruzi, or~~ ~~T. cruzi~~. The disease is typically transmitted through the feces of the triatomine bug, commonly known as the kissing bug. Transmission may occur in connection with a bite from this bug. Chagas disease may also be transmitted from mother-to-child transmission during pregnancy or through blood transfusions or infected organ transplants. Chagas has acute and chronic stages and is sometimes symptomless. Some infected individuals develop clinical symptoms in a four-to-eight week period following infection. This mild acute phase is typically characterized by a non-specific flu-like illness and other symptoms such as fever and malaise. The acute stage is not associated with ~~symptoms at all in a large majority of cases. However, during this phase, severe manifestations such as acute myocarditis or meningoencephalitis may also be experienced~~CRS and ~~in a small proportion of patients, especially children, can lead~~NT.

Combining CAR-T Therapies with Lenzilumab

Lenzilumabbinds to serious consequences or death. After the acute phase, a chronic infection may persist for years or decades, again sometimes without symptoms. If left untreated, chronic Chagas disease may result in organ and tissue damage. Approximately 20 to 30% of chronic cases lead to serious complications, most commonly cardiac or intestinal, over the course of 10 to 30 years. Cardiac complications may include heart arrhythmias, chronic inflammation, conduction system damage and apical aneurysms. Up to 10% of chronic cases lead to severe damage to the digestive system, predominantly affecting the esophagus and/or colon. Some patients also develop neurological complications. In some cases, chronic Chagas disease may lead to premature death.

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Chagas disease causes a substantial disease burden in Latin America and the United States. It has disproportionate effects on poor populations. An estimated 8 to10 million people are infected globally, and there are an estimated 300,000 infected individuals in the United States, at all stages of infection. The disease kills approximately 12,500 people annually. According to the Drugs for Neglected Diseases Initiative, cases have been increasing in other parts of the world, though World Health Organization, or WHO, studies showed a significant decline in certain Latin American countries from 1983 to 2000. While acute cases are relatively few in the United States, many cases may be undiagnosed. In addition, there are an estimated 30,000 to 45,000 Chagas-related cardiomyopathy cases in the United States. Cases have also been reported in Europe and Asia, with one study estimating the presence of between 68,000 and 123,000 infected individuals in Europe alone, with approximately half of these in Spain. Cases of Chagas disease have also been reported to be increasing in Japan, Canada and Australia, primarily as a result of migration patterns.

Efforts to control Chagas disease include efforts to control the vector insects, such as insecticide use and roof repair (the bugs often live in cracks in houses in rural areas), efforts to protect people from kissing bug bites, including bed nets, as well as education and medication. However, despite the wide incidence and prevalence of Chagas disease, the WHO has designated Chagas disease a neglected tropical disease and FDA added it to the list of neglected tropical diseases in August 2015. There are currently no approved vaccines or preventative treatments for Chagas disease in the United States. Drugs currently used to treat Chagas disease are benznidazole and nifurtimox, which are currently only available in the United States through a compassionate use protocol from the CDC or through clinical trials.

~~Background and Mechanism of Action~~

Benznidazole was first introduced by a predecessor of Roche Holdings Ltd. in 1971. Roche later transferred the patent (which has since expired) and technology for benznidazole, as well as the benznidazole active pharmaceutical ingredient and tablets, to a Brazilian government-run laboratory, Laboratório Farmacêutico do Estado de Pernambuco, or LAFEPE. LAFEPE subsequently received approval for benznidazole production from the Brazilian government. LAFEPE developed a pediatric dosage in 2011. LAFEPE and the Argentine laboratory ELEA, which is affiliated with the Argentinian conglomerate Grupo Insud/Chemo Group, are the only current producers of benznidazole. ELEA uses the trade name Abarax for the drug. As third parties, including the advocacy group Doctors Without Borders, have noted, the worldwide drug supply of benznidazole has historically experienced manufacturing issues that have led to an uncertain and inconsistent worldwide drug supply.

~~Benznidazole acts by interfering with protein biosynthesis in~~ ~~T. cruzi. Benznidazole influences cytokine production and stimulates host phagocytosis. Reductive metabolites of benznidazole create highly-reactive oxygen species in~~ ~~T. cruzi, leading to alkylation and oxidative damage of vital elements such as DNA and RNA in the parasite.~~

Benznidazole has undergone numerous clinical trials, including trials conducted outside the United States and not under an investigational new drug application, or IND, with FDA. We believe these trials support safety and efficacy in the treatment of Chagas disease. Studies have shown that benznidazole may cure more than 60% of patients in the acute phase and 90% of congenitally infected infants in the first year of life. Two randomized, double-blind, placebo-controlled trials of benznidazole for children aged 6 to 12 years with asymptomatic ~~T. cruzi~~ infections demonstrated approximately 60% efficacy, as assessed by negative serology results 3 to 4 years after-treatment. In a 2006 non-randomized, non-blinded trial, benznidazole treatment appeared to slow the development and progression of Chagas cardiomyopathy in adults. The side effects of benznidazole include allergic dermatitis, peripheral nerve disorder, anorexia, weight loss, and insomnia.

~~Development Plans~~

As previously noted, no treatments for Chagas disease are currently approved for marketing in the United States. On June 30, 2016, we acquired from Savant certain regulatory and non-intellectual property assets relating to benznidazole and any product containing benznidazole and an exclusive license to certain intellectual property rights related to benznidazole. We are now working to obtain FDA approval for benznidazole for the treatment of Chagas disease based primarily on data in three categories: (1) clinical trials previously conducted by others for which we have obtained a right to access and use the underlying patient-level data, which we plan to analyze, organize, and present to FDA in an NDA; (2) clinical trials reported in the literature for which the underlying data may or may not have been submitted to FDA, and to which we have not obtained rights of access, use, or reference; and (3) to the extent required by FDA, a bioavailability study, or studies, and non-clinical studies that we will perform to bridge the clinical trial data described above using prior formulations of benznidazole to our current formulation, which we believe to be comparable to the prior formulations used in clinical trials.

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Based on our planned approach and documented discussions with FDA during a face-to-face meeting in December, 2016, we believe that benznidazole is eligible for approval under Section 505(b)(2) of the FDCA. Under that section, an applicant seeking approval of an NDA may rely in part or in whole on investigations not conducted by or for the applicant, and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted, to show that the applicant’s drug is safe and effective. The second category of data described above, on which we anticipate relying to some extent in establishing benznidazole’s safety and efficacy, consists of data to which we do not and will not have a contractual right of access, reference, or use, but which we may legally reference by virtue of the FDCA. Most of the data on which we intend to rely, however, are foreign clinical data to which we have obtained or plan to obtain a right of access and use, which we will analyze, organize, and present to FDA in an NDA, and that FDA will need to find acceptable together with the other data we present. Because the clinical safety and efficacy data on which we intend to rely were derived from studies using a prior formulation of benznidazole, as noted above in the description of the third category of data on which we anticipate relying, FDA may require us to perform bridging studies to confirm the comparability of our current formulation to the prior formulations. FDA may also require bridging studies to confirm the comparability of patient populations, medical practice, and other potential variables between the prior clinical trial conditions and the proposed conditions of use for the drug in the United States.

Although we believe our planned approach will provide FDA with sufficient clinical safety and efficacy data on which to base an approval, FDA may request additional information or data that we may not have and that we may not be able to obtain.

We also believe benznidazole would qualify as a new chemical entity, a designation that carries with it five years of exclusivity under the Hatch-Waxman Act upon approval. In addition, we may seek orphan drug designation for benznidazole and fast track designation. FDA has previously granted orphan drug designation to sponsors of both benznidazole and nifurtimox for treatment of Chagas disease, and we are continuing to evaluate our eligibility to obtain orphan drug designation for benznidazole in treating Chagas disease, based on current facts. Because an independent assessment is made by FDA each time that a sponsor requests orphan drug designation, there is no assurance that we will be granted that designation if we seek it. New chemical entity and orphan drug designations are further discussed in the “Government Regulation” section below.

We plan to ensure patients, irrespective of their ability to pay, will have access to benznidazole if and when we receive approval of benznidazole for the treatment of Chagas disease in the United States. The scope and availability of prescription drug insurance coverage, or other means to pay for pharmaceutical treatments, is uncertain for patients with Chagas disease in the United States. If we do not obtain approval for benznidazole in the United States, we may still make benznidazole available in developing countries. If we make benznidazole available in developing countries, we expect to make benznidazole available at or near cost in those countries and plan to work with partners to create access programs to ensure patients in need receive the medication.

In August 2015, FDA added Chagas disease to the list of designated neglected tropical diseases whose product applications, if approved, may result in the award of a PRV. We believe that the approval of benznidazole as a treatment for Chagas disease could result in the issuance of a PRV, which then could be used by us for a different product candidate or sold or transferred for other value to another sponsor that may use it to obtain priority review for its own product candidate. We consider the issuance of a PRV to be the largest potential value driver for benznidazole. The regulatory regime for PRVs is further discussed in the “Government Regulation” section below.

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~~Lenzilumab~~

~~Overview and Mechanism of Action~~

Lenzilumab, which we 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. We are currently developing lenzilumab for use in patients with CMML and are assessing plans to investigate its potential use in patients with JMML. Theneutralizes soluble, circulating 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 treating certain oncology conditions, including CMML and JMML, as well as asthma, chronic obstructive pulmonary disease, RA and multiple sclerosis.

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 and well tolerated in ~~our~~113 patients in three Phase I and two Phase II studies conducted for other purposes, including a form of leukemia, CMML. As a result, we have an extensive safety, tolerability and pharmacokinetics data package on lenzilumab in clinical ~~trials. We conducted a repeat‑dose, Phase 2 clinical trial~~use in healthy human volunteers as well as in patients.Accordingly, we believe lenzilumab has the potential to improve the efficacy and safety of CAR-T therapy and that the use of lenzilumab may minimize or eradicate the incidence, frequency, duration and/or severity of NT and/or CRS associated with CAR-T therapy while also enhancing CAR-T proliferation and effector functions and potentially confer additional benefits in RAterms of durable efficacy and healthcare resource utilization. We also believe lenzilumab may further improve the value proposition of CAR-T therapies and facilitate their use and acceptance throughout the healthcare systems in the U.S. and abroad.

A strong scientific rationale exists for GM-CSF neutralization using lenzilumab for the improvement of safety, efficacy and cost-effectiveness of CAR-T therapy. Lenzilumab is in development to significantly reduce the incidence and severity of CAR-T therapy induced NT and CRS, and to improve the overall efficacy and duration of response of CAR-T therapy. Robust scientific rationale and independent scientific research from leading institutions support GM-CSF neutralization as a validated target in this setting. In December 2017, we held a scientific advisory board at the 2017 ASH annual meeting with leading key opinion leaders in the CAR-T field to validate the scientific rationale of lenzilumab prophylactic therapy in combination with CAR-T therapy. Based on feedback received from the advisory board, we created the development plan for lenzilumab. To that end, we initiated preclinical studies using proprietary xenograft models in collaboration with the ~~inclusion~~Mayo Clinic. In addition, and following subsequent scientific advisory boards convened at the 2018 American Society of Clinical Oncology and the 2018 ASH annual meeting, we continued to work with leading key opinion leaders and CAR-T centers to advance lenzilumab into phase Ib/II pivotal trials in combination with FDA-approved, CD19 targeted CAR-T therapies such asKite’s Yescarta and potentially with Novartis’s Kymriah.

Following outreach to key opinion leaders and innovators in the CAR-T field, we have tested the hypothesis of using lenzilumab as a ~~safety run‑~~prophylaxis against these side-effects. A preclinical study conducted in ~~portion. On completing~~2018 in collaboration with leading researchers at the ~~safety run-in portion of this trial, which showed lenzilumab to be well tolerated with no clinically significant adverse events, we reassessed~~Mayo Clinic, validated our hypothesis that the ~~increasingly competitive RA market and chose to redirect our study~~use 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 trialalong with CD19 targeted CAR-T therapy neutralized GM-CSF and significantly reduced NT and CRS. In addition, the Mayo Clinic study showed 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 these data, we terminated developmentuse of lenzilumab enhanced CAR-T proliferation and effector functions, generally improving the efficacy of the CAR-T therapy. This was the first time it has been demonstrated that the toxicities associated with CAR-T therapy can be effectively abrogatedin ~~severe asthma.~~vivo. These data were submitted as an abstract to the ASH and led to a presentation during the CAR-T plenary session at the 2018 annual meeting of the ASH, the receipt of one of ASH’s coveted ‘Outstanding Abstract Achievement Awards’, and an invitation to submit a manuscript to ‘blood’, a premier journal in hematology and the official journal of ASH. The manuscript entitled “GM-CSF inhibition reduces cytokine release syndrome and neuroinflammation but enhances CAR-T cell function in xenografts” was published as a first edition paper by ‘blood’ in the November 21, 2018 online edition. In February 2019, the editors of ‘blood’ selected our study and a key image from the associated manuscript for the front cover of the February 14, 2019 edition of the journal.

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Our current clinical and regulatory development plan centers around the collaboration agreement we executed with Kite in May 2019 (the “Kite Agreement”). Pursuant to the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1b/2 study (ZUMA-19) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety of Yescarta. In addition, efficacy and healthcare resource utilization will be assessed.The Kite Agreement is non-exclusive. Depending upon FDA feedback, we believe ZUMA-19 may serve as the basis for registration for lenzilumab.

Combining Allogeneic HSCT with Lenzilumab

We believe that GM-CSF neutralization using lenzilumab has the potential to make allogeneic HSCT safer and more effective. Similar to GM-CSF neutralization with lenzilumab breaking the efficacy/toxicity linkage with CAR-T therapy, GM-CSF neutralization has demonstrated potential to attenuate GvHD while maintaining the beneficial GvL effect in patients undergoing allogeneic HSCT.

In July 2019, we entered into the Zurich Agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent or treat GvHD, thereby expanding our development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for patients with hematological cancers. The technology was recently featured in a November 2018 research article published in Science Translational Medicine, where the authors demonstrated in a murine model of GvHD, that donor T cell-derived GM-CSF drives GvHD through activation, expansion, and trafficking of myeloid cells but has no effect on the GvL response. Neutralization of GM-CSF (either using a neutralizing antibody or through GM-CSF gene knock-out) was able to uncouple the myeloid-mediated immunopathology resulting in GvHD from the T cell-mediated control of leukemic cells. This discovery provides a clear mechanistic proof-of-concept for neutralizing GM-CSF to prevent GvHD without compromising, and potentially improving, the GvL effect in patients undergoing allogeneic HSCT. Corroborating data related to the critical effect GM-CSF has on GvHD development in HSCT was published recently by Gartlan et al.

The strong link between T cell-mediated efficacy and myeloid cell mediated toxicity mirrors the findings that have been reported with CAR-T therapies where T cell-produced GM-CSF has emerged as a key driver of the myeloid inflammatory cascade resulting in NT and CRS and potentially impairing improved CAR-T therapy efficacy through effects on myeloid-derived suppressor cells. GM-CSF neutralization has the potential to eliminate or reduce the off-target inflammatory cascade while preserving the on-target efficacy of T cell therapies, thereby breaking the efficacy/toxicity linkage.

We believe that GM-CSF neutralization with lenzilumab has the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Accordingly, we aim to position lenzilumab as a “must have” companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment option in patients identified as high risk for GvHD.

~~Development Program~~

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Lenzilumab in CMML

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

In a recently conducted Phase I study, 3 of 6 patients with NRAS/KRAS/CBL mutations demonstrated a clinical response by the MDS/MPN International Working Group criteria. Final results of this study were presented at the 2019 ASH annual meeting and published in ‘blood’. Building on this successful Phase I study in CMML with lenzilumab, we may initiate a Phase II study in newly-diagnosed CMML patients who express NRAS/KRAS/CBL mutations which are known to be hypersensitive to GM-CSF and therefore may lend themselves to responsiveness to lenzilumab treatment.

Gene-edited CAR-T Therapies using GM-CSF Gene Knockout

We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T therapy via gene-edited CAR-T cells which can be engineered to lack the ability to produce GM-CSF, thereby avoiding any efficacy/toxicity linkage and potentially preserving and improving upon the benefits of the CAR-T therapy while altogether avoiding its serious and potentially life-threatening side-effects.

We are advancing our GM-CSF knockout gene-editing CAR-T platform through the Mayo Agreement that we entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, we have ~~shown lenzilumab can~~in-licensed certain technologies that we believe may be used to ~~cause apoptosis~~create CAR-T cells lackingGM-CSFexpression through various gene-editing tools including CRISPR-Cas9. The Mayo Agreement broadened our leadership position in ~~CMML~~the GM-CSF neutralization space and expanded our discovery platform aimed at improving CAR-T therapy to include gene-edited CAR-T cells.

Preclinical data indicates that GM-CSF gene knockout CAR-T cells ~~by depriving~~show improved overall survival compared to GM-CSF-expressing CAR-T cells in addition to the expected benefits of reduced serious side-effects associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase the proportion of fitter T-cells produced during expansion, increase the proliferative potential, and inhibit activation induced cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making them ~~of GM-CSF. Given our strategic focus on neglected~~more effective and ~~rare diseases,~~safer 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 will enroll up to 18 patients. In addition, and potentially depending on the results of the CMML study, we also intend to investigate the treatment of cancers. Preclinical data indicates that CAR-T cells express GM-CSF and signal through GM-CSF receptors upon activation in an autocrine fashion. GM-CSF knockout CAR-T cells are not able to signal through this pathway which results in a gene expression profile distinct from GM-CSF-expressing CAR-T cells afterin vitro expansion. This includes lower levels of Fas expression which may indicate a less differentiated state of the ~~rarer JMML (approximately 420 new cases annually~~CAR-T cells. These data were presented at the 2019 ASH annual meeting and the abstract was the recipient of an Abstract Achievement Award. We continue to explore the phenotypic pattern of GM-CSF knockout CAR-T cells relative to GM-CSF-expressing CAR-T cells and possible implications for improved safety and efficacy. We plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products.

EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature

We have begun to generate our own pipeline of CAR-T therapies including an EphA3-CAR-T based on the ifabotuzumab v-region and backbone. Ifabotuzumab is a Humaneered anti-EphA3 monoclonal antibody. Ifabotuzumab has the potential to kill tumor cells by targeting tumor stroma that protects them and the vasculature that feeds them. This unique combination of activities as a backbone of a CAR-T therapy may provide the potential to generate durable responses in a range of solid tumors by targeting the tissues that surround, protect, and nourish a growing cancer.

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Eph receptors are critical for cell positioning and movement in fetal development. However, in the ~~United States), which mostly affects children aged four~~adult, EphA3 is not expressed in normal tissue but it is thought to be expressed on the cancer stem cell compartment, in particular the stroma that surrounds and ~~younger,~~protects the cancer cells and the tumor vasculature that feeds them. EphA3 expression has been reported in the tumor vasculature of human cancers of the brain, kidney, skin, lung, colon, and bladder. GBM is the most common form of brain cancer and the most deadly. Targeting antigens expressed by GBM such as IL-13Ra2 and EGFRvIII is associated with ~~lenzilumab. We believe~~the development of antigen loss variants. There are safety concerns targeting HER2 given its expression in normal adult tissue. EphA3 is increasingly being recognized as a therapeutic target for GBM given its lack of expression in normal adult tissues and its expression on stromal cells that ~~lenzilumab~~support the cancer’s growth and metastatic potential.

Using ifabotuzumab as the backbone, we have generated an EphA3-CAR-T that may be ~~eligible~~useful in the treatment of a range of solid tumors and presented data at the 2019 SNO annual meeting. EphA3 expression in tumor stroma is controlled by HIF in response to the low oxygen environment that characterizes solid tumors. Preclinical data has shown the EphA3 expressing stroma cells are important for tumor neovascularization.

A Phase I safety and imaging trial of radio-labeled ifabotuzumab in recurrent glioblastoma multiforme (GBM), a particularly aggressive and deadly form of brain cancer, is enrolling at two centers in Australia, the Olivia-Newton John Cancer Research Institute in Melbourne (the “ONJCRI”) and the Queensland Institute for Medical Research in Brisbane. Preliminary imaging data reported at AACR in early 2019 and at SNO in late 2019, demonstrated that administration of ifabotuzumab resulted in rapid, specific targeting of GBM tumors in all patients. Whole body bio-distribution imaging demonstrated no normal tissue uptake of the antibody. Post-treatment MRI scans showed predominant T2/Flair changes which were consistent with treatment effect on tumor vasculature.

EMR1-CAR: Targeting Eosinophils

Our EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets EMR1.

A major limitation of current eosinophil-targeted therapies is incomplete depletion of tissue eosinophils and/or lack of cell selectivity. Eosinophils are a type of white blood cell. If too many eosinophils are produced in the body, chronic inflammation and tissue and organ damage may result. The origin and development of eosinophilic disorders is mostly due to eosinophils infiltrating tissue. EMR1 is expressed exclusively on eosinophils, making it an ideal target for ~~JMML. We also believe lenzilumab~~the treatment of eosinophilic disorders. Regardless of the eosinophilic disorder, mature eosinophils express EMR1 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 now 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,tissue, blood and bone marrow ~~measurements~~in patients with eosinophilia. Our EMR1-CAR-T based on the HGEN005 backbone is another approach in our growing platform of ~~disease,~~CAR-T therapies. We believe that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.

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Kite Collaboration

Our current clinical ~~symptoms~~and regulatory development plan centers around the Kite Agreement we executed in May 2019. Pursuant to the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1b/2 study (ZUMA-19) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractoryB-cell lymphoma, includingDLBCL. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety of Yescarta. In addition, efficacy and healthcare resource utilization will be assessed. Kite is the sponsor of ZUMA-19 and responsible for its conduct.

The Kite Agreement provides that we and Kite will split only the out-of-pocket costs incurred in conducting the ZUMA-19 study, including third-party expenses incurred in accordance with a mutually agreed budget. We currently project we will be responsible for an aggregate of up to approximately $8 million in out-of-pocket costs, assuming up to a total of 72 patients are recruited for a multi-center study. Each party will otherwise be responsible for its own internal costs, including internal personnel costs, incurred in connection with the Study.

In addition, the parties have agreed to enter into certain additional agreements in connection with ZUMA-19, including a quality and a supply agreement that will obligate us, at our expense, to supply certain quantities of lenzilumab in final form for administration to subjects in ZUMA-19. Kite is responsible, at its expense, to supply Yescarta. Kite will be responsible for other costs related to ZUMA-19.

The parties have formed a Joint Development Committee (“JDC”) to oversee ZUMA-19, its progress and administration, and other ~~measures.~~matters between the parties and their obligations set forth in the Kite Agreement. The JDC comprises representatives of each of Humanigen and Kite. Kite’s JDC designees will have decision-making authority with respect to (1) certain operational matters in conducting ZUMA-19, such as selection of participating sites and engagement of third party service providers; and (2) amendments to the ZUMA-19 protocol established by the JDC that do not directly relate to our investigational product or the part of the ZUMA-19 Study combination that consists solely of our investigational product; but only, in each case, to the extent that such decisions by the Kite JDC designees do not result in an increase in the mutually agreed-upon budget by fifteen percent or more. Neither Kite designees nor our designees will have final decision making authority on matters directly related to the investigational product of the other party, including the other party’s investigational product that is used in or a part of ZUMA-19.

We and Kite will jointly own all ZUMA-19 data and sample data, including case report forms, findings, conclusions and other results from ZUMA-19 that relates to each party’s investigational product that is used in combination or sequence in ZUMA-19, and not solely to either party’s investigational product. ZUMA-19 data and sample data that relates solely to a party’s own investigational product will be owned solely by that party. We and Kite will own our respective background intellectual property and neither party has been granted a commercial license to use the respective background intellectual property of the other party. Each party will own any inventions that relate to its own investigational product used in ZUMA-19 or sample data, however, any new inventions related to, or covering, the combination of each party’s investigational product used in ZUMA-19 will be jointly owned by the parties. Kite will control any preparation, filing, prosecution and maintenance of any patent covering any new inventions related to, or covering, the combination of each party’s investigational product used in ZUMA-19 and the parties will equally share costs for all such patents. We will continue to own all world-wide rights to lenzilumab and the intellectual property related to lenzilumab, including use of lenzilumab with CAR-T therapy.

Unless previously terminated, the Kite Agreement will continue until the first anniversary of the date Kite provides the final ZUMA-19 Study report to us or the termination of the Study. Kite may elect to terminate or suspend the Study at any time. Each party may terminate the Kite Agreement under certain circumstances, including (1) for an uncured breach by the other party; (2) if a party determines that the Study may unreasonably affect patient safety; (3) upon certain actions by regulatory authorities that are adverse to the Study; or (4) if a party determines to discontinue the development of its investigational product.

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The Kite Agreement imposes additional obligations on the parties, such as confidentiality obligations, obligations to comply with applicable law related to patient privacy and data protection, and potential indemnification obligations. The Kite Agreement is non-exclusive.

Worldwide License for the Prevention of GvHD through GM-CSF Neutralization from UZH

In July 2019, we entered into the Zurich Agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization. The Zurich Agreement covers various patent applications filed by UZH which complement and broaden our position in the application of GM-CSF neutralization and expands our development platform to include improving allogeneic HSCT.

Worldwide License to Gene-Editing Technology from the Mayo Foundation

In June 2019, we entered into an exclusive worldwide license with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. The license covers various patent applications and know-how developed by the Mayo Foundation in collaboration with us. These licensed technologies complement and broaden our leadership position in the CAR-T/GM-CSF neutralization space and expand our discovery platform aimed at improving CAR-T therapy to include gene-edited CAR-T cells. With this license agreement, we significantly expanded our intellectual property portfolio to include gene-edited CAR-T cells which can be engineered to lack the ability to produce GM-CSF which may improve the efficacy and safety profile of CAR-T therapy. In addition, we have and continue to file intellectual property encompassing a broad range of gene-editing approaches related to GM-CSF knockout.

Lenzilumab

Overview and Mechanism of Action

Lenzilumab, previously referred to as KB003, is a novel monoclonal antibody designed to target and neutralize human GM-CSF, which could also be described as a ‘myeloid inflammatory factor’. We used our proprietary and patent-protected Humaneered antibody development platform to develop lenzilumab.

We have completed a 160 patient Phase II study with lenzilumab in severe asthma. Lenzilumab was found to be safe and well-tolerated in the 78 patients who received it in the active treatment arm of the study. There was a trend toward improved respiratory function and a statistically significant improvement in patients with eosinophilic asthma (measured by standard forced expiratory volume measures at 24 weeks vs. baseline). These data were published in the British Medical Journal.

There is extensive evidence linking GM-CSF expression to serious and potentially life-threatening side-effects in CAR-T therapy and reduced efficacy through recruitment of MDSCs. Our focus for lenzilumab development is investigating its potential to improve efficacy of CAR-T therapy and to prevent or ameliorate CAR-T therapy-related NT and CRS. Following CAR-T therapy administration, GM-CSF produced by CAR-T cells initiates a signaling cascade of inflammation that results in the trafficking and recruitment of myeloid cells to the tumor site. These myeloid cells produce key cytokines known to be associated with the development of NT and CRS thereby perpetuating the inflammatory cascade. Peer-reviewed publications in leading journals by well-recognized experts have reported that GM-CSF blood levels are elevated early after CAR-T cell administration and reach significant peak levels in patients who suffer serious NT as a side-effect of CAR-T therapy.

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GM-CSF seems to be critical for the initiation of CRS, NT and the inflammatory cascade following CAR-T administration. GM-CSF acts as an upstream ‘initiator’ and the precursor to other cytokines involved in the cascade. GM-CSF gene knock-out (k/o) mice, or animals that lack a functional myeloid compartment, do not develop CRS and have normal levels of downstream cytokines, including IL-6, IL-1 and MCP-1/CCL2. Animals that are k/o for IL-1, INF-gamma and IL-6 still develop CRS in models which recapitulate this syndrome. This is very telling, given that some investigators believe IL-6 to be causative of CRS. In addition, in pivotal clinical studies, IL-6 has not been shown to correlate with severe NT or CRS emergence. The lack of GM-CSF does not affect T-cell mediated cancer-killing, or cytotoxicity, as GM-CSF k/o animals had equivalent effector to target cell (E:T) ratios and cytotoxic activity against tumor cells in our published studies. GM-CSF is required for CCR2⁺monocytes to initiate and sustain neuro-inflammation. It is postulated that GM-CSF induces CCR2+ inflammatory myeloid derived cells to infiltrate into the CNS, activating microglial cells; the activated microglial cells then increase their expression of CCL2/MCP-1 to further recruit inflammatory myeloid cells in a self-perpetuating manner, forming a positive feedback loop. Research from CAR-T clinical trials demonstrated that fever and elevated MCP-1 levels 36 hours post CAR-T treatment were most predictive of severe CRS and NT across patients with NHL, ALL and CLL, providing further support for the mechanism by which GM-CSF may contribute to these toxicities.

There are many other publications that point to the pivotal role of GM-CSF in CRS and NT, as well as potentially hampering efficacy. Based on these publications and extensive discussions with leading key opinion leaders, we believe that lenzilumab, used as alongside CAR-T therapy offers a number of potential benefits, including:

Lower rates of severe/grades>3 CRS and all grades of CRS;

Lower rates of severe/grades>3 NT and all grades of NT;

Lower rates of ICU admissions and duration of hospitalization;

Improved anti-tumor response (e.g. ORR, CR) and overall patient outcomes;

Improved duration of response and reduced relapse rates;

Improved cost effectiveness and reduced direct/indirect costs;

Improved reimbursement, and preferential formulary placement for CAR-T;

Expansion of CAR-T beyond the relapse/refractory setting to second-line and potential first-line use due to improved benefit-risk profile, increasing utilization to a significantly larger pool of patients;

Expansion of CAR-T into solid tumor treatments; and

Scaling back or removal of current CAR-T required REMS programs and “Black Box” warnings due to improved benefit-risk profile of CAR-T.

Preclinical studies in mice conducted at the Mayo Clinic using human ALL blasts, human CD19 CAR-T, and human peripheral blood mononuclear cells (PBMCs), demonstrated that blockade of GM-CSF with lenzilumab prevented the onset of CRS, reduced neuro-inflammation by 75% (as assessed by quantitative MRI) and maintained the integrity of the blood-brain barrier (BBB) compared to CAR-T plus control antibody treatment, where CRS, neuro-inflammation and BBB disruption can be profoundly affected. The administration of lenzilumab in combination with CAR-T therapy led to a significant (5-fold) increase in proliferation of CAR-T cells and improved CAR-T effector function, presumably due to a decrease in MDSC expansion and trafficking which is known to be promulgated by GM-CSF. GM-CSF neutralization in combination with CAR-T therapy reduced relapse, enhanced anti-tumor response and improved overall survival compared to CAR-T therapy alone and these data were published in ‘blood’. Moreover, the combination of lenzilumab and CAR-T reduced myeloid cell infiltration into the CNS and resulted in significantly better leukemic control as quantified by flow cytometry compared to CAR-T and control antibody. Human data from CAR-T clinical trials suggests that the only cytokines associated with grade> 3 NT are GM-CSF, IL-2 and IL-15. Moreover, in patients who developed severe NT, there was a 17-fold increase in myeloid cell trafficking into the CNS further establishing the role of GM-CSF in the expansion and trafficking of myeloid cells in the toxicities associated with CAR-T therapy.

We are also developing lenzilumab alongside allogeneic HSCT for patients with hematological cancers. Accordingly, we are assessing plans to investigate use oflenzilumab as a necessary companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment option for patients identified as high risk by certain biomarkers.

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Clinical data also shows the potential for lenzilumab as a treatment for certain autoimmune and other inflammatory conditions, including eosinophilic asthma, rheumatoid arthritis (RA), ankylosing spondylitis (“AS”), psoriatic arthritis (“PsA”), inflammatory bowel disease (“IBD”), juvenile idiopathic arthritis (“JIA”), giant cell arteritis (“GCA”), atopic dermatitis (“AD”) and systemic lupus erythematosus (“SLE”). There is potential for a range of other oncology, immunology and autoimmune conditions and we are investigating partnering lifecycle management opportunities for lenzilumab in high value markets with strong unmet medical needs.

Development Program

As a Sequenced Therapy In Combination with CD19 Targeted CAR-T Therapies

Our current clinical and regulatory development plan centers around the Kite Agreement we executed in May 2019. Pursuant to the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1b/2 study (ZUMA-19) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, includingDLBCL which is currently enrolling. Kite is the sponsor ofZUMA-19 and is responsible for its conduct. The primary objective ofZUMA-19 is to determine the effect of lenzilumab on the safety of Yescarta. In addition, efficacy and healthcare resource utilization will be assessed.

Kite’s Yescarta is one of two CAR-T therapies that have been approved by FDA and is the leading CAR-T by revenue. Our collaboration with Kite is the only current clinical collaboration that is enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. The Kite Agreement is non-exclusive. Depending upon FDA feedback, we believeZUMA-19 may serve as the basis for registration for lenzilumab.

As a Companion to Allogeneic HSCT

We believe lenzilumab has potential to prevent or reduce GvHD in allogeneic HSCT, thereby making allogeneic HSCT safer as a potentially curative therapy for patients with hematological cancers. In July 2019, we entered into an exclusive worldwide license agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization, thereby expanding our development platform to include improving the safety and effectiveness of allogeneic HSCT. A recent study published in ‘blood advances’, an official journal of the American Society of Hematology, suggests that neutralizing or blocking GM-CSF may limit or prevent GvHD in the gastrointestinal tract (Gartlan, K., et al, October 8, 2019, vol 3, no.19).

We plan to study lenzilumab as a companion to allogeneic HSCT for patients with hematological cancers. Accordingly, we are working to initiate pivotal Phase II/III studies of lenzilumab prophylaxis or early treatment in combination with allogeneic HSCT with a primary objective of preventing or reducing acute GvHD.

COVID-19

We are exploring the potential for use of lenzilumab to prevent the emergence of CRS in COVID-19. According to a recent paper published in The Lancet, patients infected with SARS-CoV-2 have high serum amounts of GM-CSF, MCP1, IL1b, INFg, IP10; patients requiring ICU admission had higher concentrations of GCSF, IP10, MCP1, MIP1a, and TNFa and it has been shown that GM-CSF, MCP1, MIP1a, IL1b, and IP10 are all produced byGM-CSF activated myeloid cells. The cytokine storm seen in the context of CAR-T therapy appears to follow the same cascade as in SAR-CoV-2 infection and the COVID-19 disease process.

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Other Inflammatory Conditions

Previous clinical studies of ~~Contents~~

lenzilumab include a repeat-dose, Phase II 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 other areas given the competitive intensity and diminishing levels of unmet need in RA relative to some other medical areas. Results from a subsequent randomized, double-blinded, placebo-controlled, repeat dose, Phase II clinical trial in severe asthma, showed a statistically significant benefit on patients with eosinophilic asthma. As a result of a strategic shift and other corporate activities, we terminated development of lenzilumab in severe asthma. We have generated safety and tolerability data in 113 patients in various clinical studies, including in CMML, and have demonstrated lenzilumab to be safe and well- tolerated in these settings.

Gene-edited CAR-T Therapies using GM-CSF Gene Knockout

We are advancing our GM-CSF knockout gene-editing CAR-T platform through the Mayo Agreement that we entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lackingGM-CSFexpression through various gene-editing tools including CRISPR-Cas9. The Mayo Agreement broadened our leadership position in the GM-CSF neutralization space and expanded our discovery platform aimed at improving CAR-T therapy to include gene-edited CAR-T cells.

Preclinical data indicates that GM-CSF knockout CAR-T cells show improved overall survival compared to GM-CSF-expressing CAR-T cells, in addition to the expected benefits of reduced serious side-effects associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase the proportion of fitter T-cells produced during expansion, increase the proliferative potential, and inhibit activation-induced cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making them more effective and safer in the treatment of cancers. Preclinical data indicates that CAR-T cells express GM-CSF and signal through GM-CSF receptors upon activation in an autocrine fashion. GM-CSF knockout CAR-T cells are not able to signal through this pathway which results in a gene expression profile distinct from GM-CSF-expressing CAR-T cells after in vitro expansion. This includes lower levels of Fas expression which may indicate a less exhausted state of the CAR-T cells. These data were presented at the 2019 ASH annual meeting.

We continue to explore exhaustion markers of GM-CSF knockout CAR-T cells relative to GM-CSF-expressing CAR-T cells and possible implications for improved safety and efficacy. We plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products.

Ifabotuzumab

Ifabotuzumab is a Humaneered ~~mAb~~immunotherapy, formerly referred to as KB004, which targets the EphA3 receptor, and in which the antibody carbohydrate chains lack fucose, thereby enhancing the targeted cell-killing activity of the antibody. We believe that ifabotuzumab has the potential for treating solid tumors, hematologic malignancies and serious pulmonary conditions. In 2006, we entered into a license agreement with ~~LICR~~Ludwig Institute of Cancer Research (“LICR”) pursuant to which LICR granted ~~to us~~ certain exclusive rights to the ifabotuzumab prototype ~~and~~(referred to as IIIA4) as well as EphA3 intellectual property.

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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 be expressed nor 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~~tumors. It is also expressed onin the stem cell ~~compartment. This~~ compartment, which 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 hematologic and solid tumor types, including AML, chronic myelogenous leukemia ~~chronic lymphocytic leukemia,~~(“CML”), CLL, MDS, myelofibrosis, multiple myeloma, melanoma, breast cancer, small and non-small cell lung cancer (“SCLC” and “NSCLC”), colorectal cancer, gastric cancer, renal cancer, ~~glioblastoma,~~GBM, and prostate ~~cancer.~~cancer, making it an attractive target for a range of cancers. Publications related to certain cancers have indicated that EphA3 tumor cell expression correlates with cancer growth and a poor prognosis.

EphA3 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 to be critically involved in maintaining tumor cells in a less differentiated state by modulating mitogen-activated protein kinase signaling. EphA3 knockdown or depletion of EphA3-positive tumor cells may reduce tumorigenic potential to a degree comparable to treatment with a therapeutic radiolabeled EphA3-specific monoclonal antibody. We believe EphA3 is a functional, targetable receptor in GBM and other solid tumors as well as certain lymphomas and leukemias. A study published in December 2018 in ‘Cancers’ showed that an antibody drug conjugate (“ADC”) comprising IIIA4 (a predecessor monoclonal antibody and prototype for ifabotuzumab) showed significant survival benefit in mice with GBM.

Anti-EphA3 treatment has shown encouraging preclinical results in multiple experiment types, including patient primary tumor cell assays, colony forming assays, and xenograft mouse models. Upon binding to EphA3, ifabotuzumab causes cell killing to occur either through antibody-dependent, cell-mediated ~~cytotoxity (ADCC)~~cytotoxicity 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 in multiple tumor types, ifabotuzumab may have the potential to kill cancer cells and the tumor stem cell microenvironment, providing for long-term responses while sparing normal cells. ~~Prior~~

Further, by developing ifabotuzumab as the backbone for a next generation CAR-T construct, we may have the ability to ~~our bankruptcy, we were conducting~~target both the tumor, tumor stroma, and tumor vasculature in a novel manner and build on the experience with current second generation CD19 CAR-T therapies. We are collaborating with the Mayo Clinic to make a series of CAR-T constructs based on ifabotuzumab, of which initial constructs have been created and data presented at the 2019 SNO annual meeting, and plan to move to preclinical testing with these constructs for a range of cancer types. EphA3 is a tumor specific antigen expressed on the surface of a multitude of solid tumor cells, tumor stroma cells and tumor vasculature in certain cancers. We completed the Phase I dose escalation portion of a Phase ~~1/2~~I/II clinical trial of ifabotuzumab in multiple hematologic ~~malignancies.~~malignancies for which the preliminary results were published in the journal Leukemia Research in 2016. A Phase I safety and imaging trial of radio-labeled ifabotuzumab in recurrent glioblastoma multiforme, a particularly aggressive and deadly form of brain cancer, has almost fully enrolled at two centers in Australia, the ONJCRI in Melbourne and the Queensland Institute for Medical Research in Brisbane and data have been presented at both AACR and SNO in 2019. The lead investigators at the ONJCRI, are also evaluating an antibody-drug conjugate (“ADC” or “ADCs”) based on ifabotuzumab in tumor models. The current clinical trial has enrolled eight patients to date, and is expected to complete enrollment with a total of twelve patients. Preliminary imaging data reported at AACR and at SNO demonstrated that administration of ifabotuzumab resulted in rapid, specific targeting of GBM tumors in all patients. Whole body bio-distribution imaging demonstrated no normal tissue uptake of the antibody. Post-treatment MRI scans showed predominant T2/Flair changes which were consistent with treatment effect on tumor vasculature. We continue to explore partnering opportunities to facilitate the further development of ifabotuzumab in a range of cancer types.

We are in discussions with separate and various parties and may initiate partnerships to pursue some of the following activities:

Initiate and complete preclinical studies with a CAR-T product;

Complete the on-going clinical study and preclinical studies with various ADCs that are based on ifabotuzumab (in partnership with leading centers in Australia); and

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Develop bi-specific antibodies based on ifabotuzumab.

We have conducted a Phase I/II trial for ifabotuzumab in multiple hematologic malignancies. The most common adverse event attributed to ifabotuzumab in ~~our~~this trial ~~has been~~was infusion reactions (chills, fever, nausea, hypertension, and rapid ~~heartrate),~~heart rate) which is an expected safety finding based on ~~its~~the mechanism of action. The majority of infusion reactions were ~~mild-moderate~~mild-to-moderate in severity and resolved with temporary stoppage of infusion and/or use of medications to treat symptoms. Such reactions are observed with other monoclonal antibodies targeting destruction or lysis of leukemic cells, and can be resolved with standard treatment. Under the original protocol of the dose escalation portion of our Phase 1/2 study, three subjects experienced fatal intracranial hemorrhages, two of which were deemed possibly related to the study drug by the study investigator. Bleeding is typical in late‑stage AML patients and intracranial hemorrhages are the second leading cause of death in these patients. After discussing the status of the trial with FDA, we amended the protocol to enroll only lower‑risk subjects less likely to have disease‑related bleeding complications and instituted a coagulation monitoring plan as recommended by FDA. Following those changes in 2011, there have been no additional events of drug-related intracranial hemorrhage in our clinical studies of ifabotuzumab, including at doses higher than those tested prior to the protocol amendment.

In 2014, we completed the Phase 1I dose escalation portion of our study, primarily treating patients with AML as well as patients with MDS and ~~myelofibrosis. Based~~myelofibrosis (“MF”). Responses were observed in patients with AML, MF and MDS. In this study, ifabotuzumab was well tolerated and clinically active when given as a weekly infusion.

Centers in Australia have worked independently on ~~interim data from that study, we commenced dosing~~IIIA4, the murine antibody parent of ifabotuzumab, as an ADC in mice and a December 2018 publication in the ~~low-dose cohort~~journal ‘Cancers’ showed that in mice engrafted with GBM, treatment with an ADC based on IIIA4 showed significantly improved survival.

HGEN005

Our EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 monoclonal antibody) backbone and targets EMR1.

A major limitation of current eosinophil-targeted therapies is incomplete depletion of tissue eosinophils and/or lack of cell selectivity. Eosinophils are a type of white blood cell. If too many eosinophils are produced in the body, chronic inflammation and tissue and organ damage may result. The origin and development of eosinophilic disorders is mostly due to eosinophils infiltrating tissue. EMR1 is expressed exclusively on eosinophils, making it an ideal target for the treatment of eosinophilic disorders. Regardless of the ~~Phase 2 portion~~eosinophilic disorder, mature eosinophils express EMR1 in ~~AML~~tissue, blood and bone marrow in patients with ~~EphA3 expression while we completed~~eosinophilia. Our EMR1-CAR-T based on the ~~dose escalation portion.~~ HGEN005 backbone is another approach in our growing platform of CAR-T therapies. We believe that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.

In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced NK killing of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. We have engaged with NIH to discuss expanding the ~~second half of 2014, upon completion of the Phase 1 dose escalation portion, we announced the high dose for the Phase 2 cohort expansion portion of the study~~initial work they have conducted utilizing HGEN005 and ~~proceeded~~discussions are underway with ~~plans to commence enrollment~~a leading center in the ~~high-dose cohorts. We have also validated~~U.S. to perform the IND-enabling testing in eosinophilic leukemia, an ~~immunohistochemistry assay~~orphan condition with significant unmet need, as well as with several other potential partners, although we cannot assure you that we will reach any agreements for the initial Phase 2 selected indications. In connection with our restructuring, we suspended enrollment in the study. However, consistent with our strategic focus, we are now evaluating opportunities to partner ifabotuzumab.

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these next steps.

Our Humaneered Technology

Our proprietary and patented Humaneered technology platform is a method for converting existing antibodies (typically murine) into engineered, ~~high‑affinity~~high-affinity human antibodies designed for therapeutic use, particularly for chronic conditions. We have developed or ~~in‑licensed~~in-licensed targets or research (mouse) antibodies, typically from academic institutions, and then applied our Humaneered technology to them. Lenzilumab, ifabotuzumab and ~~KB001‑A~~HGEN005 are ~~all~~ Humaneered ~~antibodies or antibody fragments. Together,~~antibodies. In aggregate, our Humaneered antibodies have been tested clinically in more than 200 patients with no evidence of serious immunogenicity. ~~We believe our~~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.~~have a high affinity for their target but low immunogenicity. 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:~~

following additional advantages:

retention of identical target epitope specificity of the starting antibody and frequent generation of higher affinity antibodies;

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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;~~antibodies, which has proven to be the case in clinical studies;

high potency and slow off-rate of the antibody;

antibodies with physiochemical properties that facilitate process development and formulation (lack of aggregation at high concentration);

high solubility;

high antibody expression ~~yields;~~yields that potentially provide cost-of-goods benefits; 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 our Humaneered technology to several antibodies for them. Under the license agreement, Novartis is able to develop Humaneered antibodies to create its own therapeutics. We have also Humaneered antibodies to certain targets under predefined criteria for five U.S. and Japanese biotechnology and pharmaceutical companies to certain targets under predefined criteria. 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 or development of additional Humaneered ~~antibodies.~~

~~KB001-A~~

~~KB001‑A~~antibodies other than our existing portfolio of lenzilumab, ifabotuzumab and HGEN005.

Intellectual Property

Intellectual property is ~~a Humaneered, PEGylated, anti‑PcrV modified antibody fragment (Fab’) antibody that was being developed for the prevention~~an important part of our strategy. We have and ~~treatment of~~ ~~Pseudomonas aeruginosa,~~ or Pa~~, infections in mechanically ventilated patients~~continue to file aggressively on our own inventions and ~~cystic fibrosis (CF), patients with chronic~~ Pa ~~lung infections. The only currently approved treatments for~~ Pa ~~are antibiotics,~~in-license intellectual property and ~~while there is a broad array of available antibiotics, mortality and morbidity remains high due~~technology as it relates to ~~bacterial antibiotic resistance, variable levels of antibiotic penetration into the target area and co-morbidities. KB001‑A was designed to bind to and neutralize the pathogenicity of~~ Pa, thereby allowing the body’s natural immune system to kill and clear the bacteria. Initial Phase 1 and Phase 1/2 trials of KB001-A’s precursor, KB001, and a Phase 1 trial of KB001-A did not show significant safety problems and indicated trends toward improved clinical outcomes in pneumonia prevention in mechanically ventilated patients and CF patients with chronic Pa infections. However, based on its failure to meet a primary endpoint of a Phase 2 trial, we have discontinued development of this product. We are not currently allocating resources to KB001-A. We are seeking strategic options including sale, license, or partnerships for KB001-A.

~~Intellectual Property~~

our therapeutic interests.

Licensing and Collaborations

~~Savant Agreement~~

The University of Zurich

On ~~June 30, 2016,~~July 19, 2019, we entered into ~~an Agreement for~~ the ~~Manufacture, Development and Commercialization of Benznidazole for Human Use, or the MDC~~Zurich Agreement with ~~Savant, pursuant~~UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization. The Zurich Agreement covers various patent applications filed by UZH which complement and broaden our position in the application of GM-CSF neutralization and expands our development platform to include improving allogeneic HSCT.

The Zurich Agreement required an initial one-time payment of $100,000, which we ~~acquired certain worldwide rights relating~~paid to ~~benznidazole, including~~UZH on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as milestones and royalties upon the achievement of certain regulatory and ~~non-intellectual property assets related~~commercialization milestones.

The Mayo Foundation for Medical Education and Research

On June 19, 2019, we entered into the Mayo Agreement with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to ~~benznidazole~~create CAR-T cells lackingGM-CSFexpression through various gene-editing tools including CRISPR-Cas9. The license covers various patent applications and ~~any product containing benznidazole~~know-how developed by Mayo Foundation in collaboration with us. These licensed technologies complement and ~~an exclusive license~~broaden our position in the GM-CSF neutralization space and expand our discovery platform aimed at improving CAR-T to include gene-edited CAR-T cells.

Pursuant to the Mayo Agreement, we were required to pay $200,000 to the Mayo Foundation within six months of the effective date of the Mayo Agreement, or upon completion of a qualified financing, whichever is earlier. We did not make the initial payment as of the due date and until the payment is made, the overdue amount will incur interest on the unpaid balance at the prime rate plus 2%. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain ~~intellectual property assets,~~regulatory and commercialization milestones.

Kite

On May 30, 2019, we entered into the Kite Agreement. Pursuant to the Kite Agreement, the parties agreed to conduct a multi-center Phase Ib/II study (ZUMA-19) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety of Yescarta. Various other important parameters, including ~~know-how~~efficacy and ~~processes, relating to benznidazole. Savant retains~~healthcare resource utilization, will also be measured. Kite is the ~~right to use the licensed intellectual property~~sponsor of ZUMA-19 and responsible for ~~veterinary uses.~~ its conduct.

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The ~~MDC~~Kite Agreement provides that we ~~may jointly conduct development activities~~and Kite will split only the out-of-pocket costs incurred in conducting ZUMA-19, including third-party expenses incurred in accordance with ~~Savant with respect to any product containing benznidazole, while~~a mutually agreed budget. We currently project we will be ~~solely~~ responsible for ~~commercializing the product. Under the MDC Agreement, we will fund the development program for the product and will reimburse Savant for its work associated with the development program.~~

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~~As required by the MDC Agreement, we made payments to Savant totaling $2,687,500, consisting of the remaining portion of~~ an initial payment (excluding a previously paid deposit of $500,000) in the amount of $2,500,000, an initial monthly joint development program cost payment of $87,500, and reimbursement of $100,000 of Savant’s legal fees. The MDC Agreement provides for regulatory and other milestone paymentsaggregate of up to ~~$21~~approximately $8 million ~~if we receive approval from FDA and from other non-US regulatory agencies and certain other contingent payments. Additionally, we will 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 is not granted subsequent to regulatory approval of any benznidazole product. The MDC Agreement also provides that Savant is entitledout-of-pocket costs, assuming up to a ~~portion~~total of ~~the amount we receive upon the sale, if any, of~~72 patients are recruited for ZUMA-19 as 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~~multi-center Study. Each party will otherwise be responsible for its own internal costs, including internal personnel costs, incurred in ~~the assets and rights acquired by us pursuant to the MDC Agreement and certain future assets developed from those acquired assets.~~

connection with ZUMA-19.

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~~for intellectual property rights and materials related to chimeric anti-GM-CSF antibodies that formed the basis for ~~the lenzilumab development program.~~lenzilumab. Under the agreement, we were granted an exclusive license to develop antibodies related to LICR’s antibodies against GM-CSF. We are responsible for using commercially reasonable efforts to research, develop, and sell lenzilumab. We pay LICR a quarterly license fee and are obligated to pay to LICR a royalty from 1.5% to 3% of net sales of licensed products, subject to certain potential offsets and deductions. Our royalty obligation applies on a country-by-country and licensed product-by-licensed product basis, and will begin on the first commercial sale of a licensed product in a given country and end on the later of the expiration of the last to expire patent covering a licensed product in a given country (which in the ~~United States,~~U.S. is currently expected in ~~2023)~~2029 for the composition of matter and 2038 for methods of use in CAR-T) or 10 years from first commercial sale of such licensed product in the country. We must also pay to LICR a certain percentage of sublicensing revenue received by us. ~~Aggregate payments~~Payments made to LICR under this license ~~through~~for the twelve months ended December 31, ~~2016 amounted to $1.6 million.~~

2019 and 2018 were $0.1 million and $0.1 million, respectively.

Other 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 (IIIA4) which targets the EphA3 receptor 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 ~~$50,000~~$0.05 million and a further ~~$50,000~~$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~~country-by-country and licensed ~~product‑by‑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~~U.S. is currently expected in ~~2030,~~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, 2016 amounted to $593,000.~~

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~~University of California, San Francisco and the Medical College of Wisconsin~~

In April 2004, we exclusively licensed rights from University of California, San Francisco, or UCSF, and the Medical College of Wisconsin to intellectual property that relate to KB001‑A. These intellectual property rights include a method of treatment of Pa ~~infection using isolated antibodies and an antibody that specifically binds to a key target epitope, as well as diagnostic methods useful in the detection of infection by~~ Pa~~. Under our agreement with UCSF, we were granted rights to practice the invention as well as further develop antibodies to treat~~ Pa. We are responsible for researching, developing and selling products covered by such intellectual property and must use commercially reasonable efforts to market such products. Under our agreement with UCSF, we paid an upfront license fee of $25,000 and we are responsible for paying an annual license fee of $10,000, aggregate contingent milestone payments of less than $2 million, and royalties on net sales of 3%. We must also pay to UCSF a percentage of certain consideration we receive from any sub-licensees. Aggregate payments made to UCSF under this license through December 31, 2016 amounted to $1.4 million. 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 will 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 2019, or 10 years from first commercial sale of such licensed product in such country. We are obligated to use commercially reasonable efforts to develop, manufacture, partner or sell licensed products and market the products using commercially reasonable efforts to meet market demands.

~~Sanofi~~

In January 2010, we entered into an agreement with Sanofi pursuant to which we granted to Sanofi an exclusive worldwide license to develop and commercialize KB001 (the precursor molecule to KB001‑A), KB001‑A and other antibodies directed against the PcrV protein of Pa ~~for all indications but retained rights relating to~~ Pa in patients with CF or bronchiectasis. In July 2014, we executed an agreement with Sanofi under which the Sanofi agreement was terminated. As a result of the termination of the agreement, we regained full global rights to license, develop, manufacture and commercialize KB001-A in all indications, as well as a non-exclusive license to the KB001-A manufacturing process developed by Sanofi. In consideration for terminating the agreement, Sanofi will be entitled to royalties on net sales of KB001-A if approved, subject to a $40 million cap on the aggregate royalties to be paid. In addition, Sanofi will be entitled to receive up to 10% of certain sub-license payments or other milestone payments received in the event we successfully re-partner KB001-A, subject to a separate $40 million cap on the aggregate amount of sub-license payments to be shared with Sanofi.

BioWa and Lonza

In ~~October~~ 2010, we entered into a license agreement with BioWa, Inc. (“BioWa”), ~~or BioWa,~~ and Lonza Sales AG ~~or Lonza,~~(“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~~Payment made to BioWa under this license for the twelve months ended December 31, 2018 was $0.1 million. We have not made a payment for the annual license fee in 2019 as of December 31, 2019, but have accrued the ~~United States patents that we license from~~ ~~BioWa, Inc. are the subject~~related expense as of ~~an ongoing patent infringement litigation in a U.S. Federal District Court. The defendant in that case has asserted that the patents are invalid.~~December 31, 2019.

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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.~~candidates and platforms. We will be able to protect our product candidates from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our technology is effectively maintained as trade secrets. ~~Patent and trade secrets are~~Intellectual property is an important ~~element~~part of our ~~business.~~strategy. We have and continue to file aggressively on our own inventions and in-license intellectual property and technology as it relates to our therapeutic interests. Our success will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of patents covering lenzilumab, ifabotuzumab, ~~KB001~~HGEN005, our Humaneered technology, and our ~~Humaneered technology,~~GM-CSF gene-editing CAR-T platform technologies, to preserve trade secrets and proprietary know how, and to operate without infringing the patents and proprietary rights of third parties. We actively seek patent protection, if available, in the ~~United States~~U.S. and select foreign countries for the technology we develop. We have ~~87 issued~~111 registered patents, including ~~23 issued~~14 registered in the U.S. and ~~64 issued~~97 registered in foreign countries. Of the ~~87 issued~~111 registered patents, 6586 are owned by us, ~~and 22~~9 are owned jointly with a third party and 16 are exclusively licensed from a third party. We also have 2619 patent applications pending ~~globally.~~

globally, of which 12 are owned by us, 4 are owned jointly with a third party and 3 are exclusively licensed from a third party.

Using our Humaneered technology, we have developed and own atwo composition of matter ~~patent~~U.S. patents covering lenzilumab and related ~~Humaneered anti-GM CSF~~anti-GM-CSF antibodies that provide patent protection through April 2029, a granted composition of matter patent in Europe and certain foreign countries, and have five additional ~~pending patents in the United States and a number of foreign countries covering various methods of treatment. We also have current and~~ pending patent applications in the ~~United States~~U.S. and one PCT international patent application covering various methods of treatment, including in the CAR-T space covering a broad and comprehensive range of approaches to neutralizing GM-CSF, including the use of GM-CSF k/o CAR-T cells, which, if granted, are expected to confer protection to at least October 2038. We also have three currently pending patent applications in the U.S. 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 ~~Humaneered~~ anti-EphA3 antibodies, which is currently expected to expire in ~~2030.~~2031, in addition to three U.S. patents to methods of anti-EphA3 antibodies and six foreign patents countries. The nine 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.~~products, even though we may be able to prevent their commercial use without our permission if our intellectual property allows for such limitations. 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.

However, prospective partners may have to license or otherwise come to an agreement with us if they wish to use our products and those products and methods of use of such products have issued patents in those territories.

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 KB001-A, lenzilumab and ifabotuzumab. We incurred research and development expenses of $10.4 million and $16.7 million during the years ended December 31, 2016 and 2015, respectively. We anticipate that a significant portion of our operating expenses will continue to be related to clinical development in 2017 as we focus on the development necessary to seek and obtain FDA approval of benznidazole and continue our development of lenzilumab, while seeking to partner ifabotuzumab and KB001-A. We do not currently plan to devote significant or any resources to pure research activities.

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Manufacturing

We outsource ~~basic~~all 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.

~~In addition, pursuant~~ It does however mean that we have to carefully plan the ~~MDC Agreement, we acquired certain agreements for~~availability of manufacturing ‘slots’ and the ~~third-party manufacture~~availability of drug ~~substance~~for investigation in preclinical and clinical trials. The use of contract manufacturers can be expensive, complicated and time consuming and could delay clinical trials, drug approval and potential product ~~for benznidazole, though we continue to evaluate our manufacturing approach and strategy.~~

launch.

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, we currently anticipate seeking strategic alliances and partnerships with third parties.~~ our products, if approved. The establishment of a sales and marketing operation can be expensive, complicated and time consuming and could delay any potential product launch. As our drug candidates progress, while we may build or contract with expert commercial vendors the type of infrastructure that would be needed to successfully market and sell any successful drug candidate ~~launch.~~ ~~Whether directly or through third parties,~~ on our own, we ~~intend to responsibly price any approved products using our Responsible Pricing Model, which could make it more difficult to enter into arrangements~~may also seek strategic alliances and partnerships with third parties ~~on acceptable terms, if at all, even if such a model were attractive to payers, clinicians and patients.~~

including those with existing infrastructure.

Competition

We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties to develop potential biologic therapies to make CAR-T therapy and allogeneic HSCT safer and more effective and to develop a potential treatment for ~~therapies for neglected and rare diseases and~~hematologic cancers, in addition to recruiting highly qualified personnel. Our product candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced by our competitors, including competitors relying to a large extent on our drug approvals or on our biologics approvals, or with generic copies of our product approved by FDA, ~~under an abbreviated new drug application, or ANDA,~~as bio-similars, referencing our drug products. 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 approval, 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 or similar dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These ~~generic~~bio-similar 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. However, our product candidates are all biologics and, as such, would benefit from 12 years market exclusivity from launch in the U.S.

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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

Significant ongoing concerns for clinicians, care-givers, patients and FDA regarding CAR-T therapy include, durability of ~~Contents~~

~~Benznidazole, Chagas Disease Therapeutics~~response, long-term outcomes, manufacturing process, time to delivery of active CAR-T product, serious and ~~Priority Review Voucher Competition~~

~~Other companies may~~potentially life-threatening side-effects, namely NT and CRS, frequency and duration of hospitalization and ICU admission, health resource utilization, cost effectiveness and reimbursement. Both Kymriah and Yescarta carry “Black Box” warnings in their labels for NT and CRS and are subject to a REMS program, such that on-going data has to be ~~either developing benznidazole~~provided to FDA and CAR-T therapy can only be administered in strictly controlled environments at trained centers.

FDA approval of tocilizumab (anti-IL-6 receptor blocker, Genetech’s 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 REMS program based on a retrospective analysis of 45 patients who received tocilizumab. Approval was subsequently also granted for tocilizumab as a treatment (not prevention) of moderate to severe CRS, despite the lack of an IND application, NDA or conduct of a prospective trial of tocilizumab in this setting. Only 20% of Kymriah or Yescarta patients treated with tocilizumab had resolution of signs and symptoms 6 days after onset of CRS and ~50% patients responded 11 days after onset of CRS. Tocilizumab is not approved for the prevention of CRS or for the prevention or treatment of ~~Chagas disease in the United States or developing drug candidates that could compete with benznidazole~~NT. Tocilizumab is also not approved for the treatment of ~~Chagas disease in~~mild cases of CRS.

There are no FDA-approved therapies for the ~~future. We understand that Chemo Research, S.L.~~prevention of CAR-T therapy induced NT and ~~ELEA (both associated with Grupo Insud) intend to seek FDA approval of benznidazole~~CRS or for the treatment of ~~Chagas disease. Chemo Research, S.L. obtained orphan drug designation for benznidazole in Chagas disease in 2014. If a competitor~~CAR-T therapy induced NT. The CAR-T therapy-associated TOXicity Working Group currently recommends intensive monitoring, accurate grading and aggressive supportive care with ~~orphan drug designation for benznidazole for treating Chagas disease obtains approval before we do, we will be blocked by~~ the competitor’s orphan drug exclusivity from receiving approval for benznidazole for seven years from the date of the competitor’s approval, unless we can meet an exception, such as by showing that the competitor has failed to provide an adequate supply of its product to patients after approval. Additionally, benznidazole is currently produced by LAFEPE and ELEA, and nifurtimox is currently produced by Bayer, for use in certain Latin American countries. Even if benznidazole is not approved in the United States, we will compete against LAFEPE and ELEA for distribution of benznidazole if we make benznidazole available in these countries. Thereanti-IL-6 receptor blocker tocilizumab and/or high-dose corticosteroids. These agents are ~~also a number of ongoing non-commercial studies of benznidazole~~reserved only for the treatment of ~~Chagas disease.~~severe cases of CRS and are not approved for prevention. Since corticosteroids have been reported to suppress T-cell function and/or induce T-cell apoptosis, they may limit the effectiveness of CAR-T therapy and use has been generally limited to treatment of severe cases of CRS refractory to tocilizumab and severe cases of NT. Sometimes high-dose corticosteroids are used alongside tocilizumab. Tocilizumab has not been found to be effective in the prevention or management of CAR-T therapy induced NT. In fact, the prophylactic use of tocilizumab has been shown to increase both overall rates of NT and rates of severe NT with overall rates of CRS remaining unchanged in an expanded safety cohort from a CAR-T trial. As tocilizumab is an anti-IL-6 receptor blocker, serum IL-6 levels have been shown to increase shortly after administration of tocilizumab which may increase passive diffusion of IL-6 into the CNS and increase the risk of NT. In patients who received prophylactic tocilizumab, a 17-fold increase in CD14+ myeloid cells was seen in the CSF of patients who developed severe NT vs those who did not. A similar dynamic may occur with other cytokine receptor blocking monoclonal antibodies that are also being explored in this setting (e.g. anti-IL-1Ra, anti-GM-CSFRa). As the antibody directly binds the cytokine receptor, the receptor may get saturated causing the cytokine to get dislodged which leads to an initial increase in the level of the circulating cytokine. In this setting, elevated levels of pro-inflammatory cytokines can further propagate the inflammatory cascade and result in higher levels of NT and CRS when the receptor blocker is administered prophylactically. In addition, IL-1 levels have not been shown to correlate to CRS and NT in CAR-T clinical trials and there is no evidence in the clinical or preclinical setting available to support the use of GM-CSF receptor alpha blockade with CAR-T cell therapy. There are data that suggest that the mechanism of GM-CSF receptor alpha blockade may be interfere with CAR-T expansion and potentially efficacy. Our approach with lenzilumab is a different mechanism of action entirely and we have published data which shows expansion of CAR-T cells and potential beneficial effects on efficacy in animal models.

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~~Although~~

Other experimental approaches being explored include development of next-generation, CAR-T constructs, including introducing suicide genes into CAR-T cells using herpes simplex virus thymidine kinase (HSV-TK) or inducible caspase-9 (iCasp9) genes with “on / off” switches, incorporating a co-stimulatory molecule into T-cells, using RNA-guided DNA targeting technology or other epitope-based / gene-editing technology. While it is possible that some of these approaches could result in lower rates of NT and/or CRS, preliminary data suggests that improvements in the safety profile are associated with lower rates of efficacy and durable response. This is not surprising given the linkage that has been shown to exist between CAR-T cell expansion, efficacy and toxicity. In addition, an agent comprised of a mixture of single-stranded oligonucleotides that is purified from the intestinal mucosa of pigs, defibrotide (Jazz Pharmaceuticals, Defitelio^®) is being evaluated to reduce NT although there ~~are~~is no ~~drugs~~preclinical data supporting its use in this indication and the mechanisms of action is uncertain. Defibrotide is approved for the treatment of ~~Chagas~~severe veno-occlusive disease ~~commercially available~~(VOD) in ~~the United States, nifurtimox is also used to treat Chagas disease~~adults and children who have undergone chemotherapy and a stem-cell transplant and is ~~available in the United States through the CDC, as~~associated with a 37% rate of hypotension, or low blood pressure. Hypotension is ~~benznidazole on~~ a ~~limited basis under a compassionate use protocol. Our understanding is that obtaining either drug can be burdensome and time-consuming for clinicians and~~hallmark of CRS, which occurs very frequently with patients and that many patients ultimately do not obtain treatment. Specifically, our understanding is that under the CDC protocol, patients require several confirmatory diagnostic tests and can often be lost to follow up. In addition, the CDC has been beset with sourcing problems because it sources from Latin American manufacturers who have had product supply issues. Wereceiving CAR-T therapy. There are also ~~aware of~~ several other ~~treatments undergoing commercial development for the treatment of Chagas disease. Bayer, which initially developed Lampit~~^TM (the active ingredient of which is nifurtimox) and annually supplies it to the WHO. Bayer is currently undertaking multiple clinical studies of nifurtimox for Chagas disease, including a Phase 3 study of a pediatric formulation for children from 0-18 years of age. Bayer has obtained orphan drug designation for nifurtimox in Chagas disease.

~~Other~~anti-GM-CSF compounds that have undergone or are undergoing preclinical studies or clinical trials for Chagas disease include posaconazole, ravuconazole, Eisai Co. Ltd.’s E1224, and VNI, which has been studied at Vanderbilt University. In 2015, Merck Sharp & Dohme completed a Phase 2 proof-of-activity study of Noxafil® (posaconazole) in the treatment of asymptomatic chronic Chagas disease. Recent trials led by Eisai failed to show a benefit of E1224 (fosravuconazole) over benznidazole either in monotherapy or in combination with benznidazole. Eisai has also conducted research with the Broad Institute to discover and develop new therapeutic agents for Chagas disease, including a compound known as ML341. Eisai, Shionogi & Co. Ltd., Takeda Pharmaceutical Ltd. and AstraZeneca plc are members of the Neglected Tropical Diseases Drug Discovery booster program, which aims in part to accelerate early stage drug discovery for Chagas disease. Additionally, the Genomics Institute of the Novartis Research Foundation has discovered a compound, GNF6702, that selectively inhibits the kinetoplastid proteasome, which could lead to treatment of Chagas as well as two other parasitic diseases. Other than Merck’s trial, most of these programs are in ~~the pre-clinical or early clinical~~various stages of development, however the focus of these compounds appears to be in chronic autoimmune disorders such as rheumatoid arthritis, ankylosing spondylitis, giant cell arteritis and ~~we believe will take many years to reach the market, if at all.~~

Current legislation allows for issuance of a PRV upon approval of a product for the treatment of Chagas disease, provided that the product contains no active ingredient that has been approved by FDA in any other marketing application. Therefore, non-benznidazole treatments for Chagas disease may qualify, in some circumstances, if successfully approved, for PRVs. That would not negate our potential to receive a PRV for benznidazole. However, if any other drug with benznidazole as the active ingredient, either alone or in combination, is approved by FDA for any indication, regardless of whether that approval is accompanied by a PRV, subsequently approved forms of benznidazole will not result in a PRV upon approval.

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Several companies who have received a PRV have elected to sell it to other companies, as opposed to using it to accelerate review times for one of their own development programs. The amounts received by these companies have been significant and have helped them to fund other program development. The range of sales prices for PRVs that have been disclosed publicly have been between $67.5 million and $350 million. We are exploring ways to monetize a potential benznidazole PRV if one were issued to us.

~~Lenzilumab and CMML/JMML Competition~~

Stem cell transplant is the only current way to cure patients with CMML or JMML. Typically, adult patients with CMML unsuitable for stem cell transplants are frequently treated with injectable formulations of azacitidine, which is available as Celgene Corporation’s Vidaza® or as a generic, or decitabine, available as Otsuka America Pharmaceutical, Inc.’s Dacogen® or as a generic. 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®. We are also aware of numerous open trials in the early phases of development for the treatment of CMML, including clinical trials of treatments under development by Celgene (CC-486 (oral azacitidine) and Revlimid® (lenalidomide)), Novartis (panobinostat), Incyte Corporation and Novartis (Jafaki® (ruxolitinib), Millenium Pharmaceuticals, Inc. (pevonedistat plus azacitidine), Stemline Therapeutics, Inc. (SL-401) and Kura Oncology, Inc. (tipifarnib). There are also open trials for JMML, including Amgen Inc.’s Enbrel® (etanercept) and azacitidine. We anticipate that as new treatments are approved, they may be used in combination with other existing treatments for CMML and/or JMML.

~~Ifabotuzumab Competition~~

Numerous drugs are under development or approved for treatment of serious pulmonary conditions, glioblastoma, MDS, myelofibrosis and for cancer and hematologic indications generally. Glioblastoma is also sometimes treated with surgery, radiotherapy and chemotherapy with temozolomide. MDS may be treated with transfusion therapy, immunosuppressive therapy, chemotherapy, Revlamid, azacitidine and/or decitabine. Myelofibrosis may be treated with stem cell transplants and various therapeutic treatments for anemia and enlarged spleen.

related disorders.

Government Regulation

Drug Development and Approval in the U.S.

As a biopharmaceutical company operating in the ~~United States,~~U.S., we are subject to extensive regulation by FDA and by other federal, state, and local regulatory agencies. FDA regulates biological products such as our ~~products~~product candidates under the ~~FDCA,~~U.S. Federal Food and Cosmetic Act (FDCA), the Public Health Service Act ~~or the PHSA,~~(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~~biologics license application (BLA) is required to market a biological product, or biologic, in the ~~United States.~~U.S. 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.

Biologics receive 12 years market exclusivity from approval and launch.

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

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

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

Clinical Trials. Clinical trials involve the administration of the ~~drug~~product to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring regulations and Good Clinical Practice ~~or GCP,~~(“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.

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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.~~IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an Institutional Review Board ~~or IRB,~~(IRB), at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the ~~United States.~~U.S. Data from a foreign study not conducted under an IND application may be submitted in support of ~~an NDA or~~a BLA if the study was conducted in accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain details about active clinical trials and clinical trial results on the government ~~or independent websites (e.g., http://clinicaltrials.gov).~~

website clinicaltrials.gov.

Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one ~~another:~~

another and, notably, in the CAR-T setting, FDA has granted approval to both currently marketed CAR-T therapies (Kite’s Yescarta and Novartis’s Kymriah) based on Phase II data and to tocilizumab without any prospective data in the CAR-T setting:

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

Phase 2II 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 3III 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~~product’s overall risk-benefit profile, and to provide a basis for physician labeling. Generally, Phase 3III 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 FDA does not always require every approved therapy to complete Phase I through III studies to secure approval. Approval through expedited routes is at the discretion of FDA.

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

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~~NDA Applications Relying on Data Other than the Applicant’s Data~~

As an alternative path to FDA approval, an applicant may submit its NDA under Section 505(b)(2) of the FDCA. Both NDA pathways have the same standards with respect to the scope and amount of data required to establish safety and efficacy for the applicant’s product. However, whereas applications under 505(b)(1) rely solely on the applicant’s own data, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant, and for which the applicant has not otherwise obtained a right of reference.

Specifically, a 505(b)(2) application may rely on both published scientific literature and on FDA’s prior findings of safety and efficacy for a similar or comparable approved drug product. If the 505(b)(2) applicant can establish that reliance on previous FDA findings of safety and effectiveness is scientifically and legally appropriate, it may eliminate the need to conduct certain preclinical or clinical studies and rely instead on FDA’s prior findings for the approved reference drug. FDA may still require companies to perform additional studies or measurements, including clinical trials, to support any change from the reference drug. FDA may then approve the new product candidate for all, or some, of the label indications for which the reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant. While the 505(b)(2) pathway is most often used for modifications to formulations or for uses for products previously approved by FDA under the 505(b)(1) pathway, we have received preliminary guidance from FDA that a 505(b)(2) pathway is acceptable for benznidazole following our meeting on December 6, 2016. We intend to use the 505(b)(2) pathway to submit our NDA for benznidazole, which would allow us to rely, at least in part, on literature and clinical data generated by third-party entities. Despite the initial positive guidance received from the FDA following our meeting on December 6, 2016, we cannot guarantee that FDA will ultimately allow us to seek approval for benznidazole under the 505(b)(2) pathway. If FDA does not allow us to utilize this pathway, we may need to conduct original clinical trials to generate data necessary for approval, a process that may require significant financial resources and extend the approval process. Even if FDA allows us to use the 505(b)(2) pathway, it may conclude that our data fails to demonstrate adequate safety and efficacy to obtain regulatory approval.

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BLA Submission and Review

After completing clinical testing of an investigational ~~drug or~~ biologic product, a sponsor must prepare and submit ~~an NDA or~~a BLA for review and approval by FDA. ~~NDAs and BLAs are~~A BLA is a comprehensive, multi-volume ~~applications~~application that must include, among other things, sufficient data establishing the ~~results~~safety, purity and potency of the proposed biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical ~~studies,~~trials, including negative or ambiguous results as well as positive findings, together with detailed information ~~about~~relating to the product’s ~~composition,~~chemistry, manufacturing, controls and ~~the sponsor’s plans for manufacturing, packaging, and labeling the product. A 505(b)(2) NDA may also rely upon studies and data not generated by the NDA applicant.~~proposed labeling. When ~~an NDA or~~a BLA is submitted, FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, FDA may refuse to 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.

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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~~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~~a BLA to an advisory committee for evaluation and a recommendation as to whether the application should be approved. Although FDA is not bound by the recommendation of an advisory committee, the agency usually has followed such recommendations. FDA may also determine that a ~~Risk Evaluation and Mitigation Strategy, or~~ REMS program is necessary to ensure that the benefits of a new product outweigh its risks, and that the product can therefore be approved. A REMS program may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the ~~drug,~~product, depending on what FDA considers necessary for the safe use of the ~~drug.~~product. Under the Pediatric Research Equity Act, ~~NDAs and BLAs~~a BLA must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug or biological product in relevant pediatric populations, unless the requirement is waived or deferred. Receiving orphan drug designation from FDA is one situation where such a requirement may be waived.

After review of ~~an NDA or~~a BLA, FDA may determine that the product cannot be approved, or may determine that it can only be approved if the applicant cures deficiencies in the application, in which case the agency endeavors to provide the applicant with a complete list of the deficiencies in correspondence known as a Complete Response Letter ~~or CRL.~~(“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~~BLA still does not meet the standards for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than the sponsor interprets them. Additionally, as a condition of approval, FDA may impose restrictions that could affect the commercial success of a drug or require post-approval commitments, including the completion within a specified time period of additional clinical studies, which often are referred to as “Phase 4”IV” 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

~~Hatch-Waxman Act~~

The Hatch-Waxman Act established the ANDA and 505(b)(2) approval pathways to facilitate the approval of generic and follow-on drug products. At the same time, the Act provides periods of regulatory exclusivity to incentivize innovator drug development. If a product is a “new chemical entity,” or NCE, generally meaning that the active moiety has never before been approved by FDA, the Act provides a five-year period starting from the product’s approval date during which FDA may not accept for filing any application for a drug containing the same active moiety. Because it takes time for FDA to review and approve an application once it has been accepted for filing, five-year NCE exclusivity often effectively means that the ANDA or 505(b)(2) application is not approved for a period well beyond five years from approval of the reference listed drug, or RLD. We believe that benznidazole will qualify for five-year NCE exclusivity.

Notwithstanding NCE exclusivity, an ANDA or 505(b)(2) application may be submitted after four years if the applicant makes a certification, known as a Paragraph IV certification due to its statutory citation, challenging a listed patent belonging to the holder of the original NDA, also referred to as the RLD. Once FDA accepts for filing an ANDA or 505(b)(2) application containing a Paragraph IV certification, no matter when the certification is made, the applicant must within 20 days provide notice to the RLD NDA holder and patent owner that the application with patent challenge has been submitted, and provide the factual and legal basis for the applicant’s assertion that the patent is invalid or not infringed. If the NDA holder or patent owner files suit against the ANDA or 505(b)(2) applicant for patent infringement within 45 days of receiving the Paragraph IV notice, FDA is prohibited from approving the ANDA or 505(b)(2) application for a period of 30 months from the date of receipt of the notice. If the RLD has NCE exclusivity and the notice is given and suit is filed during the fifth year of exclusivity, the 30-month stay does not begin until five years after the RLD approval. FDA may approve the proposed product before the expiration of the 30-month stay if a court finds the patent invalid or not infringed or if the court shortens the period because the parties have failed to cooperate in expediting the litigation.

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~~Qualified Infectious Disease Product~~

Under the Generating Antibiotic Incentives Now, or GAIN, provisions of the FDA Safety and Innovation Act, or FDASIA, signed into law in July 2012, FDA may designate a small-molecule drug product as a “qualified infectious disease product”, or QIDP. In order to receive this designation, a drug must be an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by either (1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) a “qualifying pathogen” found on a list established and maintained by FDA. FDA promulgated a Final Rule in June 2014 listing 21 qualifying pathogens. Although none of our current product candidates meet the criteria for a QIDP, with our focus on neglected and rare diseases, we may develop or acquire a qualifying product in the future.

A sponsor may request designation as a QIDP before submitting an NDA. Upon approval, the designated product will receive an additional five years of exclusivity beyond any period of exclusivity to which it would have previously been eligible. In addition, a QIDP will receive the benefit of expedited review programs including priority review and fast track designation.

Biologics Price Competition and Innovation Act

In 2010, theBiologics Price Competition and Innovation Act ~~or BPCIA,~~ (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.~~U.S.. This means that FDA may not approve an application for a biosimilar version of a reference biological product until 12 years after the date of 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.

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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. We would expect lenzilumab, ifabotuzumab and HGEN005, as biologics, to each receive at least 12 years exclusivity from approval, if they are approved.

Pediatric Studies and Exclusivity

Under thePediatric Research Equity Act, a BLA must contain data adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

For products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-Phase I meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after licensing of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained inFood and Drug Administration Safety and Innovation Act(FDASIA). Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications. Any company that submits a BLA three years after the date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is intended for the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing, safety and preliminary potency to inform pediatric labeling for the product. Deferrals and waivers as described above are also available.

Pediatric exclusivity is another type of exclusivity in the U.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by a further six-months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot license another application.

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Orphan Drug Designation

The Orphan Drug Act provides incentives for the development of ~~drugs and biological~~therapeutic 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,~~U.S., but also include diseases or conditions affecting more than 200,000 individuals in the ~~United States~~U.S. if there is no reasonable expectation that the cost of developing and making available in the ~~United States~~U.S. a drug for such disease or condition will be recovered from sales in the ~~United States~~U.S. of such ~~drug.~~

product.

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

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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.

We anticipate submitting applications for orphan drug designation for all of our current pipeline candidates and the targeted therapeutic indications.

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,~~products, for the treatment of a serious or life-threatening disease or condition and where non-clinical or clinical data demonstrates the potential to address unmet medical need for such a disease or condition. A product can also receive fast track review if it ~~is designated as a 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~~application before the application is complete, also referred to as a ‘rolling review’. This rolling review may be available if FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. Furthermore, FDA’s time period goal for reviewing a fast track application does not begin until the last section of the complete ~~NDA~~application is submitted. Finally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

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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,~~products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the features of fast track designation, as well as more intensive FDA interaction and guidance. FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design efficient clinical trials.

Accelerated Approval

Under the accelerated approval pathway, FDA may approve a drug or biologic based on a surrogate endpoint that is reasonably likely to predict clinical benefit; qualifying products must target a serious or life-threatening illness and provide meaningful therapeutic benefit to patients over existing treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4IV 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~~product from the market on an expedited basis. All promotional materials for ~~drug~~product candidates approved under accelerated regulations are subject to prior review by FDA. ~~Although none of our current product candidates meet the criteria for accelerated approval, with our focus on rare and neglected diseases, we may develop or acquire a qualifying product in the future.~~

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Priority Review

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

~~Tropical Disease PRVs~~

~~Under Section 524~~months review.

Created in 2012 under the FDASIA and extended with the21^st Century Cures Act in 2016, FDA is authorized under section 529 of the FDCA to grant a PRV to BLA sponsors receiving FDA ~~is authorized~~approval for a product to ~~award PRVs~~treat a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the U.S., and where more than 50% of the patients affected are aged from birth to 18 years. We believe that our product candidates which may assist with the ~~sponsors~~treatment of ~~NDAs and BLAs for products targeting specific tropical diseases. A product only qualifies~~rare pediatric cancers or other rare pediatric diseases may qualify for a PRV if it contains active ingredients that have never before been approved by FDA. The Food and Drug Administration Amendments Act of 2007 contained a list of sixteen initial qualifying tropical diseases; FDA classified Chagas disease and another disease as PRV-eligible diseases in a 2015 order. There are now twenty-two conditions listed by FDA as qualifying tropical diseases. A sponsor receives a PRV atunder this program, depending on the ~~time that their eligible product is approved.~~

indication.

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

We ~~believe~~anticipate submitting applications for one or more of these expedited programs for all of our current pipeline candidates and the targeted therapeutic indications.

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Regenerative Medicine Advanced Therapy Designation

Recently, through the21st Century Cures Act, or Cures Act, Congress also established another expedited program, called a 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.

Post-Licensing Regulation

Once a BLA is approved and a product marketed, a sponsor will be required to comply with all regular post-licensing regulatory requirements as well as any post-licensing requirements that the FDA may have imposed as part of the licensing process. The sponsor will be required to report, among other things, certain adverse reactions and manufacturing problems to the FDA, provide updated safety and potency or efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Changes to the manufacturing processes are strictly regulated and often require prior FDA approval ~~of benznidazole as a treatment for Chagas disease could result~~before being implemented. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effort in the ~~issuance~~areas of ~~a PRV under~~production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.

In addition, the ~~current program if our version~~distribution of ~~benznidazole~~prescription pharmaceutical products is subject to thePrescription Drug Marketing Act (PDMA) and its implementing regulations, as well as theDrug Supply Chain Security Act (DSCA), which regulate the ~~first version approved~~distribution and tracing of prescription drug samples at the federal level, and set minimum standards for the regulation of distributors by ~~FDA.~~ the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.

Employees

We currently have received a preliminary, non-binding opinion from FDA that, if approved first as described above, benznidazole would meet the criteria for voucher eligibility, which is reflected in the meeting minutes.

~~Rare Pediatric Disease PRVs~~

~~Created in 2012 under the~~ ~~Food and Drug Administration Safety and Innovation Act~~ ~~(FDASIA) and extended~~two full-time employees. We contract with ~~the~~ 21^st ~~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. As with the tropical disease PRV program, PRV-holders can redeem their voucher to receive an accelerated six-month FDA action target goal instead of the standard ten-month review (which may extend longer than ten months), or they may transfer or sell their PRV to another sponsor. We believe that lenzilumab or other future product candidates that we may develop or acquire may qualify for a PRV under this program.

~~Employees~~

~~As of December 31, 2016, we had approximately 17 full time equivalents performing various functions, including 6 full time employees, with the remainder consisting of~~several part-time independent consultants performing ~~both~~manufacturing, regulatory and clinical development, intellectual property, public relations, investor relations and ~~general~~finance and ~~administrative~~accounting 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.~~

Bankruptcy

In January 2015, shortly after announcing that our Phase 2 clinical trial of KB001-A 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 a potential sale of the Company or its 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.

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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,~~previously reported, 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~~U.S. Bankruptcy Court for the District of Delaware ~~or the Bankruptcy Court~~(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,~~(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~~

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On September 17, 2018 the Bankruptcy Court issued a Final Decree and Order to close the bankruptcy case and terminate the remaining claims and noticing services.

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 ~~emergence,~~Black Horse Entities, the “Term Loan Lenders”).

On December 21, 2017, we entered into a Securities Purchase and Loan Satisfaction Agreement (the “Restructuring Purchase Agreement”) and a Forbearance and Loan Modification Agreement (the “Forbearance Agreement” and, together with the ~~MDC~~Restructuring Purchase Agreement, the “Restructuring Agreements”), each with ~~Savant, pursuant to which we acquired certain worldwide rights relating to benznidazole. On~~ the ~~Effective Date, pursuant to~~Term Loan Lenders, in connection with a series of transactions providing for, among other things, the ~~SPA~~satisfaction and ~~in repayment~~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, weincluding 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 ~~9,497,515~~59,786,848 shares of our common stock (the “New Lender Shares”), and (b) transferred and assigned to ~~the DIP Lenders. In accordance with the Plan, we also distributed cash payments~~Madison Joint Venture LLC owned 70% by Nomis Bay and 30% by us (Madison), all of our assets related to benznidazole (the “Benz Assets”), our former drug candidate, capable of being so assigned; and (ii) issued ~~or became obligated~~ to ~~issue, promissory notes and~~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 ~~other parties.~~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) 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 Madison elected to keep the Benz Assets after the Restructuring Effective Date, Nomis Bay would be obligated to pay or cause Madison to pay $0.3 million in legal fees and expenses owed by us to our litigation counsel, which remain unpaid in our Accounts payable at December 31, 2017. On August 23, 2018 Madison elected to keep the Benz Assets and these amounts were paid by Madison to our litigation counsel.

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.

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Available Information

We were incorporated on March 15, 2000 in ~~2000~~California and reincorporated as a Delaware corporation in September 2001. Effective August 7, 2017, we changed our legal name to Humanigen, Inc. Our principal offices are located at ~~1000 Marina~~533 Airport Boulevard, Suite ~~250, Brisbane,~~400, Burlingame, CA ~~94005-1878,~~94010, and our telephone number is (650) ~~243‑3100.~~243-3100. Our website address is ~~www.kalobios.com.~~www.humanigen.com. Our common stock is currently traded ~~over-the-counter.~~on the OTCQB Venture Market. We operate in a single segment.

Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our ~~web site at www.kalobios.com~~website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains the reports, proxy and information statements, and other information we electronically file with or furnish to the SEC, located atwww.sec.gov.

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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~~in nearly every year since our ~~inception except for the year ended December 31, 2007.~~inception. For the fiscal year ended December 31, ~~2016~~2019 we incurred a net loss of ~~$27.0~~$10.3 million, and we have an accumulated deficit of ~~$240.6~~$284.9 million as of December 31, 2016. 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,~~2019.

Since inception, we have only recognized a nominal amount of revenue from payments for funded research and development and for license or collaboration ~~fees.~~fees, none of which was recognized in either of the last two years. 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, but our access to capital funding is uncertain.~~

We will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for benznidazole 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 availability of a 505(b)(2) development pathway for the potential approval by FDA of benznidazole;~~

~~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.~~

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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.~~

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.

We need additional capital to continue to operate our business. 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 theConsolidated Financial Statementsincluded 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

TheConsolidated Financial Statementsfor the year ended December 31, ~~2016~~2019 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.

Our ability to execute on all of the initiatives in our development pipeline is substantially dependent on third parties to plan and conduct the referenced studies and clinical trials.

We do not have sufficient capital to pursue the actions in the development pipeline for our product candidates as depicted elsewhere in this Form 10-K. Accordingly, absent our ability to raise sufficient capital to carry out these actions independently, our success depends on our ability to negotiate agreements with third parties with resources to plan and conduct the initiatives, studies and clinical trials we are pursuing. If we are not able to reach agreements with current or future partners for it, we will not be able to execute on each of these particular initiatives, studies and trials. Our inability to identify and complete negotiations with any such third party therefore could have a material and adverse impact on our ability to pursue our business plan in respect of the applicable element of our pipeline, which in turn could have a material adverse effect on our business.

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We ~~are exploring~~review and explore strategic alternatives on an on-going basis, but there can be no assurance that we will be successful in identifying or completing any strategic alternative or that any such strategic alternative will yield additional value for our stockholders.

We ~~have commenced a~~regularly 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 or product candidates and the availability of financing to potential buyers on reasonable terms.

We need substantial additional capital to develop and commercialize our product candidates, and our access to funding is uncertain. If we cannot obtain additional financing, we may not be able to pursue our collaboration with Kite or other business objectives.

As previously disclosed, we do not expect to recognize any revenues while we continue to pursue the development of lenzilumab and our other product candidates. We require substantial additional capital to support our business efforts, including our collaboration with Kite. Under the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1/2 study (ZUMA-19) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma. We currently project we will be responsible for an aggregate of approximately $8 million in out-of-pocket costs assuming a total of 72 patients are enrolled in ZUMA-19, of which $2 million will be required to be paid to Kite thirty days prior to the initiation of the Study.

We will also require substantial additional capital to support our other business efforts, including obtaining regulatory approvals for our 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 preclinical and clinical trials;

the timing of and costs involved in obtaining regulatory approvals;

our costs in connection with the manufacturing of drugs, whether alone or with a manufacturing partner;

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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As of ~~Contents~~

December 31, 2019, our current liabilities of approximately $13.6 million exceeded our current assets of approximately $0.5 million.

We have defaulted on $1.1 million of unsecured obligations incurred upon our emergence from bankruptcy in 2016.

Our cash position as of June 30, 2019 was insufficient for us to satisfy in full at maturity on June 30, 2019 all of the outstanding principal amount and accrued but unpaid interest on unsecured promissory notes we made to certain of our vendors upon our emergence from bankruptcy. As of December 31, 2019, the aggregate principal amount and accrued but unpaid interest on these notes approximates $1.1 million. The outstanding principal amount and accrued but unpaid interest on these notes is currently payable to the respective holders without demand, notice or declaration, and the holders, without demand or notice of any kind, may exercise any and all other rights and remedies available to them under the notes, our bankruptcy plan, at law or in equity. We do not have sufficient funds to repay the principal and accrued but unpaid notes, as our available cash balance as of March 13, 2020 was approximately $268,000.

Our business ~~is highly dependent~~depends on the success of our current product ~~candidates, benznidazole, lenzilumab and ifabotuzumab.~~candidates. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates.

~~In 2016, we made the strategic decision to focus our efforts on neglected and rare diseases.~~

We have a limited pipeline of product candidates and ~~are~~we do not ~~conducting~~plan to conduct active research at this time for discovery of new molecules or antibodies. We ~~are currently dependent~~depend on the successful continued development and regulatory approval of our current product candidates for our future business success. ~~We are investing, and will continue to invest, a significant portion~~Since the fall of 2017, our ~~time and financial resources in the approval of benznidazole with more limited~~primary focus onhas been the development of ~~lenzilumab.~~lenzilumab for use with FDA-approved CAR-T therapies. We are also ~~seeking partnerships for ifabotuzumab.~~

~~We intend~~working to ~~pursue the 505(b)(2) approval pathway under the U.S. Federal Food, Drug,~~create next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies, as well as working to develop ifabotuzumab and Cosmetic Act, or the FDCA, for benznidazole, which would allow us to rely, at least in part, on literature and clinical data generated by third-party entities. While the 505(b)(2) pathway is most often used for modifications to formulations or for uses for products previously approved by FDA under the 505(b)(1) pathway, we have received preliminary guidance from FDA that a 505(b)(2) pathway is acceptable for benznidazole following our meeting on December 6, 2016. Despite the initial positive guidance received from the FDA following our meeting on December 6, 2016, we cannot guarantee that FDA will ultimately allow us to seek approval for benznidazole under the 505(b)(2) pathway. If FDA does not allow us to utilize this pathway, we may need to conduct original clinical trials to generate data necessary for approval, a process that may require significant financial resources and extend the approval process. Even if FDA allows us to use the 505(b)(2) pathway, it may conclude that our data fails to demonstrate adequate safety and efficacy to obtain regulatory approval.

related products. We will need to successfully enroll and complete clinical trials of lenzilumab and ifabotuzumab, and potentially obtain regulatory approval to market ~~this product.~~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.~~

we may not be able to enroll adequate numbers of eligible patients in the clinical trials we propose to conduct, whether alone or through collaborations, including the ZUMA-19 collaboration with Kite announced in May 2019;

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

we may not be able to provide acceptable evidence of safety and efficacy for our product candidates;

the results of our clinical trials or collaborations may not meet the level of statistical or clinical significance, or product safety, required to move to the next stage of development or, ultimately, obtain marketing approval from the FDA;

we may not be able to obtain, maintain and enforce our patents and other intellectual property rights; and

we may not be able to obtain and maintain commercial manufacturing arrangements with third-party manufacturers or establish commercial-scale manufacturing capabilities.

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.

~~Our product candidates other than benznidazole are at an early stage of development and may not be successfully developed or commercialized.~~

Our product candidates other than benznidazole 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 other than benznidazole 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.

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Our product candidates are at an early stage of ~~Contents~~

~~For benznidazole, FDA~~development and may ~~disagree with our belief that sufficient clinical safety and efficacy data exist to support FDA approval in treating Chagas disease, and other factors may also prevent us from obtaining approval~~not be successfully developed or ~~from the drug being~~ commercialized.

~~No treatments for Chagas disease~~

Our product candidates are ~~currently approved for marketing~~ in the ~~United States. On June 30, 2016, we acquired from Savant certain~~early stages of development and will require substantial clinical development, testing, and regulatory ~~and non-intellectual property assets relating~~approval prior to ~~benznidazole~~commercialization. None of our product candidates have advanced into a pivotal study and any product containing benznidazole and an exclusive license of certain intellectual property rights related to benznidazole. We are now working to obtain FDA approval for benznidazole for the treatment of Chagas disease based primarily on data in three categories: (i) clinical trials previously conducted by others for which we have obtained a right to access and use the underlying data, which we plan to analyze, organize, and present to FDA in a new drug application, or NDA; (ii) clinical trials reported in the literature and described in unpublished reports of investigations, for which the underlying data may or may not have been submitted to FDA, and to which we have not obtained rights of access, use, or reference; and (iii) to the extent required by FDA, bioavailability and non-clinical studies that we will perform to bridge the clinical trial data described above using prior formulations of benznidazole to our current formulation, which we believe to be comparable to the prior formulations.

~~For the first category of data,~~ it may ~~turn out that~~be years before such a study is initiated, if at all. Of the ~~data to which we obtained rights from Savant~~large number of drugs in development, only a small percentage successfully complete the FDA regulatory approval process and ~~all other data to which~~are commercialized. Accordingly, even if we are able to obtain ~~rights are collectively insufficient~~the requisite financing to ~~establish the clinical safety or efficacy of benznidazole. Even if those data are sufficient,~~continue to fund our development programs, we may be unable to analyze, organize, translate, and present those data adequately to convince FDA that those data establish benznidazole’s safety and efficacy, even if also supported by strong data in the second category of data described above. Although an FDA regulation, 21 C.F.R. §312.120, permits sponsors to submit and rely on foreign clinical data not collected under a U.S. investigational new drug application, or IND, and another regulation, 21 C.F.R. §314.106, permits sponsors to rely solely on foreign clinical data as a basis for marketing approval, we may not be able to satisfy the conditions imposed by those regulations. FDA may not grant approval based solely on foreign data, and may require bridging data to account for potentially material differences in patient populations, standards of medical practice, and other variables. We may not be able to generate adequate bridging data. In addition, as discussed further below with respect to the third category of data, FDA may find that even if the data in the first two categories are adequate to establish the safety and efficacy of the prior formulation of benznidazole, our current formulation of benznidazole is not comparable to the prior formulation and, consequently, that the existing clinical safety and efficacy data to which we have rights do not establish the bridge to the safety and efficacy of our current formulation of benznidazole.

For the second category of data described above, on which we anticipate needing to rely, at least to some extent, to support the first category in establishing benznidazole’s safety and efficacy, these data may not themselves be adequate to address deficiencies or gaps in the first category of data. Even if adequate, FDA may find the data unconvincing or unreliable, may refuse to rely on them because FDA is not able to review the underlying raw data, may find that reliance under section 505(b)(2) is inappropriate without contractual rights of reference, may not allow use of some or all foreign data which may never have previously been submitted to or reviewed by FDA, or may reject the data for other reasons.

~~For the third category of data described above, it may turn out~~cannot assure you that our ~~current formulation of benznidazole is not comparable to the prior formulation used in the clinical trials on which~~product candidates will be successfully developed or commercialized. If we intend to rely. Even if the two formulations are in fact comparable, FDA may reject our bridging data because FDA does not have sufficient information on the prior formulation, because our bridging studies are inadequate and weor any future development partners are unable to ~~supplement~~develop, or ~~correct them, or for other reasons. In addition, FDA may require lengthy, expensive, or difficult bridging studies for which we have inadequate resources or expertise to complete successfully.~~

~~If any of the above risks are realized, we may be unable to~~ obtain ~~FDA~~regulatory approval for ~~benznidazole, and even~~or, if ~~we do obtain approval, we may not be able to~~approved, successfully commercialize, ~~it successfully and~~one or more of our product candidates, we may not be able to generate sufficient revenue to continue our ~~business, or may suffer from delays, additional costs, or other obstacles that will material harm our~~ business.

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The adoption of ~~Contents~~

~~We focus~~CAR-T therapies as the potential standard of care for treatment of certain cancers is uncertain, and dependent on ~~neglected and rare diseases, which may create additional risks and challenges.~~

~~Given~~ the ~~small~~efforts of a limited number of ~~patients who have certain of~~market entrants, and if not adopted as anticipated, the indications that we are targeting and the fact that we intend to treat neglected diseases with certain of our drug candidates, our profitability and growth depend on successfully identifying patients with these diseases and obtaining coverage and reimbursement of our product candidates by third-party payers, including government payers. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, and market ~~research, and may prove to be incorrect. Further, new studies may change the estimated incidence~~for lenzilumab or prevalence of these diseases, and, as a result, the number of patients with these diseases may turn out to be lower than expected. Our effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible.

We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients willing and able to participate in the clinical trials required by FDA or other non-United States regulatory agencies. In addition, if others develop product candidates for the treatment of the same or similar diseases, we would potentially compete with them for the enrollment in these rare patient populations, which may adversely impact the rate of patient enrollment in and the timely completion of our current and planned clinical trials. Additionally, insufficient patient enrollmentnext-generation gene-edited CAR-T therapies may be a function of many other factors, including the size and nature of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the timing and magnitude of disease symptom presentation, the availability of effective treatments for the relevant disease, and the eligibility criteria for the clinical trial. Our inability to identify and enroll a sufficient number of eligible patients for any of our currentlimited or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Delays in patient enrollment in the future as a result of these and other factors may result in increased costs or may affect the timing or outcome of our clinical trials, which could prevent us from completing these trials and adversely affect our abilitynot develop.

We are seeking to advance the development of ~~our~~lenzilumab to address the serious side-effects associated with CAR-T therapies and to improve the efficacy of these treatments. We are also working to create next-generation gene-edited CAR-T therapies using GM-CSF gene knockout technologies. Although two CAR-T therapies have been approved by FDA to date, the use of engineered T cells as a potential cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers, payers and others in the medical community. The degree of market acceptance of any approved product ~~candidates.~~

~~Additionally,~~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;

competitive approaches to tackle similar issues;

the cost of treatment in relation to alternative treatments;

the availability of adequate reimbursement and pricing by payers;

relative convenience and ease of administration;

the prevalence and severity of adverse events;

the effectiveness of sales and marketing efforts; and

the ability to manage any unfavorable publicity relating to the product candidate.

If the ~~potentially addressable patient population~~medical and payer community is not sufficiently persuaded of the safety, efficacy and cost-effectiveness of CAR-T therapy and the potential advantages of using lenzilumab compared to existing and future therapeutics, and there is not significant market acceptance of CAR-T therapy as the standard of care for ~~each~~treatment of ~~our product candidates~~certain cancers, the market for lenzilumab or next-generation gene-edited CAR-T therapies may be limited or not develop, and our stock price could be adversely affected.

CAR-T therapies currently in early development purport to incorporate technology that may minimize or eliminate the adverse side-effects that we believe have impaired the uptake of the approved CAR-T therapies. If these developing therapies are proven equally efficacious in their proposed indications and approved for use by FDA and other regulatory agencies, the market growth for the currently-approved CAR-T therapies may be limited, impairing demand for lenzilumab.

In recent months, several biotechnology companies describing business plans focusing on development of CAR-T therapies have completed or announced they are pursing initial public offerings, or “IPOs”. Several of these companies have described their belief that their therapies will not result in the same level of CRS or NT as has been experienced in use of previously FDA-approved CAR-T therapies. While these products are in early stage development, the data is limited and these products have not yet been approved for use by FDA, if any such product were also proven equally efficacious and subsequently approved, the market for lenzilumab may not ~~be amenable~~develop or grow as anticipated. Any such failure of a market for lenzilumab to ~~treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would~~develop could adversely affect our results of operations and our business. Finally, even if we obtain significant market share for our product candidates, because the potential target populations are very small and in some cases may not have access to medical coverage, whether through insurance or government programs, we may never achieve profitability despite obtaining such market share.stock price.

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Our business ~~model is predicated on expected~~could target benefits from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, ~~priority review~~ and priority review, ~~vouchers, or PRVs, and~~but we may not ultimately qualify for or benefit from these arrangements.

~~Because we focus on developing drugs as treatments for neglected and rare diseases, we~~

We may seek various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated approval, priority review and ~~PRVs,~~Priority Review Vouchers (“PRVs”), where available, that provide for certain periods of exclusivity, expedited review and/or other benefits, and we may also seek similar designations elsewhere in the world. ~~We also anticipate benefitting from New Chemical Entity, or NCE, status under the Hatch-Waxman Act for benznidazole and other future drug candidates that qualify.~~ 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.

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.

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Our business model is predicated on the availability of PRVs, particularly for benznidazole, but our product candidates may not qualify for or receive a PRV, and changes to the applicable programs could limit our ability to benefit from a PRV.

Under Section 524 of the FDCA, the FDA is authorized to award PRVs to the sponsors of NDAs and BLAs for novel products targeting specific tropical diseases. Similarly, FDA’s rare pediatric disease PRV program allows FDA to grant PRVs to NDA or BLA sponsors who receive approval for a product targeting a rare pediatric disease, defined as a disease that affects fewer than 200,000 individuals in the U.S., and where at least 50% of the patients are aged from birth to 18 years. Under these PRV programs, PRV-holders can redeem their voucher to receive an accelerated six-month FDA action goal instead of the standard ten-month window, or they may sell or transfer their PRV to another sponsor. A product only qualifies for a PRV if it contains active ingredients that have never before been approved by FDA. See “Government Regulation—Tropical Disease PRVs” and “—Rare Pediatric Disease PRVs” in Item 1 of this Annual Report for more information on the PRV programs.

We believe that benznidazole and lenzilumab or other future product candidates that we may develop or acquire may qualify for PRVs, and in particular we believe investors in our company place significant value on the potential to obtain a PRV for benznidazole. We have received a preliminary, non-binding opinion from FDA that, if approved first as described above, benznidazole would meet the criteria for voucher eligibility, which is reflected in the minutes from our December 6, 2016 pre-IND face-to-face meeting with FDA. We have no assurance, however, that benznidazole, lenzilumab or any other product candidate we pursue in the future will qualify for a PRV, including because another party may receive FDA approval for a product containing an active ingredient in our products prior to our receiving approval, which is a particular risk in the case of benznidazole. Furthermore, we have no assurance that there will be a market for the sale of PRVs, or that the PRV programs will not be restricted, changed or eliminated or that, with respect to certain elements, will be left to expire. Restrictions and changes to, or the elimination or expiration of, the PRV programs would have an adverse effect on our business and potential for realizing value from our focus on neglected and rare diseases, which could impact the willingness of investors to provide additional capital and our ability to ultimately return value to our shareholders.

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 have a small management team.

On August 29, 2017, we shifted our ~~management team,~~primary focus toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab and ~~emerged from bankruptcy.~~

~~During 2016, we changed~~ifabotuzumab and HGEN005, for use in addressing significant unmet needs in oncology and CAR-T therapy. We are also currently developing our ~~management team~~GM-CSF knockout gene-editing CAR-T platform to create next-generation CAR-T therapies that preserve the benefits of CAR-T therapy while altogether avoiding its serious and ~~embarked upon a new strategy in conjunction with our emergence from bankruptcy on June 30, 2016.~~potentially life-threatening side-effects. Our relatively new team, new strategic business focus and limited operating history developing clinical-stage product candidates may make it more difficult for us to succeed or for investors to be able to evaluate our business and prospects. In addition, as an early-stage clinical development company, we have limited experience in development activities, including conducting clinical trials, or seeking and obtaining regulatory ~~approvals.~~approvals, even though our executives have had relevant experience at other companies. We only have two employees and therefore 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~~To execute our business plan we will need to successfully:

execute our product candidate development activities, including successfully completing our clinical trial programs, including through our collaboration with Kite;

obtain required regulatory approvals for the development and commercialization of our product candidates;

manage our costs and expenses related to clinical trials, regulatory approvals, manufacturing and commercialization;

secure substantial additional funding;

develop and maintain successful strategic relationships;

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~~complete development activities and successfully submit for regulatory approval an NDA for benznidazole;~~

~~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;~~

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~~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.~~

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.

Our collaboration with Kite is critically important to our business. If we are unable to maintain this collaboration, or if this collaboration is not successful, our business could be adversely affected.

In May 2019, we entered into the Kite Agreement to conduct a multi-center Phase 1b/2 study (ZUMA-19)of lenzilumab with Kite’s Yescarta in patients with relapsed or refractoryB-cell lymphoma.See "Business — Kite Collaboration."

Pursuant to the terms of the Kite Agreement, Kite may elect to terminate or suspend the Study at any time. Because we currently rely on Kite for a substantial portion of our discovery capabilities, if Kite delays or fails to perform its obligations under the Kite Agreement, disagrees with our interpretation of the terms of the collaboration or our discovery plan or terminates the Kite Agreement, our pipeline of product candidates would be adversely affected. Kite may also fail to properly maintain or defend the intellectual property we have licensed from them, or even infringe upon, our intellectual property rights, leading to the potential invalidation of our intellectual property or subjecting us to litigation or arbitration, any of which would be time-consuming and expensive. Additionally, either party has the right to terminate the Kite Agreement under certain circumstances. If our collaboration with Kite is terminated, the development oflenzilumabwould be materially delayed or harmed.

In addition to our collaboration with Kite, we may, in the future, seek to enter into collaborations with other third parties for the discovery, development and commercialization of our product candidates. If our collaborators cease development efforts under our collaboration agreements, or if any of those agreements are terminated, these collaborations may fail to lead to commercial products and we may never receive milestone payments or future royalties under these agreements.

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

With respect to our existing Kite Agreement and with any future collaboration agreements, we have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Moreover, our ability to generate revenues from these arrangements will depend on our collaborators' abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our product candidates pose the following risks to us:

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

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

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

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

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

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

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

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

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

As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated. Any failure to successfully develop or commercialize our product candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Moreover, to the extent that any of our existing or future collaborators were to terminate a collaboration agreement, we may be forced to independently develop these product candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and defending intellectual property rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change to our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.

We have relied and may ~~continue~~in the future rely on third parties to conduct investigator-sponsored trials (“ISTs”) of our products, which is cost-effective for us but affords the investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the data generated from their efforts.

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

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

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

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these trials is uncertain and may occur on substantially different timing from our estimates. We also use contract research organizations (“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.

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

Before we can initiate clinical trials in the ~~United States~~U.S. for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of an IND application, along with other information including information about product candidate chemistry, manufacturing, and controls and our proposed clinical trial protocol. 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 application, which may lead to additional delays and increase the costs of our preclinical development. Moreover, despite the presence of an active IND application for a product candidate, clinical trials can be delayed for a variety of reasons, including delays in:

identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;

identifying, recruiting, and training suitable clinical investigators;

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;

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~~identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;~~

~~identifying, recruiting, and training suitable clinical investigators;~~

~~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.~~

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

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

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

the FDA placing a clinical trial on hold.

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.~~subjects than originally planned. 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;~~

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~~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.~~

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 the 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 or unforeseen significant incremental costs related to the 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.

The scientific rationale behind the hypothesis that GM-CSF is a cause of the cytokine storm that leads to adverse results in COVID-19 patients is still being tested and may not prove accurate.

The hypothesis that elevated GM-CSF+ T cells may contribute to cytokine storm-induced immune mechanisms that places patients at greater risk of ICU admission and mortality with the current pandemic strain of coronavirus is unproven. Certain data are the subject of pre-publication papers that have not been peer-reviewed and may not be substantiated. If this hypothesis is not ultimately proven, the potential for lenzilumab to play a meaningful role in a COVID-19 therapy likely would decrease or be eliminated. We cannot assure you that our exploratory efforts in this respect will be fruitful.

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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~~U.S. and by comparable authorities in foreign markets. In the ~~United States,~~U.S., 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.~~

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

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

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;

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~~may delay or 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~~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 (“NDA”) or Biologic License Application ~~or BLA,~~(“BLA”) to FDA and even fewer are approved for commercialization.

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 team, in particular our Chief Executive Officer, Dr. Cameron ~~Durrant.~~Durrant, and Dr. Dale Chappell, the controlling owner of the Black Horse Entities and our current ex-officio chief scientific officer. Furthermore, we rely on third party consultants for a variety of services, and our Interim Chief Financial Officer is not an employee of ours, but instead provides services to us pursuant to a consulting arrangement we have entered into with a third party that employs him.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.

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Our success also depends on our continued ability to attract, retain, and motivate highly qualified management, scientific and other expert personnel and we may not be able to do so in the future due to recent events, and intense competition from other biotechnology and pharmaceutical companies, universities, and research organizations for qualified personnel. Many of these competitors have substantially greater financial, technical and human resources than we do. If we are unable to attract and retain the necessary personnel, we may experience significant impediments to our ability to implement our business strategy.

Any product candidate we or any future development ~~partners~~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. For example, we observed fatal intracranial hemorrhages in three subjects deemed possibly related to the study drug by the study investigator in our ifabotuzumab Phase 1 clinical trial and, as a result, we amended our clinical protocol, which caused a delay in our program, but which resulted in no similar subsequent events.

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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, except for benznidazole, for which the safety profile is well known and which we will document in our NDA primarily through foreign clinical data.~~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 or biosimilar competitors to our products post-approval, our commercial opportunity will be reduced or eliminated.

We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies, other biotechnology companies, academic institutions, government agencies and other private and public research organizations. We compete with these parties ~~for therapies for neglected~~in immunotherapy and ~~rare diseases~~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,~~(“ANDA”), referencing our drug products. We believe that competitors are actively developing competing products to our product ~~candidates, including other companies that are pursuing benznidazole for treatment of Chagas disease in the United States.~~candidates. See “Competition” in ~~Item 1~~the “Business” section of this Annual Report on Form 10-K for a discussion of competition with respect to our current product candidates.

Many of our competitors and potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing, and achieving widespread market acceptance for our products. If a competitor obtains approval for an orphan drug that is the same drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate supply of its product to patients after approval. In addition, our competitors’ products may be more effective or more effectively marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.

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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~~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,~~(“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. WeOnce our product candidates are approved, we may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.

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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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~~We may not be successful in identifying potential product candidates or obtaining necessary rights to product candidates for our development pipeline through acquisitions and in-licenses.~~

Our strategy involves identifying, acquiring, developing and supporting the commercialization of additional treatments for neglected and rare disease. However, we may be unable to identify, acquire or in-license any product candidates from third parties for various reasons, including because we are focusing on a specific type of product candidates, and we may be unable to identify product candidates that we believe are an appropriate strategic fit for our company.

The in-licensing and acquisition of product candidates is a competitive area, and a number of more established companies are also pursuing strategies to in-license or acquire product candidates that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. Furthermore, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the relevant product candidate on terms that would allow us to generate an appropriate return on our investment.

In addition, we expect that competition for the in-licensing or acquisition of product candidates that are attractive to us may increase in the future, which may mean fewer suitable opportunities for us as well as higher acquisition or licensing prices. If we are unable to successfully obtain rights to suitable product candidates, our business, financial condition and prospects for growth could suffer.

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.~~

the efficacy and safety as demonstrated in clinical trials;

the clinical indications for which the product candidate is approved;

acceptance by physicians, major operators of hospitals and clinics, and patients of the product candidate as a safe and effective treatment;

the potential and perceived advantages of product candidates over alternative treatments;

the safety of product candidates seen in a broader patient group, including its use outside the approved indications;

the cost of treatment in relation to alternative treatments;

the availability of adequate reimbursement and pricing by payers;

relative convenience and ease of administration;

the prevalence and severity of adverse events;

the effectiveness of our sales and marketing efforts; and

the ability to manage any unfavorable publicity relating to the product candidate.

If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payers, and patients, we may not generate sufficient revenue from that product candidate and may not become or remain ~~profitable.~~

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commercially attractive as a standalone indication for that product.

Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.

Market acceptance and sales of our product candidates will depend significantly on the availability of adequate insurance coverage and reimbursement from third-party payers for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the third-party payer’s determination that use of a product candidate is:

a covered benefit under its health plan;

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~~a covered benefit under its health plan;~~

~~safe, effective, and medically necessary;~~

~~appropriate for the specific patient;~~

~~cost-effective; and~~

~~neither experimental nor investigational.~~

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~~U.S. and in certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could affect our ability to sell our product candidates profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methods for many product candidates under Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal and state initiatives designed to reduce payment for pharmaceuticals.

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

Similar concerns about the costs of treatment have been raised in Europe and the United Kingdom, where the cost effectiveness ofCAR-T therapies have been an impediment to utilization of Kymriah and Yescarta. If CAR-T companies are not able to convince regulators and payers in national healthcare systems that the benefits of a CAR-T therapy outweigh its costs, the market for lenzilumab might not develop.

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.~~Whether directly or through third parties,~~ we intend to responsibly price any approved products using our Responsible Pricing Model, which could make it more difficult to enter into arrangements with third parties on acceptable terms, if at all.

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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~~U.S. 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.

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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.~~

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.~~side-effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our working capital and adversely affect our business.

Our 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.

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Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards, which could have a material adverse effect on our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees or consultants could include intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, failure to provide accurate information to FDA or comparable foreign regulatory authorities, failure to comply with manufacturing standards, failure to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, failure to report financial information or data accurately, violations of anti-bribery laws, or failure to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee or consultant misconduct could also involve the improper use of confidential information obtained in the course of our business, which could result in civil or criminal legal actions, regulatory sanctions, or serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics and other corporate policies, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

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We may encounter difficulties in managing our growth and expanding our operations ~~successfully.~~

successfully.

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

We and any 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 current or 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.

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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.~~

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 current or future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.

If we and any future development partners are successful in commercializing our products, FDA and foreign regulatory authorities would require that we and any future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA or a foreign regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.

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

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

We believe that any of our product candidates 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.

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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 Act includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws, then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.

State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans or ~~Corporate Integrity Agreements,~~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.

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Legislative or regulatory healthcare reforms in the ~~United States~~U.S. may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market, and distribute our products after approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product candidates. 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.~~

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.

If the 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.~~

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.

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~~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 the Company in the Bankruptcy Case is ongoing.~~ As of December 31, 2016, approximately $850,000 in claims remain subject to review and reconciliation by the Company. As of December 31, 2016, the Company has recorded $130,000 and $124,000 related to these claims in Accounts payable and Notes payable to vendors, respectively, which represents management’s best estimate of claims to be allowed by the Bankruptcy Court.

~~Despite management’s best estimate of claims to be allowed by the Bankruptcy Court, the Company may be ultimately unsuccessful in its attempt to have certain proofs of claim~~ ~~that it believes 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.~~

~~We have experienced significant changes in our management team, Board of Directors and business strategy in connection with our bankruptcy and our emergence from bankruptcy.~~

We emerged from bankruptcy with a new management team and a substantially changed Board of Directors, as well as a new business plan and strategy focused on the treatment of neglected and rare diseases. The new management team and directors have different backgrounds, experiences and perspectives from those individuals who previously served and, thus, may have different views on the issues that will determine our future. In the future, we may have additional turnover in the members of our management team or the Board. Any such future turnover may require time, effort and cost and may divert the attention of the management team and Board away from our operations and business objectives. Additionally, we may not be successful in our efforts to pivot our business strategy to focus on neglected and rare diseases.

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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.

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~~regularly evaluate 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~~The costs of manufacturing our drug ~~substance suppliers. To date, such delays have been manageable. However, if these~~candidates are high, and we will require additional capital to ensure that we can maintain an adequate supply to conduct our contemplated development programs.

If our third-party suppliers do not supply sufficient quantities for product candidates to us on a timely basis and in accordance with applicable specifications and other regulatory requirements, 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.

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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 July 2014, we terminated our prior development partnership with Sanofi for KB001-A. We cannot predict the impact of that decision on the likelihood of our ability to enter into future partnerships for KB001-A or for our other 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.~~

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.

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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~~U.S. 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;

if and when patents will issue in the ~~United States~~U.S. or any other country;

whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications;

whether we will need to initiate litigation or administrative proceedings to protect our intellectual property rights, which may be costly whether we win or lose;

whether any of our patents will be challenged by our competitors alleging invalidity or unenforceability and, if opposed or litigated, the outcome of any administrative or court action as to patent validity, enforceability or scope;

whether a competitor will develop a similar compound that is outside the scope of protection afforded by a patent or whether the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;

whether there were activities previously undertaken by a licensor that could limit the scope, validity or enforceability of licensed patents and intellectual property; or

whether a competitor will assert infringement of its patents or intellectual property, whether or not meritorious, and what the outcome of any related litigation or challenge may be.

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Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors, sublicensees and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all employees, consultants and board members to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired, and our business and competitive position would suffer.

Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.

Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biopharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. These uncertainties also mean that any patents that we own or may obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us.

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

We may be subject to competition from third parties with products in the same class of products as our product candidates, or products with the same active pharmaceutical ingredients as our product candidates in those jurisdictions in which we have no patent protection. Even if patents are issued to us or any licensor regarding our product or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid or unenforceable on a variety of grounds, including lack of utility, lack sufficient written description or enablement, utility, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors devise ways of making or using these products without legally infringing our patents. The current U.S. regulatory environment may have the effect of encouraging companies to challenge branded drug patents or to create non-infringing versions of a patented product in order to facilitate the approval of abbreviated new drug applications (“ANDAs”) for generic substitutes. These same types of incentives encourage competitors to submit new drug applications (“NDAs”) 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~~U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of our development and manufacturing efforts. Others might have been the first to make the inventions covered by each of our or any licensor’s pending patent applications and issued patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to us or any licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization, formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to pay substantial damages or take other actions that are adverse to our business.

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If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and may have to:

obtain licenses, which may not be available on commercially reasonable terms, if at all;

redesign our products or processes to avoid infringement, which may not be possible or could require substantial funds and time;

stop using the subject matter claimed in patents held by others, which could cause us to lose the use of one or more of our drug candidates;

pay damages royalties, or other amounts; or

grant a cross license to our patents to another patent holder.

We expect that, as our drug candidates move further into clinical trials and commercialization and our public profile is raised, we will be more likely to be subject to such claims.

We may fail to comply with any of our obligations under existing agreements pursuant to which we license or have otherwise acquired rights or technology, which could result in the loss of rights or technology that are material to our business.

We are a party to technology licenses and have acquired certain assets and rights that are important to our business and we may enter into additional licenses or acquire additional assets and rights in the future. We currently hold licenses from Ludwig Institute for Cancer Research (“LICR”), BioWa, Inc. (“BioWa”), Lonza Sales AG (“Lonza”) Mayo Foundation (“Mayo”) and the ~~Medical College~~University of ~~Wisconsin, UCSF, LICR, BioWa, Lonza, and Sanofi and have acquired certain assets and rights from Savant.~~Zurich (“UZH”). These licenses ~~and acquisition agreements~~ impose various commercial, contingent payments, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these obligations, the licensor ~~or Savant~~ 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.

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We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.

As is common in the biotechnology and pharmaceutical industry, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants were previously employed at, or may have previously or may be currently providing consulting services to, other biotechnology or pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that our company or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and we intend to seek patent protection only in selected countries. Our intellectual property rights in some countries outside the ~~United States~~U.S. can be less extensive than those in the ~~United States.~~U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the ~~United States.~~U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the ~~United States,~~U.S., or from selling or importing products made using our inventions in and into the ~~United States~~U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the ~~United States.~~U.S.. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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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 sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by LPC, or the perception that such sales may occur, could cause the price of our common stock to fall.

On November 8, 2019, we entered into the Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which LPC has committed to purchase up to $20,000,000 of our common stock from time to time over a 36-month period. Upon the execution of the Purchase Agreement, we issued 706,592 Commitment Shares to LPC as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. We generally have the right to control the timing and amount of any future sales of our shares to LPC. Sales of our common stock, if any, to LPC will depend upon market conditions and other factors to be determined by us, and the price we receive from any sales will be based on market prices near the time of sale. Therefore, sales to LPC by us could result in substantial dilution to the interests of other holders of our common stock. We may ultimately decide to sell to LPC all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. LPC may resell all, some or none of these shares it has acquired form us at any time or from time to time in its discretion. Any such sales by Lincoln Park could cause the market price of our common stock to decline. Additionally, the sale of a substantial number of shares of our common stock to LPC, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

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We may not have access to the full amount available under the Purchase Agreement withLPC.

Under our Purchase Agreement with LPC, we may, at our discretion from time to time over a 36-month period, on any single business day on which the closing price of our common stock is above $0.15 per share (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction as provided in the Purchase Agreement), direct LPC to purchase shares of our common stock in amounts up to 100,000 shares, which amounts may be increased to up to 250,000 shares depending on the market price of our common stock at the time of sale and subject to a maximum commitment by LPC of $750,000 per single regular purchase. Although the Purchase Agreement provides that we may sell up to $20,000,000 of our common stock to LPC, only 14,500,000 shares of our common stock were initially registered for resale, which represents: (i) 706,592Commitment Shares that were issued to LPC as consideration for making the commitment under the Purchase Agreement, and (ii) an additional 13,793,408 shares which may be issued to LPC in the future under the Purchase Agreement, if and when we sell shares to LPC under the Purchase Agreement.

Depending on the market prices of our common stock at the time we elect to issue and sell shares to LPC under the Purchase Agreement, we may need to register for resale additional shares of our common stock in order to receive aggregate gross proceeds equal to the $20,000,000 total commitment available to us under the Purchase Agreement.

The extent we rely on LPC as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from LPC were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. If we elect to issue and sell more than the 14,500,000 shares initially registered under the Registration Statement on Form S-1 to LPC, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. Even if we sell all $20,000,000 under the Purchase Agreement to LPC, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.

The Black Horse Entities currently own more than a majority of our outstanding common stock and control the outcome of all matters subject to stockholder approval.

As of March 12, 2020, the Black Horse Entities collectively hold approximately 59.5% of our outstanding common stock. Dr. Chappell, a member of our board of directors from June 30, 2016 until November 10, 2017 and our current ex-officio chief scientific officer, controls the Black Horse Entities. As a result, Dr. Chappell has the ability to control the election of the members of our board of directors and the outcome of all matters requiring stockholder approval, including 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 Black Horse Entities and the other holders of more than 5% of our common stock together with their affiliates beneficially own approximately 90.3% of our common stock as of March 12, 2020. Some of these persons or entities may have interests that are different from our other stockholders. 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, 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. 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.

There is a limited trading market for our securities and we do not currently have an active public 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.

~~On January 13, 2016, our common stock was delisted from the NASDAQ Global Market, and~~

While our common stock is ~~no longer listed~~currently quoted on ~~any national or regional securities exchange. Although~~the OTCQB Venture Market, trading in our common stock is ~~listed for quotation on the OTC Pink marketplace operated by OTC Markets Group, Inc., trading is limited and we~~limited. 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.~~

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.

~~The OTC Pink marketplace is a relatively unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than NASDAQ, the NYSE or the NYSE MKT.~~

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.

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~~Our ability to re-list our common stock on a national securities exchange is subject to us meeting applicable listing criteria.~~

We intend to apply for our common stock to be re-listed on a national securities exchange. In addition, we are exploring numerous strategic transactions to effect 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. In the event we are unable to uplist our common stock, our common stock will continue to trade on the OTC Pink marketplace operated by OTC Markets Group, Inc.

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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.~~

stockholders by causing a reduction in their proportionate ownership and voting power.

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

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, 2019, 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.

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 ~~maintain~~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.

~~Our stock price is volatile and from January 31, 2013, the first day of trading of our common stock, to~~ ~~March 7~~, ~~2017, our stock had high and low sales prices in the range of $66.00 to $0.44 per share.~~

The market price of our common stock may fluctuate significantly in response to a number of factors. These factors include those discussed in ~~this~~these “Risk Factors” ~~section of this Annual Report on Form 10-K~~ and others such as:

~~the availability of a 505(b)(2) development pathway for the potential approval by FDA of benznidazole;~~

~~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;~~

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~~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.~~

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 successfully re-list and maintain the listing of our common stock on a national securities exchange;

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;

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.

~~An active trading market for our common stock may not develop or be sustained or may be volatile.~~

We have a limited number of shares publicly available for purchase. An active trading market may not develop or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. In addition, the public market for our shares may be extremely volatile in light of the results of our operations, our limited resources, the number of products we may have in development at any given time, and numerous other factors.

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.

Some brokers may be unwilling to trade our securities, and you may have difficulty reselling your shares, which may cause the value of your investment to decline.

To the extent the price of our common stock ~~remains~~continues to trade at prices below $5.00 per share, our common stock ~~will~~may be subject to ~~certain~~the “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).~~investors. 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 may adversely affect the ability of brokers to sell our common stock and ~~limits~~limit the liquidity of our common ~~stock.~~

~~Our principal stockholders~~stock, and ~~management own~~because of the imposition of these additional sales practices, it is possible that brokers will not want to make a ~~significant percentage~~market in our shares. This could prevent a holder of our ~~stock~~shares from reselling those shares and ~~will be able~~may cause the value of such investment to ~~exert significant control over matters~~decline.

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In addition, under applicable SEC rules and interpretations, issuers of penny stocks are subject to ~~stockholder approval.~~

~~Our directors, executive officers,~~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 ~~holders~~liquidity of more than 5% of our common stock together with their affiliates beneficially own approximately 75% of our common stock as of March 7, 2017. These stockholders, acting together, may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offersthe trading market for our ~~common stock that you may feel are in your best interest as one of our stockholders.~~

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~~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 7, 2017, we had 14,977,397 shares of common stock outstanding, of which 11,296,884 shares were held by directors, officers and stockholders who hold greater than 5% of our common stock.

shares.

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~~stock 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~~the ability to achieve a return on ~~your~~any investment in our common stock will depend on appreciation in the price of our common stock.

We have never paid cash dividends on any of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. Therefore, ~~you are~~a holder of our stock is not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, ~~your~~the ability to receive a return on an investment in our common stock will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which ~~you purchased it.~~

As a public company, our stock price has been volatile, and securities class action litigation has often been instituted against companies following periods of volatility of their stock price. Any such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

In the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has sometimes been instituted against these companies. For example, in December 2015, several putative class action lawsuits were filed against us, all of which were settled prior to our emergence from bankruptcy. Additional litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

it was purchased.

Anti-takeover provisions in our charter documents and Delaware law, could discourage, delay, or prevent a change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.

Our Amended and Restated Certificate of Incorporation, as amended (the “Charter”), and ~~restated certificate of incorporation~~our Second Amended and ~~amended and restated bylaws~~Restated Bylaws (the “Bylaws”) may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our ~~amended~~Charter and ~~restated certificate of incorporation and amended and restated bylaws:~~

Bylaws:

provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

do not provide stockholders with the ability to cumulate their votes; and

require advance notification of stockholder nominations and proposals.

In addition, our Charter permits the Board to issue up to 25 million shares of preferred stock with such powers, rights, terms and conditions as may be ~~filled only~~designated by ~~a majority vote~~the Board upon the issuance of ~~directors then in office;~~

~~do not provide stockholders with the ability to cumulate their votes; and~~

~~require advance notification~~shares of ~~stockholder nominations and proposals.~~

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~~We are an emerging growth company and the extended transition period for complying with new~~preferred stock at one 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 attestationmore times in the ~~assessment~~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 ~~internal control over financial reporting and exemption from any requirement~~company that ~~may~~might otherwise be ~~adopted by~~in 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~~best interest 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.stockholders.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We have leased an office in Burlingame, California, which lease ~~a facility in Brisbane, California. The lease~~was month-to-month and commenced in April ~~2016 and was to expire in March 2017. On February 16, 2017, we amended~~2018. We terminated the lease ~~to extend~~on November 19, 2019 and entered into a sub-lease agreement for space in the same building in Burlingame, California. The sub-lease initial term ~~of the lease~~expires on March 31, 2020 and is renewable for an additional ~~period of eighteen months such that the lease will expire on September 30, 2018.~~

terms by mutual agreement.

ITEM 3. LEGAL PROCEEDINGS

Bankruptcy Proceedings

We filed for protection under Chapter 11 of Title 11 of the ~~United States~~U.S. Code on December 29, 2015, in the ~~United States~~U.S. 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.

~~Securities Class Action Litigation~~

~~On December 18, 2015, a putative class action lawsuit (captioned~~ ~~Li v. KaloBios Pharmaceuticals, Inc. et al., 5:15-cv-05841-EJD)~~ ~~was~~

The reconciliation of certain proofs of claim filed against us in the ~~United States District Court for the Northern District~~Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and Other Subordinated Claims, is complete. As a result of ~~California, or the Class Action Court, alleging violations~~its examination of the federal securities laws by our Company, Herb Cross, our former officer and Martin Shkreli, our former Chairman and Chief Executive Officer. On December 23, 2015, a putative class action lawsuit was filed against us in the Class Action Court (captioned Sciabacucchi v. KaloBios Pharmaceuticals, Inc. et al., 3:15-cv-05992-CRB), similarly alleging violations of the federal securities laws by our Company and Mr. Shkreli. On December 31, 2015, a putative class action lawsuit was filed against us in the Class Action Court (captioned Isensee v. KaloBios Pharmaceuticals, Inc. et al., Case No. 15-cv-06331-EJD) also alleging violation of the federal securities laws by our Company, a former officer and Mr. Shkreli. On April 18, 2016 an amended complaint was filed in the ~~Isensee~~ ~~suit, adding Herb Cross and Ronald Martell, our former executive chairman as defendants. On April 28, 2016, the Class Action Court consolidated these cases, which~~claims, we refer to collectively as the Securities Class Action Litigation, and appointed certain plaintiffs as the lead plaintiffs. The lead plaintiffs in the Securities Class Action Litigation were seeking damages of $20.0 million on behalf of all the affected members of the class represented in the Securities Class Action Litigation, or the Securities Class Action Members.

On June 16, 2016, a settlement stipulation, or the Securities Class Action Settlement, was approved by the Bankruptcy Court. Subject to the approval of the Class Action Court, the Securities Class Action Settlement required us to issue 300,000 shares of common stock and submit a payment of $250,000 the Securities Class Action Members and advance insurance proceeds of $1.25 million to the Securities Class Action Members. We refer to the consideration owed to the Securities Class Action Members under the Securities Class Action Settlement as the Securities Class Action Settlement Consideration. Subject to the final approval of the Securities Class Action Settlement, any Securities Class Action Member is entitled to share in the Securities Class Action Settlement Consideration. The Securities Class Action Settlement provides for releases and related injunctions to be granted ~~for the benefit of, among others, us, Ronald Martell, Herb Cross and all of our past, present and future directors, officers and employees, excluding Mr. Shkreli.~~ Alternatively, Securities Class Action Members may exclude themselves from the Securities Class Action Settlement and are thereby not bound by the terms of the Securities Class Action Settlement nor entitled to receive any amount of the Securities Class Acton Settlement Consideration. Such Securities Class Action Members, to the extent they properly exclude themselves from Securities Class Action Settlement and have timely and properly filed a proof of claim in the bankruptcy case, may have certain rights under the Plan with respect to such claims. Pursuant to the Plan and Confirmation Order, such claims are subordinated to the level of our common stock that was issued and outstanding when our bankruptcy case was filed. Such claims are also subject to our objection or other response.

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Our agreement to the Securities Class Action Settlement was not in any way an admission of our wrongdoing or liability. On January 20, 2017, the Court granted preliminary approval of the Securities Class Action Settlement and set a final approval hearing for May 11, 2017.

~~As of December 31, 2016 the 300,000 shares of our common stock have been issued and the $250,000 payment has been made.~~

~~BioWa, Inc. Litigation~~

~~On October 17, 2016, Kyowa Hakko Kirin Co., Ltd. and BioWa, Inc. filed a patent infringement Complaint (captioned~~ ~~KYOWA HAKKO KIRIN CO., LTD. and BIOWA, INC., v. ARAGEN BIOSCIENCE, INC. and TRANSPOSAGEN BIOPHARMACEUTICALS, INC.~~, Case 3:16-cv-05993-JD) in Federal District court against Aragen Bioscience, Inc. and Transposagen Biopharmaceuticals, Inc., alleging infringement of three United States Patents that are currently licensed to us. 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. The litigation is ongoing.

~~PIPE Litigation~~

~~On January 7, 2016, certain investors, or the PIPE Claimants,~~ ~~commenced an adversary proceeding (captioned~~ ~~Gregory Rea, et al. v. KaloBios Pharmaceuticals, Inc., Adv. Pro. No. 16-50001 (LSS)) in~~asked the Bankruptcy Court ~~against us, alleging implied trust theories, breach of contract, fraud and violations of~~to disallow, reduce, reclassify or otherwise adjudicate certain claims we believed were subject to objection or otherwise improper. On July 11, 2018, the federal securities laws in connection with the PIPE Claimants’ purchase of our common stock in a private placement equity transaction in December 2015, or the Private Placement. The PIPE Claimants also raised certain other objections to our bankruptcy proceeding. The PIPE Claimants sought an aggregate total of approximately $6.9 million in damages.

On May 9, 2016, the Bankruptcy Court entered an order approving a settlement stipulation between us and the PIPE Claimants, or the PIPE Settlement. The PIPE Settlement was contingent on certain conditions set forth therein, including the effectiveness of the Plan. On the Effective Date, and per the terms of the PIPE Settlement, we became obligated to issue 327,608 shares to the PIPE Claimants and make a payment of $250,000 to the PIPE Claimants for the purpose of satisfying expenses related to the PIPE Settlement. Our agreement to the PIPE Settlement was not in any way an admission of our wrongdoing or liability. The PIPE Litigation was discontinued on September 23, 2016. As of December 31, 2016, the 327,608 shares have been issued and the $250,000 payment has been made.

~~Claim by Marek Biestek~~

~~Marek Biestek was a director of the~~ Company ~~who, while not a plaintiff in the PIPE Litigation, filed a proof of claim alleging damages from the Private Placement and~~ filed an objection to the ~~confirmation~~remaining claims. By objection, the Company sought to disallow in their entirety the remaining claims totaling approximately $0.5 million. On September 17, 2018 the Bankruptcy Court issued a Final Decree and Order to close the Bankruptcy Case and terminate the remaining claims and noticing services.

Savant Litigation

On July 10, 2017, we filed a complaint against Savant in the Superior Court for the State of ~~our Plan. To resolve his objection~~ 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 5 - “Savant Arrangements”to the ~~Plan~~accompanying Consolidated Financial Statements for more information about the MDC Agreement. We alleged that Savant had breached its MDC Agreement obligations to pay cost overages that exceed a budgetary threshold as well as other related MDC Agreement representations and ~~his proof~~obligations. In the litigation, we have alleged that as of ~~claim,~~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 asserted that we ~~settled with him individually by issuing him 3,750 additional shares~~are entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of ~~common stock. Mr. Biestek, as a former director of~~June 30, 2017 Savant owed the ~~company, was excluded from~~Company approximately $1.4 million.

On July 12, 2017, Savant removed the ~~Securities Class Action Members and therefore received nothing from the Securities Class Action Litigation.~~

~~Governance Agreement~~

~~Pursuant~~case to the ~~Plan, on June 30, 2016,~~Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we ~~entered into a Corporate Governance~~emerged in July 2016.In re KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). On July 27, 2017, Savant filed an Answer and Counterclaims. Savant’s filing alleges breaches of contracts under the MDC Agreement ~~(the “Governance Agreement”) with Martin Shkreli,~~and the Security Agreement, claiming that we breached our ~~former Chief Executive Officer, former Chairman~~obligations to pay the milestone payments and ~~former controlling stockholder, which provides for certain terms~~other related representations and ~~conditions regarding~~obligations. On August 1, 2017, we moved to remand the ~~acquisition, disposition, holding and voting of our stock by Mr. Shkreli. The Governance Agreement applies to all common stock owned by Mr. Shkreli or affiliates he controls.~~

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Under the terms of the Governance Agreement, for 180 days following the Effective Date, Mr. Shkreli could not sell his shares of common stock at a price per share that was less than the greater of (x) $2.50 and (y) a 10% discountcase back to the ~~prior two week volume-weighted average price~~Delaware Court (the ~~“Market Discount Price”~~“Motion to Remand”). In addition, for 180 days following the 61st day after the Effective Date, we had a right to purchase any or all of Mr. Shkreli’s shares at a purchase price per share equal to the Market Discount Price. For a limited time, we also had a right of first refusal to purchase shares that Mr. Shkreli proposed to sell. Mr. Shkreli was also prohibited from transferring any shares to his affiliates or associates unless such transferee agreed to be subject to the terms of the Governance Agreement. Transfers of shares by Mr. Shkreli not made in compliance with the Governance Agreement would be null and void.

Also, under the terms of the Governance Agreement, Mr. Shkreli will not have any right to nominate directors to the our Board of Directors and agreed in connection with any stockholder vote to vote his shares in proportion to the votes of our public stockholders. The Governance Agreement also prohibits Mr. Shkreli or his affiliates for a period of 24 months after the date of the Governance Agreement, from, among other things:

~~purchasing any of our stock or assets;~~72

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~~participating in any proposal for any merger, tender offer or other business combination, or similar extraordinary transaction involving our Company or any of our subsidiaries;~~

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 (the “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. On August 9, 2017, the parties have stipulated to continue the provisions of the TRO in full force and effect until further order of the appropriate court, which the Bankruptcy Court signed that same day (the “Stipulated Order”).

On January 22, 2018, Savant wrote to the Bankruptcy Court requesting dissolution of the TRO and the Stipulated Order. On January 29, 2018, the Bankruptcy Court granted the Motion to Remand and denied Savant’s request to dissolve the TRO and Stipulated Order, ordering that any request to dissolve the TRO and Stipulated Order be made to the Delaware Court.

On February 13, 2018 Savant made a letter request to the Delaware Court to dissolve the TRO and Stipulated Order. Also on February 13, 2018, we filed our Answer and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 we filed a letter opposition to Savant’s request to dissolve the TRO and Stipulated Order, requesting a status conference. A hearing on Savant’s request to dissolve the TRO and Stipulated Order was held before the Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request to dissolve the TRO and Stipulated order, which remain in effect.

On April 11, 2018, we advised the Delaware Court that we would meet and confer with Savant regarding a proposed case management order and date for trial. On April 26, 2018 the Delaware Court so-ordered a proposed case management order submitted by us and Savant. The schedule in the case management order was modified by stipulation on August 24, 2018.

On April 8, 2019, we moved to compel Savant to produce documents in response to our document requests. The parties thereafter agreed to a discovery schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other.

On June 4, 2019, Savant filed a complaint against us and Madison in the Delaware Court of Chancery (the “Chancery Action”) seeking to “recover as damages amounts owed to it under the MDC Agreement, and to reclaim Savant’s intellectual property,” among other things. Savant also requested leave to move to dismiss our complaint on the grounds that our transfer of assets to Madison was champertous. On June 10, 2019, we requested by letter that the Superior Court hold a contempt hearing because the Chancery Action violated the TRO entered by the Bankruptcy Court, the terms of which have been extended by stipulation of the parties. On June 18, 2019, the Superior Court held a telephonic status conference. The parties agreed that the Chancery Action should be consolidated with the Superior Court action, after which the Superior Court would address the parties’ motions.

On July 22, 2019, we moved for contempt against Savant. Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied the Company’s motion for contempt.

On July 23, 2019, Savant moved for summary judgment on the issue of champerty. We filed our response and cross-motion for summary judgment on August 27, 2019. Savant filed its reply on September 10, 2019 and we filed our cross-reply on September 20, 2019. The motion is fully briefed, and is scheduled for argument on February 3, 2020.

On July 26, 2019, we moved to modify the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted. In a subsequent order, the discovery schedule was extended until the end of March 2020.

On July 30, 2019, we filed a motion to dismiss Savant’s Chancery Action. Savant filed an amended complaint on September 4, 2019, and we filed our opening brief in support of our motion to dismiss on October 11, 2019. That motion is fully briefed and scheduled for argument on February 3, 2020.

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~~seeking to control or influence the management, our Board or the our policies; or~~

·	~~submitting any proposal to be considered by our stockholders.~~

~~In addition, any material transaction between Mr. Shkreli or his associates~~

On August 19, 2019, Savant moved to dismiss our amended Superior Court complaint. On September 27, 2019, we filed an opposition to Savant’s motion and, ~~us, or relating~~in the alternative, requesting leave to file a second amended complaint against Savant. Savant consented to the ~~Governance Agreement, cannot be taken without the prior approval of our Board.~~

~~The Governance Agreement provides for a mutual release between us and Mr. Shkreli of all claims and liabilities existing as~~filing of the ~~date of execution.~~

second amended complaint and withdrew their motion to dismiss. Savant filed a partial motion to dismiss against a co-defendant on October 30, 2019. That motion is fully briefed and is scheduled for argument on February 3, 2020. At the February 3, 2020 hearing, the Court reserved judgment on the parties’ reciprocal motions.

On November 18, 2019, the Court granted Savant’s Motion to Schedule a Preliminary Injunction hearing concerning the August 252017 TRO and ~~August 26, 2016, Mr. Shkreli sold all of his shares of our Company to third party investors~~Stipulated Order that are still in ~~private transactions.~~

~~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 useffect. A briefing schedule has been set and the ~~PIPE Claimants,~~hearing is scheduled 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.

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.

T~~he 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.~~

March 25, 2020.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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~~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 by 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, 2015 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 13, 2016 through December 31, 2016 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. The market prices set forth below have been adjusted to give retroactive effect to the Company’s ~~one-for-eight reverse stock split of its outstanding common stock on July 13, 2015.~~

High Low
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

2015
4th Quarter $ 45.82 $ 0.44
3rd Quarter $ 5.08 $ 1.71
2nd Quarter $ 5.68 $ 3.28
1st Quarter $ 15.60 $ 2.88

Holders of Common Stock

As of March ~~7, 2016,~~12, 2020, we had ~~14,977,397~~114,304,290 shares of common stock outstanding held by approximately 4544 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.

~~Recent~~

Unregistered Sales of ~~Unregistered~~Equity Securities

~~The Company issued and~~

Since January 1, 2019, we have sold ~~its~~the following securities inthat were not registered under the ~~unregistered transactions described below in the three months ended December 31, 2016.~~

Securities Act:

On January 25, 2019, we issued 57,432 shares of common stock to MZHCI, LLC in exchange for investor relations consulting services delivered by the MZHCI, LLC to us pursuant to a consulting services agreement entered into on November 11, 2016.

On September 18, 2019, we issued 3,529 shares of common stock to Ness Capital and Consulting, LLC (the “Consultant”) in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement entered into on September 13, 2019.

On October 11, 2019, we issued 4,285 shares of common stock to Ness Capital and Consulting, LLC in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a consulting services agreement entered into on September 13, 2019.

On November ~~7, 2016, the Company~~13, 2019, we issued ~~25,000~~7,258 shares of ~~restricted~~ common stock to ~~MZHCI, an investor relations consultant. The shares are subject~~Ness Capital and Consulting, LLC in exchange for capital markets consulting services delivered by the Consultant to us pursuant to a ~~six month restriction. The fair value of the shares issued based~~consulting services agreement entered into on ~~the closing price on November 7, 2016 was $77,500.~~September 13, 2019.

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On ~~November 15, 2016, the Company~~December 13, 2019, we issued ~~40,000~~12,359 shares of ~~restricted~~ common stock to ~~Batuta~~Ness Capital ~~Advisors~~and Consulting, LLC ~~a financial advisor~~ in ~~return~~exchange for ~~services. The shares are subject~~capital markets consulting services delivered by the Consultant to us pursuant to a ~~six month restriction. The fair value~~consulting services agreement entered into on September 13, 2019.

As previously reported, on November 8, 2019, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $20,000,000 of our common stock. Upon the execution of the Purchase Agreement, we issued 706,592 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. In the fourth quarter of 2019, we issued ~~based on~~500,000 shares of our common stock to Lincoln Park under the ~~closing price on November 15, 2016 was $120,000.~~Purchase Agreement for proceeds of $185,000.

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~~On December 1, 2016, the Company issued a warrant to~~ ~~Caribbean Consulting Partners, LLC to~~ purchase up to an aggregate of 25,000 shares of common stock at an exercise price of $4.00 per share. The warrant expires on the one year anniversary of its issuance and had a fair value of approximately $40,000. The warrant provides that if the Company declares a dividend, or makes any other distribution of its assets, to holders of common stock, then the warrant holder shall be entitled to participate in such dividend or distribution to the same extent that the holder would have participated had it held the number of shares of common stock acquirable upon complete exercise of the warrant. The warrant was issued in connection with the engagement agreement related to certain investor relations activities.

The ~~foregoing securities~~sales and issuances described above were ~~issued pursuant to an exemption~~made in reliance on the exemptions from ~~the~~ registration ~~requirements of the Securities Act under~~provided by Section 4(a)(2) of the Securities ~~Act. Please see Notes 8~~Act as transactions not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors. The purchasers in these transactions represented to us that they were accredited investors and 10were acquiring the shares for investment purposes and not with a view to, ~~the Consolidated Financial Statements~~or for sale in ~~this Form 10-K for more information regarding these transactions.~~

~~Repurchases of Equity Securities~~

~~During the applicable periods, we did not repurchase~~connection with, any ~~of our equity securities.~~

distribution thereof.

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.~~10-K. This discussion contains ~~forward‑looking~~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. Effective August 7, 2017, we changed our legal name to Humanigen, Inc.

During February 2018, we completed the financial restructuring transactions announced in December 2017 and furthered our transformation into a clinical-stage biopharmaceutical company.

During 2019, we completed our transformation into a clinical-stage biopharmaceutical company developing our clinical stage immuno-oncology and immunology portfolio of monoclonal antibodies. We are ~~a biopharmaceutical company focused~~focusing our efforts on ~~developing medicines for patients with neglected and rare diseases, with an ancillary focus on pediatric conditions, and on executing our Responsible Pricing Model in~~ the ~~commercialization~~development of our ~~products that may be approved. Our~~ lead product candidate, lenzilumab, through our collaboration with Kite to study the effect of lenzilumab on the safety of Yescarta, including CRS, with a secondary endpoint of increased efficacy. We believe this study, ZUMA-19, may be the basis for registration of lenzilumab given the similar trial design to Yescarta’s and Kymriah’s registration trials.

We are also exploring the effectiveness of our GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage including the prevention and/or treatment of GvHD while preserving GvL benefits in patients undergoing allogeneic HSCT. In this context, GvHD is ~~benznidazole~~akin to CRS, or cytokine storm and we believe the mechanism to be driven by GM-CSF levels. The recent coronavirus pandemic which is due to the SARS-CoV-2 virus and leads to the condition referred to as COVID-19, is characterized in the later and sometimes fatal stages by lung dysfunction which is triggered by CRS, or cytokine storm. Recent publications point to GM-CSF being a key cytokine, with elevated levels especially in those patients who transition to the Intensive Care Unit (ICU). We have established several partnerships with leading institutions to advance our innovative pipeline and are in active discussion with several government and commercial organizations.

During 2019, we have also advanced our preclinical next-generation cell and gene therapies for the treatment of ~~Chagas disease,~~cancers via our novel GM-CSF neutralization and gene-knockout platforms.

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The Company believes these new data suggest that GM-CSF may be a critical triggering cytokine in the increased mortality in the current coronavirus pandemic. A potential program in COVID-19 to prevent cytokine storm is complementary to the programs in CAR-T and GvHD, which are also focused on preventing or reducing cytokine storm in those disease states.

As a leader in GM-CSF pathway science, we believe that we have the ability to transform CAR-T therapy and a broad range of other T-cell engaging therapies, including both autologous and allogeneic cell transplantation. There is a direct correlation between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities (referred to as the efficacy/toxicity linkage).We believe that our GM-CSF neutralization and gene-editing CAR-T platform technologies have the potential to reduce the inflammatory cascade associated with serious and potentially life-threatening CAR-T therapy-related side-effects while preserving and potentially improving the efficacy of the CAR-T therapy itself, thereby breaking the efficacy/toxicity linkage. Clinical correlative analysis and preclinicalin vivoevidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects, including CRS and NT. GM-CSF has also been linked to the suppressive myeloid cell axis through recruitment of MDSCs that reduce CAR-T cell expansion and hamper CAR-T cell efficacy. Our strategy is to continue to pioneer the use of GM-CSF neutralization and GM-CSF gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated with CAR-T therapy.

We believe that our GM-CSF pathway science, assets and expertise create two technology platforms to assist in the development of next-generation CAR-T therapies. Lenzilumab has the potential to be used in combination with any FDA-approved or development stage T-cell therapy, including CAR-T therapy, as well as in combination with other cell therapies such as HSCT to make these treatments safer and more effective.

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We are also creating next-generation combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies to control toxicity. This includes developing ~~one~~our own portfolio of ~~our~~ proprietary ~~monoclonal antibodies,~~first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic disorders.

Lenzilumab

Lenzilumab neutralizes human GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy (CRS and neurotoxicity) and improve upon the efficacy of CAR-T therapy. This same mechanism we believe to be the causation of CRS/cytokine storm which precedes the decline in lung function seen with severe cases of COVID-19. Preclinical data generated in collaboration with the Mayo Clinic, which was published in ‘blood®’, a premier journal in hematology, indicates that the use of lenzilumab ~~(formerly known as KB003),~~in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies.

There are currently no products approved by the FDA for the prevention of CRS/cytokine storm associated with COVID-19. Also there are currently no products approved by the FDA for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment of ~~chronic myelomonocytic leukemia,~~CAR-T therapy related NT. We continue to advance the development of lenzilumab in combination with CAR-T therapy through a non-exclusive clinical collaboration with Kite, pursuant to which we are conducting a multi-center Phase Ib/II study (the “Study”) of lenzilumab with Kite’s Yescarta in patients with relapsed or ~~CMML,~~refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). The Study has been designated the nomenclature ‘ZUMA-19’, consistent with the other Kite CAR-T studies, which also receive a ‘ZUMA’ designation. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety and efficacy of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved by the FDA and is the CAR-T therapy market leader, and our collaboration with Kite is currently the only clinical collaboration which is now enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. We also plan to measure other potentially beneficial effects on efficacy and healthcare resource utilization. In addition, lenzilumab’s success in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers by making the CAR-T therapy capable of being administered, and follow-up care subsequently monitored and managed, potentially on an out-patient basis in certain patients and circumstances. In turn, we believe that delivering such provider and payer benefits might accelerate the use of the CAR-T therapy itself, and thereby permit us to generate further revenues from sales of lenzilumab.

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In July 2019, we entered into the Zurich Agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent or treat GvHD, thereby expanding our development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for patients with hematological cancers. There are currently no FDA-approved agents for the prevention of GvHD, nor treatment of GvHD in patients identified as high risk by certain biomarkers. We believe that GM-CSF neutralization with lenzilumab has the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial GvL effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Several recent papers have been published which support this approach, including in Science Translational Medicine in November 2018 and in ‘blood advances’ in October 2019.

Given our interest in developing lenzilumab to prevent CRS/cytokine storm in COVID-19 as well as in 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), for the potential treatment of serious pulmonary conditions and certain rare solid and hematologic cancers and ~~KB001-A which was being developed for the treatment of cystic fibrosis. With a focus on neglected, rare and~~other orphan ~~diseases,~~conditions such as GvHD, we believe that we have the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, ~~accelerated approval,~~ priority review and ~~priority review vouchers, or PRVs, where available,~~accelerated approval.

GM-CSF Gene Knockout

We are advancing our GM-CSF knockout gene-editing CAR-T platform through the Mayo Agreement that ~~provide for~~we entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain ~~periods~~technologies that we believe may be used to create CAR-T cells lackingGM-CSFexpression through various gene-editing tools, including CRISPR-Cas9. We believe that our GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that improve the efficacy and safety profile of ~~exclusivity, expedited review and/or other benefits.~~

~~Upon regulatory approval~~CAR-T therapy. In addition, we have and continue to file intellectual property encompassing a broad range of ~~any~~gene-editing approaches related to GM-CSF knockout.

Preclinical data indicates that GM-CSF gene knockout CAR-T cells show improved overall survival compared to wild-type CAR-T cells in addition to the expected benefits of reduced serious side-effects associated with CAR-T therapy. We are establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, we may be able to increase the proportion of fitter T-cells produced during expansion, increase their proliferative potential, and inhibit activation-induced cell death, thereby improving the cancer killing activity of our ~~products, we intend to apply our Responsible Pricing Model, which focuses on affordability for patients~~engineered CAR-T cells thereby making them more effective and ~~payers, transparency for all stakeholders, and delivery of a reasonable return~~safer in ~~recognition of the risks we are taking in our development efforts.~~

~~Benznidazole is an oral small molecule antiprotozoal for~~ the treatment of ~~Chagas disease, which is~~cancers. Initial data were published in an abstract that was presented at the December 2019 ASH meeting and also ~~known~~won an ASH Abstract Achievement award.

We plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products. In addition, we anticipate that our GM-CSF knockout gene-editing CAR-T platform may be a future backbone for controlling the serious side-effects that hamper CAR-T therapy that lead to serious and sometimes fatal outcomes for patients as ~~American trypanosomiasis. Benznidazole has undergone numerous clinical trials~~a result of the CAR-T therapy itself.

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EphA3-CAR: Targeting Tumor Stroma and studies that show efficacy against Chagas disease and we believe is the current preferred treatment for Chagas disease in the countries where it is approved. No treatments for Chagas disease are approved by the United States Food and Drug Administration, or FDA for use in the United States. On June 30, 2016, we acquired certain worldwide rights relatingTumor Vasculature

We have begun to ~~benznidazole for human use from Savant Neglected Diseases, LLC, or Savant, and we are focused~~generate our own pipeline of CAR-T therapies including an EphA3-CAR-T based on the ~~development necessary~~ifabotuzumab v-region and backbone. Ifabotuzumab is a Humaneered anti-EphA3 monoclonal antibody. Ifabotuzumab has the potential to ~~seek~~kill tumor cells by targeting tumor stroma that protects them and ~~obtain FDA approval~~the vasculature that feeds them. This unique combination of ~~benznidazole. We believe benznidazole~~activities as a ~~treatment for Chagas disease could qualify for priority review and potentially other FDA regulatory incentives, and~~backbone of a CAR-T therapy may provide the potential to ~~receive~~generate durable responses in a ~~PRV if FDA approves the drug for marketing.~~

~~Lenzilumab is a recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine for the growth~~range of ~~certain hematologic malignancies and~~ solid tumors by targeting the tissues that surround, protect, and nourish a growing cancer.

By developing an EphA3-CAR-T using ifabotuzumab as the backbone, we may ~~be implicated in other serious conditions. Consistent with our strategic focus on neglected~~have the ability to target the tumor, tumor stroma, and ~~rare diseases, in July 2016, we initiated dosing~~tumor vasculature in a ~~Phase 1~~novel manner. We are collaborating with the Mayo Clinic and plan to move to clinical ~~trial in patients~~testing with ~~CMML to identify the maximum tolerated dose, or MTD, or recommended Phase 2 dose~~an anti-EphA3 construct for a range of ~~lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity.~~cancer types after completing IND-enabling work. We ~~may assess interim~~have published initial data from ~~the lenzilumab CMML Phase I study to determine the feasibility of rapidly commencing a~~our Phase I study in ~~JMML patients, or explore progressing directly~~an abstract that was accepted for the November 2019 SNO meeting, showing data in glioblastoma multiforme, a form of brain cancer.

EMR1-CAR: Targeting Eosinophils

Our EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets EMR1. Our EMR1-CAR-T based on the HGEN005 backbone is another approach in our growing platform of CAR-T therapies. We believe that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.

In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced killing of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. We have engaged with NIH to discuss expanding the ~~JMML Phase I study. JMML is associated~~initial work they have conducted utilizing HGEN005 and discussions are underway with a ~~very high~~leading center in the U.S. to perform the IND-enabling testing in eosinophilic leukemia, an orphan condition with significant unmet ~~medical~~ need, ~~and there are no FDA-approved therapies.~~

~~Ifabotuzumab is an anti-EphA3 mAb that has the potential to offer a novel approach to treating serious pulmonary conditions~~ as well as solid tumors and hematologic malignancies. 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. We are evaluating partnering opportunities for ifabotuzumab.

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~~We also have an additional drug candidate, KB001-A, a recombinant, PEGylated, anti‑Pseudomonas PcrV high‑affinity Fab antibody~~with several other potential partners, although we cannot assure you that we ~~are no longer developing, but~~will reach any agreements for ~~which we are seeking strategic options including sale, license or partnerships.~~

~~Lenzilumab, ifabotuzumab~~these next steps.

Operating Losses and KB001-A 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 also involves identifying, acquiring, developing and supporting the commercialization of additional treatments for neglected and rare diseases. We believe the treatment of neglected and rare diseases represents an opportunity to enter underserved patient populations. We also believe our focus on neglected and rare diseases provides us the opportunity to benefit from various regulatory incentives referenced above. The potential opportunities afforded by these regulatory programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and to apply our Responsible Pricing Model for any of our approved products.

Our company has undergone a significant transformation in the last year. 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 Part I, Item 1, “Business—Bankruptcy” and Note 2 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Liquidity

We have incurred significant losses and had an accumulated deficit of ~~$240.6~~$284.9 million as of December 31, ~~2016.~~2019. 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.

We will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for ~~benznidazole or other~~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.

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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~~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.

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T~~he consolidated financial statements~~

The Consolidated Financial Statements for the year ended December 31, ~~2016~~2019 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.

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 KBIOQ symbol. 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 the Company’s common stock on the over-the-counter market reverted back to KBIO.

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,~~Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the ~~United States,~~U.S., or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the ~~consolidated financial statements~~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~~value-based measurement of ~~stock‑based~~stock-based compensation ~~accruals~~ and ~~warrant valuations.~~accruals. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the ~~consolidated financial statements.~~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~~

Until December 31, 2018, we qualified as an emerging growth company (“EGC”) 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.

A registrant with EGC status loses its eligibility as an EGC five years after its common equity initial public offering, December 31, 2018 for our company. Accordingly, we are required to adopt new accounting standards on the same timeline as other public companies effective January 1, 2018. See Note 3 to the Consolidated Financial Statements for a description of the impact of new accounting standards adopted in 2019.

While our significant accounting policies are described in more detail in Note 3 to our ~~consolidated financial statements~~Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our ~~consolidated financial statements,~~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.

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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~~

Stock-Based Compensation

Our ~~stock‑based~~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~~Black-Scholes option pricing model and is recognized as expense over the requisite service period. The ~~Black‑Scholes~~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~~Black-Scholes option pricing model changes significantly, ~~stock‑based~~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~~pre-vesting termination behavior of employees. To the extent our actual forfeiture rate is different from our estimate, ~~stock‑based~~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~~We had no revenues for the years ending December 31, 2018 and 2019. Commencing January 1, 2018, we recognize 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 (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or ~~ASU, 2009‑13, Multiple‑Deliverable Revenue Arrangements,~~services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and ~~ASU 2010‑17, Revenue Recognition—Milestone Method, each of which we adopted on a prospective basis on January 1, 2011.~~

We(v) recognize revenue when ~~persuasive evidence~~(or as) each performance obligation is satisfied.

Revenue under technology licenses and collaborative agreements typically consists of ~~an arrangement exists, transfer of technology has been completed, services have been performed~~ nonrefundable and/or ~~products have been delivered,~~guaranteed license fees, collaborative research funding, and various milestone and future product royalty or profit-sharing payments. These agreements are generally referred to as “multiple element arrangements”.

We apply the ~~fee is fixed and determinable, and collection is reasonably assured.~~

~~For~~accounting standard on revenue recognition for multiple element ~~arrangements, we evaluate whether~~arrangements. The fair value of deliverables under the ~~components~~arrangement may be derived using a best estimate of ~~each~~selling price if vendor specific objective evidence and third-party evidence is not available. Deliverables under the arrangement ~~are~~will be separate units of accounting if a delivered item has value to the customer on a standalone basis and if the arrangement includes a general right of return for the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control.

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We recognize upfront license payments as revenue upon delivery of the license only if the license has standalone value from any undelivered performance obligations and that value can be determined. The undelivered performance obligations typically include manufacturing or development services or research and/or steering committee services. If the fair value of the undelivered performance obligations can be determined, then these obligations would be accounted for separately. If the license is not considered to have standalone value, then the license and other undelivered performance obligations would be accounted for as ~~separate units~~a single unit of accounting. In this case, the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed or deferred indefinitely until the undelivered performance obligation is determined.

Whenever we determine that an arrangement should be accounted for as a single unit of accounting, ~~based on certain criteria. Upfront~~we determine the period over which the performance obligations will be performed, and revenue will be recognized. Revenue is recognized using a proportional performance or straight-line method. The proportional performance method is used when the level of effort required to complete performance obligations under an arrangement can be reasonably estimated. The amount of revenue recognized under the proportional performance method is determined by multiplying the total payments ~~for licensing our intellectual property~~under the contract, excluding royalties and payments contingent upon achievement of milestones, by the ratio of the level of effort performed to date ~~have~~to the estimated total level of effort required to complete performance obligations under the arrangement. If we cannot reasonably estimate the level of effort to complete performance obligations under an arrangement, we recognize revenue under the arrangement on a straight-line basis over the period we are expected to complete our performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement.

Our collaboration agreements typically entitle us to additional payments upon the achievement of development, regulatory and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in our revenue calculation. Typically, these milestones are not ~~been separable from~~considered probable at the ~~activity~~inception of ~~providing research~~the collaboration. As such, milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved. If the milestone is achieved during the performance period, then we will only recognize revenue to the extent of the proportional performance achieved at that date, or the proportion of the straight-line basis achieved at that date, and ~~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~~remainder will be recorded as deferred revenue ~~in the balance sheet and are recognized as contract revenue~~to be amortized over the ~~contractual or estimated substantive~~remaining 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.

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~~Substantive, at‑risk milestone payments are recognized as revenue when~~period. If the milestone is achieved after the performance period has completed 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 continuingall performance obligations ~~under the arrangement, upon receipt provided that collection is reasonably assured and other revenue recognition criteria~~ have been ~~satisfied.~~

~~Liabilities Subject to Compromise~~

~~Liabilities subject to compromise is our estimate of known or potential pre-petition claims to be resolved~~delivered, then we will recognize the milestone payment as Revenue 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 itemsits entirety 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 atperiod 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. As of December 31, 2015, we had not incurred or paid significant amounts related to our reorganization.

As of December 31, 2015, we had approximately $5.4 million recorded as Liabilities subject to compromise. In conjunction with our exit from bankruptcy, we reclassified remaining Liabilities subject to compromise totaling approximately $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. Remaining amounts will be paid based on terms of the Plan.

~~For the year ended December 31, 2016, Reorganization items, net consisted of the following charges:~~

Year ended
(in thousands) December 31, 2016
Legal fees $ 4,870
Professional fees 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 $ 8,188

milestone was achieved.

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~~Consolidated Financial Statements included elsewhere in this Annual Report on Form ~~10‑K.~~

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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, ~~2016,~~2019, we had an accumulated deficit of ~~$240.6~~$284.9 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.

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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.

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~~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, ~~2016~~2019 and ~~2015:~~

Year Ended December 31,
(in thousands) 2016 2015
External Costs
   KB001 $ 22 $ 1,176
   Lenzilumab 304 340
   Ifabotuzumab 214 5,199
   Benznidazole 5,543 -
Internal costs 4,366 10,006
Total research and development $ 10,449 $ 16,721

2018 ($000’s):

	Year Ended December 31,
(in thousands)	2019		2018
External Costs
Lenzilumab	$	2,046	$	1,662
Ifabotuzumab		104		105
Internal costs		466		452
Total research and development	$	2,616	$	2,219

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 working to obtain FDA approval for benznidazole for the treatment of Chagas disease and in continuing the Phase 1clinical trial of lenzilumab in patients with CMML. Historically, we have also incurred significant costs related to KB001-A, our ~~former respiratory program~~development efforts for lenzilumab to reduce the serious and ~~the development of ifabotuzumab.~~potentially life-threatening side-effects associated with CAR-T therapy and potentially improve efficacy. Depending on the results of our development efforts ~~for lenzilumab in CMML~~ we expect to incur substantial costs to prepare for potential clinical trials and activities for ~~lenzilumab in JMML.~~

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lenzilumab.

General and Administrative Expenses

General and administrative expenses consist principally of ~~personnel‑related~~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, ~~2016~~2019 and ~~2015,~~2018, general and administrative expenses were ~~$8.4~~$6.3 million and ~~$14.3~~$9.1 million, respectively.

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Comparison of Years Ended December 31, ~~2016~~2019 and ~~2015~~

Year Ended December 31, Increase/ (Decrease)
(in thousands) 2016 2015 in thousands %
Operating expenses:
Research and development $ 10,449 $ 16,721 $ (6,272 ) (38 )
General and administrative 8,376 14,296 (5,920 ) (41 )
Litigation accrual expense - 3,335 (3,335 ) (100 )
Loss from operations (18,825 ) (34,352 ) (15,527 ) (45 )
Interest expense (131 ) (842 ) (711 ) (84 )
Interest income - 29 (29 ) (100 )
Other income (expense), net 125 (213 ) (338 ) (159 )
Reorganization items, net (8,188 ) - 8,188 100
Net loss $ (27,019 ) $ (35,378 ) $ (8,359 ) (24 )

2018 ($000’s)

	Year Ended December 31,						Increase/ (Decrease)
(in thousands)	2019			2018			Amount			%
Operating expenses:
Research and development	$	2,616		$	2,219		$	397			18
General and administrative		6,328			9,112			(2,784	)		(31	)
Loss from operations		(8,944	)		(11,331	)		(2,387	)		(21	)
Interest expense		(1,349	)		(852	)		497			58
Other income (expense), net		(1	)		324			325			100
Reorganization items, net		-			(145	)	$	(145	)		(100	)
Net loss	$	(10,294	)	$	(12,004	)	$	(1,710	)		(14	)

Research and development expenses ~~decreased $6.3~~increased $0.4 million in ~~2016~~2019 from ~~$16.7~~$2.2 million for the year ended December 31, ~~2015~~2018 to ~~$10.4~~$2.6 million for the year ended December 31, ~~2016.~~2019. The ~~decrease~~increase is primarily ~~attributable~~due to the ~~termination~~increase in spending in preparation for the phase Ib/II clinical trial of ~~our respiratory development program for KB001-A, the reduction~~Lenzilumab with Kite’s Yescarta in ~~our development work with ifabotuzumab and reductions in our research and development personnel in 2015, partially offset by increased spending for benznidazole development for Chagas disease.~~CAR-T therapy. We expect our research and development expenses will increase substantially in ~~2017~~2020 compared to ~~2016, primarily~~2019, due to the ~~development~~commencement of ~~benznidazole for Chagas disease.~~

enrollment in the trial.

General and administrative expenses decreased ~~$5.9~~$2.8 million in ~~2016~~2019 from ~~$14.3~~$9.1 million for the year ended December 31, ~~2015~~2018 to ~~$8.4~~$6.3 million for the year ended December 31, ~~2016.~~2019. The decrease in general and administrative expenses is primarily attributable to a $2.7 million decrease in stock-based compensation expense related to the ~~costs incurred~~issuance of options to management, consultants and board members subsequent to the completion of the Restructuring Transactions in ~~2015 from the reduction~~2018 without such issuances in ~~personnel and related severance and restructuring costs and stock based compensation in connection with a December 2015 warrant issuance, incurred in 2015 which did not recur in 2016.~~2019. We expect our general and administrative expenses to ~~continue to decrease~~increase somewhat in ~~2017~~2020 as compared to ~~2016 levels.~~

Litigation accrual expense decreased $3.3 million in 2016, from $3.3 million for the year ended December 31, 2015 to zero for the year ended December 31, 2016. The litigation accrual expense recorded in 2015 related to the accrual for the settlement of both the PIPE and class action lawsuits. No such expense was incurred in 2016.

~~Reorganization items, net increased $8.2 million in 2016, from zero for the year ended December 31, 2015 to $8.2 million for the year ended December 31, 2016~~2019 due to the ~~amounts incurred related to~~expected addition of positions in the ~~Plan, including legal fees~~finance and accounting area with the objective of ~~$4.9 million, $1.2 million in other professional fees, $0.7 million related to~~improving internal controls and eliminating the ~~fair value~~material weakness that exists as 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,~~December 31, 2019.

Interest expense increased $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.~~

~~Interest expense of~~from $0.8 million recognized for the year ended December 31, ~~2015 was~~2018 to $1.3 million for the year ended December 31, 2019. Interest expense for the year ended December 31, 2019 primarily consisted of $0.2 million for interest and amortization of debt discount related to the ~~Loan and Security Agreement with MidCap Financial SBIC LP that was~~Advance Notes, entered into byin June, July and August 2018, $0.8 million for interest and amortization of debt discount related to the ~~Company~~2018 Convertible Notes entered into in September ~~2012. The loan was paid off~~2018, $0.1 million in interest and amortization of debt discount related to the ~~fourth quarter of 2015.~~2019 Convertible Notes entered into in April 2019, $0.1 million in interest related to the 2019 Bridge Notes entered into in June and November 2019 and $0.1 million in interest related to the Notes payable to vendors related to our 2016 bankruptcy filing. Interest expense of ~~$131,000~~$0.9 million recognized for the year ended December 31, ~~2016~~2018 is comprised of $46,000 related to the debtor-in-possession financing entered into on April 1, 2016, $61,000 related to the promissory notes issued to certain vendors in accordance with the Plan and $24,000 related to$0.4 million for interest and loan issuance costs related to the ~~December~~ Term ~~Loan~~Loans (as defined below).

~~Other income (expense)~~, $0.2 million for interest and amortization of debt discount related to the Advance Notes, $0.2 million for interest and amortization of debt discount related to the 2018 Convertible Notes and $0.1 million for interest related to the Notes payable to vendors related to our 2016 bankruptcy filing.

Reorganization items, net for the year ended December 31, ~~2016~~2018 primarily consisted of ~~foreign currency gains related to~~legal fees. There were no Reorganization items, net incurred for the ~~payment of bankruptcy liabilities in foreign currencies.~~ year ended December 31, 2019.

Other income, ~~(expense),~~ net for the year ended December 31, ~~2015~~2018 primarily consisted of ~~foreign currency gains and losses and realized gains and losses on~~legal fees assumed by Madison Joint Venture LLC related to their positive election related to the ~~sale of investments.~~assets related to benznidazole, our former drug candidate (see Note 9).

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Income Taxes

As of December 31, ~~2016,~~2019, we had net operating loss carryforwards of approximately ~~$146.8~~$166.2 million to offset future federal income taxes which expire in the years 2021 through ~~2036,~~2037, and approximately ~~$137.0~~$172.1 million that may offset future state income taxes which expire in the years ~~2017~~2028 through ~~2036.~~2039. We also have federal net operating loss carryforwards generated in 2018 and 2019 of $15.4 million that have no expiration date as a result of the tax law changes signed into law on December 22, 2017. Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they are utilized. At December 31, ~~2016,~~2019, we recorded a 100% valuation allowance against our deferred tax assets of approximately ~~$64.2~~$57.4 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.~~prior collaboration agreements. At December 31, ~~2016,~~2019, we had cash and cash equivalents of ~~$2.9~~$0.1 million. As of March ~~7, 2017,~~13, 2020, we had cash and cash equivalents of ~~$191,000.~~

$268,000.

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented ~~below:~~

Year Ended December 31,
(In thousands) 2016 2015

Net cash (used in) provided by operating activities
   Operating activities $ (20,961 ) $ (29,063 )
   Investing activities 103 30,097
   Financing activities 15,333 (3,526 )
Net decrease in cash and cash equivalents $ (5,525 ) $ (2,492 )

below ($000’s):

	Twelve Months Ended December 31,
(In thousands)	2019			2018
Net cash (used in) provided by:
Operating activities	$	(4,001	)	$	(6,209	)
Financing activities		3,330			6,256
Net increase (decrease) in cash and cash equivalents	$	(671	)	$	47

Net cash used in operating activities was ~~$21.0~~$4.0 million and ~~$29.1~~$6.2 million for the years ended December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. ~~The primary use of cash in 2015 was to fund our operations related to the development of our product candidates, whereas the primary use of cash in 2016 was to fund our operations related to the Plan.~~ Cash used in operating activities in 2018 primarily related to our net loss of ~~$21.0~~$12.0 million, adjusted for non-cash items, such as $4.8 million in stock-based compensation, $0.8 million in non-cash interest expense and other non-cash items of $0.2 million. Cash used in operating activities in 2019 primarily related to our net loss of $10.3 million, adjusted for non-cash items, such as $2.0 million in stock-based compensation, $1.3 million in non-cash interest expense, changes in operating assets and liabilities of $2.8 million and other non-cash items of $0.2 million.

Net cash provided by financing activities was $3.3 million for the year ended December 31, ~~2016~~2019. This amount consists primarily ~~related to our net loss~~ of ~~$27.0~~$2.0 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~~received from the issuance of ~~stock to our CEO~~the 2019 Bridge Notes (as defined below) entered into in June and ~~two directors, $0.4~~November 2019, $1.3 million ~~related to~~from the issuance of ~~warrants to Savant~~the 2019 Notes (as defined below) entered into in ~~connection with~~April 2019, $0.3 million received from the ~~acquisition~~exercise of ~~certain rights related to the benznidazole license,~~stock options, $0.2 million ~~related~~received from the issuance of common stock under the equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”), offset by $0.5 million in payments made against the Notes payable to a net gain on lease termination, other non-cash items of $1.2 million and net cash inflows of $1.6 million related to changes in operating assets and liabilities, primarily Liabilities subject to compromise, Accounts payable and Accrued expenses.

vendors.

Net cash ~~used in operating~~provided by financing activities ~~of $29.1~~was $6.3 million for the year ended December 31, ~~2015~~2018. This amount consists primarily ~~related to our net loss~~ of ~~$35.4~~$1.5 million ~~adjusted for non-cash items such as accrual~~received from Cheval Holdings, Ltd. (“Cheval”), an affiliate of ~~litigation settlement expense of $2.8 million,~~Black Horse Capital, L.P., the issuance of warrants in exchange for services of $2.5 million, $2.0 million of stock-based compensation expense, $1.0 million relating to the fair value of stock options that were modified due to executive retirement and restructuring activities, depreciation and amortization of $0.2 million and non-cash expense related to interest and the financing derivative of $0.4 million, offset by net cash outflows of $2.6 million related to changes in operating assets and liabilities, primarily Accounts payable and Accrued expenses.

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~~Net cash provided by investing activities was $0.1 million for the year ended December 31, 2016, primarily~~Company’s controlling stockholder (“BHC”), related to the ~~reduction in restricted cash related to the termination of our office lease in South San Francisco. Net cash provided by investing activities was $30.1~~Restructuring Transactions (see “Restructuring Transactions” below), $1.1 million ~~for the year ended December 31, 2015, primarily related to proceeds from maturities of marketable securities of $33.4 million, partially offset by purchases of investments of $3.7 million.~~

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 December Term Loan (as defined below). Net cash used in financing activities was $3.5 million for the year ended December 31, 2015 related to an increase in restricted cash of $8.3 million associated with notes payable, $3.4 million related to payments on our borrowings obligations, offset by $8.2 million in proceeds from the issuance of 2,445,557 shares of our common ~~stock.~~stock to accredited investors on March 12, 2018, $0.2 million received from the issuance of 400,000 shares of our common stock to an accredited investor on June 4, 2018, $0.9 million received from the issuance of the Advance Notes in June, July and August 2018 and $2.5 million received for the issuance of the Notes in September 2018.

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Restructuring Transactions

In ~~connection with our emergence from bankruptcy,~~December 2016, we ~~closed~~entered into a Credit and Security Agreement (as amended, the “Term Loan Credit Agreement”) providing for 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. We also closed on a~~original $3.0 million ~~term loan in December 2016~~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. ~~However,~~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.

Liquidity

Despite completing the Restructuring Transactions, we will require substantial additional capital to continue as a going concern and to support our business efforts, including pursuing our collaboration with Kite and obtaining regulatory approvals for ~~benznidazole or other~~our product candidates, lenzilumab, ifabotuzumab and HGEN005, clinical trials and other studies, and, if approved, the commercialization of our product candidates. Under the Kite Agreement, the parties have agreed to conduct a multi-center Phase 1/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma. We currently project we will be responsible for an aggregate of approximately $8 million in out-of-pocket costs assuming a total of 72 patients are enrolled in the Study, of which $2 million will be required to be paid to Kite thirty days prior to the initiation of the Study. The amount of capital we will require and the timing of our need for additional capital will depend on many factors, including:

~~the availability of a 505(b)(2) development pathway for the potential approval by FDA of benznidazole;~~

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~~preclinical 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.

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As of December 31, 2019, our current liabilities of approximately $13.6 million exceeded our current assets of approximately $0.5 million. Our cash position as of June 30, 2019 was insufficient for us to satisfy in full at maturity on June 30, 2019 all of the outstanding principal amount and accrued but unpaid interest on unsecured promissory notes we made to certain of our vendors upon our emergence from bankruptcy. We ~~are pursuing efforts~~paid approximately $0.5 million to ~~raise~~extinguish certain of these notes in July and August 2019. As of December 31, 2019, the aggregate principal amount and accrued but unpaid interest on these notes approximates $1.1 million. The outstanding principal amount and accrued but unpaid interest on these notes is currently payable to the respective holders without demand, notice or declaration, and the holders, without demand or notice of any kind, may exercise any and all other rights and remedies available to them under the notes, our bankruptcy plan, at law or in equity. We do not have sufficient funds to repay the principal and accrued but unpaid notes.

Accordingly, we will need to seek additional ~~capital~~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.~~ candidates, to enable us to pursue the Kite collaboration and our other business initiatives. Since 2018, our capital-raising efforts have succeeded in raising a series of short-term bridge loans and convertible debt financings, including short-term bridge financings in June 2019 and November 2019 advanced, as applicable, by our two largest stockholders, which collectively control approximately 88% of our outstanding common stock as of December 31, 2019, and our Chairman and Chief Executive Officer, Dr. Durrant. In December 2019 we also effected an equity line of credit with LPC.

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.

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~~On January 13, 2016, our~~

Our common stock ~~was suspended from the Nasdaq Global Market and began trading~~currently trades on the ~~over-the-counter market~~OTCQB Venture 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.“HGEN”. Although our common stock is listed for quotation on the ~~OTC Pink marketplace operated by OTC Markets Group, Inc.,~~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.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations at December 31, ~~2016~~2019 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
Principal payments on Notes payable to vendors	$	774	$	774	$	-	$	-	$	-
Interest payments on Notes payable to vendors		320		320		-		-		-
Principal payments on 2019 Bridge notes		2,050		2,050		-		-		-
Interest payments on 2019 Bridge notes		63		63		-		-		-
Principal payments on Convertible notes		3,775		2,500		1,275		-		-
Interest payments on Convertible notes		290		224		66		-		-
Total	$	7,272	$	5,931	$	1,341	$	-	$	-

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Payments due by period
(in thousands) Less than 1 to 3 4 to 5 After
Total 1 year years years 5 years
Lease obligations $ 442 $ 240 $ 202 $ — $ —
Principal payments on term loans 3,315 3,315 — — —
Interest payments on term loans 260 260 — — —
Commitment fee payments on term loans 152 152 — — —
Principal payments on notes payable to
vendors
1,213 — 1,213 — —
Interest payments on notes payable to
vendors
364 — 364 — —

Total $ 5,746 $ 3,967 $ 1,779 $ — $ —

Operating Leases

In ~~December 2013,~~April 2016 we entered into a lease agreement for a facility in ~~South San Francisco,~~Brisbane, California. The lease commenced in ~~July 2014 and was set to expire in 2019. We moved into the premises in June 2014 and received a rent holiday so that rental payments did not start until October 2014. Per the terms of the~~April 2016. This lease ~~agreement, we had the option to terminate the lease after 36 months, subject to additional fees and expenses.~~expired on September 30, 2018. In ~~March 2016,~~May 2018, 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~~month-to-month lease agreement for a new facility in ~~Brisbane,~~Burlingame, California. We terminated the lease on November 1, 2019 and entered into a sub-lease agreement for space in the same building in Burlingame, California. The ~~new lease commenced in April 2016 and was to expire~~sub-lease initial term expires 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.

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~~Notes Payable~~

~~The Loan~~2020 and Security Agreement provided for the borrowing of up to $15 million. In June 2013, we entered into an amendment to the Loan and Security Agreement, or the First Amendment, to extend the draw down date for the final tranche of $5.0 million from June 2013 to May 2014, and to require us to draw that amount, which we did in May 2014. In connection with the First Amendment, we issued a warrant to purchase up to 6,193 shares of our common stock with an exercise price of $96.88 per share. The warrant expires on the tenth anniversary of its issuance date and had an initial fair value of $130,000, which represents financing fees, was included in other assets and was being amortized as non‑cash Interest expense over the remaining term of the Loan and Security Agreement using the effective interest method. We estimated the fair value of this warrant using the Black‑Scholes option‑pricing model, based on the inputs for the estimated fair value of the underlying common stock at the valuation measurement date, the contractual term of the warrant, risk‑free interest rates, expected dividend rates and expected volatility of the price of the underlying common stock.

In November 2015, we elected to exercise our prepayment right to repay the loan in full and paid MidCap Financial $6.6 million in full settlement of the remaining outstanding principal balance, accrued interest, an exit fee and a reduced prepayment fee of 1%. The prepayment resulted in a gain on extinguishment of debt of $61,000 in the fourth quarter of 2015. Refer to Note 7 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-Kis renewable for additional ~~details regarding the Loan and Security Agreement.~~

~~2015 Financing Transactions~~

On December 3, 2015, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain investors (the “Purchasers”) relating to a private placement of up to an aggregate 511,596 shares of common stock at a purchase price of $29.32 per share, or up to $15 million (the “Private Placement”). On December 15, 2015 the Securities Purchase Agreement was amended resetting the share price for all Purchasers other than those Purchasers who were directors, officers, employees or consultants of the Company to $24.86. Upon closing of the Private Placement, we issued 326,698 shares of common stock to the Purchasers for an aggregate of $8.2 million.

~~2016 Financing Transactions~~

~~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 $3,000,000 (the “Term Loan”). The Credit Agreement provided that the Term Loan will be madeterms by the Lenders at an original discount equal to $191,000 (the “Upfront Fee”) and required the payment by us to the Lenders of a commitment fee equal to $150,000 (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 $406,000 to BHC in payment of its fees and expenses and $285,000 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 $11,000,000 (the “Exit Financing”) plus an exit financing commitment fee of $770,000 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 $11,000,000, 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 $427,000 to BHC in payment of its fees and expenses and $304,000 to Nomis in payment of its fees and expenses.

mutual agreement.

Notes Payable to Vendors

On June 30, 2016, we issued promissory notes in an aggregate principal amount of approximately ~~$1,212,000~~$1.2 million to certain claimants in accordance with the Plan. The notes are unsecured, bear interest at 10% per annum and ~~are~~became due and payable in full, including principal and accrued interest on June 30, 2019. In July and August, 2019, following the receipt of proceeds from the 2019 Bridge Notes, we used approximately $0.5 million of the proceeds to retire a portion of these notes, including accrued interest. After giving effect to these payments, the aggregate principal amount and accrued but unpaid interest on these notes approximates $1.1 million as of December 31, 2019. As of December 31, ~~2016,~~2019 and December 31, 2018, we have accrued ~~$61,000~~$0.3 million and $0.3 million in interest related to these promissory ~~notes.~~notes, respectively. The outstanding principal amount and accrued but unpaid interest on these notes is currently payable to the respective holders without demand, notice or declaration, and the holders, without demand or notice of any kind, may exercise any and all other rights and remedies available to them under the notes, the Plan, at law or in equity. Currently, we do not have sufficient funds to repay the principal and accrued but unpaid interest on these notes in their entirety.

Advance Notes

In June, July and August 2018, we received an aggregate of $0.9 million of proceeds from advances made to us (the “Advance Notes”) by four different lenders including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the Company’s controlling stockholder; and Ronald Barliant, a director of the Company (collectively the “Advance Note Lenders”). The Advance Notes accrued interest at a rate of 7% per year, compounded annually.

In accordance with their terms, on May 30, 2019, in connection with our announcement of the Kite Agreement, the Advance Note Lenders converted the amounts due under the Advance Notes into common stock at the conversion price of $0.45 per share. We issued a total of 2,179,622 shares of common stock in connection with the conversion.

2018 Convertible Notes

Commencing September 19, 2018, we delivered a series of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans made to us by six different lenders, including an affiliate of BHC, our controlling stockholder. The 2018 Notes bear interest at a rate of 7% per annum and will mature on the earliest of (i) twenty-four months from the date the 2018 Notes were signed, (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including any dissolution or winding up of our company or merger or sale by us of all or substantially all of our assets (in any case, a “Liquidation Event”). We used the proceeds from the 2018 Notes for working capital.

The 2018 Notes are convertible into our equity securities in three different scenarios:

If we sell our equity securities on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to us of at least $10 million (a “Qualified Financing”), the 2018 Notes will be converted into either (i) such equity securities as the noteholder would acquire if the principal and accrued but unpaid interest thereon (the “Conversion Amount”) were invested directly in the financing on the same terms and conditions as given to the financing investors in the Qualified Financing, or (ii) common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes).

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If we sell our equity securities on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to us of less than $10 million (a “Non-Qualified Financing”), the noteholders may convert their remaining 2018 Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in the financing on the same terms and conditions as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes). Our sales of shares pursuant to the Purchase Agreement with Lincoln Park constitute a Non-Qualified Financing, and, thus, holders of the 2018 Notes have the ability to convert in accordance with the terms described above.

2019 Convertible Notes

Commencing on April 23, 2019, we delivered a series of convertible promissory notes (the “2019 Notes” and together with the 2018 Notes, the “Convertible Notes”) evidencing an aggregate of $1.3 million of loans made to us.

The 2019 Notes bear interest at a rate of 7.5% per annum and will mature on the earliest of (i) twenty-four months from the date the 2019 Notes are signed (the “Stated Maturity Date”), (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including any dissolution or winding up of the Company or merger or sale by us of all or substantially all of our assets (in any case, a “Liquidation Event”). We used the proceeds from the 2019 Notes for working capital.

The 2019 Notes are convertible into our equity securities in four different scenarios:

If we sell our equity securities on or before the Stated Maturity Date in any financing transaction that results in gross proceeds to us of at least $10.0 million (a “Qualified Financing”) or we consummate a reverse merger or similar transaction, the 2019 Notes will be converted into either (i) (a) in the case of a Qualified Financing, such equity securities as the noteholder would acquire if the principal and accrued but unpaid interest thereon together with such additional amount of interest as would have been paid on the 2019 Notes if held to the Stated Maturity Date (the “Conversion Amount”) were invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the Qualified Financing or (b) in the case of a reverse merger, common stock at the same price per share paid by the buyer in such transaction (which in a stock for stock transaction, shall be based on the price per share used by the parties for purposes of setting the applicable exchange ration), or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).

If we sell our equity securities on or before the date of repayment of the 2019 Notes in any financing transaction that results in gross proceeds to us of less than $ 10.0 million (a “Non-Qualified Financing”), the noteholders may convert their remaining Convertible Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes). Our sales of shares pursuant to the Purchase Agreement with Lincoln Park constitute a Non-Qualified Financing, and, thus, holders of the 2019 Notes have the ability to convert in accordance with the terms described above.

2019 Bridge Notes

On June 28, 2019, we issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to us by three parties: Cheval, an affiliate of BHC, our controlling stockholder, lent $750,000; Nomis Bay LTD, our second largest stockholder, lent $750,000; and Cameron Durrant, M.D., MBA, our Chief Executive Officer and Chairman of our Board of Directors, lent $200,000. The proceeds from the June Bridge Notes were used to satisfy a portion of the unsecured obligations incurred in connection with our emergence from bankruptcy in 2016 and for working capital and general corporate purposes. Of the $1.7 million in proceeds received, $950,000 was received on June 28, 2019 and was recorded as Advance notes in the Condensed Consolidated Balance Sheet as of June 30, 2019. The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.

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31, 2019 and to waive any prior default up to and including the date of the amendment.On December ~~21, 2016,~~30, 2019, we and the lenders agreed to further extend the maturity date of the June Bridge Notes until March 31, 2020. No other changes to the terms of the June Bridge Notes were made in connection with either extension of the maturity date. The June Bridge Notes may become due and payable at such earlier time as we raise more than $3,000,000 in a bona fide financing transaction or upon a change in control. The June Bridge Notes are secured by liens of substantially all of the Company’s assets.

On November 12, 2019, we issued two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019 Bridge Notes”) evidencing an aggregate of $350,000 of loans made us by two parties: Cheval, an affiliate BHC, our controlling stockholder, lent $250,000; and Cameron Durrant, M.D., MBA, our Chief Executive Officer and Chairman of our Board of Directors, lent $100,000. The proceeds from the November Bridge Notes will be used for working capital and general corporate purposes.

The November Bridge Notes rank on par with the June Bridge Notes, and possess other terms and conditions substantially consistent with those notes. The November Bridge Notes bear interest at a rate of 7.0% per annum and will mature on December 31, 2019. The November Bridge Notes may become due and payable at such earlier time as we raise more than $3,000,000 in a bona fide financing transaction or upon a change in control. The November Bridge Notes also are secured by a lien of substantially all of the Company’s assets.

Upon an event of default, which events include, but are not limited to, (1) our failure to timely pay any monetary obligation under the 2019 Bridge Notes; (2) our failure to pay our debts generally as they become due and (3) our commencing any proceeding relating to the Company under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar laws of any jurisdiction now or hereafter in effect, the interest payable on the 2019 Bridge Notes increases to 10.0% per annum. Further, upon certain events of default, all payments and obligations due and owed under the 2019 Bridge Notes shall immediately become due and payable without demand and without notice to the Company.

Equity Line of Credit

On November 8, 2019, we entered into a ~~Credit~~purchase agreement (the “Purchase Agreement”) and ~~Security Agreement~~a registration rights agreement (the ~~“December Term Loan”~~“Registration Rights Agreement”) with ~~BHCMF, as administrative agent~~Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which we have the right to sell to Lincoln Park up to $20,000,000 in shares of our common stock, subject to certain limitations and ~~lender, BHC, as a lender, Cheval, as a lender and Nomis, as a lender (collectively, the “Lenders”). The December Term Loan provides for a credit facility~~conditions set forth in the ~~original principal amount~~Purchase Agreement.

Under the Purchase Agreement, we have the right, from time to time at our sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 100,000 shares of ~~$3,315,000, provides an original discount equal~~our common stock, with such amounts increasing based on certain threshold prices but not to ~~$265,000 (the “Upfront Fee”) and requires the payment by us~~exceed $750,000 in total proceeds on any purchase date. The purchase price of shares of our common stock pursuant to the Lenders of a commitment fee equal to $153,000 (the “Commitment Fee”). In accordance with the terms of the December Term Loan, we are required to use the proceeds for general working capital, the payment of certain fees and expenses owed to BHCMF and the Lenders and other costs incurred in the ordinary course of business.

~~The outstanding principal balance of the December Term Loan, plus accrued interest and fees, are due~~Purchase Agreement will be based on the ~~earlier~~market prices of ~~acceleration after an event of default under~~our common stock at the ~~agreement, or October 31, 2017. However, to the extent we raise capital through any SEC-registered stock offering, 50%~~time of such offering’s proceeds (net of costs) are required to be used to pay down the December Term Loan. Our obligations under the December Term Loan are secured by a first priority interest in all of our real and personal property, subject only to certain carve outs and permitted liens,purchases as set forth in the ~~agreement.~~

~~For further discussion~~Purchase Agreement. Such sales of our common stock by us, if any, may occur from time to time, at our option, over the 36-month period commencing on December 2, 2019, the date that the terms and conditions of the ~~2015 and 2016 financing transactions, please refer to Notes 2, 7 and 10~~Purchase Agreement were satisfied, including the Company’s filing of a registration statement with the SEC pursuant to the ~~Consolidated Financial Statements~~ ~~included elsewhere~~Registration Rights Agreement that was declared effective by the SEC on December 2, 2019 and the filing of a final prospectus in ~~this Annual Report~~connection therewith dated as of December 2, 2019.

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In addition to regular purchases, as described above, we may also direct Lincoln Park to purchase additional amounts as accelerated purchases if the closing sale price of our common stock is not below certain threshold prices, as set forth in the Purchase Agreement. In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 4.99% of our common stock then outstanding.

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the Purchase Agreement; however, we may not initiate any regular or other sale of shares to Lincoln Park until such event of default is cured.

Actual sales of shares of our common stock to Lincoln Park under the Purchase Agreement will depend on ~~Form 10‑K~~.

a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of our common stock and our determinations as to the appropriate sources of funding for our company and our operations. Upon the execution of the Purchase Agreement, we issued 706,592 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. We did not receive any cash proceeds from the issuance of these shares. As of March 16, 2020, we have sold a total of 700,000 shares of our common stock for proceeds of approximately $250,000.

The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which we sell shares of our common stock to Lincoln Park. We expect that any proceeds received by us from such sales to Lincoln Park will be used for working capital and general corporate purposes.

Contracts

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

~~The Company records~~

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

License with the University of Zurich

On July 19, 2019, we entered into the Zurich Agreement with UZH. Under the Zurich Agreement, we have in-licensed certain technologies that we believe may be used to prevent GvHD through GM-CSF neutralization. The Zurich Agreement required an initial one-time payment of $100,000, which we paid to UZH on July 29, 2019. The Zurich Agreement also requires the payment of annual license maintenance fees, as well as milestones and royalties upon the achievement of certain regulatory and commercialization milestones.

License with the Mayo Foundation for Medical Education and Research

On June 19, 2019, we entered into the Mayo Agreement with the Mayo Foundation. Under the Mayo Agreement, we have in-licensed certain technologies that we believe may be used to create CAR-T cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9. Pursuant to the Mayo Agreement, we were required to pay $200,000 to the Mayo Foundation within six months of the effective date of the Mayo Agreement, or upon completion of a qualified financing, whichever is earlier. We did not pay the initial payment as of the due date and will incur interest on the unpaid balance at the prime rate plus 2%. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones.

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Collaboration Agreement with Kite

On May 30, 2019, we entered into the Kite Agreement. The Kite Agreement provides that we and Kite will split only the out-of-pocket costs actually incurred in conducting the Study, including all third-party expenses incurred in accordance with a mutually agreed budget. We currently project we will be responsible for an aggregate of ~~Contents~~

approximately $8 million in out-of-pocket costs, assuming up to a total of 72 patients are recruited for a multi-center Study. Each party will otherwise be responsible for its own internal costs, including internal personnel costs, incurred in connection with the Study.

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~~

Off-Balance Sheet Arrangements

We currently have no ~~off‑balance~~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-33.~~

F-35.

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 Interim~~who is also acting as our interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, ~~2016.~~2019. The term “disclosure controls and procedures,” as defined in Rules ~~13a‑15(e)~~13a-15(e) and ~~15d‑15(e)~~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 Interim~~who is also acting as our interim Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, and in light of the ~~certain changes~~weaknesses in our internal control over financial reporting described below, our Chief Executive Officer, ~~and Interim~~who is also acting as our interim Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of December 31, ~~2016.~~

2019.

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)~~13a-15(f) and ~~15d‑15(f)~~15d-15(f) under the Exchange Act). ~~Our~~On June 28, 2019, J. Greg Jester, our then Chief Financial Officer, died unexpectedly. Dr. Cameron Durrant, our Chief Executive Officer, is acting, on an interim basis, as the Company’s principal financial and ~~Interim~~accounting officer. Our Chief ~~Financial~~Executive Officer assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2016.~~2019. In making this assessment, our Chief Executive ~~Officer and Interim Chief Financial~~ Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, inInternal Control—Integrated Framework. Based on that assessment and using the COSO criteria, our Chief Executive Officer, ~~and Interim Chief Financial Officer have concluded that,~~who is also acting as ~~of December 31, 2016,~~ our ~~internal control over financial reporting was effective.~~

~~In our 2015 Annual Report on Form 10-K, our Chief Executive Officer and Interim~~interim Chief Financial Officer, concluded that, as of December 31, ~~2015,~~2019, 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.”

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The ineffectiveness of our internal control over financial reporting at December 31, ~~2015,~~2019, was due to ~~the following material weaknesses which each reflect~~ our limited number of accounting and financial reporting personnel and high levels of turnover in our personnel responsible for performing activities related to our internal control over financial reporting~~: (i) an inability to~~ ~~complete our financial statement close process in a timely and accurate manner; (ii)~~ an insufficient degree of segregation of duties amongst our accounting and financial reporting ~~personnel; and (iii) a lack of technical competency in review and approval of financial reporting processes.~~personnel.

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During ~~2016, our management remediated~~2020, we intend to work to remediate the material weaknesses identified above, ~~by, among other things, (i) adding highly qualified~~which could include the addition of accounting and financial reporting personnel and/or the engagement of accounting and personnel consultants ~~(ii) modifying~~on a limited-time basis until we add a sufficient number of personnel. However, our ~~internal processes~~current financial position could make it difficult for us to ~~ensure a proper segregation of duties and oversight, and (iii) establishing a formal disclosure committee comprised of managers from all functional areas of~~add the ~~Company who are now closely engaged in our quarterly and annual reporting and filing process.~~

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.

necessary resources.

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~~year ended December 31, ~~2016,~~2019, 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~~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~~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~~cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B. OTHER INFORMATION

On March 13, 2020 (the “Issuance Date”), we delivered a convertible redeemable promissory note (the “Note”) evidencing a loan of $330,000 made to us.

The Note bears interest at a rate of 7.0% per annum and will mature on March 13, 2021. The Note contains an original issue discount of $33,000. We plan to use the proceeds from the Note for working capital.

Beginning on the 6 month anniversary of the Issuance Date, unless earlier redeemed by us, the holder is entitled, at its option, to convert all or any amount of the principal amount of the Note then outstanding, together with the accrued and unpaid interest on such portion of the Note proposed to be converted, into shares of our common stock (the "Common Stock") at a conversion price equal to $.25 per share (the “Fixed Price”). After the 9 month anniversary of the Issuance Date, the conversion price shall be equal to the lower of (i) the Fixed Price or (ii) 68% of the lowest of either the trading price or closing bid of the Common Stock, for the ten prior trading days including the day upon which a Notice of Conversion is received (the “Variable Conversion Price”).

In the event our Common Stock has a closing price equal to $0.30 or less for 5 consecutive days prior to the 9 month anniversary of the Issuance Date, then, beginning on the 6 month anniversary of the Issuance Date, the holder may elect in its Notice of Conversion to use the lower of the Fixed Price or the Variable Conversion Price set forth above.

Commencing on the 6 month anniversary of the Issuance Date, we will have the right, but not the obligation, to elect to make fixed monthly amortizing payments to the holder in the amount of $25,000. If we elect to make such payments, the holder shall not be entitled to convert all or any amount of the principal amount of the Note then outstanding if and for so long as we are current in respect of the amortizing payments.

The Note may be redeemed by us at any time before the 270^th day following its issuance, at a redemption price equal to the principal and accrued but unpaid interest on the Note to the date of redemption, plus a premium that increases on day 61 and day 121 from the issuance date.

The Note contains customary default and remedies provisions for convertible note financings of this nature.

The Note was issued in reliance upon the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended.

Table of Contents

~~None.~~

~~Table of Contents~~

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

and Executive Officers

The following table sets forth the names, ages and current positions of members of ~~the~~our Board of Directors, or the Board ~~of KaloBios Pharmaceuticals, 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.

Director
Name Age Principal Occupation Since
Cameron Durrant, M.D., MBA, 56 Chairman and Chief Executive Officer, KaloBios Pharmaceuticals, Inc. 2016
Ronald Barliant, JD 71 Of Counsel, Goldberg Kohn, Ltd. 2016
Dale Chappell, M.D., MBA 46 Managing Member, Black Horse Capital Management LLC 2016
Timothy Morris, CPA 55 Chief Financial Officer, AcelRx Pharmaceuticals, Inc. 2016
Ezra Friedberg 47 General Partner, Multiplier Capital 2016

Name	Age	Principal Occupation	Director Since
Cameron Durrant, M.D., MBA	59	Chairman, Chief Executive Officer and Interim Chief Financial Officer, Humanigen, Inc.	2016
Ronald Barliant, JD	74	Of Counsel, Goldberg Kohn, Ltd.	2016
Timothy Morris, CPA	58	Chief Financial Officer, Iovance Biotherapeutics, Inc.	2016
Rainer Boehm, M.D., MBA	59	Former Chief Commercial and Medical Officer and interm Chief Executive Officer, Novartis Pharmaceuticals	2018
Robert Savage, MBA	66	Former Worldwide Chairman, Pharmaceuticals Group, Member of the Executive Committee and Company Officer, J&J Pharmaceuticals; President & CEO, Strategic Imagery, LLC	2018
Cheryl Buxton	59	Vice Chairman, Global Sector Leader, Pharmaceuticals, Korn Ferry International	2019

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. In addition, Dr. Durrant has served as our Interim Chief Financial Officer since July 1, 2019. 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.2014 until its acquisition by Akorn. 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~~was a director of Immune Pharmaceuticals Inc. ~~since~~from July 2014 to September 2018 and serves on the boards of directors of ~~several~~two privately held healthcare companies. Dr. Durrant earned his medical degree from the Welsh National School of Medicine, Cardiff, UK, his DRCOG from the Royal College of Obstetricians and Gynecologists, London, UK, his MRCGP from the Royal College of General Practitioners, London, UK, ~~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.

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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 and 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.~~matters.

~~Dale Chappell, M.D., MBA, has served as a member of our Board since June 2016~~. Dale Chappell is the managing member of Black Horse Capital Management LLC, a private investment manager that specializes in biopharmaceuticals with a particular focus on distressed and turn-around situations, a position he has held since 2002. Dr. Chappell has served as CEO, President and CFO of L’Isola US Holdings Inc., a ~~private investment company with holdings in the hospitality industry~~, since April 2015 and also serves on the boards of directors of several private companies. Prior to his current position, Dr. Chappell was an associate with Chilton Investment Company, covering healthcare. Previously, Dr. Chappell was an analyst at W.P. Carey & Company, and before moving into the business sector, he was a Howard Hughes Medical Institute fellow at the National Cancer Institute where he studied tumor immunology. Dr. Chappell received his MD from Dartmouth Medical School and his MBA from Harvard Business School. Dr. Chappell brings to the Board his extensive experience in dealing with companies facing challenging situations in the biopharmaceuticals industry, as well as the perspective of a significant shareholder in the Company.

~~Table of Contents~~

Timothy Morris, CPAhas served as a member of our Board since June 2016.Mr. Morris has served as the Chief Financial Officer of ~~AcelRx Pharmaceuticals,~~Iovance Biotherapeutics, Inc., a biopharmaceutical company, since August 2017. From March ~~2014. In April 2015, he also assumed the role of~~2014 to June 2017 Mr. Morris served as Chief Financial Officer and Head of Business Development ~~for AcelRx.~~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. From September 2001 to November 2004, Mr. Morris was CFO, SVP Finance, Manufacturing and Administration for Questcor Pharmaceuticals, Inc., a specialty pharmaceutical company. He was a member of the Office of the President at Questcor from August 2004 to November 2004. Mr. Morris served as a non-executive director of PAION Inc., the US subsidiary of PAION AG, a publically traded company based in Germany. Mr. Morris received his BS in Business with an emphasis in Accounting from California State University, Chico, and is a Certified Public ~~Accountant.~~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.

~~Ezra Friedberg~~ Rainer Boehm, M.D., MBA has served as a member of our Board since ~~June 2016~~February 2018. Dr.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. Dr. 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.~~. Since 2012, Mr. Friedberg~~Dr.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 and the board of directors for BioCopy, a company working in the area of microarrays; 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.Dr. 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 45 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 and; Medworth Acquisition Corporation, from 2013 – 2015. 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 ~~partner~~therapeutics and 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 ~~Multiplier Capital,~~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. Mr. Savage brings to the Board valuable operational experience with public companies in the biopharmaceutical industry, particularly in the areas of commercialization and corporate development, as well as extensive outside board experience.

Cheryl Buxtonhas, for the past 25 years, worked at Korn/Ferry International, the world’s largest executive search company. She is the Korn/Ferry Vice Chairman, Global Sector Leader, Pharmaceuticals, based in the firm’s Princeton office. Ms. Buxton conducts senior level assignments, with a ~~fund he founded that focuses~~special focus on ~~lending opportunities~~research driven organizations. She also leads the R&D sector for the Pharmaceutical and Consumer divisions within Korn/Ferry. Ms. Buxton joined the Firm’s London office and European headquarters before spending time in Paris and then relocating to ~~sponsor-backed growth~~Princeton in 1997. Prior to joining Korn/Ferry, Ms. Buxton was human resources director for Johnson & Johnson Pharmaceuticals (Cilag Ltd), based in the U.K., where her focus was on organizational issues and strategic resourcing and guidance on European directives. She also provided human resources support to three smaller companies in the group for Europe. Her human resources career started at Bristol Myers Ltd., where she was responsible for its consumer and pharmaceutical business. Ms. Buxton holds a master’s degree in employment law and industrial relations from Leicester University, a degree in Nursing, a diploma in personnel management and is a member of the ~~fund’s credit committee. Separately, Mr. Friedberg owns~~Institute of Personnel and ~~operates other financial services businesses.~~ ~~Since 2003, Mr. Friedberg has been~~Development. Ms. Buxton is on the ~~founder and manager of Key Recovery Group,~~Executive Council for Springboard, a ~~private equity investment firm,~~non-profit organization encouraging women entrepreneurs in Life Sciences, and the ~~PUN Companies,~~Advisory Board for South Asia Pharmaceutical Council. She previously was on Board of SIFE. A keen horsewoman, she is a ~~buyer of distressed debt.~~ ~~Mr. Friedberg received his~~ ~~Bachelor of Talmudic Law from Ner Israel Rabbinical College~~competitive amateur show jumper and ~~his Masters of Administrative Science~~endurance rider. ~~from Johns Hopkins University. Mr. Friedberg~~Ms. Buxton brings to the Board ~~his~~significant knowledge and experience ~~and perspective~~within the biopharmaceutical industry, as a ~~seasoned investor with over twenty years of investing experience across public and private companies, with entities in the United States, Canada and a variety of other jurisdictions.~~

Upon the emergence from our bankruptcy on June 30, 2016, each of the above directors was designated (in the case of Dr. Durrant and Mr. Barliant) or appointed (in the case of each of the other directors) 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 Boardwell as a joint designee of Black Horse Capital Master Fund Ltd., or BHCMF, Black Horse Capital LP, or BHC, Cheval Holdings, Ltd., or Cheval (together with BHCMF and BHC, the Black Horse Entities), and Nomis Bay LTD, or Nomis, and Mr. Barliant was designated by the Black Horse Entities. Dr. Chappell was appointed by the Black Horse Entities, and Mr. Morris and Mr. Friedberg were appointed by Nomis.

~~Executive Officers~~

~~The following table sets forth the names, ages and current positions of~~ ~~each of our~~an extensive executive ~~officers.~~ 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.network.

Table of Contents
~~Name~~	~~Age~~	~~Position~~
~~Cameron Durrant, M.D., MBA~~	56	~~Chief Executive Officer~~
~~David L. Tousley, MBA, CPA~~	61	~~Interim Chief Financial Officer~~
~~Morgan Lam~~	52	~~Chief Scientific Officer~~

~~Cameron Durrant, M.D, MBA has served as our Chief Executive Officer since March 2016. See “-–Directors” for Dr. Durrant’s biographical information.~~

~~Table of Contents~~

~~David L. Tousley, MBA, CPA~~ has served as our Interim Chief Financial Officer since October 2016. Mr. Tousley is currently the Principal of Stratium Consulting Services, assisting companies with strategic and financial planning and management. Most recently, Mr. Tousley served as the Chief Financial Officer for DARA Biosciences, a publicly traded specialty pharmaceutical company focused on oncology treatment and oncology supportive care. Mr. Tousley has over 35 years of business experience including biotech, specialty pharmaceuticals and full phase pharmaceutical companies. He has held President, Chief Operating Officer and Chief Financial Officer roles in companies such as Pasteur, Merieux, Connaught, (known today as Sanofi-Pasteur), AVAX Technologies, Inc., airPharma, LLC, and PediaMed Pharmaceuticals, Inc., and has led companies in all aspects of operations, including pharmaceutical development. He has managed in both the private and public company environment, taking companies public, raising in excess of one hundred million dollars in debt and equity financings and has led business development activities, including joint ventures, partnerships, acquisitions and divestitures in the U.S., Europe and Australia. Mr. Tousley is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants, holds an undergraduate degree from Rutgers College and earned his MBA in accounting from Rutgers Graduate School of Business.

Mr. Tousley is serving as interim Chief Financial Officer pursuant to an engagement agreement between himself and us, or the Engagement Agreement. The engagement agreement expired in accordance with its terms in November 2016, but Mr. Tousley continues to perform services in accordance with the original terms. Under the Engagement Agreement as currently being performed, we pay Mr. Tousley at a rate of $225 per hour and reimburse him for travel and out of pocket expenses incurred in connection therewith. Mr. Tousley’s services may be discontinued at any time without penalty.

~~Morgan Lam~~ ~~was~~ ~~appointed as Chief Operating Officer in February 2016 and promoted to Chief Scientific Officer in September 2016. Prior to his appointment as Chief Operating Officer,~~ Mr. Lam previously served as our Head of Clinical Operations from May 2015 through January 2016. Mr. Lam served as Executive Director, Medical Affairs of Geron Corporation, a biopharmaceutical company, from May 2010 to May 2015 and as Clinical Program Leader at Genentech, Inc. from September 2005 through May 2010.

~~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, 2016, all such reports were made on a timely basis.

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.kalobios.com/corporate-governance.cfm~~www.humanigen.com/governance.

Audit Committee Matters

We have established an audit committee of the Board, which is currently comprised of Mr. Morris, as chair of the Committee, Dr. Boehm, and Mr. ~~Barliant and Mr. Friedberg.~~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.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following summary compensation table shows, for the fiscal years ended December 31, ~~2016~~2019 and December 31, ~~2015,~~2018, information regarding the compensation awarded to, earned by or paid to our ~~two most highly compensated~~named executive officers ~~and all individuals serving as our principal executive officer during~~for the fiscal year ended December 31, ~~2016. We refer to these officers as our “named executive officers.”~~

~~Table of Contents~~

All
Stock Option Other
Salary Bonus Awards Awards Compensation Total
Name and Principal Position Year ($) ($) ($)(4) ($)(5) ($)(6) ($)
Cameron Durrant, M.D., MBA (1) 2016 500,000 (7) 608,768 2,312,588 16,833 3,438,189
Chairman & Chief Executive
Officer

Morgan Lam (2) 2016 357,500 70,000 221,720 - 649,220
Chief Scientific Officer
David L. Tousley, MBA, CPA (3) 2016 - - - 333,788 333,788
Interim Chief Financial
Officer

2019.

							Option
			Salary		Bonus		Awards		Total
Name and Principal Position	Year		($)		($)(4)		($)(3)		($)
Cameron Durrant, M.D., MBA⁽¹⁾		2019		600,000		184,500		-		784,500
Chairman & Chief Executive Officer		2018		600,000		180,000		3,503,399		4,283,399
Greg Jester⁽²⁾		2019		155,000		-		-		155,000
Chief Financial Officer		2018		306,667		108,500		503,834		919,001

(1)

Appointed as Chairman January 7, 2016 and as Chief Executive Officer on March 1, 2016. In addition, Dr. Durrant has served as our interim chief financial officer since July 1, 2019.

(2)

Appointed as Chief ~~Operating Officer on February 1, 2016 and promoted to Chief Scientific~~Financial Officer on September ~~13, 2016.~~5, 2017. Mr. Jester passed away unexpectedly on June 28, 2019.

(3)

~~Appointed as Interim Chief Financial Officer on October 14, 2016.~~

~~(4)~~

~~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.~~

~~(5)~~

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 910 of the notes to our Consolidated Financial Statementsincluded elsewhere in this Annual Report on Form ~~10‑K~~10-Kfor a discussion of all assumptions made by us in determining the grant date fair value of our equity awards.

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~~(6)~~

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 and (b) for Mr. Tousley, $333,788 in consulting fees for services rendered in 2016, pursuant to his Engagement Agreement.

~~(7)~~(4)

The Compensation Committee of the Board ~~has not yet~~ determined Dr. Durrant’s bonus for ~~2016. The Board expects to determine Dr. Durrant’s bonus during March 2017, and will file a Current Report on Form 8-K to report any bonus awarded, including the portion of any such bonus~~2019 to be ~~paid~~$184,500 and awarded Dr. Durrant a bonus for 2018 in ~~shares~~the amount of ~~the Company’s common stock.~~$180,000. Dr. Durrant has agreed to take 50% of his 2019 bonus in stock options (issued in January 2020) and to defer the other 50% pending completion of a fundraising transaction. The number of options granted was based on the grant date fair value as of January 28, 2020, reflecting a 10-year term. Dr. Durrant and Mr. Jester received 50% of their 2018 bonus in immediately exercisable stock options. The number of options granted was based on the grant date fair value as of January 25, 2019, reflecting a 10-year term. Dr. Durrant and Mr. Jester agreed to defer receipt of ~~any bonus that may~~the 50% cash portion of the 2018 bonuses pending completion of a fundraising transaction. The remaining portion of Mr. Jester’s 2018 will be ~~approved by the Board pending~~paid to his estate upon completion of a fundraising transaction.

Narrative to Summary Compensation Table

~~Stock Awards~~

As compensation for Dr. Durrant’s service during the Company’s bankruptcy proceedings, on May 24, 2016, the Board approved a one-time equity award to Dr. Durrant in an amount equal to 0.80% of the value of the ~~Company’s common stock plus the equivalent of $100,000. Accordingly, on June 30, 2016, the Company granted~~ ~~135,583~~ ~~shares of common stock to Dr. Durrant. The shares underlying such equity awards are subject to a one-year holding~~ period before they may be sold. The equity awards were determined by the Board based upon an analysis by an independent consulting group of standard compensation data for private and pre-IPO companies in the life science industry and the role of the Board and its workload during the Company’s chapter 11 bankruptcy process, among other factors.

~~Table of Contents~~

~~Stock Options~~

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.

In ~~2016,~~2018, we issued stock options to ~~certain of our named executive officers.~~Dr. Durrant and Mr. Jester. On ~~September 13, 2016,~~March 9, 2018, Dr. Durrant was issued stock options to purchase ~~1,043,022~~7,466,749 shares of ~~the Company’s~~our common stock at an exercise price of ~~$3.38. The~~$0.67. One half of the options ~~will vest~~were fully vested on the grant date and ~~become exercisable~~the remaining options vested in 12six equal quarterly increments beginning on ~~October~~April 1,~~, 2016~~. 2018. Dr. Durrant’s options were determined to have a grant date fair value of ~~$2.3~~$3.5 million.

On ~~September 13, 2016,~~March 9, 2018, in lieu of a cash bonus for 2017, Mr. ~~Lam~~Jester was issued stock options to purchase ~~100,000~~284,313 shares of our common stock at an exercise price of $0.67. These options were fully vested on the grant date and remain exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.

On March 9, 2018, Mr. Jester was issued a long-term award of stock options to purchase 1,073,815 shares of the Company’s common stock at an exercise price of ~~$3.38. The~~$0.67. Mr. Jester’s options ~~will vest~~grants were determined to have an aggregate grant date fair value of $0.6 million. Of the options issued 17% were fully vested on the grant date and ~~become~~the remaining options vested and became exercisable in 1210 equal quarterly increments beginning on ~~October~~April 1, ~~2016.~~2018. On June 28, 2019, the date of Mr. ~~Lam’s~~Jester’s death, 447,423 of the options, representing the unvested portion of the options issued, were forfeited pursuant to the Plan. The remaining vested options are exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.

On January 5, 2019, in lieu of 50% of his cash bonus for 2018, Dr. Durrant was issued stock options to purchase 142,857 shares of the Company’s common stock at an exercise price of $0.84. These options were fully vested on the grant date. Dr. Durrant’s options were determined to have a grant date fair value of ~~$221,720.~~$0.09 million.

On January 5, 2019, in lieu of 50% of his cash bonus for 2018, Mr. Jester was issued stock options to purchase 86,111 shares of the Company’s common stock at an exercise price of $0.84. Mr. Jester’s options were determined to have a grant date fair value of $0.05 million. These options were fully vested on the grant date. The remaining vested options are exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.

The stock option grant made to Dr. Durrant and the long-term stock option award made to Mr. Jester were approved by the Company’s Board of Directors for the dual purpose of providing award recipients with appropriate incentives to develop lenzilumab and the Company’s other monoclonal assets in accordance with the Company’s updated business plan, and to ensure their retention. The number of shares underlying each award, and the vesting provisions of each, were designed to mitigate the significant dilution to the value of the equity awards held by such executive officers resulting from completion of the Restructuring Transactions in February 2018. (See Item 1. “Business” and Note 9 to the accompanying Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more information regarding the Restructuring Transactions). In advance of approving these awards and the amendment to the Company’s 2012 Equity Incentive Plan described below, the Board of Directors consulted with Dr. Chappell, the Company’s controlling stockholder, and confirmed the awards were appropriate to achieve Dr. Chappell’s long-term and retention goals for each named executive officer.

100

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Outstanding Equity Awards at ~~2016~~2019 Fiscal Year End

The following table shows certain information regarding outstanding equity awards held by our named executive officers as of December 31, ~~2016.~~

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 ) 86,918 956,104 $ 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

2019.

			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	)	1,043,022	-	$	3.38	9/12/2026
	(2	)	7,316,749	-	$	0.67	3/8/2028
	(3	)	142,857	-	$	0.84	1/4/2029
Greg Jester	(4	)	87,500	-	$	0.33	9/4/2027
	(5	)	284,313	-	$	0.67	3/8/2028
	(6	)	626,392	-	$	0.67	3/8/2028
	(7	)	86,111	-	$	0.84	1/4/2029

(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~~.

2016. As of December 31, 2019, the options were fully vested.

(2)

On ~~June 1, 2015, Mr. Lam~~March 9, 2018, Dr. Durrant was issued stock options to purchase ~~5,000~~7,466,749 shares of the Company’s common stock at an exercise price of ~~$4.72.~~$0.67. One ~~quarter~~half of the options were fully vested on ~~June 1, 2016~~the grant date and the remaining options will vest and become exercisable in 36six equal ~~monthly~~quarterly increments ~~thereafter.~~beginning April 1, 2018. As of December 31, 2019, these options were fully vested.

(3)

On ~~September 13, 2016, Mr. Lam~~January 5, 2019, Dr. Durrant was issued stock options to purchase ~~100,000~~142,857 shares of the Company’s common stock at an exercise price of ~~$3.38.~~$0.84 in lieu of cash in respect of 50% of Dr. Durrant’s 2018 bonus. These options were fully vested on the grant date.

(4)

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~~vested and ~~become~~became exercisable in 12 equal quarterly increments beginning on October 1, ~~2016.~~2017. On June 28, 2019, the date of Mr. Jester’s death, 62,500 of the options, representing the unvested portion of the options issued, were terminated pursuant to the Plan. The remaining vested options are exercisable until June 28, 2020,the one year anniversary of Mr. Jester’s death.

(5)

On March 9, 2018, Mr. Jester was issued stock options to purchase 284,313 shares of the Company’s common stock at an exercise price of $0.67 in lieu of cash in respect of Mr. Jester's 2017 bonus. These options were fully vested on the grant date. The options are exercisable until June 28, 2020, the one year anniversary of Mr. Jester’s death.

(6)

On March 9, 2018, Mr. Jester was issued stock options to purchase 1,073,815 shares of the Company’s common stock at an exercise price of $0.67. Of the options issued 17% were fully vested on the grant date and the remaining options vested and became exercisable in 10 equal quarterly increments beginning on April 1, 2018.On June 28, 2019, the date of Mr. Jester’s death, 447,423 of the options, representing the unvested portion of the options issued, were terminated pursuant to the Plan. The remaining vested options are exercisable until June 28, 2020,the one year anniversary of Mr. Jester’s death.

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(7)

On January 5, 2019, Mr. Jester was issued stock options to purchase 86,111 shares of the Company’s common stock at an exercise price of $0.84 in lieu of cash in respect of 50% of Mr. Jester’s 2018 bonus. These options were fully vested on the grant date.The remaining vested options are exercisable until June 28, 2020,the one year anniversary of Mr. Jester’s death.

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.

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Employment Agreement with Dr. Durrant

On September 13, 2016, we entered into ~~a new~~an employment agreement with Cameron Durrant, MD, ~~the Company~~’sour chairman and chief executive officer (the “~~Agreement~~”“Durrant Agreement”). The Durrant 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. Durrant~~’~~s bonus opportunity was pro-rated for the period commencing July 1, 2016 and ending on December 31, 2016 and shall be paid fifty percent in cash and fifty percent in shares~~The Compensation Committee of the ~~Company’s common stock. The target bonus opportunity for calendar year 2016 would amount therefore to $180,000. While the~~ Board ~~has not yet~~ determined Dr. Durrant’s bonus for ~~2016, we have recorded an accrual for this amount in the Consolidated Financial Statements for the year ended December 31, 2016. The Board expects to determine Dr. Durrant’s bonus during March~~ 2017, 2018 and ~~will file a Current Report on Form 8-K to report any bonus awarded, including the portion of any such bonus~~2019 to be ~~paid in shares of the Company’s common stock.~~$180,000, $180,000 and $184,500, respectively. Dr. Durrant ~~has~~ agreed to defer receipt of ~~any~~the 2017 bonus, ~~that may be approved by~~the cash component comprising 50% of the 2018 bonus (having received stock options for the other 50%) and the cash component comprising 50% of the 2019 bonus (with the Board ~~pending~~recommending stock options for the other 50%), subject to successful completion of aCompany fundraising ~~transaction.~~activities. Dr. Durrant is entitled to participate in ~~the Company~~’sour benefit plans available to other executives, including its retirement plan and health and welfare programs.

Under the Durrant Agreement, Dr. Durrant is entitled to receive certain benefits upon termination of employment under certain circumstances. If ~~the Company terminates~~we terminate Dr. ~~Durrant~~’sDurrant’s employment for any reason other than “~~Cause~~”“Cause”, or if Dr. Durrant resigns for “~~Good Reason~~”“Good Reason” (each as defined in the Durrant 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 ~~the Company~~us during the year of termination.

The Durrant Agreement additionally provides that if Dr. Durrant resigns for Good Reason or ~~the Company~~we or ~~its~~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 Durrant Agreement), ~~the Company~~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.

~~Engagement Agreement with Mr. Tousley~~

Mr. Tousley is serving as interim Chief Financial Officer pursuant to an engagement agreement between himself and the Company, or the Engagement Agreement. The engagement agreement expired in accordance with its terms in November 2016, but Mr. Tousley continues to perform services in accordance with the original terms. Under the Engagement Agreement as currently being performed, we pay Mr. Tousley at a rate of $225 per hour and reimburse him for all travel and out of pocket expenses incurred in connection therewith. Mr. Tousley��s services may be discontinued at any time without penalty.

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. As of December 31, 2019, after giving effect to outstanding awards, there were approximately 3.1 million shares available for future grant under the 2012 Equity Plan.

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Director Compensation

Pursuant to our Director Compensation Program, each member ofserving on our Board of Directors during ~~2016~~2019 who was not our employee was eligible to ~~receive an annual~~compensation for his service, as follows. At the option of the director, such fees were payable in cash, ~~retainer and annual equity compensation. The annual~~common stock or immediately exercisable stock options having a grant date fair value equal to the equivalent cash ~~retainer amounts payable to our eligible directors during 2016 were as follows:~~

compensation owed.

Board of Directors member: $40,000;

Audit committee member: $10,000;

Audit committee chair: $20,000;

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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.~~$8,000; and

The equity compensation component of our Directors Compensation Program during 2016 provided that newly appointed directors would be granted an initial option to purchase 100,000 shares of our common stock and continuing directors are eligible to receive an annual option to purchase 50,000 shares of our common stock. Initial Stock Option Grants are granted as soon as reasonably practicable following appointment to the Board and vest ratably over 36 months of continuous service following the date on which the director is appointed to our Board of Directors.

Transaction committee member: $12,000.

The following table shows for the fiscal year ended December 31, ~~2016~~2019 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 ($)(2) ($)(3) ($)(4) ($) ($)
Timothy Morris, CPA 36,000 221,720 - - 257,720
Ronald Barliant, JD 64,000 221,720 421,099 - 706,819
David Moradi (1) 25,000 - 421,099 - 446,099
Dale Chappell, M.D., MBA 20,000 221,720 - - 241,720
Ezra Friedberg 27,000 221,720 - - 248,720

			Option
	Fees Earned		Awards		Total
Name	($)(1)		($)		($)
Timothy Morris, CPA⁽²⁾		66,000		-		66,000
Ronald Barliant, JD⁽³⁾		54,000		-		54,000
Rainer Boehm, M.D., MBA⁽⁴⁾		66,000		-		66,000
Bob Savage, MBA⁽⁵⁾		74,000		-		74,000
Cheryl Buxton⁽⁶⁾		1,739		230,512		232,251

~~(1)~~

~~Mr. Moradi resigned from the Board of Directors upon emergence from bankruptcy on June 30, 2016.~~

~~(2)~~(1)

The amounts in this column reflect retainers earned under the Board of Directors Compensation Program for fiscal year ~~2016.~~2019.

~~(3)~~

~~The amounts in this column represent~~(2)

Mr. Morris elected to defer the ~~aggregate grant date fair value~~payment of ~~option awards~~ ~~to purchase 100,000 shares of our common stock~~ ~~granted to each director on September 13, 2016, computed in accordance with FASB ASC Topic 718. See Note 10 of~~his board fees until the ~~notes to our~~ ~~Consolidated Financial Statements~~ ~~included elsewhere in this Annual Report on Form 10‑K for~~Company completes a ~~discussion of all assumptions made by us in determining the grant date fair value of our equity awards.~~fundraising transaction. As of December 31, ~~2016, Messrs.~~2019, Mr. Morris ~~Barliant, Chappell and Friedberg~~ held ~~outstanding~~ options to purchase ~~100,000~~an aggregate of 904,112 shares of ~~our~~the Company’s common ~~stock. Mr. Moradi held no~~stock, of which options to purchase 605,829 shares were vested.

(3)

Mr. Barliant received $27,000 of his fee in cash and $40,500 in common stock. As of December 31, 2019, Mr. Barliant held options to purchase an aggregate of 992,210 shares of the Company’s common stock, of which options to purchase 700,927 shares were vested.

(4)

Dr. Boehm received $7,833 of his fees in cash and $27,000 in common stock. As of December 31, 2019, Dr. Boehm held options to purchase an aggregate of 477,252 shares of the Company’s common stock, of which options to purchase 178,969 shares were vested.

(5)

Mr. Savage received $18,500 of his fees in cash and $18,500 in common stock and elected to defer payment of $37,000 until the Company completes a fundraising transaction. As of December 31, 2019, Mr. Savage held options to purchase an aggregate of 615,877 shares of the Company’s common stock, of which options to purchase 317,594 shares were vested.

(6)

Ms. Buxton received $1,739 of her pro-rated fee for her service in December 2019 in common stock and on December 16, 2019, the date of her appointment to the Board of Directors, received a one-time stock option grant to purchase 715,877 shares at an exercise price of $0.45, which options vest in 12 ratable quarterly installments beginning on March 31, 2020. As of December 31, 2019, Ms. Buxton held options to purchase an aggregate of 715,877 shares of the Company’s common stock, of which no options were vested.

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On June 30, 2016 Ronald Barliant and David Moradi were granted 93,786 shares of common stock each related to their service during bankruptcy proceedings. The closing market price on June 30, 2016 was $4.49 per share. The amounts in this column represent the aggregate grant date fair value of such stock awards, computed in accordance with FASB ASC Topic 718.

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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 ~~7, 2017~~12, 2020 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 ~~14,977,397~~114,304,290 shares of our common stock outstanding as of March ~~7, 2017.~~

12, 2020.

Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of March ~~7, 2017~~12, 2020 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 ~~KaloBios Pharmaceuticals,~~Humanigen, Inc., ~~1000 Marina~~533 Airport Boulevard, Suite ~~250, Brisbane,~~400, Burlingame, 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⁾		68,048,126		59.5	%
Nomis Bay LTD⁽²⁾		33,573,530		29.4	%
Named Executive Officers and Directors
Cameron Durrant, M.D., MBA⁽³⁾		9,377,938		7.6	%
Ronald Barliant, JD⁽⁴⁾		1,233,079		1.1	%
Timothy Morris, CPA⁽⁵⁾		665,477		*
Robert Savage, MBA⁽⁶⁾		567,111		*
Rainer Boehm, M.D., MBA⁽⁷⁾		642,205		*
Cheryl Buxton⁽⁸⁾		64,224		*
All current executive officers and directors as a group (6 persons)⁽⁹⁾		12,550,034		10.0	%

Shares of Percentage of
Common Shares
Stock Beneficially Beneficially
Name and Address of Beneficial Owner Owned Owned
5% Stockholders
Entities affiliated with Black Horse Capital LP⁽¹⁾
4,948,758 33.0 %
Nomis Bay LTD⁽²⁾
3,719,006 24.8 %
Nantahala Capital Management, LLC⁽³⁾
1,450,000 9.7 %
Cortleigh Limited⁽⁴⁾
949,752 6.3 %
Named Executive Officers and Directors
Cameron Durrant, M.D., MBA⁽⁵⁾
396,338 2.6 %
Morgan Lam⁽⁶⁾
19,061 *
David L. Tousley, MBA, CPA⁽⁷⁾
100,000 *
Ronald Barliant, JD⁽⁸⁾
118,785 *
Dale Chappell, M.D., MBA^(9)(12)
4,973,758 33.2 %
Timothy Morris, CPA⁽¹⁰⁾
25,000 *
Ezra Friedberg⁽¹¹⁾
25,000 *
All current executive officers and directors as a group (7 persons)⁽¹³⁾
5,557,942 37.1 %

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(1)

Number of shares based ~~solely~~ on information reported on the Schedule 13D filed with the SEC on ~~July 11, 2016,~~March 1, 2018, reporting beneficial ownership as of ~~June 30, 2016,~~February 27, 2018, by ~~BHC, BHCMF, Cheval,~~the Black Horse ~~Capital Management LLC, or~~Entities, BH Management, and Dale Chappell. According to the report, BHC has sole voting and dispositive power with respect to ~~872,977~~5,996,710 shares, BHCMF has shared voting and dispositive power with respect to ~~2,040,463~~13,997,832 shares, Cheval has shared voting and dispositive power with respect to ~~2,035,318~~46,876,309 shares, BH Management has sole voting and dispositive power with respect to ~~2,908,295~~52,873,019 shares and Dr. Chappell has shared voting and dispositive power with respect to ~~4,948,758~~68,048,126 shares. The number of shares reported in this row also includes an additional 1,177,275 shares issued to Cheval on May 31, 2019 in satisfaction of certain loans made to the Company in 2018, as reported on the Form 4 filed with the SEC on June 4, 2019 by Cheval, BH Management, and Dale Chappell. 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. Dr. Chappell is currently serving as our ex-officio chief scientific officer.

(2)

Number of shares based solely on information reported on the Schedule 13D filed with the SEC on ~~July 13, 2016,~~March 5, 2018, reporting beneficial ownership as of ~~July 7, 2016,~~February 27, 2018, by Nomis. Nomis has sole voting and dispositive power over all ~~3,719,006~~33,573,530 shares. The business address of Nomis is ~~Penboss Building 50 Parliament St.,~~West Essex House, 3^rd Floor, 45 Reid Street, Hamilton, Bermuda HM12.

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~~(3)~~

Number of shares based solely on information reported on the Schedule 13G filed with the SEC on February 14, 2017. Nantahala Capital Management, LLC (“Nantahala”) and its managing members, Wilmot B. Harkey and Daniel Mack, share voting and dispositive power with respect to the shares. The business address of each of Nantahala, Mr. Harkey and Mr. Mack is 19 Old Kings Highway South, Suite 200, Darien, Connecticut 06820.

~~(4)~~

Number of shares based solely on information reported on the Schedule 13G filed with the SEC on August 16, 2016, reporting beneficial ownership as of June 30, 2016 by Kapil Dhar, Sable Fiduciary Limited, or Sable, and Cortleigh Limited, or Cortleigh. Mr. Dhar, Sable and Cortleigh have shared voting and dispositive power with respect to the shares. The business address of each of Mr. Dhar, Sable and Cortleigh is 4th Floor, Rodus Building, Road Reef, Road Town, Tortola, British Virgin Islands.

~~(5)~~

~~Includes options to purchase 260,755 shares of common stock that may be exercised within 60 days of~~ ~~March 7, 2017.~~

~~(6)~~(3)

Includes options to purchase ~~19,061~~8,820,731 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(7)~~

(4)

Includes options to purchase ~~100,000~~810,583 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(8)~~

(5)

Includes options to purchase ~~25,000~~665,485 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(9)~~

(6)

Includes options to purchase ~~25,000~~377,250 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(10)~~

(7)

Includes options to purchase ~~25,000~~238,625 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(11)~~

(8)

Includes options to purchase ~~25,000~~59,656 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

~~(12)~~

Dr. Chappell is the managing member of BH Management, which is the managing member of BHC, and the controlling person of BHCMF. By virtue of these relationships, each of BH Management and Dr. Chappell may be deemed to beneficially own the Shares owned directly by each of BHC and Cheval and Dr. Chappell may be deemed to beneficially own the Shares owned directly by BHCMF.

~~(13)~~ (9)

Includes options to purchase ~~496,482~~10,972,330 shares of common stock that may be exercised within 60 days of March 7~~, 2017.~~12, 2020.

Equity Compensation Plan Information

The following table sets forth information as of December 31, ~~2016~~2019 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) 816,036 $ 5.13 -
Equity compensation plans not approved by security holders 1,019,799 3.38 1,980,201
Total 1,835,835 $ 4.15 1,980,201

				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⁾	344,475	$	3.43	-
Equity compensation plans not approved by security holders	15,537,246		0.90	3,050,799
Total	15,881,721	$	0.95	3,050,799

(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 and March 9, 2018, 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.~~and 16,050,000 shares, respectively. The Equity Plan ~~Amendment was~~Amendments were not approved by our stockholders. See Note 109 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form ~~10‑~~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

~~December 2015 Private Placement~~

~~On December 3, 2015,~~

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 and Note 9 to the accompanying Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Advance Notes

In June, July and August, 2018, we ~~entered into~~received an aggregate of $0.9 million of proceeds from advances made to us (the “Advance Notes”) by four different lenders including Dr. Cameron Durrant, our Chairman and Chief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling stockholder; and Ronald Barliant, a Securities Purchase Agreement, which was subsequently amended, for a private placement by the Company of shares of our common stock. The purchasers in the private placement identified in the table below were at the time of the private placement directorsdirector of the Company ~~and they purchased~~(collectively the ~~number~~“Lenders”). See Note 6 of ~~shares set forth opposite their names~~the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion of the ~~dollar amounts indicated.~~

Name Number of Shares
Aggregate Dollar Amount
at $29.32 per share

David Moradi as beneficial owner through
Anthion Partners II LLC
3,410 $ 100,000
Marek Biestek 10,000 $ 293,200
Michael Harrison 1,705 $ 50,000
Thomas Fernandez 6,821 $ 200,000

~~Services Arrangement~~

Advance Notes.

2018 Convertible Notes

Commencing September 19, 2018, the Company delivered a series of convertible promissory notes (the “2018 Convertible Notes”) evidencing an aggregate of $2.5 million of loans made to us by six different lenders, including an affiliate of Black Horse Capital, L.P., our controlling stockholder. See Note 6 of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion of the 2018 Convertible Notes.

2019 Bridge Notes

On ~~December 3, 2015,~~June 28, 2019, we ~~entered into a Services Agreement, or the Services Agreement, with Turing Pharmaceuticals LLC, or Turing, a life sciences company. Our then~~issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to us by three parties including Dr. Cameron Durrant, our Chairman and Chief Executive Officer ~~Martin Shkreli, was also the chief executive officer~~ and ~~a member~~Cheval Holdings, Ltd., an affiliate of the board of directors of Turing. Pursuant to the Services Agreement, Turing was to provide certain employees to us, to utilize on a part-time basis, including Christopher Thorn, who was appointed asBlack Horse Capital, L.P., our ~~interim chief financial officer on December 3, 2015. The Services Agreement provided that Turing would charge us for Mr. Thorn’s services an hourly rate of $151.92 per hour,~~controlling stockholder.

On November 12, 2019, we issued two short-term, secured bridge notes (the “November Bridge Notes” and ~~Mr. Thorn would remain employed and compensated by Turing during the term of the Services Agreement. No amounts were paid by us to Turing, and Mr. Thorn resigned on December 21, 2015.~~

~~Bankruptcy Related Financing Transactions~~

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, or the Effective Date, our plan of reorganization, or the Plan, became effective, and we emerged from Chapter 11 bankruptcy proceedings.

~~During the pendency of our bankruptcy proceedings, we entered into a Debtor-in-Possession Credit and Security Agreement, or the Credit Agreement, and a~~ ~~Securities Purchase Agreement, or the SPA,~~together with the ~~Black Horse Entities and Nomis, or~~June Bridge Notes, the Lenders. As described further below, as a result of the issuance of shares of common stock on the Effective Date pursuant to the terms of the Credit Agreement and the SPA, each of the Lenders became a holder of greater than 5% of the outstanding common stock. In addition, pursuant to the terms of the SPA, Dr. Chappell, who is the managing member of the managing general partner of BHC, the controlling person of BHCMF, and a director of Cheval, was appointed to the Board on the Effective Date. Dr. Chappell and his wife Mary Chappell are the sole owners of Cheval.

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~~Credit Agreement~~

On April 1, 2016, we entered into the Credit Agreement with the Lenders and BHCMF, as administrative agent and lender, or Agent. The Credit Agreement provided for a debtor-in-possession credit facility in the original principal amount of $3,000,000, or the Term Loan, that bore interest at a rate per annum equal to 12.00%. The Credit Agreement provided that the Term Loan was made by the Lenders with a fee equal to $191,000, or the Upfront Fee, required the payment by us to the Lenders of a commitment fee equal to $150,000, or 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 the Agent and the Lenders in connection with the Credit Agreement and other costs incurred in the ordinary course of business. In accordance with the bidding procedures order entered by the Bankruptcy Court, the Term Loan and the SPA were together subject to competing, higher and better offers.

~~Our obligations under the Credit Agreement were represented by promissory notes and were secured, in connection with which the parties also entered into an Intellectual Property Security Agreement.~~

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 or Cortleigh. Pursuant to the terms of the Credit Agreement, we also paid $405,145 to BHC in payment of its fees and expenses and $283,132 to Nomis in payment of its fees and expenses.

~~2016 Securities Purchase Agreement~~

~~On April 1, 2016, we entered into the SPA with the Lenders. The SPA provided for the sale to the Lenders on the closing date of~~“2019 Bridge Notes”) evidencing an aggregate of ~~5,885,000 shares~~$350,000 of loans made us by two parties, including Dr. Cameron Durrant, our common stock, subject to adjustment as provided in the SPA, in respect of exit financing in the amount of $11,000,000, or the Exit Financing, plus an exit financing commitment fee of $770,000 payable by us to the Lenders, plus payment to the Lenders of their feesChairman 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 Credit Agreement and the SPA to Cortleigh or collectively with the Lenders, the Purchasers.

The consummation of the transactions contemplated by the SPA were contingent upon, among other things, our Board, upon the effectiveness of the confirmed plan of reorganization, consisting of (i) one director to be designated by Nomis; (ii) one director to be jointly designated by BHC, BHCF, and Cheval; (iii) our Chief Executive Officer ~~to be designated jointly~~ and ~~unanimously by the Lenders; and (iv) two independent directors to be designated jointly and unanimously by the Lenders.~~ ~~As discussed above, Dr. Chappell,~~ Cheval Holdings, Ltd., an affiliate of ~~each of BHCMF, BHC and Cheval~~Black Horse Capital, L.P., ~~was appointed to the Board on the Effective Date.~~ ~~In addition, Dr. Durrant continued to serve on the Board as a joint designee~~our controlling stockholder.

See Note 6 of the ~~Black Horse Entities and Nomis and Mr. Barliant was designated by the Black Horse Entities.~~notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-

~~The issuance~~K for a discussion 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 our common stock for an aggregate purchase price of $11,000,000, 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 $427,383 to BHC in payment of its fees and expenses and $240,773 to Nomis in payment of its fees and expenses.2019 Bridge Notes.

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Under the terms of the SPA, the Company was required to use commercially reasonable efforts to cause a registration statement registering the resale by the Purchasers of the shares issuable under the SPA to be declared effective by the SEC no later than December 27, 2016. The Company was obligated to keep the registration statement effective until all of the shares issued pursuant to the SPA are eligible for resale by the Purchasers without volume restrictions under an exemption from registration under the Securities Act. If the registration statement was not declared effective by December 27, 2016 and any of the shares issued pursuant to the SPA were not eligible to be sold under Rule 144, then during each subsequent thirty day period (or portion thereof) until the registration statement is declared effective, the Company agreed to issue additional shares of common stock to the Purchasers in an amount equivalent to 10.0% of the shares originally purchased under the SPA that are then held by the Purchasers. On October 28, 2016, the SPA was amended to require the Company to file a registration statement by January 10, 2017 with effectiveness to be no later than March 31, 2017. On December 19, 2016, the Company and the Purchasers entered into a second amendment to the SPA, which requires the Company to file a resale registration statement by March 17, 2017 and cause it to become effective no later than June 19, 2017. The requirement to issue additional shares to the Purchasers if effectiveness of the resale registration statement is delayed beyond June 19, 2017 would not be implicated until June 20, 2017.

~~Table of Contents~~

~~Governance Agreement~~

On the Effective Date, we entered into a Corporate Governance Agreement with Mr. Shkreli, or the Governance Agreement, which provides for certain terms and conditions regarding the acquisition, disposition, holding and voting of our securities by Mr. Shkreli. The Governance Agreement applies to all of our common stock owned by Mr. Shkreli or affiliates he controls.

~~Under the terms of the Governance Agreement, for 180 days following the Effective Date, Mr. Shkreli could not sell his shares at a price per share that was less than the greater~~ of (x) $2.50 and (y) a 10% discount to the prior two week volume-weighted average price, or the Market Discount Price. In addition, for 180 days following the 61st day after the Effective Date, we had a right to purchase any or all of Mr. Shkreli’s shares at a purchase price per share equal to the Market Discount Price. For a limited time, we also had a right of first refusal to purchase shares that Mr. Shkreli proposed to sell. Mr. Shkreli was also prohibited from transferring any shares to his affiliates or associates unless such transferee agreed to be subject to the terms of the Governance Agreement. Transfers of shares by Mr. Shkreli not made in compliance with the Governance Agreement would be null and void.

Under the terms of the Governance Agreement, Mr. Shkreli will not have any right to nominate directors to the Board and agrees in connection with any shareholder vote to vote his shares in proportion to the votes of our public stockholders. The Governance Agreement also prohibits Mr. Shkreli or his affiliates for a period of 24 months after the date of the Governance Agreement, from, among other things: purchasing any of our stock or assets; participating in any proposal for any merger, tender offer or other business combination, or similar extraordinary transaction involving us or any of our subsidiaries; seeking to control or influence the management, our Board or our policies; or submitting any proposal to be considered by our stockholders.

~~In addition, any material transaction between Mr. Shkreli or his associates and us, or relating to the Governance Agreement, cannot be taken without the prior approval of our Board.~~

~~The Governance Agreement provides for a mutual release between us and Mr. Shkreli of all claims and liabilities existing as of the date of execution.~~

~~On August 25 and August 26, 2016, Mr. Shkreli sold all of his shares of the Company to third party investors in private transactions.~~

~~December 2016 Term Loan~~

On December 21, 2016, we entered into a Credit and Security Agreement (the “December Term Loan”) with BHCMF, as administrative agent and lender, BHC, as a lender, Cheval, as a lender and Nomis, as a lender (collectively, the “Lenders”). The December Term Loan provides for a credit facility in the original principal amount of $3,315,217, provides that the Term Loan will be made by the Lenders at an original discount equal to $265,217.00 (the “Upfront Fee”) and requires the payment by us to the Lenders of a commitment fee equal to $152,500.00 (the “Commitment Fee”). In accordance with the terms of the Credit Agreement, we will use the proceeds of the Term Loan for general working capital, 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. Dr. Chappell, one of the Company’s directors, is an affiliate of each of BHCMF, BHC and Cheval. At the time of the December Term Loan, each of the Lenders beneficially owned more than 5% of our outstanding common stock.

~~Pursuant to the terms of the agreement, the December Term Loan will bear interest at a rate per annum equal to 9.00% and is subject to certain customary representations, warranties and covenants.~~

~~Table of Contents~~

The outstanding principal balance of the December Term Loan, plus accrued and unpaid interest, plus the Commitment Fee and all other non-contingent obligations (the “Outstanding Obligations”), will mature on the earlier of acceleration after an event of default under the agreement, or October 31, 2017 (the “Maturity Date”). However, to the extent we raise capital through any SEC-registered stock offering, 50% of such offering’s proceeds (net of costs) must be used to pay down the December Term Loan.

Upon the occurrence of any event of default set forth in the agreement, BHCMF has the option of terminating the agreement and declaring all of our obligations immediately payable. The occurrence of an event of default will cause the December Term Loan to bear interest at a rate per annum equal to 14.00%.

Our obligations under the December Term Loan are secured by a first priority security interests in all of the Company’s real and personal property, subject only to certain carve outs and permitted liens, as set forth in the agreement. We have and will, at the request of BHCMF, enter into additional documents further documenting the December Term Loan and securing our obligations under the December Term Loan in favor of BHCMF and for the benefit of the Lenders.

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 ~~2016,~~2019, 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. Dr. Durrant, who our Board has determined is not independent, was~~committee and a ~~member of each committee during portions of 2016.~~

transaction 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, ~~2016~~2019 and ~~2015~~2018 by our independent registered accounting firm, HORNE LLP.

Year ended December 31,
2016 2015
Annual audit fees(1) $ 250,140 $ 223,037
Audit-related fees - -
Tax fees (2) 12,000 -
All other fees - -
Total fees $ 262,140 $ 223,037

~~Table of Contents~~

	Year ended December 31,
	2019		2018
Audit fees(1)	$	180,000	$	238,000
Tax fees (2)		12,000		13,100
Total fees	$	192,000	$	251,100

(1)

Audit fees in ~~2016~~2019 and ~~2015~~2018 include fees billed or incurred by HORNE LLP for professional services rendered in connection with the annual audit of ourConsolidated Financial Statementsfor 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.

~~The following table represents aggregate fees billed to us for the year ended December 31, 2015 by our former independent registered accounting firm, Ernst & Young LLP, or E&Y.~~

Year ended
December 31, 2015
Annual audit fees(1) $ 424,075
Audit-related fees -
Tax fees (2) 20,000
All other fees 1,820
Total fees $ 445,895

~~(1)~~

Audit fees in 2015 include fees billed or incurred by E&Y for professional services rendered in connection with the review of our 2015 quarterly reports on Form 10-Q and a progress payment towards a 2015 audit, not completed before E&Y's resignation.

~~(2)~~

~~Tax fees related to Internal Revenue Code Section 382 analysis.~~

On December 8, 2015, we were notified by E&Y that it had resigned as our independent registered public accounting firm not due to any reason related to our reporting or accounting operations, policies or procedures. Between December 8, 2015 and December 21, 2015, Marcum LLP served as our independent registered public accounting firm. Marcum’s resignation was not due to any reason related to our reporting or accounting operations, policies or procedures. ~~We paid Marcum a retainer of $45,000 as an advance for work related to the 2015 audit.~~

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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~~Table of Contents~~

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

~~(a)~~

~~The following documents are filed as part of this report:~~

(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.~~

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

ITEM 16. ~~Form~~FORM 10-K ~~Summary.~~SUMMARY.

None.

108

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~~None.~~

~~Table of Contents~~

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.

	~~KaloBios Pharmaceuticals,~~Humanigen, Inc.

	~~By:~~
	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 ~~M.D., MBA~~	Chairman of the Board of Directors and Chief Executive Officer; Interim Chief Financial Officer (Principal Executive, Financial and Accounting Officer)		March 16, 2020
Cameron Durrant, M.D., MBA		~~Executive Officer (Principal Executive Officer)~~	March 16, 2020		~~March 9, 2017~~

~~/s/ David L. Tousley, MBA, CPA~~	~~Interim Chief Financial Officer (Principal~~
~~David L. Tousley, MBA, CPA~~	~~Financial Officer and Principal Accounting Officer)~~		~~March 9, 2017~~

/s/ Ronald Barliant JD	Director		March 16, 2020
Ronald Barliant, JD	Director	~~Director~~	March 16, 2020		~~March 9, 2017~~

/s/ ~~Dale Chappell, M.D., MBA~~Rainer Boehm
~~Dale Chappell,~~Rainer Boehm, M.D.~~, MBA~~	Director		March ~~9, 2017~~16, 2020

/s/ Timothy Morris ~~CPA~~
Timothy Morris, CPA	Director		March ~~9, 2017~~16, 2020

/s/ ~~Ezra Friedberg~~Robert G. Savage
~~Ezra Friedberg~~Robert G. Savage, MBA	Director		March ~~9, 2017~~16, 2020

~~Table of Contents~~

~~Index to Consolidated Financial Statements~~

~~Contents~~

109

Table of Contents

Index to Consolidated Financial Statements

Contents

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations and Comprehensive Loss		F-4
Consolidated Statements of ~~Stockholders’ Equity (Deficit)~~Stockholders’Deficit		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Table of Contents

~~F-1~~

~~Table of Contents~~

Report of Independent Registered Public Accounting Firm

To Shareholders and the Board of Directors ~~and Shareholders~~

~~KaloBios Pharmaceuticals,~~of Humanigen, Inc.

Opinion on Financial Statement

We have audited the accompanying consolidated balance sheets of ~~KaloBios Pharmaceuticals,~~Humanigen, Inc. and subsidiary (the ~~“Company”~~"Company") as of December 31, ~~2016~~2019 and ~~2015,~~2018, and the related consolidated statements of operations and comprehensive loss, ~~stockholders’ equity (deficit),~~stockholders' deficit, and cash flows for the years then ~~ended. These~~ended, and the related notes to the consolidated financial statements ~~are~~(collectively, the ~~responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.~~

~~We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)~~"financial statements"). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the ~~consolidated~~ financial statements ~~referred to above~~ present fairly, in all material respects, the ~~consolidated~~ financial position of the Company as of December 31, ~~2016~~2019 and ~~2015,~~2018, and the ~~consolidated~~ 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 ~~consolidated~~ 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 ~~that raise~~and its total liabilities exceed its total assets. This raises substantial doubt about ~~its~~the Company's ability to continue as a going concern. Management's plans in regard to these matters also are ~~also~~ described in Note 1. The ~~consolidated~~ 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.

We have served as the Company's auditor since 2016.

/s/ HORNE LLP

Ridgeland, Mississippi

March 16, 2020

F-2

~~March 9, 2017~~

Table of Contents

~~F-2~~

~~Table of Contents~~

~~KaloBios Pharmaceuticals,~~Humanigen, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31, December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 2,906 $ 8,431
Prepaid expenses and other current assets 1,643 1,963
Total current assets 4,549 10,394

Property and equipment, net 68 288
Restricted cash 101 193
Other assets - 271
Total assets $ 4,718 $ 11,146

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable $ 4,072 $ -
Accrued expenses 736 -
Term loan payable 3,016 -
Total current liabilities 7,824 -
Liabilities subject to compromise - 5,414
Notes payable to vendors 1,273 -
Total liabilities 9,097 5,414

Stockholders’ equity (deficit):
Common stock, $0.001 par value: 85,000,000 shares authorized at December
31, 2016 and 2015; 14,977,397 and 4,450,994 shares issued and outstanding at
December 31, 2016 and 2015, respectively
15 4
Additional paid-in capital 236,216 219,319
Accumulated deficit (240,610 ) (213,591 )
Total stockholders’ equity (deficit) (4,379 ) 5,732
Total liabilities and stockholders’ equity (deficit) $ 4,718 $ 11,146

	December 31,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	143		$	814
Prepaid expenses and other current assets		309			485
Total current assets		452			1,299

Restricted cash		71			71
Total assets	$	523		$	1,370

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	5,046		$	2,856
Accrued expenses		3,308			3,129
Advance notes		2,113			807
Convertible notes - current		2,033			-
Notes payable to vendors		1,094			1,471
Total current liabilities		13,594			8,263
Convertible notes - non current		1,247			1,217
Total liabilities		14,841			9,480

Stockholders’ deficit:
Common stock, $0.001 par value: 225,000,000 shares authorized at
December 31, 2019 and December 31, 2018; 114,034,451 and 109,897,526 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively		114			110
Additional paid-in capital		270,463			266,381
Accumulated deficit		(284,895	)		(274,601	)
Total stockholders’ deficit		(14,318	)		(8,110	)
Total liabilities and stockholders’ deficit	$	523		$	1,370

See accompanying notes.

F-3

Table of Contents

~~F-3~~

~~Table of Contents~~

~~KaloBios Pharmaceuticals,~~Humanigen, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Year Ended December 31,
2016 2015
Operating expenses:
Research and development $ 10,449 $ 16,721
General and administrative 8,376 14,296
Litigation accrual expense - 3,335
Total operating expenses 18,825 34,352

Loss from operations (18,825 ) (34,352 )

Other (expense) income:
Interest expense (131 ) (842 )
Interest income - 29
Other income (expense), net 125 (213 )
Reorganization items, net (8,188 ) -
Net loss (27,019 ) (35,378 )
Other comprehensive income:
Net unrealized gains on marketable securities - 8
Comprehensive loss $ (27,019 ) $ (35,370 )

Basic and diluted net loss per common share $ (2.78 ) $ (8.57 )

Weighted average common shares outstanding used to
calculate basic and diluted net loss per common share 9,707,877 4,125,009

	Twelve Months Ended December 31,
	2019			2018
Operating expenses:
Research and development	$	2,616		$	2,219
General and administrative		6,328			9,112
Total operating expenses		8,944			11,331

Loss from operations		(8,944	)		(11,331	)

Other expense:
Interest expense		(1,349	)		(852	)
Other income (expense), net		(1	)		324
Reorganization items, net		-			(145	)
Net loss		(10,294	)		(12,004	)
Other comprehensive income		-			-
Comprehensive loss	$	(10,294	)	$	(12,004	)

Basic and diluted net loss per common share	$	(0.09	)	$	(0.13	)

Weighted average common shares outstanding used to
calculate basic and diluted net loss per common share		111,806,251			94,756,375

See accompanying notes.

F-4

Table of Contents

~~F-4~~

~~Table of Contents~~

~~KaloBios Pharmaceuticals,~~Humanigen, Inc.

Consolidated Statements of Stockholders’ ~~Equity (Deficit)~~

~~(in~~Deficit

(in thousands, except share and per share data)

Accumulated
Additional Other Total
Common Stock Paid-In Comprehensive Accumulated Stockholders’
Shares Amount Capital Income (Loss) Deficit Equity (Deficit)
Balances at December 31, 2014 4,124,004 $ 4 $ 202,830 $ (8 ) $ (178,213 ) $ 24,613
Issuance of common stock, net of issuance costs 326,698 - 8,218 - - 8,218
Issuance of common stock upon ESPP conversion 750 - 1 - - 1
Obligation to issue common stock in settlement of litigation - - 2,835 - - 2,835
Issuance of warrants in exchange for services - - 2,507 - - 2,507
Stock-based compensation expense - - 1,971 - - 1,971
Modification of stock options related to executive retirement - - 479 - - 479
Modification of stock options related to restructuring activities - - 480 - - 480
Settlement of fractional shares upon reverse split (458 ) - (2 ) - - (2 )
Comprehensive loss - - - 8 (35,378 ) (35,370 )
Balances at December 31, 2015 4,450,994 $ 4 $ 219,319 $ - $ (213,591 ) $ 5,732
Issuance of common stock to officer and directors 323,155 1 1,451 - - 1,452
Issuance of common stock, net of issuance costs 7,147,035 7 10,125 - - 10,132
Issuance of common stock in settlement of litigation 631,358 1 (1 ) - - -
Issuance of common stock for services 65,000 - 198 - - 198
Issuance of common stock upon exercise of options 5,625 - 10 - - 10
Issuance of common stock upon vesting of restricted stock units 3,750 - - - - -
Issuance of warrants in connection with acquisition of licenses - - 361 - - 361
Issuance of warrants in exchange for services - - 40 - - 40
Conversion of notes payable and related accrued interest and fees to common stock 2,350,480 2 3,385 - - 3,387
Beneficial conversion feature - - 484 - - 484
Stock-based compensation expense - - 844 - - 844
Comprehensive loss - - - - (27,019 ) (27,019 )
Balances at December 31, 2016 14,977,397 $ 15 $ 236,216 $ - $ (240,610 ) $ (4,379 )

					Additional						Total
	Common Stock				Paid-In			Accumulated			Stockholders’
	Shares		Amount		Capital			Deficit			Deficit
Balances at January 1, 2018		14,946,712	$	15	$	238,246		$	(262,597	)	$	(24,336	)
Conversion of notes payable and related accrued interest and fees to common stock		76,007,754		76		18,356			-			18,432
Issuance of common stock		18,653,320		19		2,762			-			2,781
Issuance of common stock in connection with financing agreement		30,000		-		-			-			-
Beneficial conversion feature of Advance Notes		-		-		271			-			271
Beneficial conversion feature of Convertible Notes		-		-		1,465			-			1,465
Issuance of stock options for payment of accrued compensation		-		-		303			-			303
Stock-based compensation expense		-		-		4,812			-			4,812
Issuance of common stock in lieu of cash compensation		151,407		-		85			-			85
Issuance of common stock in exchange for services		108,333		-		81			-			81
Comprehensive loss		-		-		-			(12,004	)		(12,004	)
Balances at December 31, 2018		109,897,526	$	110	$	266,381		$	(274,601	)	$	(8,110	)
Issuance of common stock		500,000		1		185			-			186
Issuance of common stock in connection with financing agreement		706,592		1		(1	)		-			-
Issuance of stock options for payment of accrued compensation		-		-		207			-			207
Issuance of common stock for payment of accrued compensation		152,223		-		137			-			137
Issuance of common stock in exchange for services		109,863		-		83			-			83
Issuance of common stock upon note conversions		2,179,622		2		979			-			981
Convertible note beneficial conversion feature		-		-		143			-			143
Exercise of common stock options		488,625		-		324			-			324
Stock-based compensation expense		-		-		2,025			-			2,025
Comprehensive loss		-		-		-			(10,294	)		(10,294	)
Balances at December 31, 2019		114,034,451	$	114	$	270,463		$	(284,895	)	$	(14,318	)

See accompanying notes.

F-5

Table of Contents

~~F-5~~

~~Table of Contents~~

~~KaloBios Pharmaceuticals,~~Humanigen, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,
2016 2015
Operating activities:
Net loss $ (27,019 ) $ (35,378 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 102 197
Gain on lease termination (227 ) -
Noncash interest expense 69 190
Financing derivative - 252
Reorganization items related to debtor-in-possession financing 1,627 -
Amortization of premium on marketable securities - 130
Stock based compensation expense 844 1,971
Gain on extinguishment of long-term debt - (61 )
Loss (gain) on sale of property and equipment 22 (56 )
Modification of stock options related to executive retirement - 479
Modification of stock options related to restructuring activities - 480
Issuance of warrants in exchange for services 40 2,507
Issuance of warrants in connection with acquisition of licenses 361 -
Issuance of common stock in exchange for services 198 -
Issuance of common stock to officer and directors 1,452 -
Obligation to issue common stock in settlement of litigation - 2,835
Changes in operating assets and liabilities:
Prepaid expenses and other assets 592 (674 )
Accounts payable 4,474 2,465
Accrued expenses (25 ) (4,400 )
Liabilities subject to compromise (3,471 ) -
Net cash used in operating activities (20,961 ) (29,063 )

Investing activities:
Purchase of marketable securities - (3,703 )
Proceeds from maturities of marketable securities - 33,371
Purchases of property and equipment - (136 )
Proceeds from sale of property and equipment 11 121
Changes in restricted cash 92 444
Net cash provided by investing activities 103 30,097

Financing activities:
Increase in restricted cash for notes payable - (8,291 )
Net proceeds from issuance of common stock 10,132 8,219
Net proceeds of stock option exercise 10 -
Net proceeds from notes payable 2,993 -
Net proceeds from convertible notes payable 2,198 -
Principal payments under notes payable - (3,452 )
Settlement of fractional shares upon reverse split - (2 )
Net cash provided by (used in) financing activities 15,333 (3,526 )

Net decrease in cash and cash equivalents (5,525 ) (2,492 )
Cash and cash equivalents, beginning of period 8,431 10,923
Cash and cash equivalents, end of period $ 2,906 $ 8,431

Supplemental cash flow disclosure:
   Cash paid for interest $ - $ 685
Supplemental disclosure of non-cash investing and financing activities:
   Principal payments under notes payable from restricted cash $ - $ 7,337
   Conversion of notes payable and related accrued interest and fees to common stock $ 3,387 $ -
   Obligation to issue common stock in settlement of litigation $ - $ 2,835
   Issuance of warrants in connection with acquisition of licenses $ 361 $ -
   Issuance of warrants in exchange for services $ 40 $ 2,507
   Issuance of common stock in exchange for services $ 198 -
   Issuance of common stock to officer and directors $ 1,452 $ -
   Issuance of notes payable to vendors $ 1,273 $ -

	Twelve Months Ended
	December 31,
	2019			2018
Operating activities:
Net loss	$	(10,294	)	$	(12,004	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-			19
Noncash interest expense		1,295			819
Stock based compensation expense		2,025			4,812
Issuance of common stock for payment of accrued compensation		137			85
Issuance of common stock in exchange for services		83			81
Gain on disposal of assets		-			(276	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		176			328
Accounts payable		2,190			(198	)
Accrued expenses		387			125
Net cash used in operating activities		(4,001	)		(6,209	)

Financing activities:
Net proceeds from issuance of common stock		185			2,781
Net proceeds from term loan		-			50
Proceeds from exercise of stock options		325			-
Net proceeds from issuance of Convertible notes		1,275			2,500
Net proceeds from issuance of Advance notes		2,050			925
Payments on notes payable to vendors		(505	)		-
Net cash provided by financing activities		3,330			6,256

Net increase (decrease) in cash, cash equivalents and restricted cash		(671	)		47
Cash, cash equivalents and restricted cash, beginning of period		885			838
Cash, cash equivalents and restricted cash, end of period	$	214		$	885

Supplemental cash flow disclosure:
Cash paid for interest	$	13		$	8
Supplemental disclosure of non-cash investing and financing activities:
Conversion of notes payable and related accrued interest and fees to common stock	$	981		$	18,432
Beneficial conversion feature of Advance notes	$	-		$	271
Beneficial conversion feature of Convertible notes	$	143		$	1,465
Issuance of stock options in lieu of cash compensation	$	207		$	303
Issuance of common stock for payment of accrued compensation	$	137		$	85
Issuance of common stock in exchange for services	$	83		$	81

See accompanying notes.

F-6

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~~F-6~~

~~Table of Contents~~

Notes to Consolidated Financial Statements

(in thousands unless otherwise indicated, except share and per share data)

1. Organization and Description of Business

Description of the Business

~~KaloBios Pharmaceuticals,~~

Humanigen, Inc. (the “Company”) iswas incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc.

During February 2018, the Company completed the restructuring transactions announced in December 2017 and furthered its transformation into a clinical-stage biopharmaceutical company.

During 2019, the Company completed its transformation into a clinical stage biopharmaceutical company, ~~focused~~developing its clinical stage immuno-oncology and immunology portfolio of monoclonal antibodies. The Company is focusing its efforts on ~~developing medicines for patients with neglected and rare diseases, with an ancillary focus on pediatric conditions, and on executing~~the development of its ~~Responsible Pricing Model in the commercialization of the Company’s product candidates that may be approved. The Company’s~~ lead product candidate, lenzilumab, through a clinical collaboration agreement (the “Kite Agreement”) with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”) to study the effect of lenzilumab on the safety of Yescarta®, axicabtagene ciloleucel (“Yescarta” or “Yescarta®”) including cytokine release syndrome (CRS), which is ~~benznidazole~~sometimes also referred to as cytokine storm, and neurotoxicity,with a secondary endpoint of increased efficacy. The Company believes that this study, designated the nomenclature ‘ZUMA-19’, may be the basis for registration of lenzilumab given the similar trial design to the Yescarta’s and Novartis’Kymriah® (“Kymriah” or “Kymriah®”) registration trials.

The Company is also exploring the effectiveness of its GM-CSF neutralization technologies (either through the use of lenzilumab as a neutralizing antibody or through GM-CSF gene knockout) in combination with other CAR-T, T-cell engaging, and immunotherapy treatments to break the efficacy/toxicity linkage, including the prevention and/or treatment of graft-versus-host disease (“GvHD”) while preserving graft-versus-leukemia (“GvL”) benefits in patients undergoing allogeneic HSCT. In this context, GvHD is akin to CRS, or cytokine storm and the Company believe the mechanism to be driven by GM-CSF levels. The recent coronavirus pandemic which is due to the SARS-CoV-2 virus and leads to the condition referred to as COVID-19, is characterized in the later and sometimes fatal stages by lung dysfunction which is triggered by CRS, or cytokine storm. Recent publications point to GM-CSF being a key cytokine, with elevated levels especially in those patients who transition to the Intensive Care Unit (ICU).The Company has established several partnerships with leading institutions to advance its innovative pipeline and is in active discussion with several government and commercial organizations.

The Company believes that it has a dominant intellectual property position in the area of GM-CSF neutralization through multiple approaches and mechanisms, as they pertain to CAR-T, GvHD and multiple other oncology/transplantation, inflammation, fibrosis and autoimmune conditions which may be driven by GM-CSF.

The Company has also advanced its preclinical next-generation cell and gene therapies for the treatment of ~~Chagas disease,~~cancers via its novel human granulocyte-macrophage colony-stimulating factor (“GM-CSF”) neutralization and gene-knockout platforms.

As a ~~parasitic~~leader in GM-CSF pathway science, the Company believes that it has the ability to transform prevention of CRS in SARS-CoV-2 infection. The virus associated with the current COVID-19 pandemic, SARS-Cov-2, is one of a group of several betacoronaviruses, which includes the viruses responsible for Severe Acute Respiratory Syndrome (SARS-CoV) and Middle East Respiratory Syndrome (MERS-CoV). These viruses infect predominantly the lower lung and cause fatal pneumonia. Other coronaviruses infect the upper respiratory tract and cause some cases of the common cold. The clinical course of COVID-19 can be mistaken for influenza infection – patients in both cases often suffer from aches and pains throughout the body, fever, cough and general malaise. COVID-19 is not typically associated with a productive cough – rather it tends to be a dry cough – and sneezing is less common. A nasal or throat swab can be used to test for SARS-CoV-2 infection, and blood tests can be run to check for viral titers. Travel to areas where COVID-19 appears to have a large number of cases and exposure to people who are known to have suffered from the condition or carriers of SARS-CoV-2 also increases the clinical suspicion of possible infection. Data generated during the SARS and MERS outbreaks point to cytokine storm as a phase of the illness which is characterized by an immune hyperactive phase, which then can progress to lung dysfunction and death. The natural history of SARS infection shows viral load actually decreases as patients enter the second phase.

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The authors of the study assessed samples from patients with severe pneumonia resulting from COVID-19 infection to identify whether inflammatory factors such as GM-CSF, G-CSF, IL-6, MCP-1, MIP 1 alpha, IFN-gamma and ~~neurological problems.~~ TNF-alpha were implicated. The authors noted that steroid treatment in such cases has been disappointing in terms of outcome, but suggested that a monoclonal antibody that targets GM-CSF may prevent or curb the hyper-active immune response caused by COVID-19 in this setting. The Company believes that the authors’ findings are worthy of further investigation, suggesting that to reduce or eradicate ICU care and prevent deaths from COVID-19 infection, an intervention may be needed to prevent cytokine storm.

As ~~more fully described~~a leader in ~~Note 6,~~GM-CSF pathway science, the Company ~~acquired~~believes that it has the ability to transform chimeric antigen receptor T-cell (“CAR-T”) therapy and a broad range of other T-cell engaging therapies, including both autologous and allogeneic cell transplantation. There is a direct correlation between the efficacy of CAR-T therapy and the incidence of life-threatening toxicities (referred to as the efficacy/toxicity linkage).

The Company believes that its GM-CSF neutralization and gene-editing CAR-T platform technologies have the potential to reduce the inflammatory cascade associated with serious and potentially life-threatening CAR-T therapy-related side-effects while preserving and potentially improving the efficacy of the CAR-T therapy itself, thereby breaking the efficacy/toxicity linkage. Clinical correlative analysis and preclinicalin-vivo evidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects, including cytokine release syndrome (“CRS) and neurotixicity (“NT”). GM-CSF has also been linked to the suppressive myeloid cell axis through recruitment of myeloid derived suppressor cells (“MDSC’s”) that reduce CAR-T cell expansion and hamper CAR-T cell efficacy. The Company’s strategy is to continue to pioneer the use of GM-CSF neutralization and GM-CSF gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated with CAR-T therapy.

The Company believes that its GM-CSF pathway science, assets and expertise create two technology platforms to assist in the development of next-generation CAR-T therapies. Lenzilumab, the Company’s proprietary Humaneered anti-GM-CSF immunotherapy, has the potential to be used in combination with any U.S. FDA-approved or development stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell therapies such as hematopoietic stem cell therapy (“HSCT”), to make these treatments safer and more effective.

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The Company has utilized a precision medicine approach and personalized the development of lenzilumab based on specific genetic mutations or biomarkers at baseline. The Company recently reported on a Phase I study of lenzilumab as monotherapy in refractory chronic myelomonocytic leukemia (CMML) and is now planning a potential Phase II study of lenzilumab in combination with azacitidine (current standard therapy) in newly diagnosed CMML patients with certain ~~worldwide rights to benznidazole on June 30, 2016.~~genetic mutations. The Company is also planning a potential Phase II/III study focused on early intervention with lenzilumab in patients at high risk for acute Graft versus Host Disease (GvHD) based on specific biomarkers. The Company has also reported on a Phase II study in severe asthma utilizing lenzilumab, which showed a statistically significant improvement in efficacy and favorable safety profile in patients with eosinophilic asthma, 21 of whom received lenzilumab vs. 20 patients who received placebo. In addition, the Company’s GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that may inherently avoid any efficacy/toxicity linkage, thereby potentially preserving the benefits of the CAR-T therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects.

The Company’s immediate focus is combining FDA-approved and development stage CAR-T therapies with lenzilumab, its lead product candidate. A clinical collaboration with Kite was recently announced to evaluate the use of lenzilumab with Yescarta in a multicenter clinical trial (ZUMA-19) in adults with relapsed or refractory large B-cell lymphoma.

The Company is also creating next-generation combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies to control toxicity. This includes developing ~~one~~its own portfolio of ~~its~~ proprietary ~~monoclonal antibodies,~~first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic disorders.

Lenzilumab

Lenzilumab neutralizes human GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy (CRS and neurotoxicity) and improve upon the efficacy of CAR-T therapy. The Company believes this same mechanism to be the causation of CRS/cytokine storm which precedes the decline in lung function seen with severe cases of COVID-19. Preclinical data generated in collaboration with the Mayo Clinic, which was published in ‘blood®’, a premier journal in hematology, indicates that the use of lenzilumab ~~(formerly known as KB003),~~in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of CAR-T therapy. This may also result in durable, or longer term, responses in CAR-T therapies.

There are currently no products approved by the FDA for the prevention of CRS/cytokine storm associated with COVID-19. Also there are currently no products approved by the FDA for the prevention of CAR-T therapy-related side effects, nor are there any approved therapies for the treatment of ~~chronic myelomonocytic leukemia,~~CAR-T therapty related NT. The Company is continuing to advance the development of lenzilumab in combination with CAR-T therapy through a non-exclusive clinical collaboration with Kite, pursuant to which we are conducting a multi-center Phase Ib/II study (the “Study”) of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). The Study has been designated the nomenclature ‘ZUMA-19’, consistent with the other Kite CAR-T studies, which also receive a ‘ZUMA’ designation. The primary objective of ZUMA-19 is to determine the effect of lenzilumab on the safety and efficacy of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved by the FDA and is the CAR-T therapy market leader, and our collaboration with Kite is currently the only clinical collaboration which is now enrolling patients with the potential to improve both the safety and efficacy of CAR-T therapy. The Company also plans to measure other potentially beneficial effects on efficacy and healthcare resource utilization. In addition, lenzilumab’s success in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers by making the CAR-T therapy capable of being administered, and follow-up care subsequently monitored and managed, potentially on an out-patient basis in certain patients and circumstances. In turn, the Company believes that delivering such provider and payer benefits might accelerate the use of the CAR-T therapy itself, and thereby permit us to generate further revenues from sales of lenzilumab.

In addition to COVID-19 and CAR-T therapy, the Company is committed to advancing its diverse platform for GM-CSF axis suppression for a broad range of other T-cell engaging therapies, including both autologous and allogeneic next generation CAR-T therapies, bi-specific antibody therapies, as well as other cell-based immunotherapies in development, including allogeneic HSCT, with our current and future partners.

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In July 2019, the Company entered into the “Zurich Agreement” with the University of Zurich, Switzerland (“UZH”). Under the Zurich Agreement, the Company has in-licensed certain technologies that it believes may be used to prevent or treat GvHD, thereby expanding its development platform to include improving the safety and effectiveness of allogeneic HSCT, a potentially curative therapy for patients with hematological cancers. There are currently no FDA-approved agents for the prevention of GvHD nor treatment of GvHD in patients identified as high risk by certain biomarkers. the Company believes that GM-CSF neutralization with lenzilumab has the potential to prevent or treat GvHD without compromising, and potentially improving, the beneficial graft-versus-leukemia (“GvL”) effect in patients undergoing allogeneic HSCT, thereby making allogeneic HSCT safer. Several recent papers have been published which support this approach, including in Science Translational Medicine in November 2018 and in ‘blood advances’ in October 2019.

The Company aims to position lenzilumab as a necessary companion product to any allogeneic HSCT and as a part of the standard pre-conditioning that all patients receiving allogeneic HSCT should receive or as an early treatment option in patients identified as high risk for GvHD. Given its interest in developing lenzilumab to prevent CRS/cytokine storm in COVID-19 as well as in the treatment of ~~juvenile myelomonocytic leukemia (JMML), both of which are~~ rare ~~hematologic~~ cancers ~~with high unmet medical need. The Company is exploring partnering opportunities to enable development of another of its proprietary monoclonal antibodies, ifabotuzumab (formerly known~~and other orphan conditions such as ~~KB004), for the treatment of certain rare solid and hematologic cancers. With a focus on neglected, rare and orphan diseases,~~GvHD, the Company believes that it has the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, ~~accelerated approval,~~ priority review and ~~priority review vouchers, where available,~~accelerated approval.

GM-CSF Gene Knockout

The Company is advancing its GM-CSF knockout gene-editing CAR-T platform through the Mayo Agreement that it entered into in June 2019 with the Mayo Foundation. Under the Mayo Agreement, the Company has in-licensed certain technologies that it believes may be used to create CAR-T cells lackingGM-CSFexpression through various gene-editing tools, including CRISPR-Cas9. The Company believes that its GM-CSF knockout gene-editing CAR-T platform has the potential to create next-generation CAR-T therapies that improve the efficacy and safety profile of CAR-T therapy. In addition, the Company has and continues to file intellectual property encompassing a broad range of gene-editing approaches related to GM-CSF knockout.

Preclinical data indicates that GM-CSF gene knockout CAR-T cells show improved overall survival in animals compared to wild-type CAR-T cells in addition to the expected benefits of reduced serious side-effects associated with CAR-T therapy. The Company is establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be applied across both autologous and allogeneic approaches and is also investigating multiple CAR-T cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing CAR-T therapy induced toxicities. Through targeted gene expression and modulating cytokine activation signaling, the Company may be able to increase the proportion of fitter T-cells produced during expansion, increase their proliferative potential, and inhibit activation-induced cell death, thereby improving the cancer killing activity of our engineered CAR-T cells thereby making them more effective and safer in the treatment of cancers. Initial data were published in an abstract that was presented at the December 2019 American Society of Hematology (ASH) meeting and also won an ASH Abstract Achievement award.

The Company plans to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation CAR-T products. In addition, the Company anticipates that its GM-CSF knockout gene-editing CAR-T platform may be a future backbone for controlling the serious side-effects that hamper CAR-T therapy that lead to serious and sometimes fatal outcomes for patients as a result of the CAR-T therapy itself.

EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature

The Company has begun to generate its own pipeline of CAR-T therapies including an EphA3-CAR-T based on the ifabotuzumab v-region and backbone. Ifabotuzumab is a Humaneered anti-EphA3 monoclonal antibody. Ifabotuzumab has the potential to kill tumor cells by targeting tumor stroma that protects them and the vasculature that feeds them. This unique combination of activities as a backbone of a CAR-T therapy may provide the potential to generate durable responses in a range of solid tumors by targeting the tissues that surround, protect, and nourish a growing cancer.

By developing an EphA3-CAR-T using ifabotuzumab as the backbone, the Company may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel manner. The Company is collaborating with the Mayo Clinic and plans to move to clinical testing with an anti-EphA3 construct for ~~certain periods~~a range of ~~exclusivity, expedited review and/or~~cancer types after completing IND-enabling work. The Company has published initial data from its Phase I study in an abstract that was accepted for the November 2019 Society of Neuro-Oncology (SNO) meeting, showing data in glioblastoma multiforme, a form of brain cancer.

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Table of Contents

EMR1-CAR: Targeting Eosinophils

The Company’s EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets EMR1. Our EMR1-CAR-T based on the HGEN005 backbone is another approach in our growing platform of CAR-T therapies. The Company believes that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.

In preclinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced killing of eosinophils from normal and eosinophilic donors and also induced a rapid and sustained depletion of eosinophils in a non-human primate model without any clinically significant adverse events. The Company has engaged with NIH to discuss expanding the initial work they have conducted utilizing HGEN005 and discussions are underway with a leading center in the U.S. to perform the IND-enabling testing in eosinophilic leukemia, an orphan condition with significant unmet need, as well as with several other ~~benefits.~~

potential partners, although there is no assurance that it will reach any agreements for these next steps.

Liquidity and Going Concern

The Company has undergone a significant transformation in the last year. As a result of challenges facing it at the time, on December 29, 2015, the Company filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On June 30, 2016, the Company’s Second Amended Plan of Reorganization, dated May 9, 2016, as amended (the “Plan”), became effective and the Company emerged from its Chapter 11 bankruptcy proceedings. Refer to Note 2 for additional details regarding the Company’s bankruptcy proceedings.

~~The Company was incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001. All of the Company’s assets are located in California.~~

The Company has incurred significant losses since its inception in March 2000 and had an accumulated deficit of ~~$240.6~~$284.9 million as of December 31, ~~2016. The~~2019. At December 31, 2019, the Company ~~has financed its operations primarily through~~had a working capital deficit of $13.1 million.

During March, April and May of 2019, the ~~sale~~Company received aggregate proceeds of ~~equity securities, debt financings, interest income earned~~$324,000 from the exercise of stock options by our Chairman and Chief Executive Officer and two other members of our Board of Directors.

Commencing on ~~cash~~April 23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Convertible Notes”) evidencing an aggregate of $1.3 million of loans made to the Company by eleven different lenders. See Note 6 for further description of the 2019 Convertible Notes.

On June 28, 2019, the Company received aggregate proceeds of $1.7 million from bridge loans made to the Company (the “June Bridge Notes”) by three different lenders including Dr. Cameron Durrant, the Company’s Chairman and ~~cash equivalents, grants~~Chief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder; and Nomis Bay LTD, our second largest shareholder. See Note 6 for further description of the ~~payments~~June Bridge Notes.

On November 12, 2019, the Company received aggregate proceeds of $350,000 from bridge loans made to the Company (the “November Bridge Notes”) by two parties, including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer and Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder. See Note 6 for further description of the November Bridge Notes.

During the month of December 2019, the Company received aggregate proceeds of approximately $186,000 from the issuance of common stock to Lincoln Park Capital under ~~its agreements with Novartis Pharma AG and Sanofi Pasteur S.A. (“Sanofi”). The Company completed its initial public offering (“IPO”) in February 2013.~~ the Purchase Agreement. See Note 9 for further description of the Purchase Agreement.

To date, none of the Company’s product candidates ~~have~~has been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The Company will require additional financing in order to meet its anticipated cash flow needs during the next twelve months. As a result, the Company will continue to require additional capital through equity offerings, debt financing and/or payments under new or existing licensing or collaboration agreements. If sufficient funds are not available on acceptable terms when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, could materially harm its business, financial condition and results of operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

F-11

Table of Contents

The

The Consolidated Financial Statements ~~as of and~~ for the ~~year~~twelve months ended December 31, ~~2016~~2019 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. The ability of the Company to meet its total liabilities of ~~$9.1~~$14.8 million at December 31, ~~2016,~~2019 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 the Company is unable to continue as a going concern.

~~Delisting of Common Stock~~

On January 13, 2016, the Company’s common stock was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the KBIOQ symbol. On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of the 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 the Company’s common stock on the over-the-counter market reverted back to KBIO.

~~F-7~~

~~Table of Contents~~

2. Chapter 11 Filing

On December 29, 2015, the Company filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the ~~United States~~U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy Case”).

In connection with financing efforts related to the Company’s bankruptcy proceedings, on April 1, 2016, the Company entered into a Debtor-in-Possession Credit and Security Agreement (the “Credit Agreement”) with a group of lenders (the “DIP Lenders”), pursuant to which the Company received $3 million in funds for working capital, bankruptcy-related costs, costs related to its plan of reorganization, payment of certain fees to the DIP Lenders and other costs associated with the ordinary course of business. Funds received under the Credit Agreement bore interest at a rate of 12% and were due and payable upon the Effective Date of the Plan, as defined below. Payment due under the Credit Agreement was convertible into shares of the Company’s common stock, with share amounts subject to calculation as provided in the Credit Agreement.

On April 1, 2016, the Company also entered into a Securities Purchase Agreement (the “SPA”) with the DIP Lenders. The SPA provided for the sale of the Company’s common stock, with share amounts subject to calculation as provided in the SPA, in respect of exit financing in the amount of $11,000,000 to be received upon the Effective Date of the Plan, as defined below.

Plan of Reorganization

On May 9, 2016, the Company filed with the Bankruptcy Court ~~the~~a Plan of Reorganization and related amended disclosure statement (the “Plan”) pursuant to Chapter 11 of the Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan.

The Plan became effective on June 30, 2016 (the “Effective Date”) and the Company emerged from its Chapter 11 bankruptcy proceedings. ~~In connection with such emergence, the Company consummated the transactions and other items described below.~~

·	~~Pursuant to the SPA and in repayment of its obligations under the Credit Agreement, the Company issued an aggregate of 9,497,515 shares of its common stock to the DIP Lenders.~~

The Company became obligated to issue 327,608 shares of common stock to the plaintiffs in litigation related to the Company’s 2015 private financing transaction in accordance with the settlement stipulation discussed below. The Company recorded an obligation in stockholders’ equity to issue the related shares and recorded the related expense of approximately $1.5 million as of December 31, 2015. As of December 31, 2016, all of the shares of common stock related to this settlement stipulation had been issued.

The Company reserved 300,000 shares of common stock for issuance to the plaintiffs in class action litigation related to the events surrounding the Company’s former Chairman and Chief Executive Officer. The Company recorded an obligation in stockholders’ equity to issue the related shares and recorded the related expense of approximately $1.3 million as of December 31, 2015. As of December 31, 2016, all of the shares related to this settlement stipulation had been issued.

The Company became obligated to issue 3,750 shares of common stock to a former director in satisfaction of claims against the Company. The Company recorded an obligation in stockholders’ equity to issue the related shares and recorded the related expense of approximately $16,000 as of December 31, 2015. As of December 31, 2016, all of the shares related to this settlement stipulation had been issued.

The Company reserved for issuance shares of common stock in an amount as yet to be determined in connection with the settlement of certain other claims and interests as set forth in the Plan. As of December 31, 2016, management does not believe the issuance of additional common stock for any such claims is probable. As such, no accrual has been made in the Consolidated Financial Statements.

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~~Table of Contents~~

The Company issued promissory notes in an aggregate principal amount of approximately $1.2 million to certain vendors 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, 2016, the Company has accrued $61,000 in interest expense related to these promissory notes.

The Company issued an aggregate of 323,155 shares of common stock to Cameron Durrant, Ronald Barliant, and David Moradi pursuant to an order by the Bankruptcy Court approving a one-time equity award for the Company’s Chief Executive Officer and two other directors. The Company recorded a charge of $1,451,000 representing the fair value of the shares issued and classified $700,000 and $751,000 as Reorganization items, net and General and administrative expenses, respectively.

Bankruptcy Claims Administration

On February 29, 2016, the Company filed its schedules of assets and liabilities and statement of financial affairs (the “Schedules”) with the Bankruptcy Court. The Bankruptcy Court entered an order setting April 1, 2016 as the deadline for filing proofs of claim for creditors other than governmental units and June 27, 2016 as the bar date for filing proofs of claim by governmental units (together, the “Bar Date”). The Bar Date is the date by which non-government claims against the Company relating to the period prior to the commencement of the Company's Chapter 11 case were required to be filed if such claims were not listed in liquidated, non-contingent and undisputed amounts in the Schedules, or if the claimant disagrees with the amount, characterization or classification of its claim as reflected in the Schedules. Claims that are subject to the Bar Date and that were not filed on or prior to the Bar Date are barred from participating in any distribution that may be made under the Plan.

As of the Effective Date, approximately 195 proofs of claim were outstanding (including claims that were previously identified on the Schedules) totaling approximately $32 million. Prior to the Bar Date, certain investors filed a class action claim in the amount of $20 million in connection with events surrounding the Company’s former Chairman and Chief Executive Officer. On June 15, 2016, a settlement stipulation related to the class action suit was approved under order of the Bankruptcy Court. The settlement stipulation required the Company to issue 300,000 shares of common stock and submit a payment of $250,000 to the claimants. See Note 14 for additional information on this matter and settlement.

Separately, a claim was filed by certain investors in the Company’s 2015 private financing transaction totaling approximately $6.9 million. On May 9, 2016, a settlement stipulation related to this suit was approved under order of the Bankruptcy Court. The settlement stipulation required the Company to issue 327,608 shares of common stock and submit a payment of $250,000 to an escrow account on behalf of the claimants. See Note 14 for additional information on this matter and settlement.

As of December 31, 2015, the Company recorded an obligation in Additional paid-in capital to issue the related shares totaling approximately $2.8 million and recorded the cash liability of $500,000 in Liabilities subject to compromise in the accompanying Condensed Consolidated Balance Sheets. Excluding these stipulated claims, all other proofs of claim amount to approximately $5.1 million. As of December 31, 2015, the Company recorded a liability of approximately $4.5 million, which represents its estimate of the amount expected to be allowed by the Bankruptcy Court, in Liabilities subject to compromise in the accompanying Consolidated Balance Sheet. In addition, the Company also had liabilities related to accrued compensation and deferred rent, totaling approximately $0.4 million, included in Liabilities subject to compromise in the accompanying Consolidated Balance Sheet, as of December 31, 2015.

As of June 30, 2016, the Company emerged from bankruptcy. The Company expects the amounts remaining in Liabilities subject to compromise as of the Effective Date to be paid in accordance with the Plan. Accordingly, as of December 31, 2016, Liabilities subject to compromise have been reduced to zero and reclassified according to their payment terms.

In March 2016, the Company entered into a termination agreement (the “Lease Termination Agreement”) related to the lease of its prior facility in South San Francisco, California. 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 the Company of March rental expenses and set an effective termination date of March 31, 2016. In accordance with the termination of the lease, the Company wrote off remaining deferred rent liabilities of approximately $312,000 and disposed of certain leasehold improvements and furniture and fixtures with a net book value of approximately $85,000. The resulting gain of $227,000 is included in Reorganization items, net in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2016. Concurrent with the termination of its prior lease, the Company entered into a lease agreement for a new office facility in Brisbane, California. The new lease commenced in April 2016 and expires in March 2017. On February 16, 2017, the Company 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.

~~F-9~~

~~Table of Contents~~

The reconciliation of certain proofs of claim filed against the Company in the Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and Other Subordinated Claims, is ~~ongoing.~~complete. As a result of its examination of the claims, the Company ~~may ask~~asked the Bankruptcy Court to disallow, reduce, reclassify, subordinate or otherwise adjudicate certain claims the Company believes are subject to objection or otherwise improper. ~~Under the terms of the Plan,~~On July 11, 2018, the Company ~~had until December 27, 2016 to file additional objections to disputed claims, subject~~filed an objection to the ~~Company’s right~~remaining claims. By objection, the Company sought to ~~seek an extension of this deadline from~~disallow in their entirety the ~~Bankruptcy Court. By Order, dated February 6, 2017,~~remaining claims totaling approximately $0.5 million. On September 17, 2018 the Bankruptcy Court ~~extended the claims objection deadline~~issued a Final Decree and Order to June 26, 2017. The Company 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 the Company’s financial statements.

As of December 31, 2016, approximately $850,000 in claims remain subject to review and reconciliation by the Company. The Company may file objections to these claims after it completes the reconciliation process. As of December 31, 2016, the Company has recorded $130,000 and $124,000 related to these claims in Accounts payable and Notes payable to vendors, respectively, which represents management’s best estimate of claims to be allowed by the Bankruptcy Court.

~~Although~~close the Bankruptcy Case ~~remains open, other than with respect to certain matters relating to~~and terminate the implementation of the Plan, the administration of certain claims, or over which the Bankruptcy Court may have otherwise retained jurisdiction, the Company is no longer operating under the direct supervision of the Bankruptcy Court. The Company anticipates that the Bankruptcy Case will be closed following the completion of the claims reconciliation process.

~~Bankruptcy Related Financing Arrangements~~

On April 1, 2016, the Company 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 $3,000,000 (the “Term Loan”). The Credit Agreement provided that the Term Loan will be made by the Lenders at an original discount equal to $191,000 (the “Upfront Fee”) and required the payment by the Company to the Lenders of a commitment fee equal to $150,000 (the “Commitment Fee”). In accordance with the terms of the Credit Agreement, the Company used the proceeds of the Term Loan for working capital, bankruptcy-related costs, costs related to the Company’s plan of reorganization, the payment of certain fees and expenses owed to the Agent and the Lenders in connection with the Credit Agreement and other costs incurred in the ordinary course of business.

~~Pursuant to the terms of the Credit Agreement, the Term Loan bore interest at a rate per annum equal to 12.00%.~~

~~In accordance with the bidding procedures order entered by the Bankruptcy Court, the Term Loan and the SPA were together subject to competing, higher and better offers.~~

In connection with the Company’s obligations under the Credit Agreement, the Company executed in favor of the Agent an Intellectual Property Security Agreement, dated as of April 1, 2016 (the “IP Security Agreement”). Under the terms of the IP Security Agreement, the Company pledged all of its intellectual property to the Agent for the ratable benefit of the Lenders, as collateral for its obligations under the Credit Agreement.

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 the Company’s 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 the Company’s 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, the Company also paid $406,000 to BHC in payment of its fees and expenses and $285,000 to Nomis in payment of its fees and expenses.

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~~Table of Contents~~

The Company records discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the fair value of the underlying common stock at the commitment date of the note transaction exceeding the effective conversion price embedded in the note. The Company evaluated the Credit Agreement for beneficial conversion features and calculated a value of approximately $484,000, all of which was expensed as of the Effective Date.

In conjunction with the Credit Agreement, during the year ended December 31, 2016, the Company incurred the following expenses which have been charged to Reorganization items, net in the accompanying Consolidated Statements of Operations and Comprehensive Loss:

Year ended
(in thousands) December 31, 2016
Upfront fee $ 191
Commitment fee 150
Beneficial conversion feature 484
Legal fees 802
Total Credit Agreement expense $ 1,627

On April 1, 2016, the Company also entered into 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 $11,000,000 (the “Exit Financing”) plus an exit financing commitment fee of $770,000 payable by the Company 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 consummation of the transactions contemplated by the SPA were contingent on, among other things, the funding of the Term Loan, the approval of the Bankruptcy Court of the Company’s plan of reorganization, and the simultaneous closing of the Company’s transaction with Savant. In addition, the closing of the transactions under the SPA were contingent upon the board of directors of the Company, upon the effectiveness of the confirmed plan of reorganization, consisting of (i) one director to be designated by Nomis; (ii) one director to be jointly designated by BHC, BHCF, and Cheval; (iii) the Chief Executive Officer of the Company to be designated jointly and unanimously by the Lenders; and (iv) two independent directors to be designated jointly and unanimously by the Lenders.

The issuance of the shares contemplated by the SPA was consummated on the Effective Date, and the Company issued to the Purchasers an aggregate of 7,147,035 shares of common stock for an aggregate purchase price of $11,000,000, 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, the Company paid $427,000 to BHC in payment of its fees and expenses and $304,000 to Nomis in payment of its fees and expenses.

Under the terms of the SPA, the Company was required to use commercially reasonable efforts to cause a registration statement registering the resale by the Purchasers of the shares issuable under the SPA to be declared effective by the SEC no later than December 27, 2016. The Company was obligated to keep the registration statement effective until all of the shares issued pursuant to the SPA are eligible for resale by the Purchasers without volume restrictions under an exemption from registration under the Securities Act. If the registration statement has not been declared effective by December 27, 2016 and any of the shares issued pursuant to the SPA are not eligible to be sold under Rule 144, then during each subsequent thirty day period (or portion thereof) until the registration statement is declared effective, the Company agrees to issue additional shares of common stock to the Purchasers in an amount equivalent to 10.0% of the shares originally purchased under the SPA that are then held by the Purchasers. On October 28, 2016, the SPA was amended to require the Company to file a registration statement by January 10, 2017 with effectiveness to be no later than March 31, 2017. On December 19, 2016, the SPA was amended again to require the Company to file a registration statement by March 17, 2017 with effectiveness to be no later than June 20, 2017.

~~F-11~~

~~Table of Contents~~

~~Governance Arrangements~~

On the Effective Date, the Company and Martin Shkreli, the Company’s former Chief Executive Officer, former Chairman and former controlling stockholder, entered into a Corporate Governance Agreement (the “Governance Agreement”), which provides for certain terms and conditions regarding the acquisition, disposition, holding and voting of securities of the Company by Mr. Shkreli. The Governance Agreement applies to all common stock owned by Mr. Shkreli or affiliates he controls.

Under the terms of the Governance Agreement, for 180 days following the Effective Date, Mr. Shkreli could not sell his shares of common stock at a price per share that was less than the greater of (x) $2.50 and (y) a 10% discount to the prior two week volume-weighted average price (the “Market Discount Price”). In addition, for 180 days following the 61st day after the Effective Date, the Company had a right to purchase any or all of Mr. Shkreli’s shares at a purchase price per share equal to the Market Discount Price. For a limited time, the Company also had a right of first refusal to purchase shares that Mr. Shkreli proposed to sell. Mr. Shkreli was also prohibited from transferring any shares to his affiliates or associates unless such transferee agreed to be subject to the terms of the Governance Agreement. Transfers of shares by Mr. Shkreli not made in compliance with the Governance Agreement would be null and void.

Under the terms of the Governance Agreement, Mr. Shkreli will not have any right to nominate directors to the Board of Directors of the Company and agreed in connection with any stockholder vote to vote his shares in proportion to the votes of the Company’s public stockholders. The Governance Agreement also prohibits Mr. Shkreli or his affiliates for a period of 24 months after the date of the Governance Agreement, from, among other things:

·	~~purchasing any stock or assets of the Company;~~

·	~~participating in any proposal for any merger, tender offer or other business combination, or similar extraordinary transaction involving the Company or any of its subsidiaries;~~

·	~~seeking to control or influence the management, the Company’s Board or the policies of the Company; or~~

·	~~submitting any proposal to be considered by the stockholders of the Company.~~

In addition, any material transaction between Mr. Shkreli or his associates and the Company, or relating to the Governance Agreement, cannot be taken without the prior approval of the Company’s Board.

~~The Governance Agreement provides for a mutual release between the Company and Mr. Shkreli of all~~remaining claims and ~~liabilities existing as of the date of execution.~~

~~On August 25 and August 26, 2016, Mr. Shkreli sold all of his shares of the Company to third party investors in private transactions.~~

~~Board Changes~~

On the Effective Date, in accordance with the Plan, Cameron Durrant, current Chief Executive Officer of the Company, as joint designee of BHCMF, BHC and Cheval (the "Black Horse Entities") and Nomis, continued as a director, Ronald Barliant, current member of the Board, continued as a director as the designee of the Black Horse Entities, Dale Chappell became a director as a designee of Nomis, and Timothy Morris and Ezra Friedberg became directors as joint designees of the Black Horse Entities and Nomis.

noticing services.

Financial Reporting in Reorganization

The Company applied Financial Accounting Standards Board ~~(“FASB”)~~(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 Condensed 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.

~~F-12~~

~~Table of Contents~~

~~As of December 31, 2015,~~

For the Company had approximately $5.4 million recorded as Liabilities subject to compromise. In conjunction with the Company’s exit from bankruptcy, the Company reclassified remaining Liabilities subject to compromise totaling approximately $2.8 million, $0.8 million and $1.2 million to Accounts payable, Accrued expenses and Notes payable to vendors, respectively. For yearyears ended December 31, ~~2016, the Company paid approximately $3.4 million related to Liabilities subject to compromise, issued $1.2 million in promissory notes to vendors~~2019 and 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. Remaining amounts will be paid based on terms of the Plan.

~~For the year ended December 31, 2016,~~2018, Reorganization items, net consisted of the following charges:

	Year Ended December 31,
	2019		2018
Legal fees	$	-	$	119
Professional fees		-		26
Total reorganization items, net	$	-	$	145

Cash payments for reorganization items totaled ~~$5.0~~$0.2 million for the year ended December 31, ~~2016.~~2018. There were no payments for reorganization items for the year ended December 31, 2019.

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3. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ~~(“GAAP”)~~(GAAP) and include all adjustments necessary for the presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. The 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 preparation of financial statements in conformity with GAAP requires 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. The Company believes judgment is involved in ~~determining the valuation of the financing derivative,~~accounting for the fair ~~value‑based~~value-based measurement of ~~stock‑based~~stock-based compensation, accruals, ~~liabilities subject to compromise~~convertible notes and ~~warrant valuations.~~warrants. 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 Consolidated Financial Statements.

Concentration of Credit Risk

Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk in the event of a default by the related financial institution holding the securities, to the extent of the value recorded in the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments with lower credit risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk.

~~F-13~~

~~Table of Contents~~

Fair Value of Financial Instruments

~~Cash, accounts payable and accrued liabilities are carried at cost, which approximates fair value given their short‑term nature. Marketable securities and cash equivalents are carried at fair value.~~

The fair value of financial instruments reflects the amounts that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable, and the third is considered unobservable, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than those included in Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The Company measures the fair value of financial assets and liabilities using the highest level of inputs that are reasonably available as of the measurement date. The following tables summarize the fair value of financial assets (marketable securities) that are measured at fair value, and the classification by level of input within the fair value hierarchy:

Fair Value Measurements as of
December 31, 2016

(in thousands) Level 1 Level 2 Level 3 Total
Investments:
Money market funds $ 101 $ — $ — $ 101
Total assets measured at fair value $ 101 $ — — $ 101

Fair Value Measurements as of
December 31, 2015

(in thousands) Level 1 Level 2 Level 3 Total
Investments:
Money market funds $ 196 $ — $ — $ 196
Total assets measured at fair value $ 196 $ — — $ 196

	Fair Value Measurements as of
	December 31, 2019
	Level 1		Level 2		Level 3		Total
Investments:
Money market funds	$	71	$	—	$	—	$	71
Total assets measured at fair value	$	71	$	—		—	$	71

	Fair Value Measurements as of
	December 31, 2018
	Level 1		Level 2		Level 3		Total
Investments:
Money market funds	$	71	$	—	$	—	$	71
Total assets measured at fair value	$	71	$	—		—	$	71

The estimated fair value of the ~~December Term Loan payable and the~~Advance notes, Notes payable to vendors, Bridge notes and Convertible notes as of December 31, ~~2016,~~2019 and 2018, based upon current market rates for similar borrowings, as measured using Level 3 inputs, approximate the carrying amounts as presented in the Consolidated Balance ~~Sheet. There were no notes payable as of December 31, 2015.~~

Sheets.

Cash and Cash Equivalents ~~and Marketable Securities~~

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, ~~interest‑bearing~~interest-bearing and demand money market accounts. The Company invests in marketable securities consisting primarily of certificates of deposit, money market funds, corporate securities, commercial paper, U.S. government‑backed securities and U.S. treasury notes. These securities are classified as available‑for‑sale and carried at estimated fair value, with unrealized gains and losses reported as part of accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

~~F-14~~

~~Table of Contents~~

Realized gains and losses from the sale of marketable securities are calculated using the specific‑identification method. Realized gains and losses and declines in value judged to be other‑than‑temporary are included in Other expense, net in the Consolidated Statements of Operations and Comprehensive Loss. To date, the Company has not recorded any impairment charges on its marketable securities related to other‑than‑temporary declines in market value. In determining whether a decline in market value is other‑than‑temporary, various factors are considered, including whether the decline is attributed to a change in credit risk and whether it is more likely‑than‑not that the Company will hold the security for a period of time sufficient to allow for an anticipated recovery in market value. The Company recognized a net gain from the sale of marketable securities of $8,000 for the year ended December 31, 2015. The Company had no realized gains or losses from the sale of marketable securities for the year ended December 31, 2016.

Restricted Cash

Restricted cash at December 31, ~~2016 consisted~~2019 of ~~$101,000~~$0.07 million related to a standby letters of credit in the amount of ~~$50,000~~$0.05 million issued in connection with certain insurance policy coverage maintained by the Company and restricted cash related to a credit card facility in the amount of ~~$51,000.~~

$0.02 million. Restricted cash at December 31, ~~2015 consisted~~2018 of ~~$193,000~~$0.07 million related to a standby letters of credit in the amount of $0.05 million issued in connection with ~~an operating lease for the Company’s corporate headquarters and~~ certain insurance policy coverage maintained by the ~~Company.~~

~~Property~~Company and ~~Equipment, Net~~

Property and equipment is stated at cost, less accumulated depreciation and amortization, and depreciated over the estimated useful lives of the respective assets of three years using the straight‑line method. Leasehold improvements are amortized onrestricted cash related to a ~~straight‑line basis over the shorter of the useful lives or the non-cancelable term of the related lease. Maintenance and repair costs are charged as expense~~credit card facility in the ~~Statements~~amount of ~~Operations and Comprehensive Loss as incurred.~~

~~Long‑Lived Assets~~

The Company evaluates the carrying value of its long‑lived assets, including intangible assets, whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. To date, the Company has not recorded any impairment charges on its long‑lived assets.

$0.02 million.

Debt Issue Costs

~~As of January 1, 2016, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03 and No. 2015-15, which require that debt~~

Debt issuance costs related to a recognized debt liability beare presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt ~~discounts.~~ ~~As a result of our adoption~~discounts and are amortized to interest expense over the term of the guidance, as of December 31, 2016, $460,000 of deferred financing costs were reclassified to reduce the Term loan payable in the Consolidated Balance Sheet. The guidance did not have a material impactrelated debt on the ~~consolidated financial statements.~~

effective interest method.

Research and Development Expenses

Development costs incurred in the research and development of new product candidates are expensed as incurred, including expenses that may or may not be reimbursed under research and development collaboration arrangements. Research and development costs include, but are not limited to, salaries, benefits, ~~stock‑based~~stock-based compensation, laboratory supplies, allocated overhead, fees for professional service providers and costs associated with product development efforts, including preclinical studies and clinical trials. ~~Research and development expenses under collaborative agreements approximate or exceed the revenue recognized under such agreements.~~

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~~Table of Contents~~

The Company estimates preclinical study and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed 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 the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

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The Company records 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.

Research and Development Services

Internal and external research and development costs incurred in connection with collaboration agreements are recognized as revenue in the same period as the costs are incurred and are presented on a gross basis when the Company acts as a principal, has the discretion to choose suppliers, bears credit risk, and performs at least part of the services.

Revenue Recognition

The Company’s revenue to date has been generated primarily through license agreements and research and development collaboration agreements. The Company had no revenues for the years ending December 31, 2019 and 2018. Commencing January 1, 2018, the Company recognizes revenue ~~when: (i) persuasive evidence~~in accordance with ASC 606. The core principle of ASC 606 is that an ~~arrangement exists, (ii)~~entity should recognize revenue to depict the transfer of ~~technology has been completed, delivery has occurred~~ promised goods and/or services ~~have been rendered,~~to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the ~~fee~~transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is ~~fixed~~ satisfied.

Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or ~~determinable,~~guaranteed license fees, collaborative research funding, and ~~(iv) collectability is reasonably assured. Payments received in advance~~various milestone and future product royalty or profit-sharing payments. These agreements are generally referred to as “multiple element arrangements”.

The Company applies the accounting standard on revenue recognition for multiple element arrangements. The fair value of ~~work performed are recorded as deferred revenue and recognized when earned. All revenue recognized to date~~deliverables under the ~~Company’s collaborative agreements has been nonrefundable.~~

~~Multiple Element Arrangements~~

~~The Company evaluates revenue from agreements that have multiple elements to determine whether the components~~arrangement may be derived using a best estimate of selling price if vendor specific objective evidence and third-party evidence is not available. Deliverables under the arrangement ~~represent separate units of accounting. Management considers whether components of an arrangement represent~~will be separate units of accounting ~~based upon whether certain criteria are met, including whether the~~if a delivered ~~element~~item has ~~stand‑alone~~ value to the ~~customer. To date, all~~customer on a standalone basis and if the arrangement includes a general right of return for the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the Company’s control.

The Company recognizes upfront license payments as revenue upon delivery of the license only if the license has standalone value from any undelivered performance obligations and that value can be determined. The undelivered performance obligations typically include manufacturing or development services or research ~~and development collaboration and~~and/or steering committee services. If the fair value of the undelivered performance obligations can be determined, then these obligations would be accounted for separately. If the license ~~agreements have been assessed~~is not considered to have ~~one~~standalone value, then the license and other undelivered performance obligations would be accounted for as a single unit of accounting. ~~Up‑front~~In this case, the license payments and ~~license fees received~~payments for ~~a combined unit of accounting are deferred and recognized ratably over the projected performance period. Nonrefundable fees where the Company has no continuing~~ performance obligations are recognized as revenue over the estimated period of when ~~collection~~the performance obligations are performed or deferred indefinitely until the undelivered performance obligation is determined.

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, the Company determines the period over which the performance obligations will be performed, and revenue will be recognized. Revenue is recognized using a proportional performance or straight-line method. The proportional performance method is used when the level of effort required to complete performance obligations under an arrangement can be reasonably ~~assured~~estimated. The amount of revenue recognized under the proportional performance method is determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of milestones, by the ratio of the level of effort performed to date to the estimated total level of effort required to complete performance obligations under the arrangement. If the Company cannot reasonably estimate the level of effort to complete performance obligations under an arrangement, the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to complete its performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.

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The Company’s collaboration agreements typically entitle the Company to additional payments upon the achievement of development, regulatory and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue calculation. Typically, these milestones are not considered probable at the inception of the collaboration. As such, milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved. If the milestone is achieved during the performance period, then the Company will only recognize revenue to the extent of the proportional performance achieved at that date, or the proportion of the straight-line basis achieved at that date, and the remainder will be recorded as deferred revenue to be amortized over the remaining performance period. If the milestone is achieved after the performance period has completed and all ~~other revenue recognition criteria~~performance obligations have been ~~met.~~

~~Stock‑Based~~delivered, then the Company will recognize the milestone payment as Revenue in its entirety in the period the milestone was achieved.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB subsequently issued ASU No. 2018-10 and 2018-11 in July 2018, which provide clarifications and improvements to ASU 2016-02 (collectively, the “new lease standard”).

ASU No. 2018-11 provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods. The new lease standard requires lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet. Additional footnote disclosures related to leases is also required.

On January 1, 2019, the Company adopted the new lease standard using the optional transition method and certain other practical expedients. Under the practical expedient package elected, the Company is not required to reassess whether expired or existing contracts are or contain a lease; and is not required to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.

The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right of use assets or lease liabilities, and this includes not recognizing right of use assets or lease liabilities for existing short-term leases of those assets in transition. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets.

The Company sub-leases office-space under a short-term lease for $300 per month. Management has determined the lease term to be less than 12 months, including renewals, and therefore has not recorded a right-of-use asset and corresponding liability under the short-term lease recognition exemption. Lease costs for the years ended December 31, 2019 and 2018 totaled approximately $10,700 and $204,800, respectively and are included in the Consolidated Statements of Operations and Comprehensive Loss.

Because the Company has elected to adopt the transitional practical expedients, Management was not required to reassess whether any existing or expired contracts contained embedded leases. The Company has not entered into any contracts during the 2019 fiscal year that contain an embedded lease.

Stock-Based Compensation Expense

The Company measures ~~employee and director stock‑based~~stock-based compensation expense for stock awards at the grant date, based on the fair ~~value‑based~~value-based measurement of the award, and the expense is recorded over the related service period, generally the vesting period, net of estimated forfeitures. The Company calculates the fair ~~value‑based~~value-based measurement of stock options using the ~~Black‑Scholes~~Black-Scholes valuation model and the ~~single‑option~~single-option method and recognizes expense using the ~~straight‑line~~straight-line attribution approach.

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~~The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505,~~ ~~Equity, using a fair-value approach and the provisions of ASC 815-40,~~ ~~Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.~~ The equity instruments are valued using the Black-Scholes valuation model. Measurement of share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and performance conditions are satisfied. The related expense is recognized as an expense over the term services are received.

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Income Taxes

The Company accounts for income taxes under an ~~asset‑and‑liability~~asset-and-liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse, net operating loss carryforwards and tax credits. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s provision for income taxes.

Comprehensive Loss

Comprehensive loss represents net loss adjusted for the change during the periods presented in unrealized gains and losses on ~~available‑for‑sale~~available-for-sale securities less reclassification adjustments for realized gains or losses included in net loss. The unrealized gains or losses are reported on the Consolidated Statements of Operations and Comprehensive Loss.

Net Loss Per Common Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the ~~weighted‑average~~weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the ~~weighted‑average~~weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the ~~treasury‑stock~~treasury-stock and ~~if‑converted~~if-converted methods. For purposes of the diluted net loss per share calculation, stock options, restricted stock units and common stock warrants are considered to be potentially dilutive securities but are excluded from the calculation of diluted net loss per share because their effect would be ~~anti‑dilutive~~anti-dilutive and therefore, basic and diluted net loss per share were the same for all periods presented.

The Company’s potential dilutive securities, which include stock options, restricted stock units and warrants have been excluded from the computation of diluted net loss per share as the effect 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 all periods presented.

The following shares subject to outstanding potentially dilutive securities have been excluded from the computations of diluted net loss per common share as the effect of including such securities would be antidilutive:

Year Ended December 31,
2016 2015
Options to purchase common stock 1,835,835 465,401
Warrants to purchase common stock 356,193 131,193
Restricted stock units - 3,750
2,192,028 600,344

~~Deferred Rent~~

The Company records its costs under facility operating lease agreements as rent expense. Rent expense is recognized on a straight‑line basis over the non‑cancelable term of the operating lease. The difference between the actual amounts paid and amounts recorded as rent expense is recorded to deferred rent.

	Year Ended December 31,
	2019		2018
Options to purchase common stock		15,881,721		15,409,357
Warrants to purchase common stock		331,193		331,193
		16,212,914		15,740,550

Segment Reporting

The Company determines its segment reporting based upon the way the business is organized for making operating decisions and assessing performance. The Company operates in only one segment, which is related to the development of pharmaceutical products.

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~~F-17~~

~~Table of Contents~~

Recent Accounting Pronouncements

~~The~~

Until December 31, 2018, the Company ~~qualifies~~qualified as an “emerging growth company” (“EGC”) pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (“JOBS ~~Act~~Act”) and ~~has~~ elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act which permits EGCs to defer compliance with new or revised accounting standards ~~(the “EGC extension”)~~ until non-issuers are required to comply with such standards. ~~Accordingly, so long as the Company continues to qualify~~A registrant with EGC status loses its eligibility as an EGC five years after its common equity initial public offering, or December 31, 2018 for the Company. Accordingly, the Company ~~will not have~~was required to adopt ~~or comply with~~ new accounting standards ~~until non-issuers are required to comply with such standards.~~

on the same timeline as other public companies effective January 1, 2018.

In ~~May 2014,~~November 2016, the FASB issued ASU ~~2014-09, "Revenue from Contracts~~2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires the inclusion of restricted cash with ~~Customers (Topic 606)." ASU 2014-09 completes~~cash and cash equivalents when reconciling the ~~joint effort by~~beginning-of-the period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the standard effective January 1, 2018. As a result of the adoption, the Company will no longer present the change within restricted cash in the consolidated statements of cash flows. See below for the composition of cash, cash equivalents and restricted cash shown on the statements of cash flow:

	Year Ended December 31,
	2019		2018
Cash and cash equivalents	$	143	$	814
Restricted cash		71		71
Total cash, cash equivalents and restricted cash as shown on statement of cash flows	$	214	$	885

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting”. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and ~~International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP~~services from nonemployees and ~~International Financial Reporting Standards. ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09~~ is effective for ~~public entities for interim and annual reporting periods~~fiscal years beginning after December 15, ~~2017.~~ ~~EGCs~~2018, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted the standard effective January 1, 2019. The adoption of this standard did not have ~~elected~~a material impact on the ~~EGC extension,~~Company’s Consolidated Financial Statements and related disclosures.

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606”. ASU 2018-18 makes targeted improvements for collaborative arrangements by clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including ~~the Company,~~recognition, measurement, presentation, and ~~non-public entities will be required to comply~~disclosure requirements. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. ASU 2018-18 is effective for ~~annual reporting periods~~fiscal years beginning after December 15, ~~2018.~~ 2019, and interim periods within those fiscal years. Early ~~application~~adoption is ~~not~~ permitted, ~~and entities have the choice to apply ASU 2014-09 either~~including adoption in any interim period. The amendments in this Update should be applied retrospectively to ~~each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at~~ the date of initial application ~~and not adjusting comparative information.~~of Topic 606. The Company is currently evaluating the requirements of ASU ~~2014-09 and has not yet determined its impact on the Company's Consolidated Financial Statements.~~

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which defines management’s responsibility to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management must assess if there is substantial doubt about the company’s ability to continue as a going concern within one year after the issuance date. Disclosures are required if conditions give rise to substantial doubt. This standard is effective for all companies in the first annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company adopted this standard at December 31, 2016 and the adoption had no impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize on the balance sheet a right-of use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. EGCs that have elected the EGC extension, including the Company, and non-public entities will be required to comply with the guidance for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. ~~Early application is permitted. The Company is currently evaluating the requirements of ASU 2016-02~~2018-18 and has not yet determined its impact on the Company’s Consolidated Financial ~~Statements.~~Statements and related disclosures.

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~~In March 2016, the FASB issued Accounting Standards Update 2016-09,~~ ~~Stock Compensation – Improvements to~~ ~~Employee Share-Based Payment Accounting~~. This new accounting standard simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. EGCs that have elected the EGC extension, including the Company, and non-public entities will be required to comply with the guidance for annual reporting periods beginning after December 15, 2017. Early application is permitted. We are assessing the potential impact to our financial statements and disclosures.

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4. Investments

At December 31, ~~2016,~~2019, the amortized cost and fair value of investments, with gross unrealized gains and losses, were as follows:

Amortized
Gross
Unrealized

Gross
Unrealized

(in thousands) Cost Gains Losses Fair Value
Money market funds $ 101 $ — $ — $ 101
Total investments $ 101 $ — $ — $ 101
Reported as:
Cash and cash equivalents $ —
Restricted cash 101
Total investments $ 101

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	71	$	—	$	—	$	71
Total investments	$	71	$	—	$	—	$	71
Reported as:
Cash and cash equivalents							$	—
Restricted cash								71
Total investments							$	71

At December 31, ~~2015,~~2018 the amortized cost and fair value of investments, with gross unrealized gains and losses, were as follows:

Gross Gross
Amortized Unrealized Unrealized
(in thousands) Cost Gains Losses Fair Value
Money market funds $ 196 $ — $ — $ 196
Total investments $ 196 $ — $ — $ 196

Reported as:
Cash and cash equivalents $ 3
Restricted cash, long-term 193
Total investments $ 196

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	71	$	—	$	—	$	71
Total investments	$	71	$	—	$	—	$	71
Reported as:
Cash and cash equivalents							$	-
Restricted cash, long-term								71
Total investments							$	71

5. ~~Property and Equipment~~

~~Property and equipment consists of the following:~~

December 31,
(In thousands) 2016 2015
Computer equipment and software $ 216 $ 330
Leasehold improvements, furniture and fixtures — 189
216 519
Accumulated depreciation and amortization (148 ) (231 )
Property and equipment, net $ 68 $ 288

~~Depreciation and amortization expense for the years ended December 31, 2016 and December 31, 2015 was $102,000 and $197,000, respectively.~~

6. Savant Arrangements

On February 29, 2016, the Company entered into a binding letter of intent (the “LOI”) with Savant Neglected Diseases, LLC (“Savant”). The LOI provided that the Company would acquire certain worldwide rights relating to benznidazole ~~(the “Compound”)~~ from ~~Savant~~. Under the LOI, the Company made a non-refundable deposit to Savant of $500,000, which was credited towards the Initial Payment (as defined below), and agreed to make monthly payments to Savant equal to $87,500 for development services performed by Savant relating to the ~~Compound~~.

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~~The LOI provided that in consideration for the assets to be acquired, the Company would provide consideration to Savant, including:~~

$3,000,000 (the “Initial Payment”) payable as soon as practicable but in no event later than the Company emerging from its Chapter 11 bankruptcy pursuant to a plan of reorganization (the “Bankruptcy Exit”);

a five-year warrant from the date of the Bankruptcy Exit to purchase up to 200,000 shares of common stock at a per share price of $2.25, exercisable for 25% of the shares immediately and exercisable for the remaining shares upon reaching certain milestones related to regulatory approval of the ~~Compound; and~~

~~certain additional payments to be further specified in the definitive agreements.~~

Savant. On ~~the Effective Date, as authorized by the Plan and the Confirmation Order,~~June 30, 2016, the Company and Savant entered into an Agreement for the Manufacture, Development and Commercialization of Benznidazole for Human Use (the “MDC Agreement”), pursuant to which the Company acquired certain worldwide rights relating to ~~the Compound.~~benznidazole. The MDC Agreement consummates the transactions contemplated by the LOI.

Under the terms of the MDC Agreement, the Company acquired certain regulatory and non-intellectual property assets relating to the Compound and any product containing the Compound and an exclusive license of certain intellectual property assets related to the Compound. Savant will retain the right to use the licensed intellectual property for veterinary uses. The MDC Agreement provides that the Company and Savant will jointly conduct research and development activities with respect to the ~~Compound, while the Company will be solely responsible for commercializing the~~ ~~Compound. The Company will fund the development program for the~~ ~~Compound~~ ~~and will reimburse Savant for its development program costs.~~

As required by the MDC Agreement, on the Effective Date, the Company made payments to Savant totaling $2,687,500, consisting of the remaining portion of the Initial Payment less the deposit in the amount of $2,500,000, an initial monthly Joint Development Program Cost payment of $87,500, and reimbursement of Savant’s legal fees capped at $100,000. The MDC Agreement provides for milestone payments, including payments related to U.S. and foreign regulatory submissions of up to $21 million and certain other contingent payments. Additionally, the Company will pay Savant royalties on any net sales of the ~~Compound, which royalty would increase if a PRV is granted subsequent to regulatory approval of the~~ ~~Compound. The MDC Agreement also provides that Savant is entitled to a portion of the amount the Company receives upon the sale, if any, of a PRV relating to the~~ ~~Compound~~.

In addition, on ~~the Effective Date~~June 30, 2016, the Company and Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company granted Savant a continuing senior security interest in the assets and rights acquired by the Company pursuant to the MDC Agreement and certain future assets developed from those acquired assets.

On June 30, 2016, in connection with the ~~Effective Date,~~MDC Agreement, the Company issued to Savant a five year warrant ~~(the “Warrant”)~~ to purchase 200,000 shares of the Company’s Common Stock, at an exercise price of $2.25 per share, subject to adjustment. ~~The Warrant is exercisable for 25% of~~See Note 7.

On May 26, 2017, the ~~shares immediately and exercisable for the remaining shares upon reaching certain regulatory related milestones. In addition, pursuant~~Company submitted its benznidazole Investigational New Drug Application (“IND”) to the ~~MDC Agreement, the Company has granted Savant certain “piggyback” registration rights for the shares issuable under the Warrant.~~

Food and Drug Administration (“FDA”) which became effective on June 26, 2017. The Company ~~determined the fair value of the Warrant to be approximately $670,000 and~~ recorded expense of ~~approximately $244,000~~$1.0 million during the ~~three months~~year ended ~~June 30, 2016, which is~~December 31, 2017 as Research and development expense related to the milestone achievement associated with the IND being declared effective.

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On July 10, 2017, FDA notified the Company that it granted Orphan Drug Designation to benznidazole for the treatment of Chagas disease. The Company recorded expense of $1.0 million during the year ended December 31, 2017 as Research and development expense related to the milestone achievement associated with Orphan Drug Designation.

The $2.0 million in milestone payments due Savant are included in ~~Research and development~~Accrued expenses in the accompanying Condensed Consolidated ~~Statement of Operations and Comprehensive Loss.~~

~~The Company reevaluated the performance conditions and expected vesting of the Warrant~~Balance Sheet as of ~~September 30 and~~ December 31, ~~2016~~2019 and recorded total expense of approximately $361,000 during the year ended December 31, 2016, which is included in Research and development expenses in the accompanying Consolidated Statement of Operations and Comprehensive Loss. The Company will continue to reevaluate the performance conditions and expected vesting of the Warrant on a quarterly basis until all performance conditions have been met.

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~~Before a compound receives regulatory approval,~~2018.

In July 2017, the Company ~~records upfront~~commenced litigation against Savant alleging that Savant breached the MDC Agreement and ~~milestone payments made to third parties~~seeking a declaratory judgement. Savant has asserted counterclaims for breaches of contract under ~~licensing arrangements as expense. Upfront payments are recorded when incurred and milestone payments are recorded when~~ the ~~specific milestone has been achieved.~~

The Company has determined that the acquisition of the Compound should be treated as a purchase of in-process research and development. Accordingly, during the nine months ended September 30, 2016, the Company recorded $3,250,000, which includes an additional $250,000 payment made in 2015 to Savant, as Research and development expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss. In addition, during the year ended December 31, 2016, the Company recorded $262,500 in connection with the Joint Development Program and recorded $100,000 in legal fee reimbursement as Research and development expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.

~~7. Notes Payable~~

~~Loan and Security~~MDC Agreement

In September 2012, the Company entered into the Loan and Security Agreement with MidCap Financial, which provided for the borrowing of up to $15 million. The Loan and Security Agreement originally provided for the loan to be issued in three tranches: the first tranche of $5 million was issued in September 2012; the second tranche of $5 million was issued in December 2012; and, prior to the First Amendment described below, the final tranche of $5 million was available to be drawn at the option of the Company by no later than June 2013. The loan had a monthly variable interest rate, reset each month, if applicable, as determined by adding to 600 basis points the greater of: (a) one month LIBOR or (b) 3%. Interest on amounts outstanding were payable monthly in arrears. An interest only period to December 31, 2013 was followed by straight‑line principal payments over thirty‑six months until December 31, 2016. Under the terms of the Loan and Security Agreement, at the time of final payment, the Company was required to pay an exit fee of 3% of the drawn amount. If the Company chose to prepay the loan, or if the loan was determined to be in default and early repayment was required, the Company would also have had to pay a fee ranging from 1% to 2% of the outstanding loan balance at the date of default. Pursuant to the Loan and Security Agreement, the Company also provided a first priority security interest in all existing and after‑acquired assets, excluding intellectual property.

In June 2013, the Company entered into an amendment to the Loan and Security Agreement (“the First Amendment”) to extend the draw down date for the final tranche of $5.0 million from June 2013 to May 2014, and to require the Company to draw that amount, which it did in May 2014. In connection with the First Amendment, the Company issued a warrant to purchase up to 6,193 shares of the Company’s common stock with an exercise price of $96.88 per share. The warrant expires on the tenth anniversary of its issuance date and had an initial fair value of $130,000, which represents financing fees, was included in Other assets and was being amortized as non‑cash Interest expense over the remaining term of the Loan and Security Agreement using the effective interest method. The Company estimated the fair value of this warrant using the Black‑Scholes option‑pricing model, based on the inputs for the estimated fair value of the underlying common stock at the valuation measurement date, the contractual term of the warrant, risk‑free interest rates, expected dividend rates and expected volatility of the price of the underlying common stock.

The Company recorded interest expense related to the borrowings of $842,000 for the year ended December 31, 2015. Included in Interest expense for this period was interest on principal, amortization of the debt issuance costs, accretion of debt discount, and the ~~accretion of~~Security Agreement. See Note 12 below for more information regarding the final exit fee. For the year ended December 31, 2015, the effective interest rate on the amounts borrowed under the Loan and Security Agreement, including the accretion of the debt discount and the accretion of the final payment, was 10%.

In August 2015, the Company entered into Amendment No. 2 to the Loan and Security Agreement, whereby the Company agreed to maintain, in a separate account with a financial institution (held in the Company’s name), an amount equal to the aggregate of the remaining future principal, interest and exit fee due under the Loan and Security Agreement, equating to $8.3 million as of the date of Amendment No. 2. Under the terms of the Loan and Security Agreement, as amended, MidCap Financial was permitted to draw payments from this account as they become due, and upon such draws, there would be a corresponding reduction in the amount owed to MidCap Financial by the Company. MidCap Financial had exclusive control to withdraw funds from that account at any time. The account was to be maintained either until the debt has been repaid in full, or until MidCap Financial determined that the Company satisfied certain capital requirements related to the Company’s future operating plans.

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In November 2015, the Company elected to exercise its prepayment right to repay the loan in full and paid MidCap Financial $6.6 million in full settlement of the remaining outstanding principal balance, accrued interest, the exit fee and a reduced prepayment fee of 1%. The prepayment resulted in a gain on extinguishment of debt of $61,000 in the fourth quarter of 2015, which is included in Other expense, net in the accompanying Consolidated Statements of Operations and Comprehensive Loss.

Savant litigation.

6. Debt

Notes Payable to Vendors

On June 30, 2016, the Company issued promissory notes in an aggregate principal amount of approximately ~~$1,212,000~~$1.2 million to certain claimants in accordance with the Plan. The notes are unsecured, bear interest at 10% per annum and ~~are~~became due and payable in full, including principal and accrued interest on June 30, 2019. In July and August, 2019, following the receipt of proceeds from the 2019 Bridge Notes, the Company used approximately $0.5 million of the proceeds to retire a portion of these notes, including accrued interest. After giving effect to these payments, the aggregate principal amount and accrued but unpaid interest on these notes approximates $1.1 million as of December 31, 2019. As of December 31, ~~2016,~~2019 and December 31, 2018, the Company has accrued ~~$61,000~~$0.3 million and $0.3 million in interest related to these promissory ~~notes.~~

~~December Term Loan~~

~~On December~~notes, respectively. The outstanding principal amount and accrued but unpaid interest on these notes is currently payable to the respective holders without demand, notice or declaration, and the holders, without demand or notice of any kind, may exercise any and all other rights and remedies available to them under the notes, the Plan, at law or in equity. The Company does not have sufficient funds to repay the principal and accrued but unpaid interest on these notes in their entirety.

Advance Notes

In June, July and August, 2018, the Company received an aggregate of $0.9 million of proceeds from advances made to the Company (the “Advance Notes”) by four different lenders including Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the Company’s controlling stockholder; Ronald Barliant, a director of the Company; and an unrelated third party (collectively the “Advance Note Lenders”). The Advance Notes accrue interest at a rate of 7% per annum, compounded annually.

The intention of the parties was that the amounts due under the Advance Notes would be converted automatically into the same type and class of securities as may be sold by the Company in a future financing transaction with an aggregate sales price of at least $5 million (a “Qualifying Financing”).

The Advance Notes generally were not convertible at the option of the Advance Note Lenders into the Company’s common stock until June 21, ~~2016,~~2019 (the “Expiration Date”); however, if prior to completing a Qualifying Financing, the Company experienced a change of control or made a public announcement that it had entered into a ~~Credit~~collaboration arrangement with a strategic partner relating to clinical studies of lenzilumab in connection with certain CAR-T therapies in a transaction that would not otherwise constitute a Qualifying Financing, the Advance Note Lenders could elect to convert the amounts due under the Advance Notes into the Company’s common stock at a conversion price of $0.45 per share. Additionally, if neither a Qualifying Financing nor a change of control had occurred by the Expiration Date, then at any time from and ~~Security~~after the Expiration Date the Advance Note Lenders could, at their option, convert the Advance Notes, plus any accrued and unpaid interest, into a number of shares of the Company’s common stock at the lesser of (i) the volume weighted average sales price per share over the 20 most recent trading days prior to the conversion or (ii) $0.45 per share.

In accordance with their terms, on May 30, 2019, in connection with the Company’s announcement of the Kite Agreement, the lenders converted the amounts due under the Advance Notes into the Company’s common stock at the conversion price of $0.45 per share. The Company issued a total of 2,179,622 shares of common stock in connection with the conversion.

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Convertible Notes

2018 Convertible Notes

Commencing September 19, 2018, the Company delivered a series of convertible promissory notes (the ~~“December Term Loan”~~“2018 Notes”) ~~with~~evidencing an aggregate of $2.5 million of loans made to the Company by six different lenders, including an affiliate of Black Horse Capital, ~~Master Fund Ltd.~~L.P., 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 December Term Loan provides for a credit facility in the original principal amount of $3,315,000, provides an original discount equal to $265,000 (the “Upfront Fee”) and requires the payment by the Company to the Lenders of a commitment fee equal to $153,000 (the “Commitment Fee”). In accordance with the terms of the December Term Loan, the Company will use the proceeds for general working capital, the payment of certain fees and expenses owed to the Agent and the Lenders and other costs incurred in the ordinary course of business.

~~The December Term Loan bears interest at 9.00% and is subject to certain customary representations, warranties and covenants.~~

The outstanding principal balance of the December Term Loan, plus accrued interest and fees, are due on the earlier of acceleration after an event of default under the agreement, or October 31, 2017. However, to the extent the Company raises capital through any SEC-registered stock offering, 50% of such offering’s proceeds (net of costs) must be used to pay down the December Term Loan.

~~Upon the occurrence of any event of default set forth in the agreement, the Agent has the option of terminating the agreement and declaring all of~~ the Company’s ~~obligations immediately payable.~~controlling stockholder. The ~~occurrence of an event of default will cause the December Term Loan to~~2018 Notes bear interest at a rate of 7% per annum and will mature on the earliest of (i) twenty-four months from the date the 2018 Notes were signed, (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including any dissolution or winding up of the Company or merger or sale by the Company of all or substantially all of its assets (in any case, a “Liquidation Event”). The Company used the proceeds from the 2018 Notes for working capital.

The 2018 Notes are convertible into equity securities in the Company in three different scenarios:

If the Company sells its equity securities on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to the Company of at least $10 million (a “Qualified Financing”), the 2018 Notes will be converted into either (i) such equity securities as the noteholder would acquire if the principal and accrued but unpaid interest thereon (the “Conversion Amount”) were invested directly in the financing on the same terms and conditions as given to the financing investors in the Qualified Financing, or (ii) common stock at a conversion price equal to ~~14.00%~~$0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes).

If the Company sells its equity securities on or before the date of repayment of the 2018 Notes in any financing transaction that results in gross proceeds to the Company of less than $10 million (a “Non-Qualified Financing”), the noteholders may convert their remaining 2018 Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in the financing on the same terms and conditions as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes).

The 2018 Notes may convert in the event the Company enters into or publicly announces its intention to consummate a Liquidation Event. Immediately prior to the completion of any such Liquidation Event, in lieu of receiving payment in cash, noteholders may convert the Conversion Amount into common stock at a conversion price equal to $0.45 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Notes).

2019 Convertible Notes

Commencing on April 23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Notes”) evidencing an aggregate of $1.3 million of loans made to the Company.

The 2019 Notes bear interest at a rate of 7.5% per annum and will mature on the earliest of (i) twenty-four months from the date the 2019 Notes are signed (the “Stated Maturity Date”), (ii) the occurrence of any customary event of default, or (iii) the certain liquidation events including any dissolution or winding up of the Company or merger or sale by the Company of all or substantially all of its assets (in any case, a “Liquidation Event”). The Company used the proceeds from the 2019 Notes for working capital.

The 2019 Notes are convertible into equity securities in the Company in four different scenarios:

If the Company sells its equity securities on or before the Stated Maturity Date in any financing transaction that results in gross proceeds to the Company of at least $10.0 million (a “Qualified Financing”) or the Company consummates a reverse merger or similar transaction, the 2019 Notes will be converted into either (i) (a) in the case of a Qualified Financing, such equity securities as the noteholder would acquire if the principal and accrued but unpaid interest thereon together with such additional amount of interest as would have been paid on the 2019 Notes if held to the Stated Maturity Date (the “Conversion Amount”) were invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the Qualified Financing or (b) in the case of a reverse merger, common stock at the same price per share paid by the buyer in such transaction (which in a stock for stock transaction, shall be based on the price per share used by the parties for purposes of setting the applicable exchange ration), or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).

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If the Company sells its equity securities on or before the date of repayment of the 2019 Notes in any financing transaction that results in gross proceeds to the Company of less than $ 10.0 million (a “Non-Qualified Financing”), the noteholders may convert their remaining Convertible Notes into either (i) such equity securities as the noteholder would acquire if the Conversion Amount were invested directly in the financing on the same terms and conditions (including price) as given to the financing investors in the Non-Qualified Financing, or (ii) common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).

The 2019 Notes may convert in the event the Company enters into or publicly announces its intention to consummate a Liquidation Event. Immediately prior to the completion of any such Liquidation Event, in lieu of receiving payment in cash, noteholders may convert the Conversion Amount into common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).

In addition, upon the six-month anniversary of the date the 2019 Notes are signed or such earlier time as the Company publicly announces that it has entered into a definitive arrangement with an unaffiliated third party (a “Strategic Partner”) pursuant to which, among other things, such Strategic Partner may agree to collaborate with the Company in conducting a clinical study to assess the efficacy of the Company’s lenzilumab monoclonal antibody in reducing adverse effects from neurotoxicity and cytokine release syndrome when used as a companion therapy in certain CAR-T cell therapies, noteholders may convert any portion of the outstanding principal amount of the 2019 Notes, together with (a) any unpaid and accrued interest on such principal amount to the date the noteholder’s notice of the noteholder’s intention to convert is received by the Company (the “Notice Date”), and (b) such additional amount of interest as would have been paid on such principal amount from the Notice Date to the Stated Maturity Date, into common stock at a conversion price equal to $1.25 per share (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes). The Company’s announcement of the Kite Agreement satisfied this requirement and accordingly, the 2019 Notes are convertible into common stock on the above terms.

The Advance Notes, the 2018 Notes and the 2019 Notes have an optional voluntary conversion feature in which the holder could convert the notes in the Company’s common stock at maturity at a conversion rate of $0.45 per share for the Advance Notes and the 2018 Notes and at a conversion rate of $1.25 for the 2019 Notes. The intrinsic value of this beneficial conversion feature was $1.9 million upon the issuance of the Advance Notes, the 2018 Notes and the 2019 Notes and was recorded as additional paid-in capital and as a debt discount which is accreted to interest expense over the term of the Advance Notes and Notes. Interest expense includes debt discount amortization of $0.8 million and $0.3 million for the years ended December 31, 2019 and 2018, respectively. Total interest expense for the Advance Notes, the 2018 Notes and the 2019 Notes for the years ended December 31, 2019 and 2018, excluding the debt discount amortization was $0.3 and $0.1 million, respectively.

The Company evaluated the embedded features within the Advance Notes, the 2018 Notes and the 2019 Notes to determine if the embedded features are required to be bifurcated and recognized as derivative instruments. The Company determined that the Advance Notes, the 2018 Notes and the 2019 Notes contain contingent beneficial conversion features (“CBCF”) that allow or require the holder to convert the Advance Notes, the 2018 Notes and the 2019 Notes, as applicable, to Company common stock at a conversion rate of $0.45 per share for the Advance Notes and the 2018 Notes and $1.25 for the 2019 Notes, but did not contain embedded features requiring bifurcation and recognition as derivative instruments. Upon the occurrence of a CBCF that results in conversion of the Advance Notes, the 2018 Notes or the 2019 Notes to Company common stock, the remaining unamortized discount will be charged to interest expense. Upon conversion of the Advance Notes on May 30, 2019, the remaining unamortized discount was charged to interest expense. The remaining debt discount will be amortized over 9 and 16 months for the 2018 Notes and the 2019 Notes, respectively.

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2019 Bridge Notes

On June 28, 2019, the Company issued three short-term, secured bridge notes (the “June Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to the Company by three parties: Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder, lent $750,000; Nomis Bay LTD, the Company’s second largest stockholder, lent $750,000; and Cameron Durrant, M.D., MBA, the Company’s Chief Executive Officer and Chairman of the Board of Directors, lent $200,000. The proceeds from the June Bridge Notes were used to satisfy a portion of the unsecured obligations ~~under~~incurred in connection with the Company’s emergence from bankruptcy in 2016 and for working capital and general corporate purposes. Of the $1.7 million in proceeds received, $950,000 was received on June 28, 2019 and was recorded as Advance notes in the Condensed Consolidated Balance Sheet as of June 30, 2019. The remaining proceeds of $750,000 were received July 1, 2019 and recorded accordingly.

The June Bridge Notes bear interest at a rate of 7.0% per annum and had an original maturity date of October 1, 2019. On October 8, 2019, the Company and the lenders agreed to extend the maturity date of the June Bridge Notes from October 1, 2019 until December ~~Term Loan~~31, 2019 and to waive any prior default up to and including the date of the amendment. On December 30, 2019, the Company and the lenders agreed to extend the maturity date of the June Bridge Notes from December 31, 2019 until March 31, 2020. No other changes to the terms of the June Bridge Notes were made in connection with the extension of the maturity date. The June Bridge Notes may become due and payable at such earlier time as the Company raises more than $3,000,000 in a bona fide financing transaction or upon a change in control. The June Bridge Notes are secured by liens of substantially all of the Company’s assets.

On November 12, 2019, he Company issued two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019 Bridge Notes”) evidencing an aggregate of $350,000 of loans made to the Company by two parties: Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling stockholder, lent $250,000; and Cameron Durrant, M.D., MBA, our Chief Executive Officer and Chairman of our Board of Directors, lent $100,000. The proceeds from the November Bridge Notes will be used for working capital and general corporate purposes.

The November Bridge Notes rank on par with the June Bridge Notes, and possess other terms and conditions substantially consistent with those notes. The November Bridge Notes bear interest at a rate of 7.0% per annum and had an original maturity date of December 31, 2019. On December 30, 2019, the Company and the lenders agreed to extend the maturity date of the November Bridge Notes from December 31, 2019 until March 31, 2020. No other changes to the terms of the November Bridge Notes were made in connection with the extension of the maturity date. The November Bridge Notes may become due and payable at such earlier time as the Company raises more than $3,000,000 in a bona fide financing transaction or upon a change in control. The November Bridge Notes also are secured by a ~~first priority interest in~~lien of substantially all of the Company’s ~~real~~assets.

Upon an event of default, which events include, but are not limited to, (1) the Company’s failure to timely pay any monetary obligation under the 2019 Bridge Notes; (2) our failure to pay our debts generally as they become due and ~~personal property, subject only~~(3) our commencing any proceeding relating to the Company under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar laws of any jurisdiction now or hereafter in effect, the interest payable on the 2019 Bridge Notes increases to 10.0% per annum. Further, upon certain ~~carve outs~~events of default, all payments and ~~permitted liens, as set forth in~~obligations due and owed under the ~~agreement.~~2019 Bridge Notes shall immediately become due and payable without demand and without notice to the Company.

Total interest expense for the 2019 Bridge Notes for the year ended December 31, 2019 was $0.1 million.

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~~The Company recorded the original principal amount of the loan reduced by the Upfront Fee and costs incurred in putting the loan in place for a net principal amount of $2,993,000.~~

As of December 31, ~~2016~~2019, the maturities of the debt of the Company ~~has accrued interest expense of $23,000 in the~~ ~~accompanying Consolidated Statements of Operations and Comprehensive Loss~~, consisting of $8,000 interest and loan cost accretion of $15,000 and has recorded such against the principal balance resulting in a loan balance of $3,016,000 in the accompanying Consolidated Balance Sheets.

8.by year is as follows:

	Total			2020			2021
Principal payments on Notes payable to vendors	$	774		$	774		$	-
Interest payments on Notes payable to vendors		320			320			-
Principal payments on 2019 Bridge notes		2,050			2,050			-
Interest payments on 2019 Bridge notes		63			63			-
Principal payments on Convertible notes		3,775			2,500			1,275
Interest payments on Convertible notes		290			224			66
Gross debt before unamortized discount		7,272			5,931			1,341
Unamortized debt discount on convertible debt		(785	)		(691	)		(94	)
Total Debt	$	6,487		$	5,240		$	1,247

7. Warrants to Purchase Common Stock

On June 19, 2013, the Company issued a warrant to purchase up to an aggregate of 6,193 shares of common stock and an exercise price of $96.88 per share. The warrant expires on the tenth anniversary of its issuance date. As of December 31, 2019, these warrants were fully vested.

On December 4, 2015, the Company issued a warrant to purchase up to an aggregate of 125,000 shares of common stock at an exercise price of $29.32 per share. The warrant expires on the fifth anniversary of its ~~issuance and had an initial fair value~~issuance. As of ~~$2,507,000 which is included in General and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended~~ December 31, 2015. The warrant provides that if the Company declares a dividend, or makes any other distribution of its assets, to holders of common stock, then the warrant holder shall be entitled to participate in such dividend or distribution to the same extent that the holder would have participated had it held the number of shares of common stock acquirable upon complete exercise of the warrant. The Company estimated the fair value of this warrant using the Black‑Scholes option‑pricing model, based on the inputs for the estimated fair value of the underlying common stock at the valuation measurement date, the contractual term of the warrant, risk‑free interest rates, expected dividend rates and expected volatility of the price of the underlying common stock. ~~The warrant was issued in connection with a November 18, 2015 financing the Company elected not to pursue.~~

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~~On October 31, 2015,~~2019, these warrants ~~issued in 2005 to purchase an aggregate of 4,874 shares of common stock at $41.04 per share expired.~~

were fully vested.

On June 30, 2016, in connection with the ~~benznidazole acquisition~~MDC Agreement described in Note 5, the Company issued to Savant a five year warrant (the “Savant Warrant”) to purchase 200,000 shares of the Company’s Common Stock, at an exercise price of $2.25 per share, subject to adjustment. The Savant Warrant is exercisable for 25% of the shares immediately and exercisable for the remaining shares upon reaching certain regulatory related milestones. In addition, pursuant to the MDC Agreement, the Company has granted Savant certain “piggyback” registration rights for the shares issuable under the Savant Warrant.

The Company determined the initial fair value of the Savant Warrant to be approximately ~~$670,000~~$0.7 million as of June 30, 2016. The Company reevaluated the performance conditions and expected vesting of the ~~Savant~~ Warrant ~~as of September 30~~quarterly during 2017 and ~~December 31, 2016~~2018 and recorded ~~total~~a reduction of expense of approximately ~~$361,000~~$0.1 million during the year ended December 31, ~~2016,~~2017. The expense reduction was due to a decline in the fair value, which reduction is included in Research and development expenses in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.

Specifically, as a result of the FDA granting accelerated and conditional approval of a benznidazole therapy manufactured by the Chemo Group (“Chemo”) for the treatment of Chagas disease and awarding Chemo a neglected tropical disease PRV, the Company re-evaluated the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.

As of December 31, 2019, 100,000 of these warrants were fully vested and 100,000 were not vested.

The Company will continue to reevaluate the performance conditions and expected vesting of the Savant Warrant on a quarterly basis until all performance conditions have been ~~met.~~

~~On December 1, 2016~~met or the Company issued a warrant to purchase up to an aggregate of 25,000 shares of common stock at an exercise price of $4.00 per share. The warrant expires on the one year anniversary of its issuance and had a fair value of approximately $40,000 which is included in General and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The warrant provides that if the Company declares a dividend, or makes any other distribution of its assets, to holders of common stock, then the warrant holder shall be entitled to participate in such dividend or distribution to the same extent that the holder would have participated had it held the number of shares of common stock acquirable upon complete exercise of the warrant. The warrant was issued in connection with the engagement agreement related to certain investor relations activities.

9.warrants expire.

8. Commitments and Contingencies

Operating Leases

The Company leased office space in Brisbane, California under an operating lease agreement that expired in September 2018. In ~~December 2013,~~May 2018, the Company entered into a month-to-month lease ~~agreement~~ for ~~a facility~~office space in ~~South San Francisco,~~Burlingame, California. The ~~lease commenced in July 2014 and was set to expire in 2019. Per the terms of~~Company terminated the lease ~~agreement, the Company had the option to terminate the lease after 36 months, subject to additional fees~~on November 19, 2019 and expenses. Deferred rent applicable to this lease totaled $311,000 at December 31, 2015 which is included in Liabilities subject to compromise in the accompanying Consolidated Balance Sheet. In March 2016, the Company entered into a termination agreement (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 the Company of March rental expenses and set an effective termination date of March 31, 2016.

~~Concurrent with the termination of this lease, the Company entered into a lease~~sub-lease agreement for ~~a new facility~~space in ~~Brisbane,~~the same building in Burlingame, California. The ~~new lease commenced in April 2016 and was to expire~~sub-lease initial term expires on March 31, ~~2017. On February 16, 2017, the Company amended the lease to extend the term of the lease~~2020 and is renewable for an additional ~~period of eighteen months such that the lease will expire on September 30, 2018.~~terms by mutual agreement.

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As of December 31, ~~2016,~~2019, the Company had no significant future minimum lease ~~payments due under the Company’s lease, including the lease amendment executed on February 16, 2017, are as follows:~~

(in thousands)
2017 $ 240
2018 202
Total $ 442

payments.

Rent expense was ~~$0.3~~$0.01 million and ~~$0.7~~$0.2 million for the years ended December 31, ~~2016~~2019 and ~~2015,~~December 31, 2018, respectively.

Indemnification

The Company has certain agreements with service providers with which it does business that contain indemnification provisions pursuant to which the Company typically agrees to indemnify the party against certain types of ~~third‑party~~third-party claims. The Company accrues for known indemnification issues when a loss is probable and can be reasonably estimated. The Company would also accrue for estimated incurred but unidentified indemnification issues based on historical activity. As the Company has not incurred any indemnification losses to date, there were no accruals for or expenses related to indemnification issues for any period presented.

~~10.~~

9. Stockholders’ Equity

Restructuring Transactions

On December 1, 2017, the Company’s 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 BHCMF, as administrative agent and lender, BHC, as a lender, Cheval, as a lender (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).

On December 21, 2017, the Company 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 the Company’s 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, the Company: (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 its common stock (the “New Lender Shares”), and (b) transferred and assigned to Madison Joint Venture LLC owned 70% by Nomis Bay and 30% by the Company (Madison), all of the Company’s assets related to benznidazole (the Benz Assets), the Company’s former drug candidate, capable of being so assigned; and (ii) issued to Cheval an aggregate of 32,028,669 shares of 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 the Company 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 the Company 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 the Company and the Term Loan Lenders, were terminated and are of no further force or effect, and (ii) all security interests of the Black Horse Entities and Nomis Bay in the Company’s assets were released. Although the Term Loans were satisfied and extinguished, if Madison elected to keep the Benz Assets after the Restructuring Effective Date, Nomis Bay would be obligated to pay or cause Madison to pay $0.3 million in legal fees and expenses owed by the Company to its litigation counsel, which remained unpaid in Accounts payable at December 31, 2017. On August 23, 2018 Madison elected to keep the Benz Assets and these amounts were paid by Madison to the Company’s litigation counsel.

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~~Bankruptcy Related Common Stock Issuances~~

Upon completion of the Restructuring Transactions, Nomis Bay held 33,573,530 of the Company’s common stock, or approximately 31.4% of its outstanding common stock, and the Black Horse Entities collectively held 66,870,851 shares of the Company’s common stock, or approximately 62.6% of its outstanding common stock. Accordingly, the completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change in control of the Company, as the Black Horse Entities and their affiliates owning more ~~fully described in Note 2, on~~than a majority of its outstanding common stock. Dr. Dale Chappell, a member of the Company’s 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 the Company and will be able to determine all matters of the Company requiring stockholder approval.

Lincoln Park Capital Purchase Agreement

On November 8, 2019, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), subject to certain limitations and conditions set forth in the Purchase Agreement.

Under the Purchase Agreement, the Company has the right, from time to time at its sole discretion and subject to certain conditions, to direct LPC to purchase up to 100,000 shares of Common Stock, with such amounts increasing based on certain threshold prices but not to exceed $750,000 in total proceeds on any purchase date. The purchase price of shares of Common Stock pursuant to the ~~SPA and~~Purchase Agreement will be based on the market prices of the Common Stock at the time of such purchases as set forth in ~~repayment~~the Purchase Agreement. Such sales of ~~its obligations under~~Common Stock by the ~~Credit~~Company, if any, may occur from time to time, at the Company’s option, over the 36-month period expiring in December 2022.

In connection with the signing of the Purchase Agreement on November 8, 2019, the Company issued ~~an aggregate of 9,497,515~~706,592 shares of its common stock to LPC. The issuance of the ~~DIP Lenders.~~shares were recorded as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’ deficit.

In addition to regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases if the closing sale price of the Common Stock is not below certain threshold prices, as set forth in the Purchase Agreement. In all instances, the Company may not sell shares of its Common Stock to LPC under the Purchase Agreement if it would result in LPC beneficially owning more than 4.99% of the Common Stock then outstanding.

LPC represented to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities to LPC pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of, and Regulation D under, the Securities Act.

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside of LPC’s control, LPC does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any regular or other sale of shares to LPC until such event of default is cured.

Actual sales of shares of Common Stock to LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. In consideration for entering in the Purchase Agreement, the Company has agreed to pay to LPC a commitment fee in shares of Common Stock. The Company will not receive any cash proceeds from the issuance of these shares.

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~~As more fully described in Note~~

The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to LPC. The Company expects that any proceeds received by the Company from such sales to LPC will be used for working capital and general corporate purposes.

On November 20, 2019, the Company filed a registration statement on Form S-1. The registration statement was declared effective on December 2, 2019 and the Company filed a final prospectus on ~~June 30, 2016,~~December 4, 2019.

Other Common Stock Transactions

Equity Financings

On March 12, 2018, the Company issued ~~327,608~~2,445,557 shares of its common stock for total proceeds of $1.1 million to the plaintiffs in litigation related to the Company’s 2015 private financing transaction in accordance with the settlement stipulation. The Company recorded an obligation to issue the related shares in stockholders’ equity and recorded the related expense of approximately $1.5 million in the attached Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2015.

~~As more fully described in Note 2, on~~accredited investors. On June ~~30, 2016,~~4, 2018, the Company issued ~~3,750~~400,000 shares of common stock to a former director in satisfaction of claims against the Company. The Company recorded an obligation to issue the related shares in stockholders’ equity and recorded the related expense of approximately $16,000 in the attached Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2015.

~~As more fully described in Note 2, on June 30, 2016, the Company issued 300,000 shares of~~its common stock for ~~issuance~~total proceeds of $0.2 million to ~~the plaintiffs in a class action litigation related to the events surrounding the Company’s former Chairman and Chief Executive Officer. The Company recorded~~ an obligation to issue the related shares in stockholders’ equity and recorded the related expense of approximately $1.3 million in the attached Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2015.

~~Common Stock~~

accredited investor.

In ~~June 2014,~~February 2018, the Company amended and restated its certificate of incorporation to increase the authorized common stock to ~~85,000,000 shares.~~

On July 13, 2015, the Company effected a one-for-eight reverse stock split of its outstanding common stock pursuant to an amendment to the Company’s certificate of incorporation. As a result of the reverse stock split, each eight225,000,000 shares and authorized 25,000,000 shares of preferred stock.

During the ~~Company’s common stock were combined into one share~~month of common stock. The reverse stock split was effective with respect to stockholders of record at the close of business on July 13, 2015, and trading of the Company’s common stock on the Nasdaq Global Market began on a split-adjusted basis on July 14, 2015. Holders of common stock who would have otherwise received fractional shares of the Company’s common stock pursuant to the reverse stock split received cash in lieu of the fractional share. The reverse stock split reduced the total number of shares of the Company’s common stock outstanding from approximately 33.0 million shares to approximately 4.1 million shares. In addition, the number of shares of common stock subject to outstanding options, restricted stock units and warrants issued by the Company and the number of shares reserved for future issuance under the Company’s stock plans were reduced by a factor of eight to proportionately reflect the reverse stock split, and per share exercise prices were increased by a factor of eight. The reverse stock split was accounted for retroactively and is reflected in the Company’s common stock, warrant, stock option and restricted stock activity as of and for the years ended December ~~31, 2016 and 2015. Unless stated otherwise, all share data in the financial statements and accompanying notes have been adjusted, as appropriate, to reflect the reverse stock split.~~

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On December 3, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain investors (the “Purchasers”) relating to a private placement of up to an aggregate 511,596 shares of common stock at a purchase price of $29.32 per share, or up to $15 million (the “Private Placement”).

On December 15, 2015 the Securities Purchase Agreement was amended resetting the share price for all Purchasers other than those Purchasers who were directors, officers, employees or consultants of the Company to $24.86. Upon closing of the Private Placement,2019, the Company issued ~~to the Purchasers 326,698~~500,000 shares of its common stock for an aggregate proceeds of ~~$8.2 million.~~

~~On November 7, 2016,~~$0.2 million under the Company issued 25,000 shares of restricted common stock to an investor relations consultant. The fair value of the shares issued based on the closing price on November 7, 2016 was $77,500 and was recorded as stock based compensation in the attached Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2016.

On November 15, 2016, the Company issued 40,000 shares of restricted common stock to a financial advisor in return for services. The fair value of the shares issued based on the closing price on November 15, 2016 was $120,000 and was recorded as stock based compensation in the attached Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2016.

Purchase Agreement.

The Company ~~had~~has reserved the following shares of common stock for issuance as of December 31, ~~2016:~~

2019:

Warrants to purchase common stock			~~356,193~~331,193
Options:
Outstanding under the 2012 Equity Incentive Plan			~~1,826,548~~15,881,406
Outstanding under the 2001 Equity Incentive Plan			~~9,287~~315
Available for future grants under the 2012 Equity Incentive Plan			~~1,980,201~~3,050,799
Shares reserved under the 2019 LPC Purchase Agreement			14,500,000
Total common stock reserved for future issuance			~~4,172,229~~33,763,713

2012 Equity Incentive Plan

Under the Company’s 2012 Equity Incentive Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant.

In general, to the extent that awards under the 2012 Plan are forfeited or lapse without the issuance of shares, those shares will again become available for awards.

The 2012 Plan will continue in effect for 10 years from its adoption date, unless the Company’s board of directors decides to terminate the plan earlier.

On September 13, 2016, the Board of Directors of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan to increase the number of shares of the Company’s common stock available for issuance under the 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 Plan from 125,000 to 1,100,000. On March 9, 2018, the Board of Directors of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan (the “Equity Plan”) to increase the number of shares of the Company’s common stock authorized for issuance under the Equity Plan by 16,050,000 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 during a calendar year to 7,500,000.

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~~Table of Contents~~

As of December 31, ~~2016,~~2019, there were ~~1,980,201~~3,050,799 shares available for grant under the 2012 Equity Incentive Plan.

2001 Equity Incentive Plan

Under the Company’s 2001 Stock Plan (the “2001 Plan”), the Company was able to grant shares and/or options to purchase up to 426,030 shares of common stock to employees, directors, consultants, and other service providers. In connection with the 2012 Plan taking effect, the 2001 Plan was terminated in August 2012. However, the awards under the 2001 Plan outstanding as of the termination of the 2001 Plan continued to be governed by their existing terms. ~~As of December 31, 2015, there were no shares available for grant under the 2001 Plan.~~

~~2012 Employee Stock Purchase Plan~~

The Employee Stock Purchase Plan (the “ESPP”) provided eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions, based on a six-month look-back period, at a price equal to the lesser of 85% of the fair market value of the ordinary shares at either the beginning of the offering period, or the fair market value on the purchase date. The ESPP was structured as a qualified employee stock purchase plan under Section 423 stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986 and was not subject to the provisions of the Employee Retirement Income Security Act of 1974. There were 21,058 shares initially authorized for issuance under the plan, and the first offering period commenced on June 1, 2014 and ended on October 31, 2014. The second offering period commenced on November 1, 2014 and ended on April 30, 2015. Offerings subsequent to the second offering commence on May 1 and November 1 and end on April 30 and October 31 each year. On May 3, 2016, the ESPP was terminated.

Stock Option Activity

The following table summarizes stock option activity for the ~~year~~years ended December 31, ~~2016:~~

Weighted-
Weighted- Average
Average Remaining
Exercise Contractual Aggregate
Number of Price Term Intrinsic Value
Shares (Per Share)(1) (in years) (in thousands)(2)
Balances at December 31, 2014 334,686 $ 34.00
Options granted 321,020 3.46
Options forfeited (176,764 ) 17.58
Options expired (13,541 ) 24.32
Options exercised — —
Balances at December 31, 2015 465,401 $ 19.29
Options granted 1,778,022 3.38
Options forfeited (3,416 ) 5.86
Options expired (398,547 ) 18.38
Options exercised (5,625 ) 1.77
Balances at December 31, 2016 1,835,835 $ 4.15 9.50 $ 947,896
As of December 31, 2016:
Options vested and expected to vest 1,829,593 $ 4.15 9.50 $ 944,673
Exercisable 287,041 $ 8.35 8.46 $ 133,792

2019 and 2018:

	Number of Shares			Weighted Average Exercise Price (per share)(1)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ($000's) (2)
Outstanding at January 1, 2018		2,448,383		$	4.15
Granted		13,575,038			0.66
Cancelled (forfeited)		(572,935	)		3.20
Cancelled (expired)		(41,129	)		37.82
Outstanding at December 31, 2018		15,409,357			0.95
Granted		1,470,957			0.78
Exercised		(488,625	)		0.67
Cancelled (forfeited)		(509,923	)		0.62
Cancelled (expired)		(45	)		9.68
Outstanding at December 31, 2019		15,881,721		$	0.95		8.2	$	49

Options vested and expected to vest		15,827,723		$	0.95		8.2	$	49
Exercisable		13,661,670		$	0.99		8.0	$	22

(1)

The weighted average price per share is determined using exercise price per share for stock options.

(2)

The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of the Company’s common stock for ~~in‑the‑money~~in-the-money options at December 31, ~~2016.~~2019.

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The stock options outstanding and exercisable by exercise price at December 31, ~~2016~~2019 are as follows:

Stock Options Outstanding Stock Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number
of Contractual
Life Exercise
Price Number of Exercise
Price
Range of Exercise Prices Shares In Years Per Share Shares Per Share
$1.91 - $1.91 8,500 8.76 $ 1.91 2,479 $ 1.91
$2.11 - $3.30 51,800 9.74 3.26 50,562 3.29
$3.38 - $3.38 1,678,022 9.71 3.38 139,831 3.38
$3.40 - $4.72 55,712 9.63 3.52 52,430 3.45
$8.24 - $17.36 9,200 1.13 9.78 9,200 9.78
$42.88 - $48.00 32,601 1.08 45.52 32,539 45.52
1,835,835 9.50 $ 4.15 287,041 $ $8.35

	Stock Options Outstanding					Stock Options Exercisable
Range of Exercise Prices		Number of Shares	Weighted- Average Remaining Contractual Life In Years		Weighted- Average Exercise Price Per Share		Number of Shares		Weighted- Average Exercise Price Per Share
$0.33 - $0.67		13,442,367	8.28	$	0.65		11,533,358	$	0.66
$0.84 - $1.30		755,080	9.15	$	1.09		445,705	$	0.94
$1.91 - $3.30		370,000	7.10	$	2.97		368,333	$	2.97
$3.38 - $3.38		1,263,022	6.71	$	3.38		1,263,022	$	3.38
$3.40 - $4.72		50,625	6.77	$	3.40		50,625	$	3.40
$8.24 - $17.36		315	1.02	$	12.94		315	$	12.94
$42.88 - $48.00		312	3.76	$	45.17		312	$	45.17
		15,881,721	8.17	$	0.95		13,661,670	$	0.99

The total fair value of options vested for the years ended December 31, ~~2016~~2019 and ~~2015~~2018 was ~~$0.8~~$2.0 million and ~~$2.9~~$4.8 million, respectively.

~~Stock Option Modifications~~

During the year ended December 31, 2015, the Company’s Board of Directors approved modifications to certain stock options in connection with the Company’s restructuring activities. The modifications included both the acceleration of the vesting of options in connection with terminations of certain employees, as well as the extension of the exercise period post termination from the standard 90 day period to one year. The Company accounted for the option modification under ASC Topic 718,

Stock-Based Compensation ~~– Stock Compensation, and as a result, recognized $959,000 in incremental compensation expense during the year ended December 31, 2015.~~

~~In addition, the vesting on certain options was accelerated upon termination based upon terms of the employment agreements with certain individuals.~~

~~Stock‑Based Compensation~~

The Company’s ~~stock‑based~~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~~Black-Scholes option pricing model and is recognized as expense over the requisite service period. The ~~Black‑Scholes~~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 the Company’s publicly listed peers over a period equal to the expected terms of the options as the Company does not have a sufficient trading history to use the volatility of its own common stock. To estimate the expected term, the Company has 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~~Black-Scholes option pricing model changes significantly, ~~stock‑based~~stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience and its expectations regarding future ~~pre‑vesting~~pre-vesting termination behavior of employees. The Company reviews its estimate of the expected forfeiture rate annually, and ~~stock‑based~~stock-based compensation expense is adjusted accordingly.

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The ~~weighted‑average~~weighted-average fair ~~value‑based~~value-based measurement of stock options granted under the Company’s stock plans in the years ended December 31, ~~2016~~2019 and ~~2015~~2018 was ~~$2.41~~$0.79 and ~~$2.15~~$0.47 per share, respectively. The fair ~~value‑~~value- based measurement of stock options granted under the Company’s stock plans was estimated at the date of grant using the ~~Black‑Scholes~~Black-Scholes model with the following assumptions:

Year Ended December 31,
2016 2015
Expected term 5-6 years 5-6 years
Expected volatility 85 - 90% 67 - 78%
Risk-free interest rate 1.3 - 1.4% 1.5 - 1.8%
Expected dividend yield 0% 0%

	Year Ended December 31,
	2019	2018
Expected term	5 - 6 years	5 - 6 years
Expected volatility	96% - 99%	93% - 97%
Risk-free interest rate	1.74% - 2.59%	2.7% - 2.8%
Expected dividend yield	0%	0%

Total ~~stock‑based compensation~~ expense for stock option grants recognized was as follows:

Year Ended December 31,
(In thousands) 2016 2015
General and administrative $ 547 $ 1,134
Research and development 297 837
$ 844 $ 1,971

	Year ended December 31,
	2019		2018
General and administrative	$	1,928	$	4,611
Research and development		97		201
Total stock-based compensation	$	2,025	$	4,812

At December 31, ~~2016,~~2019, the Company had ~~$3.1~~$1.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a ~~weighted‑average~~weighted-average period of ~~2.5~~1.4 years.

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~~11. Restructuring Charges~~

Restructuring charges incurred during the nine months ended September 30, 2015 primarily consist of severance and other post-termination benefit costs resulting from the cost reduction program implemented by the Company in January 2015. These activities primarily consisted of 20% reduction of the Company’s workforce. Restructuring charges incurred during the three months ended December 31, 2015 primarily relates to a board-approved restructuring plan announced in November 2015 to reduce costs and extend the cash runway in order to allow the Company to evaluate strategic alternatives for the products and the Company. As part of the restructuring plan, the Company elected to exercise its right to prepay the Loan and Security Agreement and paid MidCap Financial $6.6 million in full settlement of the remaining outstanding principal balance, accrued interest, the exit fee and a reduced prepayment fee of 1%. In addition, the Company undertook a reduction in force that eliminated the positions of 17 employees or more than 60% of the Company’s workforce.

Per ASC 420-10-05-1, Exit or Disposal Cost Obligations, include, but are not limited to, involuntary termination benefits provided to employees under the terms of a one-time benefit arrangement that, in substance, is not an ongoing benefit arrangement or a deferred compensation contract, and certain contract termination costs. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements of accrual are met.

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~~A summary of the activity is presented below:~~

(in thousands)
Contract
termination
costs - R&D

Salaries and
benefits - R&D

Salaries and
benefits - G&A
Total
Balance as of December 31, 2014 $ 1,185 $ - $ - $ 1,185
Accrued - 1,167 1,011 2,178
Adjustments (78 ) - - (78 )
Paid (1,107 ) (1,167 ) (1,000 ) (3,274 )
Balance as of December 31, 2015 $ - $ - $ 11 $ 11
Accrued - - - -
Adjustments - - (11 ) (11 )
Paid - - - -
Balance as of December 31, 2016 $ - $ - $ - $ -

~~As disclosed in Note 10, in addition to the restructuring charges in the table above, the Company recorded stock based compensation expense~~ ~~of $959,000~~ ~~during the twelve months ended December 31, 2015~~ related to the fair value of stock options of former employees which were modified such that they did not expire upon termination. The Company classified $542,000 and $417,000 as general and administrative expenses and research and development expenses, respectively.

~~12.~~

10. Income Taxes

No provision for federal income taxes has been recorded for the years ended December 31, ~~2016~~2019 and ~~2015~~2018 due to net losses and the valuation allowance established.

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as ~~follows (in thousands):~~

December 31,
2016 2015
Deferred tax assets:
Net operating losses $ 57,903 $ 49,145
Research & other credits 2,121 1,978
Stock based compensation 2,164 1,047
In-Process R&D 1,246 —
Accrued bankruptcy settlement — 1,328
Other 761 222
Total deferred tax assets 64,195 53,720
Valuation allowance (64,195 ) (53,720 )
Net deferred tax assets $ — $ —

follows:

	As of December 31,
	2019			2018
Deferred tax assets:
Net operating losses	$	50,144		$	47,877
Research and other credits		2,178			2,178
Stock based compensation		3,001			2,682
In-Process research and development		1,253			1,314
Other		854			708
Total deferred tax assets		57,430			54,759

Valuation allowance		(57,430	)		(54,759	)
Net deferred tax assets	$	-		$	-

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December ~~2016~~2019 and ~~2015~~2018 is as follows:

Year Ended December 31,
2016 2015
Statutory rate 34.0 % 34.0 %
Valuation allowance (34.8 ) (31.1 )
Nondeductible stock compensation (0.1 ) (2.9 )
Other 0.9 -
Effective tax rate - % - %

~~F-29~~

~~Table of Contents~~

	Year Ended December 31,
	2019			2018
Statutory rate		21.0	%		21.0	%
Valuation allowance		(26.0	)%		(26.4	)%
Nondeductible stock compensation		(0.3	)%		0.1	%
Other		5.3	%		5.3	%
Effective tax rate		-	%		-	%

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by ~~$10.5~~$2.7 million during ~~2016~~2019 and increased by ~~$12.3~~$3.2 million during ~~2015.~~

2018.

At December 31, ~~2016,~~2019, the Company had federal net operating loss carryforwards of approximately ~~$146.8~~$166.2 million, which expire in the years 2021 through ~~2036,~~2037, and state net operating loss carryforwards of approximately ~~$137.0~~$172 million, which expire in the years 2028 through 2039. The Company also has federal net operating loss carryforwards generated in 2018 and 2019 of $15.4 million that have no expiration date as a result of the December 22, 2017 ~~through 2036.~~

Tax Cuts and Jobs Act tax reform legislation.

At December 31, ~~2016,~~2019, the Company had federal research and development credit carryforwards of approximately ~~$1.5~~$1.3 million, which expire in the years 2022 through ~~2036~~2035 and state research and development credit carryforwards of approximately ~~$2.3~~$2.2 million. The state research and development credit carryforwards can be carried forward indefinitely.

During 2013, the Company completed a Section 382 study in accordance with the Internal Revenue Code of 1986, as amended, and similar state provisions. The study concluded that the Company has experienced several ownership changes since inception. This causes the Company's utilization of its net operating loss and tax credit carryforwards to be subject to substantial annual limitations. These results are reflected in the above carryforward amounts and deferred tax assets. The Company's ability to utilize its net operating loss and tax credit carryforwards ~~may be~~are further limited as a result of subsequent ownership changes. All such limitations could result in the expiration of carryforwards before they are utilized. An ownership change may have occurred during 2015, 2016, 2017, 2018 and ~~2016.~~2019, or all five years and in connection with the Restructuring Transactions described in Note 9. As a result, tax attributes such as net operating losses and research and development credits may be subject to further limitation.

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The Company adopted FASB Interpretation ASC 740, Income Taxes (previously Accounting for Uncertainties in Income Taxes - an interpretation of FASB Statement No. 48 ("FIN 48") effective January 1, 2009. FASB

ASC 740 requires that the Company recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.

~~A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):~~

Balance at December 31, 2014 $ 856
Additions based on tax positions related to prior year -
Additions based on tax positions related to current year 212
Balance at December 31, 2015 1,068
Reduction based on tax positions related to prior year (9 )
Additions based on tax positions related to current year 68
Balance at December 31, 2016 $ 1,127

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at December 31, 2017	$	1,060
Additions based on tax positions related to prior year		-
Additions based on tax positions related to current year		-
Balance at December 31, 2018		1,060
Additions based on tax positions related to prior year		-
Additions based on tax positions related to current year		-
Balance at December 31, 2019	$	1,060

There were no interest or penalties related to unrecognized tax benefits. Substantially all of the unrecognized tax benefit, if recognized to offset future taxable income would affect the Company’s tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Because of net operating loss carryforwards, substantially all of the Company’s tax years remain open to federal tax and state tax examination.

The Company files income tax returns in the U.S. federal jurisdiction, California and ~~California.~~Florida. Federal and California corporation income tax returns beginning with the 2001 tax year remain subject to examination by the Internal Revenue Service and the California Franchise Tax Board, respectively.

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~~Table of Contents~~

~~13.~~

11. Employee Benefit Plan

The Company has established a 401(k) ~~tax‑deferred~~tax-deferred savings plan (the “401(k) Plan”), which permits participants to make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code. The Company is responsible for administrative costs of the 401(k) Plan. The Company may, at its discretion, make matching contributions to the 401(k) Plan. No employer contributions have been made to date.

~~14.~~

12. Litigation

~~Bankruptcy Proceeding~~

~~The~~

Savant Litigation

On July 10, 2017, the Company filed a complaint against Savant in the Superior Court for ~~protection under Chapter 11~~the State of ~~Title 11 of the United States Bankruptcy Code on December 29, 2015. See Note 2 for additional information related to the bankruptcy.~~

~~Securities Class Action Litigation~~

~~On December 18, 2015, a putative class action lawsuit (captioned~~ ~~Li v.~~ Delaware, New Castle County (the “Delaware Court”).KaloBios Pharmaceuticals, Inc. ~~et al.~~v. Savant Neglected Diseases, LLC, ~~5:15-cv-05841-EJD)~~No. N17C-07-068 PRW-CCLD. The Company asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 5 - “Savant Arrangements” for more information about the MDC Agreement. The Company alleges 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, the Company has alleged that as of June 30, 2017, Savant was ~~filed~~responsible for aggregate cost overages of approximately $3.4 million, net of a $0.5 million deductible under the MDC. The Company asserts that it is entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant owed the Company approximately $1.4 million.

On July 12, 2017, Savant removed the case to the Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July 2016.In re KaloBios Pharmaceuticals, Inc., No. 15-12628 (LSS) (Bankr. D. Del.). 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 the Company breached its obligations to pay the milestone payments and other related representations and obligations. On August 1, 2017, the Company moved to remand the case back to the Delaware Court (the “Motion to Remand”).

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On August 2, 2017, Savant sent a foreclosure notice to the Company, demanding that it provide the Collateral as defined in the ~~United States District~~Security Agreement for inspection and possession on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the “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 the Company’s motion for a TRO, entering an order prohibiting Savant from collecting on or selling the ~~Northern District of California (the “Class Action Court”), alleging violations~~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. On August 9, 2017, the parties have stipulated to continue the provisions of the ~~federal securities laws by~~TRO in full force and effect until further order of the appropriate court, which the Bankruptcy Court signed that same day (the “Stipulated Order”).

On February 13, 2018 Savant made a letter request to the Delaware Court to dissolve the TRO and Stipulated Order. Also on February 13, 2018, the Company ~~Herb Cross~~filed its Answer and ~~Martin Shkreli, the Company’s former Chairman and Chief Executive Officer.~~Affirmative defenses to Savant’s Counterclaims. On ~~December 23, 2015, a putative class action lawsuit was filed against~~February 15, 2018 the Company filed a letter opposition to Savant’s request to dissolve the TRO and Stipulated Order and requesting a status conference. A hearing on Savant’s request to dissolve the TRO and Stipulated Order was held before the Delaware Court on March 19, 2018. The Delaware Court denied Savant’s request to dissolve the TRO and Stipulated order, which remain in effect.

On April 11, 2018, the ~~Class Action~~Company advised the Delaware Court ~~(captioned~~ ~~Sciabacucchi v. KaloBios Pharmaceuticals, Inc. et al., 3:15-cv-05992-CRB), similarly alleging violations of~~that it would meet and confer with Savant regarding a proposed case management order and date for trial. On April 26, 2018 the ~~federal securities laws~~Delaware Court so-ordered a proposed case management order submitted by the Company and ~~Mr. Shkreli.~~ Savant. The schedule in the case management order was modified by stipulation on August 24, 2018.

On ~~December 31, 2015,~~April 8, 2019, the Company moved to compel Savant to produce documents in response to the Company’s document requests. The parties thereafter agreed to a ~~putative class action lawsuit was~~discovery schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other.

On June 4, 2019, Savant filed a complaint against the Company and Madison in the ~~Class Action~~Delaware Court ~~(captioned~~ ~~Isensee v. KaloBios Pharmaceuticals, Inc. et al., Case No. 15-cv-06331-EJD)~~of Chancery (the “Chancery Action”) seeking to “recover as damages that amounts owed to it under the MDC Agreement, and to reclaim Savant’s intellectual property,” among other things. Savant also ~~alleging violation~~requested leave to move to dismiss the Company’s complaint on the grounds that the Company’s transfer of ~~the federal securities laws by~~assets to Madison was champertous. On June 10, 2019, the Company requested by letter that the Superior Court hold a ~~former officer and Mr. Shkreli. On April 18, 2016, and amended complaint was filed in~~contempt hearing because the ~~Isensee~~ ~~suit, adding Herb Cross and Ronald Martell as defendants. On April 28, 2016,~~Chancery Action violated the Class Action Court consolidated these cases (the “Securities Class Action Litigation”) and appointed certain plaintiffs as the lead plaintiffs. The lead plaintiffs in the Securities Class Action Litigation were seeking damages of $20.0 million on behalf of all the affected members of the class represented in the Securities Class Action Litigation, (the “Securities Class Action Members”).

~~On June 15, 2016, a settlement stipulation (the “Securities Class Action Settlement”), was approved~~TRO entered by the Bankruptcy ~~Court. Subject to the approval of the Class Action~~ Court, the Securities Class Action Settlement required the Company to issue 300,000 shares of common stock and submit a payment of $250,000 to the Securities Class Action Members and advance insurance proceeds of $1.25 million to the Securities Class Action Members (collectively, the consideration is the “Securities Class Action Settlement Consideration”). On January 20, 2017, the Class Action Court preliminarily approved the Securities Class Action Settlement and set a final settlement approval hearing for May 11, 2017. Subject to the final approval of the Securities Class Action Settlement, any Securities Class Action Member is entitled to share in the Securities Class Action Settlement Consideration. The Securities Class Action Settlement provides for releases and related injunctions to be granted ~~for the benefit of, among others, the Company, Ronald Martell, Herb Cross and all of the Company’s past, present and future directors, officers and employees, excluding Mr. Shkreli.~~ ~~Alternatively, Securities Class Action Members may exclude themselves from the Securities Class Action Settlement and are thereby not bound by~~ the terms of ~~the Securities Class Action Settlement nor entitled to receive any amount~~which have been extended by stipulation of the ~~Securities Class Acton Settlement Consideration. Such Securities Class~~parties. On June 18, 2019, the Superior Court held a telephonic status conference. The parties agreed that the Chancery Action ~~Members,~~should be consolidated with the Superior Court action, after which the Superior Court would address the parties’ motions.

On July 22, 2019, the Company moved for contempt against Savant. Savant filed its opposition on July 29, 2019. On August 12, 2019, the Superior Court denied the Company’s motion for contempt.

On July 23, 2019, Savant moved for summary judgment on the issue of champerty. The Company filed its response and cross-motion for summary judgment on August 27, 2019. Savant filed its reply on September 10, 2019 and the Company filed its cross-reply on September 20, 2019. The motion is fully briefed, and is scheduled for argument on February 3, 2020.

On July 26, 2019, the Company moved to modify the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Superior Court granted. In a subsequent order, the discovery schedule was extended until the end of March 2020.

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On July 30, 2019, the Company filed a motion to dismiss Savant’s Chancery Action. Savant filed an amended complaint on September 4, 2019, and the Company filed its opening brief in support of its motion to dismiss on October 11, 2019. That motion is fully briefed and scheduled for argument on February 3, 2020.

On August 19, 2019, Savant moved to dismiss the Company’s amended Superior Court complaint. On September 27, 2019, the Company filed an opposition to Savant’s motion and, in the alternative, requested leave to file a second amended complaint against Savant. Savant consented to the ~~extent they properly exclude themselves from~~filing of the ~~Securities Class Action Settlement~~second amended complaint and ~~have timely and properly~~withdrew their motion to dismiss. Savant filed a ~~proof of claim~~partial motion to dismiss against a co-defendant on October 30, 2019. That motion is fully briefed and is scheduled for argument on February 3, 2020. At the February 3, 2020 hearing, the Court reserved judgment on the parties’ reciprocal motions.

On November 18, 2019, the Court granted Savant’s Motion to Schedule a Preliminary Injunction hearing concerning the August 2017 TRO and Stipulated Order that are still in effect. A briefing schedule has been set and the hearing is scheduled for March 25, 2020.

The $2.0 million in milestone payments due Savant are included in Accrued expenses in the ~~bankruptcy case, may have certain rights under~~accompanying balance sheet as of December 31, 2019 and 2018. Recovery of the ~~Plan~~cost overages from Savant, if any, will be recorded in the period received.

13. License and Collaboration Agreements

Kite Agreement

On May 30, 2019, the Company entered into the Kite Agreement, pursuant to which the Company and Kite will conduct a multi-center Phase Ib/II study of lenzilumab with ~~respect~~Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including DLBCL. The primary objective of the Study is to ~~such claims.~~ determine the effect of lenzilumab on the safety of Yescarta.

Pursuant to the ~~Plan and Confirmation Order, such claims are subordinated~~Kite Agreement, the Company will supply lenzilumab to the ~~level~~collaboration for use in the study and will contribute up to approximately $8.0 million towards the out-of-pocket costs of the ~~Company’s common stock that was issued~~study.

Mayo Agreement

On June 19, 2019, the Company entered into an exclusive worldwide license agreement (the “Mayo Agreement”) with the Mayo Foundation for Medical Education and ~~outstanding when~~Research (“Mayo”) for certain technologies used to create CAR-T cells lacking GM-CSF expression through various gene-editing tools including CRISPR-Cas9 (“GM-CSF knock-out”). The license covers various patent applications and know-how developed by Mayo in collaboration with the Company. These licensed technologies complement and broaden the Company’s ~~bankruptcy case was filed. Such claims are also subject~~position in the GM-CSF neutralization space and expand the Company’s discovery platform aimed at improving CAR-T to include gene-edited CAR-T cells.

Pursuant to the ~~Company’s objection.~~

The Company’s agreement to the Securities Class Action Settlement was not in any way an admission of the Company’s wrongdoing or liability. As of December 31, 2016, the 300,000 shares have been issued and the $250,000 payment has been made.

~~F-31~~

~~Table of Contents~~

~~PIPE Litigation~~

~~On January 7, 2016, certain investors (the “PIPE Claimants”),~~ ~~commenced an adversary proceeding (captioned~~ ~~Gregory Rea, et al. v. KaloBios Pharmaceuticals, Inc.~~, Adv. Pro. No. 16-50001 (LSS)) in the Bankruptcy Court against the Company alleging implied trust theories, breach of contract, fraud and violations of the federal securities laws in connection with the PIPE Claimants’ purchase of the Company’s common stock in the Private Placement (the “PIPE Litigation”). The PIPE Claimants also raised certain other objections to the Company’s bankruptcy proceeding. The PIPE Claimants sought an aggregate total of approximately $6.9 million in damages.

On May 9, 2016, the Bankruptcy Court entered an order approving a settlement stipulation between the Company and the PIPE Claimants (the “Settlement Stipulation”). Under the Settlement Stipulation, in connection with the effectiveness of the Plan, and per the terms of the Settlement Stipulation, the Company became obligated to issue 327,608 shares to the PIPE Claimants and make a payment of $250,000 to the PIPE Claimants for the purpose of satisfying expenses related to the PIPE Litigation. As of December 31, 2016, the 327,608 shares have been issued and the $250,000 payment has been made.

~~Claim by Marek Biestek~~

Marek Biestek was a director of the Company who, while not a plaintiff in the above described PIPE Litigation, filed a proof of claim alleging damages from the PIPE transaction and filed an objection to the confirmation of the Plan. To resolve his objection to the Plan and his proof of claim, the Company settled with him individually by issuing him 3,750 additional shares of common stock. Mr. Biestek, as a former director ofMayo Agreement, the Company was ~~excluded from~~required to pay $200,000 to Mayo within six months of the ~~Securities Class Action Members~~effective date, or upon completion of a qualified financing, whichever is earlier. The Company did not pay the initial payment as of the due date and ~~therefore received nothing from~~will incur interest on the ~~Securities Class Action Litigation.~~

Asunpaid balance at the prime rate plus 2%. The Mayo Agreement also requires the payment of ~~December 31, 2015,~~milestones and royalties upon the achievement of certain regulatory and commercialization milestones. The Company ~~recorded an obligation~~accrued the initial payment in ~~stockholders’ equity to issue the shares related to the above claims totaling approximately $2.8 million and recorded the cash liability of $500,000 in Liabilities subject to compromise~~Accrued expenses in the accompanying Consolidated Balance ~~Sheet. As~~Sheet as of December 31, ~~2016, all of the above claims have been satisfied and shares issued.~~

~~15. Related Party Transactions~~

2019.

Zurich Agreement

On ~~December 3, 2015,~~July 19, 2019, the Company entered into ~~a Services Agreement~~an exclusive worldwide license agreement (the ~~“Services~~“Zurich Agreement”) with ~~Turing Pharmaceuticals LLC~~the University of Zurich (“~~Turing”~~UZH”), for technology used to prevent or treat Graft versus Host Disease (“GvHD”) through GM-CSF neutralization. The Zurich Agreement covers various patent applications filed by UZH which complement and broaden the Company’s position in the application of GM-CSF and expands the Company’s development platform to include improving allogeneic HSCT.

F-34

Table of Contents

Pursuant to the Zurich Agreement, the Company paid $100,000 to UZH in July 2019. The Zurich Agreement also requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones. The license payment of $100,000 was recorded as expense in Research and development in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2019.

14. Related Party Transactions

The Restructuring Transactions were completed on February 27, 2018. See Note 9.

In June, July and August, 2018 the Company received an aggregate of $0.9 million of proceeds from advance notes made to it by four different lenders including Dr. Cameron Durrant, our Chairman and Chief Executive Officer; Cheval, an affiliate of BHC, the Company’s controlling stockholder; and Ronald Barliant, a ~~life sciences company. The~~director of the Company. See Note 6 for a further discussion of the Advance Notes.

Commencing September 19, 2018, the Company delivered a series of convertible promissory notes evidencing an aggregate of $2.5 million of loans made to the Company by six different lenders, including an affiliate of BHC, the Company’s ~~then~~controlling stockholder. See Note 6 for a further discussion of the 2018 Notes.

On June 28, 2019, the Company issued three short-term, secured bridge notes evidencing an aggregate of $1.7 million of loans made to the Company by three parties including Dr. Cameron Durrant, our Chairman and Chief Executive Officer ~~Martin Shkreli, was also the chief executive officer~~ and Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling stockholder. See Note 6 for a ~~member~~further discussion of the ~~board~~2019 Bridge Notes.

On November 12, 2019, the Company issued two short-term, secured bridge notes (the “November Bridge Notes” and together with the June Bridge Notes, the “2019 Bridge Notes”) evidencing an aggregate of ~~directors~~$350,000 of ~~Turing. Pursuant to the Services Agreement, Turing was to provide certain employees~~loans made to the Company by two parties, including Dr. Cameron Durrant, our Chairman and Chief Executive Officer and Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., our controlling stockholder. See Note 6 for a further discussion of the 2019 Bridge Notes.

15. Subsequent Events

On March 13, 2020 (the “Issuance Date”), the “Company delivered a convertible redeemable promissory note (the “Note”) evidencing a loan of $330,000 made to ~~utilize on~~the Company.

The Note bears interest at a part-time basis, including Christopher Thorn, who was appointed as the Company’s interim chief financial officer on December 3, 2015. The Services Agreement provided that Turing would charge the Company for Mr. Thorn’s services an hourly rate of ~~$151.92~~7.0% per ~~hour,~~annum and ~~Mr. Thorn would remain employed and compensated by Turing during~~will mature on March 13, 2021. The Note contains an original issue discount of $33,000. The Company plans to use the ~~term~~proceeds from the Note for working capital.

Beginning on the 6 month anniversary of the ~~Services Agreement. No amounts have been, or will be, paid~~Issuance Date, unless earlier redeemed by the Company, the holder is entitled, at its option, to ~~Turing,~~convert all or any amount of the principal amount of the Note then outstanding, together with the accrued and ~~Mr. Thorn resigned~~unpaid interest on ~~December 21, 2015.~~

~~On December 3, 2015,~~such portion of the Note proposed to be converted, into shares of the Company's common stock (the "Common Stock") at a conversion price equal to $.25 per share (the “Fixed Price”). After the 9 month anniversary of the Issuance Date, the conversion price shall be equal to the lower of (i) the Fixed Price or (ii) 68% of the lowest of either the trading price or closing bid of the Common Stock, for the ten prior trading days including the day upon which a Notice of Conversion is received (the “Variable Conversion Price”).

In the event the Company ~~entered into~~has a closing price of its Common Stock equal to $0.30 or less for 5 consecutive days prior to the ~~Securities Purchase Agreement,~~9 month anniversary of the Issuance Date, then, beginning on the 6 month anniversary of the Issuance Date, the holder may elect in its Notice of Conversion to use the lower of the Fixed Price or the Variable Conversion Price set forth above.

Commencing on the 6 month anniversary of the Issuance Date, the Company shall have the right, but not the obligation, to elect to make fixed monthly amortizing payments to the holder in the amount of $25,000. If the Company elects to make such payments, the holder shall not be entitled to convert all or any amount of the principal amount of the Note then outstanding if and for so long as ~~defined~~the Company is current in respect of the amortizing payments.

The Note ~~7, for the private placement (the “Private Placement”)~~may be redeemed by the Company at any time before the 270^th day following its issuance, at a redemption price equal to the principal and accrued but unpaid interest on the Note to the date of ~~shares~~redemption, plus a premium that increases on day 61 and day 121 from the issuance date.

The Note contains customary default and remedies provisions for convertible note financings of this nature.

The Note was issued in reliance upon the exemption from registration afforded by Section 4(a)(2) of the ~~Company’s common stock. At the time~~Securities Act of ~~the Private Placement, certain participants were serving~~1933, as ~~directors of the Company. These participants purchased a total of 21,936 shares of the Company’s common stock at a per share price of $29.32 for a total of $643,200.~~

amended.

On May 24, 2016, the board of directors approved a one-time equity award (the “Equity Award”) to each of Cameron Durrant, Ronald Barliant and David Moradi. On June 30, 2016, in accordance with the Plan, the Company issued an aggregate of 323,155 shares of common stock under the Equity Award. The Company recorded a charge of $1,451,000 representing the fair value of the shares issued and classified $700,000 and $751,000 as Reorganization items, net and General and administrative expenses, respectively.

On June 30, 2016, in connection with the settlement of the Term Loan, as defined in Note 2, 2,115,432 shares of common stock were issued to certain Lenders in repayment of the Company’s debt obligations who were deemed to be affiliates of the Company.

~~On December 21, 2016, the Company entered into the December Term Loan, as more fully described in Note 7, with certain lenders who were deemed to be affiliates of the Company.~~

~~F-32~~

~~Table of Contents~~

~~EXHIBIT INDEX~~

F-35

~~Exhibit~~

~~Description~~Table of Contents

EXHIBIT INDEX

		Incorporated by Reference			Filed or
Exhibit No.	Exhibit Description	Form⁺	Date	Number	Furnished Herewith
2.1	Findings of Fact, Conclusions of Law, and Order Confirming Second Amended Chapter 11 Plan of Reorganization of the Registrant.	8-K	June 22, 2016	2.1
3.1	Amended and Restated Certificate of Incorporation of the Registrant.	8-K	July 6, 2016	3.1
3.1.1	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant.	8-K	August 7, 2017	3.1
3.1.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant, as amended.	8-K	February 28, 2018	3.1
3.2	Second Amended and Restated Bylaws of the Registrant.	8-K	August 7, 2017	3.2
4.1	Warrant to Purchase Stock, by and between the Registrant and MidCap Financial SBIC, LP, dated as of June 19, 2013.	8-K	June 24, 2013	10.2
4.2	Common Stock Purchase Warrant, by and between the Registrant and Armistice Capital Fund, dated as December 4, 2015.	8-K	December 9, 2015	4.2
4.3†	Common Stock Purchase Warrant, dated June 30, 2016, by and between the Registrant and Savant Neglected Diseases, LLC.	10-Q	September 23, 2016	4.1
4.4	Registration Rights Agreement, dated as of February 27, 2018, by and among the Registrant and Black Horse Capital Master Fund, Black Horse Capital, Cheval Holdings, Ltd., and Nomis Bay LTD.	10-Q	May 8, 2018	4.6
4.5	Description of Securities.				X
10.1**	2012 Equity Incentive Plan, as amended and restated.	10-Q	August 10, 2015	10.2
10.1.1**	Amendment to the 2012 Equity Incentive Plan, dated as of September 13, 2016.	S-8 (File No. 333-214110)	October 14, 2016	10.2
10.1.2**	Amendment to the 2012 Equity Incentive Plan, effective March 9, 2018.	10-Q	May 8, 2018	10.2
10.2**	Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan.	10-12G (File No. 000-54735)	June 12, 2012	10.8
10.3**	Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan (Outside Directors).	10-K	March 13, 2014	10.37
10.4**	Form of Notice of Stock Unit Award under the 2012 Equity Incentive Plan.	8-K	April 24, 2015	10.1
10.5**	Form of Director and Officer Indemnification Agreement.	10-12G (File No. 000-54735)	June 12, 2012	10.11
10.6	Development and License Agreement, dated May 11, 2004, by and between the Registrant and the Ludwig Institute for Cancer Research.	10-12G/A (File No. 000-54735)	August 7, 2012	10.13
10.7	License Agreement, dated April 7, 2006, by and between the Registrant and the Ludwig Institute for Cancer Research.	10-12G/A (File No. 000-54735)	August 7, 2012	10.14

~~2.1~~

Findings of Fact, Conclusions of Law, and Order Confirming Second Amended Chapter 11 Plan of Reorganization of the Registrant (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on June 22, 2016).

10.7.1	Amendment to License Agreement, dated October 9, 2008, by and between the Registrant and the Ludwig Institute for Cancer Research.	10-Q	May 8, 2014	10.8
10.7.2	Amendment to License Agreement, dated June 8, 2011, by and between the Registrant and the Ludwig Institute for Cancer Research.	10-Q	May 8, 2014	10.9
10.8†	Non-Exclusive License Agreement, dated October 15, 2010, by and between the Registrant, BioWa, Inc. and Lonza Sales AG.	10-12G/A (File No. 000-54735)	September 12, 2012	10.16
10.9†	License Agreement, dated March 16, 2007, by and between the Registrant and Novartis International Pharmaceutical Ltd.	10-12G/A (File No. 000-54735)	August 7, 2012	10.17
10.10**	Employment Agreement, dated as of September 13, 2016, by and between the Registrant and Cameron Durrant, MD.	10-Q	November 10, 2016	10.2
10.11	Form of Advance Note.	10-Q	August 9, 2018	10.1
10.12	Form of Convertible Promissory Note.	10-Q	November 6, 2018	10.1
10.13	Amended Employment Agreement dated August 22, 2018, between the Company and Jon. G. Jester.	10-Q	November 6, 2018	10.2
10.14	Form of 2019 Convertible Note.	10-Q	August 13, 2019	10.1
10.15	Clinical Collaboration Agreement, dated May 30, 2019 between the Registrant and Kite Pharma, Inc.	10-Q	August 13, 2019	10.2
10.16	Form of 2019 Bridge Note	10-Q	August 13, 2019	10.3
10.16.1	Form of Amendment Number 1, dated October 8, 2019, to the Secured Bridge Note, dated June 28, 2019.	8-K	October 8, 2019	10.1
10.16.2	Form of Amendment Number 2, dated December 30, 2019, to the Secured Bridge Note, dated June 28, 2019 and as amended on October 8, 2019.	8-K	December 31, 2019	10.1

10.17	Purchase Agreement, dated as of November 8, 2019 by and between Humanigen, Inc. and Lincoln Park Capital Fund, LLC.	8-K	November 12, 2019	10.1
10.18	Registration Rights Agreement, dated as of November 8, 2019, by and between Humanigen, Inc. and Lincoln Park Capital Fund, LLC.	8-K	November 12, 2019	10.2
21.1	List of Subsidiaries.				X
23.1	Consent of Horne LLP.				X
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
32.1***	Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350.				X
32.2***	Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350.				X


~~3.1~~		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on July 6, 2016).

~~3.2~~		~~Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-184299) filed on January 15, 2013).~~

~~3.3~~		~~Amendment to Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 28, 2015).~~

~~4.1~~		Specimen of Stock Certificate evidencing shares of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-184299) filed on January 15, 2013).

~~4.2~~		Warrant to Purchase Stock, by and between the Registrant and MidCap Financial SBIC, LP, dated as of June 19, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on June 24, 2013).

~~4.3~~		Registration Rights Agreement, dated December 3, 2015, between the Registrant and each of the several purchasers signatory thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 9, 2015).

~~4.4~~		Common Stock Purchase Warrant, by and between the Registrant and Armistice Capital Fund, dated as December 4, 2015 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 9, 2015).

~~4.5†~~		Common Stock Purchase Warrant, dated June 30, 2016, by and between the Registrant and Savant Neglected Diseases, LLC (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-035798) filed on September 23, 2016, as amended by Amendment No. 1 filed on December 30, 2016).

10.1*		~~2012 Equity Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.2 to the Registrant��s Quarterly Report on Form 10-Q (File No. 001-35798) filed on August 10, 2015).~~

10.2*		Amendment to the 2012 Equity Incentive Plan, dated as of September 13, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8 (File No. 333-214110) filed on October 14, 2016).

10.3*		Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form 10-12G (File No. 000-54735) filed on June 12, 2012).

10.4*		Form of Notice of Grant and Stock Option Agreement under the 2012 Equity Incentive Plan (Outside Directors) (incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K (File No. 001-35798) filed on March 13, 2014).

~~Table of Contents~~

10.5*		Form of Notice of Stock Unit Award under the 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on April 24, 2015).

10.6*		Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form 10-12G (File No. 000-54735) filed on June 12, 2012).

~~10.7~~		Development, Commercialization, Collaboration and License Agreement, dated January 8, 2010, by and between the Registrant and Sanofi Pasteur S.A. (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on September 12, 2012).

~~10.8~~		Development and License Agreement, dated May 11, 2004, by and between the Registrant and the Ludwig Institute for Cancer Research (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on August 7, 2012).

~~10.9~~		License Agreement, dated April 7, 2006, by and between the Registrant and the Ludwig Institute for Cancer Research (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on August 7, 2012).

~~10.10~~		Amendment to License Agreement, dated October 9, 2008, by and between the Registrant and the Ludwig Institute for Cancer Research (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on May 8, 2014).

~~10.11~~		Amendment to License Agreement, dated June 8, 2011, by and between the Registrant and the Ludwig Institute for Cancer Research (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on May 8, 2014).

~~10.12~~		Exclusive License Agreement, dated April 6, 2004, by and between the Registrant and The Regents of the University of California (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on August 7, 2012).

~~10.13†~~		Non-Exclusive License Agreement, dated October 15, 2010, by and between the Registrant, BioWa, Inc. and Lonza Sales AG (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on September 12, 2012).

~~10.14†~~		License Agreement, dated March 16, 2007, by and between the Registrant and Novartis International Pharmaceutical Ltd. (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10-12G/A (File No. 000-54735) filed on August 7, 2012).

10.15†*		~~Incentive Bonus Plan (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K (File No. 001-35798) filed on March 13, 2014).~~

~~10.16~~		Termination Agreement, by and between the Registrant and Sanofi Pasteur S.A., dated as of July 24, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on November 6, 2014).

~~10.17~~		Amendment to Termination Agreement, by and between the Registrant and Sanofi Pasteur S.A., dated as of July 24, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on May 11, 2015).

~~10.18†~~		Securities Purchase Agreement, dated as of December 3, 2015, between the Registrant and each purchaser identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 9, 2015).

~~Table of Contents~~

~~10.19†~~		Amendment No. 1 to Securities Purchase Agreement, dated as of December 15, 2015, between the Registrant and each purchaser identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 16, 2015).

~~10.20†~~		Services Agreement, dated December 3, 2015, by and between Turing Pharmaceuticals, LLC and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35798) filed on December 9, 2015).

10.21*		Employment Offer Letter, dated May 28, 2015, by and between the Registrant and Ronald A. Martell (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on August 10, 2015).

~~10.22†~~		Binding Letter of Intent, dated February 29, 2016, between the Registrant and Savant Neglected Diseases, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35798) filed on September 23, 2016).

~~10.23~~		Debtor in Possession Credit and Security Agreement, dated as of April 1, 2016, by and among the Registrant, Black Horse Capital Master Fund Ltd., Black Horse Capital LP, Cheval Holdings, Ltd. and Nomis Bay LTD (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.24~~		Intellectual Property Security Agreement, dated April 1, 2016, by the Registrant in favor of Black Horse Capital Master Fund Ltd., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.25~~		Debtor In Possession Term Loan Note, dated April 1, 2016, by the Registrant in favor of Black Horse Capital Master Fund Ltd. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.26~~		Debtor In Possession Term Loan Note, dated April 1, 2016, by the Registrant in favor of Black Horse Capital LP (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.27~~		Debtor In Possession Term Loan Note, dated April 1, 2016, by the Registrant in favor of Cheval Holdings, Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.28~~		Debtor In Possession Term Loan Note, dated April 1, 2016, by the Registrant in favor of Nomis Bay LTD (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.29~~		Securities Purchase Agreement, dated as of April 1, 2016, by and among the Registrant, Black Horse Capital Master Fund Ltd., Black Horse Capital LP, Cheval Holdings, Ltd. and Nomis Bay LTD (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on April 7, 2016).

~~10.30~~		Corporate Governance Agreement, dated as of June 29, 2016, between the Registrant and Martin Shkreli (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on July 6, 2016).

~~10.31†~~		Agreement for the Manufacture, Development and Commercialization of Benznidazole for Human Use, dated as of June 30, 2016, between the Registrant and Savant Neglected Diseases, LLC (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-035798) filed on September 23, 2016, as amended by Amendment No. 1 filed on December 30, 2016).

~~Table of Contents~~

10.32*		Letter Agreement, dated March 1, 2016, between the Registrant and Cameron Durrant, M.D. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-035798) filed on September 23, 2016).

10.33*		Employment Agreement, dated as of September 13, 2016, by and between the Registrant and Cameron Durrant, MD (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-035798) filed on November 10, 2016).

~~10.34~~		Credit and Security Agreement, dated as of December 21, 2016, by and among the Registrant, Black Horse Capital Master Fund Ltd., Black Horse Capital LP, Cheval Holdings, Ltd. and Nomis Bay LTD (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

~~10.35~~		Intellectual Property Security Agreement, dated December 21, 2016, by the Registrant in favor of Black Horse Capital Master Fund Ltd., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

~~10.36~~		Term Loan Note, dated December 21, 2016, by the Registrant in favor of Black Horse Capital Master Fund Ltd (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

~~10.37~~		Term Loan Note, dated December 21, 2016, by the Registrant in favor of Black Horse Capital LP (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

~~10.38~~		Term Loan Note, dated December 21, 2016, by the Registrant in favor of Cheval Holdings, Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

~~10.39~~		Term Loan Note, dated December 21, 2016, by the Registrant in favor of Nomis Bay LTD (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-035798) filed on December 23, 2016).

10.40*		~~Engagement Agreement, dated as of May 24, 2016, by and between the Registrant and David L. Tousley.~~

~~21.1~~		~~List of Subsidiaries~~

~~23.1~~		~~Consent of Horne LLP~~

~~31.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~

~~31.2~~		~~Certification of Interim Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~

32.1**		~~Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350.~~

32.2**		~~Certification of Interim Chief Financial Officer pursuant to 18 U.S.C. §1350.~~

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema ~~Document~~

~~Table of Contents~~


101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

~~†Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.~~

**Indicates management contract or compensatory ~~plan~~

plan.

***The certifications attached as Exhibits 32.1 and 32.2 that accompanies this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

†Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

(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, ~~2016~~ 2019
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

	High		Low
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

2015
4th Quarter	$	45.82	$	0.44
3rd Quarter	$	5.08	$	1.71
2nd Quarter	$	5.68	$	3.28
1st Quarter	$	15.60	$	2.88

	Year ended
(in thousands)	December 31, 2016
Legal fees	$	4,870
Professional fees		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	$	8,188

	Payments due by period
(in thousands)			Less than		1 to 3		4 to 5		After
	Total		1 year		years		years		5 years
Lease obligations	$	442	$	240	$	202	$	—	$	—
Principal payments on term loans		3,315		3,315		—		—		—
Interest payments on term loans		260		260		—		—		—
Commitment fee payments on term loans		152		152		—		—		—
Principal payments on notes payable to vendors		1,213		—		1,213		—		—
Interest payments on notes payable to vendors		364		—		364		—		—

Total	$	5,746	$	3,967	$	1,779	$	—	$	—

										All
						Stock		Option		Other
		Salary		Bonus		Awards		Awards		Compensation		Total
Name and Principal Position	Year	($)		($)		($)(4)		($)(5)		($)(6)		($)
Cameron Durrant, M.D., MBA (1)	2016		500,000	(7)			608,768		2,312,588		16,833		3,438,189
Chairman & Chief Executive Officer
Morgan Lam (2)	2016		357,500		70,000				221,720		-		649,220
Chief Scientific Officer
David L. Tousley, MBA, CPA (3)	2016		-		-				-		333,788		333,788
Interim Chief Financial Officer

	Fees Earned
	or Paid		Option		Stock		All Other
	in Cash		Awards		Awards		Compensation		Total
Name	($)(2)		($)(3)		($)(4)		($)		($)
Timothy Morris, CPA		36,000		221,720		-		-		257,720
Ronald Barliant, JD		64,000		221,720		421,099		-		706,819
David Moradi (1)		25,000		-		421,099		-		446,099
Dale Chappell, M.D., MBA		20,000		221,720		-		-		241,720
Ezra Friedberg		27,000		221,720		-		-		248,720

	Shares of		Percentage of
	Common		Shares
	Stock Beneficially		Beneficially
Name and Address of Beneficial Owner	Owned		Owned
5% Stockholders
Entities affiliated with Black Horse Capital LP⁽¹⁾		4,948,758		33.0	%
Nomis Bay LTD⁽²⁾		3,719,006		24.8	%
Nantahala Capital Management, LLC⁽³⁾		1,450,000		9.7	%
Cortleigh Limited⁽⁴⁾		949,752		6.3	%
Named Executive Officers and Directors
Cameron Durrant, M.D., MBA⁽⁵⁾		396,338		2.6	%
Morgan Lam⁽⁶⁾		19,061		*
David L. Tousley, MBA, CPA⁽⁷⁾		100,000		*
Ronald Barliant, JD⁽⁸⁾		118,785		*
Dale Chappell, M.D., MBA^(9)(12)		4,973,758		33.2	%
Timothy Morris, CPA⁽¹⁰⁾		25,000		*
Ezra Friedberg⁽¹¹⁾		25,000		*
All current executive officers and directors as a group (7 persons)⁽¹³⁾		5,557,942		37.1	%

Name	Number of Shares		Aggregate Dollar Amount at $29.32 per share
David Moradi as beneficial owner through Anthion Partners II LLC		3,410	$	100,000
Marek Biestek		10,000	$	293,200
Michael Harrison		1,705	$	50,000
Thomas Fernandez		6,821	$	200,000

	Year ended
	December 31, 2015
Annual audit fees(1)	$	424,075
Audit-related fees		-
Tax fees (2)		20,000
All other fees		1,820
Total fees	$	445,895

	Fair Value Measurements as of December 31, 2016
(in thousands)	Level 1		Level 2		Level 3		Total
Investments:
Money market funds	$	101	$	—	$	—	$	101
Total assets measured at fair value	$	101	$	—		—	$	101

	Amortized		Gross Unrealized		Gross Unrealized
(in thousands)	Cost		Gains		Losses		Fair Value
Money market funds	$	101	$	—	$	—	$	101
Total investments	$	101	$	—	$	—	$	101
Reported as:
Cash and cash equivalents							$	—
Restricted cash								101
Total investments							$	101

(in thousands)	Contract termination costs - R&D			Salaries and benefits - R&D			Salaries and benefits - G&A			Total
Balance as of December 31, 2014	$	1,185		$	-		$	-		$	1,185
Accrued		-			1,167			1,011			2,178
Adjustments		(78	)		-			-			(78	)
Paid		(1,107	)		(1,167	)		(1,000	)		(3,274	)
Balance as of December 31, 2015	$	-		$	-		$	11		$	11
Accrued		-			-			-			-
Adjustments		-			-			(11	)		(11	)
Paid		-			-			-			-
Balance as of December 31, 2016	$	-		$	-		$	-		$	-

Balance at December 31, 2014	$	856
Additions based on tax positions related to prior year		-
Additions based on tax positions related to current year		212
Balance at December 31, 2015		1,068
Reduction based on tax positions related to prior year		(9	)
Additions based on tax positions related to current year		68
Balance at December 31, 2016	$	1,127

/s/ Cheryl Buxton

Cheryl Buxton

March 16, 2020