UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, OR o TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 From the transition period from to . Commission File Number 001-35798 Humanigen, Inc. (Exact name of registrant as specified in its charter) 533 Airport Boulevard, Suite (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code:(650) 243-3100 Securities registered pursuant to Section 12(b) of the Act: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Indicate by check mark whether the registrant has submitted electronically Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes As of HUMANIGEN, INC. FORM 10-Q Humanigen, Inc. (in thousands, except share data) (Unaudited) September 30, 2019 and December 31, 2018; 112,780,386 and 109,897,526 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively See accompanying notes. Humanigen, Inc. (in thousands, except share and per share data) (Unaudited) See accompanying notes. Humanigen, Inc. (in thousands) (Unaudited) See accompanying notes. Humanigen, Inc. Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except share data) (Unaudited) See accompanying notes. Humanigen, Inc. (Unaudited) 1. Nature of Operations Description of the Business The Company was incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. During February 2018, the Company completed the restructuring transactions announced in December 2017 and furthered its transformation into a biopharmaceutical company pursuing cutting-edge science to develop its proprietary monoclonal antibodies to enhance T-cell engaging therapies for various oncology indications, potentially making these treatments safer, more effective and more efficiently administered. The Company has The Company is a 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 pre-clinicalin-vivo evidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects. 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 The Company’s immediate focus is combining FDA-approved and development stage CAR-T therapies with lenzilumab, its proprietary Humaneered® anti-human-GM-CSF immunotherapy, which is its lead product candidate. A clinical collaboration with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”), was recently announced to evaluate the use of lenzilumab with Yescarta®, axicabtagene ciloleucel (“Yescarta” or “Yescarta®”), in a multicenter clinical trial in adults with relapsed or refractory large B-cell lymphoma. The Company is also focused on creating next-generation combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies to control toxicity. The Company is also developing its own portfolio of proprietary first-in-class EphA3-CAR-Ts for Lenzilumab Lenzilumab, the Company’s lead product candidate, is a clinical-stageHumaneeredmonoclonal antibody (“mAb”) that neutralizes human GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy and improve upon the efficacy of CAR-T therapy. Pre-clinical data generated by the Mayo Clinic (the “Mayo Clinic”) in collaboration with the Company, indicates that the use of lenzilumab in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of the CAR-T therapy. This may also result in durable, or longer term, responses. The Company is continuing to advance the development of lenzilumab in combination with CAR-T therapy through a non-exclusive clinical collaboration with Kite, entered into on May 30, 2019, pursuant to which the Company and Kite will conduct a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”) (the “Study”). The primary objective of the Study is to determine the effect of lenzilumab on the safety of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved by the FDA, is currently the CAR-T therapy market leader and the In addition to CAR-T therapy, the Company is In July 2019, the Company entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich (“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 Given the GM-CSF Gene Knockout The Company is advancing its GM-CSF knockout gene-editing CAR-T platform through an exclusive worldwide license agreement (the “Mayo Agreement”) that Preclinical data indicate 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. The Company is establishing a platform of next-generation combinatorial gene knockout CAR-T cells that have potential to be EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature The Company is working 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-Eph Type-A receptor 3(“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 EMR1-CAR: Targeting Eosinophils The Company’s EMR1-CAR-T product is based on the HGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets the In pre-clinical 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 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 several other potential partners, although there is Liquidity and Going Concern The Company has incurred significant losses since its inception in March 2000 and had an accumulated deficit of The Condensed Consolidated Financial Statements for the three and nine months ended September 30, Basis of Presentation The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements and include all adjustments necessary for the presentation of the Company’s condensed consolidated financial position, results of operations and cash flows for the periods presented. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The December 31, The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes judgment is involved in determining the valuation of 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 Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy Case”). 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 For the There were no cash payments for reorganization for the three and nine months ended September 30, 2019. Cash payments for reorganization items totaled 3. Summary of Significant Accounting Policies There have been no material changes in the Company’s significant accounting policies In November 2016, 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. See Note 4 for a description of the Company’s current leases and their treatment under the new lease standard. 4. Leases The Company leases an office-space under a month-to-month lease for $1,000 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 three and nine months ended September 30, 2019 totaled approximately $3,400 and $9,800, respectively and are included in the Consolidated Statements of Operations and Comprehensive Loss. As described in Note 3, the Company has elected to adopt the transitional practical expedients, and 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. 5. Potentially Dilutive Securities The Company’s The following outstanding potentially dilutive securities have been excluded from the computations of diluted net loss per common share: 6. Fair Value of Financial Instruments Cash, accounts payable 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. 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 that are measured at fair value and the classification by level of input within the fair value hierarchy: 7. Debt Notes Payable to Vendors On June 30, 2016, the Company issued promissory notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Plan. The notes are unsecured, bear interest at 10% per annum and Advance Notes In June, July and In accordance with their terms, on May 30, 2019, in connection with the 2018 Convertible Notes Commencing September 19, 2018, the Company The 2018 Notes are convertible into equity securities in the If the Company sells its equity securities on or before the date of If the Company The 2018 Notes may convert in the event the Company 2019 Convertible Notes Commencing on April 23, 2019, the Company delivered a series of convertible promissory notes (the “2019 Notes”) evidencing an 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 The 2019 Notes are convertible into equity securities in the If the 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 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 The Advance Notes, the 2018 Notes and the 2019 Notes have an optional voluntary conversion feature in which 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 2019 Bridge Notes On June 28, 2019, the Company The 2019 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 Upon an event of default, which events include, but are not limited to, (1) the 8. Commitments and Contingencies Contractual Obligations and Commitments As of September 30, Guarantees and Indemnifications 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 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. 9. Restructuring Transactions As further described in the Company’s Form 10-K for the year ended December 31, 2018, on February 27, 2018, the Company completed a comprehensive restructuring of its outstanding indebtedness of approximately $18.4 million under a series of term loans (the “Term Loans”) with two lender groups, including affiliates of Black Horse Capital, L.P. and raised incremental new capital from Cheval Holdings, Ltd. At the closing of the restructuring, the Company: (i) in exchange for the satisfaction and extinguishment of the entire balance of the Company’s Term Loans and related accrued interest totaling $18.4 million, (a) issued an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and (b) transferred and assigned to a joint venture controlled by one of the term loan lenders, all of the assets of the Company related to benznidazole (the “Benz Assets”), the Company’s former drug candidate; and (ii) issued to Cheval an aggregate of 32,028,669 shares of Common Stock for total consideration of $3.0 million. The conversion of the outstanding debt for Common Stock at closing of the restructuring was accounted for as a decrease to Long-term debt and an increase to Common stock and Additional paid-in capital in the amount of the liabilities outstanding at the time of conversion. In connection with the transfer of the Benz Assets to the joint venture, the joint venture partner paid certain amounts incurred by the Company after December 21, 2017 and prior to February 27, 2018 in investigating certain causes of action and claims related to or in connection with the Benz Assets. In addition, upon exercise of its rights under the terms of the joint venture, the joint venture partner assumed certain legal fees and expenses owed by the Company to its litigation counsel totaling $0.3 million. Since the Benz Assets had no carrying value on the Company’s Condensed Consolidated Balance Sheet, the Company’s initial investment in the joint venture was recorded at $0. Equity Financings On March 12, 2018, the Company issued 2,445,557 shares of its common stock for total proceeds of $1.1 million to accredited investors. On June 4, 2018, the Company issued 400,000 shares of its common stock for total proceeds of $0.2 million to an accredited investor. 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. A summary of stock option activity for the The weighted average fair value of options granted during the The Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption terms for the nine months endedSeptember 30 Stock-Based Compensation The Company recorded stock-based compensation expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows: At September 30, 10. Kite Agreement On Pursuant to the Kite Agreement, the Company shall supply Lenz to the collaboration for use in the study and will contribute up to approximately $8.0 million towards the out-of-pocket costs of the 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 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 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 Mayo Agreement, the Company will pay $200,000 to Mayo within six months of the effective date, or upon completion of a qualified financing, whichever is earlier. The Mayo Agreement also requires the payment of milestones and royalties upon the achievement of certain regulatory and commercialization milestones. The Company accrued the initial payment in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019. Zurich Agreement On July 19, 2019 the Company entered into an exclusive worldwide license agreement (the “Zurich Agreement”) with the University of Zurich (“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 Hematopoietic Stem Cell Transplantation (“HSCT”). 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 Condensed Consolidated Statements of Operations and Comprehensive Loss as of September 30, 2019. 11. Savant Arrangements On June 30, 2016 the Company and Savant Neglected Diseases, LLC (“Savant”) In addition, on the Effective Date 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 the Effective Date, 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 the shares immediately and exercisable for the remaining shares upon reaching certain regulatory related milestones. As a result of the FDA granting accelerated and conditional approval of a benznidazole therapy manufactured by In July 2017, the Company commenced litigation against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement. Savant has asserted counterclaims for breaches of contract under the MDC Agreement and the Security Agreement. The dispute primarily concerns the Company’s right under the MDC Agreement to offset certain costs incurred by the Company in excess of the agreed upon budget against payments due Savant. See Note 12, below, for more information regarding the Savant litigation. The aggregate cost overages as of The $2.0 million in milestone payments due Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018. 12. Litigation Savant Litigation On July 10, 2017, the Company filed a complaint against Savant Neglected Diseases, LLC (“Savant”) in the Superior Court for the State of Delaware, New Castle County (the “Delaware Court”). KaloBios Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. The Company asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See 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. 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”). On August 2, 2017, Savant sent a foreclosure notice to the Company, demanding that it provide the Collateral as defined in the Security Agreement for On January 22, 2018, Savant wrote to the On February 13, 2018 Savant made a On On On June 4, 2019, Savant filed a complaint against the Company and Madison Joint Venture LLC (“Madison”) in the 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, but no argument date has been set. On July 26, 2019, the Company moved to modify the previously agreed-upon discovery schedule to extend discovery through December 31, 2019, which the Court granted. On July 30, 2019, the Company filed a 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 13. Subsequent Events On You should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Risk Factors” 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. During February 2018, we completed the financial restructuring transactions announced in December 2017 and furthered our transformation into a We are a clinical-stage biopharmaceutical company developing our We believe that our GM-CSF neutralization and gene-editing CAR-T platform technologies have the potential to We believe that our GM-CSF pathway science, assets and Our immediate focus is Lenzilumab Lenzilumab, our lead product candidate, is a clinical-stageHumaneeredmonoclonal antibody that neutralizes GM-CSF and has the potential to prevent or reduce certain serious side-effects associated with CAR-T therapy and improve upon the efficacy of CAR-T therapy. Pre-clinical data generated by the Mayo Clinic (the “Mayo Clinic”) in collaboration with Humanigen indicates that the use of lenzilumab in combination with CAR-T therapy may also enhance the proliferation and improve the efficacy of the CAR-T therapy. This may also result in durable, or longer term, responses. We are 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 will conduct a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with 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 CAR-T 2.0 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 Given our focus on developing lenzilumab in the treatment of rare cancers, we believe that we have the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, priority review and 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 we entered into in June 2019 with the Mayo Foundation for Medical Education and Research (“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. 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. 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 younger and 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. 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 a result of the CAR-T therapy itself. EphA3-CAR: Targeting Tumor Stroma and Tumor Vasculature We are working 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-Eph Type-A receptor 3 (“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, we may have the ability to target the tumor, tumor stroma, and tumor vasculature in a novel EMR1-CAR: Targeting Eosinophils Our EMR1-CAR-T product is We have incurred significant losses and had an accumulated deficit of We will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, clinical trials and other studies, and, if approved, the commercialization of our product candidates. If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital The condensed consolidated financial statements for the Critical Accounting Policies and Use of Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value-based measurement of stock-based compensation, accruals and warrant valuations. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity and financial condition. 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 We ceased to be considered as an EGC as of December 31, 2018. Accordingly, we are required to adopt new accounting standards on the same timeline as other smaller companies. There were no significant and material changes in our critical accounting policies and use of estimates during the Results of Operations General We have not generated net income from operations 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. 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), The following table shows our total research and development expenses for the three and nine months ended September 30, General and Administrative Expenses General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise included in research and development. Comparison of Three Months Ended September 30, Research and development expenses General and administrative expenses decreased $0.3 million from Interest expense Other income decreased $0.3 million from $0.3 million for the three months ended September 30, 2018 to zero for the three months ended September 30, 2019. For the three months ended September 30, 2018 Other income (expense) primarily consisted of legal fees assumed by Madison Joint Venture LLC in connection with their positive election related to the Benz Assets (see Note 9). There were no reorganization costs incurred for the three months ended September 30, 2019. The bankruptcy Comparison of Nine Research and development expenses increased General and administrative expenses decreased $2.7 million from $7.8 million for the nine months ended September 30, Interest expense increased $0.5 million from Other income (expense) decreased $0.3 million from $0.3 million for the nine months ended September 30, Reorganization items, net, decreased $0.1 million Liquidity and Capital Resources Since our inception, we have financed our operations primarily through proceeds from the public offerings of our common stock, private placements of our preferred stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against lines of The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below: Net cash used in operating activities was Cash used in operating activities of Net cash provided by financing activities was Restructuring Transactions On February 27, 2018, we In connection with the transfer of Upon completion of the Restructuring Transactions, the Black Horse Entities collectively held 66,870,851 shares of our We will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, clinical trials and other studies, and, if approved, the commercialization of our product candidates. The amount of capital we We are pursuing efforts to raise additional capital from a number of sources, including, but not limited to, the sale of equity or debt securities and strategic If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital will not be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. Our 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 paid approximately $0.5 million to extinguish certain of these notes in July and August 2019. As of September 30, 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, the Plan, at law or in equity. We do not have sufficient funds to repay the principal and accrued but unpaid notes. See “Risk Factors” in Part II, Item 1A for more information. Our common stock Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities or variable interest entities. Management’s Evaluation of our Disclosure Controls and Procedures “Disclosure controls and procedures,” as defined in Rules Disclosure controls and procedures include, without limitation, those designed to ensure that this information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Management, including our Chief Executive Officer, Changes in Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). 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 accounting officer. Our Chief Executive Officer assessed the effectiveness of our internal control over financial reporting 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.” During the remainder of 2019, 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. 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 Please If we cannot obtain additional financing, we may not be able to pursue our collaboration with Kite or other As previously disclosed, we do not expect to recognize any revenues while we continue to pursue the As of September 30, 2019, our current liabilities of approximately $10.3 million exceeded our current assets of approximately $0.5 million. Our cash position as of June 30, Accordingly, we are 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. In addition, the lenders under our bridge financing would be entitled to ____________________ Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 33☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19342017☐TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934HUMANIGEN, INC.Delaware Delaware 77-0557236 (State or other jurisdiction of (IRS Employer incorporation) Identification No.) 1000 Marina Blvd.,250, Brisbane,400 Burlingame, CA 94005Title of each class Trading Symbol(s) Name of each exchange on with registered ☒xNo ☐oand posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐o☐o ☐o ☐
x(Do not check if a smaller reporting company) ☒x Emerging growth company ☒o☐☐o No ☒x☒x No ☐oNovember 10, 2017October 25, 2019, there were 14,986,712112,780,386 shares of common stock of the issuer outstanding. Page PART I. FINANCIAL INFORMATION 3 �� Item 1. 3 3 4 5 6 Notes to Condensed Consolidated Financial Statements 67 Item 2. 2320 Item 4. 3129 PART II. OTHER INFORMATION 3331 Item 1. 3331 Item 1A. 3331 Item 6. 3632 33 37 September 30, December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ 1,095 $ 2,906 Prepaid expenses and other current assets 1,213 1,643 Total current assets 2,308 4,549 Property and equipment, net 30 68 Restricted cash 101 101 Other assets 128 - Total assets $ 2,567 $ 4,718 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 4,177 $ 4,072 Accrued expenses 2,990 736 Term loans payable 15,656 3,016 Total current liabilities 22,823 7,824 Notes payable to vendors 1,322 1,273 Total liabilities 24,145 9,097 Stockholders’ deficit: Common stock, $0.001 par value: 85,000,000 shares authorized at September 30, 2017 and December 31, 2016; 14,986,712 and 14,977,397 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 15 15 Additional paid-in capital 237,904 236,216 Accumulated deficit (259,497 ) (240,610 ) Total stockholders’ deficit (21,578 ) (4,379 ) Total liabilities and stockholders’ deficit $ 2,567 $ 4,718 September 30, December 31, 2019 2018 Assets Current assets: Cash and cash equivalents $ 157 $ 814 Prepaid expenses and other current assets 366 485 Total current assets 523 1,299 Restricted cash 71 71 Total assets $ 594 $ 1,370 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 3,932 $ 2,856 Accrued expenses 3,525 3,129 Advance notes 1,730 807 Notes payable to vendors 1,067 1,471 Total current liabilities 10,254 8,263 Convertible notes 3,006 1,217 Total liabilities 13,260 9,480 Stockholders’ deficit: Common stock, $0.001 par value: 225,000,000 shares authorized at 113 110 Additional paid-in capital 270,090 266,381 Accumulated deficit (282,869 ) (274,601 ) Total stockholders’ deficit (12,666 ) (8,110 ) Total liabilities and stockholders’ deficit $ 594 $ 1,370 3 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Operating expenses: Research and development $ 3,807 $ 1,741 $ 10,328 $ 7,805 General and administrative 1,993 2,453 5,987 6,169 Total operating expenses 5,800 4,194 16,315 13,974 Loss from operations (5,800 ) (4,194 ) (16,315 ) (13,974 ) Other expense: Interest expense (1,269 ) (30 ) (2,245 ) (76 ) Other income (expense), net (14 ) 128 (38 ) 128 Reorganization items, net (102 ) (427 ) (289 ) (8,039 ) Net loss (7,185 ) (4,523 ) (18,887 ) (21,961 ) Other comprehensive income - - - - Comprehensive loss $ (7,185 ) $ (4,523 ) $ (18,887 ) $ (21,961 ) Basic and diluted net loss per common share $ (0.48 ) $ (0.30 ) (1.26 ) $ (2.76 ) Weighted average common shares outstanding used to calculate basic and diluted net loss per common share 14,981,346 14,879,519 14,978,728 7,950,826 Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Operating expenses: Research and development $ 549 $ 535 $ 2,142 $ 1,808 General and administrative 1,497 1,804 5,122 7,793 Total operating expenses 2,046 2,339 7,264 9,601 Loss from operations (2,046 ) (2,339 ) (7,264 ) (9,601 ) Other expense: Interest expense (343 ) (116 ) (1,003 ) (542 ) Other income (expense), net - 319 (1 ) 318 Reorganization items, net - (40 ) - (106 ) Net loss (2,389 ) (2,176 ) (8,268 ) (9,931 ) Other comprehensive income - - - - Comprehensive loss $ (2,389 ) $ (2,176 ) $ (8,268 ) $ (9,931 ) Basic and diluted net loss per common share $ (0.02 ) $ (0.02 ) $ (0.07 ) $ (0.11 ) Weighted average common shares outstanding used to calculate basic and diluted net loss per common share 112,766,614 109,766,974 111,303,918 89,655,878 4 Nine Months Ended September 30, 2017 2016 Operating activities: Net loss $ (18,887 ) $ (21,961 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 38 81 Gain on lease termination - (227 ) Noncash interest expense 2,226 46 Reorganization items related to debtor-in-possession financing - 1,627 Stock based compensation expense 1,773 317 Issuance of common stock for services 12 - Issuance of warrants in connection with acquisition of licenses - 272 Change in fair value of warrants issued in connection with acquisition of licenses (97 ) - Issuance of common stock to officer and directors - 1,452 Changes in operating assets and liabilities: Prepaid expenses and other assets 303 428 Accounts payable 327 3,537 Accrued expenses 2,253 (367 ) Liabilities subject to compromise (259 ) (3,153 ) Net cash used in operating activities (12,311 ) (17,948 ) Investing activities: Changes in restricted cash - 92 Net cash provided by investing activities - 92 Financing activities: Net proceeds from issuance of common stock - 10,132 Net proceeds from term loan 10,500 - Net proceeds from convertible notes payable - 2,198 Net cash provided by financing activities 10,500 12,330 Net increase (decrease) in cash and cash equivalents (1,811 ) (5,526 ) Cash and cash equivalents, beginning of period 2,906 8,431 Cash and cash equivalents, end of period $ 1,095 $ 2,905 Supplemental disclosure of non-cash investing and financing activities: Conversion of notes payable and related accrued interest and fees to common stock $ - $ 3,387 Change in fair value of warrants issued in connection with acquisition of licenses $ (97 ) $ - Issuance of common stock for services $ 12 $ - Issuance of warrants in connection with acquisition of licenses $ - $ 272 Issuance of common stock to officer and directors $ - $ 1,452 Issuance of notes payable to vendors $ - $ 1,212 Nine Months Ended September 30, 2019 2018 Operating activities: Net loss $ (8,268 ) $ (9,931 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization - 19 Noncash interest expense 961 512 Stock based compensation expense 1,877 4,170 Issuance of common stock for payment of accrued compensation 120 85 Issuance of common stock in exchange for services 71 67 Gain on forgiveness of accrued legal fees - (275 ) Changes in operating assets and liabilities: Prepaid expenses and other assets 119 308 Accounts payable 1,076 (159 ) Accrued expenses 592 219 Net cash used in operating activities (3,452 ) (4,985 ) Investing activities: Changes in restricted cash - 30 Net cash provided by investing activities - 30 Financing activities: Net proceeds from issuance of common stock - 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 1,700 925 Payments on notes payable to vendors (505 ) - Net cash provided by financing activities 2,795 6,256 Net increase (decrease) in cash, cash equivalents and restricted cash (657 ) 1,301 Cash, cash equivalents and restricted cash, beginning of period 885 737 Cash, cash equivalents and restricted cash, end of period $ 228 $ 2,038 Supplemental cash flow disclosure: Cash paid for interest $ 8 $ 6 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 $ 195 $ 303 Issuance of common stock for payment of accrued compensation $ 120 $ 85 Issuance of common stock in exchange for services $ 71 $ 67 5 Three and Nine Months Ended September 30, 2019 Additional Total Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Deficit Balances at January 1, 2019 109,897,526 $ 110 $ 266,381 $ (274,601 ) $ (8,110 ) Issuance of stock options for payment of accrued compensation - - 195 - 195 Issuance of common stock for payment of accrued compensation 93,358 - 90 - 90 Issuance of common stock in exchange for services 82,432 - 68 - 68 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 1 324 - 325 Stock-based compensation expense - - 1,426 - 1,426 Comprehensive loss - - - (5,879 ) (5,879 ) Balances at June 30, 2019 112,741,563 113 269,606 (280,480 ) (10,761 ) Issuance of common stock for payment of accrued compensation 35,294 - 30 - 30 Issuance of common stock in exchange for services 3,529 - 3 - 3 Stock-based compensation expense - - 451 - 451 Comprehensive loss - - - (2,389 ) (2,389 ) Balances at September 30, 2019 112,780,386 $ 113 $ 270,090 $ (282,869 ) $ (12,666 ) Three and Nine Months Ended September 30, 2018 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 exchange for services 88,333 - 51 - 51 Issuance of stock options for payment of accrued compensation - - 303 - 303 Stock-based compensation expense - - 3,455 - 3,455 Comprehensive loss - - - (7,755 ) (7,755 ) Balances at June 30, 2018 109,696,119 110 263,173 (270,352 ) (7,069 ) Issuance of common stock in exchange for services 25,000 - 16 - 16 Issuance of common stock for payment of accrued compensation 151,407 - 85 - 85 Beneficial conversion feature of Advance notes - - 271 - 271 Beneficial conversion feature of Convertible notes - - 1,465 - 1,465 Stock-based compensation expense - - 715 - 715 Comprehensive loss - - - (2,176 ) (2,176 ) Balances at September 30, 2018 109,872,526 $ 110 $ 265,725 $ (272,528 ) $ (6,693 ) 6 The Company completed its initial public offering in January 2013. Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc.undergonesharpened its focus to develop novel cell therapies leveraging its understanding of a significant transformation since December 2015. Aspotentially key pathway which includes its antibody and gene-editing assets.resultclinical-stage biopharmaceutical company developing its portfolio 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 effectivenext-generation cell and the Company emerged from its Chapter 11 bankruptcy proceedings. Refer to Note 2 for additional details regarding the Company’s bankruptcy proceedings.From the time of its emergence from bankruptcy to August 29, 2017, the Company’s focus was on its lead product candidate benznidazolegene therapies for the treatment of Chagas disease,cancers via its novel, humangranulocyte-macrophage colony-stimulating factor (“GM-CSF”) neutralization and gene knockout platforms. As a parasitic illness that can lead to long-term heart, intestinal and neurological problems. As more fully describedleader in Note 10,GM-CSF pathway science, the Company acquired certain worldwide rightsbelieves that it has the ability to benznidazole on June 30, 2016transform chimeric antigen receptor T-cell (“CAR-T”) therapy and until August 29, 2017, was primarily focused ona 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).necessaryof next-generation CAR-T therapies. Lenzilumab, the Company’s proprietary Humaneered® anti-GM-CSF immunotherapy, has the potential to seek and obtain approval by thebe used in combination with any United States Food and Drug Administration (“FDA”)-approved or development stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic hematopoietic stem cell transplant (“HSCT”), to make these treatments safer and more effective. 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.benznidazolevarious solid cancers and EMR1-CAR-Ts for various eosinophilic disorders. 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”) in patients undergoing allogeneic HSCT. The Company has established several partnerships with leading institutions to advance its innovative cell and gene therapy pipeline.7 subsequent commercialization, if approved. AccordingCompany’s collaboration with Kite is currently the only clinical collaboration with the potential to FDA issued guidance, benznidazoleimprove 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 in the United States and abroad 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 the Company to generate further revenues from sales of lenzilumab.eligiblecommitted to advancing its diverse platform for review pursuantGM-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 its current and future partners.505(b)(2) regulatory pathwaypotentially 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. The Company aims to position lenzilumab as a potential“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 Chagas disease and, if it becameGvHD.first FDA-approved treatment for Chagas disease, the Company would have been eligible to receive a Priority Review Voucher (“PRV”).However,Company’s focus on August 29, 2017, the FDA announced it had granted accelerated and conditional approval of a benznidazole therapy manufactured by Chemo Research, S.L. (“Chemo”) fordeveloping lenzilumab in the treatment of Chagas diseaserare cancers, 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, priority review and had awardedaccelerated approval.manufacturer a neglected tropical disease PRV. Chemo’s benznidazole also has received Orphan Drug designation. As a result of FDA’s actions andit entered into in June 2019 with the information currently available,Mayo Foundation for Medical Education and Research (“Mayo Foundation”). Under the Mayo Agreement, the Company no longer expectshas 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.8 eligibleapplied across both autologous and allogeneic approaches and is also investigating multiple CAR-T cell designs using precise dual and triple gene editing to receive a PRV withsignificantly 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 younger and fitter T-cells produced during expansion, increase the proliferative potential, and inhibit activation induced cell death, thereby improving the cancer killing activity of its own benznidazole candidate forengineered CAR-T cells thereby making them more effective and safer in the treatment of Chagas disease. Accordingly, the Company has ceased development of benznidazole and is currently assessing a full range of options with respect to its benznidazole assets and development program.Since the FDA’s August 29, 2017 announcement, the Company has shifted its primary focus toward developing its proprietary monoclonal antibody portfolio, which comprises lenzilumab (formerly known as KB003) and ifabotuzumab (formerly known as KB004), for use in addressing significant unmet needs in oncology. Both of these product candidates are in the early stage of development and will require substantial time, expenses, clinical development, testing, and regulatory approval prior to commercialization. Furthermore, neither of these product candidates has advanced into a pivotal registration study and it may be years before such a study is initiated, if at all.Lenzilumab is currently being developed for the treatment of chronic myelomonocytic leukemia (“CMML”), a rare hematologic cancer with high unmet medical need. The Company has enrolled a total of nine patients in the 200, 400 and 600 mg dose cohorts in its CMML trial, and is currently evaluating subjects in the highest dose cohort of 600 mg for continuing accrual.cancers. The Company plans to review preliminary safetycontinue 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 efficacy results and anticipates completionsometimes fatal outcomes for patients as a result of the ad hoc interim analysisCAR-T therapy itself.first half of 2018. Additionally,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 exploring lenzilumab’s potentialcollaborating with the Mayo Clinic and plans to neutralize circulating Granulocyte-Macrophage Colony-Stimulating Factor (GM-CSF) which could leadmove to developing it as a possible treatmentclinical testing with an anti-EphA3 construct for a range of conditions including juvenile myelomonocytic leukemiacancer types after completing Investigational New Drug (“JMML”IND”) enabling work.toxicities and adverse events associated with chimeric antigenepidermal growth factor-like module containing mucin-like hormone receptor T-cell1 (“CAR-T”EMR1”) therapy.Ifabotuzumab development has begun with an Investigator-Sponsored Phase 0/1 radiolabeled imaging trial. The Company’s EMR1-CAR-T based on the HGEN005 backbone is another approach in glioblastoma multiforme (“GBM”), a particularly aggressive and deadly formits growing platform of brain cancer.CAR-T therapies. The Company believes that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases.exploring partnering opportunities to enable further development of ifabotuzumab,no assurance that the Company will reach any agreements for the treatment of certain rare solid and hematologic cancers.$259.5$282.9 million as of September 30, 2017. The2019. At September 30, 2019, the Company has financed its operations primarily through the salehad a working capital deficit of equity securities, debt financings, interest income earned on cash and cash equivalents, grants and the payments received under its agreements with Novartis Pharma AG and Sanofi Pasteur S.A. (“Sanofi”).$9.7 million. To date, none of the Company’s product candidates havehas 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. See Note 12 – “Subsequent Events.”20172019 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 $24.1$13.3 million at September 30, 20172019 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. See Note 12 – “Subsequent Events.”9 Review of Strategic AlternativesThe Company is currently evaluating a full range of strategic alternatives to address or respond to the Company’s lack of liquidity in order to repay its outstanding term loans (See Note 7 – “Debt and Equity Financing”) and other obligations. The Company has been discussing and continues to discuss with its Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of the Company’s obligations including conversion of the Term Loans into equity in the Company, which may occur at a significant discount to the current market price and be dilutive to the ownership interests of existing stockholders. If the Company is able to successfully reach agreement with its Term Loan Lenders and is also able to obtain additional financing, the review of strategic alternatives could result in among other things, pursuit of a litigation strategy relating to its benznidazole intellectual property rights, 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 the Company’s current business plan and strategy. The Company may incur substantial expenses associated with identifying, evaluating and pursuing potential strategic alternatives, and there can be no assurances as to whether any of these may be successfully implemented. If the Company is unable to reach a satisfactory agreement with its Term Loan Lenders on any alternative transactions, the Company may be forced to file for a second bankruptcy. See Note 12 – “Subsequent Events.”Delisting of Common StockOn 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. On June 26, 2017 the Company’s common stock began trading on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following the effectiveness of our previously reported name change, the Company’s common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”.20162018 Condensed Consolidated Balance Sheet was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2017,2019, or for any other future annual or interim period. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s 2016 Annual Report on2018 Form 10-K (the “2016 Annual Report”). the financing derivative, the fair value-based measurement of stock-based compensation, accruals and warrant valuations. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements.In connection with financing efforts related to the 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.On May 9, 2016, the Company filed with the Bankruptcy Court 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. 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 Plan and 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 September 30, 2017, 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 September 30, 2017, 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 September 30, 2017, 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 September 30, 2017, 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 Condensed Consolidated Financial Statements.·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 September 30, 2017 the Company has accrued $148,000 of 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. For the year ended December 31, 2016, 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 AdministrationOn 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 proofs of 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. During the year ended December 31, 2016, the 300,000 shares were issued and the $250,000 payment was made. See Note 11 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. During the year ended December 31, 2016, the 327,608 shares were issued and the $250,000 payment was made. See Note 11 for additional information on this matter and settlement.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 September 30, 2017, 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 approximately $227,000 is included in Reorganization items, net, in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 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 was to expire 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.ongoing.complete. As a result of its examination of the claims, the Company may askasked 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, subjectfiled an objection to the Company’s rightremaining claims. By objection, the Company sought to seek an extension of this deadline fromdisallow 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 deadlineissued a Final Decree and Order to June 26, 2017. By Order dated July 10, 2017, the Bankruptcy Court extended the claims objection deadline to September 25, 2017. By Order dated October 23, 2017, the Bankruptcy Court extended the claims objection deadline to December 26, 2017.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 September 30, 2017, approximately $731,000 in claims remained subject to review and reconciliation by the Company. The Company may file objections to these claims after it completes the reconciliation process. As of September 30, 2017, the Company has recorded $28,000 and $31,000 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.Althoughclose the Bankruptcy Case remains open, other than with respect to certain matters relating toand 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 ArrangementsOn 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.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 were charged to Reorganization items, net in 2016: Nine Months ended (in thousands) September 30, 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 provided 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.The Company timely filed a registration statement on Form S-1 on March 17, 2017. On June 20, 2017 the SPA was amended again to require the Company to obtain effectiveness of the registration statement no later than July 30, 2017. On July 14, 2017, the registration statement was declared effective by the SEC.Governance ArrangementsOn 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 has no right to nominate directors to the Board of Directors of the Company (the “Board”) 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 allremaining 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 ChangesOn 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 (collectively, the "Black Horse Entities") and Nomis, continued as a director, Ronald Barliant, a then-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. On November 9, 2017, Dale Chappell and Ezra Friedberg resigned from the Board, effective immediately.Financial Reporting in ReorganizationThe Company applied Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations, which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. It requires that the financial statements for periods subsequent to the Chapter 11 filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the 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.As of December 31, 2015, 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 as of June 30, 2016 totaling approximately $2.8 million, $0.8 million and $1.2 million to Accounts payable, Accrued expenses and Notes payable to vendors, respectively. noticing services.year 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 vendorsthree 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. For the nine months ended September 30, 2017, the Company wrote off approximately $0.2 million in claims that had been reduced or for which a settlement had been reached at a lower amount than what had been previously accrued2019 and also paid approximately $0.1 million in claims. As of September 30, 2017, approximately $0.1 million and $1.3 million remain in Accounts payable and Notes payable to vendors, respectively. Remaining amounts will be paid based on terms of the Plan.For the three months ended September 30, 2017 and 2016,2018, Reorganization items, net consisted of the following charges: Three months ended Three months ended (in thousands) September 30, 2017 September 30, 2016 Legal fees $ 97 $ 224 Professional fees 5 203 Total reorganization items, net $ 102 $ 427 Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Legal fees $ - $ 32 $ - $ 85 Professional fees - 8 - 21 Total reorganization items, net $ - $ 40 $ - $ 106 $190,000$0.1 million and $1,824,000$0.2 million for the three months ended September 30, 2017 and 2016, respectively.For the nine months ended September 30, 2017 and 2016, Reorganization items, net consisted of the following charges: Nine months ended Nine months ended (in thousands) September 30, 2017 September 30, 2016 Legal fees $ 263 $ 4,780 Professional fees 26 1,159 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 $ 289 $ 8,039 Cash payments for reorganization items totaled $834,000 and $4,052,000 for the nine months ended September 30, 2017 and 2016,2018, respectively.tosince those previously disclosed in the 2018 Form 10-K.10 Annual Report. September 30, 2019 2018 Cash and cash equivalents $ 157 $ 2,038 Restricted cash 71 71 Total cash, cash equivalents and restricted cash as shown on statement of cash flows $ 228 $ 2,109 potentialpotentially dilutive securities, which include stock options, restricted stock units and warrants, have been excluded from the computation of diluted net loss per common share as the effect of including those securities would be to reduce the net loss per common share and be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in each period presented.11 As of September 30, 2017 2016 Options to purchase common stock 2,578,948 2,036,177 Restricted stock units — 3,750 Warrants to purchase common stock 356,193 331,193 2,935,141 2,371,060 5. InvestmentsAt September 30, 2017, the amortized cost and fair value of investments, with gross unrealized gains and losses, were as follows:(in thousands) Fair Value Money market funds $ 101 $ — $ — $ 101 Total investments $ 101 $ — $ — $ 101 Reported as: Cash and cash equivalents $ — Restricted cash, long-term 101 Total investments $ 101 At December 31, 2016, the amortized cost and fair value of investments, with gross unrealized gains and losses, were as follows:(in thousands) Fair Value Money market funds $ 101 $ — $ — $ 101 Total investments $ 101 $ — $ — $ 101 Reported as: Cash and cash equivalents $ — Restricted cash, long-term 101 Total investments $ 101 As of September 30, 2019 2018 Options to purchase common stock 15,139,374 15,551,023 Warrants to purchase common stock 331,193 331,193 15,470,567 15,882,216 term loans 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. Fair Value Measurements as of September 30, 2019 (in thousands) 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 (in thousands) Level 1 Level 2 Level 3 Total Investments: Money market funds $ 71 $ — $ — $ 71 Total assets measured at fair value $ 71 $ — $ — $ 71 12 (in thousands) Level 1 Level 2 Level 3 Total Investments: Money market funds $ 101 $ — $ — $ 101 Total assets measured at fair value $ 101 $ — $ — $ 101 (in thousands) Level 1 Level 2 Level 3 Total Investments: Money market funds $ 101 $ — $ — $ 101 Total assets measured at fair value $ 101 $ — $ — $ 101 and Equity Financingarebecame 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 September 30, 2019. As of September 30, 2017,2019 and December 31, 2018, the Company has accrued a total of $148,000 of$0.4 million and $0.3 million in interest expense related to these promissory 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. We do not have sufficient funds to repay the accompanying Condensed Consolidated Balance Sheet with a charge to Interest expense of $87,000principal and accrued but unpaid interest on these notes in their entirety. See Part II, Item 1A. “Risk Factors” for the nine months ending September 30, 2017 in the accompanying Statements of Operationsmore information.Comprehensive Loss.December 2016 Term LoanOn December 21, 2016,August, 2018 the Company entered intoreceived 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 Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder; and Ronald Barliant, a Credit and Security Agreement (the “Term Loan Credit Agreement”) with BHCMF, as administrative agent and lender BHC, as a lender, Cheval, as a lender, and Nomis, as a lenderdirector of the Company (collectively the “Term Loan Lenders”“Lenders”). The Term Loan Credit Agreement provides forAdvance Notes accrued interest at a credit facility in the original principal amountrate of $3,315,000, provides an original discount equal to $265,000 (the “Upfront Fee”) and requires the payment by the Company to the Term Loan Lenders of a commitment fee equal to $153,000. 7% per year, compounded annually.termsCompany’s announcement of the Term Loan CreditCollaboration Agreement with Kite, 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.useddelivered a series of convertible promissory notes (the “2018 Notes”) evidencing an aggregate of $2.5 million of loans made to the proceeds of the term loan (the “December 2016 Term Loan”) for general working capital, the payment of certain fees and expenses owed to BHCMF and the Term Loan Lenders and other costs incurred in the ordinary course of business. Dr. Chappell, one of the Company’s former directors, isCompany by six different lenders, including an affiliate of each of BHCMF, BHC and Cheval. On November 9, 2017, Dr. Chappell resigned from the Board, effective immediately.The Term Loans (as defined below) bear interest at 9.00% and are subject to certain customary representations, warranties and covenants, as set forth in the Term Loan Credit Agreement.The outstanding principal balance of the Term Loans, plus accrued interest and fees, are due on the earlier of acceleration after an event of default under the Term Loan Credit 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 Term Loans. On October 31, 2017, the Company obtained a short-term extension of the maturity ofBlack Horse Capital, L.P., the Company’s obligations under the Term Loans. On November 16, 2017, the Company obtained an additional short-term extension of the maturity of the Company’s obligations under the Term Loans.See Note 12 - “Subsequent Events” for further information.Upon the occurrence of any event of default set forth in the Term Loan Credit Agreement, BHCMF has the option of terminating the Term Loan Credit Agreement and declaring all of the Company’s obligations immediately payable.controlling stockholder. The occurrence of an event of default will cause the Term Loans to2018 Notes bear interest at a rate of 7% per annum equal to 14.00%. The Company’s obligations underand will mature on the Term Loan Credit Agreement are secured by a first priority interest in allearliest 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’s real and personal property, subject only to certain carve outs and permitted liens, as set forth in the agreement.The Company recorded the original principal amount of the December 2016 Term 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 September 30, 2017, the Company has accrued a total of $662,000 of interest expense, consisting of $234,000 interest and loan cost accretion of $428,000 and has recorded such against the principal balance resulting in a loan balance of $3,655,000 in the accompanying Condensed Consolidated Balance Sheet with a charge to Interest expense of $639,000 for the nine months ending September 30, 2017 in the accompanying Condensed Statements of Operations and Comprehensive Loss.March 2017 Term LoanOn March 21, 2017, the Company entered into an amendment (the “Amendment”) to the Term Loan Credit Agreement to obtain an additional term loan (the “March 2017 Term Loan”) in the original principal amount of $5,978,000 less an upfront fee equal to $478,000 (the “Additional Upfront Fee”), and requires the paymentor merger or sale by the Company to the Term Loan Lenders of all or substantially all of its assets (in any case, a commitment fee equal to $275,000. In accordance with the terms of the Term Loan Credit Agreement, the“Liquidation Event”). The Company used the proceeds from the additional loan2018 Notes for general working capital, the payment of certain fees and expenses owed to BHCMF and the Term Loan Lenders in connection with the Term Loan Credit Agreement and other costs incurredcapital.ordinary courseCompany in three different scenarios:business. Aside from the increase in the principal amount extended, the Amendment did not modify anyrepayment of the terms under the Term Loan Credit Agreement, all of which will be applicable to the March 2017 Term Loan extended2018 Notes in any financing transaction that results in gross proceeds to the Company byof at least $10 million (a “Qualified Financing”), the Lenders.The Company recorded2018 Notes will be converted into either (i) such equity securities as the originalnoteholder would acquire if the principal amountand 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 additional loan reduced by the Additional Upfront Fee and costs incurred in putting the March 2017 Term Loan in place for a net principal amount of $5,500,000.As of September 30, 2017,Notes).has accrued a totalsells its equity securities on or before the date of $938,000repayment of interest expense, consistingthe 2018 Notes in any financing transaction that results in gross proceeds to the Company of $288,000 interest and loan cost accretion of $650,000 and has recordedless than $10 million (a “Non-Qualified Financing”), the noteholders may convert their remaining 2018 Notes into either (i) such againstequity securities as the principal balance resulting in a loan balance of $6,438,000noteholder would acquire if the Conversion Amount were invested directly in the accompanying Condensed Consolidated Balance Sheet with a chargefinancing on the same terms and conditions as given to Interest expense of $937,000 for the nine months ending September 30, 2017financing investors in the accompanying Condensed StatementsNon-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 Operations and Comprehensive Loss.July 2017 Term LoanOn July 8, 2017,the Notes).enteredenters into or publicly announces its intention to consummate a second amendment (the “Second Amendment”)Liquidation Event. Immediately prior to the Term Loan Credit Agreementcompletion 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 obtain$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).additional term loanaggregate of $1.3 million of loans made to the Company.13 “July 2017 Term Loan” and, together with“Stated Maturity Date”), (ii) the December 2016 Term Loan andoccurrence of any customary event of default, or (iii) the March 2017 Term Loan,certain liquidation events including any dissolution or winding up of the “Term Loans”). The Second Amendment provides for additional loans that may be drawnCompany or merger or sale by the Company onof all or substantially all of its assets (in any case, a bi-monthly basis from time to time (the “Grid Advances”“Liquidation Event”) in an aggregate principal amount of up to $5,434,783, less an upfront fee equal to $435,000 and requires the payment at maturity by the Company to the Term Loan Lenders a commitment fee of $263,000. In accordance with the terms of the Term Loan Credit Agreement, the. The Company used the proceeds from the Grid Advances2019 Notes for general working capital, the payment of certain fees and expenses owed to the Agent and the Term Loan Lenders in connection with the Term Loan Credit Agreement and other costs incurredcapital.ordinary course of business. Aside fromCompany in four different scenarios:increaseCompany sells its equity securities on or before the Stated Maturity Date in the principal amount extended, the Second Amendment did not modify any of the terms under the Term Loan Credit Agreement, all of which will be applicable to the Grid Advances extendedfinancing 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 Term Loan Lenders.As of September 30, 2017, the entire amount provided by the Second Amendment of $5,000,000 (net of an Upfront Fee of $435,000) of the July 2017 Term Loan has been received by the Company. Accordingly, as of September 30, 2017, the Company has received the entire amount available under the Term Loans totaling $14.7 million.As of September 30, 2017, the Company has accrued a total of $563,000 of interest expense, consisting of $91,000 interest and loan cost accretion of $472,000 and has recordedbuyer in such against the principal balance resultingtransaction (which in a loan balance of $5,563,000 in the accompanying Condensed Consolidated Balance Sheet with a charge to Interest expense of $563,000stock for the nine months ending September 30, 2017 in the accompanying Condensed Statements of Operations and Comprehensive Loss.Committed Equity Financing FacilityOn August 24, 2017, the Company entered into a Common Stock Purchase Agreement, dated as of August 23, 2017 (the “ELOC Purchase Agreement”), with Aperture Healthcare Ventures Ltd. (“Aperture”) pursuant to which the Company may, subject to certain conditions and limitations set forth in the ELOC Purchase Agreement, require Aperture to purchase up to $15.0 million worth of newly issued shares (the “Put Shares”) of the Company’s common stock over the 36-month term following the effectiveness of the initial resale registration statement described below (the “Investment Period”). From time to time over the Investment Period, and in the Company’s sole discretion, the Company may present Aperture with one or more notices requiring Aperture to purchase a specified dollar amount of Put Shares,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 day over five consecutive trading daysshare (subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the 2019 Notes).“Pricing Period”“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).per share purchase price for these shares equalsCompany’s announcement of the daily volume weighted average price ofCollaboration Agreement with Kite satisfied this requirement and accordingly, the 2019 Notes are convertible into common stock on each date during the Pricing Period onabove terms.shares are purchased, less a discount of 6.0% based on a minimum price as set forth in the ELOC Purchase Agreement. In addition,holder could convert the notes in the Company’s sole discretion,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 $1.8 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 $0.2 million and $0.6 million for the three and nine month periods ended September 30, 2019.14 subjectdid 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 certain limitations,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 12 and 19 months for the 2018 Notes and the 2019 Notes, respectively.may require Apertureissued three short-term, secured bridge notes (the “2019 Bridge Notes”) evidencing an aggregate of $1.7 million of loans made to purchase a percentagethe 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 daily trading volumeBoard of common stock for each trading day duringDirectors, lent $200,000. The proceeds from the Pricing Period.Under2019 Bridge Notes were used to satisfy a portion of the ELOC Purchase Agreement, the Company paid Aperture a document preparation fee of $15,000 by issuing to Aperture 9,315 shares of common stock (the “Fee Shares” and, together with the Put Shares, the “ELOC Shares”).On August 23, 2017,unsecured obligations incurred in connection with the ELOC Purchase Agreement,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.entered into a Registration Rights Agreement (the "ELOC RRA") with Aperture, pursuant to whichand the Company granted to Aperture certain registration rights related to the ELOC Shares issuable in accordance with the ELOC Purchase Agreement. Under the ELOC RRA, the Companylenders agreed to use its commercially reasonable efforts to prepare and file withextend the SEC one or more registration statements for the purpose of registering the resalematurity date of the maximum ELOC Shares issuable pursuant2019 Bridge Notes from October 1, 2019 until December 31, 2019 and to the ELOC Purchase Agreement. The Company agreedwaive any prior default up to file the initial registration statement with the SEC within 90 days afterand including the date of the ELOC Purchase Agreement andamendment. No other changes to use commercially reasonable efforts to cause that registration statement to be declared effective within 120 daysthe terms of the date2019 Bridge Notes were made in connection with the extension of the ELOC Purchase Agreement (180 days ifmaturity date. The 2019 Bridge Notes may become due and payable at such earlier time as the registration statement is reviewedCompany raises more than $3,000,000 in a bona fide financing transaction or upon a change in control. The 2019 Bridge Notes are secured by the SEC).The actual amountliens of funds that can be raised under the Aperture facility will depend on the number of shares sold under the ELOC Purchase Agreement and the market valuesubstantially all of the Company’s common stock duringassets.Pricing Period of each sale. The Company has not yet filed a registration statementfailing to timely pay any monetary obligation under the ELOC RRA. Sales2019 Bridge Notes; (2) the Company failing to pay its debts generally as they become due and (3) the Company commencing any proceeding relating to the Company under any bankruptcy reorganization, arrangement, insolvency, readjustment of common stockdebt, 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 ELOC Purchase Agreement cannot commence until such registration statement is filed2019 Bridge Notes shall immediately become due and declared effective bypayable without demand and without notice to the SEC. There can be no assurance that the Company will use the Aperture facility to raise funds in the future.2017,2019, other than the debt issuances described in Note 7 and the license agreements described in Note 10, there were no material changes to the Company’s contractual obligations from those set forth in the 2016 Annual Report.15 Share Based CompensationOn September 13, 2016,Directors of the BoardCompany 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 availableauthorized for issuance under the Equity Plan by 3,000,00016,050,000 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 from 125,000during a calendar year to 1,100,000.three and nine months ended September 30, 20172019 under all of the Company’s options plans is as follows: Options Weighted
Average
Exercise
PriceOutstanding at January 1, 2019 15,409,357 $ 0.95 Granted 728,610 1.10 Exercised (488,625 ) 0.67 Cancelled (forfeited) (509,923 ) 0.62 Cancelled (expired) (45 ) 9.68 Outstanding at September 30, 2019 15,139,374 $ 0.97 16 Options
Average
Exercise
Price Outstanding at December 31, 2016 1,835,835 $ 4.15 Granted 615,000 2.92 Exercised - - Cancelled (forfeited) (17,905 ) 3.29 Cancelled (expired) (87 ) 4.24 Outstanding at March 31, 2017 2,432,843 $ 3.85 Granted - - Exercised - - Cancelled (forfeited) (3,895 ) 3.20 Cancelled (expired) - - Outstanding at June 30, 2017 2,428,948 $ 3.85 Granted 150,000 0.33 Exercised - - Cancelled (forfeited) - - Cancelled (expired) - - Outstanding at September 30, 2017 2,578,948 $ 3.65 three and nine months ended September 30, 20172019 was $0.22 and $1.49$1.10 per share, respectively. 2017: Exercise price $ 2.41 Market value $ 2.41 Risk-free rate 1.78% to 2.09%% Expected term 5.0 to 6.0 years Expected volatility 83.2% to 87.9% Dividend yield - Nine months ended
September 30, 2019Exercise price $0.84 - $1.30 Market value $0.84 - $1.30 Risk-free rate 2.49% - 2.59% Expected term 6 years Expected volatility 99.1% - 99.3% Dividend yield - Three Months Nine Months Ended September 30, Ended September 30, (in thousands) 2017 2016 2017 2016 General and administrative $ 278 $ 273 $ 1,477 $ 275 Research and development 67 40 296 42 $ 345 $ 313 $ 1,773 $ 317 Three months ended
September 30, Nine months ended
September 30, 2019 2018 2019 2018 General and administrative $ 419 $ 715 $ 1,813 $ 3,969 Research and development 32 - 64 201 Total stock-based compensation $ 451 $ 715 $ 1,877 $ 4,170 2017,2019, the Company had $2.5$1.0 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 1.91.7 years.Savant ArrangementsFebruary 29, 2016,May 30, 2019, the Company entered into a binding letter of intentcollaboration agreement (the “LOI”“Kite Agreement”) with Kite Pharmaceuticals, Inc., pursuant to which the Company and Kite will conduct a multi-center Phase 1b/2 study of lenzilumab with Kite’s Yescarta in patients with relapsed or refractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”). The primary objective of the Study is to determine the effect of lenzilumab on the safety of Yescarta.17 . 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.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.On the Effective Date, as authorized by the Plan and the Confirmation Order, 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. 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 in the mid-teens on 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 priority review voucher is not granted subsequent to regulatory approval of any benznidazole product. 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(the “Compound”).In addition, pursuant to the MDC Agreement, the Company has granted Savant certain “piggyback” registration rights for the shares issuable under the Warrant.The Company determined the fair value of the Warrant to be approximately $670,000. During the course of 2016, the Company reevaluated the performance conditions and expected vesting of the Warrant at the end of each quarter and recorded expense of approximately $361,000 during the year ended December 31, 2016 in Research and development expenses.The Company reevaluated the performance conditions and expected vesting of the Warrant asAs of September 30, 2017 and recorded a reduction in expense2019 the number of approximately $59,000 duringshares for which the three months ended September 30, 2017 and a reductionWarrant is currently exercisable totals 100,000 shares at an exercise price of expense of approximately $97,000 during the nine months ended September 30, 2017 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$2.25 per share.Chemoa competitor for the treatment of Chagas disease and awarding Chemosuch competitor a neglected tropical disease PRV in August 2017, the Company ceased development of benznidazole and re-evaluated the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.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.Before a compound receives regulatory approval, the Company records upfront and milestone payments made to third parties 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 determined that the acquisition of the Compound should be treated as a purchase of in-process research and development. Accordingly, during the year ended December 31, 2016, the Company recorded $3,250,000, which includes an additional $250,000 payment made in 2015 to Savant, as a Research and development expense. 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 a Research and development expense.On May 26, 2017, the Company submitted its benznidazole IND to FDA which became effective on June 26, 2017. The Company recorded expense of $1,000,000 during the three months ended June 30, 2017 as a Research and development expense related to the milestone achievement associated with the IND being declared effective.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 an expense of $1,000,000 during the three months ended September 30, 2017 as a Research and development expense related to the milestone achievement associated with Orphan Drug Designation.SeptemberJune 30, 2017 that the Company asserts are Savant’s responsibility total approximately $3.4 million, net of a $500,000$0.5 million deductible. The Company asserts that it is entitled to offset $2$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. As of SeptemberJune 30, 2017,2019, the cost overages totaled $4.1 million such that Savant owed the Company approximately $2.1 million in cost overages. Such cost overages have been charged to Research and development expense as incurred. Recovery of such cost overages, if any, will be recorded as a reduction of Research and development expense in the period received.18 Part II, Item 1 of this Form 10-QNote 11 - “Savant Arrangements” for more information about this pending matter.11. LitigationBankruptcy Proceedingprotectioninspection 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 Collateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies under Chapter 11 of Title 11the MDC Agreement or the Security Agreement. The parties have stipulated to continue the provisions of the United States Bankruptcy Code on December 29, 2015. See Note 2 for additional information relatedTRO in full force and effect until further order of the appropriate court.bankruptcy.Securities Class Action LitigationDecember 18, 2015,January 29, 2018, the Bankruptcy Court granted the Motion to Remand and denied Savant’s request to dissolve the TRO, ordering that any request to dissolve the TRO be made to the Delaware Court. putative class action lawsuit (captioned Li v. KaloBios Pharmaceuticals, Inc. et al., 5:15-cv-05841-EJD) was filed againstletter request to the Delaware Superior Court to dissolve the TRO. Also on February 13, 2018, the Company in the United States District Court for the Northern District of California (the “Class Action Court”), alleging violations of the federal securities laws byfiled its Answer and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 the Company Herb Crossfiled a letter opposition to Savant’s request to dissolve the TRO and Martin Shkreli,requesting a status conference. A hearing on Savant’s request to dissolve the Company’s former ChairmanTRO was held before the Delaware Superior Court on March 19, 2018. The Delaware Superior Court denied Savant’s request to dissolve the TRO and Chief Executive Officer. the TRO remains in effect.December 23, 2015, a putative class action lawsuit was filed againstApril 11, 2018, the Company inadvised the Class ActionDelaware Superior Court (captioned Sciabacucchi v. KaloBios Pharmaceuticals, Inc. et al., 3:15-cv-05992-CRB), similarly alleging violations ofthat it would meet and confer with Savant regarding a proposed case management order and date for trial. On April 26, 2018 the federal securities lawsDelaware Superior 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.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 wasdiscovery schedule through June 30, 2019, which the Superior Court so-ordered, and the parties produced documents to each other. ClassDelaware Court 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 requested leave to move to dismiss the Company’s complaint on the grounds that the Company’s transfer of assets to Madison was champertous. On June 10, 2019, the Company requested by letter that the Superior Court hold a contempt hearing because the Chancery Action violated the TRO entered by the Bankruptcy Court, (captioned Isensee v. KaloBios Pharmaceuticals, Inc. et al., Case No. 15-cv-06331-EJD) also alleging violationthe terms of which have been extended by stipulation of the federal securities laws byparties. 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. 19 former officer and Mr. Shkreli. On April 18, 2016,motion to dismiss Savant’s Chancery Court complaint. Savant filed an amended complaint wason September 4, 2019, and the Company filed its opening brief in support of its motion to dismiss on October 11, 2019. Savant’s opposition is due on November 22, 2019, and the Company’s reply is due on December 11, 2019. Isensee suit, adding Herb Cross and Ronald Martell as defendants. On April 28, 2016,alternative, requested leave to file a second amended complaint against Savant. Savant consented to 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 membersfiling of the class represented in the Securities Class Action Litigation, (the “Securities Class Action Members”).June 15, 2016, a settlement stipulation (the “Securities Class Action Settlement”), was approved by the Bankruptcy 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 on June 22, 2017, the Class Action Court issued its final approval order. The Securities Class Action Settlement provides that 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. Securities Class Action Members had the option to 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 excluded themselves from the Securities Class Action Settlement and 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 the Company’s common stock that was issued and outstanding when the Company’s bankruptcy case was filed. Such claims are also subject 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. During the year ended December 31, 2016, the 300,000 shares were issued and the $250,000 payment was made.PIPE LitigationOn 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 betweenOctober 8, 2019, 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 obligatedlenders agreed 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. During the year ended December 31, 2016, the 327,608 shares were issued and the $250,000 payment was made.Claim by Marek BiestekMarek 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 of the Company, was excluded from the Securities Class Action Members and therefore received nothing from the Securities Class Action Litigation.As of December 31, 2015, the Company recorded an obligation 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. During the year ended December 31, 2016, all of the above claims were satisfied and shares issued.Savant LitigationSee Note 10 – “Savant Arrangements” and Part II, Item 1 of this Form 10-Q for information about litigation between the Company and Savant that was instituted in July 2017.12. Subsequent EventsVendor NegotiationsIn October 2017, the Company reached agreement with certain vendors which reduced trade payables by $2.0 million, which includes $1.1 million reclassified to a long-term liability, as it is based on future revenue. The gain of $900,000, will be recognized in the Consolidated Statement of Operations and Comprehensive Loss for the three months ended December 31, 2017 as Other Income.Term LoansThe outstanding principal balance of $14.7 million under the Term Loans, plus accrued interest and fees, became due on October 31, 2017. See Note 7 – “Debt and Equity Financing” for further information about the Term Loans. As of October 31, 2017, the aggregate amount of the Company’s obligations under the Term Loan Credit Agreement, including accrued interest and fees, approximated $16.1 million.The Company does not have access to sufficient funds to repay the outstanding obligations under the Term Loan Credit Agreement. Accordingly, on October 31, 2017, the Company obtained a short-term extension of the maturity of the Company’s obligations under the Term Loans. On November 16, 2017, the Company obtained an additional short-term extension of the maturity of the Company’s obligations under the Term Loans. The extension agreed with the Term Loan Lenders extendsextend the maturity date of the Company’s obligations under the Term Loan Credit Agreement2019 Bridge Notes from October 1, 2019 until December 31, 2019 and to the earlier of (i) December 1, 2017, or (ii)waive any prior default up to and including the date that the Company consummates one or more alternative transactions with the Term Loan Lenders. Aside from the extension of the Maturity Date, the extensions did not modify any of the terms under the Term Loan Credit Agreement.The Company has been discussing and continues to discuss with its Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of the Company’s obligations including conversion of the Term Loans into equity in the Company, which may occur at a significant discount to the current market price and be dilutive to the ownership interests of existing stockholders. There can be no assurances that the Term Loan Lenders will agree to continue discussing any such alternative transactions or that the Company ultimately will be able to reach agreement with such Term Loan Lenders on the terms of any alternative transaction.If the Company is unable to reach a satisfactory agreement with the Term Loan Lenders on any alternative transaction, the Company’s Board has authorized the Company’s management to prepareamendment. See Note 7 for a second bankruptcy filing while exploring other options in parallel.Departure of DirectorsOn November 9, 2017, Dale Chappell and Ezra Friedberg resigned from the Board, effective immediately. Dr. Chappell is an affiliate of BHCMF, BHC and Cheval, each of which is a Term Loan Lender under the Term Loan Credit Agreement.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 10‑Q10-Q and our Annual Report on2018 Form 10-K for the fiscal year ended December 31, 2016.2018. This Quarterly Report on Form 10-Q contains statements that discuss future events or expectations, projections of results of operations or financial condition, trends in our business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other comparable words. These statements may relate to, among other things, our expectations regarding the scope, progress, 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; expectations for our financial results, revenue, operating expenses and other financial measures in future periods; and the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements. Actual events or results may differ materially due to known and unknown risks, uncertainties and other factors such as:· our lack of revenues, history of operating losses, bankruptcy, limited cash reserves and ability to obtain additional capital to develop and commercialize our product candidates, including the additional capital which will be necessary to completepursue 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 consummate one or more alternative transactions with our term loan lenders to permit the satisfaction, extension or modification of our obligations under our term loan credit agreement;·the effect on our stock price and the significant dilution to the share ownership of our existing stockholders that may result from conversion of the term loans into equity of the company at a discount from the current market price;·our ability to execute our new strategy and business plan focused on developing our proprietary monoclonal antibody portfolio;portfolio and our GM-CSF knockout gene-editing platform;· 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; · our ability to successfully pursue the Kite collaboration; · 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 timing of the initiation, enrollment and completion of planned clinical trials; 20 ·our ability to recover any portionTable of our investment in benznidazole after FDA’s award of a Priority Review Voucher to a competitor’s drug candidate;Contents· uncertainties relating to the timetable for FDA action under the new presidential administration;·the potential timing and outcomes of clinical studies of lenzilumab, ifabotuzumab or any other product candidates and the uncertainties inherent in clinical testing;·our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend; · the potential, if any, for future development of any of our present or future products; · increasing levels of market acceptance of CAR-T therapies and the development of a market for lenzilumab; · our ability to successfully progress, partner or complete further development of our programs; · the potential timing and outcomes of development, pre-clinical and clinical studies of lenzilumab, ifabotuzumab, HGEN005, any of our CAR-T pipeline and the uncertainties inherent in development, pre-clinical 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;· our ability to reach agreementattract and retain collaborators with a partner to effect a successfuldevelopment, regulatory and commercialization of any of our product candidates;expertise;· the outcome of pending or future litigation; · competition; andthe 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; · the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; 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.discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I Item 1A of our Annual Report on2018 Form 10-K for the fiscal year ended December 31, 2016.10-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 Form 10-Q. You should be aware that the forward-looking statements contained in this Form 10-Q are based on our current views and assumptions. We undertake no obligation to revise or update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events, except as required by law. The forward-looking statements in this Form 10-Q 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.We completed our initial public offering in January 2013. Effective August 7, 2017, we changed our legal name to Humanigen, Inc.We have undergonesignificant transformation since December 2015. As a result of challenges facing us at the time, on December 29, 2015, we filed a voluntary petitionbiopharmaceutical company pursuing cutting-edge science to develop our proprietary monoclonal antibodies to enhance T-cell engaging therapies 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, becamevarious oncology indications, potentially making these treatments safer, more effective and we emerged frommore efficiently administered. The Company has sharpened its focus to develop novel cell therapies leveraging its understanding of a potentially key pathway which includes its antibody and gene-editing assets.Chapter 11 bankruptcy proceedings. For further information on our bankruptcyportfolio of next-generation cell and emergence from bankruptcy, see Note 2 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.On January 13, 2016, our common stock was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the ticker symbol KBIOQ. On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of our common stock, and the delisting was effective on February 5, 2016. On June 30, 2016, upon emergence from bankruptcy, the ticker symbol for the trading of our common stock on the over-the-counter market reverted back to KBIO. On June 26, 2017 our common stock began trading on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following effectiveness of our previously reported name change to Humanigen, Inc., our common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”.From the time of our emergence from bankruptcy to August 29, 2017, our lead product candidate was benznidazolegene therapies for the treatment of Chagas disease,cancers via our novel humangranulocyte-macrophage colony-stimulating factor (“GM-CSF”) neutralization and gene-knockout platforms. As a parasitic illnessleader in GM-CSF pathway science, we believe that can leadwe have the ability to long-term heart, intestinaltransform chimeric antigen receptor T-cell (“CAR-T”) therapy and neurological problems.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).21 On June 30, 2016, we acquired certain worldwide rightsbenznidazole from Savant Neglected Diseases, LLC,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 pre-clinicalin-vivo evidence points to GM-CSF as the key initiator of the inflammatory cascade resulting in CAR-T therapy’s side-effects. 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 Savant,significantly reduce the serious side-effects associated with CAR-T therapy.until August 29, 2017, we were primarily focused onexpertise create two technology platforms to assist in the development necessaryof next-generation CAR-T therapies. Lenzilumab, our proprietary Humaneered® anti-GM-CSF immunotherapy, has the potential to seek and obtain approval by thebe used in combination with any United States Food and Drug Administration (“FDA”)-approved or FDA, for benznidazoledevelopment stage T-cell therapies, including CAR-T therapy, as well as in combination with other cell therapies such as allogeneic hematopoietic stem cell transplant (“HSCT”), to make these treatments safer and more effective. In addition, our GM-CSF knockout gene-editing CAR-T platform has the subsequent commercialization, if approved. Accordingpotential to FDA-issued guidance, benznidazolecreate 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.eligible for review pursuant to a 505(b)(2) regulatory pathway as a potential treatment for Chagas disease and, if it became the firstcombining FDA-approved treatment for Chagas disease, we would have been eligible to receive a Priority Review Voucher (“PRV”).However, on August 29, 2017, the FDA announced it had granted accelerated and conditional approval of a benznidazole therapy manufactured by Chemo Research, S.L. or Chemo, for the treatment of Chagas disease and had awarded that manufacturer a neglected tropical disease PRV. Chemo’s benznidazole also has received Orphan Drug designation. As a result of FDA’s actions and with the information currently available, we no longer expect to be eligible to receive a PRV with our own benznidazole candidate for the treatment of Chagas disease. Accordingly, we have ceased development for benznidazole and are currently assessing a full range of options with respect to our benznidazole assets and development program.Since the FDA’s August 29, 2017 announcement, we have shifted our primary focus toward developingstage CAR-T therapies with lenzilumab, our proprietary monoclonal antibody portfolio,Humaneered® anti-human-GM-CSF immunotherapy, which comprises,is our lead product candidate. A clinical collaboration with Kite Pharmaceuticals, Inc., a Gilead company (“Kite”), was recently announced to evaluate the use of lenzilumab (formerly known as KB003) and ifabotuzumab (formerly known as KB004)with Yescarta®, for use in addressing significant unmet needs in oncology. Both of these product candidates are in the early stage of development and will require substantial time, expenses, clinical development, testing, and regulatory approval prior to commercialization. Furthermore, neither of these product candidates has advanced into a pivotal registration study and it may be years before such a study is initiated, if at all.Lenzilumab is a recombinant monoclonal antibody,axicabtagene ciloleucel (“Yescarta” 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 potentially involved in other serious conditions. In July 2016, we initiated dosing“Yescarta®”), in a Phase 1multicenter clinical trial in adults with relapsed or refractory large B-cell lymphoma. We are also focused on creating next-generation combinatory gene-edited CAR-T therapies using strategies to improve efficacy while employing GM-CSF gene knockout technologies to control toxicity. We are also developing our own portfolio of proprietary first-in-class EphA3-CAR-Ts for various solid cancers and EMR1-CAR-Ts for various eosinophilic disorders. 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”) in patients undergoing allogeneic HSCT. We have established several partnerships with leading institutions to advance our innovative cell and gene therapy pipeline.chronic myelomonocytic leukemiarelapsed or CMMLrefractory B-cell lymphoma, including diffuse large B-cell lymphoma (“DLBCL”) (the “Study”). The primary objective of the Study is to identifydetermine the maximum tolerated dose, or recommended Phase 2 doseeffect of lenzilumab on the safety of Yescarta. Kite’s Yescarta is one of two CAR-T therapies that have been approved by the FDA, is currently the CAR-T therapy market leader and our collaboration with Kite is currently the only clinical collaboration with the potential to assess lenzilumab’simprove both the safety pharmacokinetics, and clinical activity.We have enrolled a totalefficacy of nine patients in the 200, 400 and 600 mg dose cohorts of our CMML trial, and are currently evaluating subjects in the highest dose cohort of 600 mg for continuing accrual.CAR-T therapy. We also plan to review preliminarymeasure 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 in the United States and abroad 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.22 efficacy results and anticipate completioneffectiveness of the ad hoc interim analysis in the first half of 2018.We also expect to explore lenzilumab’s effectiveness in reducing adverse events associatedallogeneic HSCT, a potentially curative therapy for patients with chimeric antigen receptor T-cell, or CAR-T, therapy. Specifically, we intend to explore lenzilumab’s effectiveness in preventing, ameliorating or treating CAR-T-cell-related adverse events. We may also use the interim data from the lenzilumab CMML Phase I study to determine the feasibility of rapidly commencing a Phase I study in JMML patients, or to explore progressing directly with a JMML Phase I study. JMML, a rare pediatric cancer, is associated with a very high unmet medical need and therehematological cancers. There are currently no FDA-approved therapies.Ifabotuzumab is an anti-EphA3 mAbGvHD 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 offerprevent 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. 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.approachmanner. We are collaborating with the Mayo Clinic and plan to treating solid tumors, hematologic malignancies and serious pulmonary conditions. EphA3move to clinical testing with an anti-EphA3 construct for a range of cancer types after completing Investigational New Drug (“IND”) enabling work.aberrantly expressedbased on the surfaceHGEN005 (anti-EMR1 Humaneered monoclonal antibody) backbone and targets the 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 tumor cellsCAR-T therapies. We believe that because of its high selectivity, EMR1-CAR-T has significant potential to treat serious eosinophil diseases. In pre-clinical work, HGEN005’s anti-EMR1 activity resulted in dramatically enhanced killing of eosinophils from normal and stromal cellseosinophilic donors and also induced a rapid and sustained depletion of eosinophils in certain cancers.a non-human primate model without any clinically significant adverse events. We completedhave engaged with National Institutes of Health (“NIH”) to discuss expanding the Phase 1 dose escalation portion ofinitial work they have conducted utilizing HGEN005 and discussions are underway with a Phase 1/2 ifabotuzumab clinical trial in hematologic malignancies for which the preliminary results were publishedleading center in the journal Leukemia ResearchU.S. to perform the IND enabling testing in 2016. An Investigator-Sponsored Phase 0/1 radiolabeled imaging trial of ifabotuzumab in glioblastoma multiforme (a particularly aggressive and deadly form of brain cancer) has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia. We are currently exploring partnering opportunities to enable further development of ifabotuzumab.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.23 Lenzilumab and ifabotuzumab were each developed with our proprietary, patent-protected Humaneered® technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use, typically for chronic conditions.$259.5$282.9 million as of September 30, 2017.2019. 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. As discussed in further detail below under the caption “Liquidity and Capital Resources” and in Part II, Item 1A, “Risk Factors,” We anticipate that we do not have access to sufficient funds to repay our outstanding obligations totaling approximately $16.1 million under our outstanding Term Loans. We have been discussing and continue to discuss with our Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of our obligations including conversion of the Term Loans into equity of the Company, which may occur at a significant discount to the current market price and be dilutive to the ownership interests of existing stockholders. If we are unable to reach agreement with our Term Loan Lenders to satisfy, extend or modify these obligations, we may be forced to file for a second bankruptcy. Even if we were to successfully reach such an agreement with our Term Loan Lenders, in the future we would need towill 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 onat 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.Based 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.willis 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 Condensed Consolidated Financial Statementsquarterthree and nine months ended September 30, 2017,2019 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.We are currently evaluating a full range of strategic alternatives to address or respond to our lack of liquidity to repay our outstanding term loans and other obligations. If we are able to successfully reach agreement with our Term Loan Lenders and are also able to successfully obtain additional financing, the review of strategic alternatives could result in, among other things, pursuit of a litigation strategy relating to our benznidazole intellectual property rights, 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. We may incur substantial expenses associated with identifying, evaluating and pursuing potential strategic alternatives, and there can be no assurances as to whether any of these may be successfully implemented. If we are not successful in reaching agreement with our Term Loan Lenders, we may have to file a second petition for bankruptcy. See Part II, Item 1A, “Risk Factors.”We are 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 publicsmaller reporting companies that are not emerging growth companies.three and nine months ended September 30, 2017,2019, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our 2016 Annual Report on2018 Form 10-K, (File No. 001-35798), filed with the SEC on March 9, 2017.26, 2019.24 except for the year ended December 31, 2007 during which we recognized a one-time license payment from Novartis.any periods presented. At September 30, 20172019, we had an accumulated deficit of $259.5$282.9 million primarily as a result of research and development and general and administrative expenses. 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 may never be successfully developed or commercialized and we may therefore never realize revenue from any product sales, particularly because most of our product candidates are at an early stage of development. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenue or profits.Our operations during the three and nine months ended September 30, 2016 primarily related to our status as a debtor in possession and other matters in connection with our Chapter 11 bankruptcy proceedings, in addition to our efforts to obtain certain rights related to our former lead product candidate benznidazole. Our operations during the three and nine months ended September 30, 2017, which are now largely related to advancing our development programs, have changed substantially from the same period in 2016. Accordingly, comparisons of our operations and results for the three and nine months ended September 30, 2017 to our operations and results in the prior year periods may only provide a limited benefit, and similarly should not be relied on as an indicator of our future operations or results.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 preclinicalpre-clinical activities;· the cost of acquiring and manufacturing clinical trial and other materials; and · other costs associated with development activities, including additional studies. stock‑basedstock-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.20172019 and 2016: For the For the Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2017 2016 2017 2016 External Costs KB001 $ - $ 5 $ - $ 10 Lenzilumab 528 99 1,713 215 Ifabotuzumab 25 30 120 176 Benznidazole 3,138 829 6,956 5,024 Internal costs 116 778 1,539 2,380 Total research and development $ 3,807 $ 1,741 $ 10,328 $ 7,805 Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2019 2018 2019 2018 External Costs Lenzilumab $ 401 $ 422 $ 1,680 $ 1,359 Ifabotuzumab 20 25 74 75 Internal costs 128 88 388 374 Total research and development $ 549 535 $ 2,142 $ 1,808 25 20172019 and 2016 Three Months Ended September 30, Increase/(Decrease) (in thousands) 2017 2016 $'s % Operating expenses: Research and development $ 3,807 $ 1,741 $ 2,066 119 General and administrative 1,993 2,453 (460 ) (19 ) Loss from operations (5,800 ) (4,194 ) 1,606 38 Interest expense (1,269 ) (30 ) 1,239 4,130 Other income (expense), net (14 ) 128 142 111 Reorganization items, net (102 ) (427 ) (325 ) (76 ) Net loss $ (7,185 ) $ (4,523 ) $ 2,662 59 Three Months Ended September 30, Increase/ (Decrease) (in thousands) 2019 2018 Amount % Operating expenses: Research and development $ 549 $ 535 $ 14 3 General and administrative 1,497 1,804 (307 ) (17 ) Loss from operations (2,046 ) (2,339 ) (293 ) (13 ) Interest expense (343 ) (116 ) 227 196 Other income - 319 319 100 Reorganization items, net - (40 ) (40 ) (100 ) Net loss $ (2,389 ) $ (2,176 ) $ 213 10 increased $2.1remained essentially the same at $0.5 million for the three month periods ended September 30, 2018 and September 30, 2019.$1.7$1.8 million for the three months ended September 30, 20162018 to $3.8$1.5 million for the three months ended September 30, 2017. The increase is driven by increases in benznidazole and lenzilumab development costs as well as an increase in internal costs. The 2017 benznidazole costs include the $1 million milestone achieved in July 2017. See Note 10 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for more information regarding the milestone achievement in July 2017.General and administrative expenses decreased $0.5 million from $2.5 million for the three months ended September 30, 2016 to $2.0 million for the three months ended September 30, 2017.2019. The decrease is primarily due to lower accounting and professional fees partially offset by an increasecompensation expense, including stock-based compensation costs related to lower headcount in legal fees due to the litigation with Savant.Reorganization items, net, decreased $0.3 million from $0.4 million for the three months ended September 30, 2016 to $0.1 million for the three months ended September 30, 2017. The decrease is primarily related to a decrease in legal and professional fees due to less bankruptcy related activities.of $1.3increased $0.2 million from $0.1 million recognized for the three months ended September 30, 2017 relates2018 to interest accrued on the Term Loans and interest accrued on the Notes payable to vendors. Interest expense of $30,000 recognized$0.3 million for the three months ended September 30, 2016 was related to the debtor-in-possession financing entered into on April 1, 2016.Other2019. Interest expense net for the three months ended September 30, 2017 consists2019 primarily consisted of foreign currency lossesinterest related to the payment of vendor invoicesAdvance Notes, entered into in foreign currencies. Other income, netJune, July and August 2018, the 2018 Notes, entered into in September 2018, the 2019 Notes entered into in April 2019, the 2019 Bridge Notes entered into in June 2019 and the Notes payable to vendors related to our 2016 bankruptcy filing. Interest expense for the three months ended September 30, 20162018 primarily consistsconsisted of foreign currency gainsinterest on the Term Loans, which converted to common stock in February 2018 related to the paymentRestructuring Transactions and the Notes payable to vendors related to our 2016 bankruptcy filing.liabilitieswas closed in foreign currencies.monthsMonths Ended September 30, 20172019 and 2016 Nine Months Ended September 30, Increase/(Decrease) (in thousands) 2017 2016 $'s % Operating expenses: Research and development $ 10,328 $ 7,805 $ 2,523 32 General and administrative 5,987 6,169 (182 ) (3 ) Loss from operations (16,315 ) (13,974 ) 2,341 17 Interest expense (2,245 ) (76 ) 2,169 2,854 Other income (expense), net (38 ) 128 166 130 Reorganization items, net (289 ) (8,039 ) $ (7,750 ) (96 ) Net loss $ (18,887 ) $ (21,961 ) $ (3,074 ) (14 ) Nine Months Ended September 30, Increase/ (Decrease) (in thousands) 2019 2018 Amount % Operating expenses: Research and development $ 2,142 $ 1,808 $ 334 18 General and administrative 5,122 7,793 (2,671 ) (34 ) Loss from operations (7,264 ) (9,601 ) (2,337 ) (24 ) Interest expense (1,003 ) (542 ) 461 85 Other income (expense), net (1 ) 318 319 100 Reorganization items, net - (106 ) $ (106 ) (100 ) Net loss $ (8,268 ) $ (9,931 ) $ (1,663 ) (17 ) $2.5by $0.3 million, from $1.8 million for the nine months ended September 30, 2018 to $2.1 million for the nine months ended September 30, 2019. The increase is primarily due to higher spending on the development of lenzilumab.20162018 to $10.3$5.1 million for the nine months ended September 30, 2017.2019. The increasedecrease is driven by an increaseprimarily due to a $2.2 million decrease in benznidazolestock-based compensation expense related to the issuance of options to management, consultants and lenzilumab developmentboard members subsequent to the completion of the Restructuring Transactions in 2018, with no similar issuances in 2019, a decrease of $0.2 million in other compensation costs and internal development costs. The 2017 benznidazole costs include the cumulative $2.0 milliona decrease in milestones achieved in June and July 2017. See Note 10 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for more information regarding these milestone achievements. The 2016 benznidazole costs included theoutside consulting costs of the technology acquisition which occurred on June 30, 2016.$0.3 million.26 General and administrative expenses decreased $0.2$6.2$0.5 million recognized for the nine months ended September 30, 2018 to $1.0 million for the nine months ended September 30, 2016 to $6.0 million2019. Interest expense for the nine months ended September 30, 20172019 primarily due to a decrease in accounting and auditing expenses during the nine months ended September 30, 2017 as comparedconsisted of interest related to the prior year.Reorganization items, net decreased $7.7 million, from $8.0 millionAdvance Notes, entered into in June, July and August 2018, the 2018 Notes, entered into in September 2018, the 2019 Notes entered into in April 2019, the 2019 Bridge Notes entered into in June 2019 and the Notes payable to vendors related to our 2016 bankruptcy filing. Interest expense for the nine months ended September 30, 2018 primarily consisted of interest on the Term Loans, which converted to common stock in February 2018 related to the Restructuring Transactions and the Notes payable to vendors related to our 2016 tobankruptcy filing.2017 due2018 to essentially zero for the amounts incurred during the ninethree months ended September 30, 2016 related to2019. For the bankruptcy plan, including legal fees of $4.8 million, $1.1 million in professional fees, $0.7 million related to the fair value of common shares issued to our CEO and two directors for their service in bankruptcy, $1.1 million in legal and other costs related to the debtor-in-possession financing, $0.5 million related to the beneficial conversion expense recognized in connection with the debtor-in-possession financing, offset by a net gain on the termination of the South San Francisco lease of $0.2 million. The costs incurred during the ninethree months ended September 30, 2017 include $0.2 million2018 Other income (expense) primarily consisted of legal fees assumed by Madison Joint Venture LLC in legal and professional feesconnection with their positive election related to ongoing bankruptcy proceedings.Interest expense of $2.2the Benz Assets (see Note 9). recognized for the nine months ended September 30, 2017 relates2019 to interest accrued on the Term Loans and interest accrued on the Notes payable to vendors. Interest expense of $76,000 recognizedzero for the nine months ended September 30, 2016 was2018. The decrease is related to the debtor-in-possession financing entered into on April 1, 2016.Other expense, net forabsence of reorganization expenses in the nine months ended September 30, 2017 consists of foreign currency losses related to the payment of vendor invoices in foreign currencies. Other income, net for the nine months ended September 30, 2016 primarily consists of foreign currency gains related to the payment of bankruptcy liabilities in foreign currencies.credit, and receipts from agreements with Sanofi and Novartis.credit. At September 30, 2017,2019, we had cash and cash equivalents of $1.1$0.2 million. As of November 1October625, 2017,2019, we had cash and cash equivalents of approximately $145,000. Nine Months Ended September 30, (In thousands) 2017 2016 Net cash (used in) provided by: Operating activities $ (12,311 ) $ (17,948 ) Investing activities - 92 Financing activities 10,500 12,330 Net decrease in cash and cash equivalents $ (1,811 ) $ (5,526 ) Nine Months Ended September 30, (In thousands) 2019 2018 Net cash (used in) provided by: Operating activities $ (3,452 ) $ (4,985 ) Investing activities - 30 Financing activities $ 2,795 $ 6,256 Net increase (decrease) in cash and cash equivalents $ (657 ) $ 1,301 $12.3$3.5 million and $17.9 million for the nine months ended September 30, 2017 and 2016, respectively. The primary use of cash in 2017 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 of $12.3$5.0 million for the nine months ended September 30, 20172019 and 2018, respectively. Cash used in operating activities of $3.5 million for the nine months ended September 30, 2019 primarily related to our net loss of $18.9$8.2 million, adjusted for non-cash items, such as $1.8$1.9 million in stock basedstock-based compensation, $2.2$1.0 million in noncash interest expense, and net increases in working capital items primarily $2.3 million of Accrued expenses.$17.9$5.0 million for the nine months ended September 30, 20162018 primarily related to our net loss of $21.8$10.0 million, adjusted for non-cash items, such as $1.6$4.2 million related to reorganization items related to the debtor-in-possession financing, $1.5in stock-based compensation, $0.5 million related to the issuance of stock to our CEOin noncash interest expense, and two directors, $0.3 million related to the issuance of warrants to Savantnet increases in connection with the acquisition of certain rights related to the benznidazole license, $0.2 million related to a net gain on lease termination, other non-cashworking capital items of $0.4 million and net cash outflows of $0.3 million related to changes in operating assets and liabilities, primarily Liabilities subject to compromise, Accounts payable and Accrued expenses.Net cash provided by investing activities was $0.1 million for the nine months ended September 30, 2016, primarily related to the reduction in restricted cash in connection with the termination of our former office lease in South San Francisco. There was no Net cash provided by investing activities for the nine months ended September 30, 2017.$10.5 million for the nine months ended September 30, 2017 related to the March 2017 and July 2017 Term Loans. Net cash provided by financing activities was $12.3$2.8 million for the nine months ended September 30, 20162019 and consists primarily of $3.0 million received from the issuance of convertible notes and advance notes, $0.3 million from the exercise of stock options and $0.5 million in payments made on notes payable to vendors during the period. Net cash provided by financing activities was $6.3 million for the nine months ended September 30, 2018 and consists primarily of $1.5 million received from Cheval related to the debtor-in-possession and equity bankruptcy financings.In connection withRestructuring Transactions (see “Restructuring Transactions” below), $1.1 million from the issuance of 2,445,557 shares of our emergencecommon stock to accredited investors on March 12, 2018, $0.2 million received from bankruptcythe 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, 2016,July and August 2018 and $2.5 million received for the issuance of the Notes in September 2018.27 closed an $11completed a comprehensive restructuring of our outstanding indebtedness of approximately $18.4 million financing that provided the funds required to enable our exit from Chapter 11, as well as to fund our current working capital needs. In December 2016, we entered intounder a Credit and Security Agreementseries of term loans (the “Term Loan Credit Agreement”Loans”) providingwith two lender groups, including affiliates of Black Horse Capital, L.P. and raised incremental new capital from Cheval Holdings, Ltd. At the closing of the restructuring, we: (i) in exchange for an original $3.0 million credit facility (the “December 2016 Term Loan”), netthe satisfaction and extinguishment of certain fees and expenses. On March 21, 2017, we entered into an amendment to the Term Loan Credit Agreement to obtain an additional $5.5 million (the “March 2017 Term Loan”), net of certain fees and expenses, providing additional working capital. On July 8, 2017, we entered into a second amendment to the Term Loan Credit Agreement to obtain an additional $5.0 million (the “July 2017 Term Loan” and together with the December 2016 Term Loan and the March 2017 Term Loan, the “Term Loans”), net of certain fees and expenses, providing additional working capital. As of September 30, 2017, we had received the entire amount available under the July 2017 Term Loan, bringing the total principal amountbalance of the Term Loans, (a) issued an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and (b) transferred and assigned to $14.7a joint venture controlled by one of the term loan lenders, all of our assets related to benznidazole (the “Benz Assets”), our former drug candidate; and (ii) issued to Cheval an aggregate of 32,028,669 shares of Common Stock for total consideration of $3.0 million. The outstanding balance$16.1 millionthe Benz Assets to the joint venture, the joint venture partner paid certain amounts we incurred after December 21, 2017 and prior to February 27, 2018 in investigating certain causes of action and claims related to or in connection with the Benz Assets. In addition, upon exercise of its rights under the Term Loans, including accrued interest and fees, became due on October 31, 2017. On October 31, 2017, we obtained a short-term extension from our Term Loan Lendersterms of the maturityjoint venture, the joint venture partner assumed certain legal fees and expenses owed us to our litigation counsel totaling $0.3 million.obligations undercommon stock, or approximately 62.6% of our outstanding common stock. Accordingly, the Term Loan Credit Agreementcompletion of the Restructuring Transactions 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. On November 16, 2017, we obtained an additional short-term extension ofcontrols the maturity of our obligations under the Term Loan Credit Agreement. The extension agreed with the Term Loan Lenders extends the maturity date of our obligations under the Term Loan Credit Agreement to the earlier of (i) December 1, 2017, or (ii) the date that we consummate one or more alternative transactions with the Term Loan Lenders. Aside from the extension of the Maturity Date, the extensions did not modify any of the terms under the Term Loan Credit Agreement.We do not have access to sufficient funds to repay the outstanding obligations under the Term Loan Credit Agreement. Accordingly, we have been discussingBlack Horse Entities and continue to discuss with our Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of our obligations including conversion of the Term Loans into equity of the Company, which may occur at a significant discount to the current market price and be dilutive to the ownership interests of existing stockholders. There can be no assurances that the Term Loan Lenders will agree to continue discussing any such alternative transactions or that we ultimatelyaccordingly, will be able to reach agreement with such Term Loan Lenders on the termsexert control over matters of any alternative transaction.If we are unable to reach a satisfactory agreement with the Term Loan Lenders on any alternative transactions, the Company’s board of directors has authorized the Company’s management team to prepare for a second bankruptcy filing while exploring other options in parallel.Please see Note 7 – “Debtour company and Equity Financing” and Note 12 – “Subsequent Events” to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, for additional information relating to the Term Loan Credit Agreement. See also Part II, Item 1A, “Risk Factors.”Even if we werewill be able to reach agreement with the Term Loan Lenders, we woulddetermine all matters of our company requiring stockholder approval.would will require and the timing of our need for additional capital will depend on many factors, including:· the progress and timing of the Study we are pursuing with Kite, and related costs we are required to incur; · the type, number, timing, progress, costs, and results of the other 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 other 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-listpreserve 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 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 and outcome of pending and future litigation;· 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. collaborations, and licensing of our product candidates.collaborations. 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. Any financing we may obtain may be dilutive to existing stockholders. 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.28 BasedOn January 13, 2016,was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the ticker symbol KBIOQ. On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of our common stock, and the delisting was effective on February 5, 2016. On June 30, 2016, upon emergence from bankruptcy, the ticker symbol for the trading of our common stock on the over-the-counter market reverted back to KBIO. On June 26, 2017 we began tradingcurrently trades on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following the effectiveness of our previously reported name change, our common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”. Although our common stock is eligible to trade inlisted for quotation on the OTCQB Venture Market, trading is limited and an active market for our common stock may never develop in the future, which could harm our ability to raise capital to continue to fund operations.Committed Equity Financing FacilityOn August 24, 2017, we entered into a Common Stock Purchase Agreement, dated as of August 23, 2017 (the "ELOC Purchase Agreement"), with Aperture Healthcare Ventures Ltd. ("Aperture") pursuant to which we may, subject to certain conditions and limitations set forth in the ELOC Purchase Agreement, require Aperture to purchase up to $15.0 million worth of newly issued shares of our common stock, over the 36-month term following the effectiveness of the initial resale registration statement described below (the “Investment Period”). From time to time over the Investment Period, and in our sole discretion, we may present Aperture with one or more notices requiring Aperture to purchase a specified dollar amount of shares of our common stock, based on the price per share per day over five consecutive trading days (the “Pricing Period”). In addition, in our sole discretion, but subject to certain limitations, we may require Aperture to purchase a percentage of the daily trading volume of our common stock for each trading day during the Pricing Period.On August 23, 2017, in connection with the ELOC Purchase Agreement, we entered into a Registration Rights Agreement (the "ELOC RRA”) with Aperture, pursuant to which we granted to Aperture certain registration rights related to the shares issuable in accordance with the ELOC Purchase Agreement. Under the ELOC RRA, we agreed to use our commercially reasonable efforts to prepare and file with the SEC one or more registration statements for the purpose of registering the resale of the maximum shares issuable pursuant to the ELOC Purchase Agreement.The actual amount of funds that can be raised under the Aperture committed equity financing facility will depend on the number of shares of our common stock sold under the ELOC Purchase Agreement and the market value of our common stock during the Pricing Period of each sale. We have yet to file a registration statement under the ELOC RRA. Sales of common stock under the ELOC Purchase Agreement cannot commence until such registration statement is filed and declared effective by the SEC. There can be no assurance that we will use the Aperture facility to raise funds in the future. See Note 7 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for more information regarding the ELOC Purchase Agreement and the ELOC RRA.13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures 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.andwho is also acting as our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the evaluation our Chief Executive Officer, andwho is also acting as our Chief Financial Officer, concluded that the disclosure controls and procedures were not effective as of September 30, 20172019 to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer, andwho is also acting as our Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.There has been no changeduring the quarter endedas of September 30, 2017,2019. In making this assessment, our Chief Executive 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 has materially affected, or is reasonably likely to materially affect,concluded that, as of September 30, 2019, our internal control over financial reporting.reporting was not effective because of the material weaknesses described below.29 cost‑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‑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‑cost-effective control system, misstatements due to error or fraud may occur and not be detected.30 1112 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for a summary of legal proceedings and developments during the quarter ended September 30, 2019.Item 1A. Risk Factors. legal proceedings.On July 10, 2017,business issues, or continue as a going concern.Company fileddevelopment of lenzilumab and our other product candidates. As a complaint against Savant Neglected Diseases, LLC (“Savant”)result, we require substantial additional capital to support our business efforts, including our collaboration with Kite (a Gilead company). Under our agreement with Kite, the parties have agreed to conduct a multi-center Phase 1/2 study of lenzilumab with Kite’s Yescarta® (axicabtagene ciloleucel) in patients with relapsed or refractory B-cell lymphoma. The primary objective of the Superior Court forstudy is to determine the Stateeffect of Delaware, New Castle County (the “Delaware Court”). KaloBios Pharmaceuticals, Inc. v. Savant Neglected Diseases, LLC, No. N17C-07-068 PRW-CCLD. The Company asserted breachlenzilumab on the safety of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 10 - “Savant Arrangements” to the accompanying condensed consolidated financial statements 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 thresholdYescarta, as well as other related MDC Agreement representationsto determine potential enhanced efficacy and obligations. Inhealthcare resource utilization associated with the litigation,combination. 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 Company has alleged thatstudy, of which $2 million will be required to be paid to Kite thirty days prior to the initiation of the study.2017, Savant2019 was responsibleinsufficient 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 paid approximately $0.5 million to extinguish certain of these notes in July and August 2019. As of September 30, 2019, the aggregate cost overagesprincipal 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 approximately $3.4 million, net of a $500,000 deductibleany kind, may exercise any and all other rights and remedies available to them under the MDC. The Company asserts that it is entitled to offset $2 millionnotes, the Plan, at law or 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 United States District Court for the District of Delaware, claiming that the action is related to or arises under the bankruptcy court case from which the Company 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 Superior Court. Briefing on that motion is completed and awaiting determination by the Bankruptcy Court.On August 2, 2017, Savant sent a foreclosure notice to the Company, demanding that the Company 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. The Company moved for a Temporary Restraining Order 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 Temporary Restraining Order, entering an order prohibiting Savant from collecting on or selling the Collateral, entering the Company’s premises, issuing any default notices to the Company, or attempting to exercise any other remedies under the MDC Agreement or the Security Agreement. The parties have stipulated to continue the provisions of the Temporary Restraining Order in full force and effect until further order of the appropriate court.outstanding term loan obligations in full or significant part. If we cannot reach agreement with our Term Loan Lenders on alternative transactions providing foravailable cash balance as of the satisfaction, extension or modification of our term loan obligations, we may have to file for bankruptcy in the near future. As of October 31, 2017, the aggregate amount of our obligations under the Term Loan Credit Agreement, including accrued interest and fees, approximated $16.1 million. The extension agreed with the Term Loan Lenders extends the maturity date of our obligations under the Term Loan Credit Agreement to the earlier of (i) December 1, 2017, or (ii) the date that we consummate one or more alternative transactions with the Term Loan Lenders.this filing was approximately $48 thousand We do not have access to sufficient funds to repay these outstanding obligations in full or in part. We have been discussing and continue to discuss with our Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of these obligations, including conversion of the Term Loans into equity in the Company, which may occur at a significant discount to the current market price. There can be no assurances that the Term Loan Lenders will agree to continue discussing any such alternative transactions or that we ultimately will be able to reach agreement with such Term Loan Lenders on the terms of any alternative transaction.If.unable to reach a satisfactory agreement with our Term Loan Lenders our board of directors has authorized us to begin preparing the company to file a second bankruptcy petition. Given our lack of liquidity, it is reasonably likely that any such filing would result in a complete loss of value for our unsecured creditors and holders of our common stock.If we are able to reach agreement with our Term Loan Lenders to convert the Term Loans into equity of the Company, the share ownership of our existing stockholders will be significantly diluted.We have been discussing and continue to discuss with our Term Loan Lenders alternative transactions that might result in the satisfaction, extension or modification of our Term Loan obligations, including conversion of the Term Loans into equity in the Company, at a discount from the current market price. If the Term Loan Lenders agree to convert the Term Loan into equity of the Company at a discount from current market prices, current stockholders will experience significant dilution in their shares ownership.Even if we were able to reach agreement with our Term Loan Lenders, 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 lenzilumab and ifabotuzumab, clinical trials and other studies, and, if approved, the commercialization of our product candidates. The amount of capital we will require and the timing of our need for additional capital will depend on many factors, including:the type, number, timing, progress, costs, and results of the product candidate development programs that we are pursuing or may choose to pursue in the future;the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials;the timing of and costs involved in obtaining regulatory approvals;the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders;our ability to re-list our common stock on a national securities exchange, whether through a new listing or by completing a strategic transaction;our ability to establish and maintain development partnering arrangements and any associated funding;the emergence of competing products or technologies and other adverse market developments;the costs of maintaining, expanding, and protecting our assets and 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; andthe costs associated with being a public company.We will need to seek additionalseeking 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. As disclosed in Note 7 to the accompanying unaudited condensed consolidated financial statements, since 2018, our capital-raising efforts have succeeded in raising a series of short-term bridge loans and convertible debt financings, most recently a short-term bridge financing advanced by our two largest stockholders which collectively control approximately 91% of our outstanding common stock, and our Chairman and Chief Executive Officer, Dr. Cameron Durrant. The bridge loans bear interest at 7% per year; are secured by liens on substantially all of our assets; 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 bridge loans from October 1, 2019 until December 31, 2019 unless earlier repaid or extended and to waive any prior default up to and including the date of the amendment. The interest on the bridge loans would increase to 10% per year upon any default of our obligations.the extent that additional capital is raised through the sale of equity or convertible debt securities, such issuance will result in further dilutionexercise all available remedies available to our stockholders.If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital isthem, and we may not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our abilityable to continue as a going concern.We may not be able to recover any portion of our investment in benznidazole after the FDA’s award of a Priority Review Voucher to a competitor’s drug candidate.From the time of our emergence from bankruptcy to August 29, 2017, our lead product candidate was benznidazole for the treatment of Chagas disease. We acquired certain worldwide rights to benznidazole on June 30, 2016 and, until August 29, 2017, were primarily focused on the development necessary to seek and obtain approval by the FDA for benznidazole and the subsequent commercialization, if approved. According to FDA issued guidance, benznidazole is eligible for review pursuant to a 505(b)(2) regulatory pathway as a potential treatment for Chagas disease and, if it became the first FDA-approved treatment for Chagas disease, we would have been eligible to receive a PRV. We invested a significant portion of our time and financial resources in the approval of benznidazole with a more limited focus on our other product candidates.However, on August 29, 2017, the FDA announced it had granted accelerated and conditional approval of a benznidazole therapy manufactured by Chemo for the treatment of Chagas disease and had awarded that manufacturer a tropical disease PRV. Chemo’s benznidazole also received Orphan Drug designation. As a result of FDA’s actions and with the information currently available, we no longer expect to be eligible to receive a PRV with our own benznidazole candidate for the treatment of Chagas disease.We are currently assessing a full range of options with respect to our benznidazole assets and development program, which may include an asset divestiture or pursuit of a litigation strategy if we believe our benznidazole intellectual property rights have been violated by any of our competitors. Litigation may be necessary to protect our rights, which could result in substantial costs and be a distraction to our management team. There can be no assurance that the exploration or pursuit of one or more of these options will result in our ability to recover all or any portion of our investment in benznidazole.If we can obtain funding, our forward-looking business operations will depend on the success of our product candidates, lenzilumab and ifabotuzumab. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our product candidates.. We have a limited pipeline of product candidates and are not conducting active research at this time for discovery of new molecules or antibodies. We are currently dependent on the successful continued development and regulatory approval of our current product candidates for our future business success. Since the FDA’s August 29, 2017 announcement, our primary focus has shifted to investing our time and financial resources in the development of lenzilumab and ifabotuzumab.We will need to successfully enroll and complete clinical trials of lenzilumab and ifabotuzumab, and potentially obtain regulatory approval to market these products. The future clinical, regulatory and commercial success of our product candidates is subject to a number of risks, including the following: •31we 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 evidenceTable 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.ContentsFurthermore, even if we do receive regulatory approval to market any of our product candidates, any such approval may be subject to limitations on the indicated uses for which we may market the product. If any of our product candidates are unsuccessful, that could have a substantial negative impact on our business.Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot assure you that our product candidates will be successfully developed or commercialized. If we or any future development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, one or more of our product candidates, we may not be able to generate sufficient revenue to continue our business.The following exhibits are filed as part of this Quarterly Report on Form 10-Q.EXHIBIT INDEXExhibit No. Exhibit No.Description 2.1 3.1 3.2 3.3 Certificate of Amendment to the 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 August 7, 2017).as amended.3.4 3.331.1* 4.110.131.131.2* 31.232.1* 32.1**32.2* 32.2** 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 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 _________________________*** The Certifications attached as Exhibits 32.1 and 32.2 that accompaniesaccompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Humanigen, Inc. 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.32 HUMANIGEN, INC. Date: November 17, 2017October28, 2019 By: /s/ Cameron Durrant Cameron Durrant Chief Executive Officer (Principal Executive Officer) Date: November 17, 2017October28, 2019 By: /s/ Greg JesterCameron Durrant Greg JesterCameron Durrant Acting Chief Financial Officer (Principal Financial and Accounting Officer) 37