10-K 1 gale-20151231x10xk.htm 10-K 10-K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-33958
_______________________________________________________
Galena Biopharma, Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________
Delaware
 
20-8099512
(State of incorporation)
 
(I.R.S. Employer Identification No.)
2000 Crow Canyon Place, Suite 380, San Ramon, CA 94583
(855) 855-4253
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
 
 
Title of Each Class
 
Name of Exchange on Which Registered
Common Stock, $0.0001 Par Value per Share
 
The NASDAQ Capital Market
 
 
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes        þ  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    ¨  Yes      þ  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ  Yes        ¨  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨  Yes        þ  No
Indicate by check mark whether the registrant has submitted electronically and posted on it 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 any such shorter time that the registrant was required to submit and post such files).   þ  Yes        ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
 
¨
 
Accelerated filer
 
þ
Non-accelerated filer
 
¨

(Do not check if a smaller reporting company)
Smaller reporting company
 
¨




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    ¨  Yes    þ  No
Based on the closing price of the Registrant's common stock as reported on the NASDAQ Capital Market, the aggregate market value of the Registrant's common stock held by non-affiliates on June 30, 2014 (the last business day of the Registrant's most recently completed second fiscal quarter) was approximately $275,097,000.
As of February 29, 2016, Galena Biopharma, Inc. had outstanding 181,746,561 shares of common stock, $0.0001 par value per share, exclusive of treasury shares.
 



GALENA BIOPHARMA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
Part No.
 
Item No.
 
Description
Page No.
I
 
1
 
Business
 
 
1A
 
Risk Factors
 
 
1B
 
Unresolved Staff Comments
 
 
2
 
Properties
 
 
3
 
Legal Proceedings
 
 
4
 
Mine Safety Disclosures
II
 
5
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
6
 
Selected Financial Data
 
 
7
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
7A
 
Quantitative and Qualitative Disclosures About Market Risk
II
 
8
 
Financial Statements and Supplementary Data
 
 
9
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
 
 
9A
 
Controls and Procedures
 
 
9B
 
Other Information
III
 
10
 
Directors, Executive Officers and Corporate Governance
 
 
11
 
Executive Compensation
 
 
12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 
13
 
Certain Relationships and Related Transactions, and Director Independence
 
 
14
 
Principal Accountant Fees and Services
Index to Exhibits

 
EX-10.34
 
EX-10.35
 
EX-10.36
 
EX-10.37
 
EX-10.38
 
EX-10.39
 
EX-23.1
 
EX-31.1
 
EX-31.2
 
EX-32.1
 

"SAFE HARBOR" STATEMENT

Some of the information contained in this annual report may include forward-looking statements that reflect our current views with respect to our development programs, business strategy, business plan, financial performance and other future events. These statements include forward-looking statements both with respect to us, specifically, and our industry, in general. We make these statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate,” “will” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws and otherwise.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. There are or will be important factors that could cause actual results to differ materially from those indicated in these statements. These factors include, but are not limited to, those factors set forth in the sections entitled “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Controls and Procedures” in this annual report, all of which you should review carefully. Please consider our forward-looking statements in light of those risks as you read this annual report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
If one or more of these or other risks or uncertainties materializes, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this “Safe Harbor” Statement.


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PART I

ITEM 1. BUSINESS

Overview

Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “Company”) is a biopharmaceutical company committed to the development and commercialization of targeted oncology therapeutics that address major unmet medical needs. Galena’s development portfolio is focused primarily on addressing the rapidly growing patient populations of cancer survivors by harnessing the power of the immune system to prevent cancer recurrence. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including novel cancer immunotherapy programs led by NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. NeuVax is currently in a pivotal, Phase 3 breast cancer clinical trial with several concurrent Phase 2 trials ongoing both as a single agent and in combination with other therapies. GALE-301 is in a Phase 2a clinical trial in ovarian and endometrial cancers and in a Phase 1b clinical trial given sequentially with GALE-302.

We are seeking to build value for shareholders through pursuit of the following objectives:
Develop novel cancer immunotherapies to address unmet medical needs through the use of peptide-based vaccines targeting well-established tumor antigens. One of our key strategies is to target the adjuvant setting in patients with higher risk of recurrence, who had their primary treatment for cancer and have no evidence of disease, and are more likely to benefit from treatment via immunotherapy. Our immunotherapy programs are currently targeting two key areas: secondary prevention intended to significantly decrease the risk of disease recurrence in breast, gastric, and ovarian cancers; and primary prevention intended to cease or delay ductal carcinoma in situ (DCIS) from becoming invasive breast cancer.
Expand our development pipeline by enhancing the clinical and geographic footprint of our technologies. We intend to accomplish this through the initiation of new clinical trials and potentially through acquisition of additional oncology programs.
Leverage partnerships and collaborations, as well as investigator-sponsored trial arrangements, to maximize the scope of potential clinical opportunities in a cost effective and efficient manner.
Focus our resources on our valuable and expanding clinical development programs. On November 19, 2015 we sold our Abstral® (fentanyl) Sublingual Tablets product and related assets and on December 24, 2015 we sold Zuplenz (ondansetron) Oral Soluble Film product and related assets, and as of December 31, 2015, we ceased our commercial operations.

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The chart below summarizes the current status of our clinical development pipeline:

 
Novel Cancer Immunotherapies

Our targeted cancer immunotherapy approach is currently based upon two key areas: preventing secondary recurrence of cancer, which is becoming increasingly important as the number of cancer survivors continues to grow; and, primary prevention intended to cease a condition known as ductal carcinoma in situ (DCIS) from becoming invasive breast cancer. Once a patient’s tumor becomes metastatic, the outcome is often fatal, making the prevention of recurrence a potentially critical component of overall patient care. Our programs primarily target patients in the adjuvant (after-surgery) setting who have relatively healthy immune systems, but may still have residual disease. Minimal residual disease, or single cancer cells (occult cancer cells) or micrometastasis, that are undetectable by current radiographic scanning technologies, can result in disease recurrence.

Our therapies utilize an immunodominant peptide combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF, Leukine), and work by harnessing the patient’s own immune system to seek out and attack any residual cancer cells. Using peptide immunogens has many potential clinical advantages, including a favorable safety profile, since these drugs may lack the toxicities typical of most cancer therapies. They also have the potential to evoke long-lasting protection through activation of the immune system and a convenient, intradermal mode of delivery. We are currently engaged in multiple clinical trials with NeuVax™ (nelipepimut-S), GALE-301, and GALE-302, targeting the prevention of recurrence in breast, gastric, endometrial and ovarian cancers.


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NeuVax™ (nelipepimut-S)

NeuVax™ (nelipepimut-S), our lead product candidate, is a cancer immunotherapy targeting human epidermal growth factor receptor (HER2) expressing cancers. NeuVax is the immunodominant nonapeptide derived from the extracellular domain of the HER2 protein, a well-established and validated target for therapeutic intervention in breast and gastric carcinomas. The NeuVax vaccine is combined with GM-CSF for injection under the skin, or intradermal administration. Data has shown that an increased presence of circulating tumor cells (CTCs) may predict Disease Free Survival (DFS) and Overall Survival (OS)-suggesting a presence of of isolated micrometastases, not detectable clinically, but, over time, can lead to recurrence, most often in distant sites. After binding to the specific HLA molecules on antigen presenting cells, the nelipepimut-S sequence stimulates specific cytotoxic T lymphocyte (CTLs), causing significant clonal expansion. These activated CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading.

Breast Cancer: According to the National Cancer Institute, over 230,000 women in the U.S. are diagnosed with breast cancer annually. While improved diagnostics and targeted therapies have decreased breast cancer mortality in the U.S., metastatic breast cancer remains incurable. Approximately 75% to 80% of breast cancer patients have tissue test positive for some increased amount of the HER2 receptor, which is associated with disease progression and decreased survival. Only approximately 20% to 30% of all breast cancer patients-those with HER2 immunohistochemistry (IHC) 3+ disease, or IHC 2+ and fluorescence in situ hybridization (FISH) amplified-have a HER2 directed, approved treatment option available after their initial standard of care. This leaves the majority of breast cancer patients with low-to-intermediate HER2 expression (IHC 1+/2+) ineligible for therapy and without an effective targeted treatment option to prevent cancer recurrence.

We have multiple trials currently ongoing for NeuVax. For our pivotal, Phase 3 PRESENT (Prevention of Recurrence in Early-Stage, Node- Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) trial, NeuVax is targeting the 50,000-60,000 female breast cancer patients annually diagnosed in the U.S. who are at a higher risk of their breast cancer recurring, which we refer to as “disease recurrence,” after achieving “no evidence of disease” (NED) status, (or becoming a “survivor”) with standard-of-care therapy (surgery, chemotherapy, radiation). These high-risk patients have a particular molecular signature and disease status: HER2 IHC 1+/2+ (oncoprotein associated with aggressive tumor growth), node positive (disease present in the axillary lymph nodes prior to surgery), and are HLA A2 and/or A3 positive (human leukocyte antigen from A2/A3 patients who have the same loci of genes which represents approximately 65% of the population). Up to 25% of resectable, node-positive breast cancer patients, having no radiographic evidence of disease following surgery and adjuvant chemo/radiation therapy, are expected to relapse within three years following diagnosis. The prognosis upon recurrence is very poor. These cancer patients presumably still had isolated, undetected tumor CTCs that led to a recurrence of cancer in the breast (local recurrence) or in another location (metastatic disease). In addition to our Phase 3 trial, we currently have two additional Phase 2 breast cancer trials ongoing with NeuVax in combination with trastuzumab (Herceptin®; Genentech/Roche) targeting the prevention of recurrence in expanded indications.

We also recently announced our intent to initiate a Phase 2 trial with NeuVax as a single agent in patients with ductal carcinoma in situ (DCIS) in collaboration with the National Cancer Institute (NCI), potentially positioning NeuVax as a treatment for earlier stage disease. The trial will have an immunological endpoint evaluating NeuVax peptide-specific cytotoxic T lymphocyte (CTL; CD8+ T-cell) response in vaccinated patients. DCIS is defined by the NCI as a noninvasive condition in which abnormal cells are found in the lining of a breast duct, and is the most common type of breast cancer. The abnormal cells have not spread outside the duct to other tissues in the breast. In some cases, DCIS may become invasive cancer and spread to other tissues, and at this time, there are no established methods to identify lesions which could become invasive. Current treatment options for DCIS include breast- conserving surgery and radiation therapy with or without tamoxifen, breast-conserving surgery without radiation therapy, or total mastectomy with or without tamoxifen. According to the American Cancer Society, in 2015 there were an estimated 50,000 diagnoses of DCIS.


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Gastric Cancer: Gastric cancer is the fourth leading cancer in the world and the second most common cause of death due to malignancy, accounting for 736,000 deaths (9.7% of the total) . Nearly 1 million new cases of gastric cancer and 0.7 million gastric cancer deaths are reported every year. Currently, gastric cancer is more common in Asia than in the United State of America (USA) or Europe. Notably, 42% of cases occur in China alone. The 5-year survival rate for patients undergoing surgical resection was reported to be only 27% in 1992 ( reference) .According to the NCI, gastric (stomach) cancer is a disease in which malignant (cancer) cells form in the lining of the stomach.  Almost all gastric cancers are adenocarcinomas (cancers that begin in cells that make and release mucus and other fluids). Other types of gastric cancer are gastrointestinal carcinoid tumors, gastrointestinal stromal tumors, and lymphomas. Infection with bacteria called Helicobacter pylori (H. pylori) is a common cause of gastric cancer and age, diet, and stomach disease can affect the risk of developing gastric cancer. Gastric cancer is often diagnosed at an advanced stage because there are no early signs or symptoms. Gastric, or stomach cancer, is the second-most common cancer among males and third-most among females in Asia and worldwide with over 35,000 new cases a year in India, where an initial clinical trial of NeuVax will be run. Overexpression of the HER2 receptor occurs in approximately 20% of gastric and gastro-esophageal junction adenocarcinomas, predominantly those of the intestinal type. Overall, without regard to the stage of cancer, only approximately 28% of patients with stomach cancer live at least five years following diagnosis and new adjuvant treatments are needed to prevent disease recurrence.

We currently have a number of ongoing or planned clinical trials designed to expand the clinical and geographical footprint of NeuVax:

Phase 3 Ongoing: Our Phase 3 PRESENT (Prevention of Recurrence in Early- Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) study targeted enrollment of 700 HER2 1+/2+ patients who are HLA A2 or A3 positive under a Special Protocol Assessment (SPA) granted by the U.S. Food and Drug Administration (FDA). The multinational, multicenter, randomized, double-blinded PRESENT trial is ongoing in North America, Western and Eastern Europe, and Israel. The trial is fully enrolled with 758 patients.
Phase 2b Ongoing: A randomized, multicenter, investigator-sponsored, 300 patient Phase 2b clinical trial is enrolling HER2 1+/2+ node-positive and high-risk node-negative breast cancer patients who are HLA A2, A3, A24 and/or A26 positive to study NeuVax in combination with trastuzumab in the adjuvant setting. This investigator sponsored trial (IST) is co-funded by Genentech/Roche (providing both trastuzumab and monetary support) and Galena (providing NeuVax and monetary support).
Phase 2 Ongoing: An IST is also ongoing to study NeuVax in combination with trastuzumab. The study will enroll 100 node positive and negative HER2 IHC 3+ patients or HER2 gene-amplified breast cancer patients who are HLA A2 and/or HLA A3 positive and are determined to be at high-risk for recurrence. Partial funding for this trial comes from the Department of Defense (DoD) through the Congressionally Directed Medical Research Program via legislation known as the Defense Appropriations Act. The grant was awarded under a Breast Cancer Research Program with the Breakthrough Award given to the lead investigator for the trial.
Phase 2 Planned: A clinical trial, entitled, VADIS: Phase 2 trial of the Nelipepimut-S Peptide VAccine in Women with DCIS of the Breast is planned to initiate in Q1 2016. The Phase 2 trial will be a single-blind, double arm, randomized, controlled trial in pre- or post-menopausal patients with DCIS who are HLA-A2 positive with HER2 expression of IHC 1+, 2+, or 3+. VADIS will be co-funded and run in collaboration with the National Cancer Institute (NCI).
Phase 2 Planned: A Phase 2 clinical trial in patients with gastric cancer is expected to initiate in 2016. The trial will be run in India by our partner, Dr. Reddy’s Laboratories, Ltd., as part of our NeuVax commercialization agreement in that region with Dr. Reddy’s.


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GALE-301 and GALE-302

Our second immunotherapy franchise targets folate binding protein (FBP) receptor-alpha, a well-validated therapeutic target, which has been shown to be highly over-expressed (20-80 fold) in ovarian, endometrial and breast cancers. Current treatments after surgery for these diseases are principally with platinum based chemotherapeutic agents and patients suffer a high recurrence rate; and, most patients relapse with an extremely poor prognosis. Both GALE-301 (E39) and GALE-302 (E39’) are immunogenic peptides that can stimulate CTLs to recognize and destroy FBP-expressing cancer cells. GALE-301 consists of the FBP peptide E39 and is combined with GM-CSF, and is currently in a Phase 2a clinical trial for the prevention of recurrence in patients with ovarian and endometrial cancers. Although not powered for efficacy, promising preliminary results from the Phase 2a clinical trial of GALE-301 were presented in September 2015 at the European Cancer Congress. The results (i) demonstrated statistically significant data with the estimate for disease free survival at two years at 85.7% (1000 mcg dose group) vs. 33.6% for the control group (p < .02), (ii) showed that GALE-301 was well-tolerated with primarily Grade 1 and 2 toxicities, and (iii) elicited a strong in vivo immune response.

GALE-302 is an attenuated version of the E39 peptide and is currently in a Phase 1b randomized, single-center trial investigating a novel vaccination series using GALE-301 and GALE-302 to evaluate the immune response and monitor long-term immunity. In November 2015, we presented preliminary data at the Society for Immunotherapy of Cancer Conference on the primary vaccine series (PVS) from a randomized Phase 1b trial with GALE-301 and GALE-302 demonstrating that the in vivo immune response is enhanced with the use of the attenuated E39’ (GALE-302) after E39 (GALE-301). Both agents were shown to be immunogenic and well tolerated with no differences in toxicities between primary vaccine sequences.

Ovarian Cancer: According to the NCI Surveillance, Epidemiology, and End Results (SEER) Program, new cases of ovarian cancer occur at an annual rate of 12.1 per 100,000 women in the U.S., with an estimated 21,290 cases for 2015. Although ovarian cancer represents about 1.3% of all cancers, it represents about 2.4% of all cancer deaths, or an estimated 14,180 deaths in 2015. Approximately 1.3% of women will be diagnosed with ovarian cancer at some point during their lifetime (2010 - 2012 data). The prevalence of ovarian cancer in the U.S. is about 192,000 women, and the five-year survivorship for women with ovarian cancer is 45.6%. Due to the lack of specific symptoms, the majority of ovarian cancer patients are diagnosed at later stages of the disease, with an estimated 75% of women presenting with advanced-stage (III or IV) disease. These patients have their tumors routinely surgically debulked to minimal residual disease, and then are treated with platinum- and/or taxane-based chemotherapy. While many patients respond to this treatment regimen and become clinically free-of-disease, the majority of these patients will relapse. Depending upon their level of residual disease, the risk for recurrence after completion of primary therapy ranges from 60% to 85%. Unfortunately for these women, once the disease recurs, treatment options are limited and the disease is most likely incurable.

According to the NCI SEER Program, new cases of endometrial cancer occur at an annual rate of 25.1 per 100,000 women in the U.S., with an estimated 54,870 cases for 2015. Although endometrial cancer represents about 3.3% of all cancers, it represents about 1.7% of all cancer deaths, or an estimated 10,170 deaths in 2015. Approximately 2.8% of women will be diagnosed with endometrial cancer at some point during their lifetime (2010 - 2012 data). The prevalence of endometrial cancer in the U.S. is about 620,000 women, and the five-year survivorship for women with endometrial cancer is 81.7%.

Hematology

GALE-401 (anagrelide controlled release (CR))

GALE-401 contains the active ingredient anagrelide, an FDA-approved product, for the treatment of patients with myeloproliferative neoplasms (MPNs) to lower abnormally elevated platelet levels. The currently available immediate release (IR) version of anagrelide causes adverse events that are believed to be dose and plasma concentration dependent. These adverse events may limit the use of the IR version of the drug. Therefore, reducing the maximum concentration (Cmax) is hypothesized to reduce the side effects, but preserve efficacy, potentially allowing a broader use of the drug.

Multiple Phase 1 studies in 98 healthy subjects have shown GALE-401 reduces the Cmax of anagrelide following oral administration, appears to be well tolerated at the doses administered, and to be capable of reducing platelet levels. The Phase 1 program provided the desired PK/PD (pharmacokinetic/pharmacodynamic) profile to

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enable the initiation of the ongoing Phase 2 proof-of-concept trial. The Phase 2, open label, single arm, proof-of-concept trial enrolled 18 patients in the United States for the treatment of thrombocytosis, or elevated platelet counts in patients with MPNs. Final Phase 2 safety and efficacy data were presented at the 57th American Society of Hematology Annual Meeting in December 2015. The study demonstrated that GALE-401 was well tolerated with primarily Grade 1 and 2 toxicities in 16 of the 18 subjects enrolled. The efficacy shown in the trial compares favorably to historical anagrelide immediate release (IR) response rates with the following platelet response: overall response rate (ORR) of 78% (14/18); complete response (CR) of 39% (7/18); partial response (PR) of 39% (7/18). Based on a regulatory meeting with the FDA, Galena believes a 505(b)(2) regulatory filing is an acceptable pathway for development and potential approval of GALE-401.

Myeloproliferative neoplasms: MPNs are a closely related group of hematological malignancies in which the bone marrow cells that produce the body’s blood cells develop and function abnormally. The main MPNs are Polycythemia Vera (PV), Essential Thrombocythemia (ET), Primary Myelofibrosis (PMF), and Chronic Myelogenous Leukemia (CML), all of which are associated with high platelet counts. The MPNs are progressive blood cancers that can strike anyone at any age and for which there is no known cure.

Alliance Partners in Therapeutic Areas

We are actively looking to leverage our technology platforms by seeking to work with pharmaceutical and biotechnology partners in a number of therapeutic areas in oncology. Our team has experience targeting products in multiple indications, and based on this experience, we believe we can expand the clinical utility of our current development candidates as well as discover more drug candidates by working with partners than we can develop with our own resources. We are seeking to work with partners in the discovery and development of drugs in a number of therapeutic areas and technology platforms.


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Intellectual Property

Patents and other intellectual property rights are crucial to our success. It is our policy to protect our intellectual property rights through available means, including filing and prosecuting patent applications in the U.S. and other countries, protecting trade secrets, and utilizing regulatory protections such as data exclusivity. We also include restrictions regarding use and disclosure of our proprietary information in our contracts with third parties, and utilize customary confidentiality agreements with our employees, consultants, clinical investigators and scientific advisors to protect our confidential information and know-how. Together with our licensors, we also rely on trade secrets to protect our combined technology especially where we do not believe patent protection is appropriate or obtainable. It is our policy to operate without infringing on, or misappropriating, the proprietary rights of others. The following chart summarizes our intellectual property rights:
 
Drug Candidate
 
Indication
 
Scope 
 
Estimated
Exclusivity
Period 
 
NeuVax™ (nelipepimut-S)
Breast cancer recurrence
Filed and pending or issued
worldwide
2028
NeuVax™ (nelipepimut-S)
Gastric
Filed and pending or issued
worldwide
2028
NeuVax™ (nelipepimut-S)
DCIS
Filed and pending or issued
worldwide
2028
NeuVax™ in combination with trastuzumab
Breast cancer
Filed and pending or issued
worldwide
2026
NeuVax™ in combination with other compounds
Breast cancer
Filed and pending or issued
worldwide
2037
GALE-301 & GALE-302
Breast, ovarian and endometrial cancer
Filed and pending or issued
worldwide
2035
GALE-401 (Anagrelide Controlled Release)
Platelet Lowering
Filed and pending or issued
worldwide
2029


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Out-License Agreements

Teva Pharmaceuticals

Effective December 3, 2012, we entered into a license and supply agreement with ABIC Marketing Limited, a subsidiary of Teva Pharmaceuticals (“ABIC”). Under the agreement, we granted ABIC exclusive rights to seek marketing approval in Israel for our NeuVax product candidate for the treatment of breast cancer following its approval by the FDA or the European Medicines Agency, and to market, sell and distribute NeuVax in Israel assuming such approval is obtained. ABIC’s rights also include a right of first refusal in Israel for all future indications for which NeuVax may be approved.

Under the license and supply agreement, ABIC will assume responsibility for regulatory registration of NeuVax in Israel, provide financial support for local development, and commercialize the product in the region in exchange for making royalty payments to us based on future sales of NeuVax. ABIC also agrees in the license and supply agreement to purchase all supplies of NeuVax from us at a price determined according to a specified formula.

Dr. Reddy’s Laboratories Ltd.

Effective January 14, 2014, we entered into a strategic development and commercialization partnership with Dr. Reddy’s Laboratories Ltd. (“Dr. Reddy’s”), under which we licensed commercial rights in India to Dr. Reddy’s for NeuVax in breast and gastric cancers. Under the agreement, Dr. Reddy’s will lead the Phase 2 development of NeuVax in India in gastric cancer, expanding the potential patient population addressable with NeuVax.

Kwang Dong Pharmaceutical Co., Ltd.

Effective April 30, 2009, we entered into a license agreement with Kwang Dong Pharmaceutical Co, Ltd (Kwang Dong). Under the agreement, we granted Kwang Dong exclusive rights to seek marketing approval in The Republic of Korea (South Korea) for our NeuVax product candidate for the treatment of breast cancer following its approval by the FDA or the European Medicines Agency, and to market, sell and distribute NeuVax in South Korea assuming such approval is obtained.


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Recent Developments (in reverse chronological order)

Litigation Settlement

On February 4 and 16, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlements we had previously reported we had reached in In re Galena Biopharma, Inc. Derivative Litigation, Civil Action No. 3:14-cv-00382-SI and in In re Galena Biopharma, Inc. Securities Litigation, Civil Action No. 3:14-cv-00367-SI, respectively. The Court has set the final approval hearings for April 21, 2016 in In re Galena Biopharma, Inc. Derivative Litigation and June 23, 2016 in In re Galena Biopharma, Inc. Securities Litigation.

Announced a Notice of Allowance of a U.S. Patent for NeuVax

On February 8, 2016, we announced the United States Patent Office issued a Notice of Allowance for an additional U.S. patent application covering multiple uses of NeuVax™ (nelipepimut-S):  inducing and maintaining an immune response to HER2 expressing tumor cells in patients in clinical remission with a tumor having a fluorescence in situ hybridization (FISH) rating of less than about 2.0 (FISH <2.0); inducing and sustaining a cytotoxic T-lymphocyte (CTL) response to HER2 in patients in clinical remission from a tumor with a FISH rating of less than about 2.0 (FISH < 2.0); reducing risk of cancer recurrence in patients in clinical remission from a tumor with a FISH rating of less than about 2.0 (FISH < 2.0); and preventing bone only recurrence of a HER2 expressing cancer. This patent will expand both the protection and the potential population of cancer patients NeuVax may address. Once issued, the patent will expire in 2028, not including any patent term extensions. 

Presented Observational Study Data in Gastric Cancer Patients at the ASCO 2016 Gastrointestinal Cancers Symposium

On January 21, 2016, we presented data from an observational study in gastric cancer patients at the American Society of Clinical Oncology (ASCO) 2016 Gastrointestinal Cancers Symposium.  The study was conducted by our partner, Dr. Reddy’s Laboratories Ltd, who will conduct a Phase 2 clinical trial of NeuVax in gastric cancer patients in India. The poster, entitled, “An observational study evaluating the expression of HER2 (1+, 2+, and 3+) with HLA A2+/A3+ in gastric adenocarcinoma patients” showed that approximately 25% of the patients met the projected clinical protocol population of all levels of expression of HER2 and HLA A2+ and/or A3+ as defined for the planned NeuVax Phase 2 clinical trial.  Results indicate an acceptable potential for enrollment rate, given the high incidence of gastric cancer in this population, and will inform the screen failure rate in the planned Phase 2 clinical study.

Closed Two Public Offerings

On January 12, 2016, we closed the previously announced underwritten public offering of common stock and warrants. The net proceeds to us were approximately $20 million.

On March 18, 2015, we announced the closing of an underwritten public offering of common stock and warrants. The net proceeds to us were approximately $35.4 million.


Changes to our Board of Directors & Management Team

On December 24, 2015, we announced that Steven A. Kriegsman will be retiring as a Director of the Company when his current term expires the day prior to the June 2016 Annual Meeting of Stockholders. We also announced that we would conduct a search to replace Mr. Kriegsman’s position on the Board of Directors and add an additional board member.

On December 11, 2015, we announced the departure of our Chief Financial Officer (CFO), Mr. Ryan Dunlap, effective December 31, 2015, as he was unable to relocate to the Company’s headquarters in California. We have instituted a search for a new CFO.


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On October 30, 2015, we announced the hiring of Bijan Nejadnik, M.D., as our Executive Vice President and Chief Medical Officer. Dr. Nejadnik will be responsible for managing all of Galena's clinical development programs. Dr. Nejadnik has more than 22 years of academic and industry experience, including twelve years with pharmaceutical and biotech companies including Jazz Pharmaceuticals, Johnson & Johnson, and Purdue Pharma. During his career, Dr. Nejadnik has successfully developed numerous biologics and small molecules, advancing these agents towards Biologics License Application (BLA) and New Drug Application (NDA) submissions.

Divestiture of Commercial Operations

On November 9, 2015, we announced the completion of a strategic review of the commercial business and operations. As a result of a strategic review, on November 19, 2015 we sold our Abstral® (fentanyl) Sublingual Tablets product and related assets; and, on December 24, 2015, we sold Zuplenz® (ondansetron) Oral Soluble Film product and related assets. On December 31, 2015 we ceased our commercial operations.

GALE 401 Final Phase 2 Clinical Trial Data Presented was presented at the 57th American Society of Hematology (ASH) Annual Meeting and Exposition

On December 8, 2015, we presented final data via a poster presentation entitled “Final results of anagrelide controlled-release (GALE-401) safety, efficacy and pharmacokinetics in subjects with myeloproliferative neoplasms (MPN)-related thrombocytosis.”. The Phase 2 study demonstrated GALE-401 is well tolerated and the efficacy compares favorably to historical anagrelide immediate release (IR) with reported platelet count best response rates of eleven (61.1%) complete responses (CR), four (22.2%) partial responses (PR), and an overall response rate (ORR) of 83.3%. The mean time to response ranged from 1 to 9 weeks with GALE-401, which compares favorably to historical anagrelide IR, where time to response ranged from 4 to 12 weeks. Fourteen of 18 subjects enrolled experienced a treatment related adverse event (AE); however, the vast majority of AEs were Grade 1/2 with no patients discontinuing therapy due to progression of disease. Nine patients remain on trial and the median time of response has not yet been reached.

GALE-302 Phase 1b Immunological Data Optimizing GALE-301 was presented at the Society for Immunotherapy of Cancer (SITC) 30th Anniversary Annual Meeting

On November 7, 2015 we presented the poster, entitled, “Preliminary report of a clinical trial supporting the sequential use of an attenuated E39 peptide (E39’) to optimize the immunologic response to the FBP (E39+GM-CSF) vaccine,” that compared three primary vaccine series (PVS) sequences of GALE-301 (E39) and GALE-302 (E39’) in ovarian and breast cancer patients to optimize the ex vivo immune responses, local reactions (LR), and delayed type hypersensitivity (DTH) reactions. The data demonstrated that the in vivo immune response is enhanced with the use of the attenuated E39’ (GALE-302) after E39 (GALE-301). The optimal vaccination sequence utilizing three inoculations of GALE-301 followed by three inoculations of GALE-302 produced the most prominent and statistically significant LR and DTH responses.

Collaboration with the National Cancer Institute on a Phase 2 clinical trial with NeuVax in Ductal Carcinoma in Situ Patients

On September 30, 2015, we announced a collaboration with the National Cancer Institute (NCI) to initiate a Phase 2 clinical trial with NeuVax in patients diagnosed with Ductal Carcinoma in Situ (DCIS). The trial will be entitled VADIS: Phase 2 trial of the Nelipepimut-S Peptide VAccine in Women with DCIS of the Breast. The University of Texas M.D. Anderson Cancer Center (MDACC) Phase I and II Chemoprevention Consortium will be the lead clinical trial site for this multi-center trial with Elizabeth Mittendorf, M.D., Ph.D. serving as the study Principal Investigator. The Consortium is funded through the Division of Cancer Prevention at NCI, which will provide financial and administrative support for the trial. We will provide NeuVax, as well as additional financial and administrative support. The single-blind, double arm, randomized, controlled trial is expected to initiate in the first half of 2016.


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GALE-301 Positive Phase 2a Clinical Trial Data Presented at the European Cancer Congress 2015

On September 28, 2015 we announced the poster presentation of positive data from the GALE-301 Phase 2a portion of the Phase 1/2a clinical trial at the European Cancer Congress 2015, providing updated data for all ovarian and endometrial cancer patients who have received at least twelve months of treatment on the study. The poster was entitled, “Preliminary results of the phase I/IIa dose finding trial of a folate binding protein vaccine GALE-301 (E39) + GM-CSF in ovarian and endometrial cancer patients to prevent recurrence,” and as presented, the clinical recurrence rate based on all treatment cohorts was 41% in the Vaccine Group (VG) (n=29) versus 55% in the Control Group (CG) (n=22), p=0.41. However, in the 1000 mcg VG cohort (n=15), there have only been two clinical recurrences (13.3% versus 55% CG, p=0.02), and the two-year Disease Free Survival (DFS) estimate is 85.7% (1000 mcg patients) versus 33.6% (CG), p < 0.02, as compared by Kaplan-Meir and Log rank tests.

IDMC Provides Recommendation to Reduce Cardiac Monitoring in the NeuVax, Phase 3 PRESENT Clinical Trial

On August 24, 2015 we announced that the Independent Data Monitoring Committee (IDMC) for the NeuVax Phase 3, PRESENT clinical trial recommended that the Company can reduce the cardiac toxicity monitoring for patients in the study. Following its meeting in June 2015, the IDMC recommended routine cardiac monitoring could be reduced in the PRESENT trial and that such a reduction is justified and consistent with the pre-specified Cardiac Toxicity Monitoring Stopping Rules defined in the study protocol. The IDMC had no other suggestions and recommended the trial continue as planned.

Published an abstract on the Leica Biosystem’s Companion Diagnostic at the American Society of Clinical Oncology (ASCO) 2015 Annual Meeting

On May 27, 2015, we announced an abstract publication at the ASCO 2015 Annual Meeting related to our NeuVax Phase 3 PRESENT trial companion diagnostic in abstract #e11609, entitled, “Analytical Validation of BOND Oracle HER2 IHC System for Identifying Low to Intermediate HER2 Expressing Breast Cancer in NeuVax PRESENT Phase 3 Clinical Trial.” This data demonstrated a direct correlation between cell line receptor load, quantitative measure of HER2 protein, and IHC score. The ability to discriminate HER2 protein expression at the low and intermediate levels in breast cancer tumors will identify patients for new treatments in development such as NeuVax. Specifically, the validation of the Bond Oracle HER2 IHC System to distinguish lower levels of HER2+ expressions supports its use as a companion diagnostic.

NeuVax Phase 3, PRESENT Clinical Trial Over-Enrollment Completed

On April 14, 2015, we announced the completion of enrollment in the NeuVax™ Phase 3 PRESENT clinical trial. As anticipated, we over-enrolled the trial by 7.7% with a total of 758 patients now in the intent-to-treat (ITT) population. The protocol for the PRESENT trial called for 700 patients; and we expect this higher number of ITT patients will increase the confidence in both the timing and quality of the statistics and the final outcome of the trial. The primary endpoint is currently expected to be reached in 2018, after the last patient dosed reaches her 36th month of treatment, or a total of 141 events (recurrence or death) occur, whichever comes later.

Expanded Patient Population in NeuVax and Trastuzumab Combination Trial in HER2 1+/2+ patients to include HLA A24+ and/or HLA-A26+ patients

On March 26, 2015, we announced that human leukocyte antigen HLA-A24 and/or HLA-A26 positive women are now eligible for enrollment into the ongoing Phase 2b clinical trial with NeuVax in combination with trastuzumab. The trial evaluates node positive and high-risk node negative breast cancer patients with IHC HER2 1+/2+ expressing tumors who are disease-free after standard of care therapy.

Enrolled 700th Patient in NeuVax Phase 3 PRESENT Clinical Trial

On February 9, 2015, we announced enrollment of the 700th patient in the NeuVax Phase 3 PRESENT clinical trial, which is the patient enrollment target as defined by the PRESENT Phase 3 clinical trial protocol.


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Competition

The biotechnology industry, including cancer immunotherapy vaccines and hematology therapies, is intensely competitive and involves a high degree of risk. Potential competitors in the U.S. and worldwide are numerous and include pharmaceutical and biotechnology companies, educational institutions and research foundations. We compete with many of these companies who have far greater experience, capital resources, research and technical resources, marketing experience, research and development staffs and facilities than us. Some of our competitors may develop and commercialize products that compete directly with those incorporating our technology, and they may introduce products to market earlier than our products or on a more cost effective basis. We may be unable to effectively develop our technology or any other applications on a cost effective basis or otherwise. In addition, our technology may be subject to competition from other technology or methods developed using techniques other than those developed by traditional biotechnology methods. Our competitors compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our technology. We, and our collaborators, may face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price, and patent position including potentially dominant patent positions of others.

For patients with early stage breast cancer, adjuvant therapy is often given to prevent recurrence and increase the chance of long-term disease free survival. Adjuvant therapy for breast cancer can include chemotherapy, hormonal therapy, radiation therapy, or combinations thereof. In addition, the HER2 targeted drug trastuzumab (Herceptin®) may be given to patients with tumors with high expression of HER2 (IHC 3+), as well as other novel targets such as MUC1 which may be useful in treating breast cancer.

There are a number of cancer vaccines in development for breast cancer, including but not limited to Lapuleucel-T (Dendreon), AE-37 (Antigen Express), and Stimuvax (Merck KgA). While these development candidates are aimed at a number of different targets, and AE-37 has published data in the HER2 breast cancer patient population, there is no guarantee that any of the these compounds will not in the future be indicated for treatment of low-to-intermediate HER2 breast cancer patients and become directly competitive with NeuVax.

A number of chemotherapeutic agents have demonstrated activity in gynecological carcinomas (ovarian and endometrial), particularly platinum based regimens. New chemotherapy agents are being evaluated including trabectedin (Yondelis) and belotecan as well as targeted agents such as bevacizumab (Avastin) and pazopanib (Avotrient). Monoclonal antibodies are also being developed including farletuzumab and catumaxomab. The Company is not aware of any of these agents being evaluated in the adjuvant setting where GALE-301 is being considered for further development. TPIV200 (TapImmune) is in development targeting FBP in ovarian cancer.

For patients with myeloproliferative neoplasms (MPNs), current treatment options include Agrylin® (anagrelide hydrochloride) and its generic equivalents, hydorxyurea and interferon alpha. Agents currently being studied in patients with MPNs include investigational JAK2 inhibitors (e.g., LY2784544 (Eli Lily), momelotinib (Gilead Sciences) and pegylated interferon alfa-2a (Pegasys, Genentech/Roche)).


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Government Regulation

The U.S. and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. The FDA regulates pharmaceutical and biologic products under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.

To obtain approval of our future product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy for the intended indication as well as detailed information on the manufacture and composition of the product candidate. In most cases, this will require extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications for review by the FDA involve significant time and expense. The FDA may require post-marketing testing to monitor the safety and efficacy of approved products or place conditions on any product approvals that could restrict the therapeutic claims and commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards and or the conditions of the regulatory approval at any time following initial marketing of our products.

The amount of time taken by the FDA for approval of an NDA or BLA will depend upon a number of factors, including whether the product candidate has received priority review or fast track designation, the quality of the submission and studies presented, and the workload at the FDA.

We anticipate that our products will be manufactured by our strategic partners, licensees or other third parties. Before approving an NDA or BLA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with the FDA’s current good manufacturing practice (“cGMP”), which are regulations that govern the manufacture, holding and distribution of a product. Manufacturers of biologics also must comply with the FDA’s general biological product standards. Our manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation and Recovery Act and other applicable environmental statutes. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the good manufacturing practices regulations. Our manufacturers will have to continue to comply with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and Federal Trade Commission requirements which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. In addition, we will be subject to various laws and regulations governing laboratory practices and the experimental use of animals. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of product approvals, seize or recall products, and deny or withdraw approvals.

We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the U.S. Whether or not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle, to those in the U.S.


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Financial Condition

We had cash and cash equivalents of approximately $38.2 million as of February 29, 2016. We believe that our existing cash and cash equivalents, funding available under our Lincoln Park Capital, LLC (LPC) purchase agreement and At Market Issuance Sales Agreements (ATM), should be sufficient to fund our operations for at least one year. This projection is based on our current planned operations, and subject to changes in our plans, uncertainties inherent in our business, and the need to seek to replenish our existing cash and cash equivalents sooner than we project and in greater amounts that we had projected.

On March 18, 2015, we announced the closing of our underwritten public offering of 24,358,974 shares of common stock and 12,179,487 warrants to purchase our common stock at an exercise price of $2.08. The underwriters also exercised their over-allotment option to purchase warrants to purchase an aggregate of 1,826,923 shares of our common stock. On April 10, 2015, the underwriters exercised their option to purchase an additional 3,653,846 shares of common stock providing us additional net proceeds of $5.4 million. The total net proceeds to us were approximately $40.8 million.

On January 12, 2016, we closed on our underwritten public offering of 19,772,727 shares of common stock and 11,863,636 warrants to purchase our common stock at an exercise price of $1.42. The underwriters also exercised their over-allotment option to purchase warrants to purchase an aggregate of 1,779,545 shares of our common stock. The total net proceeds to us were approximately $20.1 million.

In addition to the funds raised through underwritten public offerings, we maintain a purchase agreement with Lincoln Park Capital LLC (LPC) and At Market Issuance Sales Agreements (ATM) with future availability of $42.2 million and $15.4 million, respectively subject to certain terms and conditions. We used the LPC purchase agreement in the fourth quarter of 2014 and the first quarter of 2015 raising $8.5 million and $4.4 million, respectively, by issuing 5.2 million and 2.7 million shares of our common stock. In addition, we used the ATM in the fourth quarter of 2014 and the first quarter of 2015 raising $2.3 million by issuing 1.4 million shares of our common stock in both quarters. In light of our current stock price to continue to rely on sales of our common stock under the LPC purchase agreement, we will need to obtain certain revisions to the terms and conditions of the LPC purchase agreement. We may also continue to use the ATM, or other instruments, in order to fund our operations going forward.

We expect to continue to incur operating losses as we continue to advance our product candidates through the drug development and the regulatory process. In the absence of revenue, our potential sources of operational funding are proceeds from the sale of equity, funded research and development payments, debt financing arrangements, and payments received under partnership and collaborative agreements. There is no guarantee that any debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or to be acquired by another company.


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Environmental Compliance

Our development programs involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specific waste products. We are also subject to numerous environmental, health and workplace safety laws and regulations. The cost of compliance with these laws and regulations could be significant and may adversely affect capital expenditures to the extent we are required to procure expensive capital equipment to meet regulatory requirements.

Human Resources

As of March 10, 2016, the Company had 22 full-time employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement, nor have we experienced any work stoppages.

Corporate Information

Our principal executive offices are located at 2000 Crow Canyon Place, Suite 380, San Ramon, CA 94583, and our phone number is (855) 855-4253. Our website address is www.galenabiopharma.com. We do not incorporate the information on our website into this annual report, and you should not consider such information part of this annual report.


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ITEM 1A. RISK FACTORS
Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in statements made by us or on our behalf in filings with the SEC, press releases or communications with investors and others. Any or all of our statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The factors mentioned in the discussion below will be important in determining future results. Consequently, actual future results may vary materially from those anticipated in this annual report or our other public statements.
Risks Relating to Our Former Commercial Operations
We are subject to U.S. federal and state health care fraud and abuse and false claims laws and regulations, and we recently have been subpoenaed in connection with marketing and promotional practices related to Abstral. Prosecutions under such laws have increased in recent years and we may become subject to such prosecutions or related litigation under these laws. If we have not fully complied with such laws, we could face substantial penalties.
Our former commercial operations and development programs are subject to various U.S. federal and state fraud and abuse laws, including, without limitation, the federal False Claims Act, federal Anti-Kickback Statute, and the federal Sunshine Act.
A federal investigation of two of the high-prescribing physicians for Abstral has resulted in the criminal prosecution of the two physicians for alleged violations of the federal False Claims Act and other federal statutes. The criminal trial is set for some time in 2016. We have received a trial subpoena for documents in connection with that investigation and we have been in contact with the U.S. Attorney’s Office for the Southern District of Alabama, which is handling the criminal trial, and are cooperating in the production of documents. We are a target or subject of that investigation. There also have been federal and state investigations of a company that has a product that competes with Abstral in the same therapeutic class, and we have learned that the FDA and other governmental agencies may be investigating our Abstral promotion practices. On December 16, 2015, we received a subpoena issued by the U.S. Attorney’s Office in District of New Jersey requesting the production of a broad range of documents pertaining to our marketing and promotional practices for Abstral. We have been in contact with the U.S. Attorney’s Office for the District of New Jersey and are cooperating in the production of the requested documents. We are unable to predict whether we could become subject to legal or administrative actions as a result of these matters, or the impact of such matters. If we are found to be in violation of the False Claims Act, Anti-Kickback Statute, Patient Protection and Affordable Care Act, or any other applicable state or any federal fraud and abuse laws, we may be subject to penalties, such as civil and criminal penalties, damages, fines, or an administrative action of exclusion from government health care reimbursement programs. We can make no assurances as to the time or resources that will need to be devoted to these matters or their outcome, or the impact, if any, that these matters or any resulting legal or administrative proceedings may have on our business or financial condition.
The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from, the federal government. Qui tam suits filed under the False Claims Act can be brought by any individual on behalf of the government and such individuals, commonly known as “relators” or “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of health care companies to have to defend such qui tam actions and pay substantial sums to settle such actions.

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The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program such as the Medicare and Medicaid programs. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the statute has been violated. The Anti-Kickback Statute is broad, and despite a series of narrow safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the health care industry. Penalties for violations of the federal Anti-Kickback Statute include criminal penalties and civil and administrative sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal health care programs. An alleged violation of the Anti- Kickback Statute may be used as a predicate offense to establish liability pursuant to other federal laws and regulations such as the federal False Claims Act. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for health care items or services reimbursed by any source, not only Medicare and Medicaid programs.
The federal Patient Protection and Affordable Care Act includes provisions expanding the ability of certain relators to bring actions that would have been dismissed under prior law. When an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. The Deficit Reduction Act of 2005 encouraged states to enact or modify their state false claims acts to be at least as effective as the federal False Claims Act by granting states a portion of any federal Medicaid funds recovered through Medicaid-related actions. Most states have enacted state false claims laws, and many of those states included laws including qui tam provisions. The federal Patient Protection and Affordable Care Act includes provisions known as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices and medical supplies covered under Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data beginning in 2013 to the Centers for Medicare and Medicaid Services for subsequent public disclosures. Manufacturers must also disclose investment interests held by physicians and their family members. Failure to submit the required information may result in civil monetary penalties of up to $1 million per year for knowing violations and may result in liability under other federal laws or regulations. Similar reporting requirements have also been enacted on the state level in the U.S., and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with health care professionals. In addition, some states such as Massachusetts and Vermont imposed an outright ban on certain gifts to physicians. These laws could affect our product promotional activities by limiting the kinds of interactions we could have with hospitals, physicians or other potential purchasers or users of our system. Both the disclosure laws and gift bans also will impose administrative, cost and compliance burdens on us.

We face product liability exposure and, if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

The commercial sale of our products exposes us to possible product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA. Our products are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our products could result in injury to a patient or even death. For example, because Abstral is designed to be self-administered by patients, it is possible that a patient could fail to follow instructions and as a result apply a dose in a manner that results in injury. In addition, Abstral is an opioid pain reliever that contains fentanyl, which is regulated as a “controlled substance” under the Controlled Substances Act of 1970 (the “CSA”) and could result in harm to patients relating to its potential for abuse. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products or generic versions of our products. If we cannot successfully defend ourselves against product liability claims we could incur substantial liabilities. Because we have sold Abstral and Zuplenz, regardless of merit or eventual outcome, product liability claims may result in:
impairment of our business reputation;
costs of related litigation;
distraction of management’s attention from our primary business; or
substantial monetary awards to patients or other claimants.

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We have obtained product liability insurance coverage for commercial product sales with a $10 million per occurrence and a $10 million annual aggregate coverage limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of our products, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that may be less severe than those of our products. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse effect on our business, results of operations, financial condition and prospects.
Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our third-party manufacturers and suppliers activities involve the controlled storage, use and disposal of hazardous materials. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials even after we sell or otherwise dispose of the products. In some cases, these hazardous materials and various wastes resulting from their use were stored at our contractors or manufacturers’ facilities pending use and disposal. We cannot completely eliminate the risk of contamination, which could cause injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we expect that the safety procedures utilized by our third-party contractors and manufacturers for handling and disposing of these materials will generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this will be the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination.
We will continue to be responsible for certain liabilities and obligations related to Abstral and Zuplenz, and if unknown liabilities were to arise it could have a material adverse effect on us.
Under our respective asset purchase agreements with Sentynl Therapeutics, Inc. and Midatech Pharma PLC, our future obligations under our former agreements with Orexo AB and MonoSol have been assumed by Sentynl and Midatech, respectively, except that we will continue to be responsible for chargebacks, rebates, patient assistance and certain other product distribution channel liabilities related to Abstral and Zuplenz for a specified period of time post-closing. We also will be responsible for any pre-closing liabilities and obligations related to Abstral and Zuplenz, including unknown liabilities, and have agreed in the respective asset purchase agreements to indemnify Sentynl and Midatech for any breach of our representations, warranties and covenants in the respective asset purchase agreements up to a certain agreed to amount. We cannot quantify these responsibilities to Sentanyl and Midatech, but if substantial unknown liabilities were to arise, it could have a material adverse effect on our financial condition.

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Risks Relating to Our Development Programs
Our drug candidates may not receive regulatory approval or be successfully commercialized.
Before they can be marketed, our products in development must be approved by the FDA or similar foreign governmental agencies. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. Before obtaining regulatory approval for the sale of any drug candidate, we must conduct preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates. Although our drug candidates have exhibited no serious adverse events (“SAEs”) in the Phase 1 and 1/2 clinical trials, SAEs or other unexpected side effects may arise during further testing and development. A failure of any preclinical study or clinical trial can occur at any stage of testing. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. It also is possible to suffer significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.
Clinical trial designs that were discussed with the authorities prior to their commencement may not result in the success of the trials or subsequently may not be considered sufficient for approval. Thus, our special protocol assessment with the FDA for our PRESENT trial does not ensure success of the trial or guarantee regulatory approval of NeuVax for the treatment of breast cancer.
In 2009, we reached agreement with the FDA regarding the special protocol assessment, or SPA, for the design of our NeuVax Phase 3 PRESENT trial as an adjuvant treatment for patients with node positive, HER2 1+/2+ breast cancer. An SPA certifies the agreement with the FDA regarding the study endpoints, study design and statistical assumptions of the clinical trial. The SPA is documented as part of the administrative record, and is binding on the FDA and may not be changed unless we fail to follow the agreed upon protocol, data supporting the test are found to be false or incomplete, or the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness of the drug was identified after the testing began. In June 2013, the FDA agreed to an amendment to the SPA to account for the use of a companion diagnostic. Even with an SPA, approval of an NDA or BLA is not guaranteed because a final determination that an agreed upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA. There is no assurance, therefore, that the NeuVax Phase 3 PRESENT trial will be successful or that NeuVax for the treatment of patients with node positive, HER2 1+ and/or 2+ breast cancer will be approved by the FDA.
A number of different factors could prevent us from obtaining regulatory approval or commercializing our product candidates on a timely basis, or at all.
We, the FDA or other applicable regulatory authorities, an Independent Data Monitoring Committee or “IDMC” governing our clinical trials, or an institutional review board, or “IRB,” which is an independent committee registered with and overseen by the U.S. Department of Health and Human Services, or “HHS,” that functions to approve, monitor and review biomedical and behavioral research involving humans, may suspend clinical trials of a drug candidate at any time for various reasons, including if we, or it, believe the subjects or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on subjects or patients in a clinical trial could result in the FDA or other regulatory authorities suspending or terminating the trial and refusing to approve a particular drug candidate for any or all indications of use.
Clinical trials of a new drug candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the drug candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, and delays in patient enrollment can result in increased costs and longer development times than we expect at present. Patients who are enrolled at the outset of this standard of care also may eventually choose for personal reasons not to participate in the study. We also compete for eligible patients with other oncology trials underway from time to time, and we may experience delays in patient enrollment due to the dependency of other large trials underway in the same patient population.
Clinical trials also require the review and oversight of IRBs, which approve and continually review clinical investigations to protect the rights and welfare of human subjects. An inability or delay in obtaining IRB approval could prevent or delay the initiation and completion of clinical trials, and the FDA may decide not to consider any data or information derived from a clinical investigation not subject to initial and continuing IRB review and approval.

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In addition, cancer vaccines are a relatively new form of therapeutic treatment and a very limited number of such products have received regulatory approval. Therefore, the FDA or other regulatory authority may apply standards for approval of a new cancer vaccine that are different from past experience.

Numerous factors could affect the timing, cost or outcome of our drug development efforts, including the following:
difficulties or delays in enrolling patients in our Phase 1/2 clinical trials of GALE-301 and GALE-302 folate binding protein, or other clinical trials in conformity with required protocols or projected timeline or in our other NeuVax clinical trials;
conditions imposed on us by the FDA, including the possibility that the FDA would require an additional Phase 3 trial of NeuVax, or comparable foreign authorities regarding the scope or design of our clinical trials;
difficulties or delays in arranging for third parties to conduct clinical trials of our product candidates;
problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of studies;
third-party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
our drug candidates having very different chemical and pharmacological properties in humans than in laboratory testing and interacting with human biological systems in unforeseen, ineffective or harmful ways, and the possibility that our previous Phase 2 trials will not be indicative of our drug candidates’ performance in larger patient populations;
the need to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;
insufficient or inadequate supply or quality of our drug candidates or other necessary materials necessary to conduct our clinical trials;
disruption at our foreign clinical trial sites resulting from local social or political unrest or other geopolitical factors;
effects of our drug candidates not being the desired effects or including undesirable side effects or the drug candidates having other unexpected characteristics;
negative or inconclusive results from our clinical trials or the clinical trials of others for drug candidates similar to our own or inability to generate statistically significant data confirming the efficacy of the product being tested;
adverse results obtained by other companies developing similar drugs;
modification of the drug during testing; and
reallocation of our financial and other resources to other clinical programs.
It is possible that none of the product candidates that we develop will obtain the appropriate regulatory approvals necessary for us to begin selling them or that any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. The time required to obtain FDA and other approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenue from the particular drug candidate.
In addition, the length of time to develop the product candidates as well as any regulatory delays in the development and regulatory approval process could cause the patent exclusivity to be unavailable or greatly reduced for each product candidate. The lack of patent exclusivity could have a material adverse effect on our ability to generate revenue from the particular drug candidate.

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We are also subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not assure approval by regulatory authorities outside of the U.S.
We are dependent upon contract manufacturers for clinical supplies of our product candidates, including our sole source of supply of a key component of our Phase 3 PRESENT study of NeuVax.
We do not have the facilities or expertise to manufacture supplies of any of our product candidates for clinical trials. Accordingly, we are dependent upon contract manufacturers for these supplies. There can be no assurance that we will be able to secure needed supply arrangements on reasonable terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to complete the development of our product candidates or, if we obtain regulatory approval for our product candidates, to commercialize them.
Our current plans call for the manufacture of our products by contract manufacturers offering research grade, Good Laboratory Practices grade and Good Manufacturing Practices grade materials for preclinical studies (e.g., toxicology studies) and for clinical use. Certain of our product candidates are complex molecules requiring many synthesis steps, which may lead to challenges with purification and scale-up. These challenges could result in increased costs and delays in manufacturing.
NeuVax is administered in combination with Leukine, “GM-CSF” is available in both liquid and lyophilized forms exclusively from Genzyme Corporation, or “Genzyme,” a subsidiary of Sanofi-Aventis. We will continue to be dependent on Genzyme for the manufacture of Leukine in connection with the ongoing NeuVax and GALE-301/GALE-302 trials and the potential commercialization activities of these products. Any temporary interruptions or discontinuation of the availability of Leukine, or any determination by us to change the GM-CSF used with NeuVax or GALE-301/GALE-302, may have a material adverse effect on our clinical trials and any commercialization of the thsese products.
We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize some or all of our product candidates.
We expect to depend on collaborators, partners, licensees, clinical research organizations and other third parties to support our discovery efforts, to formulate product candidates, to manufacture our product candidates, and to conduct clinical trials for some or all of our product candidates. We cannot guarantee that we will be able to successfully negotiate agreements for or maintain relationships with collaborators, partners, licensees, clinical investigators, vendors and other third parties on favorable terms, if at all. Our ability to successfully negotiate such agreements will depend on, among other things, potential partners’ evaluation of the superiority of our technology over competing technologies and the quality of the preclinical and clinical data that we have generated, and the perceived risks specific to developing our product candidates. If we are unable to obtain or maintain these agreements, we may not be able to clinically develop, formulate, manufacture, obtain regulatory approvals for or commercialize our product candidates. Under certain license agreements that we have already entered into, we have minimum dollar amounts per year that we are obligated to spend on the development of the technology we have licensed from our contract partners and other obligations to maintain certain licenses. If we fail to meet this requirement under any of our licenses that contain such requirements or any other obligations under these licenses, we may be in breach of our obligations under such agreement, which may result in the loss of the technology licensed. We cannot necessarily control the amount or timing of resources that our contract partners will devote to our research and development programs, product candidates or potential product candidates, and we cannot guarantee that these parties will fulfill its obligations to us under these arrangements in a timely fashion. We may not be able to readily terminate any such agreements with contract partners even if such contract partners do not fulfill its obligations to us.
In addition, we may receive notices from third parties from time to time alleging that our technology or product candidates infringe upon the intellectual property rights of those third parties. Any assertion by third parties that our activities or product candidates infringe upon its intellectual property rights may adversely affect our ability to secure strategic partners or licensees for our technology or product candidates or our ability to secure or maintain manufacturers for our compounds.

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We are subject to competition and may not be able to compete successfully.
The biotechnology industry, including the cancer immunotherapy market, is intensely competitive and involves a high degree of risk. Potential competitors in the U.S. and worldwide are numerous and include pharmaceutical and biotechnology companies, educational institutions and research foundations. We compete with many of these companies that have far greater experience, capital resources, research and technical resources, marketing experience, research and development staffs and facilities than us. Some of our competitors may develop and commercialize products that compete directly with those incorporating our technology, and they may introduce products to market earlier than our products or on a more cost effective basis. In addition, our technology may be subject to competition from other technology or methods developed using techniques other than those developed by traditional biotechnology methods. Our competitors compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our technology. We, and our collaborators, may face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price, and patent position including potentially dominant patent positions of others.
For patients with early stage breast cancer, adjuvant therapy is often given to prevent recurrence and increase the chance of long-term disease free survival. Adjuvant therapy for breast cancer can include chemotherapy, hormonal therapy, radiation therapy, or combinations thereof. In addition, the HER2 targeted drug trastuzumab (Herceptin®) may be given to patients with tumors with high expression of HER2 (IHC 3+), in the adjuvant setting which may be useful in treating breast cancer.
There are a number of cancer vaccines in development for breast cancer, including but not limited to Lapuleucel-T (Dendreon), and AE-37 (Antigen Express), and Stimuvax (Merck KgA). While these development candidates are aimed at a number of different targets, and AE-37 has published data in the HER2 breast cancer patient population, there is no guarantee that any of the these compounds will not in the future be indicated for treatment of low to intermediate HER2 breast cancer patients and become directly competitive with NeuVax.
We are dependent on technologies we license, and if we lose the right to license such technologies or we fail to license new technologies in the future, our ability to develop new products would be harmed.
We currently are dependent on licenses from third parties for technologies relating to our product candidates. Our current licenses impose, and any future licenses we enter into are likely to impose, various development, funding, royalty, diligence, sublicensing, insurance and other obligations on us. If our license with respect to any of these technologies is terminated for any reason, the development of the products contemplated by the licenses would be delayed, or suspended altogether, while we seek to license similar technology or develop new non-infringing technology. The costs of obtaining new licenses are high.
Risks associated with operating in foreign countries could materially adversely affect our product development.
We conduct our Phase 3 PRESENT study of NeuVax in countries outside of the U.S. Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in foreign countries include:
differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;
unexpected changes in tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other obligations related to doing business or operating in another country;
workforce uncertainty in countries where labor unrest is more common than in the U.S.;


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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism.
In addition, there may be political instability, including war, terrorism, riots, civil insurrection or social unrest, and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease, which could seriously harm the progress of our clinical trials at sites in particular foreign countries or regions. For example, approximately 39 percent of our Phase 3 PRESENT trial sites and approximately 44% of patients who have been randomized in the trial are in Russia and The Ukraine. The occupation of certain portions of Ukrainian territory by Russian-backed separatists and ongoing political and civil unrest there could disrupt activities at these trial sites. It is also possible that Russia could retaliate against the imposition of sanctions by the U.S. and the European Union by banning or restricting business activities in Russia by U.S. companies, including the conduct of clinical trials, which could have a material, adverse effect on patient enrollment or ongoing activities at our Phase 3 PRESENT sites in Russia.
Risks Relating to Our Financial Position and Capital Requirements
We may not be able to obtain sufficient financing, and may not be able to develop our product candidates.
We had cash and cash equivalents of approximately $29.7 million as of December 31, 2015. We believe that our existing cash and cash equivalents together with the net proceeds from the January 2016 underwritten public offering and use of an amended purchase agreement with LPC and the ATM facilities should be sufficient to fund our operations for at least one year. This projection is based on our current planned operations, anticipated payments for defense costs and settlements or judgments from the securities and derivative actions and opt-out cases, as well as the SEC investigation and other governmental investigations. This projection is subject to change based on potential changes in our plans and uncertainties inherent in our business, and we may need to seek to replenish our existing cash and cash equivalents sooner than we project. We also have funding available under our purchase agreement with LPC (subject to the lock-up restrictions described below as well as certain terms and conditions which may need to be amended) and ATM facilities with MLV & Co. and Maxim Group LLC, but there is no guarantee that such funding will be available to us on favorable terms or will be sufficient to meet all of our future funding needs. In connection with our January offering, we have agreed that, without the prior written consent of Raymond James & Associates, Inc., for a period of 120 days following the date of the prospectus supplement for the January offering, we will not sell any shares of common stock pursuant to our purchase agreement with LPC. If we fail to obtain additional future funding when needed, we could be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company.
We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability, and may lead to uncertainty about our ability to continue as a going concern.
Substantial funds were expended to develop our technologies and product candidates, and additional substantial funds will be required for further preclinical testing and clinical trials of our product candidates, and to manufacture and market any products that are approved for commercial sale. Because the successful development of our products is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to generate enough revenue, even if we are able to commercialize any of our product candidates, to become profitable.
In the event that we are unable to achieve or sustain profitability or to secure additional financing, we may not be able to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to continue as a going concern may result in our common stock holders losing their entire investment. There is no guaranty that we will become profitable or secure additional financing. Our financial statements contemplate that we will continue as a going concern and do not contain any adjustments that might result if we were unable to continue as a going concern. Changes in our operating plans, our existing and anticipated working capital needs, the acceleration or modification of our expansion plans, increased expenses, potential acquisitions or other events will all affect our ability to continue as a going concern. Future financing may be obtained through, and future development efforts may be paid for by, the issuance of debt or equity, which may have an adverse effect on our security holders or may otherwise adversely affect our business.

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If we raise funds through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences and privileges senior to those of holders of our common stock in the event of a liquidation. In such event, there is a possibility that once all senior claims are settled, there may be no assets remaining to pay out to the holders of common stock. In addition, if we raise funds through the issuance of additional equity, whether through private placements or additional public offerings, such an issuance would dilute your ownership in us.
The terms of debt securities may also impose restrictions on our operations, which may include limiting our ability to incur additional indebtedness, to pay dividends on or repurchase our capital stock, or to make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our control.
You may have difficulty evaluating our business, and our historical financial information may not be representative of our future results.
We recently sold our Abstral and Zuplenz products and related assets and discontinued our commercial operations as of December 31, 2015 in order to focus our resources on our pipeline of product development candidates. As a result, we will have no recurring revenues unless and until we are able to obtain marketing approval of NeuVax or one or more of our other product candidates and our historical financial information may not be representative of our future results.
We may be unable to comply with our reporting and other requirements under federal securities laws.
As a publicly traded company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act.” In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. The Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls and procedures for financial reporting. From time to time we evaluate our existing internal controls in light of the standards adopted by the Public Company Accounting Oversight Board. It is possible that we or our independent registered public accounting firm may identify significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and maintaining these controls could cause us to fail to meet the periodic reporting obligations or result in material misstatements in our financial statements.
Section 404 of the Sarbanes-Oxley Act requires annual management and independent auditor assessments of the effectiveness of our internal control over financial reporting. Our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could have a material adverse effect on our business and our common stock.

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Risks Related to Our Intellectual Property
We may not be able to obtain and enforce patent rights or other intellectual property rights that cover our product candidates and that are of sufficient breadth to prevent third parties from competing against us.
Our success with respect to our product candidates will depend in part on our ability to obtain and maintain patent protection in the U.S. and abroad, to preserve our trade secrets, and to prevent third parties from infringing upon our proprietary rights. Our patents and patent applications, however, may not be sufficient to provide protection for NeuVax or our other products and product candidates against commercial competition.
The active peptide found in NeuVax, the E75 peptide, has been known and studied for many years. We have one issued U.S. patent, US 6,514,942, covering the composition of matter of the E75 peptide, which expired in mid-2015, prior to any potential commercialization of NeuVax. We do not have and will not be able to obtain any composition of matter patent protection for E75, the active peptide in NeuVax. We also have a license from The Henry M. Jackson Foundation to an issued U.S. European, Japanese and Australian method of use patents, which expire in 2028, that are directed to a method of inducing immunity against breast cancer recurrence by administering a composition comprising the E75 peptide to patients who have both an immunohistochemistry (IHC) rating of 1+ or 2+ for HER2/neu protein expression and a fluorescence in situ hybridization (FISH) rating of less than about 2.0 for HER2/neu gene expression. The license further includes an issued U.S. method of use patent, and pending applications in a number of foreign jurisdictions, which expires in 2028, that are directed to a method of inducing immunity against recurrence of any HER2/neu expressing tumors by administering the E75 peptide to patients with tumors having a FISH rating of less than about 2.0 for HER2/neu gene expression. Also included in the license is a method of use patent, which expires in 2026, that is directed to the use of NeuVax in combination with Herceptin ® to treat any HER2/neu expressing cancer. Thus, our method of use patent may not prevent competitors from seeking to develop and market NeuVax for use in cancer patients who do not meet these criteria. If any such alternative uses were approved, this could lead to off-label use and price erosion for our NeuVax product. We may seek FDA approval for use of NeuVax to treat cancer patients who fall outside the claimed IHC and FISH ranges and for other cancers as well. Although we are pursuing additional patent protection for NeuVax through pending patent applications, we may not be able to obtain additional patent protection that would provide us with a significant commercial advantage.
The active peptides found in GALE-301 and GALE-302 are derived from Folate Binding Protein. One of the active peptides, E39, has been known and studied for many years. The other active peptide, GALE-302, is a derivative of E39. We have a license from The Henry M. Jackson Foundation to issued and granted patents in the U.S., Europe, Canada, and Japan, covering composition of matter for the E39 derivative peptides, including GALE-302, alone and in combination with E39, as well as the use of these compositions for the treatment of cancer. These patents are expected to expire in 2022, prior to any potential commercialization of GALE-301. We do not have and will not be able to obtain any composition of matter patent protection for the E39 peptide in any territory and our patents may not prevent competitors from seeking to develop and market the E39 peptide alone. The license we have from The Henry M. Jackson Foundation grants us the right to develop and market GALE-301 for any use, including methods of treating cancer. If any such alternative uses of compositions containing the E39 peptide were approved, this could lead to off-label use and price erosion for GALE-301. We may seek FDA approval for use of GALE-301 alone or in combination with GALE-302, to treat cancer patients with ovarian and endometrial cancers and for other cancers, as well. Although we are pursuing additional patent protection for GALE-301 and the combination of GALE-301 and GALE-302 through pending patent applications, we may not be able to obtain additional patent protection that would provide us with a significant commercial advantage.


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Anagrelide hydrochloride, the sole active pharmaceutical ingredient, or “API,” in GALE-401, has been approved for many years and, thus, it is not possible to obtain composition of matter patents that cover anagrelide hydrochloride. As a result, competitors who obtain the requisite regulatory approval can offer products with the same API as GALE-401, so long as the competitors do not infringe any formulation patents that we may have or may obtain or license, if any. The only patent protection that we have or are likely to obtain covering GALE-401 are patents relating to very specific formulations, methods using these formulations, and methods of manufacturing and packaging. We have an issued U.S. Patent, which expires in 2020, covering methods of anagrelide to reduce platelet count in patients subject to veno-occlusive events. We have granted patents in the U.S., United Kingdom and Japan, which expire in 2029, covering controlled release formulations of anagrelide and methods of use. We are also prosecuting pending patent applications in other territories including but not limited to the U.S. Europe, and Japan, which may not issue prior to any potential commercialization of GALE-401. We may seek FDA approval for use of GALE-401 to treat patients with myeloproliferative neoplasms that include several hematological disorders. Although we are pursuing additional patent protection for GALE-401 through pending patent applications, we may not be able to obtain additional patent protection that would provide us with a significant commercial advantage.
Our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any patents we have or may obtain or license may not provide us with sufficient protection for our commercial product and product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies selling branded or generic products. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Nor can we guarantee that the claims of these patents will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
Changes in either the patent laws or in the interpretations of patent laws in the U.S. or abroad may diminish the value of our intellectual property. In addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to the U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many substantive changes to patent law associated with the Leahy-Smith Act have not yet become effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act, in particular the first-to-file provision and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement of or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
While we intend to take actions reasonably necessary to enforce our patent rights, we may not be able to detect infringement of our own or in-licensed patents, which may be especially difficult for methods of manufacturing or formulation products, and we depend, in part, on our licensors and collaborators to protect a substantial portion of our proprietary rights. In addition, third parties may challenge our in-licensed patents and any of our own patents that we may obtain, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. Litigation or other proceedings to enforce or defend intellectual property rights is very complex, expensive, and may divert our management’s attention from our core business and may result in unfavorable results that could adversely affect our ability to prevent third parties from competing with us.
If another party has reason to assert a substantial new question of patentability against any of our claims in our own and in-licensed patents, the third party can request that the patent claims be reexamined, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential infringement suits and, interference and reexamination proceedings, we may become a party to patent opposition proceedings where either the patentability of the inventions subject of our patents are challenged, or we are challenging the patents of others. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful.

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As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert our commercial product and/or product candidates infringe their patent rights. If a third-party’s patents were found to cover our commercial product and product candidates, proprietary technologies or its uses, we or our collaborators could be enjoined by a court and required to pay damages and could be unable to continue to commercialize our products or use our proprietary technologies unless we or it obtained a license to the patent. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief, which could prohibit us from making, using or selling our commercial product and product candidates pending a trial on the merits, which could be years away.
Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how, by entering into confidentiality agreements with third parties, and proprietary information and invention agreements with certain employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their other clients or former employers. As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our commercial product and product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these types of claims. Even if we are successful in defending against any such claims, any such litigation would likely be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.
Our product candidates may face competition sooner than expected after the expiration of our composition of matter patent protection for such products.
Our composition of matter patents for many of our product candidates have expired or will expire prior to any product approval. We intend to seek data exclusivity or market exclusivity for our NeuVax, GALE-301 and GALE-302 product candidates provided under the Federal Food, Drug and Cosmetic Act, or FDCA, and similar laws in other countries. We believe that these product candidates will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the Affordable Care Act or ACA) enacted in March 2010. Under the BPCIA, an application for a biosimilar product or biologics license application (BLA) cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented by the FDA. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological product candidates. There is also a risk that the U.S. Congress could amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

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If our product candidates are not considered biologics that would qualify for exclusivity under the BPCIA, they may be eligible for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of a new drug application (NDA) for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.
Even if, as we expect, NeuVax, GALE-301 and GALE-302 are considered to be reference products eligible for 12 years of exclusivity under the BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the products.
In some countries outside of the U.S., peptide vaccines, such as NeuVax and GALE-301 and GALE-302, are regulated as chemical drugs rather than as biologics and may or may not be eligible for non-patent exclusivity.
Risks Relating to Ownership of Our Common Stock
The market price and trading volume of our common stock may be volatile.
The market price of our common stock has exhibited substantial volatility recently. Between January 1, 2015 and February 29, 2016, the sale price of our common stock as reported on The NASDAQ Capital Market ranged from a low of $0.59 to a high of $2.39. The market price of our common stock could continue to fluctuate significantly for many reasons, including the following factors:
reports of the results of our clinical trials regarding the safety or efficacy of our product candidates and surrogate markers;
announcements of regulatory developments or technological innovations by us or our competitors;
announcements of business or strategic transactions;
announcements of legal or regulatory actions against us or any adverse outcome of any such actions;
changes in our relationship with our licensors, licensees and other strategic partners;
our quarterly operating results;
developments in patent or other technology ownership rights;
public concern regarding the safety of our product candidates;
additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders;
general changes in the economy, the financial markets or the pharmaceutical or biotechnology industries.
Factors beyond our control may also have an impact on the price of our stock. For example, to the extent that other companies within our industry experience declines in their stock prices, our stock price may decline as well.


31


Because our stock price has remained below $1.00 for more than thirty (30) consecutive trading days, the Company is therefore not in compliance with the requirements for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until August 22, 2016, to regain compliance with this minimum bid price requirement. The Notice has no immediate effect on the Nasdaq listing or trading of the Company’s common stock. The Company can regain compliance with the $1 minimum bid listing requirements of the Nasdaq Capital Market if the closing bid price of the Company’s common stock is $1.00 per share or higher for a minimum of ten consecutive business days during this initial 180-day compliance period. If compliance is not achieved by August 22, 2016, the Company expects that Nasdaq would provide written notification to the Company that its securities are subject to delisting. The Company will continue to monitor the closing bid price for its common stock and consider its available options to regain compliance with the Nasdaq minimum bid requirements, which may include applying for an extension of the compliance period or appealing to a Nasdaq Hearings Panel.

In the event that we fail to regain compliance with Nasdaq continued listing standards by the expiration of the applicable cure period or any extension period, Nasdaq will commence suspension and delisting procedures with respect to our common stock, which could impair the value of your investment. If our common stock is delisted from Nasdaq Capital Market in the future, such securities may be traded over-the-counter on the “pink sheets.” The alternative market, however, is generally considered to be less efficient than, and not as broad as, Nasdaq. Accordingly, delisting of our common stock from Nasdaq could have a significant negative effect on the trading volume, liquidity and market price of our common stock. In addition, the delisting of our common stock could adversely affect our ability to raise capital on terms acceptable to us or at all and could reduce the number of investors willing to hold or acquire our common stock.
We are, and in the future may be, subject to legal or administrative actions that could adversely affect our financial condition and our business.

On February 4, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlement we had reached in In re Galena Biopharma, Inc. Derivative Litigation, Civil Action No. 3:14-cv-00382-SI. The Court has set the final approval hearing for April 21, 2016. We have agreed to resolve and settle In re Galena Biopharma, Inc. Derivative Litigation, Civil Action No. 3:14-cv-00382-SI, currently pending in the United States District Court for the District of Oregon against us and certain of our current and former officers and directors. The settlement will not become effective until approved by the Court. The settlement includes a payment of $15 million in cash by our insurance carriers, which we will use to fund a portion of the class action settlement, and cancellation of 1,200,000 outstanding director stock options. The settlement also will require that we adopt and implement certain corporate governance measures and will provide that the plaintiffs’ counsel may apply to the court for an award of attorneys’ fees and expenses up to $5 million. Any fees and expenses awarded by the court to the plaintiffs’ counsel will be paid by our insurance carriers. The settlement will not include any admission of wrongdoing or liability on the part of us or the individual defendants and will include a full release of us and the individual defendants in connection with the allegations made in the consolidated federal derivative actions and state court derivative actions.
On February16, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlement we had reached in In re Galena Biopharma, Inc. Securities Litigation, Civil Action No. 3:14-cv-00367-SI. The Court has set the final approval hearing for June 23, 2016. We have agreed to resolve and settle In re Galena Biopharma, Inc. Securities Litigation pending against us, certain of our current and former officers and directors and other defendants in the United States District Court for the District of Oregon. The agreement, which is subject to shareholder notice and Court approval, provides for a settlement payment of $20 million to the class and the dismissal of all claims against us and tour current and former officers and directors in connection with the consolidated federal securities class actions. Of the $20 million settlement payment to the class, $16.7 million will be paid by our insurance carriers and $3.3 million will be paid by us through a combination of $2.3 million in cash and $1 million in shares of our common stock. We will be responsible for defense costs and any settlements or judgments incurred for any related opt-out lawsuits.

32


As a result of these settlements, we are responsible without insurance reimbursement for legal fees and costs incurred on our behalf as well as the current and former directors and officers in obtaining the Court’s approval for the settlements. We are also responsible without insurance reimbursement for the legal fees and costs and any settlements and judgments on our behalf as well as the current and former directors and officers of any opt-out securities lawsuits and any other lawsuits raising similar claims. Those legal fees and costs as well as any settlements and judgments may have a material impact upon the use of our cash to fund our development programs and our ongoing operations.

The SEC is investigating certain matters relating to the use of certain outside investor-relations professionals by us and other public companies. We have been in contact with the SEC staff through our counsel and are cooperating with the investigation. We cannot predict with certainty the outcomes of this investigation, but the cost of defending against lawsuits and complying with the government investigation could be substantial and could significantly divert management’s attention and resources. The outcome of this investigation could require us to take, or refrain from taking, actions which could negatively affect our operations, could require us to pay substantial amounts of money and could make it more difficult to obtain capital or access our revolving line of credit. Negative publicity surrounding this government investigation and legal actions also may harm our reputation and the demand for our products. Any one of these results could negatively affect our operations, financial condition and liquidity and impair our ability to grow or sustain our business.
Litigation is inherently uncertain. We have incurred and may continue to incur substantial non-insurance reimbursed legal fees and other expenses in connection with these or other legal and regulatory proceedings that may not qualify for coverage under, or may exceed the limits of, our applicable directors and officers liability insurance policies and could have a material adverse effect on our financial condition, liquidity, and results of operations. These matters also may distract the time and attention of our officers and directors or divert our other resources away from our ongoing commercial and development programs. An unfavorable outcome in any of these matters could damage our business and reputation or result in additional claims or proceedings against us.
The Delaware forum provision of our amended and restated by-laws will not be given effect.
On August 6, 2013, our board of directors purported to adopt an amendment to our Amended and Restated By-Laws to add a new Section 6.15 to provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders. Under the Delaware General Corporation Law, or DGCL, if the board of directors of a Delaware corporation such as our company is intended to have the power to adopt and amend the bylaws, that power must be set forth in the corporation’s certificate of incorporation. Our amended and restated certificate of incorporation does not provide for the power of our board to adopt and amend the bylaws, and we have determined that the Delaware forum bylaw is inconsistent with the DGCL and will not be given effect.
Future sales of substantial amounts of our common stock, or the possibility that such sales could occur, could adversely affect the market price of our common stock.
Future sales in the public market of shares of our common stock, including shares referred to in the foregoing risk factors or shares issued upon exercise of our outstanding stock options, or the perception by the market that these sales could occur, could lower the market price of our common stock or make it difficult for us to raise additional capital.
As of December 31, 2015, we had reserved for issuance 13,261,950 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $2.58 per share and 22,308,475 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted-average exercise price of $2.10 per share. Upon exercise of these options and warrants, the underlying shares may be resold into the public market. In the case of outstanding options and warrants that have exercise prices that are below the market price of our common stock from time to time, our stockholders would experience dilution upon the exercise of these options.

33


Our outstanding warrants may result in dilution to our stockholders.
Our outstanding March 2011 and April 2011 warrants to purchase a total of 791,398 shares of common stock as of December 31, 2015 at a current exercise price of $0.65 per share contain so-called full-ratchet anti-dilution provisions. Our outstanding March 2010 and December 2012 warrants to purchase 25,000 shares and 3,031,311 shares, respectively, of common stock as of December 31, 2015 at exercise prices of $2.02 and $1.83, respectively, per share contain so-called weighted-average anti-dilution provisions. These anti-dilution provisions may be triggered by the issuance of the shares being offered hereby or upon any future issuance by us of shares of our common stock or common stock equivalents at a price per share below the then-exercise price of the warrants, subject to some exceptions.
To the extent that these anti-dilution provisions are triggered in the future, we would be required to reduce the exercise price of all of the warrants on either a full-ratchet or weighted-average basis, which would have a dilutive effect on our stockholders.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.
We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect stockholder rights or reduce the market value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party.
Anti-takeover provisions of our amended and restated certificate of incorporation and amended and restated bylaws and provisions of Delaware law could delay or prevent a change of control that our stockholders may favor.
Anti-takeover provisions of our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger or other change of control that stockholders may consider favorable or may impede the ability of the holders of our common stock to change our management. These provisions of our amended and restated certificate of incorporation and amended and restated bylaws, among other things:
divide our board of directors into three classes, with members of each class to be elected for staggered three-year terms;
limit the right of security holders to remove directors;
prohibit stockholders from acting by written consent;
regulate how stockholders may present proposals or nominate directors for election at annual meetings of stockholders; and
authorize our board of directors to issue preferred stock in one or more series, without stockholder approval.
In addition, Section 203 of the Delaware General Corporation Law provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation such as our company shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares for a three-year period following the date on which that person or its affiliate crosses the 15% stock ownership threshold. Section 203 could operate to delay or prevent a change of control of our company.
We have never declared or paid cash dividends on our capital stock and we do not anticipate paying cash dividends in the foreseeable future.
Our business requires significant funding. We currently plan to invest all available funds and future earnings in the development and growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future, and are prohibited by the terms of our outstanding indebtedness from paying dividends on any common stock, except with the prior consent of our lenders. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of potential gain for the foreseeable future.

34


ITEM 1B. UNRESOLVED STAFF COMMENTS

We have received no unresolved written comments from the staff of the SEC regarding our periodic or current reports.

ITEM 2. PROPERTIES

On July 10, 2015, we entered into a lease with Legacy III SR Crow Canyon, LLC for our facility located at 2000 Crow Canyon Place, Suite 380, San Ramon, CA 94583. The facility is approximately 8,100 square feet and is used for our general and administrative offices. The monthly rent is approximately $20,000.

In the fourth quarter of 2015 we relocated three of our employees from our former headquarters in Portland, OR to the San Francisco Bay Area, CA. We are in the process of sub-leasing or terminating the lease at the facility located at 4640 SW Macadam Ave., Suite 270, Portland, OR 97239. The monthly rent is approximately $6,500.


35


ITEM 3. LEGAL PROCEEDINGS

In early 2014, several purported shareholder derivative complaints were filed against our company, as nominal defendant, and certain of our officers and directors in the Circuit Court of Oregon for the County of Multnomah, the U.S. District Court for the District of Oregon, and the Delaware Court of Chancery. On April 11, 2014, the derivative complaints pending in the U.S. District Court for the District of Oregon were consolidated in the matter of In Re Galena Biopharma, Inc. Derivative Litigation, No. 3:14-cv-382-SI (D. Or.), and on August 25, 2014, the lead plaintiffs filed a consolidated amended complaint. On July 21, 2014, all of the derivative complaints pending in the Delaware Court of Chancery were consolidated in the matter of In re Galena Biopharma, Inc. Stockholder Derivative Litigation, Consolidated C.A. No. 9715-VCN (Del. Ch.). On February 10, 2015, the lead plaintiffs in the derivative complaints pending in the Delaware Court of Chancery voluntarily dismissed their action without prejudice. As a result of this dismissal, and at the recommendation of the special litigation committee of the board established on July 21, 2014 to investigate the derivative claims, on February 26, 2015 our board of directors disbanded the special litigation committee.

The operative complaints allege, among other things, breaches of fiduciary duties and abuse of control by the officers and directors in connection with public statements purportedly issued by us or on our behalf and sales of our common stock by our officers and directors in January and February of 2014, improper stock-option grants, and excessive compensation of our non-employee directors.

On December 3, 2015, we agreed in principle to resolve and settle the consolidated shareholder derivative action, In re Galena Biopharma, Inc. Derivative Litigation, Civil Action No. 3:14-cv-00382-SI, currently pending in the United States District Court for the District of Oregon against us and certain of our current and former officers and directors. The settlement will not become effective until approved by that Court. The settlement includes a payment of $15 million in cash by our insurance carriers, which we will use to fund a portion of the class action settlement, and cancellation of 1,200,000 outstanding director stock options. The settlement also will require that we adopt and implement certain corporate governance measures and will provide that the plaintiffs’ counsel may apply to the court for an award of attorneys’ fees and expenses up to $5 million. Any fees and expenses awarded by the court to the plaintiffs’ counsel will be paid by our insurance carriers. The settlement will not include any admission of wrongdoing or liability on the part of us or the individual defendants and will include a full release of us and the individual defendants in connection with the allegations made in the consolidated federal derivative actions and state court derivative actions. On February 4, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlement and set the final approval hearing for April 21, 2016.

Also, five purported securities class action complaints filed in the U.S. District Court for the District of Oregon have been consolidated into a single action, In re Galena Biopharma, Inc. Securities Litigation, No. 3:14-cv-367-SI (D. Or.), and a lead plaintiff has been appointed. On October 31, 2014, the lead plaintiff filed a consolidated amended complaint, which alleges, among other things, that our company and certain of our officers and directors violated the federal securities laws by making materially false and misleading statements and omissions in press releases and in filings with the SEC arising out of the same circumstances that are the subject of the derivative actions described above, and which alleges that certain of our officers and directors sold company stock while in possession of material non-public information.

On December 3, 2015, we also agreed in principal to resolve and settle the securities putative class action lawsuit, In re Galena Biopharma, Inc. Securities Litigation, Civil Action No. 3:14-cv-00367-SI, pending against us, certain of our current and former officers and directors and other defendants in the United States District Court for the District of Oregon. The agreement, which is subject to shareholder notice and Court approval, provides for a settlement payment of $20 million to the class and the dismissal of all claims against us and the other defendants in connection with the consolidated federal securities class actions. Of the $20 million settlement payment to the class, $16.7 million will be paid by our insurance carriers and $3.3 million will be paid by us through a combination of $2.3 million in cash and $1 million in shares of our common stock. In addition to the $3.3 million payable accrued as of December 31, 2015 the company paid $2.0 million in December 2015 in attorney fees outstanding as a condition of the settlement. We will be responsible for defense costs and any settlements or judgments incurred for any related opt-out lawsuits. On February 16, 2016, the United States District Court for the District of Oregon granted preliminary approval of the settlement and set the final approval hearing for June 23, 2016.


36


On or about September 15, 2015, a federal securities lawsuit was filed in the U.S. District Court for the District of Oregon entitled, Riley v. Galena Biopharma, Inc., et al. On February 8, 2016, we answered the complaint. The parties will engage in both written and oral discovery in the near future.

On January 9, 2016, the former owners of Mills Pharmaceuticals, LLC ("Mills"), which the Company acquired through a Unit Purchase Agreement dated January 12, 2014 (the "Purchase Agreement") noticed the Company and its former Chief Executive Officer, Mark J. Ahn, of breaches of the Purchase Agreement and the representations and warranties contained therein as well as certain violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, and violations of Section 20(a) of the Securities Exchange Act. They have provided the Company and Dr. Ahn with a copy of a draft complaint. The former owners and the Company have entered into a tolling agreement to engage in discussions to attempt to resolve this matter.

On October 23, 2015, Orexo AB (“Orexo”) and Galena Biopharma, Inc. (the “Company”) entered into a settlement and license agreement with Actavis Laboratories FL, Inc. (“Actavis”) to resolve pending patent litigation brought by the Orexo against Actavis involving Abstral® (fentanyl) sublingual tablets. The pending patent litigation was filed by Orexo in the U.S. District Court for the District of New Jersey in response to Actavis’ submission of an Abbreviated New Drug Application (“ANDA”) to the U.S. Food and Drug Administration (“FDA”), seeking marketing approval for a generic version of Abstral. As a result of the settlement and license agreement, Actavis will be permitted to enter the market with a generic or authorized generic version of Abstral in the United States June 2018 or earlier under certain circumstances. The Court has entered an order dismissing with prejudice the litigation against Actavis. Details of the settlement are confidential, and the parties have submitted the agreement to the Federal Trade Commission and the Department of Justice, as required by federal law. The expiration date for the latest expiring Abstral patent listed in the FDA’s Orange Book is September 2019.

The SEC is investigating certain matters relating to the use of certain outside investor-relations professionals by us and other public companies. We have been in contact with the SEC staff through our counsel and are cooperating with the investigation. We cannot predict with certainty the outcomes of this investigation, but the cost of defending against lawsuits and complying with the government investigation could be substantial and could significantly divert management’s attention and resources. The outcome of this investigation could require us to take, or refrain from taking, actions which could negatively affect our operations, could require us to pay substantial amounts of money and could make it more difficult to obtain capital or access our revolving line of credit. Negative publicity surrounding this government investigation and legal actions also may harm our reputation and the demand for our products. Any one of these results could negatively affect our operations, financial condition and liquidity and impair our ability to grow or sustain our business.
On December 16, 2015, we received a subpoena issued by the U.S. Attorney’s Office in District of New Jersey requesting the production of a broad range of documents pertaining to our marketing and promotional practices for Abstral. We have been in contact with the U.S. Attorney’s Office for the District of New Jersey and are cooperating in the production of the requested documents. We are unable to predict whether we could become subject to legal or administrative actions as a result of these matters, or the impact of such matters. If we are found to be in violation of the False Claims Act, Anti-Kickback Statute, Patient Protection and Affordable Care Act, or any other applicable state or and/or federal fraud and abuse laws, we may be subject to penalties, such as civil and criminal penalties, damages, fines, or an administrative action of exclusion from government health care reimbursement programs. We can make no assurances as to the time or resources that will need to be devoted to these matters or their outcome, or the impact, if any, that these matters or any resulting legal or administrative proceedings may have on our business or financial condition.

ITEM 4. Mine Safety Disclosures

Not applicable.


37


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information
Our common stock is listed on The NASDAQ Capital Market under the symbol “GALE ” The following table shows the high and low per-share sale prices of our common stock for the periods indicated:
 
 
High
 
Low
2014
 
 
 
First Quarter
$
7.77

 
$
2.15

Second Quarter
3.58

 
1.66

Third Quarter
3.36

 
2.00

Fourth Quarter
2.26

 
1.48

2015
 
 
 
First Quarter
$
2.12

 
$
1.33

Second Quarter
2.39

 
1.27

Third Quarter
1.92

 
1.10

Fourth Quarter
1.83

 
1.37

Holders
As of February 29, 2016, there were approximately 545 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these holders of record.
Dividends
We have never paid any cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, for use in our development activities and the operation of our business. The payment of any future dividends will be subject to the discretion of our board of directors and will depend, among other things, upon our results of operations, financial condition, cash requirements, prospects and other factors that our board of directors may deem relevant. Additionally, our ability to pay future dividends may be restricted by the terms of any debt financing.


38


Equity Compensation Plan

The following table sets forth certain information as of December 31, 2015, regarding securities authorized for issuance under our equity compensation plans:
 
 
(a)
 
(b)
 
Number of
Securities
Remaining
Available for
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a))
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
 
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
 
Equity compensation plans approved by our security holders:
 
 
 
 
 
Amended and Restated 2007 Incentive Plan
13,261,950

 
$
2.58

 
8,177,252

Equity compensation plans not approved by our security holders:
 
 
 
 
 
Employee Stock Purchase Plan
NA

 
NA

 
528,131

Outstanding warrants (1)
482,186

 
$
3.40

 

Total
13,744,136

 
$
2.61

 
8,705,383

 
(1) 
The warrants shown were issued in discrete transactions from time to time as compensation for services rendered by consultants, advisers or other third parties, and do not include warrants sold in private placement or public offering transactions. The material terms of such warrants were determined based upon arm’s-length negotiations with the services providers. The warrant exercise prices approximated the market price of our common stock at or about the date of grant, and the warrant terms range from three to ten years from the grant date.


39


Performance Graph

The following graph shows the value of an investment of $100 on December 31, 2010 in each of Galena Biopharma, Inc. common stock, the NASDAQ Composite Index, the NASDAQ Biotechnology Index, and Standard & Poor's Index (S&P 500). All values assume reinvestment of pretax value of dividends and are calculated as of December 31 of each year. The historical stock price performance of our common stock shown in the performance graph is not necessarily indicative of future stock performance.

COMPARISON OF FIVE YEAR CUMULATIVE RETURNS
 
As of December 31,
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
Galena Biopharma, Inc.(1)
$
100.00

 
$
18.22

 
$
59.30

 
$
192.25

 
$
58.53

 
$
56.98

S&P 500
100.00

 
102.09

 
118.31

 
156.21

 
177.32

 
179.76

NASDAQ Composite
100.00

 
99.23

 
116.80

 
163.38

 
187.42

 
200.70

NASDAQ Biotechnology
100.00

 
112.06

 
148.73

 
146.78

 
331.57

 
370.60

(1) The cumulative return depicted above for Galena Biopharma, Inc. does not include the value of our former subsidiary, RXi Pharmaceuticals Corporation ("RXi"), which we spun off to our stockholders in April 2012. See Note 3 of the notes to the consolidated financial statements for additional information about the spin-off.

40


Recent Sales of Unregistered Securities
During the period covered by this annual report, there were no sales by us of unregistered securities that were not previously reported by us in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.


41


ITEM 6. SELECTED FINANCIAL DATA
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development (1)
$
23,611

 
$
27,674

 
$
20,424

 
$
14,614

 
$
3,851

General, and administrative (1)
10,609

 
16,226

 
8,065

 
6,585

 
8,635

Non-operating income (loss) (1)
(4,371
)
 
15,616

 
(41,786
)
 
(13,178
)
 
9,079

Loss from continuing operations (1)
(38,956
)
 
(28,284
)
 
(71,327
)
 
(33,325
)
 
(3,407
)
Loss from continuing operations per share, basic and diluted (1)
$
(0.25
)
 
$
(0.24
)
 
$
(0.79
)
 
$
(0.53
)
 
$
(0.09
)
 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Total assets (1)
$
82,144

 
$
80,488

 
$
87,976

 
$
54,986

 
$
30,968

Total debt (1)
4,739

 
8,402

 
9,892

 

 

Other long-term obligations (1)
11,560

 
11,704

 
11,874

 
11,311

 
9,654

Total stockholders' equity (1)
13,513

 
37,059

 
5,886

 
27,756

 
10,112


(1) See Note 3 of the notes to the consolidated financial statements for discussion of our spin-off of RXi activities being classified as discontinued operations in the consolidated statements of expenses for 2012 and 2011. The net assets of RXi were removed from the consolidated balances sheet as of the date of the spin-off and were recorded as an equity distribution. The selected financial data referenced for the years ended December 31, 2012 and 2011 are exclusive of RXi activities.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, and the consolidated financial statements and accompanying notes and previously filed Annual Reports on Form 10-K for further information regarding our consolidated results and financial position for periods reported herein and for known factors that will impact comparability of future results.


42


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this annual report. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of indicators of forward-looking statements and specific important factors that could cause actual results to differ materially from those contained in forward-looking statements, see “Risk Factors” under Part I — Item 1A of this annual report. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section should be read and interpreted in light of such factors. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this annual report.
You may have difficulty evaluating our business, because we completed a partial spin off of RXi on April 26, 2012. Since the partial spin-off, our financial statements have no longer reflected the consolidated financial condition and results of operations of RXi, and we have accounted for our partial ownership of RXi based on the cost method of accounting. In addition, during the quarter ended September 30, 2015 the company completed a strategic review of the company's commercial business including the ongoing sale, distribution and marketing of our two commercial products, Abstral® (fentanyl) Sublingual Tablets and Zuplenz® (ondansetron) Oral Soluble Film (our “commercial business” asset group). As a result of the review, we made a determination to sell or otherwise dispose of our commercial business, which was completed during the quarter ended December 31, 2015. These actions caused the company to meet the relevant criteria for reporting the company's commercial business as held for sale and in discontinued operations. For these reasons, the historical consolidated financial information included in this annual report does not necessarily reflect the financial condition, results of operations or cash flows that we will achieve in the future.


43


Overview

Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “company”) is a biopharmaceutical company committed to the development and commercialization of targeted oncology therapeutics that address major unmet medical needs. Galena’s development portfolio is focused primarily on addressing the rapidly growing patient populations of cancer survivors by harnessing the power of the immune system to prevent cancer recurrence. The Company’s pipeline consists of multiple mid- to late-stage clinical assets, including novel cancer immunotherapy programs led by NeuVax™ (nelipepimut-S), GALE-301 and GALE-302. NeuVax is currently in a pivotal, Phase 3 breast cancer clinical trial with several concurrent Phase 2 trials ongoing both as a single agent and in combination with other therapies. GALE-301 is in a Phase 2a clinical trial in ovarian and endometrial cancers and in a Phase 1b clinical trial given sequentially with GALE-302.

We are seeking to build value for shareholders through pursuit of the following objectives:
Develop novel cancer immunotherapies to address unmet medical needs through the use of peptide-based vaccines targeting well-established tumor antigens. One of our key strategies is to target the adjuvant setting in patients with higher risk of recurrence, who had their primary treatment for cancer and have no evidence of disease, and are more likely to benefit from treatment via immunotherapy. Our immunotherapy programs are currently targeting two key areas: secondary prevention intended to significantly decrease the risk of disease recurrence in breast, gastric, and ovarian cancers; and primary prevention intended to cease or delay ductal carcinoma in situ (DCIS) from becoming invasive breast cancer.
Expand our development pipeline by enhancing the clinical and geographic footprint of our technologies. We intend to accomplish this through the initiation of new clinical trials and potentially through acquisition of additional oncology programs.
Leverage partnerships and collaborations, as well as investigator-sponsored trial arrangements, to maximize the scope of potential clinical opportunities in a cost effective and efficient manner.
Focus our resources on our valuable and expanding clinical development programs. On November 19, 2015 we sold our Abstral® (fentanyl) Sublingual Tablets product and related assets and on December 24, 2015 we sold Zuplenz (ondansetron) Oral Soluble Film product and related assets, and as of December 31, 2015, we ceased our commercial operations.



44


Critical Accounting Policies and Estimates

Use of Estimates

The preparation of our financial statements requires management to make estimates, allocations and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of goodwill and long-lived assets, accrued liabilities, net revenue, and certain expenses. Our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources are based on historical experience and on other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. Additionally, the financial information included here may not necessarily reflect the financial position, operating results, changes in our invested equity and cash flows in the future.

Our significant accounting policies are summarized in the notes to our consolidated financial statements. We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements.

Research and Development Expenses

Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead related to our research and development departments, and clinical trial expenses.

Clinical trial expenses include direct costs associated with contract research organizations ("CROs"), as well as patient-related costs at sites at which our trials are being conducted.

Direct costs associated with our CROs are generally payable on a time and materials basis, or when certain enrollment and monitoring milestones are achieved. Expense related to a milestone is recognized in the period in which the milestone is achieved or in which we determine that it is more likely than not that it will be achieved.

The invoicing from clinical trial sites can lag several months. We accrue these site costs based on our estimate of upfront set-up costs upon the screening of the first patient at each site, and the patient related costs based on our knowledge of patient enrollment status at each site.

Stock-Based Compensation

We follow the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

For stock options granted as consideration for services rendered by non-employees, we recognize compensation expense in accordance with the requirements of FASB ASC Topic 505-50 (“ASC 505-50”), “Equity Based Payments to Non—Employees.” Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of our common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.

The fair value of each option grant is estimated using the Black-Scholes option-pricing model, with the following weighted average assumptions to determine the fair value of all its stock options granted:
 

45


 
 
2015
 
2014
Risk free interest rate
 
1.67
%
 
2.01
%
Volatility
 
73.97
%
 
79.37
%
Expected lives (years)
 
6.16

 
6.16

Expected dividend yield
 
0.00
%
 
0.00
%

The Company’s expected common stock price volatility assumption are based upon the volatility of a basket of companies that we consider comparable to us. The expected life assumptions for employee grants were based upon the simplified method provided for under ASC 718-10, which averages the contractual term of the options of ten years with the average vesting term of four years for an average of six years. The expected life assumptions for non-employees were based upon the contractual terms of the options. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates.

The Company has an estimated annualized forfeiture rate of 15.0% for options granted to employees, and 8.0% for options granted to senior management and no forfeiture rate for directors. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.

Derivative Financial Instruments

During the normal course of business, from time to time, we issue warrants and options to vendors as consideration to perform services. We may also issue warrants as part of a debt or equity financing. We do not enter into any derivative contracts for speculative purposes.

We recognize all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. During the year ended December 31, 2015, we issued warrants to purchase approximately 14,000,000 shares of common stock, in connection with equity transactions. There were no warrants issued during the year ended December 31, 2014 in connection with equity transactions. In accordance with ASC Topic 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Stock” (“ASC 815-40”), the value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to us in certain events, as defined, and the warrants are determined not to be indexed to the company’s own stock.

The derivative liabilities are remeasured each period end to the estimated fair value. The fair value of our derivative liabilities is estimated using the appropriate pricing model, with the following assumptions used for the initial measurement of warrants granted:
 
 
 
2015
 
2014
Risk free interest rate
 
1.41%
 
NA
Volatility
 
73.41%
 
NA
Expected lives (years)
 
5
 
NA
Expected dividend yield
 
0.00%
 
NA

The Company’s expected common stock price volatility assumption is based upon the volatility of a basket of companies that we consider comparable to us. The expected life assumptions for the warrants is estimated to coincide with the contractual terms of the warrants.


46


Business Combinations and Asset Purchases

We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Some of the items, including property and equipment, other intangible assets, certain accrued liabilities and other reserves require a degree of management judgment. Certain estimates may change as additional information becomes available. Management finalizes the purchase price allocation within 12 months of the acquisition date as certain initial accounting estimates are resolved.

Goodwill, Other Intangible Assets and Impairment of Long-Lived Assets

Goodwill and Intangible Assets — Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level, or more frequently if events and circumstances indicate impairment may have occurred. Factors the company considers important that could trigger an interim review for impairment include, but are not limited to, the following:
significant changes in the manner of its use of acquired assets or the strategy for its overall business;
significant negative industry or economic trends;
significant decline in stock price for a sustained period; and
significant decline in market capitalization relative to net book value.

Goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment. If it is determined that impairment is more likely than not, the company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.

Intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The Company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

The Company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of December 31, 2015.

Acquisitions and In-Licensing — For all in-licensed products and technologies, we perform an analysis to determine whether we hold a variable interest or a controlling financial interest in a variable interest entity. On the basis of our interpretations and conclusions, we determine whether the acquisition falls under the purview of variable interest entity accounting and if so, consider the necessity to consolidate the acquisition. As of December 31, 2015, we determined there were no variable interest entities required to be consolidated.

The acquisition of the Abstral U.S. rights has been accounted for as an asset acquisition and not a business combination. The purchase price, including transaction costs, was recorded as an intangible asset related to the license and distribution rights acquired in the transaction. No other significant assets or liabilities were acquired or assumed in the transaction.

The Company met the relevant criteria for reporting the commercial operations as held for sale as of September 30, 2015, and as a result, assessed the commercial asset group for impairment pursuant to ASC Topic 360, Property, Plant, and Equipment. The net carrying value of the commercial asset group was compared to its fair value as of September 30, 2015. The Company determined that the fair value using a risk adjusted net present value of deal consideration received from bids from potential acquirers. The Company determined that the carrying value

47


exceeded its fair value and as a result recorded an $8.1 million impairment charge on assets classified as held for sale in the quarterly period ended September 30, 2015.

Refer to Note 14 of the notes to the consolidated financial statements for further information regarding the acquisition of Abstral U.S. rights and Note 19 as to our reporting the commercial operations as held for sale and in discontinued operations.

Valuation of Contingent Purchase Price Consideration

Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company (earn-out). Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, are reflected in income or expense in the consolidated statements of comprehensive loss. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.

Legal Fees and Insurance Recoveries

There can be a significant time lag between the time that legal fees are incurred and the insurance reimbursement available to offset the related costs. The legal costs are recorded in the period they are incurred, and the insurance recoveries for those costs are recorded in the period when the insurance reimbursement is deemed probable.

Discontinued Operations

We met the relevant criteria for reporting our commercial business as held for sale and in discontinued operations in the accompanying financial statements as of December 31, 2015 and 2014 and for the three years ended December 31, 2015, pursuant to FASB ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, and FASB ASC Topic 360, Property, Plant, and Equipment.



48


Results of Operations for the Years Ended December 31, 2015, 2014 and 2013

For the year ended December 31, 2015, our net loss was $63.9 million compared with net losses of $36.6 million and $76.7 million for the years ended December 31, 2014 and 2013, respectively. Loss from continuing operations for the year ended December 31, 2015, was $39.0 million compared with losses from continuing operations of $28.3 million and $71.3 million for the years ended December 31, 2014 and 2013, respectively.

During the third quarter of 2015, the Company completed its strategic review and concluded to solely focus its resources on its clinical development pipeline and our management and board of directors committed to pursue a plan to sell or otherwise divest the Company’s commercial business. These actions caused the company to meet the relevant criteria for reporting the Company’s commercial business as held for sale and in discontinued operations. Discontinued operations for the years ended December 31, 2015, 2014 and 2013 is comprised of the revenue, expenses, gains and losses of our commercial business. Our loss from discontinued operations for the year ended December 31, 2015 was $24.9 million compared with losses from discontinued operations of $8.3 million and $5.4 million for the years ended December 31, 2014 and 2013, respectively. The loss from discontinued operations for the year ended December 31, 2015 includes an $8.1 million impairment charge recognized in the third quarter of 2015 and $4.5 million in the loss on the sale of the commercial assets.

Further analysis of the changes and trends in our operating results are discussed below.

Research and Development Expense

Research and development expense consists primarily of clinical trial expenses and compensation-related costs for our employees dedicated to research and development activities, compensation paid to our Scientific Advisory Board (“SAB”) members, and licensing fees and patent prosecution costs. Research and development expense for the years ended December 31, 2015, 2014, and 2013 were as follows (dollars in thousands):
 
Year Ended December 31,
 
Year Ended December 31,
 
2015
 
2014
 
% Change
 
2014
 
2013
 
% Change
Research and development expense
$
23,611

 
$
27,674

 
(15
)%
 
$
27,674

 
$
20,424

 
35
%

The majority of our research and development expenses relate to our pivotal Phase 3 PRESENT clinical trial using NeuVax as a HER2 directed cancer immunotherapy under evaluation to prevent breast cancer recurrence after standard of care treatment. The trial costs are more significant during the recruitment and enrollment phase. We established more than 140 sites in 13 counties and screened over 3,300 patients in order to enroll qualifying patients who currently have no available treatment options to maintain their disease-free status after their standard of care. Once the patient is enrolled, they enter the monitoring phase, which lasts the later of three years of treatment or an event (recurrence or death). On April 14, 2015 we announced the completion of over-enrollment in the PRESENT trial of 758 patients, which was 7.7% higher than called for under our FDA-approved Special Protocol Assessment.

The decrease of 15% in our research and development expenses from 2014 to 2015 is primarily due to the decrease in enrollment efforts surrounding our Phase 3 PRESENT clinical trial. The majority of the patients in the trial were enrolled in 2014. The completion of over-enrollment in April 2015 reduced expenses related to the trial as we enter the monitoring phase and we continue toward our expected interim analysis in the second quarter of 2016 and final endpoint in 2018. The decrease in recruitment and enrollment expenses related to the Phase 3 PRESENT clinical trial were partially offset by the expansion of our clinical pipeline to 8 clinical trials in 2015. We expect 2016 research and development expenses to increase as we continue to expand our clinical pipeline and the hiring of additional headcount for quality, safety, data management, clinical operations, and regulatory affairs as our clinical trials progress and approach their respective endpoints and as we begin preparations towards filing our BLA for NeuVax.

The increase of 35% in our research and development expenses from 2013 to 2014 is primarily due to the increase in enrollment efforts surrounding our Phase 3 PRESENT clinical trial. The majority of our patients enrolled in the PRESENT clinical trial were enrolled in 2014. In addition to the increased enrollment efforts previously discussed, we also expanded our development pipeline to 6 clinical trials in 2014.

49


General and Administrative Expense

General and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. General and administrative expense for the years ended December 31, 2015 and 2014 were as follows (dollars in thousands):

 
Year Ended December 31,
 
2015
 
2014
 
% Change
General and administrative expense
$
10,609

 
$
16,226

 
(35
)%

The year-over-year decrease was significantly impacted by the reduction in legal expenses related to the ongoing litigation and proceedings described in Part I, Item 3 of this report, which were approximately $7 million in 2014. We exceeded the retention (deductible) under our insurance policy during the third quarter of 2014, and therefore realized insurance recoveries of $2 million that partially offset these fees. In 2015, excluding legal expenses associated with the litigation settlement, the majority of the legal expenses incurred were paid by our insurance carriers. In addition to a reduction in legal expenses, non-cash stock-based compensation decreased $3.3 million from 2014 to 2015.

Selling, general and administrative expense for the years ended December 31, 2014 and 2013 was as follows (dollars in thousands):

 
Year Ended December 31,
 
2014
 
2013
 
% Change
General and administrative expense
$
16,226

 
$
8,065

 
101
%

The year-over-year increase was significantly impacted by legal expenses related to the ongoing litigation and proceedings described in Part I, Item 3 of this report, which were approximately $7 million in 2014. We exceeded the retention (deductible) under our insurance policy during the third quarter of 2014, and therefore realized insurance recoveries of $2 million that partially offset these fees. In addition to an increase in legal expenses, non-cash stock-based compensation increased $2.8 million from 2013 to 2014.

Non-Operating Income (Expense)

Non-operating expense for the year ended December 31, 2015 and 2014 was as follows (dollars in thousands):

 
 
Year Ended December 31,
 
 
2015
 
2014
 
$ Change
Non-operating income (expense):
 
 
 
 
 
 
Litigation settlement
 
$
(5,282
)
 
$

 
$
(5,282
)
Change in fair value of warrants potentially settleable in cash
 
1,162

 
16,556

 
(15,394
)
Interest income (expense), net
 
(760
)
 
(1,110
)
 
350

Other income (expense)
 
509

 
170

 
339

Total non-operating income (expense), net
 
$
(4,371
)
 
$
15,616

 
$
(19,987
)


50


The increase to our non-operating expense in 2015 was primarily due to a $15.4 million increase in the fair value of warrants accounted for as liabilities. The increase in the estimated fair value of our warrant liabilities was primarily related to the issuance of 14.0 million warrants during our March 2015 underwritten public offering. In addition to the new warrant issuance the increase in the estimated fair value of our warrant liabilities was partially offset due to the decrease in our common stock price, which declined from $1.51 per share as of January 1, 2015 to $1.47 per share as of December 31, 2015, which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities.

In addition to the increase in our warrant liability, on December 4, 2015 we announced the settlement of the In Re Galena Biopharma, Inc. Derivative Litigation and In Re Galena Biopharma, Inc. Securities Litigation. The majority of the $20.0 million settlement payment for settlement of In Re Galena Biopharma, Inc. Securities Litigation is covered by the Company's insurance carriers and $3.3 million will be paid by the Company through a combination of $2.3 million in cash and $1.0 million in shares of the Company's common stock. In addition, to obtain the agreement of the insurance carriers to fund most of the settlement, we also agreed to pay all outstanding defense attorney fees going forward with respect to this litigation and opt out securities litigation.

Non-operating income (expense) for the year ended December 31, 2014 and 2013 was as follows (dollars in thousands):

 
 
Year Ended December 31,
 
 
2014
 
2013
 
$ Change
Non-operating income (expense):
 
 
 
 
 
 
Change in fair value of warrants potentially settleable in cash
 
$
16,556

 
$
(44,001
)
 
$
60,557

Interest income (expense), net
 
(1,110
)
 
(807
)
 
(303
)
Other income (expense)
 
170

 
3,022

 
(2,852
)
Total non-operating income (expense), net
 
$
15,616

 
$
(41,786
)
 
$
57,402


The increase to our non-operating income in 2014 was primarily due to a $60.6 million decrease in the fair value of warrants accounted for as liabilities. This decrease in the estimated fair value of our warrant liabilities was primarily due to the decrease in our common stock price, which declined from $4.96 per share as of January 1, 2014 to $1.51 per share as of December 31, 2014, which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our warrant liabilities. In addition to the decrease to the warrant liabilities, in 2013 there were $3.9 million in realized gains on the sale of marketable securities. There were no such sales in 2014.

The increase in non-operating income was partially offset by an increase of $0.3 million in interest expense. We incurred $1.1 million and $0.8 million in interest expense in 2014 and 2013, respectively, related to the debt financing we completed in May 2013.

Income Taxes

For the year ended December 31, 2015, we recognized an income tax expense of $0.4 million. This expense relates to indefinite lived deferred tax liabilities. For the year ended December 31, 2013 we recognized an income tax expense of $1.1 million. This expense offsets the tax impact related to the unrealized loss on our marketable securities, which is presented as other comprehensive income, net of tax, in our consolidated statement of comprehensive loss. During 2013, we reclassified the entire amount of unrealized gain on marketable securities into net loss as we liquidated all of our marketable securities. There was no income tax expense or benefit during the year ended December 31, 2014. We continue to maintain a full valuation allowance against our net deferred tax assets.


51


Loss from Discontinued Operations

During the quarter ended September 30, 2015, we completed a strategic review of our commercial business and operations, and as a result of that review we sold the assets of our commercial business during the fourth quarter of 2015. We believe this disposition allows us to focus our resources on our valuable and expanding clinical development programs and maximize the value of these assets to our shareholders. Our loss from discontinued operations for the year ended December 31, 2015 was $24.9 million compared with losses from discontinued operations of $8.3 million and $5.4 million for the years ended December 31, 2014 and 2013, respectively.
The following table represents the components attributable to the commercial business in 2015, 2014 and 2013 that are presented in the consolidated statements of comprehensive loss as discontinued operations (in thousands):
 
2015
 
2014
 
2013
Net revenue
$
9,734

 
$
9,319

 
$
2,487

Cost of revenue
(1,780
)
 
(1,403
)
 
(520
)
Amortization of certain acquired intangible assets
(921
)
 
(440
)
 
(131
)
Research and development
(355
)
 
(680
)
 
(651
)
Selling, general, and administrative
(17,655
)
 
(15,118
)
 
(6,536
)
Impairment charge from classification as held for sale
(8,071
)
 

 

Loss on sale of commercial business assets
(4,549
)
 

 

Severance and exit costs
(1,349
)
 

 

Loss from discontinued operations
$
(24,946
)
 
$
(8,322
)
 
$
(5,351
)

The 2015, 2014 and 2013 discontinued operations are comprised of the net revenue, cost of revenue, and expenses attributable to our commercial operations, which we sold in the fourth quarter of 2015.

Net Revenue included in discontinued operations comprises revenue from the sale of Abstral, which was provided by our commercial operations.
Cost of revenue included in discontinued operations consists of direct products costs and related overhead, Abstral royalties based on net revenue, inventory obsolescence, and other direct costs.
Research and development expense included in discontinued operations consists of expenses related to our Abstral RELIEF trial and other product stability costs.
Selling, general and administrative expense included in discontinued operations consists of all other expenses of our commercial operations that are required in order to market and sell our marketed products. These expenses include all personnel related costs, marketing, data, consulting, legal, consulting, and other outsider services necessary to support the commercial operations.
Impairment charge from classification as held for sale included in discontinued operations consists of impairment recognized from determining that the carrying value exceeds the fair value of the assets.
Loss on sale of commercial business assets included in discontinued operations consists of the calculation of the gain or loss recognized upon the sale of the company's commercial products, Abstral and Zuplenz, and their related assets.
Severance and exit costs included in discontinued operations consists of one-time termination benefits provided to employees that were part of the commercial business and did not accept employment opportunities at the companies who purchased Abstral and Zuplenz. In addition to severance costs there are costs included to terminate contracts prior to their contractual term with no economic benefit to the Company.

52


Liquidity and Capital Resources

We had cash and cash equivalents of approximately $29.7 million as of December 31, 2015, compared with $23.7 million as of December 31, 2014.

The increase of approximately $6.1 million in cash and cash equivalents from December 31, 2014 to December 31, 2015 was attributable to $47.4 million net proceeds received from the sale of common stock and $11.3 million in proceeds from the sale of Abstral and Zuplenz. The increase was partially offset by $48.2 million net cash used in operating activities and $3.9 million principal payments on long-term debt.

On March 18, 2015, we announced the closing of our underwritten public offering of 24,358,974 shares of common stock and 12,179,487 warrants to purchase our common stock at an exercise price of $2.08 per share. The underwriters also exercised their over-allotment option to purchase warrants to purchase an aggregate of 1,826,923 shares of our common stock. On April 10, 2015, the underwriters exercised their option to purchase an additional 3,653,846 shares of common stock providing us additional net proceeds of $5.4 million. The total net proceeds to us were approximately $40.8 million.

On January 12, 2016, we closed on our underwritten public offering of 19,772,727 shares of common stock and 11,863,636 warrants to purchase our common stock at an exercise price of $1.42 per share. The underwriters also exercised their over-allotment option to purchase warrants to purchase an aggregate of 1,779,545 shares of our common stock. The total net proceeds to us were approximately $20.1 million.

In addition to the funds raised through underwritten public offerings, we maintain a purchase agreement with Lincoln Park Capital LLC (LPC) and At Market Issuance Sales Agreements (ATM) with future availability of $42.2 million and $15.4 million, respectively subject to certain terms and conditions. We used the LPC purchase agreement in the fourth quarter of 2014 and the first quarter of 2015 raising $8.5 million and $4.4 million, respectively, by issuing 5.2 million and 2.7 million shares of our common stock. In addition, we used the ATM in the fourth quarter of 2014 and the first quarter of 2015 raising $2.3 million by issuing 1.4 million shares of our common stock in both quarters. In light of our current stock price to continue to rely on sales of our common stock under the LPC purchase agreement, we will need to obtain certain revisions to the terms and conditions of the LPC purchase agreement. We may also continue to use the ATM, or other instruments, in order to fund our operations going forward.

We expect to continue to incur operating losses as we continue to advance our product candidates through the drug development and the regulatory process. In the absence of revenue, our potential sources of operational funding are proceeds from the sale of equity, funded research and development payments, debt financing arrangements, and payments received under partnership and collaborative agreements.

We believe that our existing cash and cash equivalents, funding available under an amended LPC purchase agreement, ATM and other instruments, should be sufficient to fund our operations for at least one year. This projection is based on our current planned operations, and subject to changes in our plans, uncertainties inherent in our business, and the need to seek to replenish our existing cash and cash equivalents sooner than we project and in greater amounts that we had projected. There is no guarantee that any debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or to be acquired by another company.


53


Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the year ended December 31, 2015 and 2014 ($ in thousands):

 
For the Year Ended December 31,
 
2015
 
2014
Cash flows from continuing operations:
 
 
 
Cash flows used in continuing operating activities
$
(38,802
)
 
$
(37,037
)
Cash flows provided by (used in) continuing investing activities
(354
)
 
(2,472
)
Cash flows provided by continuing financing activities
43,845

 
24,260

Total cash flows provided by (used in) continuing operations
4,689

 
(15,249
)
 
 
 
 
Cash flows from discontinued operations:
 
 
 
Cash flows used in discontinued operating activities
(9,358
)
 
(5,832
)
Cash flows provided by (used in) discontinued investing activities
10,749


(3,056
)
Total cash flows provided by (used in) discontinued operations
1,391

 
(8,888
)
 
 
 
 
Total cash flows:
 
 
 
Cash flows used in operating activities
(48,160
)
 
(42,869
)
Cash flows provided by (used in) investing activities
10,395

 
(5,528
)
Cash flows provided by financing activities
43,845

 
24,260

Total increase (decrease) in cash and cash equivalents
$
6,080

 
$
(24,137
)


Net Cash Flow from Operating Activities

Net cash used in operating activities was approximately $48.2 million for the year ended December 31, 2015, compared with $42.9 million for the year ended December 31, 2014. The increase of approximately $5.3 million resulted primarily from an increase in cash used in our discontinued operations of $3.5 million as well as increased legal expenses of our litigation settlement that was announced in the fourth quarter of 2015.

Net Cash Flow from Investing Activities

Net cash provided by investing activities was $10.4 million for the year ended December 31, 2015, compared with net cash used in investing activities of $5.5 million for the year ended December 31, 2014. The sale of our commercial business assets in the fourth quarter of 2015 resulted in the receipt of $11.3 million partially offset by purchases of property and equipment. The cash used in investing activities in 2014 was a $2.4 million initial payment for GALE-401 rights and the $3.1 million initial cash payment for U.S. right to Zuplenz.

Net Cash Flow from Financing Activities

Net cash provided by financing activities was $43.8 million for the year ended December 31, 2015, compared with $24.3 million for the year ended December 31, 2014. In 2015, we received proceeds of $47.4 million from the issuance of common stock and $0.3 million from the exercise of common stock options and warrants, partially offset by $3.9 million in principal payments on long-term debt. In 2014, we received proceeds of $10.7 million from the issuance of common stock and $15.3 million from the exercise of common stock options and warrants, partially offset by $1.8 million in principal payments on long-term debt.






54


Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2015 (in thousands):

 
 
Payment Due by Period
 
 
Less than 1 Year
 
1 to 3 Years
 
3 to 5 Years
 
Total
Long-term debt (1)
 
$
4,739

 
$

 
$

 
$
4,739

Cancelable license agreements (2)
 
350

 
700

 
7,165

 
8,215

Non-cancelable employment agreements (2)
 
850

 

 

 
850

Non-cancelable operating leases (2)
 
316

 
639

 
487

 
1,442

Total
 
$
6,255

 
$
1,339

 
$
7,652

 
$
15,246


(1) Long-term debt payments presented are comprised of principal and interest payments. See Note 6 of the notes to the consolidated financial statements for additional information on our long-term debt.

(2) See Note 7 of the notes to the consolidated financial statements for additional information on the referenced contractual obligations.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet financing arrangements other than operating leases.


55


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve capital. We do not utilize hedging contracts or similar instruments.

We are exposed to certain market risks relating primarily to (1) interest rate risk on our cash and cash equivalents and (2) risks relating to the financial viability of the institutions which hold our capital and through which we have invested our funds. We manage such risks by investing primarily in money market mutual funds.

In addition, we are exposed to foreign currency exchange rate fluctuations relating to payments we make to certain vendors and suppliers and license partners using foreign currencies. We do not hedge against foreign currency risks. Consequently, changes in exchange rates could adversely affect our operating results and stock price. Such losses have not been significant to date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


GALENA BIOPHARMA, INC.

FORM 10-K — FISCAL YEAR ENDED DECEMBER 31, 2015

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




56


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Galena Biopharma, Inc.

We have audited the accompanying consolidated balance sheets of Galena Biopharma, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for the years the ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Galena Biopharma, Inc. as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Galena Biopharma, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2016 expressed an unqualified opinion thereon.


/s/ Moss Adams LLP

Portland, Oregon
March 10, 2016

 




57


GALENA BIOPHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
 
December 31, 2015
 
December 31, 2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
29,730

 
$
23,650

Restricted cash
401

 
200

Litigation settlement insurance recovery
21,700

 

Prepaid expenses and other current assets
1,398

 
1,237

Current assets of discontinued operations
392

 
27,013

Total current assets
53,621

 
52,100

Equipment and furnishings, net
335

 
285

GALE-401 rights
9,255

 
9,255

In-process research and development
12,864

 
12,864

Goodwill
5,898

 
5,897

Deposits and other assets
171

 
87

Total assets
$
82,144

 
$
80,488

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,597

 
$
1,886

Accrued expenses and other current liabilities
5,292

 
8,885

Litigation settlement payable
25,000

 

Fair value of warrants potentially settleable in cash
14,518

 
5,383

Current portion of long-term debt
4,739

 
3,910

Current liabilities of discontinued operations
5,925

 
7,169

Total current liabilities
57,071

 
27,233

Deferred tax liability
5,418

 
5,053

Contingent purchase price consideration
6,142

 
6,651

Long-term debt, net of current portion

 
4,492

Total liabilities
68,631

 
43,429

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.0001 par value; 275,000,000 shares authorized, 162,581,753 shares issued and 161,906,753 shares outstanding at December 31, 2015; 200,000,000 shares authorized, 130,146,341 shares issued and 129,471,341 shares outstanding at December 31, 2014
15

 
12

Additional paid-in capital
296,730

 
256,377

Accumulated deficit
(279,383
)
 
(215,481
)
Less treasury shares at cost, 675,000 shares
(3,849
)
 
(3,849
)
Total stockholders’ equity
13,513

 
37,059

Total liabilities and stockholders’ equity
$
82,144

 
$
80,488

See accompanying notes to consolidated financial statements.

58

GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands, except share and per share data)


 
For the Year Ended December 31,
 
2015
 
2014
 
2013
Operating expenses:
 
 
 
 
 
Research and development
$
23,611

 
$
27,674

 
$
20,424

General and administrative
10,609

 
16,226

 
8,065

Total operating expenses
34,220

 
43,900

 
28,489

Operating loss
(34,220
)
 
(43,900
)
 
(28,489
)
Non-operating income (expense):
 
 
 
 
 
Litigation settlement
(5,282
)
 

 

Gain (loss) on warrant derivative liability
1,162

 
16,556

 
(44,001
)
Interest expense, net
(760
)
 
(1,110
)
 
(807
)
Other income
509

 
170

 
3,022

Total non-operating income (expense), net
(4,371
)
 
15,616

 
(41,786
)
Loss from continuing operations before income taxes
(38,591
)
 
(28,284
)
 
(70,275
)
Income tax expense
365

 

 
1,052

Loss from continuing operations
(38,956
)
 
(28,284
)
 
(71,327
)
Loss from discontinued operations
(24,946
)
 
(8,322
)
 
(5,351
)
Net loss
$
(63,902
)
 
$
(36,606
)
 
$
(76,678
)
Net loss per common share:
 
 
 
 
 
Basic and diluted per share, continuing operations
$
(0.25
)
 
$
(0.24
)
 
$
(0.79
)
Basic and diluted loss per share, discontinued operations
$
(0.16
)
 
$
(0.07
)
 
$
(0.06
)
Basic and diluted net loss per share
$
(0.41
)
 
$
(0.31
)
 
$
(0.85
)
Weighted-average common shares outstanding: basic and diluted
155,264,729

 
119,388,366

 
90,181,501

Comprehensive loss
 
 
 
 
 
Net loss
$
(63,902
)
 
$
(36,606
)
 
$
(76,678
)
Reclassification of unrealized gain upon sale of marketable securities

 

 
(2,678
)
Tax effect of reclassification of unrealized gain upon sale of marketable securities

 

 
1,052

Total comprehensive loss
$
(63,902
)
 
$
(36,606
)
 
$
(78,304
)
See accompanying notes to consolidated financial statements.



59

GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share amounts)



 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Treasury Stock
 
Total
 
Shares Issued
 
Amount
 
 
 
 
 
Balance at December 31, 2012
83,595,837

 
$
8

 
$
132,168

 
$
1,626

 
$
(102,197
)
 
$
(3,849
)
 
$
27,756

Issuance of common stock
20,125,000

 
2

 
37,537

 

 

 

 
37,539

Common stock warrants issued in connection with September 2013 common stock offering

 

 
(8,238
)
 

 

 

 
(8,238
)
Issuance of common stock upon exercise of warrants
5,320,669

 

 
22,064

 

 

 

 
22,064

Issuance of common stock in settlement of contingent purchase price consideration
492,988

 

 
1,247

 

 

 

 
1,247

Issuance of common stock warrants with long-term debt financing

 

 
351

 

 

 

 
351

Issuance of common stock in exchange for services
99,998

 

 
211

 

 

 

 
211

Issuance of common stock in connection with employee stock purchase plan
52,532

 

 
163

 

 

 

 
163

Stock based compensation for directors and employees

 

 
1,886

 

 

 

 
1,886

Stock based compensation for services

 

 
644

 

 

 

 
644

Reclassification of unrealized gain upon the sale of marketable securities, net of tax of $1,052

 

 

 
(1,626
)
 

 

 
(1,626
)
Exercise of stock options
413,677

 

 
567

 

 

 

 
567

Net loss

 

 

 

 
(76,678
)
 

 
(76,678
)
Balance at December 31, 2013
110,100,701

 
$
10

 
$
188,600

 
$

 
$
(178,875
)
 
$
(3,849
)
 
$
5,886

Issuance of common stock
6,633,008

 
1

 
10,704

 

 

 

 
10,705

Issuance of common stock under milestone achievement
4,381,215

 

 
9,340

 

 

 

 
9,340

Issuance of common stock upon exercise of warrants
5,467.027

 
1

 
37,741

 

 

 

 
37,742

Issuance of common stock in connection with employee stock purchase plan
114,630

 

 
263

 

 

 

 
263

Stock based compensation for directors and employees

 

 
5,253

 

 

 

 
5,253

Stock based compensation for services

 

 
134

 

 

 

 
134

Exercise of stock options
3,449,760

 

 
4,342

 

 

 

 
4,342

Net loss

 

 

 

 
(36,606
)
 

 
(36,606
)
Balance at December 31, 2014
130,146,341

 
$
12

 
$
256,377

 
$

 
$
(215,481
)
 
$
(3,849
)
 
$
37,059

Issuance of common stock
32,158,685

 
3

 
47,413

 

 

 

 
47,416

Common stock warrants issued in connection with March 2015 common stock offering

 

 
(10,296
)
 

 

 

 
(10,296
)
Issuance of common stock in connection with employee stock purchase plan
231,312

 

 
309

 

 

 

 
309

Stock based compensation for directors and employees

 

 
2,896

 

 

 

 
2,896

Exercise of stock options
45,415

 

 
31

 

 

 

 
31

Net loss

 

 

 

 
(63,902
)
 

 
(63,902
)
Balance at December 31, 2015
162,581,753

 
$
15

 
$
296,730

 
$

 
$
(279,383
)
 
$
(3,849
)
 
$
13,513

See accompanying notes to consolidated financial statements.


60

GALENA BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)



 
For the Year Ended December 31,
 
2015
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
Cash flows from continuing operating activities:
 
 
 
 
 
Net loss from continuing operations
$
(38,956
)
 
$
(28,284
)
 
$
(71,327
)
Adjustment to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
Depreciation and amortization expense
355

 
362

 
286

Gain on sale of marketable securities

 

 
(3,911
)
Deferred taxes
365

 

 
1,052

Non-cash stock-based compensation
1,931

 
4,666

 
2,307

Litigation settlement payable in common stock
1,000



 

Fair value of common stock issued in exchange for services

 

 
211

Change in fair value of common stock warrants
(1,161
)
 
(16,556
)
 
44,001

Change in fair value of contingent consideration
(509
)
 
(170
)
 
926

Changes in operating assets and liabilities:
 
 
 
 
 
Prepaid expenses and other assets
(245
)
 
(1,078
)
 
437

Litigation settlement insurance recovery
(21,700
)
 

 

Litigation settlement payable
24,000

 

 

Accounts payable
(289
)
 
(21
)
 
(69
)
Accrued expenses and other current liabilities
(3,593
)
 
4,044

 
2,811

Net cash used in continuing operating activities
(38,802
)
 
(37,037
)
 
(23,276
)
Cash flows from discontinued operating activities:
 
 
 
 
 
Net loss from discontinued operations
(24,946
)
 
(8,322
)
 
(5,351
)
Loss on sale of commercial assets
4,549

 

 

Impairment charge from classification of assets held for sale
8,071

 

 

Changes in operating assets and liabilities attributable to discontinued operations
2,968

 
2,490

 
(302
)
Net cash used in discontinued operating activities
(9,358
)
 
(5,832
)
 
(5,653
)
Net cash used in operating activities
(48,160
)
 
(42,869
)
 
(28,929
)
Cash flows from investing activities:
 
 
 
 
 
Change in restricted cash
(201
)
 

 
(99
)
Cash paid for acquisition of GALE-401

 
(2,415
)
 

Purchase of short-term investments

 

 
3,911

Cash paid for purchase of equipment and furnishings
(153
)
 
(57
)
 
(320
)
Net cash provided by (used in) continuing investing activities
(354
)
 
(2,472
)
 
3,492

Net proceeds received from sale of commercial assets
11,283

 

 

Cash paid for commercial assets
(534
)
 
(3,056
)
 
(15,532
)
Net cash provided by (used in) discontinued investing activities
10,749


(3,056
)

(15,532
)
Net cash provided by (used in) investing activities
10,395

 
(5,528
)
 
(12,040
)
Cash flows from financing activities:
 
 
 
 
 
Net proceeds from issuance of common stock
47,416

 
10,704

 
37,539

Net proceeds from exercise of stock options
31

 
4,342

 
567

Proceeds from exercise of warrants

 
10,717

 
7,815

Proceeds from common stock issued in connection with ESPP
309

 
263

 
163

Net proceeds from issuance of long-term debt

 

 
9,865

Principal payments on long-term debt
(3,911
)
 
(1,766
)
 

Net cash provided by financing activities
43,845

 
24,260

 
55,949

Net increase (decrease) in cash and cash equivalents
6,080

 
(24,137
)
 
14,980

Cash and cash equivalents at the beginning of period
23,650

 
47,787

 
32,807

Cash and cash equivalents at end of period
$
29,730

 
$
23,650

 
$
47,787

 
For the Year Ended December 31,
 
2015
 
2014
 
2013
Supplemental disclosure of cash flow information: