Humanigen (HGEN) is a development stage drug company whose share price has increased 500% in the last three weeks. Up until late May, the share price averaged around $0.90. In addition to the share price shooting the moon, the shares outstanding have increased by over 50%, from 125 million to 210 million. The share increase resulted from a private equity raise at a price of $0.87. It’s three weeks later, and the stock is bouncing between $4 - $6.

Thus the total market cap of HGEN has moved from $100 million to nearly $1 billion in less than three weeks. (Note, not all information sources have updated the market cap since the new equity issuance; there are 209 million shares outstanding as of the last filing).

The stock move is not based on discoveries regarding the efficacy of the company’s drugs. Rather, the first catalyst appears to have been the announcement of the aforementioned equity raise—at $0.87 per share. The most recent catalyst is a report on usage of its primary drug candidate in twelve patients with COVID-19, but the report is non-scientific and authored partly by Humanigen’s employees and shareholders.

Unless stated otherwise, all statements attributed to the company are from its recent S-1 filing (June 15).

Background

Humanigen trades on the OTCQB or “Venture Exchange.” The exchange is described by Investopedia like so: “As it has no minimum financial standards, the OTCQB includes shell companies, penny stocks, and small foreign issuers.”

It emerged from bankruptcy in 2016, and changed its name from Kalobios. Kalabios imploded when their CEO, "PharmaBro" Martin Shkreli, was indicted and arrested on securities fraud charges.

Its last SEC filing (June 15, 2020) states:

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.... total liabilities exceed its total assets. This raises substantial doubt about the Company's ability to continue as a going concern.
A going concern warning is common for development stage drug companies. It becomes a big red flag when the company has been in that state for 20 years. The company incorporated in 2000.

Humanigen has two full-time employees.

The Medicine

Its main drug candidate is called “lenzilumab”, hoped to be effective in preventing cytokine release syndrome or "CRS" associated with some cases of COVID-19. The company is pursuing lenzilumab as a treatment for hospitalized patients with COVID-19 pneumonia. It began Phase 3 trials this spring.

According to the FDA, Phase 3 tests usually take 1-4 years, and are failed 75% of the time.

Humanigen has been looking for something to do with lenzilumab for over a decade. In 2009, they proposed it as a treatment for rheumatoid arthritis. Then in 2012, it became a treatment for asthma. Then, in 2015, it was a leukemia candidate. Now, it’s touted for COVID-19.

There are many competitors for the prevention of CRS that are more established, more credible, and better funded than lenzilumab. The target condition, immune-induced inflammation, is already treated by many approved drugs, especially those for rheumatoid arthritis.

Prazosin (“Minipress”) is in trials for COVID-19 use, and is already approved and generic.

Eli Lilly (LLY) recently began Phase 3 trials for Olumiant in COVID-19, a drug that is already approved as a disruptor of cytokines. News reports mention several other candidates, all of the same basic type:

Olumiant isn’t the first rheumatoid arthritis drug being aimed at [COVID-19]….. Roche’s Actemra and Regeneron and Sanofi’s Kevzara, are also being studied as a potential treatment for the cytokine storms associated with the disease.
On June 16, significant results were reported for dexamethasone in COVID-19, yet another drug that is already approved and in use. It works by reducing inflammation, and is already proven effective in arthritis and asthma. It is very cheap, costing about $50 to produce “a clear, clear benefit” in COVID-19 patients.

A vaccine would marginalize the market for treatment. There are 60-100 vaccine candidates in trials, and estimated time of availability is similar to the time required for a Phase 3 trial. (See WebMD or Live Science, for more info.)

The current state of the research on lenzilumab is that it is safe. There is no scientific research indicating that is effective.

The Recent Study

On June 15, the company issued a press release describing the recent use of lenzilumab in 12 patients with COVID-19 pneumonia. The stock went up 40% the same day. The headline refers to a “Mayo Clinic Study,” but the actual study has the following features which the press release omits:

The study states: “not certified by peer review”
The study is not scientific in any sense: it includes no controls
The only indication of efficacy is the term “associated with” improvement. Patients were receiving other treatment: all were receiving oxygen supplementation, three received hydroxychloroquine, one received remdesivir, and one received steroids. There is no benchmark for expected outcomes.
The study has multiple conflicts of interests, such as being authored by Humanigen’s CEO and major shareholders, but disclosure is minimal.
The report itself acknowledges that it proves little:

Our report has several limitations. First, the sample size is small and did not include controls. Second, as lenzilumab was offered under emergency single-use IND conditions, all management decisions, including prescribing medications and laboratory/radiologic monitoring, were at the discretion of the treating clinicians. This resulted in some heterogeneity in the treatment specifics of individual patients as well as the laboratory and other diagnostic data that were collected. Given this and the absence of a control arm in the study, we cannot, with full confidence, declare that the clinical improvement that we noted in our patients was clearly and solely attributable to lenzilumab.
The study is rife with conflicts of interest. Here is a partial list of authors:

Saad S. Kenderian owns patents that are licensed to Humanigen and receives research funding from Humanigen, and has participated in advisory boards with Humanigen.

The following authors are employees of Humanigen. They are disclosed as such, but no other biases are mentioned. Their position to profit from the report is not disclosed:

Cameron Durrant. Durrant is both the CEO and Chariman of the Board of Humanigen (a conflict of interest in itself). He owns 10 million shares, or 5%.
Dr. Dale Chappell, the managing member of Black Horse Capital Management LLC (“BH Management”), a private investment manager that specializes in biopharmaceuticals. It owns 70 million shares, or 30% of the company. Chappell is also the “Acting Chief Scientific Officer” of Humanigen.
Gabrielle Chappell, listed as “employed by Humanigen” in the disclosures section. Can we assume this is Dale’s wife or relative?
Omar Ahmed, vice-president of Humanigen.
These are some of the authors of the “Mayo Clinic Study”, none of whose clear conflicts of interest are mentioned in the press release, and minimally gestured at in the study manuscript itself. It seems dubious, to say the least, to write a study claimed to be impartial, and then write the press release promoting it.

Conclusion

As noted above, it is a conflict of interest for the CEO to be the Chairman of the Board. He votes to approve his own salary ($600,000) and to approve his own bonus ($185,000). And why does a company with two full-time employees need six directors?

The market capitalization has moved from $100 million to $1 billion in less than a month
The recent equity raise came at 50% dilution, and $0.87 per share for stock currently near $6
The price jumped over 40% on June 15, on a non-scientific report authored by company insiders and shareholders, that says little about efficacy.
Multiple other small- and large-company competitors
Multiple other drugs using the same strategy, including generic drugs
A vaccine would marginalize the drug, and could beat lenzilumab to market
Company has two full-time employees and no revenue
June 15 filing still warns of: "... substantial doubt about the Company's ability to continue as a going concern."
Litigation for securities fraud in the last five years
It’s hard to see a good reason to invest in Humanigen at the current price. The institutional “smart money” paid $0.87 less than a month ago. Management has the worst possible track record, and since the company has no revenue, it can only pay its expenses by constantly selling shares on the market.

TO ZERO