Item 1. FINANCIAL STATEMENTS
CELSION CORPORATION
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
March 31,
2017
(unaudited)
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,469,576
|
|
|
$
|
2,624,162
|
|
Investment securities – available for sale, at fair value
|
|
|
-
|
|
|
|
1,680,000
|
|
Accrued interest receivable on investment securities
|
|
|
-
|
|
|
|
4,008
|
|
Advances, deposits and other current assets
|
|
|
141,622
|
|
|
|
204,408
|
|
Subtotal current assets
|
|
|
4,611,198
|
|
|
|
4,512,578
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
(at cost, less accumulated depreciation
and amortization
of $2,626,722 and $2,513,022, respectively)
|
|
|
370,262
|
|
|
|
462,836
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
22,766,491
|
|
|
|
22,766,491
|
|
Other intangible assets, net
|
|
|
966,095
|
|
|
|
1,022,924
|
|
Goodwill
|
|
|
1,976,101
|
|
|
|
1,976,101
|
|
Security deposit on letter of credit
|
|
|
100,000
|
|
|
|
100,000
|
|
Patent licensing fees and other assets, net
|
|
|
8,761
|
|
|
|
8,761
|
|
Subtotal other assets
|
|
|
25,817,448
|
|
|
|
25,874,277
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
30,798,908
|
|
|
$
|
30,849,691
|
|
See accompanying notes to the financial statements.
CELSION CORPORATION
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Continued)
|
|
March 31,
2017
(unaudited)
|
|
|
December 31,
2016
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable ─ trade
|
|
$
|
4,051,099
|
|
|
$
|
2,878,978
|
|
Other accrued liabilities
|
|
|
2,819,806
|
|
|
|
2,483,756
|
|
Notes payable - current portion
|
|
|
1,471,846
|
|
|
|
2,560,553
|
|
Deferred revenue – current portion
|
|
|
500,000
|
|
|
|
500,000
|
|
Subtotal current liabilities
|
|
|
8,842,751
|
|
|
|
8,423,287
|
|
|
|
|
|
|
|
|
|
|
Earn-out milestone liability
|
|
|
13,471,977
|
|
|
|
13,188,226
|
|
Deferred revenue – non-current portion
|
|
|
2,375,000
|
|
|
|
2,500,000
|
|
Other liabilities – non-current
|
|
|
3,088
|
|
|
|
12,352
|
|
Total liabilities
|
|
|
24,692,816
|
|
|
|
24,123,865
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred Stock - $0.01 par value (100,000 shares authorized and no shares issued or outstanding at March 31, 2017 and December 31, 2016, respectively)
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.01 par value (112,500,000 shares authorized; 55,471,171 and 31,226,336 shares issued at March 31, 2017 and December 31, 2016, respectively and 55,466,492 and 31,221,657 shares outstanding at March 31, 2017 and December 31, 2016, respectively)
|
|
|
554,712
|
|
|
|
312,263
|
|
Additional paid-in capital
|
|
|
252,176,416
|
|
|
|
247,878,463
|
|
Accumulated deficit
|
|
|
(246,539,848
|
)
|
|
|
(241,379,712
|
)
|
Subtotal
|
|
|
6,191,280
|
|
|
|
6,811,014
|
|
Treasury stock, at cost (4,679 shares March 31, 2017 and December 31, 2016)
|
|
|
(85,188
|
)
|
|
|
(85,188
|
)
|
Total stockholders’ equity
|
|
|
6,106,092
|
|
|
|
6,725,826
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
30,798,908
|
|
|
$
|
30,849,691
|
|
See accompanying notes to the financial
statements
.
CELSION CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,475,276
|
|
|
|
3,441,171
|
|
General and administrative
|
|
|
1,468,122
|
|
|
|
1,862,525
|
|
Total operating expenses
|
|
|
4,943,398
|
|
|
|
5,303,696
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,818,398
|
)
|
|
|
(5,178,696
|
)
|
|
|
|
|
|
|
|
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
Loss from change in valuation of earn-out milestone liability
|
|
|
(283,751
|
)
|
|
|
(302,656
|
)
|
Investment income, net
|
|
|
1,991
|
|
|
|
9,341
|
|
Interest expense
|
|
|
(62,340
|
)
|
|
|
(244,198
|
)
|
Other income (expense)
|
|
|
2,362
|
|
|
|
(258
|
)
|
Total other (expense) income, net
|
|
|
(341,738
|
)
|
|
|
(537,771
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,160,136
|
)
|
|
$
|
(5,716,467
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
42,424,957
|
|
|
|
23,388,152
|
|
See accompanying notes to the financial statements.
CELSION CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investment securities
|
|
$
|
-
|
|
|
$
|
3,858
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain
|
|
|
-
|
|
|
|
3,858
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,160,136
|
)
|
|
|
(5,716,467
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(5,160,136
|
)
|
|
$
|
(5,712,609
|
)
|
See accompanying notes to the financial statements.
CELSION CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,160,136
|
)
|
|
$
|
(5,716,467
|
)
|
Non-cash items included in net loss:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
170,529
|
|
|
|
121,875
|
|
Change in fair value of earn-out milestone liability
|
|
|
283,751
|
|
|
|
302,656
|
|
Deferred revenue
|
|
|
(125,000
|
)
|
|
|
(125,000
|
)
|
Stock-based compensation costs
|
|
|
117,466
|
|
|
|
615,014
|
|
Shares issued out of treasury
|
|
|
-
|
|
|
|
20,951
|
|
Amortization of deferred finance charges and debt discount
associated with notes payable
|
|
|
17,685
|
|
|
|
85,192
|
|
Change in deferred rent liability
|
|
|
(9,264
|
)
|
|
|
(8,813
|
)
|
Loss realized on sale of investment securities
|
|
|
-
|
|
|
|
3,858
|
|
Net changes in:
|
|
|
|
|
|
|
|
|
Accrued interest on short term investments
|
|
|
4,008
|
|
|
|
26,729
|
|
Advances, deposits and other current assets
|
|
|
62,786
|
|
|
|
(182,102
|
)
|
Accounts payable
|
|
|
1,172,121
|
|
|
|
(65,286
|
)
|
Accrued liabilities
|
|
|
336,050
|
|
|
|
177,272
|
|
Net cash (used in) operating activities:
|
|
|
(3,130,004
|
)
|
|
|
(4,744,121
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale and maturity of investment securities
|
|
|
1,680,000
|
|
|
|
10,799,890
|
|
Purchases of property and equipment
|
|
|
(21,126
|
)
|
|
|
(21,878
|
)
|
Net cash provided by investing activities
|
|
|
1,658,874
|
|
|
|
10,778,012
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock equity, net of issuance costs
|
|
|
4,284,373
|
|
|
|
-
|
|
Proceeds from exercise of common stock warrants
|
|
|
138,563
|
|
|
|
-
|
|
Principal payments on notes payable
|
|
|
(1,106,392
|
)
|
|
|
(988,493
|
)
|
Net cash provided by
(used in)
financing activities
|
|
|
3,316,544
|
|
|
|
(988,493
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
1,845,414
|
|
|
|
5,045,398
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,624,162
|
|
|
|
9,265,144
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,469,576
|
|
|
$
|
14,310,542
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
44,655
|
|
|
$
|
165,527
|
|
See accompanying notes to the financial statements.
CELSION CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE MONTHS ENDED
MARCH 31, 2017 AND 2016
Note 1. Business Description
Celsion Corporation, a Delaware corporation based in Lawrenceville, New Jersey, its wholly-owned subsidiaries CLSN Laboratories, Inc., also a Delaware corporation, and Celsion GmbH, a limited liability company in Zug Switzerland, referred to herein as “Celsion”, “we”, or “the Company”, as the context requires, is a fully-integrated development stage oncology drug company focused on developing a portfolio of innovative cancer treatments, including directed chemotherapies, DNA-mediated immunotherapy and RNA based therapies. Our lead product candidate is ThermoDox®, a proprietary dosage form of doxorubicin based on a heat-activated liposomal platform technology, currently in a Phase III clinical trial for the treatment of non-resectable hepatocellular carcinoma (“HCC”) also known as primary liver cancer, and a Phase II clinical trial for recurrent chest wall breast cancer. Our pipeline also includes GEN-1, a DNA-based immunotherapy currently in a Phase I clinical trial for the localized treatment of ovarian cancer and pre-clinical development for brain cancer. GEN-1 is based on a platform technology for the development of treatments using novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies. We are working to develop and commercialize more efficient, effective and targeted oncology therapies based on our technologies, with the goal of developing novel therapeutics that maximize efficacy while minimizing side-effects common to cancer treatments.
Note 2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, which include the accounts of Celsion Corporation, CLSN Laboratories, Inc. and Celsion GmbH, have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany balances and transactions have been eliminated. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the three month period ended March 31, 2017 are not necessarily indicative of the results that may be expected for any other interim period(s) or for any full year. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (SEC) on March 24, 2017.
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amount reported in the Company’s financial statements and accompanying notes. Actual results could differ materially from those estimates. Events and conditions arising subsequent to the most recent balance sheet date have been evaluated for their possible impact on the financial statements and accompanying notes. No events and conditions would give rise to any information that required accounting recognition or disclosure in the financial statements other than those arising in the ordinary course of business.
Note 3.
Financial Condition and Going Concern
Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs, clinical trials conducted in connection with the Company’s product candidates, and applications and submissions to the Food and Drug Administration. We have not generated significant revenue and have incurred significant net losses in each year since our inception. We have incurred approximately $247 million of cumulated net losses. As of March 31, 2017, we had approximately $4.5 million in cash and cash equivalents. We have substantial future capital requirements to continue our research and development activities and advance our product candidates through various development stages. The Company believes these expenditures are essential for the commercialization of its technologies.
The Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts, and when it undertakes marketing and sales activities. The Company’s ability to achieve profitability is dependent upon its ability to obtain governmental approvals, produce, and market and sell its new product candidates. There can be no assurance that the Company will be able to commercialize its technology successfully or that profitability will ever be achieved. The Company expects that its operating results will fluctuate significantly in the future and will depend on a number of factors, many of which are outside the Company’s control. The Company will need substantial additional funding in order to complete the development, testing and commercialization of its oncology product candidates and we have made a significant commitment to heat-activated liposome research and development projects. It is our intention at least to maintain the pace and scope of these development activities.
The condensed consolidated financial statements have been prepared on the going concern basis. In making this assessment, management conducted a comprehensive review of the Company’s business plan including, but not limited to:
|
●
|
the Company’s financial position for the quarter ended March 31, 2017;
|
|
●
|
significant events and transaction the Company has entered into since December 31, 2016;
|
|
●
|
the impact of the remaining payments of the note payable totaling $1.5 million at March 31, 2017;
|
|
●
|
the Company’s capitalization structure including common stock outstanding and common stock issuable on exercise of warrants and equity awards, and other common stock issuable under equity plans; and
|
|
●
|
continued support of the Company’s stockholders and lender.
|
As a result of the uncertainties involved in our business, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business. Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development, clinical, manufacturing, and commercialization activities.
Management has determined the Company has suffered recurring losses from operations and has an accumulated deficit that raises substantial doubt about our ability to continue as a going concern
for the next twelve months from our issuance date
. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.
A fundamental component of the ability to continue as a going concern is the Company’s ability to raise capital as required, as to which no assurances can be provided. To address the additional funding requirements of the Company, management has undertaken the following initiatives:
|
●
|
on February 14, 2017, the Company raised approximately $5.0 million in gross proceeds through a public offering of its common stock and warrants to purchase common stock;
|
|
●
|
the Company requested an increase of its authorized shares sufficient to allow for the funding of its clinical programs at its next Annual Meeting of Stockholders on May 16, 2017;
|
|
●
|
the Company has $7.5 million under a controlled equity offering facility;
|
|
●
|
it assessed its current expenditures and has reduced the current spending requirements where necessary;
|
|
●
|
it will pursue additional capital funding in the public and private markets through equity sales and/or debt facilities;
|
|
●
|
it will pursue possible partnerships and collaborations; and
|
|
●
|
it will pursue potential out licensing for its drug candidates.
|
Our ability to continue as a going concern may depend on our ability to raise additional capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. There are no assurances that these future funding and operating efforts will be successful.
If management is unsuccessful in these efforts, our current capital is not sufficient to fund our operations for the next twelve months.
Note 4. New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by Financial Accounting Standards Board (FASB) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements will not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows, or do not apply to our operations.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606),” which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. ASU 2014-09 was originally going to be effective on January 1, 2017; however, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. In March 2016, the FASB issued ASU No. 2016-8, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The amendments in this ASU do not change the core principle of ASU No. 2014-09 but the amendments clarify the implementation guidance on reporting revenue gross versus net. The effective date for the amendments in this ASU is the same as the effective date of ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Identifying Performance Obligations and Licensing),” to clarify the implementation guidance on identifying performance obligations and licensing. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company is currently evaluating the impact of adopting these standards and at this point, nothing has come to the Company’s attention that would indicate the adoption of these standards will have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income (other than those accounted for under the equity method of accounting). This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements and disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718). The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods; however, early adoption is allowed.
The Company adopted this standard in January 2017 and made the election to account for award forfeitures as they occur.
The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued Accounting Standard Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update clarifies how certain cash receipts and payments should be presented in the statement of cash flows and is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption pem1itted. The Company does not believe that this guidance will have an impact on the consolidated financial statements and related disclosures.
In November 2016, the FASB issued Accounting Standard Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update amends the guidance in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In January 2017, the FASB issued Accounting Standard Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In January 2017, the FASB issued Accounting Standard Update No. 2017-04, Intangibles-Goodwill and Other, Simplifying the Test for Goodwill impairment, which eliminates Step 2 from the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for any interim or annual impairment tests for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
Note 5. Net Loss per Common Share
Basic earnings per share is calculated based upon the net income (loss) available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated after adjusting the denominator of the basic earnings per share computation for the effects of all dilutive potential common shares outstanding during the period. The dilutive effects of preferred stock, options and warrants and their equivalents are computed using the treasury stock method.
For the three month periods ended March 31, 2017 and 2016, diluted loss attributable to common shareholders per common share was the same as basic loss attributable to common shareholders per common share as all options and warrants that were convertible into shares of the Company’s common stock were excluded from the calculation of diluted earnings attributable to common shareholders per common share as their effect would have been anti-dilutive. The total number of shares of common stock issuable upon exercise of warrants and equity awards were 37,587,775 and 8,627,832 for the three month periods ended March 31, 2017 and 2016, respectively.
Note 6. Investment Securities - Available For Sale
Short term investments available for sale of $1,680,000 as of December 31, 2016 consisted of certificates of deposit. These were valued at estimated fair value. Securities available for sale are evaluated periodically to determine whether a decline in their value is other than temporary. The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. Management reviews criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. The fair value of Company’s investment securities as of December 31, 2016 did not have gross unrealized gains or losses.
A summary of the cost, fair value and maturities of the Company’s short-term investments as of December 31, 2016 is as follows:
|
|
December 31, 2016
|
|
Short-term investments
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit
|
|
$
|
1,680,000
|
|
|
$
|
1,680,000
|
|
Total
|
|
$
|
1,680,000
|
|
|
$
|
1,680,000
|
|
|
|
December 31, 2016
|
|
Short-term investment maturities
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Within 3 months
|
|
$
|
1,680,000
|
|
|
$
|
1,680,000
|
|
Total
|
|
$
|
1,680,000
|
|
|
$
|
1,680,000
|
|
Investment income, which includes net realized losses on sales of available for sale securities and investment income interest and dividends, is summarized as follows:
|
|
Three Months Ended
March 31,
|
|
Description of Securities
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends accrued and paid
|
|
$
|
1,991
|
|
|
$
|
18,987
|
|
Accretion of investment premium
|
|
|
–
|
|
|
|
(5,788
|
)
|
Realized losses
|
|
|
–
|
|
|
|
(3,858
|
)
|
Investment income, net
|
|
$
|
1,991
|
|
|
$
|
9,341
|
|
Note 7. Fair Value of Measurements
FASB Accounting Standards Codification (ASC) Section 820 “
Fair Value Measurements and Disclosures,”
establishes a three level hierarchy for fair value measurements which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:
Level 1
: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date;
Level 2
: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and
Level 3
: Significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Cash and cash equivalents, other current assets, accounts payable and other accrued liabilities are reflected in the balance sheet at their estimated fair values primarily due to their short-term nature. There were no transfers of assets of liabilities between Level 1 and Level 2 and no transfers in or out of Level 3 during the three months ended March 31, 2017 except for the change in the earn-out milestone liability included in earnings (Note 13).
Assets and liabilities measured at fair value are summarized below:
|
|
Total Fair
Value on
the
Balance
Sheet
|
|
|
Quoted Prices
In Active
Markets For
Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring items as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
$
|
1,680,000
|
|
|
$
|
1,680,000
|
|
|
$
|
─
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring items as of March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out milestone liability (Note 13)
|
|
$
|
13,471,977
|
|
|
─
|
|
|
$
|
─
|
|
|
$
|
13,471,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring items as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out milestone liability (Note 13)
|
|
$
|
13,188,226
|
|
|
─
|
|
|
$
|
─
|
|
|
$
|
13,188,226
|
|
Note 8. Acquisition of EGEN, Inc.
On June 20, 2014, we completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama Corporation (EGEN) pursuant to an Asset Purchase Agreement (EGEN Purchase Agreement). We acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, we assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.
The total aggregate purchase price for the acquisition is up to $44.4 million, which includes potential future payments of up to $30.4 million contingent upon achievement of certain milestones set forth in the EGEN Purchase Agreement (Earn-out Payments). At the closing, we paid approximately $3.0 million in cash after expense adjustment and issued 2,712,188 shares of its common stock to EGEN. In addition, 670,070 shares of common stock are currently issuable to EGEN pending satisfactory resolution of any post-closing adjustments of expenses and EGEN’s indemnification obligations under the EGEN Purchase Agreement (Holdback Shares).
The Earn-out payments of up to $30.4 million will become payable, in cash, shares of Celsion common stock or a combination thereof, at Celsion’s option, as follows:
●
|
$12.4 million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of GEN-1 to be conducted by the Company or its subsidiary;
|
|
|
●
|
$12.0 million will become payable upon achieving certain specified development milestones relating to a GEN-1 glioblastoma multiforme brain cancer study to be conducted by us or our subsidiary; and
|
|
|
●
|
up to $6.0 million will become payable upon achieving certain specified milestones relating to the TheraSilence TM technology acquired from EGEN in the acquisition.
|
The acquisition of EGEN was accounted for under the acquisition method of accounting which required the Company to perform an allocation of the purchase price to the assets acquired and liabilities assumed. The fair value of the consideration transferred for the acquisition was approximately $27.6 million. Under the acquisition method of accounting, the total purchase price was allocated to EGEN’s net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date.
The following table summarizes the fair values of these assets acquired and liabilities assumed related to the acquisition.
Property and equipment, net
|
|
$
|
35,000
|
|
In-process research and development
|
|
|
24,211,000
|
|
Other Intangible assets (Covenant not to compete)
|
|
|
1,591,000
|
|
Goodwill
|
|
|
1,976,000
|
|
Total assets:
|
|
|
27,813,000
|
|
Accounts payable and accrued liabilities
|
|
|
(235,000
|
)
|
Net assets acquired
|
|
$
|
27,578,000
|
|
Acquired In-Process Research and Development (IPR&D) consists of EGEN's drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be $25.8 million as of the acquisition date. As of the closing of the acquisition, the IPR&D is considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable.
As of September 30, 2016, after our assessment of the totality of the events that could impair IPR&D, it was the Company’s conclusion “it is not more likely than not” that the indefinite-lived intangible assets were impaired. At December 31, 2016, the Company determined one of the IPR&D assets related to the development of its RNA delivery system being developed with collaborators using their RNA product candidates, valued at $1.4 million, was impaired. Therefore, the Company wrote off the value of this IPR&D asset incurring a non-cash charge of $1.4 million in the fourth quarter of 2016. In connection with the writeoff of this IPR&D asset, the Company concluded there was no probability of payments of the earn-out milestones associated with this asset and therefore reduced the earn-out milestone liability by $0.7 million at the same time. The Company concluded none of the other IPR&D assets were impaired at December 31, 2016. No events have occurred as of March 31, 2017 that would affect the Company’s conclusion as of the December 31, 2016 assessment date.
Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed, during the period ending on the seventh anniversary of the closing date of the acquisition on June 20, 2014, not to enter into any business, directly or indirectly, which competes with the business of the Company nor will it contact, solicit or approach any of the employees of the Company for purposes of offering employment.
At the end of 2016, the Company concluded the Covenant Not To Compete which was valued at approximately $1.6 million at the date of the EGEN acquisition had a definitive life and should be amortized on a straight line basis over its life of 7 years. Therefore, in the fourth quarter of 2016, the Company recorded a non-cash adjustment of $568,290 representing the cumulative amount of amortization expense from the date of acquisition through the end of 2016. Amortization expense was $56,829 during the first quarter of 2017. The carrying value of the Covenant Not To Compete was $966,095, net of $625,119 accumulated amortization, as of March 31, 2017 and was $1,022,924, net of $568,290 accumulated amortization, as of December 31, 2016.
The purchase price exceeded the estimated fair value of the net assets acquired by approximately $2.0 million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of our third quarter ended September 30 or sooner if we believe indicators of impairment exist.
As of September 30, 2016, after our assessment of the totality of the events that could impair goodwill, it was the Company’s conclusion “it is not more likely than not” that the Goodwill was impaired. Therefore, the Company was not required to conduct a two-step quantitative goodwill impairment test. At December 31, 2016, as a result of the substantial doubt in the Company’s ability to continue as a going concern, we again reviewed Goodwill for impairment by comparing the Company’s fair value to see if it exceeded its carrying value, known as the Step 1 approach. We concluded that the Company’s fair value exceeded its carrying value, and that measurement for an amount of an impairment loss, known as Step 2, was not required as Goodwill is considered not to be impaired. No events have occurred as of March 31, 2017 that would affect the Company’s conclusion as of the December 31, 2016 assessment date.
Note 9. Accrued Liabilities
Other accrued liabilities at March 31, 2017 and December 31, 2016 include the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Amounts due to contract research organizations and other contractual agreements
|
|
$
|
958,270
|
|
|
$
|
1,115,193
|
|
Accrued payroll and related benefits
|
|
|
1,676,035
|
|
|
|
1,066,751
|
|
Accrued professional fees
|
|
|
153,950
|
|
|
|
259,550
|
|
Accrued interest on notes payable
|
|
|
11,530
|
|
|
|
22,241
|
|
Other
|
|
|
20,021
|
|
|
|
20,021
|
|
Total
|
|
$
|
2,819,806
|
|
|
$
|
2,483,756
|
|
Note 10. Note Payable
In November 2013, the Company entered into a loan agreement with Hercules Technology Growth Capital, Inc. (Hercules) which permits up to $20 million in capital to be distributed in multiple tranches (the Hercules Credit Agreement). The Company drew the first tranche of $5 million upon closing of the Hercules Credit Agreement in November 2013 and used approximately $4 million of the proceeds to repay the outstanding obligations under its loan agreement with Oxford Finance LLC and Horizon Technology Finance Corporation as discussed further below. On June 10, 2014, the Company closed the second $5 million tranche under the Hercules Credit Agreement. The proceeds were used to fund the $3.0 million upfront cash payment associated with Celsion's acquisition of EGEN, as well as the Company’s transaction costs associated with the EGEN acquisition. Upon the closing of this second tranche, the Company has drawn down a total of $10 million under the Hercules Credit Agreement.
The obligations under the Hercules Credit Agreement are in the form of secured indebtedness bearing interest at a calculated prime-based variable rate (11.25% per annum since inception through December 17, 2015 and 11.50% since). Payments under the loan agreement were interest only for the first twelve months after loan closing, followed by a 30-month amortization period of principal and interest through the scheduled maturity date of June 1, 2017.
In connection with the Hercules Credit Agreement, the Company incurred cash expenses of $122,378. Also in connection with the Hercules Credit Facility, the Company paid loan origination fees of $230,000. Collectively, these deferred fees have been classified as a direct deduction from the debt liability consistent with the presentation of a debt discount and are being amortized as interest expense using the effective interest method over the life of the loan.
As a fee in connection with the Hercules Credit Agreement, the Company issued Hercules a warrant for a total of 97,493 shares of the Company’s common stock (the Hercules Warrant) at a per share exercise price of $3.59, exercisable for cash or by net exercise from November 25, 2013. Upon the closing of the second tranche on June 10, 2014, this warrant became exercisable for an additional 97,493 shares of the Company’s common stock. The Hercules Warrant will expire November 25, 2018. Hercules has certain rights to register the common stock underlying the Hercules Warrant pursuant to a Registration Rights Agreement with the Company dated November 25, 2013. The registration rights expire on the date when such stock may be sold under Rule 144 without restriction or upon the first year anniversary of the registration statement for such stock, whichever is earlier. The common stock issuable pursuant to the Hercules Warrant was filed pursuant to Rule 415 under the Securities Act of 1933 on the Prospectus for Registration Statement No. 333-193936 and was declared effective on September 30, 2014. The Company valued the Hercules Warrants issued using the Black-Scholes option pricing model and recorded a total of $476,261 as a direct deductions from the debt liability consistent with the presentation of a debt discount and are being amortized as interest expense using the effective interest method over the life of the loan. Also in connection with each of the $5.0 million tranches, the Company is required to pay an end of term charge equal to 3.5% of each original loan amount at time of maturity. Therefore, these amounts totaling $350,000 are being amortized as interest expense using the effective interest method over the life of the loan.
For the three month periods ended March 31, 2017 and 2016, the Company incurred $44,655 and $165,176 in interest expense, respectively, and amortized $17,685 and $78,671, respectively as interest expense for deferred fees, debt discount and end of term charges in connection with the Hercules Credit Agreement.
The Hercules Credit Agreement contains customary covenants, including covenants that limit or restrict the Company’s ability to grant liens, incur indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets. Upon the occurrence of an event of default under the Hercules Credit Agreement, the lenders may cease making loans, terminate the Hercules Credit Agreement, declare all amounts outstanding to be immediately due and payable and foreclose on or liquidate the Company’s assets that comprise the lenders’ collateral. The Hercules Credit Agreement specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, a material adverse effect on the Company or its assets, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. The Company has maintained compliance with these covenants.
The remaining future principle payments and end of term fees net of debt discounts of $1,471,846 on the Hercules Credit Agreement is due in June 2017.
Note 11. Stockholders’ Equity
In September 2015, the Company filed with the Securities and Exchange Commission (the SEC) a $75 million shelf registration statement on Form S-3 (the 2015 Shelf Registration Statement) (File No. 333-206789) that allows the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock or preferred stock. This shelf registration was declared effective on September 25, 2015.
At the 2016 Annual Meeting of Stockholders of the Company in June 2016, the Company’s stockholders of the Company approved an increase in the number of the authorized shares of the Company’s common stock from 75,000,000 shares to 112,500,000 shares. The number of the authorized shares of preferred stock remains 100,000 shares. The aggregate number of shares of all classes of stock that the Company may issue, after giving effect to such amendment as approved by the stockholders, will be 112,600,000 shares.
February 14, 2017 Public Offering
On February 14, 2017, the Company entered into a securities purchase agreement whereby it sold, in a public offering (the February 14, 2017 Public Offering), an aggregate of 19,385,869 shares of common stock of the Company at an offering price of $0.23 per share. In addition, the Company sold Series AA Warrants (the Series AA Warrants) to purchase up to 16,489,402 shares of common stock and Pre-Funded Series BB Warrants (the Pre-Funded Series BB Warrants) to purchase up to 2,600,000 shares of common stock. The Series AA Warrants have an exercise price of $0.23 per share, have a five year life and are immediately exercisable. The Pre-Funded Series BB Warrants were offered at $0.22 per share, are immediately exercisable for $0.01 per share of common stock, do not have an expiration date and were issued in lieu of shares of common stock to the extent that the purchase of common stock would cause the beneficial ownership of the purchaser of such shares, together with its affiliates and certain related parties, to exceed 9.99% of our common stock. The Company received approximately $5.0 million in gross proceeds before the deduction of the placement agent fees and offering expenses (excluding any proceeds from the exercise of the warrants) in the February 14, 2017 Public Offering.
In connection with the February 14, 2017 Public Offering, the Company filed with the Securities and Exchange Commission a registration statement on Form S-1 (Registration No. 333-215321) on December 23, 2016, as amended by Pre-Effective Amendment No. 1 filed with the Commission on January 20, 2017, as further amended by Pre-Effective Amendment No. 2 filed with the Commission on February 13, 2017, as further amended by Pre-Effective Amendment No. 3 filed with the Commission on February 13, 2017 and as further amended by Pre-Effective Amendment No. 4 filed with the Commission on February 14, 2017 for the registration of the securities issued and sold under the Securities Act of 1933, as amended.
During the first quarter of 2017, all 2,600,000 of the Series BB Pre-Funded warrants were exercised in full. During the first quarter of 2017, we received $94,062 from the exercise of Series AA Warrants to purchase 408,966 shares of common stock.
December 2016 Common Stock Offering
On December 20, 2016, Company, entered into a securities purchase agreement (the December 2016 Purchase Agreement) with several investors, pursuant to which the Company sold, in a registered direct offering (the December 2016 Offering), an aggregate of 5,142,843 shares of common stock of the Company at an offering price of $0.35 per share for gross proceeds of approximately $1.8 million before the deduction of the placement agent fee and offering expenses. The shares were offered by the Company pursuant to the 2015 Shelf Registration Statement.
In a concurrent private placement (the December 2016 Private Placement), the Company agreed to issue to the investors warrants, each to purchase one share of common stock (the December 2016 Warrants). The December 2016 Warrants are initially exercisable six months following issuance, and terminate five and one-half years following issuance. The December 2016 Warrants have an exercise price of $0.46 per share and are exercisable to purchase an aggregate of 5,142,843 shares of common stock. Subject to limited exceptions, a holder of a December 2016 Warrant will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of 9.99% of the Beneficial Ownership Limitation; provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.
The December 2016 Warrants and the shares of our common stock issuable upon the exercise of the December 2016 Warrants were not registered pursuant to the Securities Act, were not offered pursuant to the 2015 Shelf Registration Statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. On April 18, 2017, we filed a registration statement on Form S-1 to provide for the resale of the shares of common stock issuable upon the exercise of the December 2016 Warrants and we will be obligated to use our commercially reasonable efforts to keep such registration statement effective until the earliest of (i) the date on which all of the shares of common stock issuable upon the exercise of the December 2016 Warrants have been sold under the registration statement or Rule 144 under the Securities Act, (ii) the date on which the shares of common stock issuable upon the exercise of the December 2016 Warrants may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 under the Securities Act and (iii) the termination of the December 2016 Warrants.
Under the December 2016 Purchase Agreement, the Company was prohibited, for a period of three months after the closing, from effecting or entering into an agreement to issue common stock or any other securities that are at any time convertible into, or exercisable or exchangeable for, or otherwise entitle the holder thereof to receive, common stock to the extent such issuance or sale involves certain variable conversion, exercise or exchange prices or such agreement provides for sale of securities at a price to be determined in the future except for the filing of and conducting a financing, pursuant to a registration statement on a Form S-1.
June 2016 Common Stock Offering
On June 13, 2016, the Company entered into a securities purchase agreement (the June 2016 Purchase Agreement) with an investor, pursuant to which the Company issued and sold, in a registered direct offering (the June 2016 Offering), an aggregate of 2,311,764 shares of common stock of the Company at an offering price of $1.36 per share. In addition, the Company sold Pre-Funded Series B Warrants (the Pre-Funded Series B Warrants) to purchase 2,100,000 shares of common stock in lieu of shares of common stock to the extent that the purchase of common stock would cause the beneficial ownership of the purchaser of such shares of common stock, together with its affiliates and certain related parties, to exceed 9.99% of our common stock. The Company offered these shares and warrants under the June 2016 Purchase Agreement pursuant to the 2015 Shelf Registration Statement. The Company received gross proceeds of approximately $6.0 million before the deduction of placement agent fees and offering expenses in the June 2016 Offering. During the third quarter of 2016, 250,000 shares of common stock were issued in connection with the exercise of some of the Pre-Funded Series B Warrants. During the first quarter of 2017, the remaining 1,850,000 Series B Pre-Funded warrants were exercised in full.
In a concurrent private placement (the June 2016 Private Placement), the Company issued to the investor Series A warrants (the June 2016 Series A Warrants), each to purchase 0.5 share of common stock, Series C warrants (the June 2016 Series C Warrants), each to purchase one share of common stock, and Series D warrants (the June 2016 Series D Warrants), each to purchase 0.5 share of common stock (collectively the June 2016 Warrants). The June 2016 Series A Warrants are initially exercisable six months following issuance and terminate five and one-half years following issuance. The June 2016 Series C Warrants are initially exercisable six months following issuance and terminate one year following issuance. The June 2016 Series D Warrants only become exercisable ratably upon the exercise of the June 2016 Series C Warrants, are initially exercisable six months following issuance, and terminate five and one-half years following issuance. The June 2016 Warrants have an exercise price of $1.40 per share and are exercisable to purchase an aggregate of 8,823,528 shares of common stock. Subject to limited exceptions, a holder of a June 2016 Warrant will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%. The June 2016 Warrants and the shares of our common stock issuable upon the exercise of the June 2016 Warrants are not being registered under the Securities Act of 1933, as amended (the “Securities Act”), are not being offered pursuant to the 2015 Shelf Registration Statement and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. On October 31, 2016 we filed a registration statement on Form S-1 to provide for the resale of the shares of common stock issuable upon the exercise of the June 2016 Warrants and will be obligated to use our commercially reasonable efforts to keep such registration statement effective until the earliest of (i) the date on which all of the shares of commons stock issuable upon the exercise of the June 2016 Warrants have been sold under the registration statement or Rule 144 under the Securities Act, (ii) the date on which the shares of common stock issuable upon the exercise of the June 2016 Warrants may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 under the Securities Act and (iii) the termination of the June 2016 Warrants.
Under the June 2016 Purchase Agreement, the Company was prohibited, for a period of six months after the closing, from effecting or entering into an agreement to issue common stock or any other securities that are at any time convertible into, or exercisable or exchangeable for, or otherwise entitle the holder thereof to receive, common stock to the extent such issuance or sale involves certain variable conversion, exercise or exchange prices or such agreement provides for sale of securities at a price to be determined in the future.
Controlled Equity Offering
On February 1, 2013, the Company entered into a Controlled Equity Offering
SM
Sales Agreement (the “ATM Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which Celsion may offer and sell, from time to time, through Cantor, shares of our common stock having an aggregate offering price of up to $25.0 million (the “ATM Shares”) pursuant to the Company’s previously filed and effective Registration Statement on Form S-3. Under the ATM Agreement, Cantor may sell ATM Shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on The NASDAQ Capital Market, on any other existing trading market for the our common stock or to or through a market maker. From February 1, 2013 through March 31, 2017, the Company sold and issued an aggregate of 1,479,535 shares of common stock under the ATM Agreement, receiving approximately $7.6 million in gross proceeds.
The Company is not obligated to sell any ATM Shares under the ATM Agreement. Subject to the terms and conditions of the ATM Agreement, Cantor will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The NASDAQ Capital Market, to sell ATM Shares from time to time based upon the Company’s instructions, including any price, time or size limits or other customary parameters or conditions the Company may impose. In addition, pursuant to the terms and conditions of the ATM Agreement and subject to the instructions of the Company, Cantor may sell ATM Shares by any other method permitted by law, including in privately negotiated transactions.
The ATM Agreement will terminate upon the earlier of (i) the sale of ATM Shares under the ATM Agreement having an aggregate offering price of $25 million and (ii) the termination of the ATM Agreement by Cantor or the Company. The ATM Agreement may be terminated by Cantor or the Company at any time upon 10 days' notice to the other party, or by Cantor at any time in certain circumstances, including the occurrence of a material adverse change in the Company. The Company pays Cantor a commission of 3.0% of the aggregate gross proceeds from each sale of ATM Shares and has agreed to provide Cantor with customary indemnification and contribution rights. The Company also reimbursed Cantor for legal fees and disbursements of $50,000 in connection with entering into the ATM Agreement. In connection with the February common stock offering, the Company agreed to not sell any ATM Shares until June 23, 2017.
On October 2, 2015, we filed a prospectus supplement to the base prospectus that forms a part of the 2015 Shelf Registration Statement, pursuant to which we may offer and sell up to $7.5 million of shares of common stock from time to time under the ATM Agreement of the $17.4 million remaining under the ATM Agreement.
Note 12. Stock-Based Compensation
Stock Options Plans
The Company has long-term compensation plans that permit the granting of incentive awards in the form of stock options. Generally, the terms of these plans require that the exercise price of the options may not be less than the fair market value of Celsion’s common stock on the date the options are granted. Options granted generally vest over various time frames or upon milestone accomplishments. The Company’s options generally expire ten years from the date of the grant.
The Celsion Corporation 2007 Stock Incentive Plan (the 2007 Plan), as adopted and amended, permits the granting of 3,444,444 shares of stock as equity awards in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock, and performance awards, or in any combination of the foregoing. Prior to the adoption of the 2007 Plan, the Company adopted two stock plans for directors, officers and employees (one in 2001 and another in 2004) under which 148,148 shares were reserved for future issuance under each of these plans. As these plans have been superseded by the 2007 Plan, any options previously granted which expire, forfeit, or cancel under these plans will be rolled into the 2007 Plan.
A summary of the Company’s stock option and restricted stock awards for the three months ended March 31, 2017 is as follows:
|
|
Stock Options
|
|
|
Restricted Stock
Awards
|
|
|
Weighted
Average
|
|
Equity Awards
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Non-vested
Restricted
Stock
Outstanding
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
Contractual
Terms of
Equity
Awards
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards outstanding at December 31, 2016
|
|
|
2,932,663
|
|
|
$
|
4.31
|
|
|
|
67,000
|
|
|
$
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards forfeited, cancelled or expired
|
|
|
(454,207
|
)
|
|
$
|
13.15
|
|
|
|
(20,000
|
)
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards outstanding at March 31, 2017
|
|
|
2,478,456
|
|
|
$
|
2.69
|
|
|
|
47,000
|
|
|
$
|
3.01
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of outstanding awards at March 31, 2017
|
|
$
|
–
|
|
|
|
|
|
|
$
|
13,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards exercisable at March 31, 2017
|
|
|
2,033,373
|
|
|
$
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of awards exercisable at March 31, 2017
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model was originally developed for use in estimating the fair value of traded options, which have different characteristics from Celsion’s stock options. The model is also sensitive to changes in assumptions, which can materially affect the fair value estimate.
The Company used the following assumptions for determining the fair value of options granted during the three months period of 2016 under the Black-Scholes option pricing model. There were no option grants during the same period of 2017:
|
|
Three
Months Ended
March 31,
2016
|
|
Risk-free interest rate
|
|
|
1.87
|
%
|
Expected volatility
|
|
|
89.1
|
%
|
Expected life (in years)
|
|
|
10.00
|
|
Expected forfeiture rate
|
|
|
10
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatilities utilized in the model are based on historical volatility of the Company’s stock price. The risk free interest rate is derived from values assigned to U.S. Treasury bonds with terms that approximate the expected option lives in effect at the time of grant. The model incorporates exercise, pre-vesting and post-vesting forfeiture assumptions based on analysis of historical data. The expiration of each option granted in fiscal 2016 was used as the expected life.
Total compensation cost related to employee stock options and restricted stock awards totaled $117,466 and $615,014 for the three months ended March 31, 2017 and 2016, respectively. No compensation cost related to share-based payments arrangements was capitalized as part of the cost of any asset as of March 31, 2017 and 2016.
As of March 31, 2017, there was $0.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 0.9 years. The weighted average grant-date fair value was $1.14 per share for the options granted during the three months ended March 31, 2016. The weighted average grant-date fair value was $1.33 for the restricted stock awards granted during three months ended March 31, 2016.
Collectively, for all of the Company’s stock option plans there were a total of 912,741 equity awards available for future issuance as of March 31, 2017.
Note 13. Earn-out Milestone Liability
The total aggregate purchase price for the EGEN Acquisition included potential future Earn-out Payments contingent upon achievement of certain milestones. The difference between the aggregate $30.4 million in future Earn-out Payments and the $13.9 million included in the fair value of the acquisition consideration at June 20, 2014 was based on the Company's risk-adjusted assessment of each milestone (10% to 67%) and utilizing a discount rate based on the estimated time to achieve the milestone (1.5 to 2.5 years). The earn-out milestone liability will be fair valued at the end of each quarter and any change in their value will be recognized in the financial statements.
As of March 31, 2017 and December 31, 2016, the Company fair valued these milestones at $13.5 million and $13.2 million, respectively, and recognized a non-cash charge of $283,751 during the three months ended March 31, 2017 as a result of the change in the fair value of these milestones from December 31, 2016. As of March 31, 2016 and December 31, 2015, the Company fair valued these milestones at $14.2 million and $13.9 million, respectively, and recognized a non-cash charge of $302,656 during the three months ended March 31, 2016 as a result of the change in the fair value of these milestones from December 31, 2015.
The following is a summary of the changes in the earn-out milestone liability for 2017:
Balance at January 1, 2017
|
|
$
|
13,188,226
|
|
Non-cash charge from the adjustment for the change in fair value included in net loss
|
|
|
283,751
|
|
Balance at March 31, 2017
|
|
$
|
13,471,977
|
|
The following is a schedule of the Company’s risk-adjustment assessment of each milestone:
Date
|
|
Risk-adjustment Assessment
of each Milestone
|
|
Discount Rate
|
|
Estimated Time
to Achieve
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
50%
|
to
|
80%
|
|
9%
|
|
1.75
|
to
|
2.25
|
|
December 31, 2016
|
|
50%
|
to
|
80%
|
|
9%
|
|
2.00
|
to
|
2.50
|
|
March 31, 2016
|
|
10%
|
to
|
75%
|
|
9%
|
|
0.25
|
to
|
2.25
|
|
December 31, 2015
|
|
10%
|
to
|
75%
|
|
9%
|
|
0.50
|
to
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14. Warrants
Common Stock Warrants
Following is a summary of all warrant activity for the three months ended March 31, 2017:
Warrants
|
|
Number of
Warrants
Issued
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2016
|
|
|
20,831,883
|
|
|
$
|
1.88
|
|
Warrants issued during the three months ended March 31, 2017 (see Note 11)
|
|
|
19,089,402
|
|
|
|
0.20
|
|
Warrants exercised during the three months ended March 31, 2017 (see Note 11)
|
|
|
(4,858,966
|
)
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at March 31, 2017
|
|
|
35,062,319
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of outstanding warrants at March 31, 2017
|
|
$
|
964,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual terms at March 31, 2017 (in years)
|
|
|
4.16
|
|
|
|
|
|
Note 15. Contingent Liabilities and Commitments
In July 2011, the Company executed a lease (the “Lease”) with Brandywine Operating Partnership, L.P. (Brandywine), a Delaware limited partnership for a 10,870 square foot premises located in Lawrenceville, New Jersey. In October 2011, the Company relocated its offices to Lawrenceville, New Jersey from Columbia, Maryland. The lease has a term of 66 months and provides for 6 months of rent free, with the first monthly rent payment of approximately $23,000 due and paid in April 2012. Also, as required by the Lease, the Company provided Brandywine with an irrevocable and unconditional standby letter of credit for $250,000, which the Company secured with an escrow deposit at its banking institution of this same amount. The standby letter of credit will be reduced by $50,000 on each of the 19th, 31st and 43rd months from the initial term, with the remaining $100,000 amount remaining until the Lease term has expired. In connection with three $50,000 reductions of the standby letter of credit in April 2013 and 2014 and 2015, the Company reduced the escrow deposit by $50,000 each time. In late 2015, Lenox Drive Office Park LLC, purchased the real estate and office building and assumed the lease. This lease was set to expire on April 30, 2017. In April 2017, the Company and the landlord amended the Lease effective May 1, 2017. The Lease amendment extended the term for an additional 64 months, reduced the premises to 7,565 square feet, reduced the monthly rent, provided four months free rent and reduced the escrow deposit to $50,000. The monthly rent will range from approximately $18,900 in the first year to approximately $20,500 in the final year of the amendment. The Company also has a one-time option to cancel the lease as of the 40
th
month after the commencement date of the Lease amendment.
In connection with the EGEN Asset Purchase agreement in June 2014, the Company assumed the existing lease with another landlord for an 11,500 square foot premises located in Huntsville Alabama. This lease has a remaining term of 10 months with rent payments of approximately $23,200 per month.
Note 16. Technology Development and Licensing Agreements
On May 7, 2012 the Company entered into a long term commercial supply agreement with Zhejiang Hisun Pharmaceutical Co. Ltd. (Hisun) for the production of ThermoDox® in the China territory. In accordance with the terms of the agreement, Hisun will be responsible for providing all of the technical and regulatory support services, including the costs of all technical transfer, registration and bioequivalence studies, technical transfer costs, Celsion consultative support costs and the purchase of any necessary equipment and additional facility costs necessary to support capacity requirements for the manufacture of ThermoDox®. Celsion will repay Hisun for the aggregate amount of these development costs and fees commencing on the successful completion of three registration batches of ThermoDox®. Hisun is also obligated to certain performance requirements under the agreement. The agreement will initially be limited to a percentage of the production requirements of ThermoDox® in the China territory with Hisun retaining an option for additional global supply after local regulatory approval in the China territory. In addition, Hisun will collaborate with Celsion around the regulatory approval activities for ThermoDox® with the China State Food and Drug Administration (CHINA FDA). During the first quarter of 2015, Hisun completed the successful manufacture of three registration batches of ThermoDox® and the Company accrued $685,787 for the aggregate development costs and fees associated with these batches in March 2015. This amount was paid in April 2015.
On January 18, 2013, we entered into a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable research and development fee of $5 million to support our development of ThermoDox
®
in mainland China, Hong Kong and Macau (the China territory). Following our announcement on January 31, 2013 that the HEAT study failed to meet its primary endpoint, Celsion and Hisun have agreed that the Technology Development Contract entered into on January 18, 2013 will remain in effect while the parties continue to collaborate and are evaluating the next steps in relation to ThermoDox®, which include the sub-group analysis of patients in the Phase III HEAT Study for the hepatocellular carcinoma clinical indication and other activities to further the development of ThermoDox
®
for the Greater China market. The $5.0 million received as a non-refundable payment from Hisun in the first quarter 2013 has been recorded to deferred revenue and will continue to be amortized over the 10 year term of the agreement, until such time as the parties find a mutually acceptable path forward on the development of ThermoDox
®
based on findings of the ongoing post-study analysis of the HEAT Study data.
On July 19, 2013, the Company and Hisun entered into a Memorandum of Understanding to pursue ongoing collaborations for the continued clinical development of ThermoDox® as well as the technology transfer relating to the commercial manufacture of ThermoDox® for the China territory. This expanded collaboration includes development of the next generation liposomal formulation with the goal of creating safer, more efficacious versions of marketed cancer chemotherapeutics.
Among the key provisions of the Celsion-Hisun Memorandum of Understanding are:
|
●
|
Hisun will provide the Company with non-dilutive financing and the investment necessary to complete the technology transfer of its proprietary manufacturing process and the production of registration batches for the China territory;
|
|
|
|
|
●
|
Hisun will collaborate with the Company around the clinical and regulatory approval activities for ThermoDox® as well as other liposomal formations with the CHINA FDA; and
|
|
|
|
|
●
|
Hisun will be granted a right of first offer for a commercial license to ThermoDox® for the sale and distribution of ThermoDox® in the China territory.
|
On August 8, 2016, we signed a Technology Transfer, Manufacturing and Commercial Supply Agreement (“GEN-1 Agreement”) with Hisun to pursue an expanded partnership for the technology transfer relating to the clinical and commercial manufacture and supply of GEN-1, Celsion’s proprietary gene mediated, IL-12 immunotherapy, for the greater China territory, with the option to expand into other countries in the rest of the world after all necessary regulatory approvals are in effect. The GEN-1 Agreement will help to support supply for both ongoing and planned clinical studies in the U.S., and for potential future studies of GEN-1 in China. GEN-1 is currently being evaluated by Celsion in first line ovarian cancer patients.
Key provisions of the GEN-1 Agreement are as follows:
|
●
|
the GEN-1 Agreement has targeted unit costs for clinical supplies of GEN-1 that are substantially competitive with the Company’s current suppliers;
|
|
|
|
|
●
|
once approved, the cost structure for GEN-1 will support rapid market adoption and significant gross margins across global markets;
|
|
|
|
|
●
|
Celsion will provide Hisun a certain percentage of China’s commercial unit demand, and separately of global commercial unit demand, subject to regulatory approval;
|
|
|
|
|
●
|
Hisun and Celsion will commence technology transfer activities relating to the manufacture of GEN-1, including all studies required by CFDA for site approval; and
|
|
|
|
|
●
|
Hisun will collaborate with Celsion around the regulatory approval activities for GEN-1 with the CFDA. A local China partner affords Celsion access to accelerated CFDA review and potential regulatory exclusivity for the approved indication.
|
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
Statements and terms such as “expect”, “anticipate”, “estimate”, “plan”, “believe” and words of similar import regarding our expectations as to the development and effectiveness of our technologies, the potential demand for our products, and other aspects of our present and future business operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will not differ materially from our
expectations. In evaluating such forward-looking statements, readers should specifically consider the various factors contained in
the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (SEC) on March 24, 2017,
which factors include, without limitation, plans and objectives of management for future operations or programs or proposed new products or services; changes in the course of research and development activities and in clinical trials; possible changes in cost and timing
of development and testing; possible changes in capital structure, financial condition, working capital needs and other financial items; changes in approaches to medical treatment; clinical trial analysis and future plans relating thereto; our ability to realize the full extent of the anticipated benefits of our acquisition of substantially all of the assets of EGEN, Inc., including achieving operational cost savings and synergies in light of any delays we may encounter in the integration process and additional unforeseen expenses; introduction of new products by others; possible licenses or acquisitions of other technologies, assets or businesses; and possible actions by customers, suppliers, partners, competitors and regulatory authorities. These and other risks and uncertainties could cause actual results to differ materially from those indicated by forward-looking statements.
The discussion of risks and uncertainties set forth in this Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K, as well as in other filings with the SEC, is not a complete or exhaustive list of all risks facing the Company at any particular point in time. We operate in a highly competitive, highly regulated and rapidly changing environment and our business is constantly evolving. Therefore, it is likely that new risks will emerge, and that the nature and elements of existing risks will change, over time. It is not possible for management to predict all such risk factors or changes therein, or to assess either the impact of all such risk factors on our business or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.
Strategic and Clinical Overview
Celsion is a fully-integrated oncology drug development stage company focused on advancing a portfolio of innovative cancer treatments, including directed chemotherapies, DNA-mediated immunotherapy and RNA based therapies. Our lead product candidate is ThermoDox® , a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in a Phase III clinical trial for the treatment of primary liver cancer (the OPTIMA Study) and a Phase II clinical trial for the treatment of recurrent chest wall breast cancer (the DIGNITY Study). Second in our pipeline is GEN-1, a DNA-mediated immunotherapy for the localized treatment of ovarian and brain cancers. We have three platform technologies providing the basis for the future development of a range of therapeutics for difficult-to-treat forms of cancer including: Lysolipid Thermally Sensitive Liposomes, a heat sensitive liposomal based dosage form that targets disease with known therapeutics in the presence of mild heat, TheraPlas, a novel nucleic acid-based treatment for local transfection of therapeutic plasmids, and TheraSilence, a systemic dosage form for lung directed anti-cancer RNA. With these technologies we are working to develop and commercialize more efficient, effective and targeted oncology therapies that maximize efficacy while minimizing side-effects common to cancer treatments.
ThermoDox®
ThermoDox ® is being evaluated in a Phase III clinical trial for primary liver cancer (the OPTIMA Study) which was initiated in 2014 and a Phase II clinical trial for recurrent chest wall breast cancer (the DIGNITY Study). ThermoDox® is a liposomal encapsulation of doxorubicin, an approved and frequently used oncology drug for the treatment of a wide range of cancers. Localized heat at hyperthermia temperatures (greater than 40° Celsius) releases the encapsulated doxorubicin from the liposome enabling high concentrations of doxorubicin to be deposited preferentially in and around the targeted tumor.
The OPTIMA Study.
The OPTIMA Study represents an evaluation of ThermoDox® in combination with a first line therapy, RFA, for newly diagnosed, intermediate stage HCC patients. HCC incidence globally is approximately 850,000 new cases per year and is the third largest cancer indication globally. Approximately 30% of newly diagnosed patients can be addressed with RFA alone.
On February 24, 2014, we announced that the United States Food and Drug Administration (the “FDA”), after its customary 30-day review period, provided clearance for the OPTIMA Study, which is a pivotal, double-blind, placebo-controlled Phase III trial of ThermoDox®, in combination with standardized RFA, for the treatment of primary liver cancer. The trial design of the OPTIMA Study is based on the comprehensive analysis of data from an earlier clinical trial called the HEAT Study, which is described below. The OPTIMA Study is supported by a hypothesis developed from an overall survival analysis of a large subgroup of patients from the HEAT Study.
We initiated the OPTIMA Study in the first half of 2014. The OPTIMA Study was designed with extensive input from globally recognized hepatocellular carcinoma (“HCC”) researchers and expert clinicians and after receiving formal written consultation from the FDA. The OPTIMA Study is expected to enroll up to 550 patients globally at up to 65 sites in the United States, Canada, Europe Union, China and other countries in the Asia-Pacific region, and will evaluate ThermoDox® in combination with standardized RFA, which will require a minimum of 45 minutes across all investigators and clinical sites for treating lesions three to seven centimeters, versus standardized RFA alone. The primary endpoint for this clinical trial is overall survival (“OS”), and the secondary endpoints are progression free survival and safety. The statistical plan calls for two interim efficacy analyses by an independent Data Monitoring Committee.
On December 16, 2015, we announced that we had received the clinical trial application approval from the China Food and Drug Administration (the “CFDA”) to conduct the OPTIMA Study in China. This clinical trial application approval will allow Celsion to enroll patients at up to 20 clinical sites in China. With the addition of these Chinese clinical sites, the Company expects to complete enrollment in the OPTIMA Study during the first half of 2018. On April 26, 2016, we announced that the first patient in China had been enrolled in the OPTIMA Study. Results from the OPTIMA Study, if successful, will provide the basis for a global registration filing and marketing approval.
Post-hoc data analysis from the Company’s earlier Phase III HEAT Study suggest that ThermoDox® may substantially improve OS, when compared to the control group, in patients if their lesions undergo a 45 minute RFA procedure standardized for a lesion greater than 3 cm in diameter. Data from nine OS sweeps have been conducted since the top line progression free survival (“PFS”) data from the HEAT Study were announced in January 2013, with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical significance. On August 15, 2016, the Company announced updated results from its final retrospective OS analysis of the data from the HEAT Study. These results demonstrated that in a large, well bounded, subgroup of patients with a single lesion (n=285, 41% of the HEAT Study patients), treatment with a combination of ThermoDox® and optimized RFA provided an average 54% risk improvement in OS compared to optimized RFA alone. The Hazard Ratio (“HR”) at this analysis is 0.65 (95% CI 0.45 - 0.94) with a p-value of 0.02. Median OS for the ThermoDox® group has been reached which translates into a two year survival benefit over the optimized RFA group (projected to be greater than 80 months for the ThermoDox® plus optimized RFA group compared to less than 60 months projection for the optimized RFA only group).
Additional findings from this most recent analysis specific to the Chinese patient cohort of 223 patients are summarized below:
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In the population of 154 patients with a single lesion who received optimized RFA treatment for 45 minutes or more showed a 53% risk improvement in OS (HR = 0.66) when treated with ThermoDox® plus optimized RFA.
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These data continue to support and further strengthen ThermoDox®’s potential to significantly improve OS compared to an RFA control in patients with lesions that undergo optimized RFA treatment for 45 minutes or more. The clinical benefit seen in the intent-to-treat Chinese patient cohort further confirms the importance of RFA heating time as 72% of patients in this large patient cohort in China received an optimized RFA treatment.
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While this information should be viewed with caution since it is based on a retrospective analysis of a subgroup, we also conducted additional analyses that further strengthen the evidence for the HEAT Study sub-group. We commissioned an independent computational model at the University of South Carolina Medical School. The results indicate that longer RFA heating times correlate with significant increases in doxorubicin concentration around the RFA treated tissue. In addition, we conducted a prospective preclinical study in 21 pigs using two different manufacturers of RFA and human equivalent doses of ThermoDox® that clearly support the relationship between increased heating duration and doxorubicin concentrations.
On November 29, 2016, the Company announced the results of an independent analysis conducted by the National Institutes of Health (the “NIH”) from the HEAT Study which reaffirmed the correlation between increased RFA burn time per tumor volume and improvements in overall survival. The NIH analysis, which sought to evaluate the correlation between RFA burn time per tumor volume (min/ml) and clinical outcome, concluded that increased burn time per tumor volume significantly improved overall survival in patients treated with RFA plus ThermoDox® compared to patients treated with RFA alone.
The HEAT Study
.
On January 31, 2013, the Company announced that the HEAT Study, ThermoDox® in combination with RFA, did not meet the primary endpoint, PFS, of a Phase III clinical trial enrolling 701 patients with primary liver cancer. This determination was made after conferring with the HEAT Study independent Data Monitoring Committee, that the HEAT Study did not meet the goal of demonstrating a clinically meaningful improvement in progression free survival. In the trial, ThermoDox® was well-tolerated with no unexpected serious adverse events. Following the announcement of the HEAT Study results, we continued to follow patients for OS, the secondary endpoint of the HEAT Study. We have conducted a comprehensive analysis of the data from the HEAT Study to assess the future strategic value and development strategy for ThermoDox®.
The DIGNITY Study.
On December 14, 2015, we announced final data from our ongoing DIGNITY study, which is an open-label, dose-escalating Phase II trial of ThermoDox® in patients with recurrent chest wall (“RCW”) breast cancer. The DIGNITY Study was designed to establish a safe therapeutic dose in Phase I, and to demonstrate local control in Phase II, including complete and partial responses, and stable disease as its primary endpoint. The DIGNITY Study was also designed to evaluate kinetics in ThermoDox® produced from more than one manufacturing site. Of the 28 patients enrolled and treated, 21 patients were eligible for evaluation of efficacy. Approximately 62% of evaluable patients experienced a local response, including six complete responses and seven partial responses.
The Euro-DIGNITY Study.
We anticipate that a Phase II study of RadioTherapy, HyperThermia and ThermoDox® to treat patients with local-regional recurrent chest wall breast cancer will be initiated by five to six clinical sites located in Italy, Israel, Poland and the Czech Republic (the “Euro-DIGNITY Study”). The Euro-DIGNITY Study is expected to commence in the second half of 2017 and should enroll up to 70 patients affected by recurrent breast adenocarcinoma on the chest wall with/without nodes over a period of two years.
The primary objectives of the Euro-DIGNITY Study will be (i) to evaluate efficacy in patients after 3 cycles of ThermoDox® plus Hyperthermia measuring tumor diameter as a response to therapy and (ii) to evaluate loco-regional breast tumor control in patients who undergo ThermoDox®/hyperthermia/radiotherapy as measured by target lesion clinical response rate combining a RECIST criteria with digital photography to gauge response.
Secondary objectives of the Euro-DIGNITY Study will be (i) to evaluate the safety of the combination of ThermoDox/Hyperthermia/Radiotherapy among patients with local-regional recurrence (“LRR”) breast cancer, (ii) to evaluate the duration of local control complete response, partial response and stable disease following treatment with ThermoDox/Hyperthermia/Radiotherapy up to 24 months among patients with LRR breast cancer and (iii) to assess Patient Reported Quality of Life using the FACT-B and Brief Pain Inventory following treatment with ThermoDox/Hyperthermia/Radiotherapy among patients with LRR breast cancer.
Acquisition of EGEN Assets
On June 20, 2014, we completed the acquisition of substantially all of the assets of Egen, Inc., an Alabama corporation, which has changed its company name to EGWU, Inc. after the closing of the acquisition (“EGEN”), pursuant to an asset purchase agreement dated as of June 6, 2014, by and between EGEN and Celsion (the “Asset Purchase Agreement”). We acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.
The total purchase price for the asset acquisition is up to $44.4 million, including potential future earnout payments of up to $30.4 million contingent upon achievement of certain earnout milestones set forth in the Asset Purchase Agreement. At the closing, we paid approximately $3.0 million in cash after the expense adjustment and issued 2,712,188 shares of our common stock to EGEN. The shares of common stock were issued in a private transaction exempt from registration under the Securities Act, pursuant to Section 4(2) thereof. In addition, 670,070 shares of common stock were held back by us at the closing and are issuable to EGEN pending certain potential adjustments for expenses or in relation to EGEN’s indemnification obligations under the Asset Purchase Agreement.
The earnout payments of up to $30.4 million will become payable, in cash, shares of our common stock or a combination thereof, at our option upon achievement of three major milestone events as follows:
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$12.4 million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of GEN-1 (formerly known as EGEN-001) to be conducted by us or our subsidiary;
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$12.0 million will become payable upon achieving certain specified development milestones relating to a GEN-1 glioblastoma multiforme brain cancer study to be conducted by us or our subsidiary; and
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up to $6.0 million will become payable upon achieving certain specified milestones relating to the TheraSilence technology acquired from EGEN in the acquisition.
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Our obligations to make the earnout payments will terminate on the seventh anniversary of the closing date. In the acquisition, we purchased GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian and brain cancers, and two platform technologies for the development of treatments for those suffering with difficult-to-treat forms of cancer, novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies, including TheraPlas and TheraSilence.
GEN-1
GEN-1 is a DNA-based immunotherapeutic product for the localized treatment of ovarian and brain cancers by intraperitoneally administering an Interleukin-12 (“IL-12”) plasmid formulated with our proprietary TheraPlas delivery system. In this DNA-based approach, the immunotherapy is combined with a standard chemotherapy drug, which can potentially achieve better clinical outcomes than with chemotherapy alone. We believe that increases in IL-12 concentrations at tumor sites for several days after a single administration could create a potent immune environment against tumor activity and that a direct killing of the tumor with concomitant use of cytotoxic chemotherapy could result in a more robust and durable antitumor response than chemotherapy alone.
GEN-1 OVATION Study.
In February 2015, we announced that the FDA accepted, without objection, the Phase I dose-escalation clinical trial of GEN-1 in combination with the standard of care in neo-adjuvant ovarian cancer (the “OVATION Study”). On September 30, 2015, we announced enrollment of the first patient in the OVATION Study. The OVATION Study will seek to identify a safe, tolerable and potentially therapeutically active dose of GEN-1 by recruiting and maximizing an immune response and is designed to enroll three to six patients per dose level and will evaluate safety and efficacy and attempt to define an optimal dose for a follow-on Phase I/II study combining GEN-1 with Avastin® and Doxil®. In addition, the OVATION Study establishes a unique opportunity to assess how cytokine-based compounds such as GEN-1, directly affect ovarian cancer cells and the tumor microenvironment in newly diagnosed patients. The study is designed to characterize the nature of the immune response triggered by GEN-1 at various levels of the patients’ immune system, including:
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infiltration of cancer fighting T-cell lymphocytes into primary tumor and tumor microenvironment including peritoneal cavity, which is the primary site of metastasis of ovarian cancer;
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changes in local and systemic levels of immuno-stimulatory and immunosuppressive cytokines associated with tumor suppression and growth, respectively; and
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expression profile of a comprehensive panel of immune related genes in pre-treatment and GEN-1-treated tumor tissue.
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We have initiated the OVATION Study at four clinical sites at the University of Alabama at Birmingham, Oklahoma University Medical Center, Washington University in St. Louis and the Medical College of Wisconsin. During 2016 and 2017, we announced data from the first four cohorts of patients in the OVATION Study, respectively. The first four cohorts each enrolled three patients. Enrollment of three additional patients in the fourth cohort is ongoing, and Celsion expects to complete the OVATION Study in the first half of 2017. Future studies of GEN-1 may include a Phase I/II study combining GEN-1 with Avastin® and Doxil®. The results of the OVATION Study to date are as follows:
Totality of Results in the First Four Cohorts
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Of the first twelve patients dosed, one (1) patient demonstrated a complete response (“CR”), eight (8) patients demonstrated partial response (“PR”) and three patients demonstrated stable disease (“SD”), as measured by RECIST criteria. This translates to a 100% disease control rate (“DCR”) and 75% objective response rate (“ORR”).
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Eleven patients had successful resections of their tumors, with six (6) patients having an R0 resection, which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed, and four (4) patients with a R1 resection, indicating microscopic residual tumor. One patient had an R2, indicating macroscopic residual tumor. One patient in the second cohort was ineligible for debulking surgery due to a medical complication unrelated to the study or the study drug.
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Of the eleven surgically treated and evaluable patients, one patient demonstrated a complete pathological response (“cPR”), five (5) patients demonstrated a micro pathological response (“microPR”), and five (5) patients demonstrated a macroPR. These data compare favorably to historical data, which indicate that cPRs are typically seen in less than 7% of patients receiving neoadjuvant chemotherapy followed by surgical resection. cPRs have been associated with a median overall survival of 72 months, which is more than three years longer than those who do not experience a cPR. In addition, microPRs are seen in approximately 30% of patients, and are associated with a median overall survival of 38 months.
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All eleven patients who completed treatment follow-up experienced a dramatic (greater than 90%) drop in their CA-125 protein levels as of their most recent study visit. CA-125 is used to monitor certain cancers during and after treatment. CA-125 is present in greater concentrations in ovarian cancer cells than in other cells. A 50% reduction in CA-125 levels is considered meaningful.
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Top Line Translational Data from First Two Cohorts
Celsion also reported initial translational data from the first two cohorts of patients. Tumor and blood samples collected before the start of the neoadjuvant chemotherapy (“NACT”) and after the completion of GEN-1 treatment at debulking surgery are being analyzed for immune cell populations. Top line data demonstrates intriguing immunological changes in the tumor that are consistent with the activation of the immune system. Specifically:
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In tumor tissue, there was an increase in cytotoxic CD8+ T-cell density in three out of four evaluable patients at debulking surgery. There was a decrease in immunosuppressive FoxP3+ T-cells in two out of those 4 patients. The ratio of CD8+/FoxP3+ cells was increased in all four evaluable patients. High tumor infiltrating CD8+ T-cell density, low FoxP3+ T-cell density or high CD8+/FoxP3+ ratio demonstrate a potential shift in tumor environment to favoring immune stimulation following NACT + GEN-1 therapy. For the remaining two patients the post-treatment tumor tissue was not available. In one of those two patients there was complete pathological response hence no tumor tissue was present to provide a post-treatment comparison. In the other patient the debulking surgery was not performed due to disease related complications.
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In plasma samples, there was no significant change in T-cell density following the treatment. The density of myeloid derived suppressor cells that are associated with immunosuppression in ovarian cancer were either decreased or did not increase in post-treatment samples.
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Additional immune analysis of biological tissue including cytokine ELISA from the first two patient cohorts and a complete analysis of the two higher dose cohorts is in progress. We expect to report the final clinical and translational data from the OVATION Study in mid-2017.
GEN-1 Plus Doxil®
and Avastin®
Trial.
On April 29, 2015, we announced the expansion of our ovarian cancer development program to include a Phase I dose escalating trial to evaluate GEN-1 in combination with Avastin® and Doxil® in platinum-resistant ovarian cancer patients. This new combination study in platinum-resistant ovarian cancer is supported by three preclinical studies indicating that the combination of GEN-1 with Avastin® may result in significant clinical benefit with a favorable safety profile. Specifically:
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In two preclinical studies using an animal model of disseminated ovarian cancer, GEN-1 in combination with Avastin® led to a significant reduction in tumor burden and disease progression. The effectiveness of the combined treatment was seen when GEN-1 was combined with various dose levels of Avastin® (low-medium-high). Additionally, it was shown that GEN-1 treatment alone resulted in anti-tumor activity that was as good as or better than Avastin® treatment alone.
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The preclinical studies indicated that no obvious overt toxicities were associated with the combined treatments of GEN-1 and Avastin®. The preclinical data are also consistent with the mechanism of action for GEN-1, which exhibits certain anti-angiogenic properties and suggests that combining GEN-1 with lower doses of Avastin® may enhance efficacy and help reduce the known toxicities associated with this anti-VEGF drug.
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The distinct biological activities of GEN-1 (immune stimulation) and Avastin® (inhibition of tumor blood vessel formation) also suggest scientific rationale for this combination approach. Additionally, the anti-angiogenic activity of GEN-1 mediated through up regulation of the interferon gamma (“IFN-g”) pathway may help to explain the synergy between GEN-1 and Avastin® and potentially addresses the VEGF escape mechanisms associated with resistance to Avastin® therapy.
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TheraPlas
Technology Platform.
TheraPlas is a technology platform for the delivery of DNA and messenger RNA (“mRNA”) therapeutics via synthetic non-viral carriers and is capable of providing cell transfection for double-stranded DNA plasmids and large therapeutic RNA segments such as mRNA. There are two components of the TheraPlas™ system, a plasmid DNA or mRNA payload encoding a therapeutic protein and a delivery system. The delivery system is designed to protect the DNA/RNA from degradation and promote trafficking into cells and through intracellular compartments. We designed the delivery system of TheraPlas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity. We believe TheraPlas is a viable alternative to current approaches to gene delivery due to several distinguishing characteristics, including enhanced molecular versatility that allows for complex modifications to improve activity and safety.
Technology Development and Licensing Agreements.
Our current efforts and resources are applied on the development and commercialization of cancer drugs including tumor-targeting chemotherapy treatments using focused heat energy in combination with heat-activated drug delivery systems, immunotherapies and RNA-based therapies.
On August 8, 2016, we signed a Technology Transfer, Manufacturing and Commercial Supply Agreement (the “GEN-1 Agreement”) with Hisun to pursue an expanded partnership for the technology transfer relating to the clinical and commercial manufacture and supply of GEN-1, Celsion’s proprietary gene mediated, IL-12 immunotherapy, for the greater China territory, with the option to expand into other countries in the rest of the world after all necessary regulatory approvals are obtained. The GEN-1 Agreement will help to support supply for both ongoing and planned clinical studies in the United States, and for potential future studies of GEN-1 in China. GEN-1 is currently being evaluated by Celsion in first line ovarian cancer patients.
In June 2012, Celsion and Zhejiand Hisun Pharmaceutical Co. Ltd. (“Hisun”) signed a long-term commercial supply agreement for the production of ThermoDox®. Hisun is one the largest manufacturers of chemotherapy agents globally, including doxorubicin. In July 2013, the ThermoDox® collaboration was expanded to focus on next generation liposomal formulation development with the goal of creating safer, more efficacious versions of marketed cancer chemotherapeutics. During 2015, Hisun successfully completed the manufacture of three registration batches for ThermoDox® and has obtained regulatory approvals to supply ThermoDox® to participating clinical trial sites in all of the countries of South East Asia, Europe and North America, as well as to the European Union countries allowing for early access to ThermoDox®. The future manufacturing of clinical and commercial supplies by Hisun will result in a cost structure allowing Celsion to profitably access all global markets, including third world countries, and help accelerate the Company’s product development program in China for ThermoDox® in primary liver cancer and other approved indications.
Business Plan and Going Concern
As a clinical stage biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in "Part II, Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q.
As of March 31, 2017, we had $4.5 million in cash and short term investments. Given our development plans, we anticipate cash resources will be sufficient to fund our operations into mid-2017 and the Company has no committed sources of additional capital. The Company has a Controlled Equity Offering
SM
Sales Agreement (the “ATM Agreement”) with Cantor Fitzgerald & Co. (see Note 11). As a result of the risks and uncertainties discussed in this Quarterly Report on Form 10-Q, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete any of our research and development activities, preclinical studies or clinical trials in a timely manner or our failure to enter into collaborative agreements when appropriate could significantly increase our capital requirements and could adversely impact our liquidity. While our estimated future capital requirements are uncertain and could increase or decrease as a result of many factors, including the extent to which we choose to advance our research, development activities, preclinical studies and clinical trials, or if we are in a position to pursue manufacturing or commercialization activities, we will need significant additional capital to develop our product candidates through development and clinical trials, obtain regulatory approvals and manufacture and commercialized approved products, if any. We do not know whether we will be able to access additional capital when needed or on terms favorable to us or our stockholders. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business. Based on the above, management has determined there is substantial doubt regarding our ability to continue as a going concern. As a result, our independent registered accounting firm has expressed substantial doubt about our ability to continue as a going concern in their report dated March 24, 2017 included in our 2016 Annual Report on Form 10-K.
Financing Overview
Equity and Debt Financings
During 2016 and thus far in 2017, the Company issued a total of 33.8 million shares of common stock; in the following equity transactions for an aggregate $13.0 million in gross proceeds.
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On February 14, 2017, the Company entered into a securities purchase agreement whereby it sold, in a public offering (the February 14, 2017 Public Offering), an aggregate of 19,385,869 shares of common stock of the Company at an offering price of $0.23 per share. In addition, the Company sold Series AA Warrants (the Series AA Warrants) to purchase up to 16,489,402 shares of common stock and Pre-Funded Series BB Warrants (the Pre-Funded Series BB Warrants) to purchase up to 2,600,000 shares of common stock. The Series AA Warrants have an exercise price of $0.23 per share, have a five year life and are immediately exercisable. The Pre-Funded Series BB Warrants were offered at $0.22 per share, are immediately exercisable for $0.01 per share of common stock, do not have an expiration date and were issued in lieu of shares of common stock to the extent that the purchase of common stock would cause the beneficial ownership of the purchaser of such shares, together with its affiliates and certain related parties, to exceed 9.99% of our common stock. The Company received approximately $5.0 million in gross proceeds before the deduction of the placement agent fees and offering expenses (excluding any proceeds from the exercise of the warrants) in the February 14, 2017 Public Offering. During the first quarter of 2017, all 2,600,000 of the Series BB Pre-Funded warrants were exercised in full. During the first quarter of 2017, we received $94,062 from the exercise of Series AA Warrants to purchase 408,966 of common stock.
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On December 23, 2016, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which the Company sold, in a registered direct offering, an aggregate of 5,142,843 shares of common stock for an aggregate purchase price of approximately $1.8 million. In a concurrent private placement, the Company issued to the same investors warrants to purchase up to 5,142,843 shares of common stock.
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On June 13, 2016, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company sold, in a registered direct offering, an aggregate of 2,311,764 shares of common stock and Pre-funded Series B Warrants to purchase 2,100,000 shares of common stock for an aggregate purchase price of approximately $6.0 million. In a concurrent private placement, the Company issued to the same investor warrants to purchase up to 8,823,528 shares of common stock. As of March 15, 2017, the Pre-funded Series B Warrants were fully exercised.
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We are a party to a Controlled Equity Offering
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Sales Agreement (ATM) dated as of February 1, 2013 with Cantor Fitzgerald & Co., pursuant to which we may sell additional shares of our common stock having an aggregate offering price of up to $25 million through “at-the-market” equity offerings from time to time. From February 1, 2013 through December 31, 2015, the Company sold and issued an aggregate of 1,479,535 shares of common stock under the ATM, receiving approximately $7.4 million in net proceeds. The Company did not have any sales under the ATM in 2016 and thus far in 2017.
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We believe that our cash and cash equivalents of $4.5 million on hand at March 31, 2017, coupled with our access to the ATM, are sufficient to fund operations through the second quarter of 2017. However, our future capital requirements will depend upon numerous unpredictable factors, including, without limitation, the cost, timing, progress and outcomes of clinical studies and regulatory reviews of our proprietary drug candidates, our efforts to implement new collaborations, licenses and strategic transactions, general and administrative expenses, capital expenditures and other unforeseen uses of cash. To complete the development and commercialization of our products, we will need to raise substantial amounts of additional capital to fund our operations. We do not have any committed sources of financing and cannot give assurance that alternate funding will be available in a timely manner, on acceptable terms or at all. We may need to pursue dilutive equity financings, such as the issuance of shares of common stock, preferred stock, convertible debt or other convertible or exercisable securities, which financings could dilute the percentage ownership of our current common stockholders and could significantly lower the market value of our common stock.
As a clinical stage biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in "Item 1A. Risk Factors" under "Part II: Other Information" included herein.
FINANCIAL REVIEW
FOR
THE THREE
MONTHS
ENDED
MARCH
31, 2017 AND 2016
Results of Operations
For the three months ended March 31, 2017, our net loss was $5.2 million compared to a net loss of $5.7 million for the same period of 2016. As of March 31, 2017, we had $4.5 million in cash and cash equivalents.
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Three Months Ended
March 31,
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(In thousands)
|
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|
Change
Increase (Decrease)
|
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|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
%
|
|
Licensing Revenue:
|
|
$
|
125
|
|
|
$
|
125
|
|
|
$
|
–
|
|
|
|
–
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Research
|
|
|
3,147
|
|
|
|
2,809
|
|
|
|
338
|
|
|
|
12.0
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%
|
Chemistry, Manufacturing and Controls
|
|
|
328
|
|
|
|
632
|
|
|
|
(304
|
)
|
|
|
(48.1
|
)%
|
Research and development
|
|
|
3,475
|
|
|
|
3,441
|
|
|
|
34
|
|
|
|
(1.0
|
)%
|
General and administrative
|
|
|
1,468
|
|
|
|
1,863
|
|
|
|
(395
|
)
|
|
|
(21.2
|
)%
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Total operating expenses
|
|
|
4,943
|
|
|
|
5,304
|
|
|
|
(361
|
)
|
|
|
(6.8
|
)%
|
Loss from operations
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|
$
|
(4,818
|
)
|
|
$
|
(5,179
|
)
|
|
$
|
361
|
|
|
|
7.0
|
%
|
Comparison of the
Three
Months ended
March 31, 2017 and 2016
Licensing Revenue
In January 2013, we entered into a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable technology transfer fee of $5.0 million to support our development of ThermoDox® in the China territory. The $5.0 million received as a non-refundable payment from Hisun in the first quarter 2013 has been recorded to deferred revenue and will be amortized over the ten year term of the agreement; therefore we recorded deferred revenue of $125,000 in each of the first quarters of 2017 and 2016.
Research and Development Expenses
Research and development (R&D) expenses increased by $0.1 million to $3.5 million in the first quarter of 2017 from $3.4 million in the same period of 2016. Costs associated with the OPTIMA Study were $1.6 million in the first quarter of 2017 compared to $1.0 million in the same period of 2016. Increased costs in the OPTIMA Study are associated with patient enrollment and treatment costs and investigator site initiation expenses. Other clinical costs remained relatively unchanged at $0.9 million in each of the first quarters of 2017 and 2016. Preclinical and regulatory costs remained relatively unchanged at $0.1 million in each of the first quarters of 2017 and 2016. Costs associated with the production and distribution of ThermoDox® to support the OPTIMA Study decreased to $0.3 million in the first quarter of 2017 compared to $0.6 million the same period of 2016. R&D costs associated with GEN-1 decreased to $0.6 million in the first quarter of 2017 compared to $0.8 million the same period of 2016. The Company expects to complete the enrollment of all Cohorts of the OVATION Study in the second quarter of 2017.
General and Administrative Expenses
General and administrative (G&A) expenses decreased to $1.5 million in the first quarter of 2017 compared to $1.9 million in the same period of 2017. This decrease is attributable to lower personnel costs mainly associated with stock compensation. We continue to take those steps necessary to reduce our overhead expenses.
Change in Earn-out Milestone Liability
The total aggregate purchase price for the acquisition of assets from EGEN included potential future earn-out payments contingent upon achievement of certain milestones. The difference between the aggregate $30.4 million in future earn-out payments and the $13.9 million included in the fair value of the acquisition consideration at June 20, 2014 was based on the Company's risk-adjusted assessment of each milestone and utilizing a discount rate based on the estimated time to achieve the milestone. These milestone payments will be fair valued at the end of each quarter and any change in their value will be recognized in the financial statement. As of March 31, 2017, the Company fair valued these milestones at $13.5 million and recognized a non-cash charge of $0.3 million in the first quarter of 2017 as a result of the change in the fair value of these milestones from $13.2 million at December 31, 2016. The Company recognized a non-cash charge of $0.3 million in the first quarter of 2016 as a result of the change in the fair value of these milestones at $14.2 million at March 31, 2016 from $13.9 million at December 31, 2015.
Investment income and interest expense
In connection with its debt facilities the Company incurred $0.1 million and $0.2 million in interest expense in the three month periods ended March 31, 2017 and 2016, respectively.
Financial Condition, Liquidity and Capital Resources
Since inception we have incurred significant losses and negative cash flows from operations. We have financed our operations primarily through the net proceeds from the sales of equity, credit facilities and amounts received under our product licensing agreement with Yakult and our technology development agreement with Hisun. The process of developing and commercializing ThermoDox®, GEN-1 and other product candidates and technologies requires significant research and development work and clinical trial studies, as well as significant manufacturing and process development efforts. We expect these activities, together with our general and administrative expenses to result in significant operating losses for the foreseeable future. Our expenses have significantly and regularly exceeded our revenue, and we had an accumulated deficit of $247 million at March 31, 2017.
At March 31, 2017, we had total current assets of $4.6 million (including cash and cash equivalents and short-term investments of $4.5 million) and current liabilities of $8.8 million, resulting in net working capital deficit of $4.2 million. At December 31, 2016, we had total current assets of $4.5 million (including cash, cash equivalents and short term investments and related interest receivable on short-term investments of $4.3 million) and current liabilities of $8.4 million, resulting in net working capital deficit of $3.9 million.
Net cash used in operating activities for the first three months of 2017 was $3.1 million. Our 2017 net loss of $5.2 million for the three month period ended March 31, 2017 included $0.1 million in non-cash stock-based compensation expense and $0.3 million in a non-cash loss based on the change in the earn-out milestone liability.
The $3.1 million net cash used in operating activities was mostly funded from cash and short term investments. At March 31, 2017, we had cash and cash equivalents of $4.5 million.
Net cash provided by financing activities was $3.3 million during the three month period ended March 31, 2017 which resulted from net proceeds of $4.4 million from the sale of our common stock and warrants in the first quarter of 2017 partially offset by principal payments of $1.1 million on the Hercules Credit Agreement.
On February 14, 2017, the Company entered into a securities purchase agreement whereby it sold, in a public offering, an aggregate of 19,385,869 shares of common stock, Series AA Warrants to purchase up to 16,489,402 shares of common stock and Pre-Funded Series BB Warrants to purchase up to 2,600,000 shares of common stock for an aggregate of approximately $5.0 million in gross proceeds. During the first quarter of 2017, all 2,600,000 of the Series BB Pre-Funded warrants were exercised in full. During the first quarter of 2017, we received $94,062 from the exercise of Series AA Warrants to purchase 408,966 of common stock.
In February 2013, we entered into a Controlled Equity Offering SM Sales Agreement (ATM) with Cantor Fitzgerald & Co., as sales agent (Cantor), pursuant to which we may offer and sell, from time to time, through Cantor, shares of our common stock having an aggregate offering price of up to $25.0 million (the ATM Shares) pursuant to our previously filed and effective Registration Statement on Form S-3. Under the ATM Agreement, Cantor may sell ATM Shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on The NASDAQ Capital Market, on any other existing trading market for the our common stock or to or through a market maker. We will pay Cantor a commission of three percent of the aggregate gross proceeds from each sale of ATM Shares. We have sold and issued an aggregate of 1,479,535 shares under the ATM Agreement so far, receiving approximately $7.4 million in net proceeds.
We believe that our cash and cash equivalents of $4.5 million on hand at March 31, 2017, coupled with the remaining availability of $17.4 million under the ATM, are sufficient to fund operations through the second quarter of 2017. However, our future capital requirements will depend upon numerous unpredictable factors, including, without limitation, the cost, timing, progress and outcomes of clinical studies and regulatory reviews of our proprietary drug candidates, our efforts to implement new collaborations, licenses and strategic transactions, general and administrative expenses, capital expenditures and other unforeseen uses of cash.
We may seek additional capital through further public or private equity offerings, debt financing, additional strategic alliance and licensing arrangements, collaborative arrangements, or some combination of these financing alternatives. If we raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders could be significantly diluted and the newly issued equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities may have rights, preferences, and privileges senior to those of our common stock. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, we may need to relinquish rights to certain of our existing or future technologies, product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our technologies, product candidates, or products on terms that are not favorable to us. The overall status of the economic climate could also result in the terms of any equity offering, debt financing, or alliance, license, or other arrangement being even less favorable to us and our stockholders than if the overall economic climate were stronger. We also will continue to look for government sponsored research collaborations and grants to help offset future anticipated losses from operations and, to a lesser extent, interest income.
If adequate funds are not available through either the capital markets, strategic alliances, or collaborators, we may be required to delay or, reduce the scope of, or terminate our research, development, clinical programs, manufacturing, or commercialization efforts, or effect additional changes to our facilities or personnel, or obtain funds through other arrangements that may require us to relinquish some of our assets or rights to certain of our existing or future technologies, product candidates, or products on terms not favorable to us.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no off-balance sheet financing arrangements. In April 2017, the Company and its landlord amended the lease for the corporate offices located in Lawrenceville NJ effective May 1, 2017. The lease amendment extends the term of the lease for an additional 64 months, reduced the premises to 7,565 square feet, reduced the monthly rent, provided four months free rent and reduced the escrow deposit from $100,000 to $50,000. The monthly rent will range from approximately $18,900 in the first year to approximately $20,500 in the final year of the amendment. The Company also has a one-time option to cancel the lease as of the 40
th
month after the commencement date of the Lease amendment. Other than this lease amendment, there were no materials changes during the three months ended March 31, 2017 to our operating leases, which are disclosed in the contractual commitments table in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed on March 24, 2017 with the Securities and Exchange Commission.