NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Business
Caladrius Biosciences, Inc. (“we,” “us,” "our," “Caladrius” or the “Company”) is a late-stage therapeutics development biopharmaceutical company committed to the development of innovative products that have the potential to restore the health of people with chronic illnesses. The Company's leadership team collectively has decades of biopharmaceutical development experience and world-recognized scientific achievement in the fields of cardiovascular and autoimmune disease, among other areas. The Company's goal is to build a broad portfolio of novel and versatile products that address important unmet medical needs. The Company's current product candidates include three developmental treatments for cardiovascular diseases based on its CD34+ cell therapy platform: CLBS12, recipient of SAKIGAKE designation and eligible for early conditional approval in Japan for the treatment of critical limb ischemia ("CLI") based on the results of an ongoing clinical trial; CLBS16, in Phase 2 in the U.S. for the treatment of coronary microvascular dysfunction ("CMD"); and CLBS14, recipient of an RMAT designation and for which the Company has finalized with the U.S. Food and Drug Administration ("the FDA") the protocol for a Phase 3 confirmatory trial in subjects with no-option refractory disabling angina ("NORDA").
Ischemic Repair (CD34 Cell Technology)
The Company's CD34+ cell technology has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia. Ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted. Through the administration of CD34+ cells, the Company seeks to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area. The Company believes that a number of conditions caused by underlying ischemic injury can be improved through its CD34+ cell technology, including but not limited to CLI, CMD and NORDA.
Regarding CLBS12, the Company's product candidate for CLI, after detailed discussion and agreement with the Japanese Pharmaceutical and Medical Device Agency ("PMDA"), the Company opened a Phase 2 trial for enrollment in December 2017 and announced in March 2018 treatment of the first patient. Based on discussions with the PMDA, the Company expects that a successful outcome of this trial will make CLBS12 eligible for early conditional approval in Japan, thereby effectively making the ongoing trial a potential registration trial in that strategic market. The initial responses observed in the subjects who have reached an endpoint in this open label study are consistent with a positive therapeutic effect and safety profile as reported by previously published clinical trials in Japan and the U.S. Enrollment is ongoing and the Company anticipates completion in the first half of 2020 with top line data targeted for late 2020 or early 2021. We remain on track for an earliest possible approval in Japan during 2021 based on the accelerated review afforded by CLBS12's SAKIGAKE designation. While early signs are encouraging, the final outcome of the trial will be dependent on all data from all subjects.
In October 2017, the Company announced the award of a $1.9 million grant from the National Institutes of Health to support a clinical study of CD34+ cells in patients with CMD. This led to the initiation of development of CLBS16 and enrollment of patients in the Company's ESCaPE-CMD Phase 2 proof-of-concept study at the Mayo Clinic in Rochester, MN and Cedars-Sinai Medical Center in Los Angeles, CA. In June 2019, the Company announced the completion of enrollment in this study. The early results observed in the first six patients in this open label trial who reached the 6-month (primary endpoint) follow-up visit support the Company's expectations for CLBS16 and a positive therapeutic effect and acceptable safety profile in this indication. While the final outcome of the trial will be dependent on the 6-month data from all subjects, early observations of increased coronary flow reserve and decreased angina symptoms in treated patients are encouraging. Results of the first 17 of 20 patients enrolled in the trial who reached 6-month follow-up will be presented as a rapid fire oral presentation on November 16, 2019 at the annual meeting of the American Heart Association in Philadelphia, PA by one of the principal investigators, Dr. Noel Bairey Merz, FACC, FAHA, FESC, the director of the Barbra Streisand Women's Heart Center at Cedars-Sinai in Los Angeles, CA. Assuming that the full data set corroborates previously reported results, the Company plans to advance the program to its next clinical development step as expeditiously as possible.
To support a development program of CD34+ cells in the indication of NORDA, the Company acquired the rights to data and regulatory filings for a CD34+ cell therapy program for refractory angina that had been advanced to Phase 3 under the previous investigational new drug application (“IND”) holder. The Company has designated this program CLBS14 and reactivated the IND with the FDA with Caladrius as the sponsor. The Company, working closely with the FDA, has finalized the design of a confirmatory Phase 3 trial which, in combination with previously filed Phase 1, 2 and 3 data, will be considered for the registration of CLBS14. The Company has substantially completed the preparatory work for initiation of this trial; however, it will not commence enrollment of patients until sufficient capital is acquired, which will give it confidence that it can fund the trial through completion.
Immunomodulation (Treg Technology)
For the last several years, the Company has been developing an innovative therapy for T1D (identified as CLBS03) that is based on a proprietary T-regulatory cell platform technology for immunomodulation. CLBS03 was granted Fast Track and Orphan drug designations from the FDA for this proposed indication and was granted Advanced Therapeutic Medicinal Product ("ATMP") classification from the European Medicines Agency ("EMA"). This program is based on the use of Tregs (T-regulatory cells) to treat diseases caused by imbalances in an individual's immune system.
In 2016, the Company commenced patient enrollment in the first of two cohorts in The Sanford Project: T-Rex Study, a Phase 2a prospective, randomized, placebo-controlled, double-blind clinical trial to evaluate the safety and efficacy of CLBS03 in adolescents with recent onset T1D (the "T-Rex Study"). On February 13, 2019, the Company announced top line results indicating that the therapy was well-tolerated but that the study's primary endpoint of preservation of C-peptide had not been achieved. The Company and its collaborators are conducting a comprehensive analysis of data from the trial (including the 2-year follow-up data to come in early 2020) and will make decisions regarding further development of CLBS03 based on the results of those analyses.
Additional Out-licensing Opportunities
The Company's broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing in order to continue their clinical development. The Company's current long-term strategy focuses on advancing its therapies through development with the ultimate objective of obtaining market authorizations and entering commercialization, either alone or with partners, to provide treatment options to patients suffering from life-threatening medical conditions. The Company believes that it is well-positioned to realize potentially meaningful value increases within its own proprietary pipeline if it is successful in advancing its product candidates to their next significant development milestones.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of September 30, 2019, and the results of its operations and its cash flows for the periods presented. The unaudited consolidated financial statements herein should be read together with the historical consolidated financial statements of the Company for the years ended December 31, 2018 and 2017 included in our 2018 Form 10-K. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amount of expenses during the reporting period. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes critical estimates and assumptions in determining stock-based awards values and income taxes. Accordingly, actual results could differ from those estimates and assumptions.
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results of operations and if it requires management’s most difficult, subjective and complex judgments in its application.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Caladrius Biosciences, Inc. and its wholly owned and partially owned subsidiaries and affiliates. All intercompany activities have been eliminated in consolidation.
Note 2 – Summary of Significant Accounting Policies
In addition to the policies below, our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our 2018 Form 10-K. There were no changes to these policies during the three and nine months ended September 30, 2019.
Concentration of Risks
We are subject to credit risk from our portfolio of cash, cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. Cash is held at major banks in the United States. Therefore, the Company is not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements, and a competitive after-tax rate of return.
Share-Based Compensation
The Company expenses all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. The Company determines the fair value of option awards using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. The fair value of the Company’s restricted stock and restricted stock units is based on the closing market price of the Company’s common stock on the date of grant.
Income Taxes
The Company recognizes (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
The Company evaluates the accounting for uncertainty in tax positions at the end of each reporting period. The accounting guidance requires companies to recognize in their financial statements the impact of a tax position if the position is more likely than not to be sustained if the position were to be challenged by a taxing authority. The position ascertained inherently requires judgment and estimates by management. The Company recognizes interest and penalties as a component of income tax expense.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize lease assets and lease liabilities for those leases classified as operating leases. The guidance was effective for interim and annual periods beginning after December 15, 2018 and was adopted as of January 1, 2019. The Company adopted the standard using the optional transition method, with an immaterial adjustment to accumulated deficit upon adoption. The comparative information has not been restated and continues to be reported under the accounting standards that were in effect for those periods. The Company concluded that the adoption of ASU 2016-02 was non-cash in nature, did not affect the Company's cash position, and did not have a material impact on the Company's financial statements.
In June 2018, the FASB issued ASU 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting," which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company's adoption date of ASC 606. The Company determined that the adoption of this new accounting guidance did not have a material impact on its financial statements and footnote disclosures.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments". ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective for
us on January 1, 2020. The Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and footnote disclosures.
Note 3 – Available-for-Sale-Securities
The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in our Consolidated Balance Sheets (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Corporate debt securities
|
$
|
17,489
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|
|
$
|
5
|
|
|
$
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(3
|
)
|
|
$
|
17,491
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|
|
$
|
33,536
|
|
|
$
|
—
|
|
|
$
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(32
|
)
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|
$
|
33,504
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|
Money market funds
|
9,198
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|
|
—
|
|
|
—
|
|
|
9,198
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|
|
4,314
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|
|
—
|
|
|
—
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|
|
4,314
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Total
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$
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26,687
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|
|
$
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5
|
|
|
$
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(3
|
)
|
|
$
|
26,689
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|
|
$
|
37,850
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|
|
$
|
—
|
|
|
$
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(32
|
)
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|
$
|
37,818
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|
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes the classification of the available-for-sale securities in our Consolidated Balance Sheets (in thousands):
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September 30, 2019
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|
December 31, 2018
|
Cash and cash equivalents
|
$
|
10,202
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|
|
$
|
5,064
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|
Marketable securities
|
16,487
|
|
|
32,754
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|
Total
|
$
|
26,689
|
|
|
$
|
37,818
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|
The following table summarizes our portfolio of available-for-sale securities by contractual maturity (in thousands):
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September 30, 2019
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|
Amortized Cost
|
|
Estimated Fair Value
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Less than one year
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$
|
26,687
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|
|
$
|
26,689
|
|
Greater than one year
|
—
|
|
|
—
|
|
Total
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$
|
26,687
|
|
|
$
|
26,689
|
|
Note 4 – Loss Per Share
For the three and nine months ended September 30, 2019 and 2018, the Company incurred net losses and therefore no common stock equivalents were utilized in the calculation of diluted loss per share as they are anti-dilutive. At September 30, 2019 and 2018, the Company excluded the following potentially dilutive securities (in thousands):
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|
|
|
|
|
|
September 30,
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2019
|
|
2018
|
Stock Options
|
1,095
|
|
|
1,036
|
|
Warrants
|
30
|
|
|
49
|
|
Restricted Stock Units
|
118
|
|
|
45
|
|
Note 5 – Fair Value Measurements
The fair value of financial assets and liabilities that are being measured and reported are defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal
market at the measurement date (exit price). The Company is required to classify fair value measurements in one of the following categories:
Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy the Company's financial assets that were accounted for at fair value on a recurring basis as of September 30, 2019, and December 31, 2018 (in thousands).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - available for sale
|
|
$
|
—
|
|
|
$
|
16,487
|
|
|
$
|
—
|
|
|
$
|
16,487
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
|
$
|
—
|
|
|
$
|
16,487
|
|
|
$
|
—
|
|
|
$
|
16,487
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
Note 6 – Accrued Liabilities
Accrued liabilities as of September 30, 2019 and December 31, 2018 were as follows (in thousands):
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|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Salaries, employee benefits and related taxes
|
$
|
1,676
|
|
|
$
|
1,758
|
|
Operating lease liabilities - current
|
368
|
|
|
—
|
|
CIRM upfront funding - current
|
2,286
|
|
|
2,583
|
|
Other
|
805
|
|
|
516
|
|
Total
|
$
|
5,135
|
|
|
$
|
4,857
|
|
Note 7 – Operating Leases
The Company has operating leases for two offices with terms that expire in 2022 and 2023. In addition, the Company pays for facility space through a third-party manufacturing contract that contains an embedded operating lease, with an estimated expiration in 2020. The Company estimates its incremental borrowing rate, at lease commencement, to determine the present value of lease payments, since most of the Company's leases do not provide an implicit rate of return. The Company recognizes lease expense on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company elected to account for non-lease components associated with its leases and lease components as a single lease component. Upon adoption of Topic 842 on January 1, 2019, we recognized $1.4 million of operating lease liabilities and $1.3 million of operating lease right-of-use assets for our existing operating leases in our balance sheet. As of September 30, 2019, the Company's operating lease liabilities and right-of-use assets were $1.1 million and $1.0 million, respectively. Each of the Company's leases include options for us to extend the lease term and/or sub-lease space in whole or in part.
Operating lease liabilities and right-of-use assets were recorded in the following captions of our balance sheet were as follows (in thousands):
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|
|
|
|
|
September 30, 2019
|
Right-of Use Assets:
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|
Other assets
|
$
|
1,003
|
|
Total Right-of-Use Asset
|
$
|
1,003
|
|
|
|
Operating Lease Liabilities:
|
|
Accrued liabilities
|
$
|
368
|
|
Other long-term liabilities
|
710
|
|
Total Operating Lease Liabilities
|
$
|
1,078
|
|
As of September 30, 2019, the weighted average remaining lease term for our operating leases was 2.2 years, and the weighted average discount rate for our operating leases was 9.625%. Future minimum lease payments under the lease agreements as of September 30, 2019 were as follows (in thousands):
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|
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Years ended
|
Operating Leases
|
2019
|
$
|
151
|
|
2020
|
431
|
|
2021
|
414
|
|
2022
|
239
|
|
2023
|
27
|
|
Total lease payments
|
1,262
|
|
Less: Amounts representing interest
|
(184
|
)
|
Present value of lease liabilities
|
$
|
1,078
|
|
Note 8 – Stockholders' Equity
Equity Issuances
Purchase Agreement
In March 2019, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company has the right to sell to Lincoln Park shares of the Company’s common stock having an aggregate value of up to $26.0 million, subject to certain limitations and conditions set forth in the Purchase Agreement (the “Offering”). As consideration for entering into the Purchase Agreement, the Company issued to Lincoln Park an additional 181,510 shares of common stock as commitment shares.
Pursuant to the Purchase Agreement, Lincoln Park purchased 250,000 shares of common stock, at a price of $4.00 per share, for a total gross purchase price of $1.0 million (the “Initial Purchase”) upon commencement. Thereafter, as often as every business day from and after one business day following the date of the Initial Purchase and over the 36-month term of the Purchase Agreement the Company has the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 100,000 shares of common stock, with such amount increasing as the closing sale price of the common stock increases; provided Lincoln Park’s obligation under any single such purchase will not exceed $2.5 million, unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single purchase (each, a “Regular Purchase”). If the Company directs Lincoln Park to purchase the maximum number of shares of common stock it then may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the Purchase Agreement, the Company may direct Lincoln Park in an “accelerated purchase” to purchase an additional amount of common stock that may not exceed the lesser of (i) 300% the number of shares purchased pursuant to the corresponding Regular Purchase or (ii) 30% of the total number of shares of the Company’s common stock traded during a specified period on the applicable purchase date as set forth in the Purchase Agreement. Under certain circumstances and in accordance with the Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day.
The Company controls the timing and amount of any sales of its common stock to Lincoln Park. There is no upper limit on the price per share that Lincoln Park must pay for its common stock under the Purchase Agreement, but in no event will shares be sold to Lincoln Park on a day the closing price is less than the floor price specified in the Purchase Agreement. In all instances,
the Company may not sell shares of its common stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock.
The Purchase Agreement does not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that (subject to certain exceptions) the Company may not enter into any Variable Rate Transaction (as defined in the Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the 36 months after the date of the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time, at no cost to the Company.
As of September 30, 2019, the Company had not made any sales of common stock to Lincoln Park under the Purchase Agreement other than the Initial Purchase.
Common Stock Sales Agreement
In February 2018, the Company entered into a common stock sales agreement with H.C. Wainwright & Co., LLC ("HCW") as sales agent, which was subsequently amended in August 2018 (the "Sales Agreement"), in connection with an “at the market offering” under which the Company from time to time may offer and sell shares of its common stock having an aggregate offering price of not more than $25.0 million. In March 2019, subsequent to the filing of our 2018 Form 10-K, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $52.8 million. Pursuant to General Instruction I.B.6 of Form S-3, since the aggregate market value of our outstanding common stock held by non-affiliates was below $75.0 million at the time of our 2018 Form 10-K filing, the aggregate amount of securities that we were permitted to offer and sell at such time was reduced to $17.6 million (or a maximum of 4.8 million shares), which was equal to one-third of the aggregate market value of our common stock held by non-affiliates at such time.
Subject to the terms and conditions of the Sales Agreement, HCW will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon the Company's instructions, including any price, time or size limits specified by the Company. The Company has provided HCW with customary indemnification rights, and HCW will be entitled to a commission at a fixed commission rate equal to 3.0% of the gross proceeds per share sold. The Company has no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement.
During the nine months ended September 30, 2019, the Company did not issue shares of common stock under the Sales Agreement. As of September 30, 2019, the Company has issued 149,041 shares of common stock under the Sales Agreement for net proceeds of $1.0 million since inception.