Notes to Condensed Consolidated Financial
Statements
June 30, 2018 (unaudited)
The accompanying condensed consolidated
financial statements include the accounts of CASI Pharmaceuticals, Inc. and its subsidiaries (“CASI” or “the
Company”), Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”).
The Company previously operated under a different name prior to restructuring its business in 2012 in connection with an investment led
by one of the Company’s largest stockholders. CASI China is a non-stock Chinese entity with 100% of its interest owned by
CASI. CASI China received approval for a business license from the Beijing Industry and Commercial Administration in August 2012
and has operating facilities in Beijing. All inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such condensed
consolidated financial statements do not include all of the information and disclosures required by U.S. generally accepted accounting
principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been included. The accompanying December 31, 2017 financial
information was derived from the Company’s audited financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2017. Operating results for the three and six month periods ended June 30, 2018 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other future period. For
further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in its
Form 10-K for the year ended December 31, 2017.
Liquidity Risks and
Management’s Plans
Since inception, the Company has incurred significant losses from
operations and has incurred an accumulated deficit of $460.9 million. The Company restructured its business in 2012 in connection
with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect
its core mission and business strategy. The Company expects to continue to incur operating losses for the foreseeable future due
to, among other factors, its continuing clinical activities. In 2018, the Company entered into securities purchase agreements pursuant
to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its
common stock and received $50 million in gross proceeds in a private placement (the “2018 Financing”). The 2018 Financing
closing included an investment from ETP Global Fund, L.P., a healthcare investment fund. The managing member of Emerging Technology
Partners, LLC, which is the general partner of ETP Global Fund, L.P., is also the Executive Chairman of the Company. The 2018 Financing
also included an investment from IDG-Accel China Growth Fund III L.P. (“IDG-Accel Growth”) and IDG-Accel China III
Investors L.P. (“IDG-Accel Investors”). A director and shareholder of IDG-Accel China Growth Fund GP III Associates
Ltd., which is the ultimate general partner of IDG-Accel Growth and IDG-Accel Investors, is also a member of the Company’s
Board of Directors. In October 2017, the Company entered into securities purchase agreements for an approximately $23.8 million
strategic financing. The Company held its initial closing on October 17, 2017, a second closing on October 23, 2017 and a final
closing on November 20, 2017 and received approximately $23.4 million in net proceeds (collectively, the “2017 Closings”).
Net proceeds from the 2018 Financing and the 2017 Closings are being used to prepare for the anticipated launch of the Company’s
first commercial product in China, to support the Company’s business development activities, to advance the development of
the Company’s pipeline, to support its marketing and commercial planning activities, and for other general corporate purposes.
As a result of the 2018 Financing and 2017
Closings, the Company believes that it has sufficient resources to fund its operations at least through August 14, 2019. As of
June 30, 2018, approximately $17.9 million of the Company’s cash balance was held by CASI China. The Company intends to continue
to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to raise additional
capital and will also actively pursue non- or less-dilutive capital raising arrangements in China to support the Company’s
dual-country approach to drug development.
|
2.
|
Acquisition of Abbreviated New Drug Applications
|
On January 26, 2018, the Company entered into
an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sandoz, Inc. (“Sandoz”). Pursuant to
the Asset Purchase Agreement, the Company acquired a portfolio of 29 abbreviated new drug applications (“ANDAs”), including
25 ANDAs approved by the U.S. Food and Drug Administration (“FDA”) and four pipeline ANDAs that are pending FDA approval,
limited quantities of certain active pharmaceutical ingredient (“API”), and certain manufacturing and other information
related to the products (collectively, the ANDAs, API and other information are referred to as the “Acquired Assets”).
To facilitate the sale and transition, the parties also entered into several limited term ancillary arrangements.
The Acquired Assets enhance the Company’s
strategic focus to build a robust pipeline and commercialize quality drug candidates in China. The Company intends to select and
commercialize certain products from the portfolio that have unique market and cost-effective manufacturing opportunities in China
(and potentially in the U.S.).
The total purchase price
for the Acquired Assets was $18.0 million in cash. The Company accounted for the purchase of the Acquired Assets as an asset acquisition
(consisting of a concentrated group of similar identifiable assets, including ANDAs and API) following the guidance contained in
Accounting Standards Update (“ASU”) 2017-01. The total purchase price, along with approximately $1.2 million of transaction
expenses, was allocated to the Acquired Assets based on their relative fair values, as follows:
ANDAs
|
|
$
|
18,608,000
|
|
API
|
|
|
564,000
|
|
Total value
|
|
$
|
19,172,000
|
|
Of the total value allocated
to the ANDAs, approximately $553,000 was immediately expensed as acquired in-process research and development since the underlying
ANDAs have not been approved by the FDA, and of the total value allocated to the API, approximately $134,000 was immediately expensed
as acquired in-process research and development since the Company does not intend to use all of the API. The allocated cost of
the capitalized ANDAs will be amortized over their estimated useful lives of 13 years. The capitalized API will be expensed in
the period it is used or if its value is otherwise impaired.
The fair values of certain
acquired ANDAs were estimated using the discounted cash flow method (an income approach), which involves the use of Level 3 inputs
such as estimates for projected sales, expenses, and cash flows, estimates of total addressable markets and market penetration
rates, future sales growth and inflation rates, expected income and value-added tax rates, and a required rate of return adjusted
for both industry and Company-specific risks, among other inputs. The fair values of the remaining ANDAs were estimated using a
multiple of values method (an income approach), which involved using Level 3 inputs such as estimated addressable markets and market
penetration rates. The fair value of the API was estimated using Level 2 inputs, such as quoted market prices for similar API from
various suppliers or other sources. The ANDAs will be tested for impairment when events or circumstances indicate that the carrying
value of the asset may not be recoverable; no such triggering events were identified during the period from the date of acquisition
to June 30, 2018.
Intangible assets were
acquired as part of the 2018 asset acquisition from Sandoz and include ANDAs for a total of 25 previously marketed generic products.
These intangible assets were originally recorded at relative fair values based on the purchase price for the asset acquisition
and are stated net of accumulated amortization.
The ANDAs are being amortized
over their estimated useful lives of 13 years, using the straight-line method. Management reviews finite-lived intangible assets
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in a manner
similar to that for property and equipment. No impairment losses related to intangible assets were recognized in the six months
ended June 30, 2018.
As discussed in Note 2,
in January 2018, the Company purchased the Acquired Assets from Sandoz for a total purchase price of $18.0 million. The total purchase
price, along with transaction expenses of approximately $1.2 million, was allocated to the ANDAs and API acquired based on their
relative fair values. Net finite-lived intangible assets at June 30, 2018 consists of the following:
Asset
|
|
Gross Value
|
|
|
Accumulated Amortization
|
|
|
Estimated useful lives
|
ANDAs
|
|
$
|
18,054,985
|
|
|
$
|
(597,354
|
)
|
|
13 years
|
Expected future amortization
expense is as follows for the years ending December 31:
2018 (remaining six months)
|
|
$
|
694,421
|
|
2019
|
|
|
1,388,845
|
|
2020
|
|
|
1,388,845
|
|
2021
|
|
|
1,388,845
|
|
2022
|
|
|
1,388,845
|
|
2023 and thereafter
|
|
|
11,207,830
|
|
|
4.
|
Foreign Currency Translation
|
The
U.S. dollar is the reporting currency of the Company. Foreign currency denominated assets and liabilities of the Company and its
foreign subsidiary are translated into U.S. dollars. Accordingly, assets and liabilities are translated using the exchange rates
in effect at the consolidated balance sheet date and revenues and expenses at the rates of exchange prevailing when the transactions
occurred, using an average periodic exchange rate. In 2017, remeasurement adjustments were included in income (loss). As discussed
in Note 2, on January 26, 2018, the Company acquired a portfolio of ANDAs. Management believes that this transaction provides significant
and permanent changes to its operations in China, and that it may allow its subsidiary in China to generate operating revenues
from the China marketplace in the future and potentially sustain its own operations without the necessity of parent support. Accordingly,
effective January 1, 2018, the functional currency of the Company’s subsidiary based in China has been changed to the local
currency of the China Renminbi (“RMB”).
The change in functional currency did not have a material impact on
the consolidated financial statements.
Beginning January 1, 2018, translation gains
and losses relating to the financial statements of the Company’s China subsidiary are included as accumulated other comprehensive
loss in the accompanying Condensed Consolidated Balance Sheets.
The Company has an equity
investment in the publicly traded common stock of a company. Beginning on January 1, 2018 with the adoption of ASU 2016-01, the
Company’s investment in this equity security is considered a trading security and is carried at its estimated fair value,
with changes in fair value reported in the statement of operations each reporting period. The fair value of this security
was measured using its quoted market price, a Level 1 input, and was approximately $1.2 million as of June 30, 2018.
In January 2016, the Financial
Accounting Standards Board (“FASB”) issued ASU 2016-01, “Financial Instruments–Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities.” In February 2018, the FASB issued ASU 2018-03, “Technical
Corrections and Improvements to Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities.” The accounting standards primarily affect the accounting for equity investments, financial liabilities under
the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification
related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale
debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods)
beginning after December 15, 2017. The Company adopted ASU 2016-01 and ASU 2018-03 on January 1, 2018 and recorded a cumulative
effect adjustment that decreased accumulated deficit by approximately $1.2 million. Effective January 1, 2018, the adoption date,
changes in the fair value of the Company’s investments in equity securities are recognized in the statements of operations
and comprehensive loss.
Inventories consist of raw materials and are
stated at the lower of cost or net realizable value. Cost is determined using an average cost method. The carrying value of raw
materials inventory was approximately $430,000 as of June 30, 2018 and is included in “prepaid expenses and other assets”
in the accompanying condensed consolidated balance sheets.
|
7.
|
Research and Development
|
Research and development
expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations,
costs associated with pre-clinical testing and clinical trials of the Company’s product candidates, including the costs of
manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses, along with the amortization
of acquired ANDAs. Research and development costs are expensed as incurred.
The Company has certain
product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together referred
to as “Spectrum”) to develop and commercialize the following commercial oncology drugs and drug candidates in the greater
China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):
EVOMELA
®
(melphalan) for Injection (“EVOMELA”);
MARQIBO
®
(vinCRIStine sulfate LIPOSOME injection) (“MARQIBO”); and
ZEVALIN
®
(ibritumomab tiuxetan) (“ZEVALIN”).
CASI is responsible for
developing and commercializing these three drugs in the Territories, including the submission of import drug registration applications
and conducting confirmatory clinical trials as needed.
The Company is in various
stages of the regulatory and development process to obtain marketing approval for EVOMELA
®
, MARQIBO
®
,
and ZEVALIN
®
in its territorial region, with ZEVALIN
®
commercially available in Hong Kong. In January
2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration application
for MARQIBO
®
and has completed the quality testing phase of the regulatory process and is currently in technical
review by Center for Drug Evaluation (CDE) of the CFDA as part of the regulatory process. On March 10, 2016, Spectrum received
notification from the FDA of the grant of approval of its New Drug Application (NDA) for EVOMELA
®
primarily for
use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple
myeloma. In December 2016, the CFDA accepted for review the Company’s import drug registration application for EVOMELA
®
and in 2017 has granted priority review of the import drug registration clinical trial application (CTA). EVOMELA
®
has completed the quality testing phase of the regulatory process, as well as the technical review by CDE of the CFDA, and was
evaluated under a CFDA CDE Advisory Committee meeting held in the second quarter of 2018 followed by a series of standard questions
from the CFDA related to EVOMELA
®
drug product production which usually reflects the final stage of CFDA assessment
before approval based on the Import Drug Approval registration pathway. CASI is diligently working with Spectrum and their vendors
to address the questions and submit the requested documents. In 2017, the CFDA accepted for review the Company’s import drug
registration for ZEVALIN
®
including both the antibody kit and the radioactive Yttrium-90 component. ZEVALIN
®
is currently under the quality testing phase of the regulatory process by National Institute for Food and Drug Control (NIFDC)
as well as the technical review by CDE of the CFDA.
As part of the license
arrangements with Spectrum (see Note 8), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally
due March 17, 2016 which was subsequently amended and extended to September 17, 2019. All other terms remain the same. The promissory
note was recorded initially at its fair value, giving rise to a discount of approximately $136,000; the promissory note is presented
as note payable, net of discount in the accompanying condensed consolidated balance sheets. For the six months ended June 30, 2018
and 2017, the Company recognized $354 and $3,738 of non-cash interest expense, respectively, related to the amortization of the
debt discount, using the effective interest rate method.
Securities Purchase Agreements
As described in Note 1,
in 2018, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with certain
institutional investors, accredited investors and current stockholders, pursuant to which the Company issued 15,432,091 shares
of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross
proceeds in a private placement. The purchase price for each share of common stock and warrant was $3.24. The warrants will become
exercisable on September 17, 2018 at a $3.69 per share exercise price and will expire on March 21, 2023. The fair value of the
warrants issued is $15,062,000, or $2.44 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual
life of 5 years, an assumed volatility of 75.4%, and a risk-free interest rate of 2.69%. The Securities Purchase Agreements and
warrants each include additional customary representations, warranties and covenants. The Company filed a resale registration covering
the shares of common stock issued and the shares of common stock underlying the warrants on Form S-3 (File No. 333-226206) which
became effective on August 8, 2018.
Common Stock Sales Agreement
On February 23, 2018, the
Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”).
Pursuant to the terms of the Sales Agreement, the Company may sell from time to time, at its option, shares of the Company’s
common stock through HCW, as sales agent, with an aggregate sales price of up to $25 million (the “Shares”).
Any sales of Shares pursuant
to the Sales Agreement will be made under the Company’s effective “shelf” registration statement (the “Registration
Statement”) on Form S-3 (File No. 333-222046) which became effective on December 22, 2017 and the related prospectus supplement
and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2018.
In March 2018, the Company
issued 143,248 Shares under the Sales Agreement resulting in net proceeds to the Company of approximately $475,000. As of June
30, 2018, approximately $24.5 million remained available under the Sales Agreement.
Net loss per share (basic
and diluted) was computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common
stock outstanding. Outstanding stock options and warrants totaling 17,059,368 and 11,416,701 as of June 30, 2018, respectively,
were anti-dilutive and, therefore, were not included in the computation of weighted average shares used in computing diluted loss
per share.
|
12.
|
Stock-Based Compensation and Warrants
|
The Company has adopted
incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as
outside directors and consultants. In June 2018, the Company’s stockholders approved an amendment to the 2011 Long-Term Incentive
Plan, increasing the number of shares of common stock reserved for issuance from 14,230,000 to 20,230,000 to be available for grants
and awards. As of June 30, 2018, there are 17,059,368 shares issuable under options previously granted and currently outstanding,
with exercise prices ranging from $0.86 to $8.23. Options granted under the plans generally vest over periods varying from immediately
to one to five years, are not transferable and generally expire ten years from the date of grant. As of June 30, 2018, 8,245,174
shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan. On March 13, 2018, upon the recommendation
of the Compensation Committee of the Board of Directors (the “Board”), the Board approved a grant of stock options
to the Company’s Executive Chairman exercisable for 1 million shares of common stock that will vest and become exercisable
on the first anniversary date of the grant. In addition, the Board approved the grant of a performance-based option covering 4
million shares of common stock that will vest if, within 18 months of the date of grant, specific operational and strategic milestones
are achieved. Both grants were approved by the Company’s stockholders at the 2018 Annual Meeting of Stockholders.
The Company records compensation
expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance.
Compensation costs are recognized over the requisite service period, which is generally the option vesting term of up to five years.
Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. There was
no expense recorded for share awards with performance conditions during the six months ended June 30, 2018 and 2017.
The Company’s net
loss for the six months ended June 30, 2018 and 2017 includes $1,812,219 and $350,565, respectively, of non-cash compensation expense
related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based
compensation arrangements is recorded as components of general and administrative expense and research and development expense,
as follows:
|
|
Six Month Period ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
162,516
|
|
|
$
|
171,326
|
|
General and administrative
|
|
|
1,649,703
|
|
|
|
179,239
|
|
Share-based compensation expense
|
|
$
|
1,812,219
|
|
|
$
|
350,565
|
|
Net share-based compensation expense, per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
The Company uses the Black-Scholes-Merton
valuation model to estimate the fair value of service based and performance-based stock options granted to employees. Option valuation
models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used
can materially affect the grant date fair value of an award. Following are the weighted-average assumptions used in valuing the
stock options granted to employees during the six-month periods ended June 30, 2018 and 2017:
|
|
Six Month Period ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Expected volatility
|
|
|
78.97
|
%
|
|
|
78.34
|
%
|
Risk free interest rate
|
|
|
2.79
|
%
|
|
|
1.82
|
%
|
Expected term of option
|
|
|
5.65 years
|
|
|
|
5.66 years
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average fair
value of stock options granted during the six-month periods ended June 30, 2018 and 2017 were $4.53 and $0.77, respectively.
A summary of the Company's
stock option plans and of changes in options outstanding under the plans during the six-month period ended June 30, 2018 is as
follows:
|
|
Number of Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2018
|
|
|
11,585,315
|
|
|
$
|
1.42
|
|
Exercised
|
|
|
(115,283
|
)
|
|
$
|
1.53
|
|
Granted
|
|
|
5,886,000
|
|
|
$
|
3.47
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(296,664
|
)
|
|
$
|
1.67
|
|
Outstanding at June 30, 2018
|
|
|
17,059,368
|
|
|
$
|
2.13
|
|
Exercisable at June 30, 2018
|
|
|
8,692,437
|
|
|
$
|
1.56
|
|
Cash received from option
exercises under all share-based payment arrangements for the six months ended June 30, 2018 was $176,833. There were no option
exercises during the six months ended June 30, 2017.
Warrants
Warrants issued generally
expire after 2-5 years from the date of issuance. Stock warrant activity is as follows:
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2018
|
|
|
6,264,016
|
|
|
$
|
2.23
|
|
Issued
|
|
|
6,172,832
|
|
|
$
|
3.69
|
|
Exercised
|
|
|
(1,020,147
|
)
|
|
$
|
1.92
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2018
|
|
|
11,416,701
|
|
|
$
|
3.05
|
|
Exercisable at June 30, 2018
|
|
|
5,243,869
|
|
|
$
|
2.29
|
|
Cash received from warrants
exercised during the six months ended June 30, 2018 was $1,960,535. There were no warrants exercised during the six months ended
June 30, 2017.
At December 31, 2017, the Company had a $3.2
million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax asset recognized in the
consolidated financial statements as of December 31, 2017.
During the six months ended
June 30, 2018, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions.
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.
The tax returns for all
years in the Company’s major tax jurisdictions are not settled as of June 30, 2018. Due to the existence of tax attribute
carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as
unsettled due to the taxing authorities’ ability to modify these attributes.
|
14.
|
Related Party Transactions
|
The Company has supply
agreements with Spectrum for the purchase of EVOMELA
®
, MARQIBO
®
, and ZEVALIN
®
in China
for quality testing purposes to support CASI’s application for import drug registration and for commercialization purposes.
The former CEO of Spectrum and current board member of Spectrum is also a member of CASI’s Board. All amounts payable to
Spectrum for material purchases have been paid as of June 30, 2018. There were no materials purchased from Spectrum for the six
months ended June 30, 2018. In April and June 2017, under supply agreements with Spectrum, the Company received shipments of EVOMELA® and
MARQIBO®, respectively, in China for quality testing purposes to support CASI’s application for import drug registration.
The total cost of the materials was approximately $477,000 which is included in research and development expense for the six months
ended June 30, 2017.
|
15.
|
New Accounting Pronouncements
|
The Company has implemented
all new accounting pronouncements that are in effect and that may impact the Company’s consolidated financial statements.
In February 2016, the FASB
issued ASU 2016-02,
Leases
(Topic 842). ASU 2016-02 supersedes existing lease guidance, including Accounting Standards Codification
(ASC) 840 -
Leases
. Among other things, the new standard requires recognition of a right-of-use asset and liability for
future lease payments for contracts that meet the definition of a lease. This ASU is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The standard must be
applied using a modified retrospective approach. The Company is currently evaluating the effect that the adoption of this ASU will
have on its consolidated financial statements.
In January 2017, the FASB
issued ASU No. 2017-01,
Clarifying the Definition of a Business
(Topic 805). The amendments in the update provide a screen
to determine when a set is not a business. If the screen is not met, the amendments in the update (1) require that to be considered
a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the
ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments
provide a framework to assist entities in evaluating whether both an input and a substantive process are present. Lastly, the amendments
in the update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606.
The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier
adoption is permitted under certain criteria. The Company adopted this ASU on January 1, 2018. While this ASU did not have a material
effect on the Company’s financial statements on the date of adoption, the Company did follow the new guidance in determining
that its acquisition of ANDAs from Sandoz, Inc. in January 2018 was an asset acquisition. See Note 2.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock
Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should
be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications
but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions,
or award classification and would not be required if the changes are considered non-substantive. This ASU is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2017-09 in
the first quarter of 2018 and the adoption of this ASU did not have a material effect on the consolidated financial statements.
There are no other recently
issued accounting pronouncements that are expected to have a material effect on the Company's financial position, results of operations
or cash flows.
In March 2018 and June
2018, the Company committed to purchase obligations for EVOMELA
®
from Spectrum for approximately $5.5 million and
$2.7 million, respectively.
In April 2018, the Company
entered into a lease agreement for office space in China that continues through April 2021. Future minimum lease payments are approximately
$259,000 in 2018, $561,900 in 2019, $561,900 in 2020 and $140,500 in 2021.
In June 2018, the
Company entered into a strategic partnering and contract manufacturing agreement with a manufacturing organization in
China to assist with the initial technology transfer activities of two ANDA drugs for approximately $464,000, followed by
manufacturing at supply prices to be agreed.