Notes to Unaudited Condensed
Consolidated Financial Statements
CASI Pharmaceuticals,
Inc. (“CASI” or the “Company”) (Nasdaq: CASI) is a U.S. pharmaceutical company with a platform to develop
and accelerate the launch of pharmaceutical products and innovative therapeutics in China, U.S., and throughout the world. The
Company is focused on acquiring, licensing, developing and commercializing products that address areas of unmet medical needs.
The Company intends to execute its plan to become a leading platform to launch medicines in the greater China market leveraging
its China-based regulatory and commercial competencies and its global drug development expertise.
The Company’s
China operations are conducted through its wholly-owned subsidiary, CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”),
which is based in Beijing, China. CASI China has established China operations that are growing as the Company continues to further
in-license or acquire products for its pipeline.
The accompanying condensed
consolidated financial statements include the accounts of the Company and its subsidiaries, in which CASI, directly or indirectly,
has a controlling financial interest. These subsidiaries include Miikana Therapeutics, Inc. (“Miikana”), CASI China,
and CASI Pharmaceuticals (Wuxi) Co., Ltd. (“CASI Wuxi”). 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. CASI Wuxi was established on December 26, 2018 in China to develop a manufacturing
capability in China in 2019. The Company controls CASI Wuxi by virtue of its 80% voting rights (see Note 7). Accordingly, the
financial statements of CASI Wuxi have been consolidated in the Company’s consolidated financial statements since its inception.
All inter-company balances and transactions have been eliminated in consolidation. The Company currently operates in one operating
segment, which is the development of innovative therapeutics addressing cancer and other unmet medical needs for the global market.
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,
2018 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, 2018. Operating results for the three month period ended March 31, 2019 are
not necessarily indicative of the results that may be expected for the year ending December 31, 2019 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, 2018.
Certain line items in the prior-year unaudited condensed consolidated statement of cash flows relating to the acquired in-process
research and development have been reclassified to conform to the December 31, 2018 presentation.
Liquidity Risks
and Management’s Plans
Since inception, the
Company has incurred significant losses from operations and has incurred an accumulated deficit of $487.1 million.
The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing
clinical and development activities.
Taking into consideration
the cash balance as of March 31, 2019 and its commitments to fund CASI Wuxi, the Company believes that it has sufficient resources
to fund its operations at least through May 15, 2020. As of March 31, 2019, approximately $12.6 million of the Company’s
cash balance was held by CASI China, and approximately $41.0 million was held by CASI Wuxi. 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.
|
New Accounting Pronouncements
|
Recently Adopted Pronouncements
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Update (“ASU”) 2016-02,
Leases
(“Topic 842”). The guidance amends the accounting
requirements for leases and requires lessees to recognize assets and liabilities related to long-term leases on the balance sheets
and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after
December 15, 2018 and early adoption is permitted. The guidance must be adopted on a modified retrospective basis and provides
for certain practical expedients. The Company adopted this guidance effective January 1, 2019 using the following practical expedients:
|
·
|
the Company did not reassess if any expired or existing contracts are or contain leases
|
|
·
|
the Company did not reassess the classification of any expired or existing leases.
|
Additionally,
the Company made ongoing accounting policy elections whereby it (i) does not recognize Right-of-use (“ROU”) assets
or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease
components for facilities leases, which primarily relate to ancillary expenses such as common area maintenance charges and management
fees of operating leases.
Upon adoption of the new guidance on January 1, 2019, the Company recorded right of use assets of approximately
$3.0 million and recognized lease liabilities of approximately $3.2 million; there was no cumulative effect impact to accumulated
deficit as of January 1, 2019. No adjustments were made to prior comparative periods.
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.
|
3.
|
Investment
in Equity Securities
|
The Company has an
equity investment in the common stock of a publicly traded company. The fair value of this security was measured using its quoted market price, a Level 1 input as of March 31, 2019
and December 31, 2018 (see Note 12). The following table summarizes the Company’s investment as of March 31, 2019:
Description
|
|
Classification
|
|
|
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Aggregate fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Investment
|
|
|
$
|
-
|
|
|
$
|
957,589
|
|
|
$
|
957,589
|
|
Unrealized gains on
the Company’s equity investment for the three months ended March 31, 2019 and 2018 were $45,389 and $89,713, respectively,
and are recognized as change in fair value of investment in equity securities in the accompanying condensed consolidated 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 a first-in, first-out method.
The carrying value of raw materials inventory was approximately $283,000 as of March 31, 2019 and is included in “prepaid
expenses and other” in the accompanying condensed consolidated balance sheets.
As discussed in Note
2, effective January 1, 2019, the Company adopted Topic 842. At the inception of a contract, the Company determines if the arrangement
is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease
liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities
are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized
on a straight-line basis over the lease term.
The Company has made
certain accounting policy elections whereby it (i) does not recognize ROU assets or lease liabilities for short-term leases (those
with original terms of 12-months or less) and (ii) combines lease and non-lease components for facilities leases, which primarily
relate to ancillary expenses such as common area maintenance charges and management fees of its operating leases. Operating lease
ROU assets are included in other assets (noncurrent) and operating lease liabilities (see below) are included in accrued liabilities
and other liabilities (noncurrent) in the condensed consolidated balance sheets as of March 31, 2019. As of March 31, 2019, the
Company did not have any finance leases.
All of the Company’s
existing leases as of March 31, 2019 are classified as operating leases. As of March 31, 2019, the Company has four material operating
leases for facilities and office equipment with remaining terms expiring from 2021 through 2022 and a weighted average remaining
lease term of 2.66 years. The Company has fair value renewal options for many of the Company’s existing leases, none of
which have considered reasonably certain of being exercised or included in the minimum lease term. Discount rates used in the
calculation of the lease liability is 5.4%. The discount rates reflect the estimated incremental borrowing rate, which includes
an assessment of the credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis
for a similar term, an amount equal to the lease payments in a similar economic environment.
Rent expense for the
three months ended March 31, 2019 consisted of approximately $301,000 of total operating lease cost. There was no variable lease
cost or sublease income for the three months ended March 31, 2019.
The impact of Topic
842 on the March 31, 2019 condensed consolidated balance sheet was as follows:
|
|
March 31, 2019
|
|
|
|
|
|
Other assets
|
|
$
|
2,833,385
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,114,909
|
|
Other liabilities
|
|
|
1,843,212
|
|
Total lease liabilities
|
|
$
|
2,958,121
|
|
Supplemental cash flow
information related to leases was as follows:
|
|
Three Month Period ended
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows
|
|
$
|
308,260
|
|
|
|
|
|
|
Right of use assets obtained in exchange for lease obligations:
|
|
$
|
3,030,126
|
|
A maturity analysis
of our operating leases as of March 31, 2019 follows:
Future undiscounted
cash flows:
2019 (remaining nine months)
|
|
$
|
951,826
|
|
2020
|
|
|
1,279,327
|
|
2021
|
|
|
839,024
|
|
2022
|
|
|
144,643
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
|
3,214,820
|
|
Discount factor
|
|
|
(256,699
|
)
|
Lease liability
|
|
|
2,958,121
|
|
Amounts due within 12 months
|
|
|
1,114,909
|
|
Non-current lease liability
|
|
$
|
1,843,212
|
|
In 2018 the Company
entered into a lease on behalf of CASI Wuxi. As of March 31, 2019, the underlying asset of the lease has not been made available
for use by the Company. The minimum lease payments for this lease, totaling approximately $3,789,000, beginning in November 2019
and expiring in 2024, are not included in the above table.
As previously disclosed
in the consolidated financial statement for the year ended December 31, 2018 and under the previous lease standard (Topic 840),
future minimum annual lease payments for the years subsequent to December 31, 2018 and in aggregate are as follows:
2019
|
|
$
|
1,311,707
|
|
2020
|
|
|
1,297,102
|
|
2021
|
|
|
856,832
|
|
2022
|
|
|
129,918
|
|
Thereafter
|
|
|
-
|
|
Total minimum payments
|
|
$
|
3,595,559
|
|
Rental expense for the
year ended December 31, 2018 was approximately $916,000.
Intangible assets were acquired as part of 2018 asset acquisitions and include ANDAs for previously marketed
generic products. These intangible assets were originally recorded at relative estimated fair values based on the purchase price
for the asset acquisitions 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. An impairment loss of $48,391 related to intangible assets was
recognized in the three months ended March 31, 2019 and classified as research and development expenses.
Net definite-lived
intangible assets at March 31, 2019, excluding the withdrawn ANDAs discussed above consists of the following:
Asset
|
|
Gross Value
|
|
|
Accumulated Amortization
|
|
|
Estimated useful lives
|
ANDAs
|
|
$
|
18,001,762
|
|
|
$
|
(1,634,155
|
)
|
|
13 years
|
TDF ANDA
|
|
$
|
2,035,121
|
|
|
$
|
(53,066
|
)
|
|
13 years
|
Total
|
|
$
|
20,036,883
|
|
|
$
|
(1,687,221
|
)
|
|
|
Expected
future amortization expense is as follows as of March 31, 2019:
2019 (remaining nine months)
|
|
$
|
1,156,949
|
|
2020
|
|
|
1,542,599
|
|
2021
|
|
|
1,542,599
|
|
2022
|
|
|
1,542,599
|
|
2023
|
|
|
1,542,599
|
|
2024 and thereafter
|
|
|
11,022,317
|
|
|
7.
|
Redeemable
Noncontrolling Interest
|
As discussed in Note 1, on December 26, 2018, the Company, together with Wuxi Jintou Huicun Investment Enterprise,
a limited partnership organized under Chinese law (“Wuxi LP”) established CASI Wuxi to build and operate a manufacturing
facility in the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. The Company holds 80% of the equity interests
in CASI Wuxi and will invest, over time, $80 million in CASI Wuxi. The Company’s investment will consist of (i) $21 million
in cash (paid in February 2019), (ii) a transfer of selected ANDAs valued at $30 million, and (iii) an additional $29 million
cash payment within three years from the date of establishment of CASI Wuxi. Wuxi LP holds 20% of the equity interest in CASI
Wuxi through investment in RMB of $20 million in cash (paid in March 2019).
Pursuant to the investment
contract between the Company and Wuxi LP and Articles of Association of CASI Wuxi, the Company has the call option to purchase
the 20% equity interest in CASI Wuxi held by Wuxi LP at any time within 5 years from the date of establishment of CASI Wuxi (i.e.
up to December 26, 2023). Wuxi LP has the put option to require the Company to redeem the 20% equity interest in CASI Wuxi at any
time after December 26, 2023. The redemption value under both the Company’s embedded put option and Wuxi LP’s embedded
call option is equal to $20 million plus interest at the bank loan interest rate issued by the People's Bank of China for the period
beginning with the initial capital contribution by Wuxi LP to the date of redemption. In addition, Wuxi LP has the put option to
require the Company to redeem the 20% equity interest in CASI Wuxi at $20 million upon the occurrence of any of the following conditions:
(i) the Company fails to fulfill its investment obligation to CASI Wuxi; (ii) CASI Wuxi suffers serious losses, discontinued operation,
dissolution, goes into process of bankruptcy liquidation; or (iii) the Company substantially violates the investment contract and
Articles of Association of CASI Wuxi.
The investment of Wuxi
LP to CASI Wuxi is treated as redeemable noncontrolling interest and is classified outside of permanent equity on the consolidated
balance sheets because (1) the noncontrolling interest is not mandatorily redeemable financial instruments, and (2) it is redeemable
at the option of the holder, or upon the occurrence of an event that is not solely within the control of the Company. The Company
initially recorded the redeemable noncontrolling interest at its fair value of $20 million. The carrying amount of the redeemable
noncontrolling interest is subsequently recorded at the greater of the amount of (1) the initial carrying amount, increased or
decreased for the redeemable noncontrolling interest’s share of net income or loss in CASI Wuxi or (2) the redemption value,
assuming the noncontrolling interest is redeemable at the balance sheet date. Accretion of the carrying amount of redeemable noncontrolling
interests to the redemption value is recorded in additional paid-in capital.
Changes in redeemable
noncontrolling interest during the three months ended March 31, 2019 are as follows:
Balance as of January 1, 2019
|
|
$
|
-
|
|
Cash contribution by Wuxi LP
|
|
|
20,000,000
|
|
Share of CASI Wuxi net income
|
|
|
14,359
|
|
Accretion of redeemable noncontrolling interest
|
|
|
2,558
|
|
Balance as of March 31, 2019
|
|
$
|
20,016,917
|
|
Stock purchase warrants
activity for the three months ended March 31, 2019 is as follows:
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2019
|
|
|
11,781,825
|
|
|
$
|
3.98
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
(411,522
|
)
|
|
$
|
1.69
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at March 31, 2019
|
|
|
11,370,303
|
|
|
$
|
4.06
|
|
Exercisable at March 31, 2019
|
|
|
11,370,303
|
|
|
$
|
4.06
|
|
All outstanding warrants
are equity classified.
Net loss per share
(basic and diluted) was computed by dividing net loss attributable to common stockholders, considering the accretions to redemption
value of the redeemable noncontrolling interest, by the weighted average number of shares of common stock outstanding. Outstanding
stock options and warrants totaling 30,306,159 and 21,207,452 as of March 31, 2019 and 2018, respectively, were anti-dilutive
and, therefore, were not included in the computation of weighted average shares used in computing diluted loss per share.
|
10.
|
Stock-Based
Compensation
|
As
of March 31, 2019, a total of 6,302,234 shares remained available for grant under the Company’s 2011 Long-Term Incentive
Plan.
The Company’s
net loss for the three months ended March 31, 2019 and 2018 includes $1,882,846 and $260,040, 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:
|
|
Three Month Period ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
116,215
|
|
|
$
|
103,767
|
|
General and administrative
|
|
|
1,766,631
|
|
|
|
156,273
|
|
Share-based compensation expense
|
|
$
|
1,882,846
|
|
|
$
|
260,040
|
|
Compensation expense
related to stock options is recognized over the requisite service period, which is generally the option vesting term of up to
five years. Awards with performance conditions are expensed when it is probable that the performance condition will be achieved.
For the three months ended March 31, 2019, approximately $27,600 was expensed for share awards with performance conditions that
became probable during that period. There was no expense recorded for share awards with performance conditions during the three
months ended March 31, 2018.
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. These assumptions include the risk free rate
of interest, expected dividend yield, expected volatility, and the expected life of the award. Following are the weighted-average
assumptions used in valuing the stock options granted to employees during the three-month periods ended March 31, 2019 and 2018:
|
|
Three Month Period ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
|
80.44
|
%
|
|
|
79.51
|
%
|
Risk free interest rate
|
|
|
2.57
|
%
|
|
|
2.63
|
%
|
Expected term of option
|
|
|
6.62 years
|
|
|
|
6.31 years
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average
fair value of stock options granted during the three-month periods ended March 31, 2019 and 2018 were $2.69 and $2.61, respectively.
A summary of the Company's
stock option plans and of changes in options outstanding under the plans during the three-month period ended March 31, 2019 is
as follows:
|
|
Number of Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2019
|
|
|
18,429,308
|
|
|
$
|
2.44
|
|
Exercised
|
|
|
(21,362
|
)
|
|
$
|
1.79
|
|
Granted
|
|
|
540,000
|
|
|
$
|
3.72
|
|
Expired
|
|
|
(4,090
|
)
|
|
$
|
1.87
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
$
|
3.43
|
|
Outstanding at March 31, 2019
|
|
|
18,935,856
|
|
|
$
|
2.48
|
|
Exercisable at March 31, 2019
|
|
|
10,910,743
|
|
|
$
|
1.76
|
|
Cash received from
option exercises under all share-based payment arrangements for the three months ended March 31, 2019 and 2018 was $38,302 and
$98,022, respectively.
Upon the recommendation
of the Compensation Committee, the Company’s Board of Directors (the “Board”) approved a grant of stock options
to the Company’s Chairman and CEO, effective April 2, 2019. Under the terms of the grant, subject to stockholder approval
and cancellation of his existing performance-based option, on April 2, 2019 he received a stock option covering 4 million shares
of common stock, at an exercise price of $2.85, the closing price on the grant date, vesting at the earlier of (i) the completion
of a transformative event by the Company as determined in the discretion of the Compensation Committee and (ii) the second anniversary
of the date of grant. The grant is conditioned upon stockholder approval at the 2019 Annual Meeting of Stockholders and is not
included in the above table.
At December 31, 2018,
the Company had a $3.0 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, 2018.
During the three months
ended March 31, 2019, 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 March 31, 2019. 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.
|
12.
|
Fair Value
Measurements
|
The majority of the
Company’s financial instruments (consisting principally of cash and cash equivalents, accounts payable and accrued liabilities)
are carried at cost which approximates their fair values due to the short-term nature of the instruments. The Company’s
investment in equity securities is carried at fair value (see Note 3). The Company’s note payable is carried at amortized
cost which approximates fair value due to its classification as a short-term note payable.
Fair value is the
price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the
most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes
and ranks the level of observability of inputs used in measuring fair value. These tiers include:
|
·
|
Level 1—Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
|
|
·
|
Level 2—Observable market-based inputs other than
quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 3—Unobservable inputs are used when little
or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
Financial Assets and Liabilities Measured at Fair Value
on a Recurring Basis
The Company evaluates
financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at
which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance
of inputs used in determining fair value and where such inputs lie within the hierarchy.
The Company has an
equity investment in the common stock of publicly traded company. The Company’s investment in this equity security is carried at its estimated fair value, with changes in fair
value reported in the consolidated statement of operations and comprehensive loss each reporting period (see Note 3).
The following tables presents the Company’s
financial assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2019 and December 31, 2018,
by level within the fair value hierarchy:
Description
|
|
Fair Value at
March 31, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in common stock
|
|
$
|
957,589
|
|
|
$
|
957,589
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value at
December 31, 2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in common stock
|
|
$
|
912,200
|
|
|
$
|
912,200
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Financial Liabilities Measured at Fair Value on a Non-Recurring
Basis
In connection with
entering into the various securities purchase agreements in 2018, the Company issued shares of its common stock along with detachable
stock purchase warrants. The Company allocates the proceeds received to the common stock and warrants on a relative fair value
basis. The fair value of the common stock is based on quoted market price for the Company’s common stock, a Level 1 input.
The fair value of the stock purchase warrants is determined using the Black-Scholes-Merton option pricing model which uses Level
3 unobservable inputs.
Non-Financial Assets and Liabilities Measured at Fair Value
on a Recurring Basis
The Company has no
non-financial assets and liabilities that are measured at fair value on a recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value
on a Non-Recurring Basis
The Company measures
its long-lived assets, including property and equipment and intangible assets, at fair value on a non-recurring basis. These assets
are recognized at fair value when they are deemed to be other-than-temporarily impaired. An impairment loss of $48,391 was recognized
in the three months ended March 31, 2019. No such fair value impairment was recognized in the three months ended
2018.
In 2018, the Company
acquired certain ANDAs pursuant to transactions accounted for as asset acquisitions. The intangible assets acquired from Sandoz 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, 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.
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13.
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Related
Party Transactions
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The Company has supply
agreements with Spectrum for the purchase of EVOMELA, ZEVALIN, and MARQIBO in China for quality testing purposes to support CASI’s
application for import drug registration and for commercialization purposes. The former CEO of Spectrum is also a member of CASI’s
Board, and Spectrum is a greater than 10% shareholder of the Company. In 2018 and 2019, the Company entered into commercial purchase
obligation commitments for EVOMELA from Spectrum totaling approximately $12.3 million. As of March 31, 2019, the Company paid
$4,850,000 as a deposit for the purchase of EVOMELA expected to be delivered in 2019. The advance payments made to Spectrum are
reflected as prepaid expenses and other in the accompanying condensed consolidated balance sheets as of March 31, 2019 and December
31, 2018. In April 2019, the Company paid additional deposits for EVOMELA to Spectrum totaling $2.8 million. There were no other
materials purchased from Spectrum during the three months ended March 31, 2019 or 2018. As of March 31, 2019 and December 31,
2018, there were no material amounts payable to Spectrum.
The Company has certain
product rights and perpetual exclusive licenses from Acrotech BioPharma L.L.C. (“Acrotech”) 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”):
Melphalan Hydrochloride
For Injection (EVOMELA)(“EVOMELA”);
Ibritumomab Tiuxetan
(ZEVALIN) (“ZEVALIN”); and
Vincristine Sulfate
Liposome Injection (MARQIBO), (“MARQIBO”).
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.
In March 2016, Spectrum,
the former owner of EVOMELA, ZEVALIN and MARQIBO, 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 China National Medical Products Administration (“NMPA”)
accepted for review the Company’s import drug registration application for EVOMELA and in 2017 granted priority review of
the import drug registration clinical trial application (CTA). On December 3, 2018 the Company received NMPA’s approval
for importation, marketing and sales in China for EVOMELA. The Company is building an internal commercial team to prepare for
the commercial launch EVOMELA in 2019. The Company is also preparing for a post-marketing study.
The Company is in
various stages of the regulatory and development process to obtain marketing approval for ZEVALIN and MARQIBO in its territorial
region, with ZEVALIN commercially available in Hong Kong. In 2017, the NMPA accepted for review the Company’s import drug
registration for ZEVALIN including both the antibody kit and the radioactive Yttrium-90 component. On February 12, 2019, the Company
received NMPA’s approval of the Company’s CTA to allow for a confirmatory registration trial to evaluate the efficacy
and safety of ZEVALIN. In 2016, the NMPA accepted for review the Company’s import drug registration application for MARQIBO.
On March 4, 2019 the Company received NMPA’s approval of the Company’s CTA to allow for a confirmatory registration
trial to evaluate the efficacy and safety of MARQIBO. The Company intends to advance both of these products.
In 2018, the Company
entered into purchase obligation commitments for EVOMELA from Spectrum for approximately $9.2 million. In March 2019, the Company
entered into an additional purchase obligation commitment for EVOMELA from Spectrum for approximately $3.1 million. The Company
expects all of the EVOMELA product to be delivered in 2019. In 2018, the Company paid $4.8 million as a deposit for the purchase
of EVOMELA. The deposits made to Spectrum are reflected as prepaid expense and other in the accompanying condensed consolidated
balance sheets as of March 31, 2019 and December 31, 2018. In April 2019, the Company paid additional deposits for EVOMELA to
Spectrum totaling $2.8 million.
In 2018, the Company committed to invest
$80 million in CASI Wuxi, of which $21 million was invested in February 2019 (see Note 7).
On April 16, 2019,
the Company entered into a License Agreement (the “License Agreement”) with Black Belt Therapeutics
Limited (“Black Belt”), a company established under the laws of England, pursuant to which the Company obtained an
exclusive, worldwide license for an investigational anti-CD38 monoclonal antibody (Mab), CID-103.
Pursuant to the License
Agreement, the Company made an upfront payment of 5,000,000 euro, and will make potential future payments of development and sales
milestones and royalties. The Company will also make an equity investment of 2,000,000 euro in a newly established company that
will carry on the work of Black Belt in new therapeutic areas. CASI will be responsible for all development and commercialization
activities worldwide.
The License Agreement
contains customary representations, warranties, covenants and indemnification provisions.