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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
☒ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31, 2021.
or
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from _______ to _______
Commission
file number: 001-15911
CELSION
CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
delaware |
|
52-1256615 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
|
|
|
997
LENOX DRIVE, SUITE 100,
LAWRENCEVILLE, NJ |
|
08648 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (609) 896-9100
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Stock, Par Value $0.01 Per Share |
|
CLSN |
|
NASDAQ
CAPITAL MARKET |
Securities
registered pursuant to section 12(g) of the Act:
None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer |
☐ |
|
Accelerated
Filer |
☐ |
Non-accelerated
Filer |
☐ |
|
Smaller
Reporting Company |
☒ |
|
|
|
Emerging
Growth Company |
☐ |
If
an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes
☐ No ☒
The
aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $109.9 million as of June 30, 2021
(the last business day of the Registrant’s most recently completed second fiscal quarter) based on the closing sale price of $19.05
for the Registrant’s common stock on that date as reported by The Nasdaq Capital Market (“NASDAQ”). For purposes of
this calculation, shares of common stock held by directors, officers and stockholders who own greater than 10% of the Registrant’s
outstanding stock at June 30, 2021, were excluded. This determination of executive officers and directors as affiliates is not necessarily
a conclusive determination for any other purpose.
As
of March 30, 2022, 5,770,516 shares of the Registrant’s common stock were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
NONE
CELSION
CORPORATION
FORM
10-K
TABLE
OF CONTENTS
CELSION
CORPORATION
FORM
10-K
TABLE
OF CONTENTS (continued)
FORWARD-LOOKING
STATEMENTS
Certain
of the statements contained in this Annual Report on Form 10-K (this “Annual Report”) are forward-looking and constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, from time to time we
may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological
developments, product pipelines, clinical trials and research and development activities, the adequacy of capital reserves and anticipated
operating results and cash expenditures, current and potential collaborations, strategic alternatives and other aspects of our present
and future business operations and similar matters that also constitute such forward-looking statements. These statements involve known
and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance,
or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied
by such forward-looking statements. Such factors include, among other things, unforeseen changes in the course of research and development
activities and in clinical trials; possible changes in cost, timing and progress of development, preclinical studies, clinical trials
and regulatory submissions; our collaborators’ ability to obtain and maintain regulatory approval of any of our product candidates;
possible changes in capital structure, financial condition, future working capital needs and other financial items; changes in approaches
to medical treatment; introduction of new products by others; success or failure of our current or future collaboration arrangements,
risks and uncertainties associated with possible acquisitions of other technologies, assets or businesses; our ability to obtain additional
funds for our operations; our ability to obtain and maintain intellectual property protection for our technologies and product candidates
and our ability to operate our business without infringing the intellectual property rights of others; our reliance on third parties
to conduct preclinical studies or clinical trials; the rate and degree of market acceptance of any approved product candidates; possible
actions by customers, suppliers, strategic partners, potential strategic partners, competitors and regulatory authorities; compliance
with listing standards of The Nasdaq Capital Market; and those listed under “Risk Factors” below and elsewhere in this Annual
Report.
In
some cases, you can identify forward-looking statements by terminology such as “expect,” “anticipate,” “estimate,”
“plan,” “believe,” “could,” “intend,” “predict”, “may,” “should,”
“will,” “would” and words of similar import regarding the Company’s expectations. Forward-looking statements
are only predictions. Actual events or results may differ materially. Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will
not differ materially from our expectations. In evaluating such forward-looking statements, you should specifically consider various
factors, including the risks outlined under “Risk Factors.” The discussion of risks and uncertainties set forth in this Annual
Report is not necessarily a complete or exhaustive list of all risks facing the Company at any particular point in time. We operate in
a highly competitive, highly regulated and rapidly changing environment and our business is in a state of evolution. Therefore, it is
likely that new risks will emerge, and that the nature and elements of existing risks will change, over time. It is not possible for
management to predict all such risk factors or changes therein, or to assess either the impact of all such risk factors on our business
or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially
from those contained in any forward-looking statement. Except as required by law, we assume no obligation to revise or update any forward-looking
statement that may be made from time to time by us or on our behalf for any reason, even if new information becomes available in the
future. Unless the context requires otherwise or unless otherwise noted, all references in this Annual Report to “Celsion”,
“the Company”, “we”, “us”, or “our” are to Celsion Corporation, a Delaware corporation
and its wholly owned subsidiaries, CLSN Laboratories, Inc., also a Delaware corporation and Celsion GmbH, a Swiss corporation.
Trademarks
The
Celsion brand and product names, including but not limited to Celsion® and ThermoDox®, contained in this
document are trademarks, registered trademarks or service marks of Celsion Corporation or its subsidiary in the United States (the “U.S.”)
and certain other countries. This document also contains references to trademarks and service marks of other companies that are the property
of their respective owners.
OVERVIEW
Celsion
Corporation (“Celsion” or the “Company”) is a fully integrated, clinical stage biotechnology company focused
on advancing a portfolio of innovative treatments including DNA-based immunotherapies, next generation vaccines and directed chemotherapies
through clinical trials and eventual commercialization. The Company’s product pipeline includes GEN-1, a DNA-based immunotherapy
for the localized treatment of ovarian cancer. ThermoDox®, Celsion’s proprietary heat-activated liposomal encapsulation
of doxorubicin, currently under investigator-sponsored development for several cancer indications, is being managed though Celsion’s
wholly owned subsidiary, Celsion GmbH. Additionally, Celsion has two feasibility stage platform technologies for the development of novel
nucleic acid-based immunotherapies and next generation vaccines and other anti-cancer DNA or RNA therapies. Both are novel synthetic,
non-viral vectors with demonstrated capability in nucleic acid cellular transfection.
IMMUNO-ONCOLOGY
Program
On
June 20, 2014, the Company completed the acquisition of substantially all of the assets of EGEN, Inc., a privately held corporation located
in Huntsville, Alabama. Pursuant to the Asset Purchase Agreement, CLSN Laboratories acquired all of EGEN’s right, title and interest
in substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property
rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other
tangible personal property. A key asset acquired from EGEN was the TheraPlas technology platform. The first drug candidate developed
from this technology platform is GEN-1.
THERAPLAS
Technology Platform
TheraPlas
is a technology platform for the delivery of DNA and mRNA therapeutics via synthetic non-viral carriers and is capable of providing cell
transfection for double-stranded DNA plasmids and large therapeutic RNA segments such as mRNA. There are two components of the TheraPlas
system, a plasmid DNA or mRNA payload encoding a therapeutic protein, and a delivery system. The delivery system is designed to protect
the DNA/mRNA from degradation and promote trafficking into cells and through intracellular compartments. We designed the delivery system
of TheraPlas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity.
We believe that TheraPlas may be a viable alternative to current approaches to gene delivery due to several distinguishing characteristics,
including enhanced molecular versatility that allows for complex modifications to potentially improve activity and safety.
The
design of the TheraPlas delivery system is based on molecular functionalization of polyethyleneimine (“PEI”), a cationic
delivery polymer with a distinct ability to escape from the endosomes due to heavy protonation. The transfection activity and toxicity
of PEI is tightly coupled to its molecular weight; therefore, the clinical application of PEI is limited. We have used molecular functionalization
strategies to improve the activity of low molecular weight PEIs without augmenting their cytotoxicity. In one instance, chemical conjugation
of a low molecular weight branched BPEI1800 with cholesterol and polyethylene glycol (“PEG”) to form PEG-PEI-Cholesterol
(“PPC”) dramatically improved the transfection activity of BPEI1800 following in vivo delivery. Together, the cholesterol
and PEG modifications produced approximately 20-fold enhancement in transfection activity. Biodistribution studies following intraperitoneal
or subcutaneous administration of DNA/PPC nanocomplexes showed DNA delivery localized primarily at the injection site with only small
amount escaping into the systemic circulation. PPC is the delivery component of our lead TheraPlas product, GEN-1, which is in clinical
development for the treatment of ovarian cancer. The PPC manufacturing process has been scaled up from bench scale (1-2 g) to 0.6Kg,
and several current Good Manufacturing Practice (“cGMP”) lots have been produced with reproducible quality.
We
believe that TheraPlas has emerged as a viable alternative to current approaches due to several distinguishing characteristics such as
strong molecular versatility that may allow for complex modifications to potentially improve activity and safety with little difficulty.
The biocompatibility of these polymers reduces the risk of adverse immune response, thus allowing for repeated administration. Compared
to naked DNA or cationic lipids, TheraPlas is generally safer, more efficient, and cost effective. We believe that these advantages place
Celsion in a position to capitalize on this technology platform.
Ovarian
Cancer Overview
Ovarian
cancer is the most lethal of gynecological malignancies among women with an overall five-year survival rate of 45%. This poor outcome
is due in part to the lack of effective prevention and early detection strategies. There were approximately 20,000 new cases of
ovarian cancer in the U.S. in 2021 with an estimated 13,000 deaths. Mortality rates for ovarian cancer declined very little
in the last forty years due to the unavailability of detection tests and improved treatments. Most women with ovarian cancer are not
diagnosed until Stages III or IV, when the disease has spread outside the pelvis to the abdomen and areas beyond causing swelling and
pain. The five-year survival rates for Stages III and IV are 39 percent and 17 percent, respectively. First-line chemotherapy
regimens are typically platinum-based combination therapies. Although this first line of treatment has an approximate 80 percent response
rate, 55 to 75 percent of women will develop recurrent ovarian cancer within two years and ultimately will not respond to platinum therapy.
Patients whose cancer recurs or progresses after initially responding to surgery and first-line chemotherapy have been divided into one
of the two groups based on the time from completion of platinum therapy to disease recurrence or progression. This time period is referred
to as platinum-free interval. The platinum-sensitive group has a platinum-free interval of longer than six months. This group generally
responds to additional treatment with platinum-based therapies. The platinum-resistant group has a platinum-free interval of shorter
than six months and is resistant to additional platinum-based treatments. Pegylated liposomal doxorubicin, topotecan, and Avastin are
the only approved second-line therapies for platinum-resistant ovarian cancer. The overall response rate for these therapies is 10 to
20 percent with median overall survival (“OS”) of eleven to twelve months. Immunotherapy is an attractive novel approach
for the treatment of ovarian cancer particularly since ovarian cancers are considered immunogenic tumors. IL-12 is one of the most active
cytokines for the induction of potent anti-cancer immunity acting through the induction of T-lymphocyte and natural killer cell proliferation.
The precedence for a therapeutic role of IL-12 in ovarian cancer is based on epidemiologic and preclinical data.
GEN-1
Immunotherapy
GEN-1
is a DNA-based immunotherapeutic product candidate for the localized treatment of ovarian cancer by intraperitoneally administering an
Interleukin-12 (“IL-12”) plasmid formulated with our proprietary TheraPlas delivery system. In this DNA-based approach, the
immunotherapy is combined with a standard chemotherapy drug, which can potentially achieve better clinical outcomes than with chemotherapy
alone. We believe that increases in IL-12 concentrations at tumor sites for several days after a single administration could create a
potent immune environment against tumor activity and that a direct killing of the tumor with concomitant use of cytotoxic chemotherapy
could result in a more robust and durable antitumor response than chemotherapy alone. We believe the rationale for local therapy with
GEN-1 is based on the following:
|
● |
Loco-regional
production of the potent cytokine IL-12 avoids toxicities and poor pharmacokinetics associated with systemic delivery of recombinant
IL-12; |
|
|
|
|
● |
Persistent
local delivery of IL-12 lasts up to one week and dosing can be repeated; and |
|
|
|
|
● |
Local
therapy is ideal for long-term maintenance therapy. |
OVATION
I Study. In February 2015, we announced that the U.S. Food and Drug Administration (“FDA”) accepted, without objection,
the Phase I dose-escalation clinical trial of GEN-1 in combination with the standard of care in neoadjuvant ovarian cancer (the “OVATION
I Study”). On September 30, 2015, we announced enrollment of the first patient in the OVATION I Study. The OVATION I Study was
designed to:
|
(i) |
identify
a safe, tolerable and therapeutically active dose of GEN-1 by recruiting and maximizing an immune response; |
|
|
|
|
(ii) |
enroll
three to six patients per dose level and evaluate safety and efficacy; and |
|
|
|
|
(iii) |
attempt
to define an optimal dose for a follow-on Phase I/II study. |
In
addition, the OVATION I Study established a unique opportunity to assess how cytokine-based compounds such as GEN-1, directly affect
ovarian cancer cells and the tumor microenvironment in newly diagnosed ovarian cancer patients. The study was designed to characterize
the nature of the immune response triggered by GEN-1 at various levels of the patients’ immune system, including:
|
● |
Infiltration
of cancer fighting T-cell lymphocytes into primary tumor and tumor microenvironment including peritoneal cavity, which is the primary
site of metastasis of ovarian cancer; |
|
|
|
|
● |
Changes
in local and systemic levels of immuno-stimulatory and immune-suppressive cytokines associated with tumor suppression and growth,
respectively; and |
|
|
|
|
● |
Expression
profile of a comprehensive panel of immune related genes in pre-treatment and GEN-1-treated tumor tissue. |
We
initiated the OVATION I Study at four clinical sites at the University of Alabama at Birmingham, Oklahoma University Medical Center,
Washington University in St. Louis, and the Medical College of Wisconsin. During 2016 and 2017, we announced data from the first fourteen
patients in the OVATION I Study. On October 3, 2017, we announced final translational research and clinical data from the OVATION I Study.
Key
translational research findings from all evaluable patients are consistent with the earlier reports from partial analysis of the data
and are summarized below:
|
● |
The
intraperitoneal treatment of GEN-1 in conjunction with NACT resulted in dose dependent increases in IL-12 and Interferon-gamma (IFN-γ)
levels that were predominantly in the peritoneal fluid compartment with little to no changes observed in the patients’ systemic
circulation. These and other post-treatment changes including decreases in VEGF levels in peritoneal fluid are consistent with an
IL-12 based immune mechanism; |
|
|
|
|
● |
Consistent
with the previous partial reports, the effects observed in the IHC analysis were pronounced decreases in the density of immunosuppressive
T-cell signals (Foxp3, PD-1, PDL-1, IDO-1) and increases in CD8+ cells in the tumor microenvironment; |
|
|
|
|
● |
The
ratio of CD8+ cells to immunosuppressive cells was increased in approximately 75% of patients suggesting an overall shift in the
tumor microenvironment from immunosuppressive to pro-immune stimulatory following treatment with GEN-1. An increase in CD8+ to immunosuppressive
T-cell populations is a leading indicator and believed to be a good predictor of improved OS; and |
|
|
|
|
● |
Analysis
of peritoneal fluid by cell sorting, not reported before, shows a treatment-related decrease in the percentage of immunosuppressive
T-cell (Foxp3+), which is consistent with the reduction of Foxp3+ T-cells in the primary tumor tissue, and a shift in tumor naïve
CD8+ cell population to more efficient tumor killing memory effector CD8+ cells. |
The
Company also reported encouraging clinical data from the first fourteen patients who completed treatment in the OVATION I Study. GEN-1
plus standard chemotherapy produced no dose limiting toxicities and positive dose dependent efficacy signals which correlate well with
positive surgical outcomes as summarized below:
|
● |
Of
the fourteen patients treated in the entire study, two patients demonstrated a complete response, ten patients demonstrated a partial
response and two patients demonstrated stable disease, as measured by RECIST criteria. This translates to a 100% disease control
rate and an 86% objective response rate (“ORR”). Of the five patients treated in the highest dose cohort, there was a
100% ORR with one complete response and four partial responses; |
|
|
|
|
● |
Fourteen
patients had successful resections of their tumors, with nine patients (64%) having a complete tumor resection (“R0”),
which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed. Seven
out of eight (88%) patients in the highest two dose cohorts experienced a R0 surgical resection. All five patients treated at the
highest dose cohort experienced a R0 surgical resection; and |
|
|
|
|
● |
All
patients experienced a clinically significant decrease in their CA-125 protein levels as of their most recent study visit. CA-125
is used to monitor certain cancers during and after treatment. CA-125 is present in greater concentrations in ovarian cancer cells
than in other cells. |
On
March 2, 2019, the Company announced final, investigator assessed, progression free survival (“PFS”) results from the OVATION
I Study. Median PFS in patients treated per protocol (n=14) was 21 months and was 17.1 months for the intent-to-treat (“ITT”)
population (n=18) for all dose cohorts, including three patients who dropped out of the study after 13 days or less, and two patients
who did not receive full NAC and GEN-1 cycles. Under the current standard of care, in women with Stage III/IV ovarian cancer undergoing
NAC, their disease progresses within about 12 months on average. The results from the OVATION I Study support continued evaluation of
GEN-1 based on promising tumor response, as reported in the PFS data, and the ability for surgeons to completely remove visible tumor
at interval debulking surgery. GEN-1 was well tolerated, and no dose-limiting toxicities were detected. Intraperitoneal administration
of GEN-1 was feasible with broad patient acceptance.
OVATION
2 Study. The Company held an Advisory Board Meeting on September 27, 2017 with the clinical investigators and scientific experts
including those from Roswell Park Cancer Institute, Vanderbilt University Medical School, and M.D. Anderson Cancer Center to review and
finalize clinical, translational research and safety data from the OVATION I Study in order to determine the next steps forward for our
GEN-1 immunotherapy program.
On
November 13, 2017, the Company filed its Phase I/II clinical trial protocol with the FDA for GEN-1 for the localized treatment of ovarian
cancer. The protocol is designed with a single dose escalation phase to 100 mg/m² to identify a safe and tolerable dose of GEN-1
while maximizing an immune response. The Phase I portion of the study will be followed by a continuation at the selected dose in approximately
110 patients randomized Phase II study.
In
the OVATION 2 Study, patients in the GEN-1 treatment arm will receive GEN-1 plus chemotherapy pre- and post-interval debulking surgery
(“IDS”). The OVATION 2 Study will include up to 110 patients with Stage III/IV ovarian cancer, with 12 to 15 patients in
the Phase I portion and up to 95 patients in Phase II. The study is powered to show a 33% improvement in the primary endpoint, PFS, when
comparing GEN-1 with neoadjuvant + adjuvant chemotherapy versus neoadjuvant + adjuvant chemotherapy alone. The PFS primary analysis will
be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months, whichever is
later.
In
March 2020, the Company announced encouraging initial clinical data from the first 15 patients enrolled in the Phase I portion of the
OVATION 2 Study for patients newly diagnosed with Stage III and IV ovarian cancer. The OVATION 2 Study combines GEN-1, the Company’s
IL-12 gene-mediated immunotherapy, with standard-of-care neoadjuvant chemotherapy (NACT). Following NACT, patients undergo interval debulking
surgery (IDS), followed by three additional cycles of chemotherapy.
GEN-1
plus standard NACT produced positive dose-dependent efficacy results, with no dose-limiting toxicities, which correlates well with successful
surgical outcomes as summarized below:
|
● |
Of
the 15 patients treated in the Phase I portion of the OVATION 2 Study, nine patients were treated with GEN-1 at a dose of 100 mg/m²
plus NACT and six patients were treated with NACT only. All 15 patients had successful resections of their tumors, with eight out
of nine patients (88%) in the GEN-1 treatment arm having an R0 resection, which indicates a microscopically margin-negative complete
resection in which no gross or microscopic tumor remains in the tumor bed. Only three out of six patients (50%) in the NACT only
treatment arm had a R0 resection. |
|
|
|
|
● |
When
combining these results with the surgical resection rates observed in the Company’s prior Phase Ib dose-escalation trial (the
OVATION 1 Study), a population of patients with inclusion criteria identical to the OVATION 2 Study, the data reflect the strong
dose-dependent efficacy of adding GEN-1 to the current standard of care NACT: |
| |
| | |
%
of Patients with R0 Resections | |
0,
36, 47 mg/m² of GEN-1 plus NACT | |
| N
= 12 | | |
| 42 | % |
61,
79, 100 mg/m² of GEN-1 plus NACT | |
| N
= 17 | | |
| 82 | % |
|
● |
The
ORR as measured by Response Evaluation Criteria in Solid Tumors (RECIST) criteria for the 0, 36, 47 mg/m² dose GEN-1 patients
were comparable, as expected, to the higher (61, 79, 100 mg/m²) dose GEN-1 patients, with both groups demonstrating an approximate
80% ORR. |
On
March 23, 2020, the Company announced that the European Medicines Agency (the “EMA”) Committee for Orphan Medicinal Products
has recommended that GEN-1 be designated as an orphan medicinal product for the treatment of ovarian cancer. GEN-1 is an IL-12 DNA plasmid
vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent, local secretion of
the IL-12 protein. GEN-1 previously received orphan designation from the FDA.
On
March 26, 2020, the Company announced with Medidata, a Dassault Systèmes company, that examining matched patient data provided
by Medidata in a synthetic control arm (“SCA”) with results from the Company’s completed Phase Ib dose-escalating OVATION
I Study showed positive results in progression-free survival (“PFS”). The hazard ratio (“HR”) was 0.53 in the
ITT group, showing strong signals of efficacy. Celsion believes these data may warrant consideration of strategies to accelerate the
clinical development program for GEN-1 in newly diagnosed, advanced ovarian cancer patients by the FDA.
SCAs
have the potential to revolutionize clinical trials in certain oncology indications and some other diseases where a randomized control
is not ethical or practical. SCAs are formed by carefully selecting control patients from historical clinical trials to match the demographic
and disease characteristics of the patients treated with the new investigational product. SCAs have been shown to mimic the results of
traditional randomized controls so that the treatment effects of an investigational product can be visible by comparison to the SCA.
SCAs can help advance the scientific validity of single arm trials, and in certain indications, reduce time and cost, and expose fewer
patients to placebos or existing standard-of-care treatments that might not be effective for them.
On
July 27, 2020, the Company announced the randomization of the first two patients in the Phase II portion of the OVATION 2 Study with
GEN-1 in advanced ovarian cancer. The Company anticipates completing enrollment of up to 110 patients in the second half of 2022. Because
this is an open-label study, the Company intends to provide clinical updates throughout the course of treatment including response rates
and surgical resection scores.
In
February 2021, the Company announced that it has received Fast Track designation from the FDA for GEN-1, its DNA-mediated IL-12 immunotherapy
currently in Phase II development for the treatment of advanced ovarian cancer and also provided an update on the OVATION 2 Study. The
Company reported that approximately one-third, or 34 patients, of the anticipated 110 patients had been enrolled into the OVATION 2 Study,
of which 20 are in the treatment arm and 14 are in the control. Of the 34 patients enrolled in the trial, 27 patients have had their
interval debulking surgery with the following results:
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80%
of patients treated with GEN-1 had a R0 resection, which indicates a microscopically margin-negative complete resection in which
no gross or microscopic tumor remains in the tumor bed. |
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58%
of patients in the control arm had an R0 resection. |
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This
interim data represents a 38% improvement in R0 resection rates for GEN-1 patients compared with control arm patients and is consistent
with the reported improvement in resection scores noted in the encouraging Phase I OVATION I Study, the manuscript of which has been
submitted for peer review publication. |
In
February 2022, the Company announced that following a pre-planned interim safety review of 81 as treated patients randomized in the OVATION
2 Study, the Data Safety Monitoring Board (DSMB) unanimously recommended that the OVATION 2 Study continue treating patients with the
dose of 100 mg/m2. The DSMB also determined that safety is satisfactory with an acceptable risk/benefit, and that patients
tolerate GEN-1 during a course of treatment that lasts up to six months. No dose-limiting toxicities were reported.
The
Company also announced that over 75% of the projected 110 patients have been enrolled in the OVATION 2 Study. Interim clinical data from
the first 39 patients who have undergone interval debulking surgery showed that the GEN-1 treatment arm is showing a 27% improvement
in R0 surgical resection rate over the control arm.
Through
March 15, 2022, 88 of 110 patients have been enrolled in the OVATION 2 study. To date no patient in the treatment arm of the phase 2
portion of the trial has received all 17 doses of the GEN-1 treatment as prescribed in the study protocol. Implications will be assessed
in conjunction with the primary end point, PFS, results.
PLACCINE
DNA VACCINE TECHNOLOGY PLATFORM
In
January 2021, the Company announced the filing of a provisional U.S. patent application for a novel DNA-based, investigational vaccine
for preventing or treating infections from a broad range of infectious agents including the coronavirus disease using its PLACCINE DNA
vaccine technology platform (“PLACCINE”). The provisional patent covers a family of novel composition of multi-cistronic
vectors and polymeric nanoparticles that comprise the PLACCINE DNA vaccine platform technology for preventing or treating infectious
agents that have the potential for global pandemics, including the SARS-CoV-2 virus and its variations, using the Company’s TheraPlas
platform technology.
Celsion’s
PLACCINE DNA vaccine technology platform is characterized by a single multi-cistronic DNA plasmid vector expressing multiple pathogen
antigens delivered with a synthetic delivery system. We believe it is adaptable to creating vaccines for a multitude of pathogens, including
emerging pathogens leading to pandemics as well as infectious diseases that have yet to be effectively addressed with current vaccine
technologies. This flexible vaccine platform is well supported by an established supply chain to produce any plasmid vector and its assembly
into a respective vaccine formulation.
PLACCINE
is an extension of the Company’s synthetic, non-viral TheraPlas delivery technology currently in a Phase II trial for the treatment
of late-stage ovarian cancer with GEN-1. Celsion’s proprietary multifunctional DNA vaccine technology concept is built on the flexible
PLACCINE technology platform that is amenable to rapidly responding to the SARS-CoV-2 virus, as well as possible future mutations of
SARS-CoV-2, other future pandemics, emerging bioterrorism threats, and novel infectious diseases. Celsion’s extensive experience
with TheraPlas suggests that the PLACCINE-based nanoparticles are stable at storage temperatures of 4oC to 25oC,
making vaccines developed on this platform easily suitable for broad world-wide distribution.
Celsion’s
vaccine approach is designed to optimize the quality of the immune response dictating the efficiency of pathogen clearance and patient
recovery. Celsion has taken a multivalent approach in an effort to generate an even more robust immune response that not only results
in a strong neutralizing antibody response, but also a more robust and durable T-cell response. Delivered with Celsion’s synthetic
polymeric system, the proprietary DNA plasmid is protected from degradation and its cellular uptake is facilitated.
COVID-19
Vaccine Overview
Emerging
data from the recent literature indicates that the quality of the immune response as opposed to its absolute magnitude is what dictates
SARS-CoV-2 viral clearance and recovery and that an ineffective or non-neutralizing enhanced antibody response might actually exacerbate
disease. The first-generation COVID-19 vaccines were developed for rapid production and deployment and were not optimized for generating
cellular responses that result in effective viral clearance. Though early data has indicated some of these vaccines to be over 95% effective,
these first-generation vaccines were primarily designed to generate a strong antibody response, and while they have been shown to provide
prophylactic protection against disease, the durability of this protection is currently unclear. Most of these vaccines have been specifically
developed to target the SARS-CoV-2 Spike (S) protein (antigen), though it is known that restricting a vaccine to a sole viral antigen
creates selection pressure that can serve to facilitate the emergence of viral resistance. Indeed, even prior to full vaccine rollout,
it has been observed that the S protein is a locus for rapid evolutionary and functional change as evidenced by the D614G, Y453F, 501Y.V2,
and VUI-202012/01 mutations/deletions. This propensity for mutation of the S protein leads to future risk of efficacy reduction over
time as these mutations accumulate.
Our
Next Generation Vaccine Initiative
Celsion’s
vaccine candidate comprises a single plasmid vector containing the DNA sequence encoding multiple SARS-CoV-2 antigens. Delivery will
be evaluated intramuscularly, intradermally, or subcutaneously with a non-viral synthetic DNA delivery carrier that facilitates vector
delivery into the cells of the injected tissue and has potential immune adjuvant properties. Unique designs and formulations of Celsion
vaccine candidates may offer several potential key advantages. The synthetic polymeric DNA carrier is an important component of the vaccine
composition as it has the potential to facilitate the vaccine immunogenicity by improving vector delivery and, due to potential adjuvant
properties, attract professional immune cells to the site of vaccine delivery.
Future
vaccine technology will need to address viral mutations and the challenges of efficient manufacturing, distribution, and storage. We
believe an adaptation of our TheraPlas technology, PLACCINE, has the potential to meet these challenges. Our approach is described in
our provisional patent filing and is summarized as a DNA vaccine technology platform characterized by a single plasmid DNA with multiple
coding regions. The plasmid vector is designed to express multiple pathogen antigens. It is delivered via a synthetic delivery system
and has the potential to be easily modified to create vaccines against a multitude of infectious diseases, addressing:
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Viral
Mutations: PLACCINE may offer broad-spectrum and mutational resistance (variants) by targeting multiple antigens on a single
plasmid vector. |
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Durable
Efficacy: PLACCINE delivers a DNA plasmid-based antigen that could result in durable antigen exposure and a robust vaccine response
to viral antigens. |
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Storage
& Distribution: PLACCINE allows for stability that is compatible with manageable vaccine storage and distribution. |
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Simple
Dosing & Administration: PLACCINE is a synthetic delivery system that should require a simple injection that does not require
viruses or special equipment to deliver its payload. |
We
are conducting preliminary research associated with our recently announced proprietary DNA vaccine platform provisional patent filing.
At the same time, we are redoubling our efforts and R&D resources in our immuno-oncology and next generation vaccine program.
On
September 2, 2021, the Company announced results from preclinical in vivo studies
showing production of antibodies and cytotoxic T-cell response specific to the spike antigen of SARS-CoV-2 when immunizing BALB/c mice
with the Company’s next-generation PLACCINE DNA vaccine platform. Moreover, the antibodies to SARS-CoV-2 spike antigen prevented
the infection of cultured cells in a viral neutralization assay. The production of antibodies predicts the ability of PLACCINE to protect
against SARS-CoV-2 exposure, and the elicitation of cytotoxic T-cell response shows the vaccine’s potential to eradicate cells
infected with SARS-CoV-2. These findings demonstrate the potential immunogenicity of Celsion’s PLACCINE DNA vaccine, which is intended
to provide broad-spectrum protection and resistance against variants by incorporating multiple viral antigens, to improve vaccine stability
at storage temperatures of 4o C and above, and to facilitate cheaper and easier
manufacturing.
On
January 31, 2022, the Company announced it had engaged BIOQUAL, Inc., a preclinical testing contract research organization, to conduct
a non-human primate (NHP) challenge study with Celsion’s DNA-based approach for a SARS-CoV-2 vaccine. The NHP pilot study follows
the generation of encouraging mouse data and will evaluate the Company’s lead vaccine formulations for safety, immunogenicity and
protection against SARS-CoV-2. In completed preclinical studies, Celsion demonstrated safe and efficient immune responses including IgG
response, neutralizing antibodies and T-cell responses that parallel the activity of commercial vaccines following intramuscular (IM)
administration of novel vaccine compositions expressing a single viral antigen. In addition, vector development has shown promise of
neutralizing activity against a range of SARS-CoV-2 variants. Celsion’s novel DNA-based vaccines have been based on a simple intramuscular
injection that does not require viral encapsulation or special equipment for administration.
THERMODOX®
- DIRECTED CHEMOTHERAPY
Liposomes
are manufactured submicroscopic vesicles consisting of a discrete aqueous central compartment surrounded by a membrane bilayer composed
of naturally occurring lipids. Conventional liposomes have been designed and manufactured to carry drugs and increase residence time,
thus allowing the drugs to remain in the bloodstream for extended periods of time before they are removed from the body. However, the
current existing liposomal formulations of cancer drugs and liposomal cancer drugs under development do not provide for the immediate
release of the drug and the direct targeting of organ specific tumors, two important characteristics that are required for improving
the efficacy of cancer drugs such as doxorubicin. A team of research scientists at Duke University developed a heat-sensitive liposome
that rapidly changes its structure when heated to a threshold minimum temperature of 39.5º to 42º Celsius. Heating creates
channels in the liposome bilayer that allow an encapsulated drug to rapidly disperse into the surrounding tissue. This novel, heat-activated
liposomal technology is differentiated from other liposomes through its unique low heat-activated release of encapsulated chemotherapeutic
agents. We are able to use several available focused-heat technologies, such as radiofrequency ablation (“RFA”), microwave
energy and high intensity focused ultrasound (“HIFU”), to activate the release of drugs from our novel heat sensitive liposomes.
Investigator
sponsored THERMODOX® for the Treatment of Various Cancers
Celsion’s
Approach
While
RFA uses extremely high temperatures (greater than 90° Celsius) to ablate the tumor, it may fail to treat micro-metastases in the
outer margins of the ablation zone because temperatures in the periphery may not be high enough to destroy cancer cells. Our ThermoDox®
treatment approach is designed to utilize the ability of RFA devices to ablate the center of the tumor while simultaneously thermally
activating our ThermoDox® liposome to release its encapsulated doxorubicin to kill any remaining viable cancer cells throughout the
heated region, including the ablation margins. This novel treatment approach is intended to deliver the drug directly to those cancer
cells that survive RFA. This approach is designed to increase the delivery of the doxorubicin at the desired tumor site while potentially
reducing drug exposure distant to the tumor site.
OPTIMA
Study
The
OPTIMA Study represents an evaluation of ThermoDox® in combination with a first line therapy, RFA, for newly diagnosed,
intermediate stage HCC patients. The OPTIMA Study was designed to enroll up to 550 patients globally at approximately 65 clinical sites
in the U.S., Canada, European Union (EU), China and other countries in the Asia-Pacific region and will evaluate ThermoDox®
in combination with standardized RFA, which will require a minimum of 45 minutes across all investigators and clinical sites for
treating lesions three to seven centimeters, versus standardized RFA alone. The primary endpoint for the OPTIMA Study is OS, and the
secondary endpoints are progression free survival and safety. The statistical plan calls for two interim efficacy analyses by an independent
Data Monitoring Committee (“DMC”).
On
February 24, 2014, we announced that the FDA provided clearance for the OPTIMA Study, which is a pivotal, double-blind, placebo-controlled
Phase III trial of ThermoDox®, in combination with standardized RFA, for the treatment of primary liver cancer. The trial
design of the OPTIMA Study is based on the comprehensive analysis of data from an earlier Phase III clinical trial called the HEAT Study
(the “HEAT Study”). The OPTIMA Study is supported by a hypothesis developed from an OS analysis of a large subgroup of patients
from the HEAT Study.
Post-hoc
data analysis from our earlier Phase III HEAT Study suggests that ThermoDox® may substantially improve OS, when compared
to the control group, in patients if their lesions undergo a 45-minute RFA procedure standardized for a lesion greater than 3 cm in diameter.
Data from nine OS sweeps have been conducted since the top line progression free survival PFS data from the HEAT Study were announced
in January 2013, with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical
significance. On August 15, 2016, we announced updated results from its final retrospective OS analysis of the data from the HEAT Study.
These results demonstrated that in a large, well bounded, subgroup of patients with a single lesion (n=285, 41% of the HEAT Study patients),
treatment with a combination of ThermoDox® and optimized RFA provided an average 54% risk improvement in OS compared to
optimized RFA alone. The HR at this analysis is 0.65 (95% CI 0.45 - 0.94) with a p-value of 0.02. Median OS for the ThermoDox®
group has been reached which translates into a two-year survival benefit over the optimized RFA group (projected to be greater
than 80 months for the ThermoDox® plus optimized RFA group compared to less than 60 months projection for the optimized
RFA only group). This information should be viewed with caution since it is based on a retrospective analysis of a subgroup.
In
August 2018, the Company announced that the OPTIMA Study was fully enrolled. On August 5, 2019, the Company announced that the prescribed
number of OS events had been reached for the first prespecified interim analysis of the OPTIMA Phase III Study. Following preparation
of the data, the first interim analysis was conducted by the DMC. The DMC’s pre-planned interim efficacy review followed 128 patient
events, or deaths, which occurred in August 2019. On November 4, 2019, the Company announced that the DMC unanimously recommended the
OPTIMA Study continue according to protocol. The recommendation was based on a review of blinded safety and data integrity from 556 patients
enrolled in the OPTIMA Study. Data presented demonstrated that PFS and OS data appeared to be tracking with patient data observed at
a similar point in the Company’s subgroup of patients followed prospectively in the earlier Phase III HEAT Study, upon which the
OPTIMA Study was based.
On
April 15, 2020, the Company announced that the prescribed minimum number of events of 158 patient deaths had been reached for the second
pre-specified interim analysis of the OPTIMA Phase III Study. The hazard ratio for success at 158 deaths is 0.70, which represents a
30% reduction in the risk of death compared with RFA alone. On July 13, 2020, the Company announced that it has received a recommendation
from the DMC to consider stopping the global OPTIMA Study. The recommendation was made following the second pre-planned interim safety
and efficacy analysis by the DMC on July 9, 2020. The DMC analysis found that the pre-specified boundary for stopping the trial for futility
of 0.900 was crossed with an actual value of 0.903. However, the 2-sided p-value of 0.524 for this analysis provides uncertainty, subsequently,
the DMC left the final decision of whether or not to stop the OPTIMA Study to Celsion. There were no safety concerns noted during the
interim analysis. The Company followed the advice of the DMC considered its options either to stop the study or continue to follow patients
after a thorough review of the data, and an evaluation of our probability of success.
On
August 4, 2020, the Company issued a press release announcing it would continue following patients for OS, noting that the unexpected
and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis on July 9, 2020, may
be associated with a data maturity issue. On October 12, 2020, the Company provided an update on the ongoing data analysis from its Phase
III OPTIMA Study with ThermoDox® as well as growing interest among clinical investigators in conducting studies with ThermoDox®
as a monotherapy or in combination with other therapies.
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Celsion
engaged a global biometrics contract research organization, with forensic statistical analysis capability that specializes in data
management, statistical consulting, statistical analysis and data sciences, with particular expertise in evaluating unusual data
from clinical trials and experience with associated regulatory issues. The primary objective of the CRO’s work was to determine
the basis and reasoning behind continuing to follow patients for survival, and if there were outside influences that may have impacted
the forecast of futility. |
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In
parallel, the Company submitted all OPTIMA Study clinical trial data to the National Institutes of Health (NIH) and with the expectation
of receiving a report on the following: |
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A
Cox Regression Analysis for single solitary lesions including minimum burn time per tumor volume, evaluating similarities to the
hypothesis generated from the NIH paper published in the Journal of Vascular and Interventional Radiology, in which the key
finding was that increased RFA heating time per tumor volume significantly improved OS in patients with single lesion HCC who were
treated with RFA plus ThermoDox®, compared with patients treated with RFA alone. |
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A
site-by-site evaluation for RFA heating time-based anomalies that may have contributed to the treatment arm performance. |
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An
image-based evaluation comparing results from the OPTIMA Study to the data from the HEAT Study that led to the RFA heating time hypothesis. |
On
February 11, 2021, the Company provided a final update on the Phase III OPTIMA Study and the decision to stop following patients in the
Study. Independent analyses conducted by a global biometrics contract research organization and the NIH, did not find any evidence of
significance or factors that would justify continuing to follow patients for OS. Therefore, the Company notified all clinical sites to
discontinue following patients. The OPTIMA Study database of 556 patients is now be frozen at 185 patient deaths. While the analyses
did identify certain patient subgroups that appear to have had a clinical benefit, the Company concluded that it would not be in its
best interest to pursue these retrospective findings as the regulatory hurdles supporting further discussion will be significant.
Investigator-Sponsored
Studies with ThermoDox®
Celsion
continues working closely and supporting investigations by others throughout the world in breast cancer, pancreatic cancer and in solid
tumors in children. Following inquiries from the NIH, we renewed our Cooperative Research and Development Agreement (CRADA) with the
Institute at a nominal cost, one goal of which is to pursue their interest in a study of ThermoDox® to treat patients
with bladder cancer. Importantly, Celsion is developing a business model to support these investigator-sponsored studies in a manner
that will not interfere with the Company’s focus on our GEN-1 program and vaccine development initiative.
Below
are summaries of several investigator-sponsored studies using ThermoDox®:
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Oxford
University commenced enrolling patients in a Phase I pancreatic cancer study with ThermoDox® in combination with High Intensity
Focused Ultrasound (HIFU) in July of 2021. The primary objective of this trial, the PanDox Study: Targeted Doxorubicin in Pancreatic
Tumors, is to quantify the enhancement in intratumoral doxorubicin concentration when delivered with ThermoDox® and HIFU, versus
doxorubicin monotherapy. This study is being undertaken pursuant to promising data in a mouse model of pancreatic cancer, which was
published in the International Journal of Hyperthermia in 2018. That preclinical study showed a 23x increase in intratumoral doxorubicin
concentration with ThermoDox® + HIFU, compared with a 2x increase in intratumoral doxorubicin concentration with free doxorubicin
plus HIFU. |
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Utrecht
University in the Netherlands continues to enroll patients in a Phase I breast cancer study to determine the safety, tolerability
and feasibility of ThermoDox® in combination with Magnetic Resonance Guided High Intensity Focused Ultrasound (MR-HIFU)
hyperthermia and cyclophosphamide therapy for the local treatment of the primary tumor in metastatic breast cancer (mBC). This investigator-sponsored
study, which is being funded by the Dutch Cancer Society, the Center for Translational Molecular Medicine (a public-private partnership
in the Netherlands), will be conducted at University Medical Center Utrecht and will enroll up to 12 newly diagnosed mBC patients.
Celsion will supply Thermodox® clinical product for the trial. |
BUSINESS
STRATEGY AND DEVELOPMENT PLAN
We
have not generated and do not expect to generate any revenue from product sales in the next several years, if at all. An element of our
business strategy has been to pursue, as resources permit, the research and development of a range of product candidates for a variety
of indications. We may also evaluate licensing products from third parties to expand our current product pipeline. This is intended to
allow us to diversify the risks associated with our research and development expenditures. To the extent we are unable to maintain a
broad range of product candidates, our dependence on the success of one or a few product candidates would increase and results such as
those announced in relation to the OPTIMA Study in February 2021 will have a more significant impact on our financial prospects, financial
condition, and market value. We may also consider and evaluate strategic alternatives, including investment in, or acquisition of, complementary
businesses, technologies, or products. As demonstrated by the HEAT Study and OPTIMA Study results, drug research and development is an
inherently uncertain process and there is a high risk of failure at every stage prior to approval. The timing and the outcome of clinical
results are extremely difficult to predict. The success or failure of any preclinical development and clinical trial can have a disproportionately
positive or negative impact on our results of operations, financial condition, prospects, and market value.
Our
current business strategy includes the possibility of entering into collaborative arrangements with third parties to complete the development
and commercialization of our product candidates. In the event that third parties take over the clinical trial process for one or more
of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot
forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements,
in whole or in part, and how such arrangements would affect our development plan or capital requirements. We may also apply for subsidies,
grants or government or agency-sponsored studies that could reduce our development costs. However we cannot forecast with any degree
of certainty whether we will be selected to receive any subsidy, grant or governmental funding.
We
had $56.9 million in cash and cash equivalents, short-term investments, interest receivable, net proceeds on the sale of net operating
losses and restricted cash as of December 31, 2021. Given our current development plans, we anticipate our current cash resources will
be sufficient to fund our operations and financial commitments through the end of 2024.
As
a result of the risks and uncertainties discussed in this Annual Report, among others, we are unable to estimate the duration and completion
costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization
and sale of a product if one of our product candidates receives regulatory approval for marketing, if at all. Our inability to complete
any of our research and development activities, preclinical studies or clinical trials in a timely manner or our failure to enter into
collaborative agreements when appropriate could significantly increase our capital requirements and could adversely impact our liquidity.
While our estimated future capital requirements are uncertain and could increase or decrease as a result of many factors, including the
extent to which we choose to advance our research and development activities, preclinical studies and clinical trials, or whether we
are in a position to pursue manufacturing or commercialization activities, we will need significant additional capital to progress our
product candidates through development and clinical trials, obtain regulatory approvals and manufacture and commercialize approved products,
if any. We do not know whether we will be able to access additional capital when needed or on terms favorable to us or our stockholders.
Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our
business. See Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of
this Annual Report for additional information regarding the Company’s financial condition, liquidity and capital resources.
RESEARCH
AND DEVELOPMENT EXPENDITURES
We
are engaged in a limited amount of research and development in our own facilities and have sponsored research programs in partnership
with various research institutions, including the NIH, the National Cancer Institute and Duke University. We are currently, with minimal
cash expenditures, sponsoring clinical and pre-clinical research at the University of Oxford, University of Utrecht, and the Children’s
Hospital Research Institute. The majority of the spending in research and development is for the funding of GEN-1 and ThermoDox®
clinical trials and our next generation vaccine initiative. Research and development expenses were approximately $10.6 million and $11.3
million for the years ended December 31, 2021 and 2020, respectively. See Part II, Item 7 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations of this Annual Report for additional information regarding expenditures related
to our research and development programs.
GOVERNMENT
REGULATION
Government
authorities in the U.S., at the federal, state and local level, and in other countries extensively regulate, among other things, the
research, development, testing, quality control, approval, manufacturing, labeling, post-approval monitoring and reporting, recordkeeping,
packaging, promotion, storage, advertising, distribution, marketing and export and import of pharmaceutical products such as those we
are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources.
Regulation
in the U.S.
In
the U.S., the FDA regulates drugs and biological products under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), the
Public Health Service Act (the “PHSA”) and implementing regulations. Failure to comply with the applicable FDA requirements
at any time pre- or post-approval may result in a delay of approval or administrative or judicial sanctions. These sanctions could include
the FDA’s imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, issuance
of warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, civil penalties or criminal prosecution.
Research
and Development
The
vehicle by which FDA approves a new pharmaceutical product for sale and marketing in the U.S. is a New Drug Application (“NDA”)
or a Biologics License Application (‘BLA’). A new drug or biological product cannot be marketed in the U.S. without FDA’s
approval of an NDA/BLA. The steps ordinarily required before a new drug can be marketed in the U.S. include (a) completion of pre-clinical
and clinical studies; (b) submission and FDA acceptance of an Investigational New Drug application (“IND”), which must become
effective before human clinical trials may commence; (c) completion of adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product to support each of its proposed indications; (d) submission and FDA acceptance of an NDA/BLA;
(e) completion of an FDA inspection and potential audits of the facilities where the drug or biological product is manufactured to assess
compliance with the cGMP and to assure adequate identity, strength, quality, purity, and potency; and (e) FDA review and approval of
the NDA/BLA.
Pre-clinical
tests include laboratory evaluations of product chemistry, toxicity, formulation and stability, as well as animal studies, to assess
the potential safety and efficacy of the product. Pre-clinical safety tests must be conducted by laboratories that comply with FDA regulations
regarding good laboratory practice. The results of pre-clinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA before the commencement of human clinical trials. Submission of an IND will not necessarily result in FDA authorization to commence
clinical trials, and the absence of FDA objection to an IND does not necessarily mean that the FDA will ultimately approve an NDA/BLA
or that a product candidate otherwise will come to market.
Clinical
trials involve the administration of the investigational product to human subjects under the supervision of a qualified principal investigator.
Clinical trials must be conducted in accordance with good clinical practices under protocols submitted to the FDA as part of an IND and
with patient informed consent. Also, each clinical trial must be approved by an Institutional Review Board (“IRB”) and is
subject to ongoing IRB monitoring.
Clinical
trials are typically conducted in three sequential phases, but the phases may overlap or be combined. Phase I clinical trials may be
conducted in patients or healthy volunteers to evaluate the product’s safety, dosage tolerance and pharmacokinetics and, if possible,
seek to gain an early indication of its effectiveness. Phase II clinical trials usually involve controlled trials in a larger but still
relatively small number of subjects from the relevant patient population to evaluate dosage tolerance and appropriate dosage; identify
possible short-term adverse effects and safety risks; and provide a preliminary evaluation of the efficacy of the drug for specific indications.
Phase III clinical trials are typically conducted in a significantly larger patient population and are intended to further evaluate safety
and efficacy, establish the overall risk-benefit profile of the product, and provide an adequate basis for physician labeling.
In
certain circumstances, a therapeutic product candidate being studied in clinical trials may be made available for treatment of individual
patients. Pursuant to the 21st Century Cures Act, the manufacturer of an investigational product for a serious disease or condition is
required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient
access to such investigational product.
There
can be no assurance that any of our clinical trials will be completed successfully within any specified time period or at all. Either
the FDA or we may suspend clinical trials at any time on various grounds, including among other things, if we, the FDA, our independent
DMC, or the IRB conclude that clinical subjects are being exposed to an unacceptable health risk. The FDA inspects and reviews clinical
trial sites, informed consent forms, data from the clinical trial sites (including case report forms and record keeping procedures) and
the performance of the protocols by clinical trial personnel to determine compliance with good clinical practices. The conduct of clinical
trials is complex and difficult, and there can be no assurance that the design or the performance of the pivotal clinical trial protocols
of any of our current or future product candidates will be successful.
The
results of pre-clinical studies and clinical trials, if successful, are submitted to FDA in the form of an NDA or BLA. Among other things,
the FDA reviews an NDA to determine whether the product is safe and effective for its intended use and reviews a BLA to determine whether
the product is safe, pure, and potent, and in each case, whether the product candidate is being manufactured in accordance with cGMP.
The testing, submission, and approval process requires substantial time, effort, and financial resources, including substantial application
user fees and annual product and establishment user fees. There can be no assurance that any approval will be granted for any product
at any time, according to any schedule, or at all. The FDA may refuse to accept or approve an application if it determines those applicable
regulatory criteria are not satisfied. The FDA may also require additional testing for safety and efficacy. Even, if regulatory approval
is granted, the approval will be limited to specific indications. There can be no assurance that any of our current product candidates
will receive regulatory approvals for marketing or, if approved, that approval will be for any or all of the indications that we request.
The
FDA has agreed to certain performance goals in the review of NDAs and BLAs. The FDA has 60 days from its receipt of an NDA or BLA to
determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently
complete to permit substantive review. Once the NDA/BLA is accepted for filing, most standard reviews applications are completed within
ten months of filing; most priority review applications are reviewed within six months of filing. Priority reviews are applied to a product
candidate that the FDA determines has the potential to treat a serious or life-threatening condition and, if approved, would be a significant
improvement in safety or effectiveness compared to available therapies. The review process for both standard and priority review may
be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify
information already provided in the submission.
Section
505(b)(2) NDAs
As
an alternative path to FDA approval for modifications to formulations or uses of drugs previously approved by the FDA, an applicant may
submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments. A Section 505(b)(2)
NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information
required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right
of reference or use from the person by or for whom the investigations were conducted. This type of application permits reliance for such
approvals on literature or on an FDA finding of safety, effectiveness or both for an approved drug product.
As
such, under Section 505(b)(2), the FDA may rely, for approval of an NDA, on data not developed by the applicant. The FDA may also require
companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference
drug. The FDA may then approve the new product candidate for the new indication sought by the 505(b)(2) applicant.
FDA
Regulations Specific to Gene-Based Products
The
FDA regulates gene-based products as biological products. Biological products intended for therapeutic use may be regulated by either
the Center for Biologics Evaluation & Research (“CBER”) or the Center for Drug Evaluation & Research (“CDER”).
Gene-based products are subject to extensive regulation under the FDCA, the PHSA, and their implementing regulations. Each clinical trial
of investigational gene therapies must be reviewed and approved by the Institutional Biosafety Committee (“IBC”) for each
clinical site if they receive any funding whatsoever from the National Institutes of Health (“NIH”). IBCs were established
under NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules (“NIH Guidelines”) to provide
local review and oversight of nearly all forms of research utilizing recombinant or synthetic nucleic acid molecules. The IBC assesses
biosafety issues, specifically, safety practices and containment procedures, related to the investigational product and clinical study.
Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant
DNA, however many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Such trials remain
subject to FDA and other clinical trial regulations, and only after FDA, IBC, and other relevant approvals are in place can these protocols
proceed.
Additional
Controls for Biological Products
To
help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls
for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses
in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public
health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases
in the U.S. and between states.
After
a BLA is approved, the biological product may be subject to official lot release as a condition of approval. As part of the manufacturing
process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If
the product is subject to official release by the FDA, the manufacturer submits samples of each lot of products to the FDA together with
a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests
performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing
the lots for distribution by the manufacturer.
In
addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness
of biological products. As with drugs, after approval of biological products, manufacturers must address any safety issues that arise,
are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.
Expedited
Development and Review Programs
The
FDA has various programs, including Fast Track, priority review, accelerated approval and breakthrough therapy, which are intended to
expedite or simplify the process for reviewing product candidates, or provide for the approval of a product candidate on the basis of
a surrogate endpoint. In January 2021, the FDA granted Fast Track designation for GEN-1 for the treatment of ovarian cancer.
Even
if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product candidate no longer meets
the conditions for qualification or that the time period for FDA review or approval will be lengthened. Generally, product candidates
that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet
medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate
the development and expedite the review of product candidates to treat serious or life-threatening diseases or conditions and fill unmet
medical needs.
Although
Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings
with a sponsor of a Fast Track designated product candidate and expedite review of the application for a product candidate designated
for priority review. Accelerated approval provides for an earlier approval for a new product candidate that meets the following criteria:
is intended to treat a serious or life-threatening disease or condition, generally provides a meaningful advantage over available therapies
and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that
can be measured earlier than irreversible morbidity or mortality (IMM) that is reasonably likely to predict an effect on IMM or other
clinical benefit. A surrogate endpoint is a laboratory measurement or physical sign used as an indirect or substitute measurement representing
a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a product candidate receiving accelerated
approval perform post-marketing clinical trials to verify and describe the predicted effect on irreversible morbidity or mortality or
other clinical endpoint, and the product may be subject to accelerated withdrawal procedures.
A
sponsor may seek FDA designation of a product candidate as a “breakthrough therapy” if the product candidate is intended,
alone or in combination with one or more other therapeutics, to treat a serious or life-threatening disease or condition, and preliminary
clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A request for Breakthrough
Therapy designation should be submitted concurrently with, or as an amendment to, an IND, but ideally no later than the end of Phase
II. Drugs designated as breakthrough therapies are also eligible for accelerated approval and receive the same benefits as drugs with
Fast Track designation. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite
the development and review of an application for approval of a breakthrough therapy. Fast Track and breakthrough therapy designations
may also be rescinded if the product candidate does not continue to meet the designation criteria. Fast Track designation, priority review,
accelerated approval, and breakthrough therapy designation do not change the standards for approval but may expedite the development
or approval process.
Disclosure
of Clinical Trial Information
Sponsors
of clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information related
to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is
then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials within one
year of completion, although disclosure of the results of these trials can be delayed in certain circumstances for up to two additional
years. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
Orphan
Drug Designation
In
2005, the FDA granted orphan drug designation for GEN-1 for the treatment of ovarian cancer. In 2010, the FDA granted orphan drug designation
for ThermoDox® for the treatment of HCC. Orphan drug designation does not convey any advantage in, or shorten the duration
of, the regulatory review and approval process. However, if a product which has an orphan drug designation subsequently receives the
first FDA approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity, which means
the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in
limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Orphan drug designation can
also provide opportunities for grant funding towards clinical trial costs, tax advantages and FDA user-fee benefits.
Hatch-Waxman
Exclusivity
The
FDCA provides a five-year period of non-patent data exclusivity within the U.S. to the first applicant to gain approval of an NDA for
a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same
active moiety. During the exclusivity period, the FDA generally may not accept for review an abbreviated new drug application (ANDA)
or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA referencing
the new chemical entity may be submitted after four years if it contains a certification of patent invalidity or non-infringement.
Biosimilars
The
Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”) created an abbreviated approval pathway for biological
product candidates shown to be highly similar to or interchangeable with an FDA licensed reference product. Biosimilarity sufficient
to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage
form, and strength, and no clinically meaningful differences between the biological product candidate and the reference product in terms
of safety, purity, and potency. Biosimilarity must be shown through analytical trials, animal trials, and a clinical trial or trials,
unless the Secretary of Health and Human Services waives a required element. A biosimilar product candidate may be deemed interchangeable
with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results
as the reference product and, for products administered multiple times, the biological product and the reference product may be switched
after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use
of the reference product. To date, a handful of biosimilar products and no interchangeable products have been approved under the BPCIA.
Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such
products are manufactured, pose significant hurdles to implementation, which is still being evaluated by the FDA.
A
reference product is granted 12 years of exclusivity from the time of first licensure of the reference product, and no application for
a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biological product candidate
submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity
against a finding of interchangeability for other biological products for the same condition of use for the lesser of (i) one year after
first commercial marketing of the first interchangeable biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved
if there is no patent challenge, (iii) 18 months after resolution of a lawsuit over the patents of the reference product in favor of
the first interchangeable biosimilar applicant, or (iv) 42 months after the first interchangeable biosimilar’s application has
been approved if a patent lawsuit is ongoing within the 42-month period.
Post-Approval
Requirements
After
FDA approval of a product is obtained, we and our contract manufacturers are required to comply with various post-approval requirements,
including establishment registration and product listing, record-keeping requirements, reporting of adverse reactions and production
problems to the FDA, providing updated safety and efficacy information for drugs, or safety, purity, and potency for biological products,
and complying with requirements concerning advertising and promotional labeling. As a condition of approval of an NDA/BLA, the FDA may
require the applicant to conduct additional clinical trials or other post market testing and surveillance to further monitor and assess
the drug’s safety and efficacy. The FDA can also impose other post-marketing controls on us as well as our products including,
but not limited to, restrictions on sale and use, through the approval process, regulations and otherwise. The FDA also has the authority
to require the recall of our products in the event of material deficiencies or defects in manufacture. A governmentally mandated recall,
or a voluntary recall by us, could result from a number of events or factors, including component failures, manufacturing errors, instability
of product or defects in labeling.
In
addition, manufacturing establishments in the U.S. and abroad are subject to periodic inspections by the FDA and must comply with cGMP.
To maintain compliance with cGMP, manufacturers must expend funds, time and effort in the areas of production and quality control. The
manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must develop
methods for testing the quality, purity and potency of the product candidate. Additionally, appropriate packaging must be selected and
tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration
over its proposed shelf-life.
Foreign
Clinical Studies to Support an IND, NDA, or BLA
The
FDA will accept as support for an IND, NDA, or BLA a well-designed, well-conducted, non-IND foreign clinical trial if it was conducted
in accordance with good clinical practice (“GCP”) and the FDA is able to validate the data from the trial through an on-site
inspection, if necessary. A sponsor or applicant who wishes to rely on a non-IND foreign clinical trial to support an IND must submit
supporting information to the FDA to demonstrate that the trial conformed to GCP. This information includes the investigator’s
qualifications; a description of the research facilities; a detailed summary of the protocol and trial results and, if requested, case
records or additional background data; a description of the drug substance and drug product, including the components, formulation, specifications,
and, if available, the bioavailability of the product candidate; information showing that the trial is adequate and well controlled;
the name and address of the independent ethics committee that reviewed the trial and a statement that the independent ethics committee
meets the required definition; a summary of the independent ethics committee’s decision to approve or modify and approve the trial,
or to provide a favorable opinion; a description of how informed consent was obtained; a description of what incentives, if any, were
provided to subjects to participate; a description of how the sponsor monitored the trial and ensured that the trial was consistent with
the protocol; a description of how investigators were trained to comply with GCP and to conduct the trial in accordance with the trial
protocol; and a statement on whether written commitments by investigators to comply with GCP and the protocol were obtained.
Regulatory
applications based solely on foreign clinical data meeting these criteria may be approved if the foreign data are applicable to the U.S.
population and U.S. medical practice, the trials have been performed by clinical investigators of recognized competence, and the data
may be considered valid without the need for an on-site inspection by FDA or, if FDA considers such an inspection to be necessary, FDA
is able to validate the data through an on-site inspection or other appropriate means. Failure of an application to meet any of these
criteria may result in the application not being approvable based on the foreign data alone.
New
Legislation and Regulations
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing
the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations
and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products. It is
impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations
will be changed or what the effect of such changes, if any, may be. Further, with the COVID-19 pandemic, it is possible that Congress
and FDA may implement new laws, regulations, or policies that may impact our ability to continue development programs as planned.
Other
regulatory matters
Manufacturing,
sales, promotion and other activities of product candidates following product approval, where applicable, or commercialization are also
subject to regulation by numerous regulatory authorities in the U.S. in addition to the FDA, which may include the Centers for Medicare
& Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, or HHS, the Department of Justice, the
Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety &
Health Administration, the Environmental Protection Agency and state and local governments and governmental agencies.
FDA
regulations prohibit the promotion of an investigational product for an unapproved use. The FDA distinguishes impermissible promotion
of an investigational product from the permissible exchange of scientific and medical information among healthcare professionals, which
may include company-sponsored scientific and educational activities. The FDA has issued Warning Letters and untitled letters to sponsors
and clinical investigators who have claimed, directly or indirectly, that an investigational product is safe and effective for its intended
use.
Other
healthcare laws
Healthcare
providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products for which
we obtain marketing approval. Our business operations and any current or future arrangements with third-party payors, healthcare providers
and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business
or financial arrangements and relationships through which we develop, market, sell and distribute any drugs for which we obtain marketing
approval. In the U.S., these laws include, without limitation, state and federal anti-kickback, false claims, physician transparency,
and patient data privacy and security laws and regulations, including but not limited to those described below.
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The
federal Anti-Kickback Statute prohibits among other things, persons and entities from knowingly and willfully soliciting, offering,
paying, receiving or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly
or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase,
order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program
such as Medicare and Medicaid. A person or entity need not have actual knowledge of the federal Anti-Kickback Statute or specific
intent to violate it in order to have committed a violation. Violations are subject to significant civil and criminal fines and penalties
for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs.
In addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. |
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The
federal civil and criminal false claims laws, including the civil False Claims Act, or FCA, prohibit individuals or entities from,
among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that
are false, fictitious or fraudulent; knowingly making, using, or causing to be made or used, a false statement or record material
to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing
or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. Manufacturers can be held
liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause”
the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to
bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. When an entity
is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties for each false
claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs.
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The
federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration
to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s
selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program,
unless an exception applies. |
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The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for knowingly and willfully
executing a scheme, or attempting to execute a scheme, to defraud any healthcare benefit program, including private payors, knowingly
and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare
offense, or falsifying, concealing or covering up a material fact or making any materially false statements in connection with the
delivery of or payment for healthcare benefits, items or services. |
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing
regulations, imposes, among other things, specified requirements on covered entities and their business associates relating to the
privacy and security of individually identifiable health information including mandatory contractual terms and required implementation
of technical safeguards of such information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil
and criminal penalties directly applicable to business associates in some cases, and gave state attorneys general new authority to
file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees
and costs associated with pursuing federal civil actions. |
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The
Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act (“ACA”), as amended
by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, imposed new annual reporting requirements
for certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid,
or the Children’s Health Insurance Program, for certain payments and “transfers of value” provided to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership
and investment interests held by physicians and their immediate family members. In addition, many states also require reporting of
payments or other transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may
have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts. Effective January 1, 2022, these
reporting obligations extend to include transfers of value made in the previous year to certain non-physician providers such as physician
assistants and nurse practitioners. |
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Federal
consumer protection and unfair competition laws broadly regulate marketplace activities and activities that potentially harm consumers.
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Analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers,
and may be broader in scope than their federal equivalents; state and foreign laws that require pharmaceutical companies to comply
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the
federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug
manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers
and restrict marketing practices or require disclosure of marketing expenditures and pricing information; and state and foreign laws
that govern the privacy and security of health information in some circumstances. These data privacy and security laws may differ
from each other in significant ways and often are not pre-empted by HIPAA, which may complicate compliance efforts. |
The
scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform,
especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased
their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions,
convictions and settlements in the healthcare industry. It is possible that governmental authorities will conclude that our business
practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare
laws and regulations. If our operations are found to be in violation of any of these laws or any other related governmental regulations
that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, disgorgement,
exclusion from government funded healthcare programs, such as Medicare and Medicaid, reputational harm, additional oversight and reporting
obligations if we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with
these laws and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities
with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to similar actions, penalties
and sanctions. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations
by government authorities, can be time- and resource-consuming and can divert a company’s attention from its business.
In
the U.S., numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy
laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of health-related and other
personal information. For example, following the enactment of the California Consumer Privacy Act of 2018 (the “CCPA”), other
state laws have established a broad range of privacy obligations for businesses, including robust notice, opt-out choice from selling
or sharing personal information, access, portability, deletion, and related obligations. CCPA primarily vested enforcement authority
in the California Attorney General, which includes injunctions and civil penalties of up to $7,500 per violation. It also included a
private right of action for data breaches, with statutory damages of up to $750 per consumer per incident, for situations involving unauthorized
access to nonencrypted and nonredacted sensitive personal information within the meaning of California’s existing breach notification
and data security statute. Subsequently, California amended CCPA by enacting by the California Consumer Privacy Rights Act, Virginia
enacted the Virginia Consumer Data Protection Act, and Colorado enacted the Colorado Privacy Act. While many of these statutes exempt
protected health information that is subject to HIPAA and clinical trial regulations, these statutes mark the beginning of a trend toward
more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
In
the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials, we may be subject
to additional privacy restrictions. The collection, use, storage, disclosure, transfer, or other processing of personal data regarding
individuals in the European Economic Area, or EEA, including personal health data, is subject to the EU General Data Protection Regulation,
or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that
process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals
to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards
to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when
engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including
the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of
up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers on data subjects the right to lodge
complaints with supervisory authorities, and seek certain judicial review for violations of the GDPR. In addition, the GDPR includes
restrictions on cross-border data transfers. The GDPR increases our responsibility and liability in relation to personal data that we
process where such processing is subject to the GDPR, and we are required to put in place additional mechanisms to ensure compliance
with the GDPR, including additional requirements imposed by individual countries. Further, the United Kingdom’s decision to leave
the EU, often referred to as Brexit, has created new requirements with regard to its data protection regulation, including standard contractual
clauses for the transfers of data to and from the United Kingdom.
Insurance
Coverage and Reimbursement
In
the U.S. and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed
services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, even if a product candidate
is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs
in the U.S. such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish
adequate reimbursement levels for, the product. In the U.S., the principal decisions about reimbursement for new medicines are typically
made by CMS, an agency within HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare
and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage and reimbursement for drug products exists
among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. The process
for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price
or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging
the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing
controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary,
which might not include all of the approved products for a particular indication.
In
order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain
FDA or other comparable regulatory approvals. Additionally, companies may also need to provide discounts to purchasers, private health
plans or government healthcare programs. Nonetheless, product candidates may not be considered medically necessary or cost effective.
A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material
adverse effect on sales, our operations and financial condition. Additionally, a third-party payor’s decision to provide coverage
for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide
coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level
of coverage and reimbursement can differ significantly from payor to payor.
The
containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of products have been
a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls,
restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s
revenue generated from the sale of any approved products. Coverage policies and third-party payor reimbursement rates may change at any
time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators
receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, or the MMA, established
the Medicare Part D program to provide a voluntary prescription drug and biologic benefit to Medicare beneficiaries. Under Part D, Medicare
beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs
and biologics. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required
to pay for all covered Part D drugs and biologics, and each drug plan can develop its own formulary that identifies which drugs and biologics
it will cover, and at what tier or level. However, Part D prescription drug formularies must include products within each therapeutic
category and class of covered Part D drugs, though not necessarily all the drugs and biologics in each category or class. Any formulary
used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for
some of the costs of prescription drugs and biologics may increase demand for products for which we obtain marketing approval. Any negotiated
prices for any of our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain.
Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar
reduction in payments from non-governmental payors.
For
a drug or biologic product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to
U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program.
The required 340B discount on a given product is calculated based on the average manufacturer price, or AMP, and Medicaid rebate amounts
reported by the manufacturer. As of 2010, the Patient Protection and ACA, as amended by the Health Care and Education Reconciliation
Act of 2010, or collectively the ACA, expanded the types of entities eligible to receive discounted 340B pricing, although under the
current state of the law these newly eligible entities (with the exception of children’s hospitals) will not be eligible to receive
discounted 340B pricing on orphan drugs. As 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the
Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase. Changes to these current
laws and state and federal healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare
and other healthcare funding and otherwise affect the prices we may obtain for any product candidates for which we may obtain regulatory
approval or the frequency with which any such product candidate is prescribed or used.
These
laws, and future state and federal healthcare reform measures may be adopted in the future, any of which may result in additional reductions
in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any product candidates for which we may obtain
regulatory approval or the frequency with which any such product candidate is prescribed or used.
Outside
the U.S., ensuring coverage and adequate payment for a product also involves challenges, as the pricing of biological products is subject
to governmental control in many countries. For example, in the European Union, pricing and reimbursement schemes vary widely from country
to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may
require the completion of additional studies that compare the cost effectiveness of a particular therapy to currently available therapies
or so-called health technology assessments, in order to obtain reimbursement or pricing approval. Other countries may allow companies
to fix their own prices for products but monitor and control product volumes and issue guidance to physicians to limit prescriptions.
Efforts to control prices and utilization of biological products will likely continue as countries attempt to manage healthcare expenditures.
Current
and future healthcare reform legislation
In
the U.S. and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes
and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of
healthcare, and containing or lowering the cost of healthcare. For example, on May 30, 2018, the Right to Try Act was signed into law.
The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that
have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible
patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program.
There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try
Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.
Also,
in March 2010, the U.S. Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for products
under government health care programs. The ACA includes provisions of importance to our potential product candidates that:
● |
created
an annual, nondeductible fee on any entity that manufactures, or imports specified branded prescription drugs and biologic products,
apportioned among these entities according to their market share in certain government healthcare programs; |
|
|
● |
expanded
eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals
with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate
liability; |
|
|
● |
expanded
manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and
generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid
drug rebates on outpatient prescription drug prices; |
|
|
● |
addressed
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are
inhaled, infused, instilled, implanted or injected; |
|
|
● |
expanded
the types of entities eligible for the 340B drug discount program; |
|
|
● |
established
the Medicare Part D coverage gap discount program by requiring manufacturers to provide point-of-sale-discounts off the negotiated
price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’
outpatient drugs to be covered under Medicare Part D; and |
|
|
● |
created
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research. |
Some
of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain provisions
of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the
ACA such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance,
delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers
who participate in Medicare Part D. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in
its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. Additionally,
on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was
unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid
as well. In June 2021, the U.S. Supreme Court held that the states and individuals that brought the lawsuit challenging ACA’s individual
mandate did not have standing. We will continue to evaluate the effect that the ACA has on our business. Other legislative changes have
been proposed and adopted in the U.S. since the ACA was enacted.
Moreover,
payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new
payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over
the manner in which manufacturers set prices for their commercial products, which has resulted in several Congressional inquiries and
proposed and enacted state and federal legislation designed to, among other things, bring more transparency to product pricing, review
the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical
products.
On
November 20, 2020, HHS Office of the Inspector General finalized a regulation with the goal of lowering prescription drug prices and
out-of-pocket spending for prescription drugs. Specifically, the final rule clarifies and amends the discount safe harbor under the federal
Anti-Kickback Statute with the effect that rebates paid from drug manufacturers to Medicare Part D prescription drug plan sponsors, or
their pharmacy benefit managers (“PBMs”) are excluded from liability protection under the discount safe harbor. The rule
also adds a new safe harbor for point-of-sale reductions in price and another that protects certain fixed-fee service arrangements between
PBMs and drug manufacturers.
Pursuant
to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, and the 2020 Omnibus Bill, and later regulatory
actions, the reductions required by the Budget Control Act of 2011 are suspended from May 1, 2020, through March 31, 2022, due to the
COVID-19 pandemic. Further, it is possible that the government will take additional steps to address the COVID-19 pandemic. For example,
on April 18, 2020, CMS announced that qualified health plan issuers under the ACA may suspend activities related to the collection and
reporting of quality data that would have otherwise been reported between May and June 2020 because of the challenges healthcare providers
are facing responding to the COVID-19 virus.
Congress
has indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Any reduction in reimbursement
from Medicare and other government programs may result in a similar reduction in payments from private payers. Moreover, at the state
level, legislatures are increasingly passing legislation and implementing regulations designed to control biopharmaceutical and biologic
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Regulation
Outside of the U.S.
In
addition to regulations in the U.S., we will be subject to a variety of regulations of other countries governing, among other things,
any clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval (clinical
trial or marketing) for a product, we must obtain the requisite approvals from regulatory authorities in countries outside of the U.S.,
such as the EU and China, prior to the commencement of clinical trials or marketing of the products in those countries. The approval
process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place
to place, and the time may be longer or shorter than that required for FDA approval.
In
the EU, before starting a clinical trial, a valid request for authorization must be submitted by the sponsor to the competent authority
of the EU Member State(s) in which the sponsor plans to conduct the clinical trial, as well as to an independent national Ethics Committee.
A clinical trial may commence only once the relevant Ethics Committee(s) has (have) issued a favorable opinion and the competent authority
of the EU Member State(s) concerned has (have) not informed the sponsor of any grounds for non-acceptance. Failure to comply with the
EU requirements may subject a company to the rejection of the request and the prohibition to start a clinical trial. Clinical trials
conducted in the EU (or used for marketing authorization application in the EU) must be conducted in accordance with applicable GCP and
Good Manufacturing Practice (“GMP”) rules, ICH guidelines and be consistent with ethical principles. The new EU Clinical
Trial Regulation (Regulation 536/2014) came into application on January 31, 2022, seeks to harmonize the submission, assessment, and
supervision processes for clinical trials in the EU and will impact the way clinical trials are conducted in the EU.
As
in the U.S., no medicinal product may be placed on the EU market unless a marketing authorization has been issued. In the EU, medicinal
products may be authorized either via the mutual recognition and decentralized procedure, the national procedure or the centralized procedure.
The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer,
neurodegenerative disorders or diabetes and is optional for those medicines that are highly innovative, provides for the grant of a single
marketing authorization that is valid for all EU Member States. Marketing authorizations granted via the centralized procedure are valid
for all EU Member States. Products submitted for approval via the centralized procedure are assessed by the Committee for Medicinal Products
for Human Use (the “CHMP”), a committee within the EMA. The CHMP assesses, inter alia, whether a medicine meets the necessary
quality, safety and efficacy requirements and whether it has a positive risk-benefit balance. The requirements for an application dossier
for a biological product contain different aspects than that of a chemical medicinal product.
In
the EU, the requirements for pricing, coverage and reimbursement of any product candidates for which we obtain regulatory approval are
provided for by the national laws of EU Member States. Governments influence the price of pharmaceutical products through their pricing
and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers.
We
may seek orphan designations for our product candidates. In the EU, as we understand it, a medicinal product may be designated as an
orphan medicinal product if the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening
or chronically debilitating condition affecting not more than five in 10 thousand persons, or that, for the same purposes, it is unlikely
that the marketing of the medicinal product would generate sufficient return; and that there exists no satisfactory method of diagnosis,
prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, that the medicinal
product will be of significant benefit to those affected by that condition. Sponsors who obtain orphan designation benefit from a type
of scientific advice specific for designated orphan medicinal products and protocol assistance from the EMA. Fee reductions are also
available depending on the status of the sponsor and the type of service required. Marketing authorization applications for designated
orphan medicinal products must be submitted through the centralized procedure.
MANUFACTURING
AND SUPPLY
We
do not currently own or operate manufacturing facilities for the production of preclinical, clinical or commercial quantities of any
of our product candidates. We currently contract with third party contract manufacturing organizations (“CMOs”) for our preclinical
and clinical trial supplies, and we expect to continue to do so to meet the preclinical and any clinical requirements of our product
candidates. We have agreements for the supply of such drug materials with manufacturers or suppliers that we believe have sufficient
capacity to meet our demands. In addition, we believe that adequate alternative sources for such supplies exist. However, there is a
risk that, if supplies are interrupted, it would materially harm our business. We typically order raw materials and services on a purchase
order basis and do not enter into long-term dedicated capacity or minimum supply arrangements.
Manufacturing
is subject to extensive regulations that impose various procedural and documentation requirements, which govern record keeping, manufacturing
processes and controls, personnel, quality control and quality assurance, among others. Medical product manufacturers and other entities
involved in the manufacture and distribution of approved drug or biologic products are required to register their establishments with
the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance
with cGMP and other laws. cGMP is a regulatory standard for the production of pharmaceuticals that will be used in humans which is recognized
by FDA and many foreign regulatory authorities. Accordingly, manufacturers must continue to expend time, money, and effort in the area
of production and quality control to maintain GMP compliance. We use CMOs which manufacture our product candidates under cGMP conditions.
In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other
types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further
FDA review and approval. The FDA has the authority to take a variety of actions to address violations, including suspending the review
of a pending application; refusing to approve or withdrawing approval of a marketing application; placing a study on clinical hold; issuing
warning or untitled letters; ordering a product recall; seizing product in distribution; seeking an injunction to stop manufacture and
distribution of a product; seeking restitution, disgorgement of profits, and fines; and debarring a company and its executives individually
from participation in any capacity in the drug approval process. The U.S. Department of Justice has the authority to criminally prosecute
companies and company executives for violations of the FD&C Act and the PHS Act.
SALES
AND MARKETING
Our
current focus is on the development of our existing portfolio, the completion of clinical trials and, if and where appropriate, the registration
of our product candidates. We currently do not have marketing, sales and distribution capabilities. If we receive marketing and commercialization
approval for any of our product candidates, we intend to market the product either directly or through strategic alliances and distribution
agreements with third parties. The ultimate implementation of our strategy for realizing the financial value of our product candidates
is dependent on the results of clinical trials for our product candidates, the availability of regulatory approvals and the ability to
negotiate acceptable commercial terms with third parties.
PRODUCT
LIABILITY AND INSURANCE
Our
business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic
products. We presently have product liability insurance limited to $10 million per incident, and if we were to be subject to a claim
in excess of this coverage or to a claim not covered by our insurance and the claim succeeded, we would be required to pay the claim
out of our own limited resources.
COMPETITION
Competition
in the discovery and development of new methods for treating and preventing disease is intense. We face, and will continue to face, competition
from pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies both in the U.S.
and abroad. We face significant competition from organizations pursuing the same or similar technologies used by us in our drug discovery
efforts and from organizations developing pharmaceuticals that are competitive with our product candidates.
Most
of our competitors, either alone or together with their collaborative partners, have substantially greater financial resources and larger
research and development staffs than we do. In addition, most of these organizations, either alone or together with their collaborators,
have significantly greater experience than we do in developing products, undertaking preclinical testing and clinical trials, obtaining
FDA and other regulatory approvals of products, and manufacturing and marketing products. Mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated among our competitors. These companies, as well as academic institutions,
governmental agencies, and private research organizations, also compete with us in recruiting and retaining highly qualified scientific
personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical and biotechnology field also
depends on the status of our collaborations and on the continuing availability of capital to us.
GEN-1
Studied
indications for GEN-1 currently include stage III/IV ovarian cancer. In evaluating the competitive landscape for this indication, early-stage
indications are treated with chemotherapy (docetaxel, doxil and cisplatinum for ovarian cancer), while later stage ovarian cancer is
treated with Bevacizumab - Avastin®, an anti-angiogenesis inhibitor. Avastin® is currently also being evaluated for early-stage
disease.
In
product positioning for the ovarian cancer indications, there currently is no direct immunotherapy competitor for GEN-1, which will be
studied as an adjuvant to both chemotherapy standard of care regimens, as well as anti-angiogenesis compounds. To support these cases,
we have conducted clinical studies in combination with chemotherapy for ovarian cancer, and preclinical studies in combination with both
temozolomide and Bevacizumab-Avastin®.
ThermoDox®
Although
there are many drugs and devices marketed and under development for the treatment of cancer, the Company is not aware of any other heat
activated drug delivery product either being marketed or in human clinical development.
INTELLECTUAL
PROPERTY
Patents
and Proprietary Rights
For
the ThermoDox® technology, we either exclusively license with Duke University for its temperature-sensitive liposome technology that
covers the ThermoDox® formulation or own U.S. and international patents with claims and methods and compositions of matters that
cover various aspects of lysolipid thermally sensitive liposomes technology, with expiration dates ranging from 2018 to 2026. Celsion
also has issued patents which pertain specifically to methods of storing stabilized, temperature-sensitive liposomal formulations and
will assist in the protection of global rights. These patents will extend the overall term of the ThermoDox® patent portfolio to
2026. The patents in this family, include a pending application in the U.S., and issued patents in Europe and additional key commercial
geographies in Asia. This extended patent runway to 2026 allows for the evaluation of future development activities for ThermoDox®
and Celsion’s heat-sensitive liposome technology platform.
For
the TheraPlas technology, we own three U.S. and international patents and related applications with claims and methods and compositions
of matters that cover various aspects of TheraPlas and GEN-1 technologies, with expiration dates ranging from 2020 to 2028.
As
mentioned above, the FDA granted orphan drug designation to ThermoDox® for the treatment of HCC and to GEN-1 for the treatment of
ovarian cancer. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval
process. However, if a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for
which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application
to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity. Orphan drug designation can also provide opportunities for grant funding towards
clinical trial costs, tax advantages and FDA user-fee benefits.
There
can be no assurance that an issued patent will remain valid and enforceable in a court of law through the entire patent term. Should
the validity of a patent be challenged, the legal process associated with defending the patent can be costly and time consuming. Issued
patents can be subject to oppositions, interferences and other third-party challenges that can result in the revocation of the patent
or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant or broad
coverage). Competitors may be able to circumvent our patents. Development and commercialization of pharmaceutical products can be subject
to substantial delays and it is possible that at the time of commercialization any patent covering the product has expired or will be
in force for only a short period of time following commercialization. We cannot predict with any certainty if any third-party U.S. or
foreign patent rights, other proprietary rights, will be deemed infringed by the use of our technology. Nor can we predict with certainty
which, if any, of these rights will or may be asserted against us by third parties. Should we need to defend ourselves and our partners
against any such claims, substantial costs may be incurred. Furthermore, parties making such claims may be able to obtain injunctive
or other equitable relief, which could effectively block our ability to develop or commercialize some or all of our products in the U.S.
and abroad and could result in the award of substantial damages. In the event of a claim of infringement, we or our partners may be required
to obtain one or more licenses from a third party. There can be no assurance that we can obtain a license on a reasonable basis should
we deem it necessary to obtain rights to an alternative technology that meets our needs. The failure to obtain a license may have a material
adverse effect on our business, results of operations and financial condition.
In
addition to the rights available to us under completed or pending license agreements, we rely on our proprietary know-how and experience
in the development and use of heat for medical therapies, which we seek to protect, in part, through proprietary information agreements
with employees, consultants and others. There can be no assurance that these proprietary information agreements will not be breached,
that we will have adequate remedies for any breach, or that these agreements, even if fully enforced, will be adequate to prevent third-party
use of the Company’s proprietary technology. Please refer to Part I, Item 1A, Risk Factors of this Annual Report, including,
but not limited to, “We rely on trade secret protection and other unpatented proprietary rights for important proprietary technologies,
and any loss of such rights could harm our business, results of operations and financial condition.” Similarly, we cannot guarantee
that technology rights licensed to us by others will not be successfully challenged or circumvented by third parties, or that the rights
granted will provide us with adequate protection. Please refer to Part I, Item 1A, Risk Factors of this Annual Report, including,
but not limited to, “Our business depends on license agreements with third parties to permit us to use patented technologies. The
loss of any of our rights under these agreements could impair our ability to develop and market our products.”
EMPLOYEES
As
of March 30, 2022, we employed 29 full-time employees. We also maintain active independent contractor relationships with various individuals,
most of whom have month-to-month or annual consulting agreements. None of our employees are covered by a collective bargaining agreement,
and we consider our relationship with our employees to be good.
COMPANY
INFORMATION
Celsion
was founded in 1982 and is a Delaware corporation. Our principal executive offices are located at 997 Lenox Drive, Suite 100, Lawrenceville,
NJ 08648. Our telephone number is (609) 896-9100. The Company’s website is www.celsion.com. The information contained in, or that
can be accessed through, our website is not part of, and is not incorporated in, this Annual Report.
AVAILABLE
INFORMATION
We
make available free of charge through our website, www.celsion.com, our Annual Report, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission (the “SEC”). In addition, our website includes other items related to
corporate governance matters, including, among other things, our corporate governance principles, charters of various committees of the
Board of Directors, and our code of business conduct and ethics applicable to all employees, officers and directors. We intend to disclose
on our internet website any amendments to or waivers from our code of business conduct and ethics as well as any amendments to its corporate
governance principles or the charters of various committees of the Board of Directors. Copies of these documents may be obtained, free
of charge, from our website. The SEC also maintains an internet site that contains reports, proxy and information statements and other
information regarding issuers that file periodic and other reports electronically with the Securities and Exchange Commission. The address
of that site is www.sec.gov. The information available on or through our website is not a part of this Annual Report and should not be
relied upon.
RECENT
EVENTS
Series
A and Series B Convertible Redeemable Preferred Stock Offering
On
January 10, 2022, the Company entered into a Securities Purchase Agreement (the “Preferred Stock Purchase Agreement”) with
several institutional investors, pursuant to which the Company agreed to issue and sell, in concurrent registered direct offerings (the
“Preferred Offerings”), (i) 50,000 shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value
$0.01 per share (the “Series A Preferred Stock”), and (ii) 50,000 shares of the Company’s Series B Convertible Redeemable
Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock” and together with the Series A Preferred Stock,
the “Preferred Stock”), in each case at an offering price of $285 per share, representing a 5% original issue discount to
the stated value of $300 per share, for gross proceeds of each Preferred Offering of $14.25 million, or approximately $28.50 million
in the aggregate for the Preferred Offerings, before the deduction of the Placement Agent’s (as defined below) fee and offering
expenses. The shares of Series A Preferred Stock will have a stated value of $300 per share and are convertible, at a conversion price
of $13.65 per share, into 1,098,901 shares of common stock (subject in certain circumstances to adjustments). The shares of Series
B Preferred Stock will have a stated value of $300 per share and are convertible, at a conversion price of $15.00 per share, into
1,000,000 shares of common stock (subject in certain circumstances to adjustments). The closing of the Preferred Offerings occurred on
January 13, 2022.
On
March 3, 2022, the Company redeemed for cash at a price equal to 105% of the $300 stated value per share all of its 50,000 outstanding
shares of Series A Preferred Stock and its 50,000 outstanding shares of Series B Preferred Stock.
As a result, all shares of the Preferred Stock have been retired and are no longer outstanding and Celsion’s only class of outstanding
stock is its common stock. Each share of common stock entitles the holder to one vote.
Reverse
Stock Split
On
February 28, 2022, the Company effected a 15-for-1 reverse stock split of its common stock which was made effective for trading purposes
as of the commencement of trading on March 1, 2022. On February 28, 2022, each 15 shares of issued and outstanding common stock
and equivalents was consolidated into one share of common stock. All shares have been restated to reflect the effects of the 15-for-1
reverse stock split. In addition, at the market open on March 1, 2022, the Company’s common stock started trading under a new CUSIP
number 15117N602 although the Company’s ticker symbol, CLSN, remained unchanged. See Note 10 to the consolidated financial statements
included in this Annual Report (the “Financial Statements”). The reverse stock split was previously approved by the Company’s
stockholders at the 2022 Special Meeting held on February 24, 2022, and the Company subsequently filed a Certificate of Amendment to
its Certificate of Incorporation to effect the stock consolidation. All shares have been restated in this Annual Report to reflect the
effectiveness of the reverse stock split.
We
are providing the following cautionary discussion of risk factors and uncertainties that we believe are relevant to our business. These
are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected or historical
results and our forward-looking statements. We note these factors for investors as permitted by Section 21E of the Securities Exchange
Act, and Section 27A of the Securities Act. You should understand that it is not possible to predict or identify all such factors. Consequently,
you should not consider the following to be a complete discussion of all potential risks or uncertainties that may impact our business.
Moreover, we operate in a competitive and rapidly changing environment. New factors emerge from time to time, and it is not possible
to predict the impact of all of these factors on our business, financial condition or results of operations. We undertake no obligation
to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.
Risk
Factors Summary
The
following is a summary of some of the Company’s most important risks and uncertainties that could materially adversely affect our
business, financial condition, and results of operations. You should read this summary together with the more detailed description of
each risk factor. Additional discussion of the risks summarized in this Risk Factors Summary, and other risks that we face, can be found
below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K
and our other filings with the SEC, before making an investment in our securities.
Risk
Related to Our Business and Operations
|
● |
We
have a history of significant losses from operations and expect to continue to incur significant losses for the foreseeable future. |
|
● |
Drug
development is an inherently uncertain process with a high risk of failure at every stage of development. Our lead drug candidate
failed to meet its primary endpoint in our earlier Phase III clinical trial. |
|
● |
We
will need to raise additional capital to fund our planned future operations, and we may be unable to secure such capital without
dilutive financing transactions. If we are not able to raise additional capital, we may not be able to complete the development,
testing and commercialization of our product candidates. |
|
● |
If
we do not obtain or maintain FDA and foreign regulatory approvals for our drug candidates on a timely basis, or at all, or if the
terms of any approval impose significant restrictions or limitations on use, we will be unable to sell those products and our business,
results of operations and financial condition will be negatively affected. |
|
● |
The
outbreak duration and severity of the novel coronavirus disease, COVID-19, pandemic could adversely impact our business, including
our preclinical studies and clinical trials. |
|
● |
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected. |
|
● |
We
rely on third parties to conduct all of our clinical trials. If these third parties are unable to carry out their contractual duties
in a manner that is consistent with our expectations, comply with budgets and other financial obligations or meet expected deadlines,
we may not receive certain development milestone payments or be able to obtain regulatory approval for or commercialize our product
candidates in a timely or cost-effective manner. |
|
● |
The
success of our products may be harmed if the government, private health insurers and other third-party payers do not provide sufficient
coverage or reimbursement. |
|
● |
The
commercial potential of a drug candidate in development is difficult to predict. If the market size for a new drug is significantly
smaller than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition. |
|
● |
Technologies
for the treatment of cancer are subject to rapid change, and the development of treatment strategies that are more effective than
our technologies could render our technologies obsolete. |
|
● |
Our
success will depend in part on our ability to grow and diversify, which in turn will require that we manage and control our growth
effectively. |
|
● |
We
face intense competition and the failure to compete effectively could adversely affect our ability to develop and market our products. |
|
● |
We
or the third parties upon whom we depend on may be adversely affected by earthquakes, global pandemics or other natural disasters
and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster, including earthquakes,
outbreak of disease or other natural disasters. |
|
● |
Pandemics
such as the COVID-19 coronavirus could have an adverse impact on our developmental programs and our financial condition. |
Risks
Related to Intellectual Property
|
● |
If
any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual
property protection. |
Risks
Related to Our Securities
|
● |
The
market price of our common stock has been, and may continue to be volatile and fluctuate significantly, which could result in substantial
losses for investors and subject us to securities class action litigation. |
|
● |
We
may be unable to maintain compliance with The Nasdaq Marketplace Rules which could cause our common stock to be delisted from The
Nasdaq Capital Market. This could result in the lack of a market for our common stock, cause a decrease in the value of an investment
in us, and adversely affect our business, financial condition, and results of operations. |
|
● |
Adverse
capital and credit market conditions could affect our liquidity. |
|
● |
We
have never paid cash dividends on our common stock and do not anticipate paying dividends in the foreseeable future. |
RISKS
RELATED TO OUR BUSINESS AND OPERATIONS
We
have a history of significant losses from operations and expect to continue to incur significant losses for the foreseeable future.
Since
our inception, our expenses have substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit of $333
million at December 31, 2021. For the years ended December 31, 2021 and 2020, we incurred net losses of $20.8 million and $21.5 million,
respectively. We currently have no product revenue and do not expect to generate any product revenue for the foreseeable future. Because
we are committed to continuing our product research, development, clinical trial and commercialization programs, we will continue to
incur significant operating losses unless and until we complete the development of GEN-1 and other new product candidates and these product
candidates have been clinically tested, approved by the U.S. FDA and successfully marketed. The amount of future losses is uncertain.
Our ability to achieve profitability, if ever, will depend on, among other things, us or our collaborators successfully developing product
candidates, obtaining regulatory approvals to market and commercialize product candidates, manufacturing any approved products on commercially
reasonable terms, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising
sufficient funds to finance business activities. If we or our collaborators are unable to develop and commercialize one or more of our
product candidates or if sales revenue from any product candidate that receives approval is insufficient, we will not achieve profitability,
which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We
do not expect to generate revenue for the foreseeable future.
We
have devoted our resources to developing a new generation of products and will not be able to market these products until we have completed
clinical trials and obtain all necessary governmental approvals. Our product candidates, including GEN-1, are still in various stages
of development and trials and cannot be marketed until we have completed clinical testing and obtained necessary governmental approval.
Following our announcement on February 11, 2021 that the Company’s Phase III OPTIMA Study failed to meet its primary endpoint of
OS, we do not expect to generate revenue from ThermoDox® for the foreseeable future. GEN-1 is currently in a Phase II
trial for the treatment of ovarian cancer. Accordingly, our revenue sources are, and will remain, extremely limited until our product
candidates are clinically tested, approved by the FDA or foreign regulatory agencies and successfully marketed. We cannot guarantee that
any of our product candidates will be approved by the FDA or any foreign regulatory agency or marketed, successfully or otherwise, at
any time in the foreseeable future or at all.
Drug
development is an inherently uncertain process with a high risk of failure at every stage of development. Our lead drug candidate, ThermoDox®,
failed to meet its primary endpoint in two Phase III clinical trials.
On
January 31, 2013, we announced that ThermoDox® in combination with RFA failed to meet the primary endpoint of the Phase
III clinical trial for primary liver cancer, known as the HEAT study. On July 13, 2020, the Company announced that it received a recommendation
from the independent DMC to consider stopping the global Phase III OPTIMA Study of ThermoDox® in combination with RFA
for the treatment of HCC, or primary liver cancer. The recommendation was made following the second pre-planned interim safety and efficacy
analysis by the DMC on July 9, 2020. The DMC’s analysis found that the pre-specified boundary for stopping the trial for futility
of 0.900 was crossed with an actual value of 0.903. The Company followed the advice of the DMC and considered its options to either stop
the study or continue to follow patients after a thorough review of the data, and an evaluation of the probability of success. On February
11, 2021, the Company issued a letter to shareholders stating the Company was notifying all clinical sites to discontinue following patients
in the OPTIMA Study.
Preclinical
testing and clinical trials are long, expensive, and highly uncertain processes and failure can unexpectedly occur at any stage of clinical
development, as evidenced by the failure of ThermoDox® to meet its primary endpoint in the HEAT Study and the OPTIMA Study.
Drug development is inherently risky and clinical trials take us several years to complete. The start or end of a clinical trial is often
delayed or halted due to changing regulatory requirements, manufacturing challenges, required clinical trial administrative actions,
slower than anticipated patient enrollment, changing standards of care, availability, or prevalence of use of a comparator drug or required
prior therapy, clinical outcomes including insufficient efficacy, safety concerns, or our own financial constraints. The results from
preclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in later phase
clinical trials of the product candidate. We, the FDA, or other applicable regulatory authorities may suspend clinical trials of a product
candidate at any time for various reasons, including a belief that subjects participating in such trials are being exposed to unacceptable
health risks or adverse side effects. We may not have the financial resources to continue development of, or to enter into collaborations
for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our
ability to commercialize, product candidates. The failure of one or more of our drug candidates or development programs could have a
material adverse effect on our business, financial condition, and results of operations.
We
will need to raise additional capital to fund our planned future operations, and we may be unable to secure such capital without dilutive
financing transactions. If we are not able to raise additional capital, we may not be able to complete the development, testing and commercialization
of our product candidates.
We
have not generated significant revenue and have incurred significant net losses in each year since our inception. For the year ended
December 31, 2021, we incurred a net loss of $20.8 million. We have incurred approximately $333 million of cumulative net losses. As
of December 31, 2021, we had cash and cash equivalents, short-term investments, interest receivable, net proceeds on the sale of net
operating losses and restricted money market investments of $56.9 million.
We
have substantial future capital requirements to continue our research and development activities and advance our product candidates through
various development stages. We are unable to estimate the duration and completion costs of our research and development projects or when,
if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete
any of our research and development activities, preclinical studies or clinical trials in a timely manner or our failure to enter into
collaborative agreements when appropriate could significantly increase our capital requirements and could adversely impact our liquidity.
While our estimated future capital requirements are uncertain and could increase or decrease as a result of many factors, including the
extent to which we choose to advance our research, development activities, preclinical studies and clinical trials, or if we are in a
position to pursue manufacturing or commercialization activities, we will need significant additional capital to develop our product
candidates through development and clinical trials, obtain regulatory approvals and manufacture and commercialize approved products,
if any. We do not know whether we will be able to access additional capital when needed or on terms favorable to us or our stockholders.
Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our
business.
If
we do not obtain or maintain FDA and foreign regulatory approvals for our drug candidates on a timely basis, or at all, or if the terms
of any approval impose significant restrictions or limitations on use, we will be unable to sell those products and our business, results
of operations and financial condition will be negatively affected.
To
obtain regulatory approvals from the FDA and foreign regulatory agencies, we must conduct clinical trials demonstrating that our products
are safe and effective. We may need to amend ongoing trials, or the FDA and/or foreign regulatory agencies may require us to perform
additional trials beyond those we planned. The testing and approval process requires substantial time, effort and resources, and generally
takes a number of years to complete. The time to complete testing and obtaining approvals is uncertain, and the FDA and foreign regulatory
agencies have substantial discretion, at any phase of development, to terminate clinical studies, require additional clinical studies
or other testing, delay or withhold approval, and mandate product withdrawals, including recalls. In addition, our drug candidates may
have undesirable side effects or other unexpected characteristics that could cause us or regulatory authorities to interrupt, delay or
halt clinical trials and could result in a more restricted label or the delay or denial of regulatory approval by regulatory authorities.
Even
if we receive regulatory approval of a product, the approval may limit the indicated uses for which the drug may be marketed. The failure
to obtain timely regulatory approval of product candidates, the imposition of marketing limitations, or a product withdrawal would negatively
impact our business, results of operations and financial condition. Even if we receive approval, we will be subject to ongoing regulatory
obligations and continued regulatory review, which may result in significant additional expense and subject us to restrictions, withdrawal
from the market, or penalties if we fail to comply with applicable regulatory requirements or if we experience unanticipated problems
with our product candidates, when and if approved. Finally, even if we obtain FDA approval of any of our product candidates, we may never
obtain approval or commercialize such products outside of the U.S., given that we may be subject to additional or different regulatory
burdens in other markets. This could limit our ability to realize their full market potential.
Our
industry is highly regulated by the FDA and comparable foreign regulatory agencies. We must comply with extensive, strictly enforced
regulatory requirements to develop, obtain, and maintain marketing approval for any of our product candidates.
Securing
FDA or comparable foreign regulatory approval requires the submission of extensive preclinical and clinical data and supporting information
for each therapeutic indication to establish the product candidate’s safety and efficacy for its intended use. It takes years to
complete the testing of a new drug or biological product and development delays and/or failure can occur at any stage of testing. Any
of our present and future clinical trials may be delayed, halted, not authorized, or approval of any of our products may be delayed or
may not be obtained due to any of the following:
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factors
related to the COVID-19 pandemic, including regulators or institutional review boards, or IRBs, or ethics committees may not authorize
us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
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any
preclinical test or clinical trial may fail to produce safety and efficacy results satisfactory to the FDA or comparable foreign
regulatory authorities; |
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preclinical
and clinical data can be interpreted in different ways, which could delay, limit, or prevent marketing approval; |
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negative
or inconclusive results from a preclinical test or clinical trial or adverse events during a clinical trial could cause a preclinical
study or clinical trial to be repeated or a development program to be terminated, even if other studies relating to the development
program are ongoing or have been completed and were successful; |
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the
FDA or comparable foreign regulatory authorities can place a clinical hold on a trial if, among other reasons, it finds that subjects
enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury; |
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the
facilities that we utilize, or the processes or facilities of third-party vendors, including without limitation the contract manufacturers
who will be manufacturing drug substance and drug product for us or any potential collaborators, may not satisfactorily complete
inspections by the FDA or comparable foreign regulatory authorities; and |
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we
may encounter delays or rejections based on changes in FDA policies or the policies of comparable foreign regulatory authorities
during the period in which we develop a product candidate, or the period required for review of any final marketing approval before
we are able to market any product candidate. |
In
addition, information generated during the clinical trial process is susceptible to varying interpretations that could delay, limit,
or prevent marketing approval at any stage of the approval process. Moreover, early positive preclinical or clinical trial results may
not be replicated in later clinical trials. As more product candidates within a particular class of drugs proceed through clinical development
to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or
change. Failure to demonstrate adequately the quality, safety, and efficacy of any of our product candidates would delay or prevent marketing
approval of the applicable product candidate. We cannot assure you that if clinical trials are completed, either we or our potential
collaborators will submit applications for required authorizations to manufacture or market potential products or that any such application
will be reviewed and approved by appropriate regulatory authorities in a timely manner, if at all.
The
outbreak, duration and severity of the novel coronavirus disease, COVID-19, pandemic could adversely impact our business, including our
preclinical studies and clinical trials.
In
January 2020, the WHO declared COVID-19 a global pandemic, and the U.S. Department of Health and Human Services declared a public health
emergency to aid the U.S. healthcare community in responding to COVID-19. Governments and businesses around the world have taken unprecedented
actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, and significant restrictions
on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic impacts
of the pandemic has introduced significant volatility in the financial markets. The Company did not observe significant impacts on its
business or results of operations for the year ended December 31, 2021 due to the global emergence of COVID-19. While the extent to which
COVID-19 impacts the Company’s future results will depend on future developments, the pandemic and associated economic impacts
could result in a material impact to the Company’s future financial condition, results of operations and cash flows.
The
Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic.
The
disruptions caused by COVID-19 may also disrupt preclinical studies, the clinical trials process and enrollment of patients. This may
delay commercialization efforts. The Company is currently monitoring its operating activities in light of these events and it is reasonably
possible that the virus could have a negative effect on the Company’s financial condition and results of operations. The specific
impact is not readily determinable as of the date of this report.
While,
as of the date of this report, we have not experienced any material disruptions to the execution of the clinical trials and the research
and development activities that we currently have underway, as a result of the pandemic we may experience disruptions that could severely
impact research and development timelines and outcomes, including, but not limited to:
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delays
or difficulties in enrolling patients in our clinical trials; |
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
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diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial
sites and hospital staff supporting the conduct of our clinical trials; |
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interruption
of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended
by federal, state or foreign governments, employers and others or interruption of clinical trial subject visits and study procedures
(such as procedures that are deemed non-essential under law, regulation or institutional policies), which may impact the integrity
of subject data and clinical study endpoints; |
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interruption
or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines; |
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interruption
of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages,
production slowdowns or stoppages and disruptions in delivery systems; |
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interruptions
in preclinical studies due to restricted or limited operations at our contracted research facilities; |
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unforeseen
costs we may incur as a result of the impact of the COVID-19 pandemic, including the costs of mitigation efforts; |
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deterioration
of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital
expenditures; |
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investment-related
risks, including difficulties in liquidating investments due to current market conditions and adverse investment performance; |
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limitations
on employee resources that would otherwise be focused on the conduct of our research and development activities, including because
of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; or |
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interruptions
or limitations of the types described affecting our service providers and collaboration partners, including contract research organizations
running clinical trials and collaboration partners sponsoring clinical trials in which we are supplying our product candidates or
otherwise participating. |
In
addition, the trading prices for common stock of other biopharmaceutical companies have been highly volatile as a result of the COVID-19
pandemic. The COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic impacts our business, preclinical studies
and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the
ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the U.S. and other
countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and other countries to diagnose,
contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions,
our ability to conduct our business and development activities in the manner and on the timelines presently planned could be materially
and negatively impacted. There can be no assurance that any such disruptions or delays will not materially adversely impact our business,
results of operations, access to financial resources and our financial condition.
New
gene-based products for therapeutic applications are subject to extensive regulation by the FDA and comparable agencies in other countries.
The precise regulatory requirements with which we will have to comply, now and in the future, are uncertain due to the novelty of the
gene-based products we are developing.
The
regulatory approval process for novel product candidates such as ours can be significantly more expensive and take longer than for other,
better known or more extensively studied product candidates. Limited data exist regarding the safety and efficacy of DNA-based therapeutics
compared with conventional therapeutics, and government regulation of DNA-based therapeutics is evolving. Regulatory requirements governing
gene and cell therapy products have changed frequently and may continue to change in the future. The FDA has established the Office of
Cellular, Tissue and Gene Therapies within CBER, to consolidate the review of gene therapy and related products, and has established
the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER in its review. It is difficult to determine how long it will
take or how much it will cost to obtain regulatory approvals for our product candidates in either the U.S. or the European Union or how
long it will take to commercialize our product candidates.
Adverse
events or the perception of adverse events in the field of gene therapy generally, or with respect to our product candidates specifically,
may have a particularly negative impact on public perception of gene therapy and result in greater governmental regulation, including
future bans or stricter standards imposed on gene-based therapy clinical trials, stricter labeling requirements and other regulatory
delays in the testing or approval of our potential products. For example, if we were to engage an NIH-funded institution to conduct a
clinical trial, we may be subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee (the
RAC). If undertaken, RAC can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and details and
approved its initiation. Conversely, the FDA can put an IND application on a clinical hold even if the RAC has provided a favorable review
or an exemption from in-depth, public review. Such committee and advisory group reviews and any new guidelines they promulgate may lengthen
the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory
positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval
limitations or restrictions. Any increased scrutiny could delay or increase the costs of our product development efforts or clinical
trials.
Even
if our products receive regulatory approval, they may still face future development and regulatory difficulties. Government regulators
may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly
post-approval studies. This governmental oversight may be particularly strict with respect to gene-based therapies.
Serious
adverse events, undesirable side effects or other unexpected properties of our product candidates may be identified during development
or after approval, which could lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to
approve our product candidates or, if discovered following marketing approval, revocation of marketing authorizations or limitations
on the use of our product candidates thereby limiting the commercial potential of such product candidate.
As
we continue our development of our product candidates and initiate clinical trials of our additional product candidates, serious adverse
events, undesirable side effects or unexpected characteristics may emerge causing us to abandon these product candidates or limit their
development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics
are less prevalent, less severe or more acceptable from a risk-benefit perspective.
Even
if our product candidates initially show promise in these early clinical trials, the side effects of drugs are frequently only detectable
after they are tested in large, Phase III clinical trials or, in some cases, after they are made available to patients on a commercial
scale after approval. Sometimes, it can be difficult to determine if the serious adverse or unexpected side effects were caused by the
product candidate or another factor, especially in oncology subjects who may suffer from other medical conditions and be taking other
medications. If serious adverse or unexpected side effects are identified during development and are determined to be attributed to our
product candidate, we may be required to develop a Risk Evaluation and Mitigation Strategy (REMS) to mitigate those serious safety risks,
which could impose significant distribution and use restrictions on our products.
In
addition, drug-related side effects could also affect subject recruitment or the ability of enrolled subjects to complete the trial,
result in potential product liability claims, reputational harm, withdrawal of approvals, a requirement to include additional warnings
on the label or to create a medication guide outlining the risks of such side effects for distribution to patients. It can also result
in patient harm, liability lawsuits, and reputational harm. Any of these occurrences could prevent us from achieving or maintaining market
acceptance and may harm our business, financial condition, and prospects significantly.
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
We
may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical
trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain
in the trial until its conclusion. The enrollment of patients depends on many factors, including:
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the
patient eligibility and exclusion criteria defined in the protocol; |
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the
size of the patient population required for analysis of the trial’s primary endpoints and the process for identifying patients; |
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delays
in our research programs resulting from factors related to the COVID-19 pandemic; |
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the
willingness or availability of patients to participate in our trials; |
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the
proximity of patients to trial sites; |
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the
design of the trial; |
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our
ability to recruit clinical trial investigators with the appropriate competencies and experience; |
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clinicians’
and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other
available therapies, including any new products that may be approved for the indications we are investigating; |
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the
availability of competing commercially available therapies and other competing drug candidates’ clinical trials; |
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our
ability to obtain and maintain patient informed consents; and |
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the
risk that patients enrolled in clinical trials will drop out of the trials before completion. |
In
addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as
our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who
might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number
of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that
some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial
site. Certain of our planned clinical trials may also involve invasive procedures, which may lead some patients to drop out of trials
to avoid these follow-up procedures.
Further,
timely enrollment in clinical trials is reliant on clinical trial sites which may be adversely affected by global health matters, including,
among other things, pandemics. For example, our clinical trial sites may be located in regions currently being affected by the COVID-19
coronavirus. Some factors from the COVID-19 coronavirus pandemic or any future pandemics that we believe may adversely affect enrollment
in our trials include:
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the
diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention
of infectious disease physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital
staff supporting the conduct of our clinical trials; |
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patients
who would otherwise be candidates for enrollment in our clinical trials, may become infected with the COVID-19 coronavirus, which
may kill some patients and render others too ill to participate, limiting the available pool of participants for our trials; |
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limitations
on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring; |
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interruption
in global shipping affecting the transport of clinical trial materials, such as investigational drug product and comparator drugs
used in our trials; and |
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employee
furlough days that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors. |
These
and other factors arising from the COVID-19 coronavirus could worsen in countries that are already afflicted with the virus or could
continue to spread to additional countries, each of which may further adversely impact our clinical trials. The global pandemic of the
COVID-19 coronavirus continues to evolve and the conduct of our trials may continue to be adversely affected, despite efforts to mitigate
this impact.
We
may not successfully engage in future strategic transactions, which could adversely affect our ability to develop and commercialize product
candidates, impact our cash position, increase our expense and present significant distractions to our management.
In
the future, we may consider strategic alternatives intended to further the development of our business, which may include acquiring businesses,
technologies, or products, out- or in-licensing product candidates or technologies or entering into a business combination with another
company. Any strategic transaction may require us to incur non-recurring or other charges, increase our near- and long-term expenditures
and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail
numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our
management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies,
incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected
collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses,
difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment
of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and
the inability to retain key employees of any acquired business. Accordingly, although there can be no assurance that we will undertake
or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing
or other risks and have a material adverse effect on our business, results of operations, financial condition and prospects. Conversely,
any failure to enter any strategic transaction that would be beneficial to us could delay the development and potential commercialization
of our product candidates and have a negative impact on the competitiveness of any product candidate that reaches market.
Strategic
transactions, such as acquisitions, partnerships, and collaborations, including the EGEN asset acquisition, involve numerous risks, including:
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the
failure of markets for the products of acquired businesses, technologies, or product lines to develop as expected; |
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uncertainties
in identifying and pursuing acquisition targets; |
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the
challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions; |
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the
risk that the financial returns on acquisitions will not support the expenditures incurred to acquire such businesses or the capital
expenditures needed to develop such businesses; |
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difficulties
in assimilating the acquired businesses, technologies, or product lines; |
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the
failure to successfully manage additional business locations, including the additional infrastructure and resources necessary to
support and integrate such locations; |
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the
existence of unknown product defects related to acquired businesses, technologies or product lines that may not be identified due
to the inherent limitations involved in the due diligence process of an acquisition; |
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the
diversion of management’s attention from other business concerns; |
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risks
associated with entering markets or conducting operations with which we have no or limited direct prior experience; |
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risks
associated with assuming the legal obligations of acquired businesses, technologies, or product lines; |
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risks
related to the effect that internal control processes of acquired businesses might have on our financial reporting and management’s
report on our internal control over financial reporting; |
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the
potential loss of key employees related to acquired businesses, technologies, or product lines; and |
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the
incurrence of significant exit charges if products or technologies acquired in business combinations are unsuccessful. |
We
may never realize the perceived benefits of the EGEN asset acquisition or potential future transactions. We cannot assure you that we
will be successful in overcoming problems encountered in connection with any transactions, and our inability to do so could significantly
harm our business, results of operations and financial condition. These transactions could dilute a stockholder’s investment in
us and cause us to incur debt, contingent liabilities and amortization/impairment charges related to intangible assets, all of which
could materially and adversely affect our business, results of operations and financial condition. In addition, our effective tax rate
for future periods could be negatively impacted by the EGEN asset acquisition or potential future transactions.
We
rely on third parties to conduct all of our clinical trials. If these third parties are unable to carry out their contractual duties
in a manner that is consistent with our expectations, comply with budgets and other financial obligations or meet expected deadlines,
we may not receive certain development milestone payments or be able to obtain regulatory approval for or commercialize our product candidates
in a timely or cost-effective manner.
We
do not independently conduct clinical trials for our drug candidates. We rely, and expect to continue to rely, on third-party clinical
investigators, clinical research organizations (“CROs”), clinical data management organizations and consultants to design,
conduct, supervise and monitor our clinical trials.
Because
we do not conduct our own clinical trials, we must rely on the efforts of others and have reduced control over aspects of these activities,
including, the timing of such trials, the costs associated with such trials and the procedures that are followed for such trials. We
do not expect to significantly increase our personnel in the foreseeable future and may continue to rely on third parties to conduct
all of our future clinical trials. If we cannot contract with acceptable third parties on commercially reasonable terms or at all, if
these third parties are unable to carry out their contractual duties or obligations in a manner that is consistent with our expectations
or meet expected deadlines, if they do not carry out the trials in accordance with budgeted amounts, if the quality or accuracy of the
clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, or if they fail
to maintain compliance with applicable government regulations and standards, our clinical trials may be extended, delayed or terminated
or may become significantly more expensive, we may not receive development milestone payments when expected or at all, and we may not
be able to obtain regulatory approval for or successfully commercialize our product candidates.
Despite
our reliance on third parties to conduct our clinical trials, we are ultimately responsible for ensuring that each of our clinical trials
is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires clinical trials
to be conducted in accordance with good clinical practices for conducting, recording and reporting the results of clinical trials to
assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial
participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials
on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse
publicity and civil and criminal sanctions. Our reliance on third parties that we do not control does not relieve us of these responsibilities
and requirements. If we or a third party we rely on fails to meet these requirements, we may not be able to obtain, or may be delayed
in obtaining, marketing authorizations for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully
commercialize our drug candidates. This could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Because
we rely on third party manufacturing and supply partners, our supply of research and development, preclinical and clinical development
materials may become limited or interrupted or may not be of satisfactory quantity or quality.
We
rely on third party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development,
preclinical and clinical trial drug supplies. We do not own manufacturing facilities or supply sources for such components and materials.
There can be no assurance that our supply of research and development, preclinical and clinical development drugs and other materials
will not be limited, interrupted, restricted in certain geographic regions or of satisfactory quality or continue to be available at
acceptable prices. Suppliers and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process
validation tests required by FDA and foreign regulatory authorities in order to comply with regulatory standards, such as current cGMP.
The
regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party
manufacturers. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product
specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may
require remedial measures that may be costly and/or time-consuming for us or our third-party manufacturers to implement and that may
include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a manufacturing
facility. Any such remedial measures imposed upon third parties with whom we contract could materially harm our business.
If
we or any of our third-party manufacturers or testing contractors fail to maintain regulatory compliance, this could cause the delay
of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher
costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements,
and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical
trials may be delayed, or we could lose potential revenue. In the event that any of our suppliers or manufacturers fails to comply with
such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or
other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which
we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able
to do on reasonable terms, if at all.
Our
business is subject to numerous and evolving state, federal and foreign regulations and we may not be able to secure the government approvals
needed to develop and market our products.
Our
research and development activities, pre-clinical tests and clinical trials, and ultimately the manufacturing, marketing and labeling
of our products, are all subject to extensive regulation by the FDA and foreign regulatory agencies. Pre-clinical testing and clinical
trial requirements and the regulatory approval process typically take years and require the expenditure of substantial resources. Additional
government regulation may be established that could prevent or delay regulatory approval of our product candidates. Delays or rejections
in obtaining regulatory approvals would adversely affect our ability to commercialize any product candidates and our ability to generate
product revenue or royalties.
The
FDA and foreign regulatory agencies require that the safety and efficacy of product candidates be supported through adequate and well-controlled
clinical trials. If the results of pivotal clinical trials do not establish the safety and efficacy of our product candidates to the
satisfaction of the FDA and other foreign regulatory agencies, we will not receive the approvals necessary to market such product candidates.
Even if regulatory approval of a product candidate is granted, the approval may include significant limitations on the indicated uses
for which the product may be marketed.
We
are subject to the periodic inspection of our clinical trials, facilities, procedures and operations and/or the testing of our products
by the FDA to determine whether our systems and processes, or those of our vendors and suppliers, are in compliance with FDA regulations.
Following such inspections, the FDA may issue notices on Form 483 and warning letters that could cause us to modify certain activities
identified during the inspection.
Failure
to comply with the FDA and other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure
of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications,
enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously
granted product approvals. Although we have internal compliance programs, if these programs do not meet regulatory agency standards or
if our compliance is deemed deficient in any significant way, it could have a material adverse effect on the Company.
We
are also subject to recordkeeping and reporting regulations. These regulations require, among other things, the reporting to the FDA
of adverse events alleged to have been associated with the use of a product or in connection with certain product failures. Labeling
and promotional activities also are regulated by the FDA. We must also comply with record keeping requirements as well as requirements
to report certain adverse events involving our products. The FDA can impose other post-marketing controls on us as well as our products
including, but not limited to, restrictions on sale and use, through the approval process, regulations and otherwise.
Many
states in which we do or may do business, or in which our products may be sold, if at all, impose licensing, labeling or certification
requirements that are in addition to those imposed by the FDA. There can be no assurance that one or more states will not impose regulations
or requirements that have a material adverse effect on our ability to sell our products.
In
many of the foreign countries in which we may do business or in which our products may be sold, we will be subject to regulation by national
governments and supranational agencies as well as by local agencies affecting, among other things, product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax requirements. There can be no assurance that one or more
countries or agencies will not impose regulations or requirements that could have a material adverse effect on our ability to sell our
products.
We
have obtained Orphan Drug Designation for GEN-1 ThermoDox® and may seek Orphan Drug Designation for other product candidates, but
we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for
market exclusivity.
GEN-1
has been granted orphan drug designation for ovarian cancer in both the U.S. and Europe. ThermoDox® has been granted orphan
drug designation for primary liver cancer in both the U.S. and Europe. Regulatory authorities in some jurisdictions, including the U.S.
and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate
a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population
of fewer than 200,000 individuals annually in the U.S., or a patient population greater than 200,000 in the U.S. where there is no reasonable
expectation that the cost of developing the drug will be recovered from sales in the U.S.
Even
though we have obtained Orphan Drug Designation for GEN-1 and ThermoDox® and may obtain such designation for other product
candidates in specific indications, we may not be the first to obtain marketing approval of these product candidates for the orphan-designated
indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the
U.S. may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later
determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities
of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for
a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties
can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug with
the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution
to patient care. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug
any advantage in the regulatory review or approval process.
Fast
Track designation may not actually lead to a faster development or regulatory review or approval process.
Both
GEN-1 and ThermoDox® have received U.S. FDA Fast Track Designation in 2021 and 2010, respectively. However, we may not experience
a faster development process, review, or approval compared to conventional FDA procedures. The FDA may withdraw our Fast Track designation
if the FDA believes that the designation is no longer supported by data from our clinical or pivotal development program. Our Fast Track
designation does not guarantee that we will qualify for or be able to take advantage of the FDA’s expedited review procedures or
that any application that we may submit to the FDA for regulatory approval will be accepted for filing or ultimately approved.
Our
relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud and
abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors in the U.S. and elsewhere play a primary role in the recommendation and prescription of
biopharmaceutical products. Arrangements with third-party payors and customers can expose biopharmaceutical manufacturers to broadly
applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute
and the federal False Claims Act, which may constrain the business or financial arrangements and relationships through which such companies
sell, market and distribute biopharmaceutical products. In particular, the research of our product candidates, as well as the promotion,
sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject
to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive
programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained
in the course of patient recruitment for clinical trials. The applicable federal, state and foreign healthcare laws and regulations laws
that may affect our ability to operate include, but are not limited to:
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the
federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to
induce or reward, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any
good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the
Medicare and Medicaid programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute
or specific intent to violate it. In addition, a claim submitted for payment to any federal health care program that includes items
or services that were made as a result of a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim
for purposes of the federal False Claims Act, or FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between
biopharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers, among others, on the other.
There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; |
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the
federal civil and criminal false claims laws, including the FCA, and civil monetary penalty laws which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false, fictious or fraudulent claims for payment to,
or approval by Medicare, Medicaid, or other federal healthcare programs; knowingly making, using or causing to be made or used a
false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money or property to the federal
government; or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to
the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim under the FCA. Manufacturers can be held liable under the FCA even when they do not submit claims directly
to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits
a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging
violations of the FCA and to share in any monetary recovery; |
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes
that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or
obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under
the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully
falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection
with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal
Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific
intent to violate it; |
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing
regulations, which impose, among other things, requirements relating to the privacy, security and transmission of individually identifiable
health information on certain covered healthcare providers, health plans, and healthcare clearinghouses, known as covered entities,
as well as their respective “business associates,” those independent contractors or agents of covered entities that perform
services for covered entities that involve the creation, use, receipt, maintenance or disclosure of individually identifiable health
information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly
applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions
in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil
actions; |
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the
federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which require some manufacturers
of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of
value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these
reporting obligations will extend to include transfers of value made in the previous year to certain non-physician providers such
as physician assistants and nurse practitioners; |
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federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers; and |
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by third-party payors, including private insurers, and
may be broader in scope than their federal equivalents; state and foreign laws that require biopharmaceutical companies to comply
with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the
federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources;
state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to
physicians and other healthcare providers, marketing expenditures or drug pricing; state and local laws that require the registration
of biopharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in
certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts. |
The
distribution of biopharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping,
licensing, storage and security requirements intended to prevent the unauthorized sale of biopharmaceutical products.
The
scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform,
especially in light of the lack of applicable precedent and regulations. Ensuring business arrangements comply with applicable healthcare
laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert
a company’s attention from the business.
It
is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future
statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement,
imprisonment, reputational harm, possible exclusion from participation in federal and state funded healthcare programs, contractual damages
and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject
to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Further, if any of the
physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable
laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs. Any action for violation of these laws, even if successfully defended, could cause a biopharmaceutical manufacturer to incur
significant legal expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on
sales or withdrawal of future marketed products could materially affect business in an adverse way.
Ongoing
legislative and regulatory changes affecting the healthcare industry could have a material adverse effect on our business.
Political,
economic and regulatory influences are subjecting the healthcare industry to potential fundamental changes that could substantially affect
our results of operations by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to
product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements.
In
the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010,
the ACA was passed, which substantially changed the way health care is financed by both governmental and private insurers, and significantly
impacted the U.S. biopharmaceutical industry. The ACA, among other things, addressed a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased
the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals
enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs,
and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer certain point-of-sale discounts
off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D.
Some
of the provisions of the ACA have yet to be fully
implemented and there have been challenges to certain provision to the ACA. While Congress has not passed comprehensive repeal
legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for
not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated
fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. On December
14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate”
was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. Additionally, on December 18, 2019, the U.S. Court of Appeals
for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the
District Court to determine whether the remaining provisions of the ACA are invalid as well. In June 2021, the U.S. Supreme Court
held that the states and individuals that brought the lawsuit challenging ACA’s individual mandate did not have standing. The Company
will continue to evaluate the effect that ACA has on our business.
Other
legislative changes have been proposed and adopted in the U.S. since the ACA was enacted, affecting among other matters, Medicare payments
to providers.
Moreover,
increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such organizations
to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate
payment for our product candidates. There has been increasing legislative and enforcement interest in the U.S. with respect to specialty
drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and
state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under
Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for drugs. Several states have adopted price transparency requirements and those as well as any future federal price transparency requirements
that may be implemented in the future could have a negative effect on our business. Additionally, we expect to experience pricing pressures
in connection with the sale of any future approved product candidates due to the trend toward managed healthcare, the increasing influence
of health maintenance organizations, cost containment initiatives and additional legislative changes.
Any
reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers.
In addition, individual states in the U.S. have also increasingly passed legislation and implemented regulations designed to control
pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and
bulk purchasing.
At
the state level, legislatures are increasingly passing legislation and implementing regulations designed to control biopharmaceutical
and biologic product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and
bulk purchasing.
We
cannot predict what healthcare reform initiatives may be adopted in the future. Further, federal and state legislative and regulatory
developments are likely, and we expect ongoing initiatives in the U.S. to increase pressure on drug pricing. Such reforms could have
an adverse effect on anticipated revenues any product candidates that we may successfully develop and for which we may obtain regulatory
approval and may affect our overall financial condition and ability to develop product candidates.
We
may fail to comply with evolving European and other privacy laws.
Since
we conduct clinical trials in the European Economic Area (“EEA”), we are subject to additional European data-privacy laws.
The General Data Protection Regulation, (EU) 2016/679 (“GDPR”) became effective on May 25, 2018, and deals with the processing
of personal data and on the free movement of such data. The GDPR is wide-ranging in scope and imposes numerous requirements on companies
that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals
to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards
to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when
engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including
the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of
up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers on data subjects the right to lodge
complaints with supervisory authorities, and seek certain judicial review for violations of the GDPR. In addition, the GDPR includes
restrictions on cross-border data transfers. The GDPR increases our responsibility and liability in relation to personal data that we
process where such processing is subject to the GDPR, and we are required to put in place additional mechanisms to ensure compliance
with the GDPR, including additional requirements imposed by individual countries.
In
the event we continue to conduct clinical trials in the EEA, we must also ensure that we maintain adequate safeguards to enable the transfer
of personal data outside of the EEA, in particular to the U.S., in compliance with European data protection laws. We expect that we will
continue to face uncertainty as to whether our efforts to comply with our obligations under European privacy laws will be sufficient.
If we are investigated by a European data protection authority, we may face fines and other penalties. Any such investigation or charges
by European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain
new clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multi-national clients
or pharmaceutical partners to continue to use our products and solutions due to the potential risk exposure as a result of the current
(and, in particular, future) data protection obligations imposed on them by certain data protection authorities in interpretation of
current law, including the GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance as being
too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do business with us. Any of
the foregoing could materially harm our business, prospects, financial condition and results of operations.
The
success of our products may be harmed if the government, private health insurers and other third-party payers do not provide sufficient
coverage or reimbursement.
Our
ability to commercialize our new cancer treatment systems successfully will depend in part on the extent to which reimbursement for the
costs of such products and related treatments will be available from third-party payors, which include government authorities such as
Medicare, Medicaid, TRICARE, and the Veterans Administration, managed care providers, private health insurers, and other organizations.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the
costs associated with their treatment. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and
Medicaid, and commercial payors is critical to new product acceptance. Patients are unlikely to use our product candidates unless coverage
is provided, and reimbursement is adequate to cover a significant portion of the cost. The reimbursement status of newly approved medical
products is subject to significant uncertainty We cannot be sure that coverage and reimbursement will be available for, or accurately
estimate the potential revenue from, our product candidates or assure that coverage and reimbursement will be available for any product
that we may develop.
Government
authorities and other third-party payors decide which drugs and treatments they will cover and the amount of reimbursement. In the U.S.,
the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services,
or CMS, an agency within the U.S. Department of Health and Human Services. CMS decides whether and to what extent a new medicine will
be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage
and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ
significantly from payor to payor. The process for determining whether a third-party payor will provide coverage for a product may be
separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved.
Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination
that use of a product is:
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covered benefit under its health plan; |
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safe,
effective, and medically necessary; |
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appropriate
for the specific patient; |
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cost-effective;
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neither
experimental nor investigational. |
In
order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain
FDA or other comparable regulatory approvals. Additionally, companies may also need to provide discounts to purchasers, private health
plans or government healthcare programs. Nonetheless, product candidates may not be considered medically necessary or cost effective.
A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material
adverse effect on sales, our operations and financial condition.
Government,
private health insurers and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage
and the level of reimbursement for new therapeutic products approved for marketing by the FDA. For example, Congress passed the ACA in
2010 which enacted a number of reforms to expand access to health insurance while also reducing or constraining the growth of healthcare
spending, enhancing remedies against fraud and abuse, adding new transparency requirements for healthcare industries, and imposing new
taxes on fees on healthcare industry participants, among other policy reforms. Federal agencies, Congress and state legislatures have
continued to show interest in implementing cost containment programs to limit the growth of health care costs, including price controls,
price disclosures, restrictions on reimbursement and other fundamental changes to the healthcare delivery system. In addition, in recent
years, Congress has enacted various laws seeking to reduce the federal debt level and contain healthcare expenditures, and the Medicare
and other healthcare programs are frequently identified as potential targets for spending cuts. New government legislation or regulations
related to pricing or other fundamental changes to the healthcare delivery system as well as a government or third-party payer decision
not to approve pricing for, or provide adequate coverage or reimbursement of, our product candidates hold the potential to severely limit
market opportunities of such products. Accordingly, even if coverage and reimbursement are provided by government, private health insurers
and third-party payors for uses of our products, market acceptance of these products would be adversely affected if the reimbursement
available proves to be unprofitable for health care providers.
Our
products may not achieve sufficient acceptance by the medical community to sustain our business.
The
commercial success of our products will depend upon their acceptance by the medical community and third-party payors as clinically useful,
cost effective and safe. Any of our drug candidates or similar product candidates being investigated by our competitors may prove not
to be effective in trial or in practice, cause adverse events or other undesirable side effects. Our testing and clinical practice may
not confirm the safety and efficacy of our product candidates or even if further testing and clinical practice produce positive results,
the medical community may view these new forms of treatment as effective and desirable or our efforts to market our new products may
fail. Market acceptance depends upon physicians and hospitals obtaining adequate reimbursement rates from third-party payors to make
our products commercially viable. Any of these factors could have an adverse effect on our business, financial condition and results
of operations.
The
commercial potential of a drug candidate in development is difficult to predict. If the market size for a new drug is significantly smaller
than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It
is very difficult to predict the commercial potential of product candidates due to important factors such as safety and efficacy compared
to other available treatments, including potential generic drug alternatives with similar efficacy profiles, changing standards of care,
third party payor reimbursement standards, patient and physician preferences, the availability of competitive alternatives that may emerge
either during the long drug development process or after commercial introduction, and the availability of generic versions of our successful
product candidates following approval by government health authorities based on the expiration of regulatory exclusivity or our inability
to prevent generic versions from coming to market by asserting our patents. If due to one or more of these risks the market potential
for a drug candidate is lower than we anticipated, it could significantly and negatively impact the revenue potential for such drug candidate
and would adversely affect our business, financial condition and results of operations.
Several
of our current clinical trials are being conducted outside the U.S., and the FDA may not accept data from trials conducted in foreign
locations.
Several
of our current clinical trials are being conducted outside the U.S. Although the FDA may accept data from clinical trials conducted outside
the U.S., acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well
designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must also
adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that
the FDA deems clinically meaningful. In general, the patient population for any clinical trials conducted outside of the U.S. must be
representative of the population for whom we intend to label the product in the U.S. In addition, while these clinical trials are subject
to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with
all applicable U.S. laws and regulations. We cannot assure you that the FDA will accept data from trials conducted outside of the U.S.
If the FDA does not accept the data from such clinical trials, it would likely result in the need for additional trials, which would
be costly and time-consuming and delay or permanently halt our development of our product candidates.
We
have no internal sales or marketing capability. If we are unable to create sales, marketing and distribution capabilities or enter into
alliances with others possessing such capabilities to perform these functions, we will not be able to commercialize our products successfully.
We
currently have no sales, marketing, or distribution capabilities. We intend to market our products, if and when such products are approved
for commercialization by the FDA and foreign regulatory agencies, either directly or through other strategic alliances and distribution
arrangements with third parties. If we decide to market our products directly, we will need to commit significant financial and managerial
resources to develop a marketing and sales force with technical expertise and with supporting distribution, administration, and compliance
capabilities. If we rely on third parties with such capabilities to market our products, we will need to establish and maintain partnership
arrangements, and there can be no assurance that we will be able to enter into third-party marketing or distribution arrangements on
acceptable terms or at all. To the extent that we do enter into such arrangements, we will be dependent on our marketing and distribution
partners. In entering into third-party marketing or distribution arrangements, we expect to incur significant additional expenses and
there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining
market acceptance for our products and services.
Technologies
for the treatment of cancer are subject to rapid change, and the development of treatment strategies that are more effective than our
technologies could render our technologies obsolete.
Various
methods for treating cancer currently are, and in the future, are expected to be, the subject of extensive research and development.
Many possible treatments that are being researched, if successfully developed, may not require, or may supplant, the use of our technologies.
The successful development and acceptance of any one or more of these alternative forms of treatment could render our technology obsolete
as a cancer treatment method.
We
may not be able to hire or retain key officers or employees that we need to implement our business strategy and develop our product candidates
and business, including those purchased in the EGEN asset acquisition.
Our
success depends significantly on the continued contributions of our executive officers, scientific and technical personnel and consultants,
including those retained in the EGEN acquisition, and on our ability to attract additional personnel as we seek to implement our business
strategy and develop our product candidates and businesses. Our operations associated with the EGEN acquisition are located in Huntsville,
Alabama. Key employees may depart if we fail to successfully manage this additional business location or in relation to any uncertainties
or difficulties of integration with Celsion. We cannot guarantee that we will retain key employees to the same extent that we and EGEN
retained each of our own employees in the past, which could have a negative impact on our business, results of operations and financial
condition. Our integration of EGEN and ability to operate in the fields we acquired from EGEN may be more difficult if we lose key employees.
Additionally, during our operating history, we have assigned many essential responsibilities to a relatively small number of individuals.
However, as our business and the demands on our key employees expand, we have been, and will continue to be, required to recruit additional
qualified employees. The competition for such qualified personnel is intense, and the loss of services of certain key personnel or our
inability to attract additional personnel to fill critical positions could adversely affect our business. Further, we do not carry “key
man” insurance on any of our personnel. Therefore, loss of the services of key personnel would not be ameliorated by the receipt
of the proceeds from such insurance.
Our
success will depend in part on our ability to grow and diversify, which in turn will require that we manage and control our growth effectively.
Our
business strategy contemplates growth and diversification. Our ability to manage growth effectively will require that we continue to
expend funds to improve our operational, financial and management controls, reporting systems and procedures. In addition, we must effectively
expand, train and manage our employees. We will be unable to manage our business effectively if we are unable to alleviate the strain
on resources caused by growth in a timely and successful manner. There can be no assurance that we will be able to manage our growth
and a failure to do so could have a material adverse effect on our business.
We
face intense competition and the failure to compete effectively could adversely affect our ability to develop and market our products.
There
are many companies and other institutions engaged in research and development of various technologies for cancer treatment products that
seek treatment outcomes similar to those that we are pursuing. We believe that the level of interest by others in investigating the potential
of possible competitive treatments and alternative technologies will continue and may increase. Potential competitors engaged in all
areas of cancer treatment research in the U.S. and other countries include, among others, major pharmaceutical, specialized technology
companies, and universities and other research institutions. Most of our current and potential competitors have substantially greater
financial, technical, human and other resources, and may also have far greater experience than do we, both in pre-clinical testing and
human clinical trials of new products and in obtaining FDA and other regulatory approvals. One or more of these companies or institutions
could succeed in developing products or other technologies that are more effective than the products and technologies that we have been
or are developing, or which would render our technology and products obsolete and non-competitive. Furthermore, if we are permitted to
commence commercial sales of any of our products, we will also be competing, with respect to manufacturing efficiency and marketing,
with companies having substantially greater resources and experience in these areas.
We
may be subject to significant product liability claims and litigation.
Our
business exposes us to potential product liability risks inherent in the testing, manufacturing and marketing of human therapeutic products.
We presently have product liability insurance limited to $10 million per incident and $10 million annually. If we were to be subject
to a claim in excess of this coverage or to a claim not covered by our insurance and the claim succeeded, we would be required to pay
the claim with our own limited resources, which could have a severe adverse effect on our business. Whether or not we are ultimately
successful in any product liability litigation, such litigation would harm the business by diverting the attention and resources of our
management, consuming substantial amounts of our financial resources and by damaging our reputation. Additionally, we may not be able
to maintain our product liability insurance at an acceptable cost, if at all.
We
or the third parties upon whom we depend on may be adversely affected by earthquakes, global pandemics, climate change or other natural
disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster, including earthquakes
or other natural disasters.
Our current operations are located in our facilities in Lawrenceville, New Jersey. Any unplanned event, such as flood, fire, explosion,
earthquake, extreme weather condition, climate change, power shortage, telecommunication failure or other natural or manmade accidents
or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract
manufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have
significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased
costs, delays in the development of our product candidates or interruption of our business operations. Earthquakes or other natural disasters
could further disrupt our operations and have a material and adverse effect on our business, financial condition, results of operations
and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of
our headquarters, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our third-party
contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue
our business for a substantial period of time. Please see the risk factor titled “The outbreak, severity and duration of the novel
coronavirus disease, COVID-19, pandemic could adversely impact our business, including our preclinical studies and clinical trials”
for information regarding the COVID-19 pandemic.
The
disaster recovery and business continuity plan we have in place may prove inadequate in the event of a serious disaster or similar event.
We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could
have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that
we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you
that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities, or the manufacturing facilities
of our third-party contract manufacturers, are unable to operate because of an accident or incident or for any other reason, even for
a short period of time, any or all of our research and development programs may be harmed.
Our
internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could
result in a material disruption of our product development programs.
Despite
the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. Such events could cause interruptions of our operations. For instance, the loss of preclinical data or data from any clinical
trial involving our product candidates could result in delays in our development and regulatory filing efforts and significantly increase
our costs. To the extent that any disruption or privacy or security breach were to result in a loss of, or damage to, our data, or inappropriate
disclosure of confidential or proprietary information, we could be subject to reputational harm, monetary fines, civil suits, civil penalties
or criminal sanctions and requirements to disclose the breach, and other forms of liability and the development of our product candidates
could be delayed.
RISKS
RELATED TO OUR INTELLECTUAL PROPERTY
Our
business depends on license agreements with third parties to permit us to use patented technologies. The loss of any of our rights under
these agreements could impair our ability to develop and market our products.
Our
success will depend, in a substantial part, on our ability to maintain our rights under license agreements granting us rights to use
patented technologies. For instance, we are party to license agreements with Duke University, under which we have exclusive rights to
commercialize medical treatment products and procedures based on Duke’s thermo-sensitive liposome technology. The Duke University
license agreement contains a license fee, royalty and/or research support provisions, testing and regulatory milestones, and other performance
requirements that we must meet by certain deadlines. If we breach any provisions of the license and research agreements, we may lose
our ability to use the subject technology, as well as compensation for our efforts in developing or exploiting the technology. Any such
loss of rights and access to technology could have a material adverse effect on our business.
Further,
we cannot guarantee that any patent or other technology rights licensed to us by others will not be challenged or circumvented successfully
by third parties, or that the rights granted will provide adequate protection. We may be required to alter any of our potential products
or processes or enter into a license and pay licensing fees to a third party or cease certain activities. There can be no assurance that
we can obtain a license to any technology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise
obtain alternate technology. If a license is not available on commercially reasonable terms or at all, our business, results of operations,
and financial condition could be significantly harmed, and we may be prevented from developing and commercializing the product. Litigation,
which could result in substantial costs, may also be necessary to enforce any patents issued to or licensed by us or to determine the
scope and validity of another’s claimed proprietary rights.
If
any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual property
protection.
The
patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues.
We own various U.S. and international patents and have pending U.S. and international patent applications that cover various aspects
of our technologies. There can be no assurance that patents that have issued will be held valid and enforceable in a court of law through
the entire patent term. Even for patents that are held valid and enforceable, the legal process associated with obtaining such a judgment
is time-consuming and costly. Additionally, issued patents can be subject to opposition, interferences or other proceedings that can
result in the revocation of the patent or maintenance of the patent in amended form (and potentially in a form that renders the patent
without commercially relevant or broad coverage). Further, our competitors may be able to circumvent and otherwise design around our
patents. Even if a patent is issued and enforceable because development and commercialization of pharmaceutical products can be subject
to substantial delays, patents may expire early and provide only a short period of protection, if any, following the commercialization
of products encompassed by our patents. We may have to participate in interference proceedings declared by the U.S. Patent and Trademark
Office, which could result in a loss of the patent and/or substantial cost to us.
We
have filed patent applications, and plan to file additional patent applications, covering various aspects of our technologies and our
proprietary product candidates. There can be no assurance that the patent applications for which we apply would actually issue as patents
or do so with commercially relevant or broad coverage. The coverage claimed in a patent application can be significantly reduced before
the patent is issued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with third
parties and our right to receive royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent
literature often lags behind the date of such discoveries, we cannot be certain that we were the first inventor of inventions covered
by our patents or patent applications. In addition, there is no guarantee that we will be the first to file a patent application directed
to an invention.
An
adverse outcome in any judicial proceeding involving intellectual property, including patents, could subject us to significant liabilities
to third parties, require disputed rights to be licensed from or to third parties or require us to cease using the technology in dispute.
In those instances where we seek an intellectual property license from another, we may not be able to obtain the license on a commercially
reasonable basis, if at all, thereby raising concerns on our ability to freely commercialize our technologies or products.
We
rely on trade secret protection and other unpatented proprietary rights for important proprietary technologies, and any loss of such
rights could harm our business, results of operations and financial condition.
We
rely on trade secrets and confidential information that we seek to protect, in part, by confidentiality agreements with our corporate
partners, collaborators, employees and consultants. We cannot assure you that these agreements are adequate to protect our trade secrets
and confidential information or will not be breached or, if breached, we will have adequate remedies. Furthermore, others may independently
develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets or disclose such
technology. Any loss of trade secret protection or other unpatented proprietary rights could harm our business, results of operations
and financial condition.
Our
products may infringe patent rights of others, which may require costly litigation and, if we are not successful, could cause us to pay
substantial damages or limit our ability to commercialize our products.
Our
commercial success depends on our ability to operate without infringing the patents and other proprietary rights of third parties. There
may be third party patents that relate to our products and technology. We may unintentionally infringe upon valid patent rights of third
parties. Although we currently are not involved in any material litigation involving patents, a third-party patent holder may assert
a claim of patent infringement against us in the future. Alternatively, we may initiate litigation against the third-party patent holder
to request that a court declare that we are not infringing the third party’s patent and/or that the third party’s patent
is invalid or unenforceable. If a claim of infringement is asserted against us and is successful, and therefore we are found to infringe,
we could be required to pay damages for infringement, including treble damages if it is determined that we knew or became aware of such
a patent and we failed to exercise due care in determining whether or not we infringed the patent. If we have supplied infringing products
to third parties or have licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these
third parties for damages they may be required to pay to the patent holder and for any losses they may sustain.
We
can also be prevented from selling or commercializing any of our products that use the infringing technology in the future unless we
obtain a license from such third party. A license may not be available from such third party on commercially reasonable terms or may
not be available at all. Any modification to include a non-infringing technology may not be possible, or if possible, may be difficult
or time-consuming to develop, and require revalidation, which could delay our ability to commercialize our products. Any infringement
action asserted against us, even if we are ultimately successful in defending against such action, would likely delay the regulatory
approval process of our products, harm our competitive position, be expensive and require the time and attention of our key management
and technical personnel.
RISKS
RELATED TO OUR SECURITIES
The
market price of our common stock has been, and may continue to be volatile and fluctuate significantly, which could result in substantial
losses for investors and subject us to securities class action litigation.
The
trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades
depends upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements
of technological innovations or new products by us or our competitors, our ability or inability to raise the additional capital we may
need and the terms on which we raise it, and general market and economic conditions. Some of these factors are beyond our control. Broad
market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock, regardless of our financial
condition, results of operations, business or prospect.
The
closing price of our common stock as reported on NASDAQ had a high price of $78.90 and a low price of $7.05 in the 52-week period ended
December 31, 2020, a high price of $42.15 and a low price of $8.28 in the 52-week period ended December 31, 2020, and a high price of
$9.00 and a low price of $4.58 from January 1, 2022 through March 30, 2022.
Among
the factors that may cause the market price of our common stock to fluctuate are the risks described in this “Risk Factors”
section and other factors, including:
|
● |
results
of preclinical and clinical studies of our product candidates or those of our competitors; |
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regulatory
or legal developments in the U.S. and other countries, especially changes in laws and regulations applicable to our product candidates; |
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actions
taken by regulatory agencies with respect to our product candidates, clinical studies, manufacturing process or sales and marketing
terms; |
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introductions
and announcements of new products by us or our competitors, and the timing of these introductions or announcements; |
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announcements
by us or our competitors of significant acquisitions or other strategic transactions or capital commitments; |
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fluctuations
in our quarterly operating results or the operating results of our competitors; |
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variance
in our financial performance from the expectations of investors; |
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changes
in the estimation of the future size and growth rate of our markets; |
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changes
in accounting principles or changes in interpretations of existing principles, which could affect our financial results; |
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failure
of our products to achieve or maintain market acceptance or commercial success; |
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conditions
and trends in the markets we serve; |
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changes
in general economic, industry and market conditions; |
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success
of competitive products and services; |
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changes
in market valuations or earnings of our competitors; |
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changes
in our pricing policies or the pricing policies of our competitors; |
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changes
in legislation or regulatory policies, practices or actions; |
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the
commencement or outcome of litigation involving our company, our general industry or both; |
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recruitment
or departure of key personnel; |
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changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
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actual
or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other
comparable companies or our industry generally; |
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actual
or expected sales of our common stock by our stockholders; |
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acquisitions
and financings, including the EGEN acquisition; and |
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the
trading volume of our common stock. |
In
addition, the stock markets, in general, The Nasdaq Capital Market and the market for pharmaceutical companies in particular, may experience
a loss of investor confidence. Such loss of investor confidence may result in extreme price and volume fluctuations in our common stock
that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These
broad market and industry factors may materially harm the market price of our common stock and expose us to securities class action litigation.
Such litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further
materially harm our financial condition and results of operations.
We
may be unable to maintain compliance with The Nasdaq Marketplace Rules which could cause our common stock to be delisted from The Nasdaq
Capital Market. This could result in the lack of a market for our common stock, cause a decrease in the value of an investment in us,
and adversely affect our business, financial condition, and results of operations.
Our
common stock is currently listed on The Nasdaq Capital Market. To maintain the listing of our common stock on The Nasdaq Capital Market,
we are required to meet certain listing requirements, including, among others, a minimum closing bid price of $1.00 per share.
On
December 2, 2021, we received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for our common stock
had been below $1.00 per share for the previous 30 consecutive business days, and that we are therefore not in compliance with the minimum
bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Rule”).
Nasdaq’s notice had no immediate effect on the listing or trading of our common stock on The Nasdaq Capital Market. The notice
indicated that we would have 180 calendar days, until May 31, 2022, to regain compliance with this requirement. To regain compliance
with the $1.00 minimum bid listing requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum
of 10 consecutive business days during the 180-day compliance period. On March 15, 2022, the Company received written notice from the
Listing Qualifications Staff of Nasdaq notifying the Company that, for the previous 10 consecutive business days, from March 1, 2022
to March 14, 2022, the closing bid price for the Company’s common stock was $1.00 per share or greater. Accordingly, the written
notice stated that the Company has regained compliance with the minimum bid price listing requirement set forth under the Rule. If in
the future we are unable to comply with one or more of the Nasdaq listing standards, we could receive a notice of non-compliance and,
if we are not able to regain compliance within the requisite time period, Nasdaq could take action to delist us.
Future
sales of our common stock in the public market could cause our stock price to fall.
Sales
of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress
the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.
As of March 30, 2022, we had 5,770,516 shares of common stock outstanding, all of which, other than shares held by our directors and
certain officers, were eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144,
including the volume limitations and manner of sale requirements. In addition, all of the shares of common stock issuable upon exercise
of warrants will be freely tradable without restriction or further registration upon issuance.
Our
stockholders may experience significant dilution as a result of future equity offerings or issuances and exercise of outstanding options
and warrants.
In
order to raise additional capital or pursue strategic transactions, we may in the future offer, issue or sell additional shares of our
common stock or other securities convertible into or exchangeable for our common stock, including the issuance of common stock in relation
to the achievement, if any, of milestones triggering our payment of earn-out consideration in connection with the EGEN acquisition. Our
stockholders may experience significant dilution as a result of future equity offerings or issuances. Investors purchasing shares or
other securities in the future could have rights superior to existing stockholders. As of March 30, 2022, we have the following number
of securities convertible into, or allowing the purchase of, our common stock, including 168,519 shares of common stock issuable upon
exercise of warrants outstanding, 753,033 options to purchase shares of our common stock and restricted stock awards outstanding, and
202,859 shares of common stock reserved for future issuance under our stock incentive plan.
Changes
in tax law could adversely affect our financial condition and results of operations.
The
rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative
process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive
application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes
are likely to continue to occur in the future. For example, on March 27, 2020, former President Trump signed into law the “Coronavirus
Aid, Relief, and Economic Security Act” or the CARES Act, which included certain changes in tax law intended to stimulate the U.S.
economy in light of the COVID-19 coronavirus pandemic, including temporary beneficial changes to the treatment of net operating losses,
interest deductibility limitations and payroll tax matters. Future changes in tax laws could have a material adverse effect on our business,
cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisers regarding the
implications of potential changes in tax laws on an investment in our common stock.
The
adverse capital and credit market conditions could affect our liquidity.
Adverse
capital and credit market conditions could affect our ability to meet liquidity needs, as well as our access to capital and cost of capital.
The capital and credit markets have experienced extreme volatility and disruption in recent years. Our results of operations, financial
condition, cash flows and capital position could be materially adversely affected by continued disruptions in the capital and credit
markets.
Our
ability to use net operating losses to offset future taxable income are subject to certain limitations.
On
December 22, 2017, the then President of the U.S. signed into law the Tax Reform Act. The Tax Reform Act significantly changes U.S. tax
law by, among other things, lowering corporate income tax rates, implementing a quasi-territorial tax system, providing a one-time transition
toll charge on foreign earnings, creating a new limitation on the deductibility of interest expenses and modifying the limitation on
officer compensation. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate,
effective January 1, 2018. We currently have significant net operating losses (“NOLs”) that may be used to offset future
taxable income. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation
that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future
taxable income. During 2021, 2020 and years prior, we performed analyses to determine if there were changes in ownership, as defined
by Section 382 of the Internal Revenue Code that would limit our ability to utilize certain net operating loss and tax credit carry forwards.
We determined we experienced ownership changes, as defined by Section 382, in connection with certain common stock offerings in 2011,
2013, 2015, 2017, 2018, 2020 and 2021. As a result, the utilization of our federal tax net operating loss carry-forwards generated prior
to the ownership changes is limited. Future changes in our stock ownership, some of which are outside of our control, could result in
an ownership change under Section 382 of the Code, which would significantly limit our ability to utilize NOLs to offset future taxable
income. Future changes in tax laws could also impair our corporate tax rate and/or our ability to utilize our NOLs.
We
have never paid cash dividends on our common stock in the past and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
We
have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth
of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future
for holders of our common stock.
Anti-takeover
provisions in our charter documents and Delaware law could prevent or delay a change in control.
Our
certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable
by authorizing the issuance of “blank check” preferred stock. This preferred stock may be issued by our Board of Directors
on such terms as it determines, without further stockholder approval. Therefore, our Board of Directors may issue such preferred stock
on terms unfavorable to a potential bidder in the event that our Board of Directors opposes a merger or acquisition. In addition, our
staggered Board of Directors may discourage such transactions by increasing the amount of time necessary to obtain majority representation
on our Board of Directors. Certain other provisions of our bylaws and of Delaware law may also discourage, delay or prevent a third party
from acquiring or merging with us, even if such action were beneficial to some, or even a majority, of our stockholders.
ITEM
1B. |
UNRESOLVED
STAFF COMMENTS |
None.
In
July 2011, we entered into a lease with Brandywine Operating Partnership, L.P., a Delaware limited partnership for a 10,870 square foot
premises located in Lawrenceville, New Jersey in connection with the relocation of our offices from Columbia, Maryland. Under the terms
of the current lease, which was amended effective May 1, 2017, we reduced the size of the premises to 7,565 square feet and are paying
a monthly rent that ranges from approximately $18,900 in the first year to approximately $20,500 in the final year of the amendment.
On February 1, 2019, we amended the current terms of the lease to increase the size of the premises by 2,285 square feet to 9,850 square
feet and also extended the lease term by one year to September 1, 2023. In conjunction with the February 1, 2019 lease amendment, we
agreed to modify our one-time option to cancel the lease as of the 36th month after the May 1, 2017 lease commencement date.
In
connection with the Asset Purchase Agreement with EGEN in June 2014, we assumed the existing lease with another landlord for an 11,500
square foot premises located in Huntsville, Alabama. In January 2018, we entered into a new 60-month lease agreement for 9,049 square
feet with rent payments of approximately $18,100 per month. On June 9, 2021, the Company and the Huntsville landlord entered into a 22-month
lease, as amended on July 2021, for an additional 2,197 square foot premises with rent payments of approximately $5,500 per month.
Following
is a table of future payments and maturity of our operating lease liabilities as of December 31, 2021:
| |
For
the year
ending December 31, | |
2022 | |
$ | 601,495 | |
2023 | |
| 238,609 | |
2024
and thereafter | |
| - | |
Subtotal
future lease payments | |
| 840,104 | |
Less
imputed interest | |
| (60,485 | ) |
Total
lease liabilities | |
$ | 779,619 | |
| |
| | |
Weighted
average remaining life | |
| 1.45
years | |
| |
| | |
Weighted
average discount rate | |
| 9.98 | % |
For
2021, operating lease expense was $560,513 and cash paid for operating leases included in operating cash flows was $568,269. For 2020,
operating lease expense was $522,380 and cash paid for operating leases included in operating cash flows was $525,809.
We
believe our existing facilities are suitable and adequate to conduct our business.
ITEM
3. |
LEGAL
PROCEEDINGS |
On
October 29, 2020, a putative securities class action was filed against the Company and certain of its officers and directors (the “Spar
Individual Defendants”) in the U.S. District Court for the District of New Jersey, captioned Spar v. Celsion Corporation, et al.,
Case No. 1:20-cv-15228. The plaintiff alleges that the Company and Individual Defendants made false and misleading statements regarding
one of the Company’s product candidates, ThermoDox®, and brings claims for damages under Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder against all Defendants, and under Section 20(a) of the Exchange Act of 1934 against the Spar Individual
Defendants. The Company believes that the case is without merit and intends to defend it vigorously. Due to the early stage of the case
neither the likelihood that a loss, if any, will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
In
February 2021, a derivative shareholder lawsuit was filed against the Company, as the nominal defendant, and certain of its directors
and officers as defendants in the U.S. District Court for the District of New Jersey, captioned Fidler v. Michael H. Tardugno et al.,
Case No. 3:21-cv-02662. The plaintiff alleges breach of fiduciary duty and other claims arising out of alleged statements made by certain
of the Company’s directors and/or officers regarding ThermoDox®. The Company believes it has meritorious defenses
to these claims and intends to vigorously contest this suit. Due to the early stage of the case neither the likelihood that a loss, if
any, will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
In
August 2021, a complaint regarding a corporate books and records demand was filed against the Company in the Court of Chancery of
the State of Delaware, captioned Pacheco v. Celsion Corporation, Case No. 2021-0705. The plaintiff alleges he is entitled to inspect
the Company’s books and records concerning the OPTIMA Study and other materials. The Company believes that the scope of the demand
is without merit and intends to defend it vigorously. Due to the early stage of the case neither the likelihood that a loss, if any,
will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
ITEM
4. |
MINE
SAFETY DISCLOSURES |
Not
Applicable.
PART
II
ITEM
5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market
for Our Common Stock
Our
common stock trades on The Nasdaq Capital Market under the symbol “CLSN”.
Record
Holders
As
of March 30, 2022, there were approximately 54,000 stockholders of record of our common stock. The actual number of stockholders
may be greater than this number of record stockholders and includes stockholders who are beneficial owners but whose shares are held
in street name by brokers and other nominees. This number of stockholders of record also does not include stockholders whose shares may
be held in trust by other entities.
Dividend
Policy
We
have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all of our future earnings
for use in the operation of our business and to fund future growth and do not anticipate paying any cash dividends in the foreseeable
future. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable
law, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors
that our Board of Directors may deem relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
See
Part III, Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter-Equity Compensation
Plan Information of this Annual Report.
Unregistered
Sales of Equity Securities
In March 2022, the Company redeemed all of Series
A Preferred Stock and Series B Preferred Stock issued in January 2021. See Note 10 to the Financial Statements.
Issuer
Purchases of Equity Securities
In March 2022, the Company redeemed all of Series A Preferred Stock and Series B Preferred Stock issued in January 2021. See Note 10
to the Financial Statements.
ITEM
6. |
SELECTED
FINANCIAL DATA |
Not
required.
ITEM
7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The
following discussions should be read in conjunction with the Financial Statements and related notes thereto included in this Annual Report.
The following discussion contains forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These statements
are based on the Company’s beliefs and expectations about future outcomes and are subject to risks and uncertainties that could
cause actual results to differ materially from anticipated results. Factors that could cause or contribute to such differences include
those described under “Part I, Item 1A - Risk Factors” appearing in this Annual Report and factors described in other
cautionary statements, cautionary language and risk factors set forth in other documents that the Company files with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information,
future events or otherwise.
Overview
Celsion
Corporation (“Celsion” and the “Company”) is a fully integrated, clinical stage biotechnology company focused
on advancing a portfolio of innovative treatments including DNA-based immunotherapies, next generation vaccines and directed chemotherapies
through clinical trials and eventual commercialization. The Company’s product pipeline includes GEN-1, a DNA-based immunotherapy
for the localized treatment of ovarian cancer, and ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin,
currently under investigator-sponsored development for several cancer indications. Celsion has two feasibility stage platform technologies
for the development of novel nucleic acid-based immunotherapies and next generation vaccines and other anti-cancer DNA or RNA therapies.
Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection.
IMMUNO-ONCOLOGY
Program
On
June 20, 2014, the Company completed the acquisition of substantially all of the assets of EGEN, a private company located in Huntsville,
Alabama. Pursuant to the Asset Purchase Agreement, CLSN Laboratories acquired all of EGEN’s right, title and interest in substantially
all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical
data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal
property. A key asset acquired from EGEN was the TheraPlas technology platform. The first drug candidate developed from this technology
platform is GEN-1.
THERAPLAS
Technology Platform
TheraPlas
is a technology platform for the delivery of DNA and mRNA therapeutics via synthetic non-viral carriers and is capable of providing cell
transfection for double-stranded DNA plasmids and large therapeutic RNA segments such as mRNA. There are two components of the TheraPlas
system, a plasmid DNA or mRNA payload encoding a therapeutic protein, and a delivery system. The delivery system is designed to protect
the DNA/mRNA from degradation and promote trafficking into cells and through intracellular compartments. We designed the delivery system
of TheraPlas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity.
We believe that TheraPlas may be a viable alternative to current approaches to gene delivery due to several distinguishing characteristics,
including enhanced molecular versatility that allows for complex modifications to potentially improve activity and safety.
The
design of the TheraPlas delivery system is based on molecular functionalization of polyethyleneimine (PEI), a cationic delivery polymer
with a distinct ability to escape from the endosomes due to heavy protonation. The transfection activity and toxicity of PEI is tightly
coupled to its molecular weight; therefore, the clinical application of PEI is limited. We have used molecular functionalization strategies
to improve the activity of low molecular weight PEIs without augmenting their cytotoxicity. In one instance, chemical conjugation of
a low molecular weight branched BPEI1800 with cholesterol and polyethylene glycol (PEG) to form PEG-PEI-Cholesterol (PPC) dramatically
improved the transfection activity of BPEI1800 following in vivo delivery. Together, the cholesterol and PEG modifications produced approximately
20-fold enhancement in transfection activity. Biodistribution studies following intraperitoneal or subcutaneous administration of DNA/PPC
nanocomplexes showed DNA delivery localized primarily at the injection site with only small amount escaping into the systemic circulation.
PPC is the delivery component of our lead TheraPlas product, GEN-1, which is in clinical development for the treatment of ovarian cancer.
The PPC manufacturing process has been scaled up from bench scale (1-2 g) to 0.6Kg, and several cGMP lots have been produced with reproducible
quality.
We
believe that TheraPlas has emerged as a viable alternative to current approaches due to several distinguishing characteristics such as
strong molecular versatility that may allow for complex modifications to potentially improve activity and safety with little difficulty.
The biocompatibility of these polymers reduces the risk of adverse immune response, thus allowing for repeated administration. Compared
to naked DNA or cationic lipids, TheraPlas is generally safer, more efficient, and cost effective. We believe that these advantages place
Celsion in a position to capitalize on this technology platform.
Ovarian
Cancer Overview
Ovarian
cancer is the most lethal of gynecological malignancies among women with an overall five-year survival rate of 45%. This poor outcome
is due in part to the lack of effective prevention and early detection strategies. There were approximately 20,000 new cases of
ovarian cancer in the U.S. in 2021 with an estimated 13,000 deaths. Mortality rates for ovarian cancer declined very little
in the last forty years due to the unavailability of detection tests and improved treatments. Most women with ovarian cancer are not
diagnosed until Stages III or IV, when the disease has spread outside the pelvis to the abdomen and areas beyond causing swelling and
pain, where the five-year survival rates are 25 - 41 percent and 11 percent, respectively. First-line chemotherapy regimens are typically
platinum-based combination therapies. Although this first line of treatment has an approximate 80 percent response rate, 55 to 75 percent
of women will develop recurrent ovarian cancer within two years and ultimately will not respond to platinum therapy. Patients whose cancer
recurs or progresses after initially responding to surgery and first-line chemotherapy have been divided into one of the two groups based
on the time from completion of platinum therapy to disease recurrence or progression. This time period is referred to as platinum-free
interval. The platinum-sensitive group has a platinum-free interval of longer than six months. This group generally responds to additional
treatment with platinum-based therapies. The platinum-resistant group has a platinum-free interval of shorter than six months and is
resistant to additional platinum-based treatments. Pegylated liposomal doxorubicin, topotecan, and Avastin are the only approved second-line
therapies for platinum-resistant ovarian cancer. The overall response rate for these therapies is 10 to 20 percent with median overall
survival (“OS”) of eleven to twelve months. Immunotherapy is an attractive novel approach for the treatment of ovarian cancer
particularly since ovarian cancers are considered immunogenic tumors. IL-12 is one of the most active cytokines for the induction of
potent anti-cancer immunity acting through the induction of T-lymphocyte and natural killer cell proliferation. The precedence for a
therapeutic role of IL-12 in ovarian cancer is based on epidemiologic and preclinical data.
GEN-1
Immunotherapy
GEN-1
is a DNA-based immunotherapeutic product candidate for the localized treatment of ovarian cancer by intraperitoneally administering an
Interleukin-12 (“IL-12”) plasmid formulated with our proprietary TheraPlas delivery system. In this DNA-based approach, the
immunotherapy is combined with a standard chemotherapy drug, which can potentially achieve better clinical outcomes than with chemotherapy
alone. We believe that increases in IL-12 concentrations at tumor sites for several days after a single administration could create a
potent immune environment against tumor activity and that a direct killing of the tumor with concomitant use of cytotoxic chemotherapy
could result in a more robust and durable antitumor response than chemotherapy alone. We believe the rationale for local therapy with
GEN-1 is based on the following:
|
● |
Loco-regional
production of the potent cytokine IL-12 avoids toxicities and poor pharmacokinetics associated with systemic delivery of recombinant
IL-12; |
|
|
|
|
● |
Persistent
local delivery of IL-12 lasts up to one week and dosing can be repeated; and |
|
|
|
|
● |
Local
therapy is ideal for long-term maintenance therapy. |
OVATION
I Study. In February 2015, we announced that the U.S. Food and Drug Administration (“FDA”) accepted, without objection,
the Phase I dose-escalation clinical trial of GEN-1 in combination with the standard of care in neoadjuvant ovarian cancer (the “OVATION
I Study”). On September 30, 2015, we announced enrollment of the first patient in the OVATION I Study. The OVATION I Study was
designed to:
|
(i) |
identify
a safe, tolerable and therapeutically active dose of GEN-1 by recruiting and maximizing an immune response; |
|
|
|
|
(ii) |
enroll
three to six patients per dose level and evaluate safety and efficacy; and |
|
|
|
|
(iii) |
attempt
to define an optimal dose for a follow-on Phase I/II study. |
In
addition, the OVATION I Study established a unique opportunity to assess how cytokine-based compounds such as GEN-1, directly affect
ovarian cancer cells and the tumor microenvironment in newly diagnosed ovarian cancer patients. The study was designed to characterize
the nature of the immune response triggered by GEN-1 at various levels of the patients’ immune system, including:
|
● |
Infiltration
of cancer fighting T-cell lymphocytes into primary tumor and tumor microenvironment including peritoneal cavity, which is the primary
site of metastasis of ovarian cancer; |
|
|
|
|
● |
Changes
in local and systemic levels of immuno-stimulatory and immune-suppressive cytokines associated with tumor suppression and growth,
respectively; and |
|
|
|
|
● |
Expression
profile of a comprehensive panel of immune related genes in pre-treatment and GEN-1-treated tumor tissue. |
We
initiated the OVATION I Study at four clinical sites at the University of Alabama at Birmingham, Oklahoma University Medical Center,
Washington University in St. Louis, and the Medical College of Wisconsin. During 2016 and 2017, we announced data from the first fourteen
patients in the OVATION I Study. On October 3, 2017, we announced final translational research and clinical data from the OVATION I Study.
Key
translational research findings from all evaluable patients are consistent with the earlier reports from partial analysis of the data
and are summarized below:
|
● |
The
intraperitoneal treatment of GEN-1 in conjunction with NACT resulted in dose dependent increases in IL-12 and Interferon-gamma (IFN-γ)
levels that were predominantly in the peritoneal fluid compartment with little to no changes observed in the patients’ systemic
circulation. These and other post-treatment changes including decreases in VEGF levels in peritoneal fluid are consistent with an
IL-12 based immune mechanism; |
|
|
|
|
● |
Consistent
with the previous partial reports, the effects observed in the IHC analysis were pronounced decreases in the density of immunosuppressive
T-cell signals (Foxp3, PD-1, PDL-1, IDO-1) and increases in CD8+ cells in the tumor microenvironment; |
|
|
|
|
● |
The
ratio of CD8+ cells to immunosuppressive cells was increased in approximately 75% of patients suggesting an overall shift in the
tumor microenvironment from immunosuppressive to pro-immune stimulatory following treatment with GEN-1. An increase in CD8+ to immunosuppressive
T-cell populations is a leading indicator and believed to be a good predictor of improved OS; and |
|
|
|
|
● |
Analysis
of peritoneal fluid by cell sorting, not reported before, shows a treatment-related decrease in the percentage of immunosuppressive
T-cell (Foxp3+), which is consistent with the reduction of Foxp3+ T-cells in the primary tumor tissue, and a shift in tumor naïve
CD8+ cell population to more efficient tumor killing memory effector CD8+ cells. |
The
Company also reported positive clinical data from the first fourteen patients who completed treatment in the OVATION I Study. GEN-1 plus
standard chemotherapy produced no dose limiting toxicities and positive dose dependent efficacy signals which correlate well with positive
surgical outcomes as summarized below:
|
● |
Of
the fourteen patients treated in the entire study, two patients demonstrated a complete response, ten patients demonstrated a partial
response and two patients demonstrated stable disease, as measured by RECIST criteria. This translates to a 100% disease control
rate and an 86% objective response rate (“ORR”). Of the five patients treated in the highest dose cohort, there was a
100% ORR with one complete response and four partial responses; |
|
|
|
|
● |
Fourteen
patients had successful resections of their tumors, with nine patients (64%) having a complete tumor resection (“R0”),
which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed. Seven
out of eight (88%) patients in the highest two dose cohorts experienced a R0 surgical resection. All five patients treated at the
highest dose cohort experienced a R0 surgical resection; and |
|
|
|
|
● |
All
patients experienced a clinically significant decrease in their CA-125 protein levels as of their most recent study visit. CA-125
is used to monitor certain cancers during and after treatment. CA-125 is present in greater concentrations in ovarian cancer cells
than in other cells. |
On
March 2, 2019, the Company announced final, investigator assessed, progression free survival (“PFS”) results from the OVATION
I Study. Median PFS in patients treated per protocol (n=14) was 21 months and was 17.1 months for the intent-to-treat (“ITT”)
population (n=18) for all dose cohorts, including three patients who dropped out of the study after 13 days or less, and two patients
who did not receive full NAC and GEN-1 cycles. Under the current standard of care, in women with Stage III/IV ovarian cancer undergoing
NAC, their disease progresses within about 12 months on average. The results from the OVATION I Study support continued evaluation of
GEN-1 based on promising tumor response, as reported in the PFS data, and the ability for surgeons to completely remove visible tumor
at interval debulking surgery. GEN-1 was well tolerated, and no dose-limiting toxicities were detected. Intraperitoneal administration
of GEN-1 was feasible with broad patient acceptance.
OVATION
2 Study. The Company held an Advisory Board Meeting on September 27, 2017 with the clinical investigators and scientific experts
including those from Roswell Park Cancer Institute, Vanderbilt University Medical School, and M.D. Anderson Cancer Center to review and
finalize clinical, translational research and safety data from the OVATION I Study in order to determine the next steps forward for our
GEN-1 immunotherapy program.
On
November 13, 2017, the Company filed its Phase I/II clinical trial protocol with the FDA for GEN-1 for the localized treatment of ovarian
cancer. The protocol is designed with a single dose escalation phase to 100 mg/m² to identify a safe and tolerable dose of GEN-1
while maximizing an immune response. The Phase I portion of the study will be followed by a continuation at the selected dose in approximately
110 patients randomized Phase II study.
In
the OVATION 2 Study, patients in the GEN-1 treatment arm will receive GEN-1 plus chemotherapy pre- and post-interval debulking surgery
(“IDS”). The OVATION 2 Study will include up to 110 patients with Stage III/IV ovarian cancer, with 12 to 15 patients in
the Phase I portion and up to 95 patients in Phase II. The study is powered to show a 33% improvement in the primary endpoint, PFS, when
comparing GEN-1 with neoadjuvant + adjuvant chemotherapy versus neoadjuvant + adjuvant chemotherapy alone. The PFS primary analysis will
be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months, whichever is
later.
In
March 2020, the Company announced encouraging initial clinical data from the first 15 patients enrolled in the Phase I portion of the
OVATION 2 Study for patients newly diagnosed with Stage III and IV ovarian cancer. The OVATION 2 Study combines GEN-1, the Company’s
IL-12 gene-mediated immunotherapy, with standard-of-care neoadjuvant chemotherapy (NACT). Following NACT, patients undergo interval debulking
surgery (IDS), followed by three additional cycles of chemotherapy.
GEN-1
plus standard NACT produced positive dose-dependent efficacy results, with no dose-limiting toxicities, which correlates well with successful
surgical outcomes as summarized below:
|
● |
Of
the 15 patients treated in the Phase I portion of the OVATION 2 Study, nine patients were treated with GEN-1 at a dose of 100 mg/m²
plus NACT and six patients were treated with NACT only. All 15 patients had successful resections of their tumors, with eight out
of nine patients (88%) in the GEN-1 treatment arm having an R0 resection, which indicates a microscopically margin-negative complete
resection in which no gross or microscopic tumor remains in the tumor bed. Only three out of six patients (50%) in the NACT only
treatment arm had a R0 resection. |
|
|
|
|
● |
When
combining these results with the surgical resection rates observed in the Company’s prior Phase Ib dose-escalation trial (the
OVATION 1 Study), a population of patients with inclusion criteria identical to the OVATION 2 Study, the data reflect the strong
dose-dependent efficacy of adding GEN-1 to the current standard of care NACT: |
| |
| |
%
of Patients with R0 Resections | |
0,
36, 47 mg/m² of GEN-1 plus NACT | |
N
= 12 | |
| 42 | % |
61,
79, 100 mg/m² of GEN-1 plus NACT | |
N
= 17 | |
| 82 | % |
|
● |
The
ORR as measured by Response Evaluation Criteria in Solid Tumors (RECIST) criteria for the 0, 36, 47 mg/m² dose GEN-1 patients
were comparable, as expected, to the higher (61, 79, 100 mg/m²) dose GEN-1 patients, with both groups demonstrating an approximate
80% ORR. |
On
March 23, 2020, the Company announced that the European Medicines Agency (the “EMA”) Committee for Orphan Medicinal Products
(“COMP”) has recommended that GEN-1 be designated as an orphan medicinal product for the treatment of ovarian cancer. GEN-1
is an IL-12 DNA plasmid vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent,
local secretion of the IL-12 protein. GEN-1 previously received orphan designation from the FDA.
On
March 26, 2020, the Company announced with Medidata, a Dassault Systèmes company, that examining matched patient data provided
by Medidata in a synthetic control arm (“SCA”) with results from the Company’s completed Phase Ib dose-escalating OVATION
I Study showed positive results in progression-free survival (“PFS”). The hazard ratio (“HR”) was 0.53 in the
ITT group, showing strong signals of efficacy. Celsion believes these data may warrant consideration of strategies to accelerate the
clinical development program for GEN-1 in newly diagnosed, advanced ovarian cancer patients by the FDA.
SCAs
have the potential to revolutionize clinical trials in certain oncology indications and some other diseases where a randomized control
is not ethical or practical. SCAs are formed by carefully selecting control patients from historical clinical trials to match the demographic
and disease characteristics of the patients treated with the new investigational product. SCAs have been shown to mimic the results of
traditional randomized controls so that the treatment effects of an investigational product can be visible by comparison to the SCA.
SCAs can help advance the scientific validity of single arm trials, and in certain indications, reduce time and cost, and expose fewer
patients to placebos or existing standard-of-care treatments that might not be effective for them.
On
July 27, 2020, the Company announced the randomization of the first two patients in the Phase II portion of the OVATION 2 Study with
GEN-1 in advanced ovarian cancer. The Company anticipates completing enrollment of up to 110 patients in the second half of 2022. Because
this is an open-label study, the Company intends to provide clinical updates throughout the course of treatment including response rates
and surgical resection scores.
In
February 2021, the Company announced that it has received Fast Track designation from the FDA for GEN-1, its DNA-mediated IL-12 immunotherapy
currently in Phase II development for the treatment of advanced ovarian cancer and also provided an update on the OVATION 2 Study. The
Company reported that approximately one-third, or 34 patients, of the anticipated 110 patients had been enrolled into the OVATION 2 Study,
of which 20 are in the treatment arm and 14 are in the control. Of the 34 patients enrolled in the trial, 27 patients have had their
interval debulking surgery with the following results:
|
● |
80%
of patients treated with GEN-1 had a R0 resection, which indicates a microscopically margin-negative complete resection in which
no gross or microscopic tumor remains in the tumor bed. |
|
● |
58%
of patients in the control arm had an R0 resection. |
|
● |
This
interim data represents a 38% improvement in R0 resection rates for GEN-1 patients compared with control arm patients and is consistent
with the reported improvement in resection scores noted in the encouraging Phase I OVATION I Study, the manuscript of which has been
submitted for peer review publication. |
In
February 2022, the Company announced that following a pre-planned interim safety review of 81 as treated patients randomized in the OVATION
2 Study, the Data Safety Monitoring Board (DSMB) unanimously recommended that the OVATION 2 Study continue treating patients with the
dose of 100 mg/m2. The DSMB also determined that safety is satisfactory with an acceptable risk/benefit, and that patients
tolerate GEN-1 during a course of treatment that lasts up to six months. No dose-limiting toxicities were reported.
The
Company also announced that over 75% of the projected 110 patients have been enrolled in the OVATION 2 Study. Interim clinical data from
the first 39 patients who have undergone interval debulking surgery showed that the GEN-1 treatment arm is showing a 27% improvement
in R0 surgical resection rate over the control arm.
PLACCINE
DNA VACCINE TECHNOLOGY PLATFORM
In
January 2021, the Company announced the filing of a provisional U.S. patent application for a novel DNA-based, investigational vaccine
for preventing or treating infections from a broad range of infectious agents including the coronavirus disease using its PLACCINE DNA
vaccine technology platform (“PLACCINE”). The provisional patent covers a family of novel composition of multi-cistronic
vectors and polymeric nanoparticles that comprise the PLACCINE DNA vaccine platform technology for preventing or treating infectious
agents that have the potential for global pandemics, including the SARS-CoV-2 virus and its variations, using the Company’s platform
technology.
Celsion’s
PLACCINE DNA vaccine technology platform is characterized by a single multi-cistronic DNA plasmid vector expressing multiple pathogen
antigens along with a potent immune modifier and delivered with a synthetic delivery system. It is easily adaptable to creating vaccines
for a multitude of pathogens, including emerging pathogens leading to pandemics as well as infectious diseases that have yet to be effectively
addressed with current vaccine technologies. This flexible vaccine platform is well supported by an already established supply chain
to produce any plasmid vector and its assembly into a respective vaccine formulation.
PLACCINE
is an extension of the Company’s synthetic, non-viral TheraPlas delivery technology currently in a Phase II trial for the treatment
of late-stage ovarian cancer with GEN-1. Celsion’s proprietary multifunctional DNA vaccine technology concept is built on the flexible
PLACCINE technology platform that is amenable to rapidly responding to the SARS-CoV-2 virus, as well as possible future mutations of
SARS-CoV-2, other future pandemics, emerging bioterrorism threats, and novel infectious diseases. Celsion’s extensive experience
with TheraPlas suggests that the PLACCINE-based nanoparticles are stable at storage temperatures of 4oC to 25oC,
making vaccines developed on this platform easily suitable for broad world-wide distribution.
Celsion’s
vaccine approach is designed to optimize the quality of the immune response dictating the efficiency of pathogen clearance and patient
recovery. Celsion has taken a multivalent approach in an effort to generate an even more robust immune response that not only results
in a strong neutralizing antibody response, but also a more robust and durable T-cell response. Delivered with Celsion’s synthetic
polymeric system, the proprietary DNA plasmid is protected from degradation and its cellular uptake is facilitated.
COVID-19
Vaccine Overview
Emerging
data from the recent literature indicates that the quality of the immune response as opposed to its absolute magnitude is what dictates
SARS-CoV-2 viral clearance and recovery and that an ineffective or non-neutralizing enhanced antibody response might actually exacerbate
disease. The first-generation COVID-19 vaccines were developed for rapid production and deployment and were not optimized for generating
cellular responses that result in effective viral clearance. Though early data has indicated some of these vaccines to be over 95% effective,
these first-generation vaccines were primarily designed to generate a strong antibody response and, while they have been shown to provide
prophylactic protection against disease, the durability of this protection is currently unclear. Most of these vaccines have been specifically
developed to target the SARS-CoV-2 Spike (S) protein (antigen), though it is known that restricting a vaccine to a sole viral antigen
creates selection pressure that can serve to facilitate the emergence of viral resistance. Indeed, even prior to full vaccine rollout,
it has been observed that the S protein is a locus for rapid evolutionary and functional change as evidenced by the D614G, Y453F, 501Y.V2,
and VUI-202012/01 mutations/deletions. This propensity for mutation of the S protein leads to future risk of efficacy reduction over
time as these mutations accumulate.
Our
Next Generation Vaccine Initiative
Celsion’s
vaccine candidate comprises a single plasmid vector containing the DNA sequence encoding multiple SARS-CoV-2 antigens. Delivery will
be evaluated intramuscularly, intradermally, or subcutaneously with a non-viral synthetic DNA delivery carrier that facilitates vector
delivery into the cells of the injected tissue and has potential immune adjuvant properties. Unique designs and formulations of Celsion
vaccine candidates may offer several potential key advantages. The synthetic polymeric DNA carrier is an important component of the vaccine
composition as it has the potential to facilitate the vaccine immunogenicity by improving vector delivery and, due to potential adjuvant
properties, attract professional immune cells to the site of vaccine delivery.
Future
vaccine technology will need to address viral mutations and the challenges of efficient manufacturing, distribution, and storage. We
believe an adaptation of our TheraPlas technology, PLACCINE, has the potential to meet these challenges. Our approach is described in
our provisional patent filing and is summarized as a DNA vaccine technology platform characterized by a single plasmid DNA with multiple
coding regions. The plasmid vector is designed to express multiple pathogen antigens. It is delivered via a synthetic delivery system
and has the potential to be easily modified to create vaccines against a multitude of infectious diseases, addressing:
|
● |
Viral
Mutations: PLACCINE may offer broad-spectrum and mutational resistance (variants) by targeting multiple antigens on a single
plasmid vector. |
|
|
|
|
● |
Durable
Efficacy: PLACCINE delivers a DNA plasmid-based antigen that can result in durable antigen exposure and a robust vaccine response
to viral antigens. |
|
|
|
|
● |
Storage
& Distribution: PLACCINE allows for stability that is compatible with manageable vaccine storage and distribution. |
|
|
|
|
● |
Simple
Dosing & Administration: PLACCINE is a synthetic delivery system that should require a simple injection that does not require
viruses or special equipment to deliver its payload. |
We
are conducting preliminary research associated with our recently announced proprietary DNA vaccine platform provisional patent filing.
At the same time, we are redoubling our efforts and R&D resources in our immuno-oncology and next generation vaccine program.
On
September 2, 2021, the Company announced results from preclinical in vivo studies
showing production of antibodies and cytotoxic T-cell response specific to the spike antigen of SARS-CoV-2 when immunizing BALB/c mice
with the Company’s next-generation PLACCINE DNA vaccine platform. Moreover, the antibodies to SARS-CoV-2 spike antigen prevented
the infection of cultured cells in a viral neutralization assay. The production of antibodies predicts the ability of PLACCINE to protect
against SARS-CoV-2 exposure, and the elicitation of cytotoxic T-cell response shows the vaccine’s potential to eradicate cells
infected with SARS-CoV-2. These findings demonstrate the potential immunogenicity of Celsion’s PLACCINE DNA vaccine, which is intended
to provide broad-spectrum protection and resistance against variants by incorporating multiple viral antigens, to improve vaccine stability
at storage temperatures of 4o C and above, and to facilitate cheaper and easier
manufacturing.
On
January 31, 2022, the Company announced it had engaged BIOQUAL, Inc., a preclinical testing contract research organization, to conduct
a non-human primate (NHP) challenge study with Celsion’s DNA-based approach for a SARS-CoV-2 vaccine. The NHP pilot study follows
the generation of encouraging mouse data and will evaluate the Company’s lead vaccine formulations for safety, immunogenicity and
protection against SARS-CoV-2. In completed preclinical studies, Celsion demonstrated safe and efficient immune responses including IgG
response, neutralizing antibodies and T-cell responses that parallel the activity of commercial vaccines following intramuscular (IM)
administration of novel vaccine compositions expressing a single viral antigen. In addition, vector development has shown promise of
neutralizing activity against a range of SARS-CoV-2 variants. Celsion’s novel DNA-based vaccines have been based on a simple intramuscular
injection that does not require viral encapsulation or special equipment for administration.
THERMODOX®
- DIRECTED CHEMOTHERAPY
Liposomes
are manufactured submicroscopic vesicles consisting of a discrete aqueous central compartment surrounded by a membrane bilayer composed
of naturally occurring lipids. Conventional liposomes have been designed and manufactured to carry drugs and increase residence time,
thus allowing the drugs to remain in the bloodstream for extended periods of time before they are removed from the body. However, the
current existing liposomal formulations of cancer drugs and liposomal cancer drugs under development do not provide for the immediate
release of the drug and the direct targeting of organ specific tumors, two important characteristics that are required for improving
the efficacy of cancer drugs such as doxorubicin. A team of research scientists at Duke University developed a heat-sensitive liposome
that rapidly changes its structure when heated to a threshold minimum temperature of 39.5º to 42º Celsius. Heating creates
channels in the liposome bilayer that allow an encapsulated drug to rapidly disperse into the surrounding tissue. This novel, heat-activated
liposomal technology is differentiated from other liposomes through its unique low heat-activated release of encapsulated chemotherapeutic
agents. We are able to use several available focused-heat technologies, such as radiofrequency ablation (“RFA”), microwave
energy and high intensity focused ultrasound (“HIFU”), to activate the release of drugs from our novel heat sensitive liposomes.
Investigator
sponsored THERMODOX® for the Treatment of Various Cancers
Celsion’s
Approach
While
RFA uses extremely high temperatures (greater than 90° Celsius) to ablate the tumor, it may fail to treat micro-metastases in the
outer margins of the ablation zone because temperatures in the periphery may not be high enough to destroy cancer cells. Our ThermoDox®
treatment approach is designed to utilize the ability of RFA devices to ablate the center of the tumor while simultaneously thermally
activating our ThermoDox® liposome to release its encapsulated doxorubicin to kill any remaining viable cancer cells throughout the
heated region, including the ablation margins. This novel treatment approach is intended to deliver the drug directly to those cancer
cells that survive RFA. This approach is designed to increase the delivery of the doxorubicin at the desired tumor site while potentially
reducing drug exposure distant to the tumor site.
OPTIMA
Study
The
OPTIMA Study represents an evaluation of ThermoDox® in combination with a first line therapy, RFA, for newly diagnosed,
intermediate stage HCC patients. The OPTIMA Study was designed to enroll up to 550 patients globally at approximately 65 clinical sites
in the U.S., Canada, European Union (EU), China and other countries in the Asia-Pacific region and will evaluate ThermoDox®
in combination with standardized RFA, which will require a minimum of 45 minutes across all investigators and clinical sites for
treating lesions three to seven centimeters, versus standardized RFA alone. The primary endpoint for the OPTIMA Study is OS, and the
secondary endpoints are progression free survival and safety. The statistical plan calls for two interim efficacy analyses by an independent
Data Monitoring Committee (“DMC”).
On
February 24, 2014, we announced that the FDA provided clearance for the OPTIMA Study, which is a pivotal, double-blind, placebo-controlled
Phase III trial of ThermoDox®, in combination with standardized RFA, for the treatment of primary liver cancer. The trial
design of the OPTIMA Study is based on the comprehensive analysis of data from an earlier Phase III clinical trial called the HEAT Study
(the “HEAT Study”). The OPTIMA Study is supported by a hypothesis developed from an OS analysis of a large subgroup of patients
from the HEAT Study.
Post-hoc
data analysis from our earlier Phase III HEAT Study suggests that ThermoDox® may substantially improve OS, when compared
to the control group, in patients if their lesions undergo a 45-minute RFA procedure standardized for a lesion greater than 3 cm in diameter.
Data from nine OS sweeps have been conducted since the top line progression free survival PFS data from the HEAT Study were announced
in January 2013, with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical
significance. On August 15, 2016, we announced updated results from its final retrospective OS analysis of the data from the HEAT Study.
These results demonstrated that in a large, well bounded, subgroup of patients with a single lesion (n=285, 41% of the HEAT Study patients),
treatment with a combination of ThermoDox® and optimized RFA provided an average 54% risk improvement in OS compared to
optimized RFA alone. The HR at this analysis is 0.65 (95% CI 0.45 - 0.94) with a p-value of 0.02. Median OS for the ThermoDox®
group has been reached which translates into a two-year survival benefit over the optimized RFA group (projected to be greater
than 80 months for the ThermoDox® plus optimized RFA group compared to less than 60 months projection for the optimized
RFA only group). This information should be viewed with caution since it is based on a retrospective analysis of a subgroup.
In
August 2018, the Company announced that the OPTIMA Study was fully enrolled. On August 5, 2019, the Company announced that the prescribed
number of OS events had been reached for the first prespecified interim analysis of the OPTIMA Phase III Study. Following preparation
of the data, the first interim analysis was conducted by the DMC. The DMC’s pre-planned interim efficacy review followed 128 patient
events, or deaths, which occurred in August 2019. On November 4, 2019, the Company announced that the DMC unanimously recommended the
OPTIMA Study continue according to protocol. The recommendation was based on a review of blinded safety and data integrity from 556 patients
enrolled in the OPTIMA Study. Data presented demonstrated that PFS and OS data appeared to be tracking with patient data observed at
a similar point in the Company’s subgroup of patients followed prospectively in the earlier Phase III HEAT Study, upon which the
OPTIMA Study was based.
On
April 15, 2020, the Company announced that the prescribed minimum number of events of 158 patient deaths had been reached for the second
pre-specified interim analysis of the OPTIMA Phase III Study. The hazard ratio for success at 158 deaths is 0.70, which represents a
30% reduction in the risk of death compared with RFA alone. On July 13, 2020, the Company announced that it has received a recommendation
from the DMC to consider stopping the global OPTIMA Study. The recommendation was made following the second pre-planned interim safety
and efficacy analysis by the DMC on July 9, 2020. The DMC analysis found that the pre-specified boundary for stopping the trial for futility
of 0.900 was crossed with an actual value of 0.903. However, the 2-sided p-value of 0.524 for this analysis provides uncertainty, subsequently,
the DMC has left the final decision of whether or not to stop the OPTIMA Study to Celsion. There were no safety concerns noted during
the interim analysis. The Company followed the advice of the DMC and considered its options either to stop the study or continue to follow
patients after a thorough review of the data, and an evaluation of our probability of success. Timing for this decision is made less
urgent by the fact that the OPTIMA Study has been fully enrolled since August 2018 and that the vast majority of the trial expenses have
already been incurred.
On
August 4, 2020, the Company issued a press release announcing it would continue following patients for OS, noting that the unexpected
and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis on July 9, 2020, may
be associated with a data maturity issue. On October 12, 2020, the Company provided an update on the ongoing data analysis from its Phase
III OPTIMA Study with ThermoDox® as well as growing interest among clinical investigators in conducting studies with ThermoDox®
as a monotherapy or in combination with other therapies.
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Celsion
engaged a global biometrics contract research organization, with forensic statistical analysis capability that specializes in data
management, statistical consulting, statistical analysis and data sciences, with particular expertise in evaluating unusual data
from clinical trials and experience with associated regulatory issues. The primary objective of the CRO’s work was to determine
the basis and reasoning behind continuing to follow patients for survival, and if there were outside influences that may have impacted
the forecast of futility. |
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In
parallel, the Company submitted all OPTIMA Study clinical trial data to the National Institutes of Health (NIH) with the expectation
of receiving a report on the following: |
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A
Cox Regression Analysis for single solitary lesions including minimum burn time per tumor volume, evaluating similarities to the
hypothesis generated from the NIH paper published in the Journal of Vascular and Interventional Radiology, in which the key
finding was that increased RFA heating time per tumor volume significantly improved OS in patients with single lesion HCC who were
treated with RFA plus ThermoDox®, compared with patients treated with RFA alone. |
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A
site-by-site evaluation for RFA heating time-based anomalies that may have contributed to the treatment arm performance. |
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An
image-based evaluation comparing results from the OPTIMA Study to the data from the HEAT Study that led to the RFA heating time hypothesis. |
On
February 11, 2021, the Company provided a final update on the Phase III OPTIMA Study and the decision to stop following patients in the
Study. Independent analyses conducted by a global biometrics contract research organization and the NIH, did not find any evidence of
significance or factors that would justify continuing to follow patients for OS. Therefore, the Company notified all clinical sites to
discontinue following patients. The OPTIMA Study database of 556 patients is now be frozen at 185 patient deaths. While the analyses
did identify certain patient subgroups that appear to have had a clinical benefit, the Company concluded that it would not be in its
best interest to pursue these retrospective findings as the regulatory hurdles supporting further discussion will be significant.
Investigator-Sponsored
Studies with ThermoDox®
Celsion
continues working closely and supporting investigations by others throughout the world in breast cancer, pancreatic cancer and in solid
tumors in children. Following inquiries from the NIH, we renewed our Cooperative Research and Development Agreement (CRADA) with the
Institute at a nominal cost, one goal of which is to pursue their interest in a study of ThermoDox® to treat patients
with bladder cancer. Importantly, Celsion is developing a business model to support these investigator-sponsored studies in a manner
that will not interfere with the Company’s focus on our GEN-1 program and vaccine development initiative.
Below
are summaries of several investigator-sponsored studies using ThermoDox®:
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Oxford
University commenced enrolling patients in a Phase I pancreatic cancer study with ThermoDox® in combination with High Intensity
Focused Ultrasound (HIFU) in July of 2021. The primary objective of this trial, the PanDox Study: Targeted Doxorubicin in Pancreatic
Tumors, is to quantify the enhancement in intratumoral doxorubicin concentration when delivered with ThermoDox® and HIFU, versus
doxorubicin monotherapy. This study is being undertaken pursuant to promising data in a mouse model of pancreatic cancer, which was
published in the International Journal of Hyperthermia in 2018. That preclinical study showed a 23x increase in intratumoral doxorubicin
concentration with ThermoDox® + HIFU, compared with a 2x increase in intratumoral doxorubicin concentration with free doxorubicin
plus HIFU. |
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Utrecht
University in the Netherlands continues to enroll patients in a Phase I breast cancer study to determine the safety, tolerability
and feasibility of ThermoDox® in combination with Magnetic Resonance Guided High Intensity Focused Ultrasound (MR-HIFU)
hyperthermia and cyclophosphamide therapy for the local treatment of the primary tumor in metastatic breast cancer (mBC). This investigator-sponsored
study, which is being funded by the Dutch Cancer Society, the Center for Translational Molecular Medicine (a public-private partnership
in the Netherlands), will be conducted at University Medical Center Utrecht and will enroll up to 12 newly diagnosed mBC patients.
Celsion will supply Thermodox® clinical product for the trial. |
Because
of the risks and uncertainties discussed in this Annual Report, among others, we are unable to estimate the duration and completion costs
of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization
and sale of a product. Our inability to complete any of our research and development activities, preclinical studies or clinical trials
in a timely manner or our failure to enter into collaborative agreements when appropriate could significantly increase our capital requirements
and could adversely impact our liquidity. While our estimated future capital requirements are uncertain and could increase or decrease
as a result of many factors, including the extent to which we choose to advance our research, development activities, preclinical studies
and clinical trials, or if we are in a position to pursue manufacturing or commercialization activities, we will need significant additional
capital to develop our product candidates through development and clinical trials, obtain regulatory approvals and manufacture and commercialize
approved products, if any. We do not know whether we will be able to access additional capital when needed or on terms favorable to us
or our stockholders. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the
future success of our business.
Business
Plan
Since
inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research
and development programs, clinical trials conducted in connection with the Company’s product candidates, and applications and submissions
to the U.S. Food and Drug Administration. The Company has not generated significant revenue and has incurred significant net losses in
each year since our inception. As of December 31, 2021, the Company has incurred approximately $333 million of cumulative net losses
and had approximately $56.9 million in cash and cash equivalents, short-term investments, interest receivable, net proceeds on the sale
of net operating losses and restricted cash. We have substantial future capital requirements to continue our research and development
activities and advance our product candidates through various development stages. The Company believes these expenditures are essential
for the commercialization of its technologies.
The
Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts, and when
it undertakes marketing and sales activities. The Company’s ability to achieve profitability is dependent upon its ability to obtain
governmental approvals, manufacture, and market and sell its new product candidates. There can be no assurance that the Company will
be able to commercialize its technology successfully or that profitability will ever be achieved. The operating results of the Company
have fluctuated significantly in the past.
In
January 2020, the WHO declared an outbreak of coronavirus, COVID-19, to be a “Public Health Emergency of International Concern,”
and the U.S. Department of Health and Human Services declared a public health emergency to aid the U.S. healthcare community in responding
to COVID-19. This virus has spread to over 200 countries, including the U.S. Governments and businesses around the world took unprecedented
actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions
on travel, as well as restrictions that prohibited many employees from going to work. Uncertainty with respect to the economic impacts
of the pandemic introduced significant volatility in the financial markets. The Company did not observe significant impacts on its business
or results of operations during 2021 or 2020 due to the global emergence of COVID-19. While the extent to which COVID-19 impacts the
Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material
impact to the Company’s future financial condition, results of operations and cash flows.
The
Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic and
the Russian invasion of Ukraine. These disruptions may also disrupt the clinical trials process and enrollment of patients. This may
delay commercialization efforts. The Company continues to monitor its operating activities in light of these events, and it is reasonably
possible that the virus could have a negative effect on the Company’s financial condition and results of operations. The specific
impact, if any, is not readily determinable as of the date of the Financial Statements.
The
actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’s control.
These factors include the following:
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the
progress of research activities; |
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the
number and scope of research programs; |
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the
progress of preclinical and clinical development activities; |
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the
progress of the development efforts of parties with whom the Company has entered into research and development agreements; |
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the
costs associated with additional clinical trials of product candidates; |
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the
ability to maintain current research and development licensing arrangements and to establish new research and development and licensing
arrangements; |
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the
ability to achieve milestones under licensing arrangements; |
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the
costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and |
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the
costs and timing of regulatory approvals. |
On
July 13, 2020, the Company announced that it has received a recommendation from the independent DMC to consider stopping the global Phase
III OPTIMA Study of ThermoDox® in combination with RFA for the treatment of HCC, or primary liver cancer. The recommendation
was made following the second pre-planned interim safety and efficacy analysis by the DMC on July 9, 2020. The DMC’s analysis found
that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. The Company followed
the advice of the DMC and considered its options to either stop the study or continue to follow patients after a thorough review of the
data, and an evaluation of the probability of success. On February 11, 2021, the Company issued a letter to shareholders stating that
the Company was notifying all clinical sites to discontinue following patients in the OPTIMA Study.
Since
2018, the Company has annually submitted applications to sell a portion of the Company’s State of New Jersey net operating losses
(“New Jersey NOLs”) as part of the Technology Business Tax Certificate Program (the “NOL Program”) sponsored
by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies with unused New Jersey NOLs
and unused research and development credits are allowed to sell these benefits to other New Jersey-based companies. In 2018 and 2019,
the Company sold cumulative New Jersey NOLs from 2011 to 2018 totaling $13 million and received net proceeds of $12.2 million.
As part of the NOL Program, the Company sold $1.5 million and $2.0 million of its New Jersey NOLs in 2021 and 2020, respectively. The
sale of these net operating losses resulted in net proceeds to the Company of approximately $1.4 million in 2021 and $1.9 million in
2020. During 2021, the New Jersey State Legislature increased the maximum lifetime benefit per company from $15 million to $20 million,
which will allow the Company to participate in this funding program in future years for up to an additional $3.4 million in New Jersey
NOLs under this maximum lifetime benefit.
Financing
Overview
Equity,
Debt and Other Forms of Financing
Since
2018, the Company has annually submitted applications to sell a portion of the Company’s State of New Jersey net operating losses
as part of the NOL Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies
with unused New Jersey NOLs and unused research and development credits are allowed to sell these benefits to other New Jersey-based
companies. In 2018 and 2019, the Company sold cumulative New Jersey NOLs from 2011 to 2018 totaling $13 million and received net
proceeds of $12.2 million. As part of the NOL Program, the Company sold $1.5 million and $2.0 million of its New Jersey NOLs in 2021
and 2020, respectively. The sale of these net operating losses resulted in net proceeds to the Company of approximately $1.4 million
in 2021 and $1.9 million in 2020. During 2021, the New Jersey State Legislature increased the maximum lifetime benefit per company from
$15 million to $20 million, which will allow the Company to participate in this funding program in future years for up to an additional
$3.4 million in New Jersey NOLs under this maximum lifetime benefit.
As
more fully discussed in Note 10 to the Financial Statements, during 2021, the Company raised approximately $6.9 million in gross proceeds
from the use of its JonesTrading Capital on DemandTM financing facility, $35 million from a registered direct financing completed
in January 2021, $15 million from a registered direct financing completed on April 5, 2021, and $1.5 million from warrant exercises.
With $56.9 million in cash and cash equivalents, short-term investments, interest receivable, net proceeds on the sale of New Jersey
NOLs and restricted cash, the Company believes it has sufficient capital resources to fund its operations through the end of 2024.
The
Company entered into a Credit Agreement with Horizon Technology Finance Corporation (“Horizon”) that provided $10 million
in capital (the “Horizon Credit Agreement”) in June 2018. The obligations under the Horizon Credit Agreement are secured
by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. Payments under
the loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first 24 months through July 2020, followed
by a 21-month amortization period of principal and interest starting on August 1, 2020 and ending through the scheduled maturity date
on April 1, 2023. On August 28, 2020, in connection with an Amendment to the Horizon Credit Agreement, Celsion repaid $5 million of the
$10 million loan and $0.2 million in related end of term charges, and the remaining $5 million in obligations were restructured.
As
more fully discussed in Note 8 to the Financial Statements, in June 2021, the Company entered into a $10 million loan facility with
Silicon Valley Bank. The Company immediately used $6 million from this facility to retire all outstanding indebtedness with Horizon Technology
Finance Corporation. The remaining $4 million under the SVB Loan Facility will be available to be drawn down up to 12 months after closing. The funding is in the form
of money market secured indebtedness bearing interest at a calculated WSJ Prime-based variable rate (currently 3.25%). Payments under
the loan agreement are interest only for the first 24 months after loan closing, followed by a 24-month amortization period of principal
and interest through the scheduled maturity date.
In
September 2018, the Company filed with the SEC a $75 million shelf registration statement on Form S-3 (the “2018 Shelf Registration
Statement”) that allowed the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock
or preferred stock. This shelf registration was declared effective on October 12, 2018 and was fully utilized by the end of January 2021.
On
March 19, 2021, the Company filed with the SEC a new $100 million shelf registration statement on Form S-3 (the “2021 Registration
Statement”) that allows the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock
or preferred stock. This shelf registration was declared effective on March 30, 2021.
During
2020 and 2021 we issued a total of 4.2 million shares of common stock as discussed below for an aggregate $83.2 million in gross
proceeds.
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On
December 4, 2018, the Company entered into the Capital on Demand Agreement with JonesTrading, pursuant to which the Company may offer
and sell, from time to time, through JonesTrading shares of Common Stock having an aggregate offering price of up to $16.0 million.
During 2020, the Company sold and issued an aggregate of 0.3 million shares under the Capital on Demand Agreement, receiving approximately
$6.2 million in gross proceeds. During 2021, the Company sold 0.5 million shares under the Capital on Demand Agreement, receiving
approximately $6.9 million in gross proceeds under the Capital on Demand Agreement. |
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On
February 27, 2020, we entered into a Securities Purchase Agreement (the “February 2020 Purchase Agreement”) with several
institutional investors, pursuant to which we agreed to issue and sell, in a registered direct offering (the “February 2020
Offering”), an aggregate of 304,761 shares (the “Shares”) of our common stock at an offering price of $15.75 per
Share for gross proceeds of approximately $4.8 million before the deduction of the Placement Agent fees and offering expenses. The
February 2020 Purchase Agreement contained customary representations, warranties and agreements by the Company and customary conditions
to closing. In a concurrent private placement, the Company issued to the investors that participated in the February 2020 Offering,
for no additional consideration, warrants, to purchase up to 198,095 shares of Common Stock (the “Original Warrants”).
The Original Warrants were initially exercisable six months following their date of issue and were set to expire on the five-year
anniversary of such initial exercise date. The Original Warrants had an exercise price of $17.25 per share subject to adjustment
as provided therein. On March 12, 2020, the Company entered into private exchange agreements (the “Exchange Agreements”)
with holders of the Original Warrants. Pursuant to the Exchange Agreements, in return for a higher exercise price of $18.60 per share
of Common Stock, the Company issued new warrants to the investors to purchase up to 213,333 shares of Common Stock (the “Exchange
Warrants”) in exchange for the Original Warrants. The Exchange Warrants, like the Original Warrants, are initially exercisable
six months following their issuance (the “Initial Exercise Date”) and expire on the five-year anniversary of their Initial
Exercise Date. Other than having a higher exercise price, different issue date, Initial Exercise Date and expiration date, the terms
of the Exchange Warrants are identical to those of the Original Warrants. On July 31, 2020, the Company filed a Form S-3 Registration
Statement to register the shares of Common Stock issuable under the Exchange Warrants; the Registration Statement was declared effective
by the SEC on August 13, 2020. No Exchange Warrants were exercised during 2020. During 2021, the Company has issued 81,111 shares
pursuant to investors exercising Exchange Warrants, receiving approximately $1.5 million. |
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On
June 22, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer &
Co. Inc. (the “Underwriter”), relating to the issuance and sale (the “Underwritten Offering”) of 177,777
shares of the Company’s common stock. Pursuant to the terms of the Underwriting Agreement, the Underwriter agreed to purchase
the shares at a price of $52.3125 per share. The Underwriter offered the shares at a public offering price of $56.25 per share, reflecting
an underwriting discount equal to $3.9375, or 7.0% of the public offering price. The net proceeds to the Company from the Underwritten
Offering, after deducting the underwriting discount and estimated offering expenses payable by the Company, were approximately $9.1
million. |
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On
September 8, 2020, the Company entered into a purchase agreement (the “LPC Purchase Agreement”) and a Registration Rights
Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant
to which, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to sell to Lincoln
Park up to $26.0 million of shares of the Company’s common stock at the Company’s discretion as described below. During
2020, the Company sold and issued an aggregate of 218,854 shares, including 29,188 commitment shares provided to Lincoln Park, under
the LPC Purchase Agreement, receiving approximately $2.2 million in gross proceeds. On January 21, 2021, the Company terminated the
LPC Purchase Agreement. The Company did not sell any shares under the LPC Purchase Agreement in 2021. |
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On
January 22, 2021, the Company entered into a Securities Purchase Agreement (the “January 2021 Purchase Agreement”) with
several institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “January
2021 Offering”), an aggregate of 1,728,395 shares of the Company’s common stock at an offering price of $20.25 per share
for gross proceeds of approximately $35 million before the deduction of the January 2021 Placement Agents (as defined below) fee
and offering expenses. The January 2021 Purchase Agreement contains customary representations, warranties and agreements by the Company
and customary conditions to closing. The closing of the January 2021 Offering occurred on January 26, 2021. In connection with the
January 2021 Offering, the Company entered into a placement agent agreement with A.G.P./Alliance Global Partners (“AGP”
and together with Brookline Capital Markets, the “January 2021 Placement Agents”) pursuant to which the Company agreed
to pay the January 2021 Placement Agents a cash fee equal to 7% of the aggregate gross proceeds raised from the sale of the securities
sold in the January 2021 Offering and reimburse the January 2021 Placement Agents for certain of their expenses in an amount not
to exceed $82,500. |
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On
March 31, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 Purchase Agreement”) with several
institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “March
2021 Offering”), an aggregate of 769,230 shares of the Company’s common stock, at an offering price of $19.50 per share
for gross proceeds of approximately $15 million before the deduction of the placement agents fee and offering expenses. The shares
were offered by the Company pursuant to the 2021 Registration Statement. The closing of the offering occurred on April 5, 2021.
In
connection with the March 2021 Offering, the Company entered into a placement agent agreement with AGP, as lead placement agent (together
with JonesTrading Institutional Services LLC and Brookline Capital Markets, a division of Arcadia Securities, LLC, serving as co-placement
agents, the “March 2021 Placement Agents”), pursuant to which the Company agreed to pay the March 2021 Placement Agents
an aggregate cash fee equal to 7% of the aggregate gross proceeds raised from the sale of the securities sold in the offering and
reimburse the Placement Agents for certain of their expenses in an amount not to exceed $82,500. |
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In 2019, Company, entered into the 2019 Aspire Purchase Agreement with Aspire
Capital. Pursuant to the 2019 Aspire Purchase Agreement, Aspire Capital was committed to purchase up to an aggregate of $10.0 million
of shares of the Company’s common stock over the 24-month term of the 2019 Aspire Purchase Agreement. On March 5, 2020, the
Company delivered notice to Aspire Capital terminating the 2019 Aspire Purchase Agreement effective as of March 6, 2020. During the
first quarter of 2020, the Company sold 66,666 million shares of common stock under the 2019 Aspire Purchase Agreement and received
$1.6 million in gross proceeds. |
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On
January 10, 2022, the Company entered into the Preferred Stock Purchase Agreement with several
institutional investors, pursuant to which the Company agreed to issue and sell, in the Preferred
Offerings, (i) 50,000 shares of Series A Preferred Stock, and (ii) 50,000 shares of Series
B Preferred Stock, in each case at an offering price of $285 per share, representing a 5%
original issue discount to the stated value of $300 per share, for gross proceeds of each
Preferred Offering of $14.25 million, or approximately $28.50 million in the aggregate for
the Preferred Offerings, before the deduction of the Placement Agent’s (as defined
below) fee and offering expenses. The shares of Series A Preferred Stock have a stated value
of $300 per share and are convertible, at a conversion price of $13.65 per share,
into 1,098,901 shares of common stock (subject in certain circumstances to adjustments).
The shares of Series B Preferred Stock have a stated value of $300 per share and are convertible,
at a conversion price of $15.00 per share, into 1,000,000 shares of common stock (subject
in certain circumstances to adjustments). The closing of the Preferred Offerings occurred
on January 13, 2022.
The
Company held a special meeting of stockholders to consider an amendment (the “Amendment”) to the Company’s Certificate
of Incorporation, as amended (the “Charter”), to effect a reverse stock split of the outstanding shares of common stock
(“Common Stock”) by a ratio to be determined by the Board of Directors of the Company (the “Reverse Stock Split”),
ranging from 7-to-1 to, 10-to-1, 12-to-1 or 15-to-1. The investors have agreed in the Purchase Agreement to not transfer, offer,
sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock until the Reverse Stock Split,
to vote the shares of the Series A Preferred Stock purchased in the Preferred Offerings in favor of such Amendment and to vote the
shares of the Series B Preferred Stock purchased in the Preferred Offerings in a manner that “mirrors” the proportions
on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series A Preferred Stock are voted
on the Reverse Stock Split and the Amendment.
The
holder of Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on
shares of Common Stock. The Preferred Stock is convertible into shares of Common Stock at a rate of $13.95 per share for the
Series A Preferred Stock and $15.00 per share for the Series B Preferred Stock. The conversion price can be adjusted pursuant
to the Certificate of Designation. The Preferred Stock can be converted at the option of the holder at any time after the Company
has received stockholder approval for the Reverse Stock Split and filed the requisite Amendment with the Delaware Secretary of State’s
office to effectuate the Reverse Stock Split (the “Reverse Stock Split Date”), subject to beneficial ownership limitations
set forth in the applicable Certificate of Designation. In addition, on or after the Reverse Stock Split Date, and subject to the
satisfaction of certain conditions, the Company can cause the holder of the Preferred Stock to convert their shares of Preferred
Stock, subject to such beneficial ownership limitations.
Each
holder of the Preferred Stock has the right to cause the Company to redeem all or part of their shares of the Preferred Stock from
the earlier of receipt of stockholder approval of the reverse stock split or of 90 days following the original issue date until 120
days following the original issue date, the “Redemption Date,” in cash at a redemption price equal to 105% of the stated
value plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding
interest on such dividends) up to, but excluding, the Redemption Date.
In
connection with the Preferred Offerings, the Company entered into a placement agent agreement (the “Placement Agent Agreement”)
with AGP, as placement agent pursuant to which the Company agreed to pay AGP an aggregate cash fee equal to $1,000,000 and reimburse
AGP for certain of their expenses in an amount not to exceed $110,000.
On
March 3, 2022, the Company redeemed for cash at a price equal to 105% of the $300 stated value per share all of its 50,000 outstanding
shares of Series A Preferred Stock and its 50,000 outstanding Series B Preferred Stock. As
a result, all shares of the Preferred Stock have been retired and are no longer outstanding and Celsion’s only class of outstanding
stock is its common stock. Each share of common stock entitles the holder to one vote. |
Please
refer to Note 2 to our Financial Statements. Also refer to Part I, Item 1A, Risk Factors, in this Annual Report, including,
but not limited to, “We will need to raise substantial additional capital to fund our planned future operations, and we may
be unable to secure such capital without dilutive financing transactions. If we are not able to raise additional capital, we may not
be able to complete the development, testing and commercialization of our product candidates.”
Critical
Accounting Policies and Estimates
Our
financial statements, which appear at Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report have
been prepared in accordance with accounting principles generally accepted in the U.S., which require that we make certain assumptions
and estimates and, in connection therewith, adopt certain accounting policies. Our significant accounting policies are set forth in Note
1 to our Financial Statements. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment
and may be more critical to an accurate reflection of our financial condition and results of operations.
In-Process
Research and Development, Other Intangible Assets and Goodwill
During
2014, the Company acquired certain assets of EGEN, Inc. As more fully described in Note 5 to our Financial Statements, the acquisition
was accounted for under the acquisition method of accounting which required the Company to perform an allocation of the purchase price
to the assets acquired and liabilities assumed. Under the acquisition method of accounting, the total purchase price is allocated to
net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date.
Lease
Accounting
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” - Topic 842 (ASC Topic
842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement
of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. This update also requires improved disclosures to help users of financial statements better understand
the amount, timing and uncertainty of cash flows arising from leases. The update became effective for fiscal years beginning after December
15, 2018, including interim reporting periods within that reporting period. The FASB subsequently issued the following amendments to
ASC Topic 842, which have the same effective date and transition date of January 1, 2019:
|
● |
ASU
No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in
ASU No. 2016-02; and |
|
|
|
|
● |
ASU
No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU No.
2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period
of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease
component. |
We
adopted Accounting Standards Codification (“ASC”) Topic 842 effective January 1, 2019 and elected to apply the available
practical expedients and implement internal controls to enable the preparation of financial information on adoption. We have identified
all of our leases which consist of the New Jersey corporate office lease and the Alabama lab facility lease and we estimate the adoption
of this standard will result in the recognition of right-of-use assets of approximately $1.4 million, related operating lease liabilities
of $1.5 million and reduced other liabilities by approximately $0.1 million on the consolidated balance sheets as of January 1, 2019
of approximately $1.5 million related to our operating lease commitments, with no material impact to the opening balance of retained
earnings. See Note 15 to our Financial Statements for further discussions regarding the adoption of ASC Topic 842.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance,
entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value
hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range
and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized
gains and losses included in other comprehensive income. This update is effective for annual periods beginning after December 15, 2019,
and interim periods within those periods. The adoption of this standard did not have an impact on the Company’s Financial Statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard simplifies the accounting for income taxes
by removing certain exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation and the
recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that
result in a step-up in the tax basis of goodwill. The standard also improves consistent application of and simplifies GAAP for other
areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. The adoption of this standard did not have a material impact on the Company’s
Financial Statements.
We
review our financial reporting and disclosure practices and accounting policies on an ongoing basis to ensure that our financial reporting
and disclosure system provides accurate and transparent information relative to the current economic and business environment. As part
of the process, the Company reviews the selection, application and communication of critical accounting policies and financial disclosures.
The preparation of our Financial Statements in conformity with accounting principles generally accepted in the U.S. requires that our
management 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 Financial Statements and the reported amounts of revenues and expenses during the reporting period.
We review our estimates and the methods by which they are determined on an ongoing basis. However, actual results could differ from our
estimates.
Results
of Operations
Comparison
of Fiscal Year Ended December 31, 2021 and Fiscal Year Ended December 31, 2020.
For
the year ended December 31, 2021, our net loss was $20.8 million compared to a net loss of $21.5 million for the year ended December
31, 2020. The Company recognized $1.4 million and $1.9 million in tax benefits from the sale of its New Jersey net operating losses under
the NOL Program in each of the fourth quarters of 2021 and 2020, respectively. With $56.9 million in cash and cash equivalents, short-term
investments, interest receivable, net proceeds on the sale of net operating losses and restricted cash, the Company believes it has sufficient
capital resources to fund its operations through 2024.
Technology
Development and Licensing Revenue
In
January 2013, we entered into a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable technology
transfer fee of $5.0 million to support our development of ThermoDox® in the China territory. The $5.0 million received
as a non-refundable payment from Hisun in the first quarter 2013 has been recorded to deferred revenue and will be amortized over the
ten-year term of the agreement; therefore, we recognized revenue of $500,000 in each of the years 2021 and 2020.
Research
and Development Expenses
Research
and development (“R&D”) expenses decreased $0.7 million from $11.3 million in 2020 to $10.6 million in 2021. Costs associated
the OVATION 2 Study were consistent at $1.3 million in 2021 and 2020. Costs associated with the OPTIMA Study decreased to $1.0 million
in 2021 compared to $2.2 million in 2020. In July 2020, the Company unblinded the OPTIMA Study at the recommendation of the DMC to halt
the study due to futility. Other clinical and regulatory costs were $2.6 million in 2021 compared to $2.5 million in 2020.
R&D costs associated with the development of GEN-1 to support the OVATION 2 Study as well as development of the PLACCINE DNA vaccine
technology platform increased to $4.3 million in 2021 compared to $3.1 million in the same period of 2020. CMC costs decreased to $1.5
million in 2021 compared to $2.1 million in the same period of 2020 due to the discontinuation of the ThermoDox® clinical development
program in primary liver cancer.
General
and Administrative Expenses
General
and administrative expenses increased to $10.9 million in 2021 compared to $7.6 million in 2020. This increase is primarily attributable
to higher non-cash stock compensation expense of approximately $1.3 million, an increase in professional fees of $1.5 million (largely
legal fees to defend various suits filed after the announcement in July 2020 of the OPTIMA Phase III clinical results) and an increase
in premiums for directors’ and officers’ insurance of $0.3 million in 2021 when compared to 2020.
Change
in Earn-out Milestone Liability
The
total aggregate purchase price for the acquisition of assets from EGEN included potential future earn-out payments contingent upon achievement
of certain milestones. The difference between the aggregate $30.4 million in future earn-out payments and the $13.9 million included
in the fair value of the acquisition consideration at June 20, 2014 was based on the Company’s risk-adjusted assessment of each
milestone and utilizing a discount rate based on the estimated time to achieve the milestone. The milestone liability is fair valued
at the end of each quarter and any change in the value is recognized in our Financial Statements.
On
March 28, 2019, the Company and EGWU, Inc, entered into an amendment to the Asset Purchase Agreement discussed in Note 12 to our Financial
Statements. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer
Indication of $12.4 million has been modified. The Company has the option to make the payment as follows:
|
● |
$7.0
million in cash within 10 business days of achieving the milestone; or |
|
● |
$12.4
million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone. |
At
December 31, 2021, the Company fair valued the earn-out milestone liability at $5.4 million and recognized a non-cash gain of $1.6 million
during 2021 as a result of the change in the fair value of the earn-out milestone liability of $7.0 million at December 31, 2020. In
assessing the fair value of the earnout milestone liability at December 31, 2021, the Company considered each of the settlement provisions
per the Amended Asset Purchase Agreement and equally weighted the probability of a cash or cash and common stock payment.
At
December 31, 2020, the Company fair valued the earn-out milestone liability at $7.0 million and recognized a non-cash charge of $1.3
million during 2020 as a result of the change in the fair value of earn-out milestone liability of $5.7 million at December 31, 2019.
In assessing the fair value of the earnout milestone liability at December 31, 2020, the Company considered each of the settlement provisions
per the Amended Asset Purchase Agreement and equally weighted the probability of a cash or cash and common stock payment.
Impairment
of Goodwill and IPR&D
IPR&D
and Goodwill are reviewed for impairment at least annually as of our third quarter ended September 30 by assessing if any events or changes
in circumstances have occurred which indicate that the carrying value of the assets might not be recoverable.
As
of September 30, 2021, the Company’s fair value exceeded its carrying value and as such no impairment was recognized for Goodwill
through the third quarter of 2021. Due to the continuing deterioration of public capital markets in the biotech industry in 2021 and
2022 and its impact on market capitalization rates in this sector, Goodwill was reviewed for impairment as of December 31, 2021. Based
on this assessment, Company concluded that Goodwill was impaired during the fourth quarter of 2021. As of December 31, 2021, the Company
wrote off the $2.0 million carrying value of this asset, thereby recognizing a non-cash charge of $2.0 million in the fourth quarter
of 2021. During 2020, the Company concluded Goodwill was not impaired during that period.
As
of September 30, 2021, the Company assessed whether there were indicators of impairment for the Company’s IPR&D and determined
that no IPR&D asset was impaired during that period. Due to the continuing deterioration of public capital markets in the biotech
industry in 2021 and 2022 and its impact on market capitalization rates in this sector, IPR&D was reviewed for impairment. Having
conducted a quantitative analysis of the company’s IPR&D assets, the Company concluded no IPR&D asset was impaired during
that period. As more fully discussed in Note 5 to the Financial Statements, due to the continuing slowdown in investment by public
capital markets in the biotech industry and its impact on market capitalization rates in this sector, the Company conducted a valuation
analysis of its IPR&D for the ovarian cancer indication as of December 31, 2021. Based on this valuation analysis, the Company has
concluded that it is not more likely than not that the asset is impaired as of December 31, 2021. As such, no impairment charges for
IPR&D related to the ovarian cancer indication were recorded during 2021 or 2020.
At
September 30, 2020, after our assessment of the totality of the events that could impair IPR&D, the Company determined certain IPR&D
assets related to the development of its GBM product candidate may be impaired. To arrive at this determination, the Company assessed
the status of studies in GBM conducted by its competitors and the Company’s strategic commitment of resources to its studies in
primary liver cancer and ovarian cancer. The Company concluded that the GBM asset, valued at $2.4 million, was fully impaired and wrote
off the GBM asset, incurring a non-cash charge of $2.4 million in the third quarter of 2020.
Investment
income and interest expense
Investment
income was insignificant in both 2021 and 2020. In connection with the Horizon Credit Agreement, the Company incurred $0.6 million and
$1.3 million in interest expense in 2021 and 2020, respectively.
As
more fully discussed in Note 8 to the Financial Statements, in June 2021, the Company entered into the SVB Loan Facility with SVB. The
Company immediately used $6 million from this facility to retire all outstanding indebtedness with Horizon. The remaining $4 million
will be available to be drawn down up to 12 months after closing. In connection with these loan facilities, the Company incurred $0.6 million in interest expense
in 2021 compared to $1.3 million during 2020. In connection with the termination of the Horizon Credit Agreement in the second quarter
of 2021, the Company paid early termination and end of term charges to Horizon and recognized $0.2 million as a loss on debt extinguishment.
Income
Tax Benefit
Annually,
the State of New Jersey enables approved technology and biotechnology businesses with New Jersey net operating tax losses the opportunity
to sell these losses through the NOL Program, thereby providing cash to companies to help fund their research and development and business
operations. During 2021, the New Jersey State Legislature increased the maximum lifetime benefit per company from $15 million to $20
million, which will allow the Company to participate in this innovative funding program in future years. After the cumulative net operating
loss sales through 2021, the Company has approximately $3.4 million remaining under the NOL Program.
During
the fourth quarter of 2021, the Company entered into an agreement to sell the approved portion of the New Jersey NOLs applied for in
2021 for $1.4 million. At December 31, 2021, the Company evaluated the valuation reserve for its tax net operating losses associated
with its New Jersey NOLs and reduced the valuation reserve and recognized $1.4 million as a deferred tax asset and an income tax
benefit. The Company completed the sale of these net operating losses in February of 2022.
During
the first quarter of 2021, the Company entered into an agreement to sell the approved portion of the New Jersey NOLs applied for in 2020
for approximately $1.9 million. At December 31, 2020, the Company evaluated the valuation reserve for its tax net operating losses associated
with its New Jersey NOLs and reduced the valuation reserve and recognized approximately $1.9 million as a deferred income tax asset and
an income tax benefit. The Company completed the sale of these net operating losses in May of 2021.
Financial
Condition, Liquidity and Capital Resources
Since
inception we have incurred significant losses and negative cash flows from operations. We have financed our operations primarily through
the net proceeds from the sales of equity, credit facilities and amounts received under our product licensing agreement with Yakult and
our technology development agreement with Hisun. The process of developing ThermoDox®, GEN-1 and other product candidates
and technologies requires significant research and development work and clinical trial studies, as well as significant manufacturing
and process development efforts. We expect these activities, together with our general and administrative expenses to result in significant
operating losses for the foreseeable future. Our expenses have significantly and regularly exceeded our revenue, and we had an accumulated
deficit of $333 million at December 31, 2021.
At
December 31, 2021 we had total current assets of $51.9 million and current liabilities of $6.8 million, resulting in net working capital
of $45.1 million. At December 31, 2021, we had cash and cash equivalents, short-term investments, interest receivable on short-term investments,
net proceeds on the sale of net operating losses and money market investments ($6.0 million of which is restricted cash included in other
assets) of $56.9 million. At December 31, 2020 we had total current assets of $18.8 million (including cash and cash equivalents of $17.2
million) and current liabilities of $6.8 million, resulting in net working capital of $12.0 million. We have substantial future capital
requirements to continue our research and development activities and advance our product candidates through various development stages.
The Company believes these expenditures are essential for the commercialization of its technologies.
Net
cash used in operating activities for 2021 was $16.2 million. Our net loss of $20.7 million for 2021 included the following non-cash
transactions: (i) $3.8 million in non-cash stock-based compensation expense, (ii) $2.0 million non-cash charge from the write-off of
Goodwill, (iii) $0.2 million in non-cash interest expense and (iv) $1.6 non-cash benefit based on the change in the earn-out milestone
liability. The $16.2 million net cash used in operating activities was funded from cash and cash equivalents, short term investments,
and cash proceeds received in equity financings during 2021. At December 31, 2021, we had cash and cash equivalents, short-term investments,
interest receivable on short term investments, receivable from the sale of New Jersey operating losses and money market investments ($6.0
million of which is restricted cash included in other assets) of $56.9 million. The Company believes it has sufficient capital resources
to fund its operations through 2024. See Financing Overview as well as Notes 8, 9 and 10 to our Financial Statements.
The
Company may seek additional capital through further public or private equity offerings, debt financing, additional strategic alliance
and licensing arrangements, collaborative arrangements, or some combination of these financing alternatives. If we raise additional funds
through the issuance of equity securities, the percentage ownership of our stockholders could be significantly diluted, and the newly
issued equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we raise
funds through the issuance of debt securities, those securities may have rights, preferences, and privileges senior to those of our common
stock. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners
or others, we may need to relinquish rights to certain of our existing or future technologies, product candidates, or products we would
otherwise seek to develop or commercialize on our own, or to license the rights to our technologies, product candidates, or products
on terms that are not favorable to us. The overall status of the economic climate could also result in the terms of any equity offering,
debt financing, or alliance, license, or other arrangement being even less favorable to us and our stockholders than if the overall economic
climate were stronger. We also will continue to look for government sponsored research collaborations and grants to help offset future
anticipated losses from operations and, to a lesser extent, interest income.
If
adequate funds are not available through either the capital markets, strategic alliances, or collaborators, we may be required to delay
or, reduce the scope of, or terminate our research, development, clinical programs, manufacturing, or commercialization efforts, or effect
additional changes to our facilities or personnel, or obtain funds through other arrangements that may require us to relinquish some
of our assets or rights to certain of our existing or future technologies, product candidates, or products on terms not favorable to
us.
Off-Balance
Sheet Arrangements
We
do not utilize off-balance sheet financing arrangements as a source of liquidity or financing.
ITEM
7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The
primary objective of our cash investment activities is to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk. Some of the securities that we invest in may be subject to market risk. This
means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold
a security that was issued with a fixed interest rate at the then-prevailing rate and the interest rate later rises, the principal amount
of our investment will probably decline. A hypothetical 50 basis point increase in interest rates reduces the fair value of our available-for-sale
securities at December 31, 2021 by an immaterial amount. To minimize this risk in the future, we intend to maintain our portfolio of
cash equivalents and marketable securities in a variety of securities, including commercial paper, government and non-government debt
securities and/or money market funds that invest in such securities. We have no holdings of derivative financial or commodity instruments.
As of December 31, 2021, our investments consisted of investments in government backed notes and obligations or in money market accounts
and checking funds with variable market rates of interest. We believe our credit risk is immaterial.
ITEM
8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA |
The
Financial Statements, supplementary data and report of independent registered public accounting firm are filed as part of this report
on pages F-1 through F-34 and incorporated herein by reference.
ITEM
9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM
9A. |
CONTROLS
AND PROCEDURES |
(a) |
Disclosure
Controls and Procedures |
We
have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under
the supervision, and with the participation, of our management, including our principal executive officer and principal financial officer.
Based on that evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2021, which
is the end of the period covered by this Annual Report, our disclosure controls and procedures are effective.
(b) |
Management’s
Report on Internal Control over Financial Reporting |
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under
the supervision of, our chief executive officer and chief financial officer, or persons performing similar functions, and effected by
our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
U.S. of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management
and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal
Control-Integrated Framework. Based on its evaluation, management has concluded that the Company’s internal control over financial
reporting is effective as of December 31, 2021.
Pursuant
to Regulation S-K Item 308(b), this Annual Report does not include an attestation report of our company’s registered public accounting
firm regarding internal control over financial reporting.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated
can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost.
(c) |
Changes
in Internal Control over Financial Reporting |
There
have been no changes in our internal control over financial reporting in the fiscal year ended December 31, 2021, which were identified
in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. |
OTHER
INFORMATION |
None.
ITEM
9C. |
DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not
applicable.
PART
III
ITEM
10. |
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Our
board of directors, or our Board, currently consists of seven members and is divided into three classes of directors serving staggered
three-year terms. Directors for each class are elected at the annual meeting of stockholders held in the year in which the term for their
class expires and hold office for a three-year term and until their successors are duly elected and qualified, or their earlier death,
resignation or removal. In accordance with our amended and restated certificate of incorporation and bylaws, our Board may fill any vacancy
on the Board by appointment.
Set
forth below is certain information regarding our Company’s current directors, as well as our non-director executive officers.
NAME |
|
AGE |
|
POSITION(S) |
|
CLASS |
|
|
|
|
|
|
|
Michael
H. Tardugno |
|
71 |
|
Chairman,
President and Chief Executive Officer |
|
III |
Donald
P. Braun, Ph.D. |
|
72 |
|
Director |
|
III |
Augustine
Chow, Ph.D. |
|
69 |
|
Director |
|
I |
Frederick
J. Fritz |
|
71 |
|
Director |
|
I |
Christine
Pellizzari |
|
54 |
|
Director |
|
I |
Robert
W. Hooper |
|
75 |
|
Director |
|
II |
Stacy
R. Lindborg, Ph.D. |
|
51 |
|
Director |
|
II |
Khursheed
Anwer, Ph.D. MBA |
|
62 |
|
Executive
Vice President and Chief Scientific Officer |
|
|
Nicholas
Borys, M.D. |
|
62 |
|
Executive
Vice President and Chief Medical Officer |
|
|
Jeffrey
W. Church |
|
65 |
|
Executive
Vice President and Chief Financial Officer |
|
|
Directors
Mr.
Michael H. Tardugno. Mr. Tardugno was appointed President and Chief Executive Officer of the Company on January 3, 2007 and was elected
to the Board of Directors on January 22, 2007. In October of 2014, Mr. Tardugno was appointed by our Board of Directors as our Chairman.
Prior to joining the Company and for the period from February 2005 to December 2006, Mr. Tardugno served as Senior Vice President and
General Manager of Mylan Technologies, Inc., a subsidiary of Mylan Inc. From 1998 to 2005, Mr. Tardugno was Executive Vice President
of Songbird Hearing, Inc., a medical device company spun out of Sarnoff Corporation. From 1996 to 1998, he was Senior Vice President
of Technical Operations worldwide for a division of Bristol-Myers Squibb, and from 1977 to 1995, he held increasingly senior executive
positions including Senior Vice President of Worldwide Technology Development with Bausch & Lomb and Abbott Laboratories. Mr. Tardugno
holds a B.S. degree from St. Bonaventure University and completed the Harvard Business School Program for Management Development.
Dr.
Donald P. Braun. Dr. Braun was appointed to our Board of Directors in December 2015. Dr. Braun has over 35 years of research
experience in oncology, cancer immunology, cancer immunotherapy, and inflammatory diseases. He is the author of more than 120 published
peer-reviewed manuscripts, 25 reviews and book chapters, and co-editor of a book on the role of prostaglandins and other COX 2 metabolites
in cancer patient immunity and immunotherapy. He served from 2006 to 2014 as Vice President Clinical Research and after which he served
as Vice President Translational Research and Chief Science Officer at the Cancer Treatment Centers of America until his retirement in
May 2016. Prior to this role, he was the Scientific Director of the Cancer Center and Professor of Medicine and Immunology at Rush Medical
College in Chicago from 1978 to 1999, and the Administrative Director of the Cancer Institute and a Professor of Surgery with tenure
at the Medical College of Ohio from 1999 to 2006. Dr. Braun has been appointed to and served on more than a dozen federal government
and public advisory committees on oncology and immunology. He received his Ph.D. in Immunology and Microbiology from the University of
Illinois at the Medical Center in Chicago. Dr. Braun has served as an advisor to numerous public agencies and private corporations concerned
with cancer therapeutics and diagnostics. At the National Cancer Institute, Dr. Braun served as a member of the Experimental Therapeutics
Study Section; the Small Business Innovation Grant Review Study Section; and the Experimental Therapy program for “Molecular Targets
in Lung Cancer”. He served as a member of the Immunology and Immunotherapy Study Section of the American Cancer Society-National
Division; as a Member of the Ohio Cancer Incidence Surveillance System; as a Member of the Biomedical Research Technology Transfer Commission
for the State of Ohio; and as an advisor to the State of Arizona’s Disease Research Control Commission. Dr. Braun has also served
as a consultant to numerous pharmaceutical and biotechnology companies developing cancer treatments and diagnostics including Pfizer
Pharmaceuticals, Sterling Winthrop, Abbott Laboratories, Boehringer Mannheim, Serono Corporation, Biomira Inc, Centocor and Merck KGA.
Dr.
Augustine Chow. Dr. Chow was appointed to our Board of Directors in March 2007. Dr. Chow is the chairman of Harmony Asset Management
Limited in Hong Kong, serving in such capacity since 2015. He also serves as a director of Medifocus Inc. (TSX Venture: MFS). From 1996
to 2015, Dr. Chow was the Chief Executive Officer of Harmony Asset Limited, a Hong Kong listed investment company, and from 2008 to 2016
he served as Executive Director of Kaisun Energy Group Limited. From 1990 to 1998, Dr. Chow was the Chief Executive Officer of Allied
Group of Companies based in Hong Kong which include several publicly listed companies spanning across various industries. Prior to this,
Dr. Chow held a senior position with Brunswick Corporation and Outboard Marine Corporation and was responsible for all business activities
in Southeast Asia and China. Dr. Chow has extensive experience in managing publicly listed companies that are involved in manufacturing,
marketing and financial services and specializes in mergers and acquisitions. Dr. Chow’s qualifications include a number of Bachelors,
Masters and Doctoral degrees. Among them include a MSc from London Business School and a Ph.D. in Biology from City University of Hong
Kong.
Mr.
Frederick J. Fritz. Mr. Fritz was appointed to our Board of Directors in July 2011. Mr. Fritz has served as CEO and Founder of NeuroDx,
a development stage diagnostic device company focused on the neurosurgery market, since 2006. Mr. Fritz joined NeuroDx from Valeo Medical,
a biotechnology company he founded in 2003 to develop the world’s first non-invasive diagnostic test for endometriosis. Prior to
that, Mr. Fritz was President and CEO of Songbird Hearing, Inc., a medical device company spun out of Sarnoff Corporation. Mr. Fritz
began his career in marketing management and new product development. He joined Schering Plough’s Wesley Jessen in 1985 as VP Marketing
and Sales in 1986. He was promoted to general manager of Schering’s Over the Counter pharmaceutical business in 1988 and of the
podiatric products business in 1990. He was President of Coleman North America from 1995 to 1997. Mr. Fritz holds a bachelor’s
degree in engineering (summa cum laude) from University of Illinois and an MBA degree from Harvard University.
Ms.
Christine A. Pellizzari. Ms. Pellizzari was appointed to our Board of Directors in June 2021. Ms. Pellizzari joined Insmed in 2013
as General Counsel and Corporate Secretary and was named Chief Legal Officer in 2018. She has global responsibility for legal and government
affairs including corporate governance, regulatory compliance, contracting, alliance management, clinical trial oversight, labor and
employment, litigation management and intellectual property strategy and portfolio management. From 2007 through 2012 Ms. Pellizzari
held various legal positions of increasing responsibility at Aegerion Pharmaceuticals, most recently as Executive Vice President, General
Counsel and Corporate Secretary. Prior to Aegerion, Ms. Pellizzari was Senior Vice President, General Counsel and Secretary at Dendrite
International, Inc., a publicly traded company that provided sales effectiveness, promotional and compliance solutions to the pharmaceutical
industry. Ms. Pellizzari received a J.D. from the University of Colorado School of Law and a B.A. from the University of Massachusetts
(Amherst). She is a member of Executive Women in Bio, Women Corporate Directors, National Association of Corporate Directors, Association
of Corporate Counsel, Society for Corporate Governance and National Association of Stock Plan Professionals.
Mr.
Robert W. Hooper. Mr. Hooper has served as a member of our Board of Directors since July 2010. He is currently President of Crows
Nest Ventures, Inc. a privately held company, which provides advisory and consulting services to the healthcare industry. From 1997 to
2001, Mr. Hooper served as President North America for IMS Health Incorporated, a healthcare information and market research company
listed on The New York Stock Exchange. From 1993 to 1997, he served as President of Abbott Laboratories Canada. From 1989 to 1993, he
served as Managing Director, Australia/Asia for Abbott Laboratories. Prior to that, he held increasingly senior positions at E.R. Squibb
and Sterling Winthrop Labs. Mr. Hooper holds a bachelor’s degree in biology from Wilkes University.
Dr.
Stacy R. Lindborg. Dr. Lindborg was appointed to our Board of Directors in June 2021. Dr. Lindborg brings to Celsion more than 25
years of pharmaceutical industry experience with a particular focus on R&D, executive management and strategy. She has worked with
biologics, small molecules and cell therapies to address a broad range of diseases and disorders, including multiple Orphan drug products,
along with extensive experience in early-stage development having taken molecules from first in man studies into the clinic through approval
and launch. Dr. Lindborg’s holds the position of Executive Vice President and Chief Development Officer at Brainstorm Cell Therapeutics,
which she joined in 2020 to manage the clinical portfolio. From 2012 to 2020 she held positions of increasing responsibility at Biogen,
where she worked in biostatistics and biometrics, and served as Vice President for Global Analytics and Data Sciences. Dr. Lindborg joined
Eli Lilly and Company in 1996 moving through the organization to serve from 2010 to 2012 as Head of R&D Strategy with responsibility
for characterizing the productivity of the portfolio and driving key R&D strategy projects including the annual R&D Long-Range
Plan. Dr. Lindborg is a graduate of Baylor University where she received a Ph.D. and M.A. in statistics and a B.A. in psychology with
a minor in mathematics. She has authored more than 50 abstracts, 200 presentations and 45 manuscripts that have been published in peer-reviewed
journals. She serves on several industry advisory boards related to statistics and biotechnology.
Executive
Officers
Mr.
Michael H. Tardugno. Mr. Tardugno’s biographical information appears above under the heading “Directors”.
Khursheed
Anwer, Ph.D., M.B.A. Dr. Anwer joined us in June 2014 as Executive Vice President and Chief Scientific Officer, in connection with
our acquisition of all the assets of EGWU, Inc. (formerly known as Egen, Inc.), an Alabama corporation (or “EGEN”). Before
joining Celsion, Dr. Anwer served as EGEN’s President and Chief Scientific Officer, a position he held since 2009. He joined EGEN
in July 2002 as Vice President of Research and Development and directed EGEN’s clinical and research and development functions.
Before joining EGEN, Dr. Anwer was Director of Pre-Clinical Development at Valentis, Inc. from July 2000 to June 2002. From 1993 to 1999,
he served in several positions at GeneMedicine, Inc., where he led several research projects in the area of non-viral gene therapy. He
has authored more than 40 publications in the area of non-viral gene therapy, resulting from his active career in research and development.
Dr. Anwer holds a Ph.D. in physiology/pharmacology from Ohio University and received post-doctoral training from the University of Texas
Health Science Center at Houston. Dr. Anwer also has a Master’s in Business Administration from University of Alabama.
Nicholas
Borys, M.D. Dr. Borys joined us in October 2007 as Vice President and Chief Medical Officer of the Company and was promoted to Senior
Vice President in June 2014 and to Executive Vice President in February 2019. In this position, Dr. Borys manages the clinical development
and regulatory programs for Celsion. Dr. Borys has over 25 years of experience in all phases of pharmaceutical development with a focus
on oncology. Immediately prior to joining Celsion, Dr. Borys served as Chief Medical Officer of Molecular Insight Pharmaceuticals, Inc.,
a molecular imaging and nuclear oncology pharmaceutical company, from 2004 until 2007. From 2002 until 2004, he served as the Vice President
and Chief Medical Officer of Taiho Pharma USA, a Japanese start-up oncology therapeutics company. Prior to that he held increasingly
senior positions at Cytogen Corporation, Anthra Pharmaceuticals, Inc., Amersham Healthcare, Inc. and Hoffmann La-Roche Inc. Dr. Borys
obtained his premedical degree from Rutgers University and holds an M.D. degree from American University of the Caribbean.
Mr.
Jeffrey W. Church. Mr. Church joined us in July 2010 as Vice President, Chief Financial Officer and Corporate Secretary. Mr. Church
was appointed as our Senior Vice President, Corporate Strategy and Investor Relations in July 2011. In July 2013, Mr. Church was reappointed
as Senior Vice President and Chief Financial Officer. In December 2018, Mr. Church was promoted to Executive Vice President. Immediately
prior to joining us, Mr. Church served as Chief Financial Officer and Corporate Secretary of Alba Therapeutics Corporation, a privately
held life science company from 2007 until 2010. From 2006 until 2007, he served as Vice President, Chief Financial Officer and Corporate
Secretary for Novavax, Inc., a vaccine development company listed on The Nasdaq Global Select Market. From 1998 until 2006, he served
as Vice President, CFO and Corporate Secretary for GenVec, Inc., a biotechnology company listed on The Nasdaq Capital Market. Prior to
that, he held senior financial positions at BioSpherics Corporation and Meridian Medical Technologies, both publicly traded companies.
He started his career with Price Waterhouse from 1979 until 1986. Mr. Church holds a B.S. degree in accounting from the University of
Maryland.
CODE
OF ETHICS
The
Company has adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) applicable to its directors, officers, including
the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and other officers performing similar functions, and employees.
This Code of Ethics constitutes a code of ethics applicable to senior financial officers within the meaning of the Sarbanes-Oxley Act
of 2002 and SEC rules. A copy of the Code of Ethics is available on the Company’s website at http://www.celsion.com and
any stockholder may obtain a copy by making a written request to the Company’s Corporate Secretary, 997 Lenox Drive, Suite 100,
Lawrenceville, NJ 08648. In the event of any amendments to or waivers of the terms of the Code of Ethics, such matters will be posted
promptly to the Company’s website in lieu of disclosure on Form 8-K in accordance with Item 5.05(c) of Form 8-K.
BOARD
LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT
Board
Leadership
Our
Board of Directors believes that it is important to select our Chairman of the Board and our Chief Executive Officer in the manner it
considers in our best interests. The members of our Board of Directors possess considerable business experience and in-depth knowledge
of the issues we face and are therefore in the best position to evaluate our needs and how best to organize and adopt our leadership
structure to meet those needs. Accordingly, our Chairman and the Chief Executive Officer may be filled by one individual or by two different
individuals, and our Chairman may be a Company insider or an independent director. Mr. Tardugno serves as Chairman of our Board of Directors,
President and Chief Executive Officer. Currently all the other directors of our Board of Directors are independent under applicable SEC
and NASDAQ rules. Our Board of Directors believes that the Company and its stockholders have been well served by the current leadership
structure due to Mr. Tardugno’s experience and in-depth knowledge of the Company and the industry.
Board
Oversight of Risk
Our
Board of Directors is responsible for oversight of the various risks we face. In this regard, the Board of Directors seeks to understand
and oversee the most critical risks relating to our business and operations, allocate responsibilities for the oversight of risks among
the full Board of Directors and its committees, and see that management has in place effective systems and processes for managing risks
we face. Overseeing risk is an ongoing process, and risk is inherently tied to our strategy and to strategic decisions. Accordingly,
our Board of Directors considers risk throughout the year and with respect to specific proposed actions. Our Board of Directors recognizes
that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for us to
be competitive and to achieve its business objectives.
While
our Board of Directors oversees risk, management is charged with identifying and managing risk. We have robust internal processes and
a strong internal control environment to identify and manage risks and to communicate information about risk to the Board of Directors.
Management communicates routinely with our Board of Directors, Board Committees (as defined below) and individual directors on the significant
risks identified and how they are being managed. Our directors are free to, and indeed often do, communicate directly with senior management.
Our
Board of Directors implements its risk oversight function both as a whole and through delegation to various committees (the “Board
Committees”). These Board Committees meet regularly and report back to our full Board of Directors.
| ● | Our
Audit Committee oversees the management of financial, accounting, internal controls, disclosure
controls and the engagement arrangement and regular oversight of the independent auditors. |
| ● | Our
Compensation Committee is responsible for the design and oversight of our compensation programs.
Based on a review of our company-wide compensation programs, including the compensation programs
for our executive officers, our Compensation Committee has concluded that these programs
do not create risks that are likely to have a material adverse effect on us. |
| ● | Our
Nominating and Governance Committee periodically reviews our corporate governance practices,
including the risks that those practices are intended to address. It also periodically reviews
the composition of our Board of Directors to help ensure that a diversity of skills and experiences
is represented by the members of our Board of Directors taking into account the stage of
our growth and strategic direction. |
| ● | Our
Science and Technology Committee assists our Board of Directors in monitoring the state of
science and technology capabilities within the Company and associated risks and overseeing
the development of key technologies and major science and medicine-driven innovation initiatives
essential to our long-term success. |
COMMITTEES
OF OUR BOARD OF DIRECTORS
Our
Board of Directors presently maintains separately designated Audit, Compensation, Nominating and Governance, and Science and Technology
Committees.
Good
Governance Practices
Our
Board of Directors has a commitment to strong and sustainable corporate governance. As such, we continuously review our practices to
ensure effective collaboration of management and our Board of Directors. Highlights of our Board of Directors’ best practices are:
|
● |
Six
of the seven Board directors are independent; |
|
|
|
|
● |
Our
Board of Directors has adopted and published committee charters (charters are available at www.celsion.com); |
|
|
|
|
● |
Our
Board of Directors conducts an annual review of Board Independence; |
|
|
|
|
● |
Our
Board Committees conduct annual self-evaluations that are reviewed by our Nominating and Governance Committee and Board of Directors; |
|
|
|
|
● |
New
directors participate in an orientation program and receive a current state briefing before their first Board meeting; |
|
|
|
|
● |
We
have stock ownership and stock retention guidelines for our directors; |
|
|
|
|
● |
We
have policies and practices to specifically align executive compensation with long-term stockholder interests; |
|
|
|
|
● |
We
have a policy prohibiting hedging and pledging, short sales, purchases or sales of puts or calls, and other derivative transactions
of our stock (including any transaction that provides the economic equivalent of ownership) by our executive officers and directors; |
|
|
|
|
● |
An
executive compensation claw back policy was adopted by our Board of Directors in 2014; |
|
|
|
|
● |
Our
Board of Directors reviews management talent and succession annually with our chief executive officer; and |
|
|
|
|
● |
There
is no automatic enhancement of executive incentive compensation upon a change-in-control. |
Audit
Committee
Our
Audit Committee consists of Mr. Frederick J. Fritz, (Chairman), Dr. Augustine Chow and Ms. Christine Pellizzari. Our Audit Committee
operates under a written charter as amended and restated effective May 4, 2007. A copy of that charter, as may be amended from time to
time, is available on our web site, located at http://www.celsion.com. Additional copies of the charter are available upon
written request to us.
Our
Audit Committee assists our Board of Directors in fulfilling its responsibility to oversee management’s implementation of our financial
reporting process. In discharging its oversight role, the Audit Committee reviewed and discussed the audited financial statements contained
in our 2021 Annual Report on Form 10-K with our management and independent registered public accounting firm. Management is responsible
for the financial statements and the reporting process, including the system of internal controls. Our independent registered public
accounting firm is responsible for expressing an opinion on the conformity of those financial statements with accounting principles generally
accepted in the U.S.
Our
Board has determined that all members of the Audit Committee meet the independence standards established by the SEC and Nasdaq. Our Board
has determined that Mr. Fritz is qualified to serve as the “audit committee financial expert” as defined by Item 407(d)(5)
of Regulation S-K and that Dr. Chow and Ms. Pellizzari meet the financial literacy requirements under applicable NASDAQ rules.
Compensation
Committee
Our
Compensation Committee is responsible for establishing and administering the compensation policies applicable to our directors, officers
and key personnel, for determining the compensation arrangements to our Chairman, President and Chief Executive Officer and for evaluating
the performance of senior management. Our Compensation Committee operates under a written charter effective as of December 24, 2003.
A copy of that charter, as may be amended from time to time, is available on our web site, located at www.celsion.com.
Additional copies of the charter are available upon written request to us. Our Compensation Committee does not delegate the authority
to approve compensation policies and actions affecting our named executive officers or directors. Our Compensation Committee applies
discretion in determining compensation for our executives. Our Compensation Committee has not established any equity or other security
ownership requirements or guidelines in respect of its executive officers. Our Chairman, President and Chief Executive Officer assists
our Compensation Committee in evaluating the performance of other executive officers and by providing information to directors as and
when requested, such as salary surveys and compensation paid by our competitors, to the extent such information is publicly available.
Members of our Compensation Committee undertake to verify such information prior to referring to it in determining executive compensation.
The compensation of our Chairman, President and Chief Executive Officer is determined by our Compensation Committee based on our Compensation
Committee’s evaluation of his performance and with reference to such external or competitive data as they consider necessary. The
compensation of the other named executive officers is determined by our Compensation Committee based on its evaluation of their individual
performance and the recommendations of our Chairman, President and Chief Executive Officer.
Mr.
Hooper (Chairman), Dr. Chow and Dr. Lindborg currently comprise our Compensation Committee. Our Board has determined that all members
of our Compensation Committee are independent under the applicable Nasdaq rules.
Nominating
and Governance Committee
Our
Nominating and Governance Committee is responsible for identifying and recruiting new members of our Board of Directors when vacancies
arise, identifying and recruiting nominees for election as directors, reconsideration of incumbent directors in connection with nominations
for elections of directors and ensuring that our Board of Directors is properly constituted to meet its corporate governance obligations.
Our Nominating and Governance Committee operates under a written charter effective as of December 24, 2003 and amended on February 27,
2006. A copy of that charter, as may be amended from time to time, is available on our web site, located at www.celsion.com.
The current members of our Nominating and Governance Committee are Mr. Fritz and Dr. Braun. Our Board has determined that both Mr. Fritz
and Dr. Braun are deemed to be independent under applicable Nasdaq rules.
Science
and Technology Committee
The
primary purpose of our Science and Technology Committee is to assist our Board of Directors in monitoring the state of science and technology
capabilities within our Company and associated risks and overseeing the development of key technologies and major science and medicine-driven
innovation initiatives essential to our long-term success. Our Science and Technology Committee’s responsibilities includes reviewing
technologies and technology programs of significance to us, with special focus on major external initiatives, observing the evolution
of science and medicine outside the Company, participating in the development of metrics to assess the state of our science and technology
in subject areas including, but not limited to, patent estate, freedom to operate, productivity, capability and external benchmarks,
providing guidance for our external science and technology alliances, and providing guidance on the direction of our science and technology
activities, as appropriate. The current members of our Science and Technology Committee are Dr. Braun and Dr. Lindborg.
MEETINGS
OF THE BOARD AND BOARD COMMITTEES
During
the year ended December 31, 2021, there were a total of four (4) regular meetings of our Board of Directors. All of our directors attended
all of the meetings of our Board of Directors and the Board committees on which they served that were held during the period for which
they were a director or committee member, respectively.
During
the year ended December 31, 2021, our Audit Committee met four (4) times, our Compensation Committee met one (1) time and our Nominating
and Governance Committee met several times in connection with the recruitment of two new Board directors in June 2021. Our Science and
Technology Committee did not meet during 2021.
DELINQUENT
SECTION 16(A) REPORTS
Section
16(a) of the Exchange Act requires our executive officers, directors and persons who own more than 10% of our common stock to file reports
of ownership and reports of changes in ownership of common stock and other equity securities of the Company with the SEC. Executive officers,
directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they
file.
To
our knowledge, based solely on a review of the copies of reports furnished to us, we believe that during the year ended December 31,
2021, our executive officers, directors and greater than 10% stockholders complied with all Section 16(a) filing requirements.
ITEM
11. |
EXECUTIVE
COMPENSATION |
COMPENSATION
DISCUSSION AND ANALYSIS
This
section describes the material elements of compensation awarded to, earned by, or paid to the following Executive Officers of the Company:
|
○ |
Michael
H. Tardugno, our Chairman, President and Chief Executive Officer |
|
○ |
Nicholas
Borys, M.D., our Executive Vice President and Chief Medical Officer |
|
○ |
Khursheed
Anwer, Ph.D., our Executive Vice President and Chief Science Officer |
|
○ |
Jeffrey
W. Church, our Executive Vice President and Chief Financial Officer |
These
individuals are listed in the 2021 Summary Compensation Table below and are referred to in this discussion as the “Named Executive
Officers.”
2021
SUMMARY COMPENSATION TABLE
The
following table sets forth information regarding the total compensation for services rendered in all capacities during the years ended
December 31, 2021 and 2020, awarded to, paid to or earned by each named executive officers serving as of December 31, 2021. All compensation
awarded to, earned by, or paid to Celsion’s named executive officers are included in the table below for the years ended December
31, 2021 and 2020:
Name
and Principal Position | |
Year | | |
Salary | | |
Bonus | | |
Stock
Awards | | |
Option
Awards (1)(2) | | |
Non-Equity
Incentive Plan Compensation (2) | | |
All
Other Compensation (3) | | |
Total
($) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Michael
H. Tardugno (4) | |
| 2021 | | |
$ | 581,586 | | |
$ | – | | |
$ | – | | |
$ | 1,322,285 | | |
$ | 381,254 | | |
$ | 48,000 | | |
$ | 2,333,125 | |
Chairman,
President & CEO | |
| 2020 | | |
$ | 557,222 | | |
$ | – | | |
$ | – | | |
$ | 426,600 | | |
$ | 400,001 | | |
$ | 45,250 | | |
$ | 1,429,073 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nicholas
Borys (5) | |
| 2021 | | |
$ | 432,357 | | |
$ | – | | |
$ | – | | |
$ | 203,410 | | |
$ | 127,180 | | |
$ | 27,000 | | |
$ | 789,947 | |
Executive
VP & CMO | |
| 2020 | | |
$ | 417,097 | | |
$ | – | | |
$ | – | | |
$ | 173,800 | | |
$ | 138,395 | | |
$ | 26,750 | | |
$ | 756,042 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Khursheed
Anwer (6) | |
| 2021 | | |
$ | 362,878 | | |
$ | – | | |
$ | – | | |
$ | 508,555 | | |
$ | 120,462 | | |
$ | 28,583 | | |
$ | 1,020,478 | |
Executive
VP & CSO | |
| 2020 | | |
$ | 335,852 | | |
$ | – | | |
$ | – | | |
$ | 158,000 | | |
$ | 122,147 | | |
$ | 27,849 | | |
$ | 643,848 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Jeffrey
Church (7) | |
| 2021 | | |
$ | 397,004 | | |
$ | – | | |
$ | – | | |
$ | 559,422 | | |
$ | 117,037 | | |
$ | 14,500 | | |
$ | 1,087,963 | |
Executive
VP & CFO | |
| 2020 | | |
$ | 382,246 | | |
$ | – | | |
$ | – | | |
$ | 173,800 | | |
$ | 126,127 | | |
$ | 14,250 | | |
$ | 696,423 | |
|
(1) |
The
value reported for option awards is the aggregate grant date fair value of stock options granted to the Named Executive Officers
in the years shown, determined in accordance with FASB ASC Topic 718, disregarding adjustments for forfeiture assumptions. The assumptions
for making the valuation determinations are set forth in Note 11 to the Financial Statements. |
|
|
|
|
(2) |
Executives’
bonuses under our annual incentive program are based on the achievement of specific performance measures established at the beginning
of the fiscal year by our Compensation Committee. Historically, our Compensation Committee has awarded the annual incentive bonus
for each year in the first quarter of the following year. In the first quarter of 2022, our Compensation Committee approved the amount
and the payment of the incentive bonus for 2021 for each of the Named Executive Officers in the form of stock awards and Non-Equity
(Cash) Incentive Plan Compensation. |
|
|
|
|
(3) |
This
column includes other compensation as indicated below and matching and discretionary contributions made by the Company for the Named
Executive Officers under our 401(k) plan. Our matching contribution is equal to 50% of the employee’s deferrals under the plan
up to 6% of the employee’s compensation, subject to applicable IRS limitations, and are made in shares of our common stock.
The 2021 discretionary contribution is 5.0% of eligible salary of each employee which was contributed in January 2022. |
|
|
|
|
(4) |
For
Mr. Tardugno, “All Other Compensation” for 2021 consists of $21,500 for discretionary spending allowance, a 401(k)-plan
matching contribution of $13,000 in our common stock and a $14,500 discretionary 401(k) contribution. |
|
|
|
|
(5) |
For
Dr. Borys, “All Other Compensation” for 2021 consists of a 401(k)-plan matching contribution of $12,500 in our common
stock and a $14,500 discretionary 401(k) contribution. |
|
|
|
|
(6) |
For
Dr. Anwer, “All Other Compensation” for 2021 consists of $6,006 for discretionary spending allowance, a 401(k)-plan matching
contribution of $8,077 in our common stock and a $14,250 discretionary 401(k) contribution. |
|
|
|
|
(7) |
For
Mr. Church, “All Other Compensation” for 2021 consists of a $14,500 discretionary 401(k) contribution. |
NARRATIVE
DISCLOSURE TO SUMMARY COMPENSATION TABLE
Celsion
Corporation is a fully integrated, clinical stage biotechnology company focused on advancing a portfolio of innovative cancer treatments,
including immunotherapies and DNA-based therapies; and a platform for the development of nucleic acid vaccines currently focused on SARS-CoV2.
The company’s product pipeline includes GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian cancer. Celsion
also has two platform technologies for the development of novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies.
Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection. Celsion’s wholly
owned subsidiary, Celsion GmbH, is managing ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, which
is under investigator-sponsored development for several cancer indications.
As
a result of our drug development status, it is unlikely, in the short term, to generate revenues and income sufficient to cover product
development costs. As a result, our executive compensation philosophy is to align the interests of management and stockholders by emphasizing
rewards for Company performance, while remaining competitive with compensation paid by other clinical stage biotechnology companies.
The
compensation practices that we have outlined below have been implemented because we believe that they are consistent with our stockholders’
interests:
|
What
we do: |
|
|
|
● |
A
significant portion of our executive compensation is based on actual Company performance compared to absolute and relative measures
and is therefore “at risk”; |
|
|
|
|
● |
Performance
shares in our long-term and annual incentive programs are subject to both time and performance vesting requirements; |
|
|
|
|
● |
Multiple
performance metrics between the annual and long-term incentive plans discourage excessive risk-taking by removing any incentive to
focus on a single performance goal to the detriment of the Company; |
|
|
|
|
● |
Balance
between annual and long-term compensation to discourage short-term risk taking at the expense of long-term results; |
|
|
|
|
● |
Our
executives are encouraged to acquire and maintain meaningful ownership positions in our Company’s common stock; |
|
|
|
|
● |
Use
relevant competitive compensation information compiled from compensation surveys; and |
|
|
|
|
● |
Provide
reasonable, double trigger change in control arrangements. |
Following
is a list of compensation practices that we have not engaged in because we do not believe that they are consistent with our stockholders’
interests:
|
What
we don’t do: |
|
|
|
● |
Re-pricing
or backdating of stock options; |
|
|
|
|
● |
Hedging
or engaging in the following transactions that include shares of common stock: collars, short sales and other derivative transactions
for NEOs or directors; |
|
|
|
|
● |
Excessive
perquisites for executives; |
|
|
|
|
● |
Single
trigger or modified single trigger cash severance benefits followed by a change in control; and |
|
|
|
|
● |
Provisions
for excise tax gross ups in employment contracts issued. |
Stockholder
Say-on-Pay Votes
We
provide our stockholders with the opportunity to cast an advisory vote annually to approve our executive compensation program (referred
to as a “say-on-pay proposal”). In general, the Compensation Committee did not change its approach in 2021 and believes the
program in place, as in prior years, includes a number of features that further the goals of the Company’s executive compensation
program. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay proposals when making future
compensation decisions for the Named Executive Officers.
The
Compensation Committee has adopted the following executive compensation approaches, which the Company believes help to achieve the objectives
for the executive compensation program and are generally favored by stockholders:
|
● |
A
significant amount of the executives’ compensation is at-risk. For fiscal year 2021, 74% of Mr. Tardugno’s target total
direct compensation was performance-based (annual cash incentive awards) and/or linked to the value of our stock price (long-term
equity incentive awards). As used in this discussion, the term “total direct compensation” means: |
|
1. |
Aggregate
amount of the executive’s base salary (24%), |
|
2. |
Annual
cash incentive awards (17%), |
|
3. |
Long-term
equity incentive (option and restricted stock) awards based on the grant-date fair value of such awards as determined under the accounting
principles used in the Company’s Financial Statements (57%), and |
|
4. |
Other
Compensation (2%). |
|
● |
Executives’
bonuses under our annual incentive program are principally based on the achievement of specific performance objectives established
at the beginning of the fiscal year by the Compensation Committee. Historically the Compensation Committee has awarded the annual
incentive bonus for each year in the first quarter of the following year. |
|
|
|
|
● |
Executives’
2021 annual equity awards were granted in the form of stock option awards. We believe the grant of stock option awards further aligns
the executives’ interests with those of stockholders as the awards will not have value unless the Company’s stock price
appreciates after the award is granted. The stock option awards also provide a retention incentive as they vest over a multi-year
period. |
|
|
|
|
● |
Executives
are also granted stock option and restricted stock awards at the time they join the Company as these provide the same incentives
as annual equity awards. These stock option grants and restricted stock awards generally vest over a three or four-year period beginning
on the first-year anniversary of the date of grant. |
The
following table provides the components of Mr. Tardugno’s compensation for the last two years:
(in
000’s) | |
2021 | | |
Change | | |
2020 | | |
Change | |
| |
| | |
| | |
| | |
| |
Base
Salary | |
$ | 582 | | |
| 4 | % | |
$ | 557 | | |
| 2 | % |
Cash
Incentive Awards | |
| 381 | | |
| (5 | )% | |
| 400 | | |
| 108 | % |
Option
and Stock Awards | |
| 1,322 | | |
| 210 | % | |
| 427 | | |
| (8 | )% |
All
Other Compensation | |
| 48 | | |
| 6 | % | |
| 45 | | |
| (4 | )% |
Total | |
$ | 2,333 | | |
| 64 | % | |
$ | 1,429 | | |
| 14 | % |
Executive
Compensation Philosophy and Procedures
The
Compensation Committee attempts to design executive compensation programs to achieve three principal objectives.
|
● |
The
program is intended to attract, motivate and retain talented executives with total compensation that is competitive within the drug
development and broader pharmaceutical and biotechnology industry; |
|
● |
The
program is intended to create an alignment of interests between our executives and stockholders such that a significant portion of
each executive’s compensation varies with business performance and is dependent on stock price appreciation; and |
|
● |
The
program is designed to award behavior which results in optimizing the commercial potential of our development program. |
The
Compensation Committee’s philosophy is to pay competitive total compensation, comprised of annual salaries, annual cash incentives
and long-term equity awards (primarily stock options), with a significant percentage of total compensation directly linked with the Company’s
performance. The Compensation Committee considers the elements of the compensation package to be reflective of compensation packages
given to executives of companies of similar size in our industry. Compensation packages generally are designed to pay competitive salaries
at the median of the industry compensation surveys as described below, reward superior annual performance through incentive compensation
awards and allow executives to participate in increases in stockholder value through stock option and other stock-based grants.
In
determining executives’ compensation levels, the Compensation Committee relies primarily on its experience and judgment to provide
a package that it believes appropriately balances the need to attract and retain key executive talent with the creation of incentives
that will (i) enhance the growth of the Company, (ii) align the interests of management and stockholders by emphasizing rewards for Company
performance, while remaining competitive with compensation paid by other clinical stage biotechnology companies and (iii) provide value
for stockholders.
As
part of its decision-making process, the Compensation Committee takes into account the role and experience of each executive and reviews
industry surveys (specifically, the Radford Global Life Sciences Survey, which covers a broad cross-section of the biotechnology, pharmaceuticals
and life science industries and in which the Company participates) for information on the compensation paid to executive officers by
companies in our industry that are similar in size, breadth, stage of development or complexity to the Company. The Compensation Committee
also reviews custom surveys comparing executive compensation with that of specific peer groups (for example, pre-commercial biopharma
public companies, biopharma companies with under 50 employees, biopharma companies with a market cap above $100 million and biopharma
companies with a market cap below $100 million).
In
2021, the Compensation Committee retained Mercer as its independent compensation advisor to compare the Company’s executive and
non-employee director 2020 compensation levels, policies, practices and procedures to a set of peer companies selected by the Compensation
Committee with input from Mercer. Mercer reported directly to the Compensation Committee and performed no work for management that was
not under the Compensation Committee’s purview. The Compensation Committee assessed the independence of Mercer pursuant to the
relevant SEC rules and the Nasdaq Listing Rules and concluded that no conflicts of interest exist. The Compensation Committee and Mercer
reviewed the compensation surveys as summarized above as it relates to elements of yearly performance and compensation of all members
of the executive management team. As part of their engagement, Mercer prepared and submitted to the Compensation Committee a report on
the audit of the Company’s current compensation benchmarking practices and its recommendations relating to executive and non-employee
director compensation. Mercer concluded that the Company uses appropriate market data sources to evaluate the competitive positioning
of the top executives’ and the Board of Directors’ compensation packages and market positioning relative to those data sources
is reasonable.
The
Compensation Committee believes that an appropriate level of input from our Chief Executive Officer provides a necessary and valuable
perspective in helping the Compensation Committee formulate its own independent views on compensation. The Compensation Committee takes
measures to ensure its independence with respect to our Chief Executive Officer’s compensation, excusing him from portions of meetings
to freely discuss his and the other Named Executive Officers performance and compensation. The Compensation Committee made all final
determinations on the compensation levels for all Named Executive Officers in 2021 and 2020.
A
discussion of each individual element of compensation and the compensation for each Named Executive Officer for 2021 follows.
Annual
Salaries
We
participate in an ongoing industry survey as described above. The Compensation Committee compares base salary for our executives with
the levels provided to similarly situated executives and generally targets base salaries at levels in the median of the survey data.
In
2021, the Compensation Committee reviewed each executive’s job responsibilities, individual performance, our corporate performance,
competitive market data, our total compensation expense and the base salaries of Mr. Tardugno, Dr. Borys, Dr. Anwer and Mr. Church and
approved the following annualized salary adjustments for each Named Executive Officer:
Named
Executive Officer | |
Fiscal
2021 Salary | | |
Fiscal
2020 Salary | | |
Change
from Previous Year | |
Michael
H. Tardugno | |
$ | 586,545 | | |
$ | 566,710 | | |
| 3.5 | % |
Nicholas
Borys | |
$ | 434,804 | | |
$ | 424,199 | | |
| 2.5 | % |
Khursheed
Anwer | |
$ | 370,654 | | |
$ | 336,958 | | |
| 10.0 | % |
Jeffrey
W. Church | |
$ | 400,126 | | |
$ | 386,595 | | |
| 3.5 | % |
Incentive
Compensation
We
have an incentive compensation plan in which all members of our senior management participate. The plan is performance-driven based on
Company and individual personal operational objectives established at the beginning of the year by the Compensation Committee in consultation
with our Chief Executive Officer. These operational objectives include the completion of certain development projects, capital raising,
cost controls, business development and profit and loss goals, which we believe are ultimately linked to creating stockholder value.
These objectives are designed to achieve timely and efficient product development including completion of clinical studies and regulatory
approvals. Each member of senior management is individually evaluated based on the achievement of the Company’s overall operational
objectives and each individual’s personal performance against these objectives. This component of compensation is provided, among
other reasons, to create incentives for members of senior management to meet short- and medium-term performance goals of the Company,
without regard to stock price. Objectives are weighted in terms of overall importance to meeting the Company’s operating plan.
The
total annual incentive compensation a member of senior management can earn is based on his level within management, with more senior
members of management eligible to earn a higher percentage of their base salary as incentive compensation than less senior members. We
believe it is appropriate for executives to have a greater percentage of their compensation “at-risk” based on performance
as they generally have a greater role in the achievement of objectives that we believe promote the growth of the Company and the creation
of value for stockholders. The actual amount of incentive compensation paid to any member of senior management is determined on a sliding
scale dependent on how successful such member of senior management was in achieving the objectives upon which his or her incentive compensation
was targeted and the relative importance to the Company of the objectives achieved. The Compensation Committee retains complete discretion
to adjust any incentive compensation down and retains discretion as to whether to grant any incentive compensation to any individual
member of senior management at all.
Under
the incentive compensation plan for 2021, the Compensation Committee established a number of annual corporate goals identified below
that include research and development, regulatory, manufacturing, organizational and financial goals which we believe are essential to
building stockholder value. The relative weighting of these corporate goals is based upon our assessment of the importance of each goal
in creating value for the Company and our stockholders. Each corporate goal was established so that significant levels of achievement
were required to meet the goal. Following the conclusion of the annual performance period, the level of achievement for each corporate
goal was assessed by the Compensation Committee. The Compensation Committee determined whether each corporate goal had been met, exceeded,
or not satisfied. In addition, in assessing corporate performance, the Compensation Committee had the discretion to factor in other significant
corporate events that occurred during the performance period, which could have resulted in an upward or downward adjustment in the determination
of corporate performance. After considering the level of attainment of each corporate goal and other appropriate corporate performance
factors, the Compensation Committee assigned the overall corporate performance rating, which could have ranged from 0% to 130%. A maximum
bonus pool is established by multiplying the overall corporate performance rating by the aggregate target bonuses for all individuals
in the incentive plan. Certain individual downward adjustments may be made at the discretion of the Compensation Committee. The aggregate
of all individual bonuses awarded under the policy cannot exceed the maximum bonus pool available such that the cost of bonuses ultimately
reflects our overall performance and is not inflated by any individual performance rating.
After
the corporate performance rating is determined by the Compensation Committee, the individual performance of each Named Executive Officer
is reviewed by the Compensation Committee in consultation with Mr. Tardugno in order to determine the appropriate annual performance
percentage rating to be assigned to the executive for the performance period. Each Named Executive Officer’s actual annual performance-based
incentive compensation payment is based on a combination of our corporate performance rating and his or her individual performance rating.
The actual annual performance bonus compensation award for each Named Executive Officer is determined in the Compensation Committee’s
sole discretion, and the maximum payout for each Named Executive Officer could be up to 130% of his target annual performance-based compensation
target.
The
Named Executive Officers were each assigned a target annual incentive for 2021 ranging from 45% to 100% of base salary. The table below
shows the target annual incentive assigned to each Named Executive Officer for 2021 both as a dollar amount and as a percentage of base
salary.
Name | |
Target
Annual Incentive for 2021 | | |
Target
Annual Incentive for 2021 (% of Base Salary) | | |
Annual
Incentive Awarded for 2021 | | |
Annual
Incentive Awarded for 2021 (% of Base Salary) | |
Michael
H. Tardugno | |
$ | 586,545 | | |
| 100 | % | |
$ | 381,254 | | |
| 65.0 | % |
Nicholas
Borys | |
| 434,804 | | |
| 45 | % | |
| 127,180 | | |
| 29.2 | % |
Khursheed
Anwer | |
| 370,654 | | |
| 50 | % | |
| 120,462 | | |
| 32.5 | % |
Jeffrey
W. Church | |
| 400,126 | | |
| 45 | % | |
| 117,037 | | |
| 29.3 | % |
The
following 2021 corporate objectives and relative weightings assigned to each objective include the completion of certain development
projects, capital raising, cost controls, business development and profit and loss goals, which we believe are ultimately linked to creating
stockholder value. These objectives are designed to achieve timely and efficient product development including completion of clinical
studies and regulatory approvals and in total represent a potential payout at 130% of the executive’s bonus target if all objectives
are achieved.
|
1. |
Product
Development Objectives to complete enrollment of the OVATION 2 Study by the second quarter of 2022 within budget, report interim
data results when available and maintain key quality metrics (20%) - 11% of 20% OF OBJECTIVES MET |
|
|
|
|
2. |
Research
Objectives to file an IND for the Placcine DNA vaccine by the end of 2021 (15%) - OBJECTIVES NOT MET |
|
|
|
|
3. |
Finance/Business
Development Objectives to develop and implement a strategy to gain approval from shareholders for an increase in the number of
authorized shares of the Company’s common stock (15%) – ALL OBJECTIVES MET |
|
|
|
|
4. |
Financial
Objectives to manage cash and operating expenses, ensure cash flows are within 10% of plan and maintain sufficient levels of
cash to extend operating roadway into 2024 (25%) – ALL OBJECTIVES MET |
|
|
|
|
5. |
Corporate
Development Objectives to successfully rebrand the Company, recruit key competencies to support vaccine initiative, develop and
implement a succession plan to effectively transition leadership with immono-oncology and vaccine experience, and successfully spinout
ThermoDox® into a wholly owned subsidiary (20%) - 15% of 20% OF OBJECTIVES MET |
|
|
|
|
6. |
Bonus
Objective to achieve 30% of common stock ownership by institutional investors by year-end 2021 (30%). OBJECTIVE NOT MET |
Each
of the Named Executive Officers participated in the annual incentive plan for 2021. The initial target bonus amount for each executive
was established pursuant to his employment agreement and is adjusted periodically by the Board. Executives’ bonuses under the Company’s
annual incentive program are based on the achievement of specific performance measures established at the beginning of the fiscal year
by the Compensation Committee. Historically the Compensation Committee has awarded the annual incentive bonus for each year in the first
quarter of the following year. In the first quarter of 2022, the Compensation Committee approved the amount and the payment of the incentive
bonus for 2021 for each of the Named Executive Officers. Please see the “Non-Equity Incentive Plan Compensation” column in
the 2021 Summary Compensation Table.
Stock-Based
Compensation
We
grant long-term equity awards to its executives and other employees that are designed to align the interests our Company employees and
stockholders, encouraging participants to maintain and increase their ownership our Company common stock with the opportunity to benefit
from our long-term performance. Our equity program has generally consisted of grants of stock options and occasional grants of stock
awards. Because the exercise price of the options is based on the market price of our common stock on the date of grant, the Compensation
Committee believes that options help to align the interests of our executives with those of its stockholders as the options will not
have value unless there is appreciation in our stock price. The options also serve as a retention tool since they generally vest over
a three to four-year period following the grant date. This approach is designed to focus key employees on sustainable growth of the Company
and the creation of stockholder value over the long term.
Annual
grants to the Named Executive Officers are generally made during the first half of the fiscal year. Annual grants are determined by the
Compensation Committee based on review of each individual’s past performance as well as their potential impact on the Company’s
future performance. Grants may also be made at other times during the fiscal year in certain circumstances (such as a grant in connection
with the hiring or promotion of an executive or other special circumstance as deemed appropriate by the Compensation Committee).
Material
Terms of Option Grants During 2021
Each
of the stock options awarded to the Named Executive Officers in 2021 and reported in the 2021 Grants of Plan-Based Awards Table below
was granted under, and is subject to, the terms of the 2018 Plan. The 2018 Plan is administered by the Compensation Committee, which
has authority to interpret the plan provisions and make all required determinations under the plan. This authority includes making required
proportionate adjustments to outstanding awards upon the occurrence of certain corporate events such as reorganizations, mergers and
stock splits, and making provision to ensure that any tax withholding obligations incurred in respect of awards are satisfied. Awards
granted under the plan are generally only transferable to a beneficiary of a Named Executive Officer upon his death. Under the terms
of the 2018 Plan, if there is a change in control of the Company, each Named Executive Officer’s outstanding awards granted under
the plan will generally terminate, unless the Compensation Committee provides for the substitution, assumption, exchange or other continuation
or settlement (in cash, securities or property) of the outstanding awards. The Compensation Committee has discretion to provide for outstanding
awards to become vested in connection with a change in control.
Each
option granted to the Named Executive Officers in 2021 was granted with a per-share exercise price equal to the closing price of our
common stock on the grant date. Each option is scheduled to vest in three installments, with one-third vesting on the date of grant and
the balance vesting in equal annual installments over each of the next two years, subject in each case to the executive’s continued
employment through the applicable vesting date and has a maximum term of ten years. However, vested options may terminate earlier in
connection with a change in control transaction or a termination of the Named Executive Officer’s employment. Subject to any accelerated
vesting that may apply in the circumstances, the unvested portion of the option will immediately terminate upon a termination of the
Named Executive Officer’s employment.
2021
Grants of Plan-Based Awards Table
The
following table presents information regarding the incentive awards granted to the Named Executive Officers during 2021. Each of the
equity awards reported in the table below was granted under the 2018 Plan.
Name | |
Grant
Date | |
Estimated
Future Payouts Under Non- Equity Incentive Plan Awards Target ($) (1) | | |
All
other Stock Awards: Number of Shares or Units of Stock (#) | | |
All
Other Option Awards: Number of Securities Under- lying Options (#) (2) | | |
Exercise
or Base Price of Option Awards ($/Share) (3) | | |
Grant
Date Fair Value of Stock and Option Awards ($/Share) (3) | |
Michael
H. Tardugno | |
N/A | |
$ | 586,545 | | |
| | | |
| | | |
| | | |
| | |
| |
3/19/2021 | |
| | | |
| | | |
| 43,333 | | |
$ | 33.60 | | |
$ | 30.51 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Nicholas
Borys | |
N/A | |
$ | 195,662 | | |
| | | |
| | | |
| | | |
| | |
| |
3/19/2021 | |
| | | |
| | | |
| 6,666 | | |
$ | 33.60 | | |
$ | 30.51 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Khursheed
Anwer | |
N/A | |
$ | 185,327 | | |
| | | |
| | | |
| | | |
| | |
| |
3/19/2021 | |
| | | |
| | | |
| 16,666 | | |
$ | 33.60 | | |
$ | 30.51 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Jeffrey
W. Church | |
N/A | |
$ | 117,037 | | |
| | | |
| | | |
| | | |
| | |
| |
3/19/2021 | |
| | | |
| | | |
| 18,333 | | |
$ | 33.60 | | |
$ | 30.51 | |
|
(1) |
The
amounts reported in this column represent the target bonus opportunity under the Company’s annual bonus program. See “Compensation
Discussion and Analysis – Incentive Compensation” above for information on the terms of these bonuses. |
|
|
|
|
(2) |
The
amounts reported in this column represented stock option awards granted under the 2018 Plan. Each option granted to each Named Executive
Officer is scheduled to vest in three installments, with one-half vesting on the date of grant and the balance vesting in annual
installments over each of the next two years, subject in each case to the executive’s continued employment through the applicable
vesting date and has a maximum term of ten years. |
|
|
|
|
(3) |
The
value reported for stock and option awards is the aggregate grant date fair value of stock options granted to the Named Executive
Officers in 2021, determined in accordance with FASB ASC Topic 718, disregarding adjustments for forfeiture assumptions. The assumptions
for making the valuation determinations are set forth in Note 11 to the Financial Statements. |
2021
Option Exercises and Stock Vested
During
2021, none of the Named Executive Officers exercised any of their vested stock options during 2021. No officers were awarded shares of
stock during 2021.
2021
Outstanding Equity Awards at Year-End
The
following table summarizes the unexercised stock options held by each of the Named Executive Officers as of December 31, 2021. None of
the Named Executive Officers held any other outstanding stock awards as of December 31, 2021.
| |
| |
Option Awards |
Name | |
Grant
Date | |
No.
of Securities Underlying Unexercised Options (#) Exercisable | | |
No.
of Securities Underlying Unexercised Options (#) Unexercisable | | |
Option
Exercise Price ($) | | |
Option
Expiration Date |
Michael
H. Tardugno | |
2/2/2016 | |
| 714 | | |
| – | | |
$ | 279.30 | | |
2/2/2026 |
| |
9/6/2016 | |
| 595 | | |
| – | | |
$ | 256.20 | | |
9/6/2026 |
| |
5/30/2017 | |
| 11,761 | | |
| – | | |
$ | 40.35 | | |
5/30/2027 |
| |
5/15/2018 | |
| 56,666 | | |
| – | | |
$ | 38.70 | | |
5/18/2028 |
| |
2/19/2019 | |
| 2,222 | | |
| 1,111 | (1) | |
$ | 32.70 | | |
2/19/2029 |
| |
5/14/2019 | |
| 2,222 | | |
| 1,111 | (1) | |
$ | 32.10 | | |
5/14/2029 |
| |
10/3/2019 | |
| 2,889 | | |
| 1,444 | (1) | |
$ | 25.80 | | |
10/3/2029 |
| |
6/15/2020 | |
| 3,000 | | |
| 6,000 | (1) | |
$ | 54.90 | | |
6/15/2030 |
| |
3/19/2021 | |
| 14,444 | | |
| 28,889 | (1) | |
$ | 33.60 | | |
3/19/2031 |
| |
| |
| | | |
| | | |
| | | |
|
Nicholas
Borys | |
2/2/2016 | |
| 238 | | |
| – | | |
$ | 279.30 | | |
2/2/2026 |
| |
9/6/2016 | |
| 193 | | |
| – | | |
$ | 256.20 | | |
9/6/2026 |
| |
5/15/2018 | |
| 14,930 | | |
| – | | |
$ | 38.70 | | |
5/18/2028 |
| |
2/19/2019 | |
| 889 | | |
| 444 | (1) | |
$ | 32.70 | | |
2/19/2029 |
| |
5/14/2019 | |
| 1,111 | | |
| 555 | (1) | |
$ | 32.10 | | |
5/14/2029 |
| |
10/3/2019 | |
| 1,555 | | |
| 778 | (1) | |
$ | 25.80 | | |
10/3/2029 |
| |
6/15/2020 | |
| 1,222 | | |
| 2,444 | (1) | |
$ | 54.90 | | |
6/15/2030 |
| |
3/19/2021 | |
| 2,222 | | |
| 4,444 | (1) | |
$ | 33.60 | | |
3/19/2031 |
| |
| |
| | | |
| | | |
| | | |
|
Khursheed
Anwer | |
2/2/2016 | |
| 190 | | |
| – | | |
$ | 279.30 | | |
2/2/2026 |
| |
5/30/2017 | |
| 1,210 | | |
| – | | |
$ | 40.35 | | |
5/30/2027 |
| |
5/15/2018 | |
| 5,500 | | |
| – | | |
$ | 38.70 | | |
5/18/2028 |
| |
2/19/2019 | |
| 1,378 | | |
| 689 | (1) | |
$ | 32.70 | | |
2/19/2029 |
| |
5/14/2019 | |
| 1,378 | | |
| 689 | (1) | |
$ | 32.10 | | |
5/14/2029 |
| |
10/3/2019 | |
| 1,889 | | |
| 944 | (1) | |
$ | 25.80 | | |
10/3/2029 |
| |
6/15/2020 | |
| 1,111 | | |
| 2,222 | (1) | |
$ | 54.90 | | |
6/15/2030 |
| |
3/19/2021 | |
| 5,555 | | |
| 11,111 | (1) | |
$ | 33.60 | | |
3/19/2031 |
| |
| |
| | | |
| | | |
| | | |
|
Jeffrey
W. Church | |
2/2/2016 | |
| 285 | | |
| – | | |
$ | 279.30 | | |
2/2/2026 |
| |
9/6/2016 | |
| 139 | | |
| – | | |
$ | 256.20 | | |
9/6/2026 |
| |
5/30/2017 | |
| 3,238 | | |
| – | | |
$ | 40.35 | | |
5/30/2027 |
| |
5/15/2018 | |
| 16,666 | | |
| – | | |
$ | 38.70 | | |
5/18/2028 |
| |
2/19/2019 | |
| 889 | | |
| 444 | (1) | |
$ | 32.70 | | |
2/19/2029 |
| |
5/14/2019 | |
| 1,111 | | |
| 555 | (1) | |
$ | 32.10 | | |
5/14/2029 |
| |
10/3/2019 | |
| 1,555 | | |
| 778 | (1) | |
$ | 25.80 | | |
10/3/2029 |
| |
6/15/2020 | |
| 1,222 | | |
| 2,444 | (1) | |
$ | 54.90 | | |
6/15/2030 |
| |
3/19/2021 | |
| 6,111 | | |
| 12,222 | (1) | |
$ | 33.60 | | |
3/19/2031 |
|
(1) |
Each
of these stock option grants vest in three equal installments, with one-third of the grant vesting each on the first, second and
third anniversary of the date of grant. |
Other
Compensation
Executive
officers are eligible to participate in our medical and other welfare benefit plans and for other benefits, in each case on generally
the same basis as other employees. We maintain a 401(k) plan for our employees. Other than the 401(k) plan, we do not offer any of our
employees a pension plan, retirement plan or other forms of compensation paid out upon retirement. The Company matches up to 50% of the
first 6% of employee contributions. Mr. Tardugno and Dr Anwer receive $21,500 and $6,000, respectively, as a discretionary spending allowance.
POST-EMPLOYMENT
OBLIGATIONS
We
believe that severance protections, particularly in the context of a change in control transaction, can play a valuable role in attracting
and retaining key executive officers. Under their employment agreements, each of the Named Executive Officers would be entitled to severance
benefits in the event of a termination of employment by the Company without cause. We have determined that it is appropriate to provide
the executives with severance benefits under these circumstances in light of their positions with us and as part of their overall compensation
package.
We
believe that the occurrence, or potential occurrence, of a change in control transaction will create uncertainty regarding the continued
employment of our executive officers as many change in control transactions result in significant organizational changes, particularly
at the senior executive level. In order to encourage the Company’s executive officers to remain employed with us during an important
time when their prospects for continued employment following the transaction may be uncertain, we provide each of Mr. Tardugno, Mr. Church
and Dr. Borys with enhanced severance benefits if his employment is actually or constructively terminated by the Company without cause
in connection with a change in control.
Employment
Agreement with Michael H. Tardugno
In
March 2016, the Company and Mr. Tardugno entered into an employment agreement, effective March 30, 2016 (the “March 2016 Agreement”),
which superseded the previous employment agreement with Mr. Tardugno. The amended and restated employment agreement generally maintained
the same terms as set forth in his previous December 2014 agreement but removed the modified single-trigger provision included in that
agreement. Under that provision, Mr. Tardugno was eligible to receive severance following a change in control if Mr. Tardugno elected
to terminate his employment for any reason or no reason commencing with the sixth and ending with the twelfth month following the change
in control. In accordance with commonly viewed best practices, the parties agreed to remove this provision so that it is no longer operative,
effective March 30, 2016. The following narrative describes the terms of Mr. Tardugno’s employment agreement, as in effect on December
31, 2021.
Subject
to earlier termination pursuant to the terms of the March 2016 Agreement, the initial term of the agreement ended on January 31,
2018, with automatic one-year renewals thereafter, unless either party provides a notice of non-renewal. Mr. Tardugno’s March 2016
Agreement provides for an annual base salary of $547,342 subject to annual adjustment by the Board of Directors of the Company or the
Compensation Committee. Mr. Tardugno is also eligible for an annual performance bonus from the Company, pursuant to the Company’s
management incentive bonus program in effect from time to time. The amount of such bonus will be determined by the Board of Directors
or the Compensation Committee in its sole and absolute discretion and will not exceed 100% of the then-current base salary except pursuant
to a specific finding by the Board of Directors or the Compensation Committee that a higher percentage is appropriate. Under the March
2016 Agreement, the Company agreed to grant to Mr. Tardugno, at the time of its usual annual grant to employees, annual stock options
to purchase shares of the Company’s common stock as the Board of Directors or the Compensation Committee shall determine.
In
the event of Mr. Tardugno’s termination due to death or disability during the employment term, Mr. Tardugno’s legal representatives
shall be entitled to receive his base salary through the date which is ninety (90) days after his death and a pro rata annual performance
bonus based on actual performance and the time served during the performance year. Upon Mr. Tardugno’s death or termination due
to disability, previously granted and vested stock options will remain fully exercisable through their respective original maximum terms
(subject to earlier termination in connection with a change in control of the Company and similar events as provided in the applicable
plan and/or award agreement) and all other stock options and stock awards (and similar equity rights) that have not vested prior to the
date of termination will be forfeited.
In
the event, (A) that we terminate the agreement other than for “cause” (as defined in the agreement) or (B) Mr. Tardugno terminates
the agreement upon the occurrence of: (i) a material adverse change in his duties or authority; (ii) a situation in which he is no longer
at least one of the President or the Chief Executive Officer of the Company; (iii) a bankruptcy filing or similar action by or against
us; or (iv) another material breach of the agreement by us (each, a “Triggering Event”), or (C) the agreement terminates
for nonrenewal, Mr. Tardugno will be entitled to receive a severance payment equal to his base annual salary at the time of termination
(the “Severance Amount”), payable in accordance with our normal payroll practices, COBRA premiums for up to twelve months
and may generally exercise any vested options through the remainder of their original terms.
In
the event of termination of his employment upon a Triggering Event within two years following a “change in control” (as described
below), or, if within such two-year period (i) there is a material adverse change in his compensation or benefits, or (ii) any successor
to the Company does not assume our obligations under the agreement, and he terminates his employment, Mr. Tardugno is entitled to a lump
sum severance payment equal to the Severance Amount and any previously unvested options granted to Mr. Tardugno and covered by the employment
agreement shall immediately vest and remain fully exercisable through the remainder of their original maximum terms and otherwise in
accordance with their respective original terms.
In
the event of termination of his employment upon a Triggering Event during the period commencing six months prior to a change in control
(“CIC”) (as described below) and ending on the 2nd anniversary of the CIC (i) there is a material adverse change
in his duties or responsibilities, (ii) there is a material adverse change in his compensation or benefits, or (iii) any successor to
the Company does not assume our obligations under the agreement, and he terminates his employment, Mr. Tardugno is entitled to a lump
sum severance payment equal to the Severance Amount and any previously unvested options granted to Mr. Tardugno and covered by the employment
agreement shall immediately vest and remain fully exercisable through the remainder of their original maximum terms and otherwise in
accordance with their respective original terms. A “change in control” is deemed to occur: (i) if any person becomes the
direct or indirect beneficial owner of more than 50% of the combined voting power of our then-outstanding securities; (ii) there is a
change in a majority of the directors in office during any twenty-four (24) month period; (iii) we engage in a recapitalization, reorganization,
merger, consolidation or similar transaction after which the holders of our voting securities before the transaction do not continue
to hold at least 50% of the voting securities of the Company or its successor after the transaction; or (iv) upon our complete liquidation
or dissolution of the Company or the sale or other disposition of substantially all of our assets after which the holders of our voting
securities before such sale or disposition do not continue to hold at least 50% of the voting securities of the Company or its successor
after such sale or disposition.
In
the event that Mr. Tardugno is terminated for cause or is receiving severance payments contemplated under the employment agreement, Mr.
Tardugno shall, among other things, not provide any services, directly or indirectly, to any other business or commercial entity in the
Company’s “Field of Interest” (as such term is defined in his employment agreement), solicit any customers or suppliers
of the Company, directly or indirectly, or employ or seek to employ an employee of the Company for a period of two years following the
date of termination. In addition, at no time during the term of the employment agreement or thereafter will Mr. Tardugno knowingly make
any written or oral untrue statement that disparages the Company. Mr. Tardugno is also subject to confidentiality provisions in his employment
agreement.
Employment
Agreements with Other Named Executed Officers
Nicholas
Borys
The
Company and Dr. Borys entered into an employment offer letter on August 23, 2007, pursuant to which Dr. Borys agreed to serve as our
Vice President and Chief Medical Officer. Dr. Borys’ employment with us is “at-will”; however, subject to a retention
agreement the Company provided to Dr. Borys on February 19, 2013, if we terminate Dr. Borys’ employment for any reason other than
just cause, we will pay Dr. Borys a salary continuation and COBRA premiums for up to twelve months. The salary and COBRA premiums will
cease at the end of the twelve-month period or, if he finds new employment prior to the end of the twelve-month period, the benefit will
be reduced by the amount of compensation which he will receive from any new employer.
Jeffrey
Church
The
Company and Mr. Church entered into an employment offer letter on June 15, 2010. Mr. Church’s employment is “at-will”;
however, if we terminate Mr. Church’s employment for any reason other than just cause, we will pay Mr. Church a salary continuation
and COBRA premiums for up to twelve months. The salary and COBRA premiums will cease at the end of the twelve-month period or if he finds
new employment prior to the twelve-month period, the benefit will be reduced by the amount of compensation which he will receive from
any new employer.
Khursheed
Anwer
The
Company and Dr. Anwer entered into an employment offer letter effective as of June 20, 2014. Dr. Anwer’s employment with us is
“at-will”; however, subject to the retention and severance agreement between the Company and Dr. Anwer dated as of May 28,
2014, if we terminate Dr. Anwer’s employment without cause (as such term is defined in the retention and severance agreement),
he will be entitled to receive cash severance equal to 12 months of his base salary and reimbursement of his COBRA premiums for up to
12 months. Dr. Anwer’s right to receive these severance benefits is subject to his providing a release of claims in favor of the
Company.
Change
in Control Agreements
In
September 2016, we entered into amended and restated change in control severance agreements (CIC Agreements) with each of the Named Executive
Officers (other than Dr. Anwer who is not subject to such an agreement) to provide severance benefits to these executives should their
employment terminate in certain circumstances in connection with a change in control of the Company.
Under
the amended and restated CIC Agreements, in the event that we terminate the executive’s employment without cause or in the event
that the executive terminates his employment for good reason, in either case on or within two years after a change in control of the
Company, the executive would be entitled to receive a cash lump sum payment equal to two (2) times the sum of (1) the executive’s
annual base salary and (2) the executive’s target annual bonus for the fiscal year in which the termination occurs. (For these
purposes, the terms “cause,” “good reason” and “change in control” are each defined in the CIC Agreement.)
In addition, we will pay or reimburse the executive for the cost of COBRA premiums and life insurance coverage for the executive and
his eligible dependents, in each case for a period of up to two years following the termination. The executive would also be entitled
to full acceleration of his then-outstanding equity awards granted to him by us. However, as to any equity award agreement that is subject
to performance-based vesting requirements, the vesting of such award will continue to be governed by its terms. In the case of options
or similar awards, the award would generally remain exercisable for the remainder of the original term of the award (or, in the case
of awards that vested after the date of the change in control, for the lesser of 12 months following the last day such award would have
been exercisable under the applicable award agreement and the remainder of the original term). The benefits provided under the CIC Agreement
are in addition to, and not in lieu of, any severance benefits the executive may be entitled to receive in connection with the termination
of his employment under any other agreement with the Company. The executive’s right to benefits under the CIC Agreement is subject
to his executing a release of claims in favor of the Company upon the termination of his employment.
Material
Terms of Option Grants During 2021
Each
of the stock options awarded to the Named Executive Officers in 2021 and reported in the 2021 Grants of Plan-Based Awards Table below
was granted under, and is subject to, the terms of the 2018 Plan. The 2018 Plan is administered by the Compensation Committee, which
has authority to interpret the plan provisions and make all required determinations under the plan. This authority includes making required
proportionate adjustments to outstanding awards upon the occurrence of certain corporate events such as reorganizations, mergers, and
stock splits, and making provision to ensure that any tax withholding obligations incurred in respect of awards are satisfied. Awards
granted under the plan are generally only transferable to a beneficiary of a Named Executive Officer upon his death. Under the terms
of the 2018 Plan, if there is a change in control of the Company, each Named Executive Officer’s outstanding awards granted under
the plan will generally terminate, unless the Compensation Committee provides for the substitution, assumption, exchange or other continuation
or settlement (in cash, securities, or property) of the outstanding awards. The Compensation Committee has discretion to provide for
outstanding awards to become vested in connection with a change in control.
Each
option granted to the Named Executive Officers in 2021 was granted with a per-share exercise price equal to the closing price of our
common stock on the grant date. Each option is scheduled to vest in three installments, with one-third vesting on the date of grant and
the balance vesting in equal annual installments over each of the next two years, subject in each case to the executive’s continued
employment through the applicable vesting date and has a maximum term of ten years. However, vested options may terminate earlier in
connection with a change in control transaction or a termination of the Named Executive Officer’s employment. Subject to any accelerated
vesting that may apply in the circumstances, the unvested portion of the option will immediately terminate upon a termination of the
Named Executive Officer’s employment.
Potential
Payments Upon Termination or Change In Control
As
described above under “Narrative Disclosure to Executive Compensation Tables,” the Company has entered into agreements with
each of the Named Executive Officers currently employed by the Company that provide benefits that may become payable to the executives
in connection with a termination of their employment. The Company has also entered into agreements with Mr. Tardugno, Mr. Church and
Dr. Borys that provides benefits that may become payable to the executives in connection with a termination of employment following a
change in control of the Company. If in the event the Named Executive Officer is entitled to receive severance benefits in connection
with a termination of employment under both their severance agreement and their change in control agreement, the executive shall be entitled
to receive the benefits from both agreements. The first table below indicates the benefits that would be payable to each executive if
a termination of employment in the circumstances described above had occurred on December 31, 2021 outside of a change in control. The
second table below indicates the benefits that would be payable to each executive if a change in control of the Company and such a termination
of employment had occurred on that date.
Severance
Benefits (Outside of a Change in Control) | |
| | |
| | |
| | |
| |
Name | |
Cash Severance | | |
Continuation of
Health/Life Benefit | | |
Equity Acceleration | | |
Total | |
| |
| | |
| | |
| | |
| |
Michael
H. Tardugno | |
$ | 586,545 | | |
$ | 22,032 | | |
| – | | |
$ | 608,577 | |
Nicholas
Borys | |
$ | 217,402 | | |
$ | 15,870 | | |
| – | | |
$ | 233,272 | |
Khursheed
Anwer | |
$ | 370,654 | | |
$ | 22,032 | | |
| – | | |
$ | 392,686 | |
Jeffrey
W. Church | |
$ | 200,063 | | |
$ | 11,016 | | |
| – | | |
$ | 211,079 | |
Change
of Control Severance Benefits | |
| | |
| | |
| | |
| |
Name | |
Cash Severance | | |
Continuation of
Health/Life Benefit | | |
Equity Acceleration | | |
Total | |
| |
| | |
| | |
| | |
| |
Michael
H. Tardugno | |
$ | 2,346,180 | | |
$ | 44,064 | | |
| – | | |
$ | 2,390,244 | |
Nicholas
Borys | |
$ | 1,260,932 | | |
$ | 63,480 | | |
| – | | |
$ | 1,324,412 | |
Jeffrey
W. Church | |
$ | 1,160,365 | | |
$ | 44,064 | | |
| – | | |
$ | 1,204,429 | |
2021
DIRECTOR COMPENSATION TABLE
The
following table sets forth the cash and noncash compensation paid to the Company’s directors who are not employed by the Company
or any of its subsidiaries (“Non-Employee Directors”) for the year ended December 31, 2021. Other than as set forth in the
table, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee
members of our Board in 2021. The compensation paid to any director who was also one of our employees during fiscal year 2021 is presented
in the “2021 Summary Compensation Table” and the information that follows that table. Such employee directors do not receive
separate compensation for service on the Board of Directors or any of its committees.
Name | |
Fees
Earned ($) | | |
Option
Awards ($) (1) | | |
Total
($) | |
Augustine
Chow | |
$ | 39,300 | | |
$ | 79,697 | | |
$ | 118,997 | |
Robert
W. Hooper | |
| 45,300 | | |
| 79,697 | | |
| 124,997 | |
Frederick
J. Fritz | |
| 100,900 | | |
| 79,697 | | |
| 180,597 | |
Donald
P. Braun | |
| 52,900 | | |
| 79,697 | | |
| 132,597 | |
Stacy
R. Lindborg | |
| 18,750 | | |
| 44,104 | | |
| 62,854 | |
Christine
A. Pellizzari | |
| 19,950 | | |
| 44,461 | | |
| 64,411 | |
Andreas
Voss (2) | |
| 33,150 | | |
| 79,697 | | |
| 112,847 | |
|
(1) |
The
value reported for Option Awards is the aggregate grant date fair value of stock options granted to each Director in 2021, determined
in accordance with FASB ASC Topic 718. The assumptions for making the valuation determinations are set forth in Note 11 in the Financial
Statements. As of December 31, 2021, Dr. Chow had 12,242 option awards outstanding; Mr. Hooper had 11,978 option awards outstanding;
Mr. Fritz had 12,004 option awards outstanding; Dr. Braun and Dr. Voss each had 10,087 option awards outstanding; and Dr. Lindborg
and Ms. Pellizzari each had 2,666 option awards outstanding. |
|
|
|
|
(2) |
Dr.
Voss resigned from the Board of Directors effective December 31, 2021. |
The
following table sets forth stock option grants awarded to the Company’s Non-Employee Directors for the year ended December 31,
2021. The stock option grants to any director who was also one of our employees during fiscal year 2021 is presented in the “2021
Grants of Plan-Based Awards Table” and the information that follows that table. Employee directors do not receive separate equity
awards for service on the Board of Directors or any of the Board committees.
| |
Non-Employee
Director Stock Option and Grant Awards Table | |
Name | |
Number
of Options Granted (#) (1) | | |
Exercise Price
($) | | |
Grant
Date | |
Expiration
Date | |
Grant
Date Fair Value ($) | |
Augustine
Chow | |
| 2,666 | | |
$ | 33.60 | | |
3/19/2021 | |
3/19/2031 | |
$ | 29.89 | |
| |
| | | |
| | | |
| |
| |
| | |
Robert
W. Hooper | |
| 2,666 | | |
$ | 33.60 | | |
3/19/2021 | |
3/19/2031 | |
$ | 29.89 | |
| |
| | | |
| | | |
| |
| |
| | |
Frederick
J. Fritz | |
| 2,666 | | |
$ | 33.60 | | |
3/19/2021 | |
3/19/2031 | |
$ | 29.89 | |
| |
| | | |
| | | |
| |
| |
| | |
Donald
P. Braun | |
| 2,666 | | |
$ | 33.60 | | |
3/19/2021 | |
3/19/2031 | |
$ | 29.89 | |
| |
| | | |
| | | |
| |
| |
| | |
Stacy
R. Lindborg | |
| 2,666 | | |
$ | 18.60 | | |
6/4/2021 | |
6/4/2031 | |
$ | 16.54 | |
| |
| | | |
| | | |
| |
| |
| | |
Christine
A. Pellizzari | |
| 2,666 | | |
$ | 18.75 | | |
6/8/2021 | |
6/8/2031 | |
$ | 16.67 | |
| |
| | | |
| | | |
| |
| |
| | |
Andreas
Voss (2) | |
| 2,666 | | |
$ | 33.60 | | |
3/19/2021 | |
3/19/2031 | |
$ | 29.89 | |
|
(1)
|
Each
of these stock option grants vest in three equal installments, with one-third of the grant vesting on the date of grant and one third
of the grant vesting on each of the first and second anniversary of the date of grant, subject to the applicable director’s
continued service as a member of our Board through each applicable vesting date. |
|
(2) |
Dr.
Voss resigned from the Board of Directors effective December 31, 2021. |
NARRATIVE
DISCLOSURE TO DIRECTOR COMPENSATION TABLE
During
the year ended December 31, 2021, each Non-Employee Director of the Company received annual cash compensation in the amount of $29,500
payable in quarterly installments, and an additional $2,000 for attendance, in person or $1,000 if telephonically, at regular meetings
of the Board of Directors and each meeting of a committee of the Board of Directors that was not held in conjunction with a meeting of
the Board of Directors. Each Non-Employee director is reimbursed for the out-of-pocket costs of attending meetings of the Board of Directors
and of committees of the Board of Directors. In 2021, the Chairman of the Audit Committee received an additional annual cash fee of $13,000
and the Chairman of the Compensation Committee received an additional annual cash fee of $10,000.
Acting
on behalf of the Board of Directors, Mr. Fritz also received fees totaling $48,000 in 2021 for his role as a Board Liaison to our Board
of Directors. Mr. Fritz’s responsibilities as Board Liaison include the following: (i) serve as an initial sounding board for our
management regarding issues, matters, or communications to be brought or potentially to be brought before the Board of Directors; (ii)
provide input and feedback to management regarding strategic matters, business matters, major scientific, clinical, collaboration, or
corporate development matters, key personnel matters, or other items of significance regarding which management would like to obtain
initial or further Board guidance, including, but not limited to, guidance regarding timing and content of communications regarding such
matters or items with the full Board or any of its committees; (iii) remain accessible to management to provide guidance on business
or strategy issues or other issues of significance on an as-needed basis; (iv) participate in meetings and relevant discussions as requested
by management; (v) conduct general advisory or liaison services to the Board, including relaying to management requests from other members
of the Board regarding desired additional information or clarification or suggestions or feedback regarding improvement in Board processes
or communications; (vi) serve as a conduit for informal communications between management and the Board; and (vii) any other such services
established by the Board from time to time.
Acting
on behalf of our Board of Directors, Dr. Voss also received fees totaling $16,000 in 2021 for his role as a strategic advisor to our
Chief Executive Officer. Dr. Voss’ responsibilities as a strategic advisor include the following: (i) provide strategic and tactical
advice to our Chief Executive Officer; (ii) evaluate international subsidiary options; (iii) develop strategies to secure business relationships
other than in the U.S.; and (iv) having done both (ii) and (iii), develop high potential ex-US market strategies that address the objectives
for broad and profitable sales of its commercial products. Through this advisory role, Dr. Voss
accepted the position of Managing Director of Celsion GmbH, a wholly owned subsidiary of the Company. In this role, Dr. Voss has elected
to devote his time to providing strategy, direction, and general management to Celsion GmbH and has concluded that the time necessary
to do so would interfere with the demands of the Company’s Board. Dr. Voss intends to retire for these reasons and not because
of any disagreement with management or the Board relating to the Company’s operations, policies or practices. Dr. Voss’s
current term as a Class III director was scheduled to end at the Company’s 2022 Annual Meeting of Stockholders.
Acting
on behalf of our Board of Directors, Dr. Braun also received fees totaling $15,000 in 2021 for his role as a strategic advisor to our
Chief Executive Officer. Dr. Braun’s responsibilities as a strategic advisor include the following: (i) provide strategic and tactical
advice to our Chief Executive Officer; (ii) evaluate international subsidiary options; (iii) develop strategies to secure business relationships
other than in the U.S.; and (iv) having done both (ii) and (iii), develop high potential ex-US market strategies that address the objectives
for broad and profitable sales of its commercial products.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr.
Hooper and Dr. Chow each served on the Compensation Committee of our Board of Directors for 2021. Dr Lindborg will also serve on the
Compensation Committee starting in July 2022. No director who served on our Compensation Committee at any time during 2021 is or was
a current or former executive officer or employee of the Company or had any relationships requiring disclosure by the Company under the
SEC’s rules requiring disclosure of certain relationships and related party transactions. None of the members of the Compensation
Committee during fiscal year 2021 was, or has ever been, an officer or employee of the Company, and, during fiscal year 2021, no executive
officer of the Company served on the board and/or compensation committee of any company that employed as an executive officer any member
of the Company’s Board and/or Compensation Committee.
STOCK
OWNERSHIP GUIDELINES FOR NON-EMPLOYEE AND EXECUTIVE DIRECTORS
Our
Board of Directors believes that, as a matter of sound corporate governance, non-employee and executive directors should have a significant
personal financial stake in our performance. Consequently, in February 2011, our Board of Directors adopted stock ownership guidelines
for non-employee and executive directors. Our corporate governance guidelines require that each non-employee director acquire and hold
shares of our common stock having an aggregate value equal to two times the director’s total compensation in the first year of
service and that our executive director acquire and hold shares of our common stock having an aggregate value equal to the executive
director’s total compensation in the first year of service. Each director is expected to satisfy the applicable ownership guideline
within three years after his or her appointment to the Board.
Shares
of our common stock that count toward satisfaction of these ownership guidelines include, unless beneficial ownership therein is disclaimed:
(i) shares owned outright by the director or executive officer or their immediate family members residing in the same household, whether
held individually or jointly; (ii) shares held in a trust, family limited partnership or similar entity solely for the benefit of the
director or executive officer and/or their immediate family members; (iii) shares of restricted stock and restricted stock units awarded
under our equity incentive plans, including vested and unvested awards; and (iv) shares acquired upon stock option exercise, but not
shares underlying unexercised stock options.
ITEM
12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The
following table sets forth certain information known to the Company regarding the beneficial ownership of the Company’s common
stock as of March 30, 2022 by:
|
● |
each
person or group known by us to own beneficially more than five percent of the outstanding common stock; |
|
|
|
|
● |
each
of our directors and the director nominees, as well as each executive officer named in the Summary Compensation Table appearing under
the heading “Executive Compensation”; and |
|
|
|
|
● |
our
directors and executive officers as a group. |
We
determine beneficial ownership in accordance with the rules of the SEC. Under SEC rules, beneficial ownership for purposes of this table
takes into account shares as to which the individual has voting or investment power as well as shares that may be acquired within 60
days. Shares of common stock subject to options that are currently exercisable or that become exercisable within 60 days of March 30,
2022 are treated as outstanding and beneficially owned by the holder of such options. However, these shares are not treated as outstanding
for purposes of computing the percentage ownership of any other person. Unless otherwise indicated or as to the interests of spouses,
the persons included in the table have sole voting and investment power with respect to all shares beneficially owned thereby.
NAME
OF BENEFICIAL OWNER | |
NUMBER
OF SHARES OF COMMON STOCK BENEFICIALLY OWNED (1) | | |
PERCENT
OF SHARES OF COMMON STOCK OUTSTANDING (2) | |
| |
| | |
| |
Augustine
Chow* (1) | |
| 12,439 | | |
| ** | |
Robert
W. Hooper* (2) | |
| 13,791 | | |
| ** | |
Stacy
R. Lindborg* (3) | |
| 1,722 | | |
| ** | |
Frederick
J. Fritz* (4) | |
| 18,871 | | |
| ** | |
Donald
P. Braun* (5) | |
| 10,368 | | |
| ** | |
Christine
Pellizzari* (6) | |
| 1,722 | | |
| ** | |
Michael
H. Tardugno* (7) | |
| 150,359 | | |
| 2.61 | % |
Nicholas
Borys* (8) | |
| 35,675 | | |
| ** | |
Khursheed
Anwer* (9) | |
| 34,666 | | |
| ** | |
Jeffrey
W. Church* (10) | |
| 41,943 | | |
| ** | |
Directors
and Executive Officers as a group (10 persons) | |
| 321,557 | | |
| 5.57 | % |
|
* |
The
address of each of the individuals named is c/o Celsion Corporation, 997 Lenox Drive, Suite 100, Lawrenceville, NJ 08648. |
|
|
|
|
** |
Less
than one percent. |
|
|
|
|
(1) |
Includes
12,343 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(2) |
Includes
12,079 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(3) |
Includes
1,722 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(4) |
Includes
12,105 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(5) |
Includes
9,771 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(6) |
Includes
1,722 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(7) |
Includes
137,846 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(8) |
Includes
32,248 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(9) |
Includes
31,811 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
|
|
|
|
(10) |
Includes
38,326 shares of common stock underlying options currently exercisable or exercisable within 60 days of March 30, 2022. |
Equity
Compensation Plan Information as of December 31, 2021
Plan
Category | |
Number
of securities to be issued upon exercise of outstanding
options, warrants and
rights (a) | | |
Weighted-
average exercise price of outstanding options, warrants and rights (b) | | |
Number
of Securities remaining available for future issuance under equity compensation plans (excluding securities
reflected in column (a)) (c) | |
| |
| | |
| | |
| |
Equity
compensation plans approved by security holders | |
| 433,676 | (1) | |
$ | 38.55 | | |
| 512,884 | (2) |
Equity
compensation plans not approved by security holders | |
| 9,332 | (3) | |
| 37.13 | | |
| – | |
Total | |
| 443,008 | | |
$ | 38.55 | | |
| 512,884 | |
|
(1)
|
Includes
both vested and unvested options to purchase common stock and unvested stock grants under the 2018 Plan. These awards have a weighted
average remaining term of 7.4 years. |
|
|
|
|
(2)
|
Represents
shares available for award grant purposes under the 2018 Plan. Subject to certain express limits of the plan, shares available under
the plan generally may be used for any type of award authorized under that plan including options, stock appreciation rights, restricted
stock and other forms of awards granted or denominated in shares of our common stock or units of our common stock. |
|
|
|
|
(3) |
Includes
both vested and unvested options to purchase common stock and unvested stock grants under inducement grants provided certain employees
as an inducement to accept employment with the Company. These awards have a weighted average remaining term of 7.0 years. These grants
are similar to those granted under the 2018 Plan and is more fully discussed in Note 11 to the Financial Statements. |
ITEM
13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Related
Party Transactions
None
Director
Independence
In
addition, in accordance with the rules of the SEC and NASDAQ, the Company requires that at least a majority of the directors serving
at any time on the Board of Directors be independent, that at least three directors satisfy the financial literacy requirements for service
on the Audit Committee and that at least one member of the Audit Committee qualify as an “audit committee financial expert”
under those rules.
The
Board of Directors has determined that Mr. Fritz is qualified to serve as the “audit committee financial expert” as defined
by Item 407(d)(5) of Regulation S-K and that Mr. Fritz, Ms. Pellizzari and Drs. Chow and Braun meet the financial literacy requirements
under applicable SEC and NASDAQ rules. The Board of Directors determined that of the six currently serving directors, five directors
(Drs. Augustine Chow, Donald P. Braun, Andreas Voss and Messrs. Robert W. Hooper and Frederick J. Fritz) are independent under applicable
SEC and NASDAQ rules. Mr. Fritz acts as the chairman of our Audit Committee.
ITEM
14. |
PRINCIPAL
ACCOUNTANT FEES AND SERVICES |
Withum,
Brown + Smith PC (“Withum”) has served as our independent accountants since 2017 and has advised us that neither Withum nor
any of its members has, or has had in the past three years, any financial interest in the Company or any relation to the Company other
than as auditors and accountants.
FEES
The
following table presents fees as invoiced for professional audit services rendered for the audit of our annual financial statements included
in the Company’s Form 10-K and review of quarterly financial statements included in the Company’s Forms 10-Q for the fiscal
years ended December 31, 2021 and December 31, 2020, and fees for other services rendered during those periods:
| |
2021 | | |
2020 | |
FEE
CATEGORY | |
AMOUNT | | |
%
OF TOTAL | | |
AMOUNT | | |
%
OF TOTAL | |
Audit
Fees | |
$ | 124,500 | | |
| 75 | % | |
$ | 101,000 | | |
| 56 | % |
Audit
Related Fees | |
| 17,550 | | |
| 10 | | |
| 69,000 | | |
| 39 | |
Tax
Fees | |
| 24,334 | | |
| 15 | | |
| 9,000 | | |
| 5 | |
All
Other Fees | |
| – | | |
| – | | |
| – | | |
| – | |
Total
Fees | |
$ | 166,384 | | |
$ | 100 | % | |
$ | 179,000 | | |
$ | 100 | % |
Audit
fees consist of fees for professional services rendered by Withum for the audits of our annual financial statements in our Form 10-K
and for reviews of the quarterly financial statements included in the Company’s Forms 10-Q. Audit related fees pertain to the work
performed during our equity offerings in 2021 and 2020. Tax fees consist of fees for preparation of the Company’s federal and state
tax returns. All other fees consist of fees for attendance at the Company’s annual meetings, review of registration statements
and similar matters.
SERVICES
BY EMPLOYEES OF WITHUM
No
part of Withum’s engagement to audit the Company’s financial statements for the years ended December 31, 2021 and 2020 was
attributable to work performed by persons other than Withum’s full-time, permanent employees.
AUDIT
COMMITTEE POLICY ON APPROVAL OF AUDIT AND NON-AUDIT SERVICES
It
is the policy of the Audit Committee to pre-approve all audit and permissible non-audit services provided by our independent accountants,
in accordance with rules prescribed by the SEC. These services may include audit services, audit-related services, tax services, and
other services. Pre-approval is based on a written proposal, accompanied by a cost estimate and estimated budget. The Audit Committee
has delegated to its Chairman the authority to pre-approve audit and non-audit services with an estimated cost of up to $25,000, provided
the exercise of such authority is reported to the Audit Committee at its next regular meeting. The Audit Committee reserves the right,
from time to time, to delegate pre-approval authority to other of its members, so long as such members are independent directors. All
audit and permissible non-audit services during 2021 and 2020 were approved by the Audit Committee in accordance with its pre-approval
policy and the approval requirements of the SEC.
PART
IV
ITEM
15. |
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES |
(a)
The following documents are filed as part of this Annual Report:
1.
FINANCIAL STATEMENTS
The
following is a list of the consolidated financial statements of Celsion Corporation filed with this Annual Report, together with the
reports of our independent registered public accountants and Management’s Report on Internal Control over Financial Reporting.
2.
FINANCIAL STATEMENT SCHEDULES
All
financial statement schedules are omitted because the information is inapplicable or presented in the notes to the consolidated Financial
Statements.
3.
EXHIBITS
The
following documents are included as exhibits to this report:
EXHIBIT
NO. |
|
DESCRIPTION |
|
|
|
2.1* |
|
Asset Purchase Agreement dated as of June 6, 2014, by and between Celsion Corporation and EGEN, Inc., incorporated herein by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2014. |
|
|
|
3.1 |
|
Certificate of Incorporation of Celsion, as amended, incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2004. |
|
|
|
3.2 |
|
Certificate of Ownership and Merger of Celsion Corporation (a Maryland Corporation) into Celsion (Delaware) Corporation (inter alia, changing the Company’s name to “Celsion Corporation” from “Celsion (Delaware) Corporation”), incorporated herein by reference to Exhibit 3.1.3 to the Annual Report of the Company for the year ended September 30, 2000. |
|
|
|
3.3 |
|
Certificate of Amendment of the Certificate of Incorporation effective and filed on February 27, 2006, incorporated therein by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on March 1, 2006. |
|
|
|
3.4 |
|
Certificate of Amendment to Certificate of Incorporation effective October 28, 2013, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on October 29, 2013. |
3.5 |
|
Certificate of Amendment to Certificate of Incorporation effective June 15, 2016, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company, filed on June 15, 2016. |
|
|
|
3.6 |
|
Certificate of Amendment to Certificate of Incorporation, effective May 26, 2017, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company, filed on May 26, 2017. |
|
|
|
3.7 |
|
Amended and Restated By-laws of the Company dated June 16, 2020, incorporated by reference to Exhibit 3.1 to the Quarterly Report of the Company for the quarter ended June 30, 2020. |
|
|
|
4.1 |
|
Form of Common Stock Certificate, par value $0.01, incorporated herein by reference to Exhibit 4.1 to the Annual Report of the Company for the year ended September 30, 2000. |
|
|
|
4.2 |
|
Form of Representative’s Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of the Company, filed on October 31, 2017. |
|
|
|
4.3 |
|
Form of Placement Agent Common Stock Purchase Warrant incorporated herein by reference to Exhibit 4.4 to the Current Report on Form 8-K of the Company, filed on July 11, 2017. |
|
|
|
4.4 |
|
Form of Series AA Warrant, incorporated herein by reference to Exhibit 4.26 to the Registration Statement to the Registration Statement on Form S-1 of the Company, filed on February 13, 2017. |
|
|
|
4.5 |
|
Form of Amended and Restated Warrant (issued under First Amendment of Venture Loan and Security Agreement, dated as of August 1, 2020, by and among Celsion Corporation, Horizon Funding I, LLC, Horizon Funding Trust 2019-1, and Horizon Technology Finance Corporation, as Collateral Agent), incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of the Company, filed on September 4, 2020. |
|
|
|
4.6 |
|
Form of Exchange Warrant, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of the Company, filed on March 13, 2020. |
|
|
|
4.7 |
|
Description of Securities of the Registrant, incorporated herein by reference to Exhibit 4.5 to the Annual Report on Form 10-K of the Company, filed on March 25, 2020. |
|
|
|
10.1*** |
|
Celsion Corporation 2007 Stock Incentive Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on May 16, 2017. |
|
|
|
10.2 |
|
Form Inducement Offer to Exercise Common Stock Purchase Warrants, incorporated herein by reference to exhibit 10.3 to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2017. |
|
|
|
10.3*** |
|
Celsion Corporation 2018 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed May 15, 2018. |
|
|
|
10.4***
|
|
First Amendment to the Celsion Corporation 2018 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on May 15, 2020. |
|
|
|
10.5*** |
|
Second Amendment to the Celsion Corporation 2018 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on June 16, 2020. |
|
|
|
10.6*** |
|
Amended and Restated Employment Agreement, effective March 30, 2016, between Celsion Corporation and Mr. Michael H. Tardugno, incorporated by reference to Exhibit 10.8 to the Annual Report of the Company filed on March 30, 2016. |
|
|
|
10.7*** |
|
Employment Offer Letter, entered into on June 15, 2010, between the Company and Jeffrey W. Church, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on June 18, 2010. |
|
|
|
10.8* |
|
Patent License Agreement between the Company and Duke University dated November 10, 1999, incorporated herein by reference to Exhibit 10.9 to the Annual Report of the Company for the year ended September 30, 1999. |
10.9* |
|
License Agreement dated July 18, 2003, between the Company and Duke University, incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-3 (File No. 333-108318) filed on August 28, 2003. |
|
|
|
10.10* |
|
Development, Product Supply and Commercialization Agreement, effective December 5, 2008, by and between the Company and Yakult Honsha Co., Ltd., incorporated herein by reference to Exhibit 10.15 to the Annual Report of the Company for the year ended December 31, 2008. |
|
|
|
10.11* |
|
The 2nd Amendment to The Development, Product Supply and Commercialization Agreement, effective January 7, 2011, by and between the Company and Yakult Honsha Co., Ltd. incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on January 18, 2011. |
|
|
|
10.12 |
|
Lease Agreement, executed July 21, 2011, by and between Celsion Corporation and Brandywine Operating Partnership, L.P., incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on July 25, 2011. |
|
|
|
10.13 |
|
First Amendment to Lease Agreement, executed April 20, 2017, by and between Celsion Corporation and Lenox Drive Office Park, LLC, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 10-Q of the Company filed on November 14, 2017. |
|
|
|
10.14* |
|
Technology Development Agreement effective as of May 7, 2012, by and between Celsion Corporation and Zhejiang Hisun Pharmaceutical Co. Ltd., incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012. |
|
|
|
10.15* |
|
Technology Development Contract dated as of January 18, 2013, by and between Celsion Corporation and Zhejiang Hisun Pharmaceutical Co. Ltd., incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2013. |
|
|
|
10.16*** |
|
Employment Offer Letter effective as of June 2, 2014, between the Company and Khursheed Anwer incorporated herein by reference to Exhibit 10.27 to the Annual Report of the Company for the year ended December 31, 2014. |
|
|
|
10.17*** |
|
Amended and Restated Change in Control Agreement dated as of September 6, 2016, by and between the Company and Michael H. Tardugno, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016. |
|
|
|
10.18*** |
|
Amended and Restated Change in Control Agreement dated as of September 6, 2016, by and between the Company and Nicholas Borys, M.D., incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016. |
|
|
|
10.19*** |
|
Amended and Restated Change in Control Agreement dated as of September 6, 2016, by and between the Company and Jeffrey W. Church, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016. |
|
|
|
10.20*** |
|
Amended and Restated Change in Control Agreement dated as of September 6, 2016, by and between the Company and Timothy J. Tumminello, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016. |
|
|
|
10.21 |
|
Form of Securities Purchase Agreement incorporated herein by reference to Exhibit 10.33 to the Registration Statement on Form S-1 of the Company filed on February 13, 2017. |
|
|
|
10.22 |
|
Lease Agreement dated January 15, 2018, by and between Celsion Corporation and HudsonAlpha Institute of Biotechnology for office and lab space located in Huntsville, Alabama incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2018. |
|
|
|
10.23 |
|
Venture Loan and Security Agreement dated June 27, 2018, by and between Celsion Corporation and Horizon Technology Finance Corporation incorporated herein by reference to Exhibit 10.0 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018. |
10.24 |
|
First Amendment of Venture Loan and Security Agreement, dated as of August 1, 2020, by and among Celsion Corporation, Horizon Funding I, LLC, Horizon Funding Trust 2019-1, and Horizon Technology Finance Corporation, as Collateral Agent, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the SEC on September 4, 2020 |
|
|
|
10.25 |
|
Common Stock Purchase Agreement, dated August 31, 2018 between Celsion Corporation and Aspire Capital Fund, LLC incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on September 4, 2018. |
|
|
|
10.26 |
|
Capital on DemandTM Sales Agreement, dated December 4, 2018, between Celsion Corporation and JonesTrading Institutional Services LLC incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on December 4, 2018. |
|
|
|
10.27 |
|
Common Stock Purchase Agreement, dated October 28, 2019 between Celsion Corporation and Capital Fund, LLC incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on October 28, 2019. |
|
|
|
10.28 |
|
Placement Agent Agreement, dated January 22, 2021, between Celsion Corporation and A.G.P./Alliance Global Partners, incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K of the Company, filed on January 25, 2021. |
|
|
|
10.29 |
|
Form of Securities Purchase Agreement between Celsion Corporation and the investors therein, dated January 22, 2021, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on January 5, 2021. |
|
|
|
10.30 |
|
Form of Securities Purchase Agreement between Celsion Corporation and the investors therein, dated February 27, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on March 3, 2020. |
|
|
|
10.31 |
|
Settlement Agreement and Release, by and between the plaintiff to the shareholder action captioned O’Connor v. Braun, et al., N.J. Super., Dkt. No. MERC-00068-19, William J. O’Connor, derivatively on behalf of Celsion Corporation and individually on behalf of himself and all other similarly situated stockholders of Celsion Corporation and defendants, incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of the Company, filed on June 16, 2020. |
|
|
|
10.32 |
|
Form of Exercise Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on March 13, 2020. |
|
|
|
21.1+ |
|
Subsidiaries of Celsion Corporation |
|
|
|
23.1+ |
|
Consent of WithumSmith+Brown, PC, independent registered public accounting firm for the Company. |
|
|
|
31.1+ |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2+ |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1^ |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2^ |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
Inline
XBRL Instance Document |
|
|
|
101.SCH |
|
Inline
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
101** |
|
The
following materials from the Company’s Annual Report for the fiscal year ended December 31, 2019, formatted in XBRL (Extensible
Business Reporting Language): (i) the audited Consolidated Balance Sheets, (ii) the audited Consolidated Statements of Operations,
(iii) the audited Consolidated Statements of Comprehensive Loss, (iv) the audited Consolidated Statements of Cash Flows, (v) the
audited Consolidated Statements of Changes in Stockholders’ Equity and (vi) Notes to Financial Statements. |
|
|
|
* |
|
Portions
of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act
of 1934, amended, and the omitted material has been separately filed with the Securities and Exchange Commission. |
+ |
|
Filed
herewith. |
^ |
|
Furnished
herewith. |
** |
|
XBRL
information is filed herewith. |
*** |
|
Management
contract or compensatory plan or arrangement. |
ITEM
16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
|
CELSION
CORPORATION |
|
|
Registrant |
|
|
|
March
31, 2022 |
By: |
/s/
MICHAEL H. TARDUGNO |
|
|
Michael
H. Tardugno |
|
|
Chairman
of the Board, President and Chief Executive Officer |
March
31, 2022 |
By: |
/s/
JEFFREY W. CHURCH |
|
|
Jeffrey
W. Church |
|
|
Executive
Vice President and
Chief
Financial Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Name |
|
Position |
|
Date |
|
|
|
|
|
/s/
MICHAEL H. TARDUGNO |
|
Chairman
of the Board, President and |
|
March
31, 2022 |
(Michael
H. Tardugno) |
|
Chief
Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/
JEFFREY W. CHURCH |
|
Executive
Vice President and Chief |
|
March
31, 2022 |
(Jeffrey
W. Church) |
|
Financial
Officer (Principal Financial Officer) |
|
|
|
|
|
|
|
/s/
CONSTANTINE J. KARDARAS |
|
Chief
Accounting Officer |
|
March
31, 2022 |
(Constantine
J. Kardaras) |
|
|
|
|
|
|
|
|
|
/s/
TIMOTHY J. TUMMINELLO |
|
Controller |
|
March
31, 2022 |
(Timothy
J. Tumminello) |
|
|
|
|
|
|
|
|
|
/s/
AUGUSTINE CHOW |
|
Director |
|
March
31, 2022 |
(Augustine
Chow, Ph.D.) |
|
|
|
|
|
|
|
|
|
/s/
FREDERICK J. FRITZ |
|
Director |
|
March
31, 2022 |
(Frederick
J. Fritz) |
|
|
|
|
|
|
|
|
|
/s/
ROBERT W. HOOPER |
|
Director |
|
March
31, 2022 |
(Robert
W. Hooper) |
|
|
|
|
|
|
|
|
|
/s/
DONALD BRAUN |
|
Director |
|
March
31, 2022 |
(Donald
Braun, Ph.D.) |
|
|
|
|
|
|
|
|
|
/s/
CHRISTINE PELLIZZARI |
|
Director |
|
March
31, 2022 |
(Christine
A. Pellizzari) |
|
|
|
|
|
|
|
|
|
/s/
STACY R. LINDBORG |
|
Director |
|
March
31, 2022 |
(Dr.
Stacy R Lindborg) |
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
Celsion
Corporation:
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Celsion Corporation (the “Company”) as of December 31, 2021
and 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for
each of the two years in the period ended December 31, 2021 and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021,
in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion.
The
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters
does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they
relate.
Valuation
of goodwill
Description
of the Matter
As
described in Note 5, the Company’s Goodwill is tested for impairment at least annually on September 30 (or under certain circumstances,
more frequently) using either a qualitative or quantitative approach. Under the quantitative approach, the Company compares the fair
value of its singular reporting unit to its carrying amount, including goodwill. The Company uses the market capitalization to estimate
the fair value of the reporting unit, which is based on the Company’s year-end stock price and shares of stock that are freely
tradeable. As further discussed in Note 5, during the year ended December 31, 2021, the Company recorded a $2 million goodwill impairment
charge.
Auditing
the Company’s quantitative goodwill impairment tests involved subjective auditor judgment related to the determination of the reporting
unit and due to the significant estimation required in management’s determination of the fair value of the reporting unit.
How
the Critical Matter Was Addressed in the Audit
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing management’s process for developing the fair value estimate and evaluation
of significant inputs. This included testing the completeness, accuracy, and relevance of underlying data used.
Valuation
of In-process research and development (IPR&D)
Description
of the Matter
As
described in Note 5 to the consolidated financial statements, the Company has $13.3 million In-process research and development asset
(“IPR&D”) as of December 31, 2021. The Company conducts impairment testing of indefinite-lived intangible assets on September
30 of each year. Management tests indefinite-lived intangible assets for impairment between annual tests if an event occurs or circumstances
change that would indicate the carrying amount may be impaired. An impairment loss is recognized when the asset’s carrying value
exceeds its fair value. Due to the continuing slowdown in investment by public capital markets in the biotech industry and its impact
on market capitalization rates in this sector during the fourth quarter of 2021, the Company also conducted a valuation analysis of its
IPR&D for the ovarian cancer indication as of December 31, 2021. Based on the assessment performed as of December 31, 2021, management
determined that the fair value of the IPR&D asset exceeded its carrying value and was not impaired. The estimated fair value of IPR&D
was determined using the multi-period excess earnings approach. Estimating the fair value of the IPR&D asset requires various assumptions,
including revenue and expense estimates, required costs to complete commercialization, timing and probability of commercialization, and
the discount rate.
Auditing
the IPR&D involved subjective auditor judgment, subjectivity, and effort in performing procedures relating to management’s
significant assumptions. In addition, the audit effort involved the use of professionals with specialized skill and knowledge in performing
these procedures and evaluating the audit evidence obtained.
How
the Critical Matter Was Addressed in the Audit
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing management’s process for developing the fair value estimate. This included
testing the completeness, accuracy, and relevance of underlying data used, and evaluating management’s assumption related to revenue
and expense estimates, required costs to complete commercialization, timing and probability of commercialization, and the discount rate.
Evaluating management’s assumptions included assessing the reasonableness of key assumptions by considering the historical results
of peer companies, consistency with third-party industry data, and whether the assumptions were consistent with evidence obtained in
other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of
the multi-period excess earnings approach and the reasonableness of certain significant assumptions, including the discount rate.
Valuation
of earn-out milestone liability
Description
of the Matter
As
described in Note 12 to the consolidated financial statements, the Company has $5.4 million Earn-out milestone liability as of December
31, 2021 representing the fair value of additional amounts that management believes may be paid related to the acquisition of EGEN, Inc.
The determination of the recorded amount of the contingent consideration liabilities requires the Company to make significant estimates
and assumptions.
We
identified the measurement of the Earn-out milestone liability as a critical audit matter because auditing the Company’s valuation
of the liability involved complex and challenging auditor judgment as the inputs to such valuation, such as the estimated probability
of achieving the milestone, determining the settlement amount, and the assumed timing of milestone, are largely unobservable.
How
the Critical Matter Was Addressed in the Audit
To
test the estimated fair value of Earn-out milestone liability, our audit procedures included, among others, inspecting the terms of the
executed agreement, testing the key inputs and significant assumptions discussed above. We evaluated the key assumptions and judgments
considering observable industry and economic trends and standards, external data sources and regulatory factors. Our procedures included
evaluating the data sources used by management in determining its assumptions and, where necessary, included an evaluation of available
information that either corroborated or contradicted management’s conclusions. We involved our valuation specialists to assess
the Company’s evaluation.
/s/
WithumSmith+Brown, PC
WithumSmith+Brown,
PC
We
have served as the Company’s auditor since 2017.
Princeton,
New Jersey
March
31, 2022
PCAOB
ID Number 100
CELSION
CORPORATION
CONSOLIDATED
BALANCE SHEETS
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(Continued)
| |
December
31, | |
| |
2021 | | |
2020 | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current
liabilities: | |
| | | |
| | |
Accounts
payable – trade | |
$ | 2,547,251 | | |
$ | 2,244,847 | |
Other
accrued liabilities | |
| 3,173,537 | | |
| 2,458,532 | |
Notes
payable – current portion, net of deferred financing costs | |
| – | | |
| 1,116,663 | |
Operating
lease liability - current portion | |
| 548,870 | | |
| 433,413 | |
Deferred
revenue - current portion | |
| 500,000 | | |
| 500,000 | |
Total
current liabilities | |
| 6,769,658 | | |
| 6,753,455 | |
| |
| | | |
| | |
Earn-out
milestone liability | |
| 5,396,000 | | |
| 7,018,000 | |
Notes
payable – non-current portion, net of deferred financing costs | |
| 5,854,461 | | |
| 3,934,497 | |
Operating
lease liability - non-current portion | |
| 230,749 | | |
| 710,305 | |
Deferred
revenue - non-current portion | |
| – | | |
| 500,000 | |
Total
liabilities | |
| 18,250,868 | | |
| 18,916,257 | |
| |
| | | |
| | |
Commitments
and contingencies | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders’
equity: | |
| | | |
| | |
| |
| | | |
| | |
Preferred
Stock - $0.01 par value (100,000 shares authorized, and no shares issued or outstanding at December 31, 2021 and 2020) | |
| – | | |
| – | |
| |
| | | |
| | |
Common
stock - $0.01 par value (112,500,000 shares authorized; 5,770,538 and 2,713,424 shares issued at December 31, 2021 and 2020, respectively,
and 5,770,516 and 2,713,402 shares outstanding at December 31, 2021 and 2020, respectively) | |
| 57,705 | | |
| 27,134 | |
Additional
paid-in capital | |
| 388,600,979 | | |
| 330,669,476 | |
Accumulated
other comprehensive loss | |
| (7,974 | ) | |
| – | |
Accumulated
deficit | |
| (332,769,591 | ) | |
| (312,000,341 | ) |
Total
stockholders’ equity before treasury stock | |
| 55,881,119 | | |
| 18,696,269 | |
| |
| | | |
| | |
Treasury
stock, at cost (22 shares at December 31, 2021 and 2020) | |
| (85,188 | ) | |
| (85,188 | ) |
Total
stockholders’ equity | |
| 55,795,931 | | |
| 18,611,081 | |
| |
| | | |
| | |
Total
liabilities and stockholders’ equity | |
$ | 74,046,799 | | |
$ | 37,527,338 | |
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
| |
2021 | | |
2020 | |
| |
Year
ended December 31, | |
| |
2021 | | |
2020 | |
Supplemental
disclosures of cash flow information: | |
| | | |
| | |
| |
| | | |
| | |
Cash
(paid for) received from: | |
| | | |
| | |
Interest | |
$ | (357,277 | ) | |
$ | (844,278 | ) |
| |
| | | |
| | |
Cash
paid for amounts included in measurement of lease liabilities: | |
| | | |
| | |
Operating
cash flows from lease payments | |
$ | 568,269 | | |
$ | 525,809 | |
| |
| | | |
| | |
Non-cash
financing and investing activities | |
| | | |
| | |
| |
| | | |
| | |
Common
stock issued to settle accrued bonuses | |
$ | – | | |
$ | 498,632 | |
| |
| | | |
| | |
Fair
value of warrants issued in connection with the debt facility, net of cancelled warrants | |
$ | – | | |
$ | 81,102 | |
| |
| | | |
| | |
Realized
and unrealized losses (gains), net, on investment in debt securities | |
$ | 7,974 | | |
$ | (42,778 | ) |
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEAR
ENDED DECEMBER 31, 2020
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEAR
ENDED DECEMBER 31, 2021
| |
Common
Stock Outstanding | | |
Additional
Paid-in | | |
Treasury
Stock | | |
Accum. Other
Compr. | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Income | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
at January 1, 2021 | |
| 2,713,402 | | |
$ | 27,134 | | |
$ | 330,669,476 | | |
| 22 | | |
$ | (85,188 | ) | |
$ | - | | |
$ | (312,000,341 | ) | |
$ | 18,611,081 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (20,769,250 | ) | |
| (20,769,250 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of equity through equity financing facilities | |
| 2,975,503 | | |
| 29,755 | | |
| 52,659,191 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 52,688,946 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock upon exercise of options | |
| 500 | | |
| 5 | | |
| 4,720 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,725 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued pursuant to warrant exercises | |
| 81,111 | | |
| 811 | | |
| 1,507,855 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,508,666 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Realized
and unrealized gains and losses, net, on investment securities | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (7,974 | ) | |
| - | | |
| (7,974 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation expense | |
| - | | |
| - | | |
| 3,759,737 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,759,737 | |
Balance
at December 31, 2021 | |
| 5,770,516 | | |
$ | 57,705 | | |
$ | 388,600,979 | | |
| 22 | | |
$ | (85,188 | ) | |
$ | (7,974 | ) | |
$ | (332,769,591 | ) | |
$ | 55,795,931 | |
See
accompanying notes to the consolidated financial statements.
CELSION
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description
of Business
Celsion
Corporation (“Celsion” and the “Company”) is a fully integrated, clinical stage biotechnology company focused
on advancing a portfolio of innovative treatments including DNA-based immunotherapies, next generation vaccines and directed chemotherapies
through clinical trials and eventual commercialization. The Company’s product pipeline includes GEN-1, a DNA-based immunotherapy
for the localized treatment of ovarian cancer and ThermoDox®, a proprietary heat-activated liposomal encapsulation of
doxorubicin, currently under investigator-sponsored development for several cancer indications. Celsion has two feasibility stage platform
technologies for the development of novel nucleic acid-based immunotherapies and next generation vaccines and other anti-cancer DNA or
RNA therapies. Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection.
Basis
of Presentation
The
accompanying consolidated financial statements (“Financial Statements”) of Celsion have been prepared in accordance with
generally accepted accounting principles (“GAAP”) in the U.S. and include the accounts of the Company, CLSN Laboratories,
Inc. and Celsion GmbH. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation
of the financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the
amount reported in the Company’s Financial Statements and accompanying notes. Actual results could differ materially from these
estimates.
Events
and conditions arising subsequent to the most recent balance sheet date through the date of the issuance of the Financial Statements
have been evaluated for their possible impact on the Financial Statements and accompanying notes. No events and conditions would give
rise to any information that required accounting recognition or disclosure in the Financial Statements other than those arising in the
ordinary course of business.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires the Company 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 Financial Statements
and the reported amounts of expenses during the reporting period.
On
an ongoing basis, the Company evaluates its estimates using historical experience and other factors, including the current economic environment.
Significant items subject to such estimates are assumptions used for purposes of determining stock-based compensation, the fair value
of the earn-out milestone liabilities, estimates for contingent liabilities, if any, and accounting for valuation of in-process research
and development assets and goodwill evaluation. Management believes its estimates to be reasonable under the circumstances. Actual results
could differ significantly from those estimates. Significant estimates in these financials are the valuation of options granted and valuation
methods used to determine the recoverability of goodwill and other intangible assets.
Revenue
Recognition
The
Company’s sole revenue stream is related to the Hisun agreement described in Note 18. There were no accounts receivable as of December
31, 2020. Contract liabilities from the Hisun agreement amounted to $0.5 million and $1.0 million as of December 31, 2021 and 2020, respectively.
Contract liabilities values represent the value of cash received before the services were provided.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand and investments purchased with an original maturity of three months or less. A portion of these
funds are not covered by FDIC insurance.
Restricted
Cash
As
a condition of the $10 million loan facility with Silicon Valley Bank (“SVB”) entered into on June 18, 2021 as further discussed
in Note 8, the Company is required at all times to maintain on deposit with SVB as cash collateral in a segregated money market bank
account in the name of the Company, unrestricted and unencumbered cash in an amount of at least 100% of the aggregate outstanding amount
of the SVB loan facility. SVB may restrict withdrawals or transfers by or on behalf of the Company that would violate this requirement.
The required reserve totaled $6.0 million as of December 31, 2021. This amount is presented in part as restricted cash in other non-current
assets on the accompanying condensed consolidated balance sheets.
Fair
Value of Financial Instruments
The
carrying values of investment securities approximate their respective fair values. Management believes that the carrying amounts of the
Company’s investment securities, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value
due to the short-term nature of those instruments. Short-term investments are recorded at their estimated fair value.
Short-Term
Investments
The
Company classifies its investments in debt securities with readily determinable fair values as investments available-for-sale in accordance
with Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities. Available-for-sale securities
consist of debt securities not classified as trading securities or as securities to be held to maturity. The Company has classified all
of its investments as available-for-sale. Unrealized holding gains and losses on available-for-sale securities are reported as a net
amount in accumulated other comprehensive gain or loss in stockholders’ equity until realized. Gains and losses on the sale of
available-for-sale securities are determined using the specific identification method. The Company’s short-term investments consist
of corporate bonds.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives
of the related assets, ranging from three to seven years, using the straight-line method. Amortization is recognized over the lesser
of the life of the asset or the lease term. Major renewals and improvements are capitalized at cost and ordinary repairs and maintenance
are charged against operating expenses as incurred. Depreciation expense was approximately $130,000 for each of the years ended December
31, 2021 and 2020, respectively.
The
Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future net undiscounted cash flows
that the asset is expected to generate. If such asset is considered to be impaired, the impairment recognized is the amount by which
the carrying amount of the asset, if any, exceeds its fair value determined using a discounted cash flow model. There was no impairment
of property or equipment during 2021 or 2020.
Deposits
Deposits
include real property security deposits and other deposits which are contractually required and of a long-term nature.
In-Process
Research and Development, Other Intangible Assets and Goodwill
During
2014, the Company acquired certain assets of EGEN, Inc. As more fully described in Note 5, the acquisition was accounted for under the
acquisition method of accounting which required the Company to perform an allocation of the purchase price to the assets acquired and
liabilities assumed. Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible
assets and liabilities based on their estimated fair values as of the acquisition date.
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of its long-lived assets under accounting standards for the impairment or disposal of long-lived assets
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows
and measures the impairment loss based on the difference between the carrying amount and fair value. See Note 5 for information on impairment
losses of its in-process research and development.
Comprehensive
Income (Loss)
ASC
220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income (loss) and its components
in the Company’s consolidated financial statements. The objective of ASC 220 is to report a measure of comprehensive income
(loss) of all changes in equity of an enterprise that result from transactions and other economic events in a period other than transactions
with owners. Comprehensive gains (losses) result from changes in unrealized gains and losses from investment in debt securities.
Research
and Development
Research
and development costs are expensed as incurred. Equipment and facilities acquired for research and development activities that have alternative
future uses are capitalized and charged to expense over their estimated useful lives.
Net
Loss Per Common Share
Basic
and diluted net loss per common share was computed by dividing net loss for the year by the weighted average number of shares of common
stock outstanding, both basic and diluted, during each period. The impact of common stock equivalents has been excluded from the computation
of diluted weighted average common shares outstanding in periods where there is a net loss, as their effect is anti-dilutive.
For
the years ended December 31, 2021 and 2020, the total number of shares of common stock issuable upon exercise of warrants and equity
awards is 618,800 and 565,399, respectively. For the year ended December 31, 2021 and 2020, diluted loss per common share is the same
as basic loss per common share as all options and all other warrants that were convertible into shares of the Company’s common
stock were excluded from the calculation of diluted earnings attributable to common stockholders per common share as their effect would
be anti-dilutive.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in results of operations in the period
that the tax rate change occurs. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized. In accordance with ASC 740, Income Taxes, a tax position is recognized as a benefit only if it is “more
likely than not” that the tax position taken would be sustained in a tax examination, presuming that a tax examination will occur.
The Company recognizes interest and/or penalties related to income tax matters in the income tax expense category.
As
more fully discussed in Note 9, on November 8, 2021, the Company received approval from the New Jersey Economic Development Authority
to sell $1.5
million of its New Jersey net operating losses
(“New Jersey NOLs”), recognizing a tax benefit for the year ended December 31, 2021 for the net proceeds (approximately
$1.4
million) by reducing the net operating loss valuation
allowance. As more fully discussed in Note 9, on December 1, 2021, the Company was notified by the New Jersey Economic Development Authority
that its application was approved and the Company entered into an agreement to sell this NOL. On February 25, 2022, the Company received
approximately $1.4
million upon completion of the sale of the 2020
New Jersey NOLs. The During 2020, the Company received approval to sell $2.0
million of its New Jersey NOLs, receiving net
proceeds of approximately $1.9
million. As part of the Technology Business Tax
Certificate Program sponsored by The New Jersey Economic Development Authority, emerging biotechnology companies with unused New Jersey
NOLs and unused research and development credits are allowed to sell these benefits to other New Jersey-based companies. During 2021,
the New Jersey State Legislature increased the maximum lifetime benefit per company from $15
million to $20
million, which will allow the Company to participate
in this innovative funding program in future years for up to an additional $3.4
million in New Jersey NOLs under this
maximum lifetime benefit. (see Note 2).
Stock-Based
Compensation
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Compensation-Stock Compensation,
which simplifies various aspects of accounting for share-based payments. The areas for simplification involve several aspects of the
accounting for share-based payment transactions, including the income tax consequences and classification on the statements of cash flows.
The Company recognizes the effect of forfeitures in compensation cost when they occur.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted
by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements
will not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows, or do
not apply to our operations.
In
February 2016, the FASB issued ASU No. 2016-02, Leases - Topic 842 (ASC Topic 842), which requires that lessees recognize assets
and liabilities for leases with lease terms greater than twelve months in the balance sheet. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense recognition in the income statement. This update also requires improved
disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases.
The update became effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting
period. We adopted ASC Topic 842 effective January 1, 2019 and elected to apply the available practical expedients and implement internal
controls to enable the preparation of financial information on adoption. We identified two of our leases consisting of the New Jersey
corporate office lease and the Alabama lab facility lease as being subject to ASC Topic 842. The adoption of this standard resulted in
the recognition of right-of-use assets of approximately $1.4 million, related operating lease liabilities of $1.5 million and reduced
other liabilities by approximately $0.1 million on the consolidated balance sheets as of January 1, 2019 with no material impact to the
opening balance of retained earnings. See Note 15 for further discussions regarding the adoption of ASC Topic 842.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which modifies the measurement of expected credit losses on certain financial instruments. The Company
adopted ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of
the Company’s investment portfolio and current market conditions, the adoption of ASU 2016-13 did not have a material impact on
its Financial Statements.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance,
entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value
hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range
and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized
gains and losses included in other comprehensive income. This update is effective for annual periods beginning after December 15, 2019,
and interim periods within those periods. The adoption of this standard did not have a significant impact on the Company’s Financial
Statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard simplifies the accounting for incomes taxes
by removing certain exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation and the
recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that
result in a step-up in the tax basis of goodwill. The standard also improves consistent application of and simplifies GAAP for other
areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. The Company adopted this standard during the first quarter of 2021. The adoption
of ASU 2019-12 did not have a material impact on its Financial Statements.
In
connection with the upcoming elimination of the London Inter-bank Offered Rate, (“LIBOR”) and other reference interest rates,
the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Reform on Financial Reporting.
ASU 2020-04, which is available for contract modifications and hedging relationship modifications entered into or evaluated before December
31, 2022, provides certain practical expedients related to simplifying the accounting for contract modifications resulting from the change
in terms from LIBOR to a new required interest rate benchmark. The Company is currently evaluating the effects of adopting this accounting
standards update.
In
May 2021, the FASB issued ASU No. 2021-04 “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic
470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus
of the FASB Emerging Issues Task Force)”. This ASU is intended to clarify and reduce diversity in an issuer’s accounting
for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified
after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding
equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and,
if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments
in this ASU affect all entities that issue freestanding written call options that are classified in equity. The amendments do not apply
to modifications or exchanges of financial instruments that are within the scope of another Topic and do not affect a holder’s
accounting for freestanding call options. The amendments in this ASU are effective for all entities for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications
or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption
in an interim period. The Company is currently evaluating the impact of adopting ASU 2021-04 on its Financial Statements.
2.
FINANCIAL CONDITION
Since
inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research
and development programs, clinical trials conducted in connection with the Company’s product candidates, and applications and submissions
to the U.S. Food and Drug Administration. The Company has not generated significant revenue and has incurred significant net losses in
each year since our inception. As of December 31, 2021, the Company has incurred approximately $333 million of cumulative net losses.
As of December 31, 2021, the Company had $56.9 million in cash and cash equivalents, short-term investments, interest receivable, net
proceeds on the sale of net operating losses and restricted cash. The Company has substantial future capital requirements to continue
its research and development activities and advance its product candidates through various development stages. The Company believes these
expenditures are essential for the commercialization of its technologies.
The
Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts, and when
it undertakes marketing and sales activities. The Company’s ability to achieve profitability is dependent upon its ability to obtain
governmental approvals, manufacture, and market and sell its new product candidates. There can be no assurance that the Company will
be able to commercialize its technology successfully or that profitability will ever be achieved. The operating results of the Company
have fluctuated significantly in the past.
In
January 2020, the World Health Organization declared an outbreak of coronavirus, COVID-19, to be a “Public Health Emergency of
International Concern,” and the U.S. Department of Health and Human Services declared a public health emergency to aid the U.S.
healthcare community in responding to COVID-19. This virus has spread to over 200 countries, including the U.S. Governments and businesses
around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place
orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty
with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets. The Company did
not observe significant impacts on its business or results of operations during 2021 or 2020 due to the global emergence of COVID-19.
While the extent to which COVID-19 impacts the Company’s future results will depend on future developments, the pandemic and associated
economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash
flows.
The
Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic. The
disruptions caused by COVID-19 may also disrupt the clinical trials process and enrollment of patients. This may delay commercialization
efforts. The Company continues to monitor its operating activities in light of these events, and it is reasonably possible that the virus
could have a negative effect on the Company’s financial condition and results of operations. The specific impact, if any, is not
readily determinable as of the date of the Financial Statements.
The
actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’s control.
These factors include the following:
● |
the
progress of research activities; |
|
|
● |
the
number and scope of research programs; |
|
|
● |
the
progress of preclinical and clinical development activities; |
|
|
● |
the
progress of the development efforts of parties with whom the Company has entered into research and development agreements; |
|
|
● |
the
costs associated with additional clinical trials of product candidates; |
|
|
● |
the
ability to maintain current research and development licensing arrangements and to establish new research and development and licensing
arrangements; |
● |
the
ability to achieve milestones under licensing arrangements; |
|
|
● |
the
costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and |
|
|
● |
the
costs and timing of regulatory approvals. |
On
July 13, 2020, the Company announced that it has received a recommendation from the independent DMC to consider stopping the global Phase
III OPTIMA Study of ThermoDox® in combination with RFA for the treatment of HCC, or primary liver cancer. The recommendation
was made following the second pre-planned interim safety and efficacy analysis by the DMC on July 9, 2020. The DMC’s analysis found
that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. The Company followed
the advice of the DMC and considered its options to either stop the study or continue to follow patients after a thorough review of the
data, and an evaluation of the probability of success. On February 11, 2021, the Company issued a letter to shareholders stating that
the Company was notifying all clinical sites to discontinue following patients in the OPTIMA Study.
Since
2018, the Company has annually submitted applications to sell a portion of the Company’s State of New Jersey net operating losses
as part of the Technology Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program,
emerging biotechnology companies with unused New Jersey NOLs and unused research and development credits are allowed to sell these
benefits to other New Jersey-based companies. In 2018 and 2019, the Company sold cumulative New Jersey NOLs from 2011 to 2018
totaling $13
million and received net proceeds of $12.2
million. As part of the Technology Business Tax
Certificate Program, the Company sold $1.5
million and $2.0
million of its New Jersey NOLs in 2021 and 2020,
respectively. The sale of these net operating losses resulted in net proceeds to the Company of approximately $1.4
million in 2021 and $1.9
million in 2020. During 2021, the New Jersey
State Legislature increased the maximum lifetime benefit per company from $15
million to $20
million, which will allow the Company to participate
in this funding program in future years for up to an additional $3.4
million in net operating losses under this maximum
lifetime benefit.
In
June 2018, the Company entered into a Credit Agreement with Horizon Technology Finance Corporation (“Horizon”) that provided
$10 million in capital (the “Horizon Credit Agreement”). The obligations under the Horizon Credit Agreement are secured by
a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. Payments under the
loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first 24 months through July 2020, followed
by a 21-month amortization period of principal and interest starting on August 1, 2020 and ending through the scheduled maturity date
on April 1, 2023. On August 28, 2020, in connection with an Amendment to the Horizon Credit Agreement, Celsion repaid $5 million of the
$10 million loan and $0.2 million in related end of term charges, and the remaining $5 million in obligations were restructured. As more
fully discussed in Note 8 to the Financial Statements, in June 2021, the Company entered into a $10 million loan facility with SVB. The Company immediately used $6 million from this facility to retire all outstanding indebtedness with
Horizon. The remaining $4 million under the Silicon Valley Bank loan facility (“SVB Loan Facility”) will be available to
be drawn down up to 12 months after closing. The funding is in the form of money market secured indebtedness bearing interest at a calculated WSJ Prime-based variable
rate (currently 3.25%). Payments under the loan agreement are interest only for the first 24 months after loan closing, followed by a
24-month amortization period of principal and interest through the scheduled maturity date.
The
Company has based its estimates on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or
in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales
of the Company’s shares or debt, the sale of the Company’s New Jersey NOLs and other sources. If the Company raises funds
by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of existing stockholders
may be diluted. See Note 19 for a discussion of the Company’s issuance and redemption of Series A Preferred Stock and Series B
Preferred Stock.
3.
INVESTMENTS IN DEBT SECURITIES AVAILABLE FOR SALE
Investments
in debt securities available for sale with a fair value of $29,803,095 as of December 31, 2021 consisted of U.S. Treasury securities
and corporate debt securities. These investments are valued at estimated fair value, with unrealized gains and losses reported as a separate
component of stockholders’ equity in accumulated other comprehensive loss. The Company only had investments in cash and cash equivalents
as of December 31, 2020.
Investments
in debt securities available for sale are evaluated periodically to determine whether a decline in their value is other than temporary.
The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects
for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or
greater than, the carrying value of the security. Management reviews criteria such as the magnitude and duration of the decline, as well
as the reasons for the decline, to predict whether the loss in value is other than temporary. Once a decline in value is determined to
be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.
A
summary of the cost, fair value and maturities of the Company’s short-term investments is as follows:
SCHEDULE OF COST, FAIR VALUE AND MATURITIES OF SHORT TERM INVESTMENTS
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Cost | | |
Fair
Value | | |
Cost | | |
Fair
Value | |
Short-term
investments | |
| | | |
| | | |
| | | |
| | |
U.S.
Treasury securities | |
$ | 14,786,982 | | |
$ | 14,778,705 | | |
$ | - | | |
$ | - | |
Corporate
debt securities | |
| 15,024,087 | | |
| 15,024,390 | | |
| - | | |
| - | |
Total | |
$ | 29,811,069 | | |
$ | 29,803,095 | | |
$ | - | | |
$ | - | |
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Cost | | |
Fair
Value | | |
Cost | | |
Fair
Value | |
Short-term
investment maturities | |
| | | |
| | | |
| | | |
| | |
Within
3 months | |
$ | 19,798,177 | | |
$ | 19,799,835 | | |
$ | - | | |
$ | - | |
Between
3-12 months | |
| 10,012,892 | | |
| 10,003,260 | | |
| - | | |
| - | |
Total | |
$ | 29,811,069 | | |
$ | 29,803,095 | | |
$ | - | | |
$ | - | |
The
following table shows the Company’s investment in debt securities available for sale gross unrealized gains (losses) and fair value
by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31,
2021 and 2020. The Company has reviewed individual securities to determine whether a decline in fair value below the amortizable cost
basis is other than temporary.
SUMMARY OF INVESTMENT SECURITIES GROSS UNREALIZED GAINS (LOSSES)
| |
December
31, 2021 | | |
December
31, 2020 | |
Available
for sale securities (all unrealized holding gains and losses are less than 12 months at date of measurement) | |
Fair
Value | | |
Unrealized
Holding Gains
(Losses) | | |
Fair
Value | | |
Unrealized
Holding Gains
(Losses) | |
| |
| | |
| | |
| | |
| |
Investments
in debt securities with unrealized gains | |
$ | 8,999,580 | | |
$ | 3,499 | | |
$ | - | | |
$ | - | |
Investments
in debt securities with unrealized losses | |
| 20,803,515 | | |
$ | (11,473 | ) | |
| - | | |
| - | |
Total | |
$ | 29,803,095 | | |
$ | (7,974 | ) | |
$ | - | | |
$ | - | |
Investment
income, which includes net realized losses on sales of available for sale securities and investment income interest and dividends, is
summarized as follows:
SUMMARY OF NET REALIZED LOSSES ON SALES OF AVAILABLE FOR SALE SECURITIES AND INVESTMENT INCOME INTEREST AND DIVIDENDS
| |
2021 | | |
2020 | |
Interest
and dividends accrued and paid | |
$ | 18,145 | | |
$ | 66,553 | |
Realized
(losses) gains | |
| (7,149 | ) | |
| 53,354 | |
Investment
income net | |
$ | 10,996 | | |
$ | 119,907 | |
4.
FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB
ASC Section 820, Fair Value Measurements and Disclosures establishes a three-level hierarchy for fair value measurements which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
three levels of inputs that may be used to measure fair value are as follows:
Level
1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the
measurement date;
Level
2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and
Level
3: Significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing
an asset or liability.
Cash
and cash equivalents, other current assets, accounts payable and other accrued liabilities are reflected in the condensed consolidated
balance sheet at their approximate estimated fair values primarily due to their short-term nature. The fair values of securities available
for sale is determined by relying on the securities’ relationship to other benchmark quoted securities and classified its investments
as Level 2 items in both 2021 and 2020. There were no transfers of assets or liabilities between Level 1 and Level 2 and no transfers
in or out of Level 3 during the years ended December 31, 2021 and 2020. The changes in Level 3 liabilities were the result of changes
in the fair value of the earn-out milestone liability included in earnings and in-process R&D. The earnout milestone liability is
valued using a risk-adjusted assessment of the probability of payment of each milestone, discounted to present value using an estimated
time to achieve the milestone (see Note 12).
Assets
and liabilities measured at fair value are summarized below:
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS
| |
Total
Fair Value | | |
Quoted
Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | |
Significant
Other Observable Inputs (Level
2) | | |
Significant
Unobservable Inputs (Level
3) | |
Assets: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Recurring
items as of December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
Corporate
debt securities, available for sale | |
$ | 29,803,095 | | |
$ | – | | |
$ | – | | |
$ | 29,803,095 | |
| |
| | | |
| | | |
| | | |
| | |
Non-recurring
items as of December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
In-process
R&D (Note 5) | |
$ | 13,366,234 | | |
$ | – | | |
$ | – | | |
$ | 13,366,234 | |
| |
| | | |
| | | |
| | | |
| | |
Recurring
items as of December 31, 2020 | |
| | | |
| | | |
| | | |
| | |
Corporate
debt securities, available for sale | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Non-recurring
items as of December 31, 2020 | |
| | | |
| | | |
| | | |
| | |
In-process
R&D (Note 5) | |
$ | 13,366,234 | | |
$ | – | | |
$ | – | | |
$ | 13,366,234 | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Recurring
items as of December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
Earn-out
milestone liability (Note 12) | |
$ | 5,396,000 | | |
$ | – | | |
$ | – | | |
$ | 5,396,000 | |
| |
| | | |
| | | |
| | | |
| | |
Recurring
items as of December 31, 2020 | |
| | | |
| | | |
| | | |
| | |
Earn-out
milestone liability (Note 12) | |
$ | 7,018,000 | | |
$ | – | | |
$ | – | | |
$ | 7,017,000 | |
5.
INTANGIBLE ASSETS
In
June 2014, the Company completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama corporation (“EGEN”),
which changed its company name to EGWU, Inc. after the closing of the acquisition (the “EGEN Acquisition”). We acquired all
of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents,
trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office
equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities
of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.
Acquired
In-process Research and Development.
Acquired
in-process research and development (“IPR&D”) consists of EGEN’s drug technology platforms: TheraPlas and TheraSilence.
The fair value of the IPR&D drug technology platforms was estimated to be $24.2 million as of the acquisition date. As of the closing
of the acquisition, the IPR&D was considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed
for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate
that the carrying value of the assets might not be recoverable. The Company’s IPR&D consisted of three core elements, its RNA
delivery system, its glioblastoma multiforme cancer (“GBM”) product candidate and its ovarian cancer indication.
The
Company’s ovarian cancer indication, with original value of $13.3 million, has not been impaired since its acquisition. At September
30, 2021 and 2020, the Company evaluated its IPR&D of the ovarian cancer indication and concluded that it is not more likely than
not that the asset is impaired. Due to the continuing slowdown in investment by public capital markets in the biotech industry and its
impact on market capitalization rates in this sector, the Company conducted a valuation analysis of its IPR&D for the ovarian cancer
indication as of December 31, 2021. As part of the valuation analysis, the fair value of the intangible assets was estimated by discounting
forecasted risk adjusted cash flows at a rate that approximated the cost of capital of a market participant. Management’s forecast
of future cash flows was based on the income approach. Significant estimates, all of which are considered Level 3 inputs, were used in
the fair value methodology, including the Company’s forecast regarding its future operations and likeliness of obtaining approval
to sell its products, as well as other market conditions. Changes in these estimates could change the forecasted cash flows attributed
to the IPR&D which could have a significant impact on the fair value of these assets. Based on this valuation analysis, the Company
has concluded that it is not more likely than not that the asset is impaired as of December 31, 2021. As such, no impairment charges
for IPR&D related to the ovarian cancer indication were recorded during 2021 or 2020.
The
Company’s GBM candidate, with original value of $9.4 million had cumulative impairments through 2018 of $7 million, with remaining
carrying value of $2.4 million at December 31, 2019. On September 30, 2020, the Company evaluated its IPR&D for the (GBM) product
candidate and concluded that it is more likely than not that the asset is further impaired. After this assessment on September 30, 2020,
the Company wrote off the remaining $2.4 million of this asset, thereby recognizing a non-cash charge of $2.4 million in the third quarter
of 2020.
Covenants
Not to Compete
Pursuant
to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed,
during the period ending on the seventh anniversary of the closing date of the acquisition on June 20, 2014, not to enter into any business,
directly or indirectly, which competes with the business of the Company nor would it contact, solicit or approach any of the employees
of the Company for purposes of offering employment. The Covenant Not to Compete which was valued at approximately $1.6 million at the
date of the EGEN Acquisition has a definitive life and is amortized on a straight-line basis over its life of 7 years. The Company recognized
amortization expense of $113,660 and $227,316 in 2021 and 2020, respectively. The carrying value of the Covenant Not to Compete was $113,660,
net of $1,477,554 accumulated amortization, as of December 31, 2020 and is fully amortized by the end of 2021.
Goodwill
The
purchase price exceeded the estimated fair value of the net assets acquired by approximately $2.0 million which was recorded as Goodwill.
Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values
of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of the
Company’s third quarter ended September 30 or sooner if the Company believes indicators of impairment exist. As of September 30,
2021 and 2020, the Company’s fair value exceeded its carrying value and as such no impairment was recognized for Goodwill through
the third quarter of 2021. Due to the continuing slowdown in investment in 2021 by public capital markets in the biotech industry and
its impact on market capitalization rates in this sector, Goodwill was reviewed for impairment as of December 31, 2021. Based on this
assessment, Company concluded that Goodwill was impaired. As of December 31, 2021, the Company wrote off the $2.0 million carrying value
of this asset, thereby recognizing a non-cash charge of $2.0 million in the fourth quarter of 2021.
Following
is a summary of the net fair value of the assets acquired in the EGEN Acquisition for the two years ended December 31, 2021:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED
| |
IPR&D | | |
Goodwill | | |
Covenant
Not to Compete | |
| |
| | |
| | |
| |
Balance
at January 1, 2020, net | |
$ | 15,736,491 | | |
$ | 1,976,101 | | |
$ | 340,976 | |
Amortization | |
| - | | |
| - | | |
| (227,316 | ) |
Impairment
charge | |
| (2,370,257 | ) | |
| - | | |
| - | |
Balance
at December 31, 2020, net | |
$ | 13,366,234 | | |
$ | 1,976,101 | | |
$ | 113,660 | |
Balance | |
$ | 13,366,234 | | |
$ | 1,976,101 | | |
$ | 113,660 | |
Amortization | |
| - | | |
| - | | |
| (113,660 | ) |
Impairment
charge | |
| - | | |
| (1,976,101 | ) | |
| - | |
Balance
at December 31, 2021, net | |
$ | 13,366,234 | | |
$ | - | | |
$ | - | |
Balance | |
$ | 13,366,234 | | |
$ | - | | |
$ | - | |
6.
PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2021 and 2020 consist of the following:
SUMMARY OF PROPERTY AND EQUIPMENT
| |
2021 | | |
2020 | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Machinery
and equipment (5-7 year life) | |
$ | 3,106,069 | | |
$ | 2,832,995 | |
Machinery
and equipment (5-7 year life) | |
$ | 3,106,069 | | |
$ | 2,832,995 | |
Furniture
and fixtures (3-5 year life) | |
| 383,477 | | |
| 344,939 | |
Leasehold
improvements (5-7 year life) | |
| 343,203 | | |
| 343,202 | |
Property
and equipment gross | |
| 3,832,749 | | |
| 3,521,136 | |
Less
accumulated depreciation and amortization | |
| (3,355,738 | ) | |
| (3,226,585 | ) |
| |
| | | |
| | |
Total | |
$ | 477,011 | | |
$ | 294,551 | |
7.
OTHER ACCRUED LIABILITIES
Other
accrued liabilities at December 31, 2021 and 2020 include the following:
SCHEDULE OF OTHER ACCRUED LIABILITIES
| |
2021 | | |
2020 | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Amounts
due to contract research organizations and other contractual agreements | |
$ | 1,401,356 | | |
$ | 636,000 | |
Accrued
payroll and related benefits | |
| 1,636,727 | | |
| 1,736,271 | |
Accrued
interest | |
| 16,792 | | |
| – | |
Accrued
professional fees | |
| 87,250 | | |
| 66,850 | |
Other | |
| 31,412 | | |
| 19,411 | |
Total | |
$ | 3,173,537 | | |
$ | 2,458,532 | |
8.
NOTES PAYABLE
The
SVB Loan Facility
On
June 18, 2021, the Company entered into a $10 million loan facility (the “SVB Loan Facility”) with Silicon Valley Bank (“SVB”).
Celsion immediately drew down $6 million from the SVB Loan Facility and used the funds to retire all outstanding indebtedness with Horizon
as further discussed below. Concurrently with this transaction, the Company used $6.0 million of other available funds to establish a
restricted cash account which serves as security for the SVB Loan Facility. The remaining $4 million will be available to be drawn down
up to 12 months after closing.
The
SVB Loan Facility is in the form of money market secured indebtedness bearing interest at a calculated WSJ Prime-based variable rate
(currently 3.25%). A final payment equal to 3% of the total $10 million commitment amount is due upon maturity or prepayment of the SVB
Loan Facility. There was no facility commitment fee and no stock or warrants were issued to SVB. Payments under the loan agreement are
interest only for the first 24 months after loan closing, followed by a 24-month amortization period of principal and interest through
the scheduled maturity date.
In
connection with the SVB Loan Facility, the Company incurred financing fees and expenses totaling $243,370 which is recorded and classified
as debt discount and are being amortized as interest expense using the effective interest method over the life of the loan. Also, in
connection with the SVB Loan Facility, the Company is required to pay an end-of-term fee equal to 3.0% of the original loan amount at
time of maturity. Therefore, these amounts totaling $300,000 are being amortized as interest expense using the effective interest method
over the life of the loan. During the year ending December 31, 2021, the Company incurred interest expense of $106,709 and amortized
$97,831 as interest expense for debt discounts and end-of-term fee in connection with the SVB Loan Facility.
Following
is a schedule of future principal payments, net of unamortized debt discounts and amortized end-of-term fee, due on the SVB Loan Facility:
SCHEDULE OF FUTURE PRINCIPLE PAYMENTS, NET OF UNAMORTIZED DEBT DISCOUNTS
| |
As
of September
30, | |
2022 | |
$ | – | |
2023 | |
| 1,500,000 | |
2024 | |
| 3,000,000 | |
2025
and thereafter | |
| 1,500,000 | |
Subtotal
of future principal payments | |
| 6,000,000 | |
Unamortized
debt premium, net | |
| (145,539 | ) |
Total | |
$ | 5,854,461 | |
Horizon
Credit Agreement
On
June 27, 2018, the Company entered into a loan agreement with Horizon Technology Finance Corporation (“Horizon”) that provided
$10 million in new capital (the “Horizon Credit Agreement”). The Company drew down $10 million upon closing of the Horizon
Credit Agreement on June 27, 2018. On August 28, 2020, Horizon and the Company amended the Horizon Credit Agreement (the “Amendment”)
whereby Celsion repaid $5 million of the $10 million loan and $0.2 million in related end of term charges, and the remaining $5 million
in obligations were restructured as set forth below.
Pursuant
to the Amendment, the remaining $5 million in obligations of Celsion under the Horizon Credit Agreement was secured by a first-priority
security interest in substantially all assets of Celsion other than intellectual property assets. The obligations bore interest at a
rate calculated based an amount by which the one-month LIBOR exceeds 2% plus 7.625%. In no event shall the interest rate be less than
9.625%. Payments pursuant to the Amendment were interest only for the first 12 months after August 1, 2020, followed by a 21-month amortization
period of principal and interest through the scheduled maturity date on April 1, 2023. In addition, the remaining $5 million in obligations
was subject to an end of term fee equal, in the aggregate, to $275,000, which amount was payable upon the maturity of the obligations
or upon the date of final payment or default, as applicable. In connection with the Amendment, Celsion agreed to a liquidity covenant
which provided that, at all times, Celsion maintain unrestricted cash and/or cash equivalents on deposit in accounts over which the applicable
lenders maintained an account control agreement in an amount not less than $2.5 million. In addition, pursuant to the Amendment, Celsion
agreed to provide evidence to Horizon on or before March 31, 2021, that it received aggregate cash proceeds of not less than $5 million
from the sale of equity, debt, its New Jersey NOLs, or a combination thereof, subsequent to the date of the Amendment. The Company met
this requirement during the fourth quarter of 2020.
In
connection with the Horizon Credit Agreement, the Company incurred financing fees and expenses totaling $175,000 which were recorded
and classified as debt discount. In addition, the Company paid loan origination fees of $100,000 which were recorded and classified as
debt discount. These debt discount amounts totaling $782,116 were being amortized as interest expense using the effective interest method
over the life of the loan. Also, in connection with each of the Horizon Credit Agreement, the Company was required to pay an end of term
charge equal to 4.0% of the original loan amount at time of maturity. Therefore, those amounts totaling $400,000 were being amortized
as interest expense using the effective interest method over the life of the loan.
As
a fee in connection with the Horizon Credit Agreement, Celsion issued Horizon warrants exercisable for a total of 12,674 shares of Celsion’s
common stock (the “Existing Warrants”) at a per share exercise price of $39.45. The Existing Warrants were immediately exercisable
for cash or by net exercise from the date of grant and will expire after ten years from the date of grant. The Company valued the Existing
Warrants issued using the Black-Scholes option pricing model and recorded a total of $507,116 as a direct deduction from the debt liability,
consistent with the presentation of debt discounts, and are being amortized as interest expense using the effective interest method over
the life of the loan. Pursuant to the Amendment, one-half of the aggregate Existing Warrants, exercisable for a total of 6,337 shares
of Celsion’s common stock, have been canceled, and, in connection with the Amendment, Celsion issued Horizon new warrants exercisable
at a per share exercise price equal to $15.15 for a total of 16,501 shares of Celsion’s common stock (the “New Warrants”
and, together with the Existing Warrants, the “Warrants”). The remaining 6,337 Existing Warrants issued in connection with
the Horizon Credit Agreement remain outstanding at a per share exercise price of $39.45.
The
New Warrants were immediately exercisable for cash or by net exercise from the date of grant and will expire after ten years from the
date of grant. The Horizon Credit Agreement contains customary representations, warranties and affirmative and negative covenants including,
among other things, covenants that limit or restrict Celsion’s ability to grant liens, incur indebtedness, make certain restricted
payments, merge, or consolidate and make dispositions of assets.
The
Amendment was evaluated in accordance with FASB ASC 470-50, Debt-Modifications and Extinguishments, for debt modification and
extinguishment accounting. We accounted for the $5 million we repaid as a debt extinguishment thereby reducing the principal obligations
accordingly. Also, in connection with the $5 million repayment, we recognized as interest expense, approximately $0.2 million of unamortized
debt discount, deferred financing and end of term fees related to the repaid obligation in August 2020.
We
accounted for the remaining $5 million of obligation under the Amendment as a debt modification to the initial agreement with respect
to the minor changes in cash flows. Also, in connection with the $5 million remaining obligations, we recorded $5,000 of financing fees
and the New Warrant fair value of $247,548 as additional debt discount on the $5 million remaining obligation. Therefore, approximately
$109,706 of unamortized debt discount will be amortized over the remaining life of the new obligations. The $275,000 of end of term fees,
net of previously amortized end of term fees totaling $142,605 previously accrued on the original note associated with the $5 million
remaining obligation, will be amortized as interest expense over the remaining life of the new obligations.
During
the year ending December 31, 2021, the Company incurred $225,920 in interest expense and amortized $139,428 as interest expense for debt
discounts and end of term charges in connection with the Horizon Credit Agreement. During 2020, the Company incurred $808,899 in interest
expense and amortized $483,439 as interest expense for debt discounts and end of term charges in connection with the Horizon Credit Agreement.
On
June 18, 2021, as a condition of entering into the SVB Loan Facility, the Company paid the outstanding principal balance, an early termination
fee and the end of term charges in full satisfaction of the Horizon Credit Agreement, as amended. Following is a schedule of the amounts
paid to Horizon on June 18, 2021.
SCHEDULE OF DEBT
| |
| | |
Principal
balance at June 18, 2021 | |
$ | 5,000,000 | |
Early
termination fees | |
| 150,000 | |
End
of term charges | |
| 275,000 | |
Total | |
$ | 5,425,000 | |
During
the year ending December 31, 2021, the Company recorded a loss of $234,419 on the termination of the Horizon Credit Agreement, as amended,
which represented the early termination fee and the end of term fees, net of previously amortized interest expense totaling $190,581
on the date of its payoff.
9.
INCOME TAXES
The
income tax provision (benefit) for the years ended December 31, 2021 and 2020 consists of the following:
SCHEDULE OF INCOME TAX PROVISION (BENEFIT)
| |
2021 | | |
2020 | |
Federal | |
| | | |
| | |
Current | |
$ | - | | |
$ | - | |
Deferred | |
| - | | |
| - | |
State
and Local | |
| - | | |
| - | |
Current | |
| - | | |
| - | |
Deferred | |
| (1,383,446 | ) | |
| (1,845,823 | ) |
Total | |
$ | (1,383,446 | ) | |
$ | (1,845,823 | ) |
A
reconciliation of the Company’s statutory tax rate to the effective rate for the years ended December 31, 2021 and 2020 is as follows:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| |
2021 | | |
2020 | |
Federal
statutory rate | |
| 21.0 | % | |
| 21.0 | % |
State
taxes, net of federal tax benefit | |
| 7.8 | | |
| 7.8 | |
Permanent
differences | |
| (15.0 | ) | |
| (5.3 | ) |
Other | |
| – | | |
| – | |
Change
in valuation allowance and deferred rate change, net | |
| (7.6 | ) | |
| (15.5 | ) |
Effective
tax rate | |
| 6.2 | % | |
| 8.0 | % |
The
components of the Company’s deferred tax asset as of December 31, 2021 and 2020 are as follows:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2021 | | |
2020 | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Net
operating loss carryforwards | |
$ | 64,915,000 | | |
$ | 60,446,000 | |
Other
Deferred tax assets, net | |
| 5,213,000 | | |
| 5,182,000 | |
Subtotal | |
| 70,128,000 | | |
| 65,628,000 | |
Valuation
allowance | |
| (68,744,554 | ) | |
| (63,782,177 | ) |
Total
deferred tax asset | |
$ | 1,383,446 | | |
$ | 1,845,823 | |
The
evaluation of the realizability of such deferred tax assets in future periods is made based upon a variety of factors that affect the
Company’s ability to generate future taxable income, such as intent and ability to sell assets and historical and projected operating
performance. As of December 31, 2020, the Company has established a valuation reserve for its deferred income tax assets other than those
related to its New Jersey NOLs. At December 31, 2020, after its evaluation of its New Jersey NOLs as discussed more fully below, the
Company reduced the valuation reserve and recognized $1.8 million as a deferred income tax asset. Such tax assets are available to be
recognized and benefit future periods. As of December 31, 2020, the Company had federal net operating loss carryforwards of approximately
$274 million, net of net operating losses utilized in prior years of which $225 million, if unused, will expire starting in 2022 through
2037. The Federal net operating loss generated for the years ended December 31, 2018, 2019 and 2020 of approximately $45 million can
be carried forward indefinitely. However, the deduction for net operating losses incurred in tax years beginning after January 1, 2018
is limited to 80% of annual taxable income. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
was enacted in response to the COVID-19 pandemic. The CARES Act provides for economic and cash liquidity stimulus through various means
including payroll tax credits, payroll tax deferral, short-term changes in tax deductibility of interest expenses among other things.
The Act also permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Previously,
NOLs generated after December 31, 2017 were limited to 80% of taxable income in future years. In addition, the CARES Act allows NOLs
incurred in 2018 through 2021 to be carried back to each of the five preceding tax years. The Company evaluated the various aspects of
the Act and determined that there was no material effect on the Financial Statements. As of December 31, 2021, the Company had state
net operating loss carryforwards of approximately $58 million, net of net operating losses utilized in prior years, and, if unused, will
expire starting in 2029 through 2040.
During
2021, 2020 and in prior years, the Company performed analyses to determine if there were changes in ownership, as defined by Section
382 of the Internal Revenue Code that would limit its ability to utilize certain net operating loss and tax credit carry forwards. The
Company determined that it experienced ownership changes, as defined by Section 382, in connection with certain common stock offerings
in July 2011, February 2013, June 2013, June 2015, February 2017, June 2017, October 2017, August 2018, February 2020 and January 2021.
As a result, the utilization of the Company’s federal tax net operating loss carry forwards generated prior to the ownership changes
are limited. As of December 31, 2021, the Company has net operating loss carry forwards for U.S. federal and state tax purposes of approximately
$274 million, before excluding net operating losses that have been limited as a result of Section 382 limitations. The annual limitation
due to Section 382 for net operating loss carry forward utilization is approximately $4.2 million per year for approximately $90 million
in net operating loss carry forwards existing at the ownership change occurring in July 2011, approximately $1.4 million per year for
approximately $34 million of additional net operating losses occurring from July 2011 to the ownership change that occurred in February
2013, approximately $1.5 million per year for approximately $4 million of additional net operating losses occurring from February 2013
to the ownership change that occurred in June 2013, approximately $1.6 million per year for approximately $40 million of additional net
operating losses occurring from June 2013 to the ownership change that occurred in June 2015, approximately $0.3 million per year for
approximately $35 million of additional net operating losses occurring from June 2015 to the ownership change that occurred in February
2017, approximately $0.3 million per year for approximately $7 million of additional net operating losses occurring from February 2017
to the ownership change that occurred in June 2017, approximately $0.8 million per year for approximately $5 million of additional net
operating losses occurring from June 2017 to the ownership change that occurred in October 2017, approximately $1.5 million per year
for approximately $30 million of additional net operating losses occurring from October 2017 to the ownership change that occurred in
August 2018, approximately $0.8 million per year for approximately $15 million of additional net operating losses occurring from August
2018 to the ownership change that occurred in February 2020 and approximately $2.0 million per year for approximately $40 million of
additional net operating losses occurring from February 2020 to the ownership change that occurred in January 2021. The utilization of
these net operating loss carry forwards may be further limited if the Company experiences future ownership changes as defined in Section
382 of the Internal Revenue Code.
Sale
of New Jersey Net Operating Losses
Since
2018, the Company has annually submitted applications to sell a portion of the Company’s New Jersey NOLs as part of the Technology
Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology
companies with unused New Jersey NOLs and unused research and development credits are allowed to sell these benefits to other
New Jersey-based companies. In 2018 and 2019, the Company sold cumulative New Jersey NOLs from 2011 to 2018 totaling $13
million and received net proceeds of $12.2
million. As part of the Technology Business Tax
Certificate Program, the Company sold $1.5
million and $2.0
million of its New Jersey NOLs in 2021 and 2020,
respectively. The sale of these net operating losses resulted in net proceeds to the Company of approximately $1.4
million in 2021 and $1.9
million in 2020. During 2021, the New Jersey
State Legislature increased the maximum lifetime benefit per company from $15
million to $20
million, which will allow the Company to participate
in this funding program in future years for up to an additional $3.4
million in net operating losses under this maximum
lifetime benefit.
10.
STOCKHOLDERS’ EQUITY
In
September 2018, the Company filed with the SEC a $75 million shelf registration statement on Form S-3 (the 2018 Shelf Registration Statement)
that allows the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock or preferred stock.
This shelf registration was declared effective on October 12, 2018 and during January 2021, has been fully utilized.
On
March 19, 2021, the Company filed with the SEC a new $100 million shelf registration statement on Form S-3 (the “2021 Registration
Statement”) that allows the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock
or preferred stock. This shelf registration was declared effective on March 30, 2021.
Reverse
Stock Split
On
February 28, 2022, the Company effected a 15-for-1 reverse stock split of its common stock which was made effective for trading purposes
as of the commencement of trading on March 31, 2022. As of that date, each 15 shares of issued and outstanding common stock and equivalents
was consolidated into one share of common stock. All shares have been restated to reflect the effects of the 15-for-1 reverse stock split.
In addition, at the market open on March 1, 2022, the Company’s common stock started trading under a new CUSIP number 15117N602
although the Company’s ticker symbol, CLSN, remained unchanged.
The
reverse stock split was previously approved by the Company’s stockholders at the 2022 Special Meeting held on February 24, 2022,
and the Company subsequently filed a Certificate of Amendment to its Certificate of Incorporation to effect the stock consolidation.
The primary reasons for the reverse stock split and the amendment are:
|
● |
To
provide the Company with the ability to support its future anticipated growth and would provide greater flexibility to consider and
respond to future business opportunities and needs as they arise, including equity financings and stock-based acquisitions of new
technology and product development candidates. The availability of additional shares of Common Stock would permit the Company to
undertake certain of the foregoing actions without delay and expense associated with holding a Special Meeting of Stockholders to
obtain stockholder approval each time such an opportunity arises that would require the issuance of shares of our Common Stock; and, |
|
|
|
|
● |
To
continue listing on The NASDAQ Capital Market, which requires that the Company comply with the applicable listing requirements under
NASDAQ Marketplace Rules, which requirements include, among others, a minimum bid price of at least $1.00 per share. On December
2, 2021, the Company received a letter from NASDAQ indicating that the closing bid price of the Company’s Common Stock fell
below $1.00 per share for the previous 30 consecutive business days, and that the Company was therefore not in compliance with the
minimum bid price requirement for continued inclusion on The NASDAQ Capital Market. The Company had 180 calendar days, until May
31, 2022, to regain compliance with this requirement, which occurs when the closing bid price of the Company’s Common Stock
is at least $1.00 per share for a minimum of ten consecutive business days during the 180-day compliance period. |
Immediately
prior to the reverse stock split, the Company had 86,557,736 shares of common stock outstanding which consolidated into 5,770,516 shares
of the Company’s common stock. No fractional shares were issued in connection with the reverse stock split. Holders of fractional
shares have been paid out in cash for the fractional portion with the Company’s overall exposure for such payouts consisting of
a nominal amount. The amount of the Company’s outstanding convertible preferred stock were
not affected by the reverse stock split. The number of outstanding options, stock awards and warrants were adjusted accordingly,
with outstanding options and stock awards being reduced from approximately 6.6 million to approximately 0.4 million and outstanding warrants
being reduced from approximately 2.5 million to approximately 0.2 million.
Capital
on DemandTM Sales Agreement
On
December 4, 2018, the Company entered into the Capital on Demand Agreement with JonesTrading, pursuant to which the Company may offer
and sell, from time to time, through JonesTrading shares of Common Stock having an aggregate offering price of up to $16.0 million.
During
2020, the Company sold and issued an aggregate of 0.3 million shares under the Capital on Demand Agreement, receiving approximately $6.2
million in gross proceeds. During 2021, the Company has sold 0.5 million shares under the Capital on Demand Agreement, receiving approximately
$6.9 million in gross proceeds under the Capital on Demand Agreement.
February
2020 Registered Direct Offering
On
February 27, 2020, the Company entered into a Securities Purchase Agreement (the “February 2020 Purchase Agreement”) with
several institutional investors, pursuant to which the Company issued and sold, in a registered direct offering (the “February
2020 Offering”), an aggregate of 304,761 shares of its common stock at an offering price of $15.75 per share for gross proceeds
of approximately $4.8 million before the deduction of the Placement Agent fees and offering expenses. The February 2020 Purchase Agreement
contained customary representations, warranties and agreements by the Company and customary conditions to closing. In a concurrent private
placement, the Company issued to the investors that participated in the February 2020 Offering, for no additional consideration, warrants
to purchase up to 198,095 shares of common stock (the “Original Warrants”). The Original Warrants were initially exercisable
six months following their date of issue and were set to expire on the five-year anniversary of such initial exercise date. The Original
Warrants had an exercise price of $17.25 per share subject to adjustment as provided therein. On March 12, 2020, the Company entered
into private exchange agreements (the “Exchange Agreements”) with holders of the Original Warrants. Pursuant to the Exchange
Agreements, in return for a higher exercise price of $18.60 per share of Common Stock, the Company issued new warrants to the investors
to purchase up to 213,333 shares of Common Stock (the “Exchange Warrants”) in exchange for the Original Warrants. The Exchange
Warrants, like the Original Warrants, are initially exercisable six months following their issuance (the “Initial Exercise Date”)
and expire on the five-year anniversary of their Initial Exercise Date. Other than having a higher exercise price, different issue date,
Initial Exercise Date and expiration date, the terms of the Exchange Warrants are identical to those of the Original Warrants. On July
31, 2020, the Company filed a Form S-3 Registration Statement to register the shares of common stock issuable under the Exchange Warrants;
the Registration Statement was declared effective by the SEC on August 13, 2020. No Exchange Warrants were exercised during 2020. During
2021, the Company has issued 81,111 million shares pursuant to investors exercising Exchange Warrants, receiving approximately $1.5 million.
Underwritten
Offering
On
June 22, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc. (the “Underwriter”), relating to the issuance and sale (the “Underwritten Offering”) of 177,777 shares of
the Company’s common stock. Pursuant to the terms of the Underwriting Agreement, the Underwriter agreed to purchase the shares
at a price of $52.3125 per share. The Underwriter offered the shares at a public offering price of $56.25 per share, reflecting an underwriting
discount equal to $3.9375, or 7.0% of the public offering price. The net proceeds to the Company from the Underwritten Offering, after
deducting the underwriting discount and estimated offering expenses payable by the Company, were approximately $9.1 million.
The
Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing,
indemnification obligations of the Company and the Underwriter including for liabilities under the Securities Act, other obligations
of the parties, and termination provisions. Pursuant to the Underwriting Agreement, until December 31, 2020, the Underwriter had a right
of first refusal to act as sole underwriter, initial purchaser, placement/selling agent, or arranger, as the case may be, on any new
financing for the Company (excluding equipment lease financings, loans or grants from governmental authorities or in connection with
government programs and financings relating to or sales of tax attributes) during such period. The Underwriter had the sole right to
determine whether or not any other broker dealer shall have the right to participate in any such offering and the economic terms of any
such participation. Pursuant to the Underwriting Agreement, subject to certain exceptions, the Company and certain of the Company’s
executive officers and directors agreed that, without the prior written consent of the Underwriter and subject to certain negotiated
exceptions, they will not, for a period of 60 days, in either case, following the date of the final prospectus supplement, sell or otherwise
dispose of any of the Company’s securities held by them.
LPC
Purchase Agreement
On
September 8, 2020, the Company entered into a purchase agreement (the “LPC Purchase Agreement”) and a Registration Rights
Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant
to which, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to sell to Lincoln
Park up to $26.0 million of shares of the Company’s common stock at the Company’s discretion. During 2020, the Company sold
and issued an aggregate of 218,854 shares, including 29,188 commitment shares provided to Lincoln Park, under the LPC Purchase Agreement,
receiving approximately $2.2 million in gross proceeds. On January 21, 2021, the Company terminated the LPC Purchase Agreement. The Company
did not sell any shares under the LPC Purchase Agreement in 2021.
January
2021 Registered Direct Offering
On
January 22, 2021, the Company entered into a Securities Purchase Agreement (the “January 2021 Purchase Agreement”) with several
institutional investors, pursuant to which the Company issued and sold, in a registered direct offering (the “January 2021 Offering”),
an aggregate of 1,728,395 shares of the Company’s common stock at an offering price of $20.25 per share for gross proceeds of approximately
$35 million before the deduction of the January 2021 Placement Agents (as defined below) fee and offering expenses. The closing of the
January 2021 Offering occurred on January 26, 2021.
In
connection with the January 2021 Offering, the Company entered into a placement agent agreement with A.G.P./Alliance Global Partners
(“AGP,” and together with Brookline Capital Markets, the “January 2021 Placement Agents”) pursuant to which the
Company agreed to pay the January 2021 Placement Agents a cash fee equal to 7% of the aggregate gross proceeds raised from the sale of
the securities sold in the January 2021 Offering and reimburse the January 2021 Placement Agents for certain of their expenses in an
amount not to exceed $82,500.
March
2021 Registered Direct Offering
On
March 31, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 Purchase Agreement”) with several
institutional investors, pursuant to which the Company issued and sold, in a registered direct offering (the “March 2021 Offering”),
an aggregate of 769,230 shares of the Company’s common stock, at an offering price of $19.50 per share for gross proceeds of approximately
$15 million before the deduction of the placement agents fee and offering expenses. The closing of the offering occurred on April 5,
2021.
In
connection with the March 2021 Offering, the Company entered into a placement agent agreement (the “March 2021 Placement Agent
Agreement”) with AGP, as lead placement agent (together with JonesTrading Institutional Services LLC and Brookline Capital Markets,
a division of Arcadia Securities, LLC, serving as co-placement agents, the “March 2021 Placement Agents”), pursuant to which
the Company agreed to pay the March 2021 Placement Agents an aggregate cash fee equal to 7% of the aggregate gross proceeds raised from
the sale of the securities sold in the offering and reimburse the Placement Agents for certain of their expenses in an amount not to
exceed $82,500.
Under
the March 2021 Purchase Agreement and March 2021 Placement Agent Agreement, the Company and its subsidiaries were prohibited, for a period
of 90 days after the closing, from entering into any agreement to issue or announcing any issuance or proposed issuance of common stock
or any other securities that are at any time convertible into, or exercisable or exchangeable for, or otherwise entitle the holder thereof
to receive common stock without the prior written consent of AGP or the investors participating in the offering. For purposes of this
offering, AGP and the investors from the Company’s January 2021 Offering waived a similar 90-day restriction in the placement agent
agreement and purchase agreement for that transaction.
2019
Aspire Purchase Agreement
In
2019, Company, entered into the 2019 Aspire Purchase Agreement with Aspire Capital. Pursuant to the 2019 Aspire Purchase Agreement, Aspire
Capital was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over the 24-month
term of the 2019 Aspire Purchase Agreement. On March 5, 2020, the Company delivered notice to Aspire Capital terminating the 2019 Aspire
Purchase Agreement effective as of March 6, 2020. During the first quarter of 2020, the Company sold 66,666 million shares of common
stock under the 2019 Aspire Purchase Agreement and received $1.6 million in gross proceeds.
Series
A and Series B Convertible Redeemable Preferred Stock Offering
On
January 10, 2022, the Company entered into a Securities Purchase Agreement (the “Preferred Stock Purchase Agreement”) with
several institutional investors, pursuant to which the Company agreed to issue and sell, in concurrent registered direct offerings (the
“Preferred Offerings”), (i) 50,000
shares of the Company’s
Series A Convertible Redeemable Preferred Stock, par value $0.01
per share (the “Series
A Preferred Stock”), and (ii) 50,000
shares of the Company’s
Series B Convertible Redeemable Preferred Stock, par value $0.01
per share (the “Series
B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”), in each case at an offering
price of $285
per share, representing
a 5% original issue discount to the stated value of $300
per share, for gross
proceeds of each Preferred Offering of $14.25
million, or approximately
$28.50 million in the aggregate for the Preferred Offerings, before the deduction of the Placement Agent’s (as defined below) fee
and offering expenses. The shares of Series A Preferred Stock have a stated value of $300
per share and are convertible,
at a conversion price of $13.65
per share, into
1,098,901
shares of common stock
(subject in certain circumstances to adjustments). The shares of Series B Preferred Stock have a stated value of $300
per share and are convertible,
at a conversion price of $15.00
per share, into
1,000,000
shares of common stock
(subject in certain circumstances to adjustments). The closing of the Preferred Offerings occurred on January 13, 2022.
The
Company held a special meeting of stockholders to consider an amendment (the “Amendment”) to the Company’s Certificate
of Incorporation, as amended (the “Charter”), to effect a reverse stock split of the outstanding shares of common stock (“Common
Stock”) by a ratio to be determined by the Board of Directors of the Company (the “Reverse Stock Split”), ranging from
7-to-1 to, 10-to-1, 12-to-1 or 15-to-1. The investors have agreed in the Purchase Agreement to not transfer, offer, sell, contract to
sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock until the Reverse Stock Split, to vote the shares
of the Series A Preferred Stock purchased in the Preferred Offerings in favor of such Amendment and to vote the shares of the Series
B Preferred Stock purchased in the Preferred Offerings in a manner that “mirrors” the proportions on which the shares of
Common Stock (excluding any shares of Common Stock that are not voted) and Series A Preferred Stock are voted on the Reverse Stock Split
and the Amendment. The Amendment required the approval of the majority of the votes associated with the Company’s outstanding stock
entitled to vote on the proposal.
Pursuant
to the Purchase Agreement, the Company filed two certificates of designation (the “Certificates of Designation”) with the
Secretary of the State of Delaware designating the rights, preferences and limitations of the shares of Preferred Stock. The Certificates
of Designation provided, in particular, that the Preferred Stock has no voting rights, other than the right to vote as a class on certain
specified matters, except that (i) each share of Series A Preferred Stock has the right to vote, on an as converted basis, on the Reverse
Stock Split (together with the Company’s Common Stock and the Series B Preferred Stock as a single class), and (ii) each share
of Series B Preferred Stock has the right to cast 3,000 votes per share of Series B Preferred Stock on the Reverse Stock Split.
The
holder of Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares
of Common Stock. The Preferred Stock is convertible into shares of Common Stock at a rate of $13.65
per share for the Series A Preferred Stock
and $15.00
per share for the Series B Preferred Stock,
subject to adjustment. The Preferred Stock can be converted at the option of the holder at any time after the Company has received stockholder
approval for the Reverse Stock Split and filed the requisite Amendment with the Delaware Secretary of State’s office to effectuate
the Reverse Stock Split (the “Reverse Stock Split Date”), subject to beneficial ownership limitations set forth in the applicable
Certificate of Designation. In addition, on or after the Reverse Stock Split Date, and subject to the satisfaction of certain conditions,
the Company can cause the holder of the Preferred Stock to convert their shares of Preferred Stock, subject to such beneficial ownership
limitations.
Each
holder of the Preferred Stock has the right to cause the Company to redeem all or part of their shares of the Preferred Stock from the
earlier of receipt of stockholder approval of the Reverse Stock Split or of 90 days following the original issue date until 120 days
following the original issue date, the “Redemption Date,” in cash at a redemption price equal to 105% of the stated value
plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest
on such dividends) up to, but excluding, the Redemption Date.
On
March 3, 2022, the Company redeemed for cash at a price equal to 105% of the $300 stated value per share all of its 50,000 outstanding
shares of Series A Preferred Stock and its 50,000 Series B Preferred Stock. As a result, all shares
of the Preferred Stock have been retired and are no longer outstanding and Celsion’s only class of outstanding stock is its common.
Each share of common stock entitles the holder to one vote.
In
connection with the Preferred Offerings, the Company entered into a placement agent agreement (the “Placement Agent Agreement”)
with AGP pursuant to which the Company agreed to pay AGP an aggregate cash fee equal to $1,000,000 and reimburse AGP for certain
of their expenses in an amount not to exceed $110,000.
The
Placement Agent Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing,
indemnification obligations of the Company and AGP, including for liabilities under the Securities Act, other obligations of the parties
and termination provisions.
11.
STOCK-BASED COMPENSATION
The
Company has long-term compensation plans that permit the granting of equity-based awards in the form of stock options, restricted stock,
restricted stock units, stock appreciation rights, other stock awards, and performance awards.
At
the 2018 Annual Stockholders Meeting of the Company held on May 15, 2018, stockholders approved the Celsion Corporation 2018 Stock Incentive
Plan (the “2018 Plan”). The 2018 Plan, as adopted, permits the granting of 180,000 shares of Celsion common stock as equity
awards in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation
rights, other stock awards, performance awards, or in any combination of the foregoing. At the 2019 Annual Stockholders Meeting of the
Company held on May 14, 2019, stockholders approved an amendment to the 2018 Plan whereby the Company increased the number of common
stock shares available by 80,000 to a total of 260,000 under the 2018 Plan, as amended. Prior to the adoption of the 2018 Plan, the Company
had maintained the Celsion Corporation 2007 Stock Incentive Plan (the “2007 Plan”). At the 2020 Annual Stockholders Meeting
of the Company held on June 15, 2020, stockholders approved an amendment to the 2018 Plan, as previously amended, whereby the Company
increased the number of shares of common stock available by 166,667 to a total of 426,667 under the 2018 Plan, as amended. At the 2021
Annual Stockholders Meeting of the Company held on June 10, 2021, stockholders approved an amendment to the 2018 Plan, as previously
amended, whereby the Company increased the number of shares of common stock available by 513,333 to a total of 940,000 under the 2018
Plan, as amended.
The
Company has issued stock awards to employees and directors in the form of stock options and restricted stock. Options are generally granted
with strike prices equal to the fair market value of a share of Celsion common stock on the date of grant. Incentive stock options may
be granted to purchase shares of common stock at a price not less than 100% of the fair market value of the underlying shares on the
date of grant, provided that the exercise price of any incentive stock option granted to an eligible employee owning more than 10% of
the outstanding stock of Celsion must be at least 110% of such fair market value on the date of grant. Only officers and key employees
may receive incentive stock options.
Option
and restricted stock awards vest upon terms determined by the Compensation Committee of the Board of Directors and are subject to accelerated
vesting in the event of a change of control or certain terminations of employment. The Company issues new shares to satisfy its obligations
from the exercise of options or the grant of restricted stock awards.
On
September 28, 2018, and again on February 19, 2019, the Compensation Committee of the Board of Directors approved the grant of (i) inducement
stock options (the “Inducement Option Grants”) to purchase a total of 10,933 and 9,332 shares of Celsion common stock, respectively
and (ii) inducement restricted stock awards (the “Inducement Stock Grants”) totaling 1,266 and 8,666 shares of Celsion common
stock to five new employees collectively. Each award has a grant date of the date of grant. Each Inducement Option Grant has an exercise
price per share equal to $41.55 and $32.70 which represents the closing price of Celsion’s common stock as reported by Nasdaq on
September 28, 2018 and February 19, 2019, respectively. Each Inducement Option Grant vests over three years, with one-third vesting on
the one-year anniversary of the employee’s first day of employment with the Company and one-third vesting on the second and third
anniversaries thereafter, subject to the new employee’s continued service relationship with the Company on each such date. Each
Inducement Option Grant has a ten-year term and is subject to the terms and conditions of the applicable stock option agreement. Each
of Inducement Stock Grant vested on the one-year anniversary of the employee’s first day of employment with the Company is subject
to the new employee’s continued service relationship with the Company through such date and is subject to the terms and conditions
of the applicable restricted stock agreement.
As
of December 31, 2021, there were a total of 946,561 shares of Celsion common stock reserved for issuance under the 2018 Plan, which were
comprised of 433,676 shares of Celsion common stock subject to equity awards previously granted under the 2018 Plan and 2007 Plan and
512,884 shares of Celsion common stock available for future issuance under the 2018 Plan. As of December 31, 2021, there were a total
of 9,332 shares of Celsion common stock subject to outstanding inducement awards.
Total
compensation cost related to stock options and restricted stock awards was approximately $3.8 million and $1.9 million during 2021 and
2020, respectively. Of these amounts, $1.4 million and $0.8 million was charged to research and development expenses during 2021 and
2020, respectively, and $2.4 million and $1.1 million was charged to general and administrative expenses during 2021 and 2020, respectively.
In connection with the Company’s annual 2019 bonus program, the Company issued 429,855 shares of common stock from the 2018 Stock
Incentive Plan in March 2020 in lieu of paying cash for 50% of the annual bonus awards. These amounts were fully accrued for in the Financial
Statements for the year ended December 31, 2019.
A
summary of stock option awards as of December 31, 2021 and changes during the two-year period ended December 31, 2021 is presented below:
SUMMARY OF STOCK OPTIONS
Stock
Options | |
Number
Outstanding | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Term (years) | | |
Aggregate
Intrinsic Value | |
Outstanding
at January 1, 2020 | |
| 288,808 | | |
$ | 39.45 | | |
| | | |
| | |
Options
granted | |
| 44,683 | | |
$ | 51.15 | | |
| | | |
| | |
Options
exercised | |
| (9,390 | ) | |
$ | 39.60 | | |
| | | |
| | |
Options
canceled or expired | |
| (15,788 | ) | |
$ | 32.07 | | |
| | | |
| | |
Outstanding
at December 31, 2020 | |
| 308,313 | | |
$ | 41.55 | | |
| | | |
| | |
Options
granted | |
| 148,016 | | |
$ | 32.09 | | |
| | | |
| | |
Options
exercised | |
| (500 | ) | |
$ | 9.45 | | |
| | | |
| | |
Options
canceled or expired | |
| (14,404 | ) | |
$ | 38.23 | | |
| | | |
| | |
Outstanding
at December 31, 2021 | |
| 441,425 | | |
$ | 38.70 | | |
| 7.4 | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable
at December 31, 2021 | |
| 292,332 | | |
$ | 40.58 | | |
| 6.9 | | |
$ | – | |
A
summary of the status of the Company’s non-vested restricted stock awards as of December 31, 2021 and changes during the two-year
period ended December 31, 2021, is presented below:
SUMMARY OF NON-VESTED RESTRICTED STOCK AWARDS
Restricted
Stock | |
Number Outstanding | | |
Weighted Average Grant
Date Fair
Value | |
Non-vested
stock awards outstanding at January 1, 2020 | |
| 583 | | |
$ | 23.85 | |
Granted | |
| 28,773 | | |
$ | 17.37 | |
Vested
and issued | |
| (28,940 | ) | |
$ | 17.46 | |
Forfeited | |
| (233 | ) | |
$ | 23.85 | |
Non-vested
stock awards outstanding at December 31, 2020 | |
| 183 | | |
$ | 14.70 | |
Granted | |
| 1,466 | | |
$ | 13.48 | |
Forfeited | |
| (66 | ) | |
$ | 33.30 | |
Non-vested
stock awards outstanding at December 31, 2021 | |
| 1,583 | | |
$ | 14.25 | |
A
summary of stock options outstanding at December 31, 2021 by price range is as follows:
SUMMARY OF STOCK OPTIONS OUTSTANDING
| |
Options
Outstanding | | |
Options
Exercisable | |
| |
| | |
| |
Range
of Exercise Prices | |
Number | | |
Weighted
Average Remaining Contractual Term (in
years) | | |
Weighted
Average Exercise Price | | |
Number | | |
Weighted
Average Remaining Contractual Term (in
years) | | |
Weighted
Average Exercise Price | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Up
to $30.00 | |
| 39,316 | | |
| 8.4 | | |
$ | 21.93 | | |
| 17,648 | | |
| 7.8 | | |
$ | 25.20 | |
$30.01
to $75.00 | |
| 397,903 | | |
| 7.5 | | |
$ | 37.59 | | |
| 270,478 | | |
| 6.9 | | |
$ | 37.80 | |
Above
$75.00 | |
| 4,206 | | |
| 4.2 | | |
$ | 282.27 | | |
| 4,206 | | |
| 4.3 | | |
$ | 284.10 | |
| |
| 441,425 | | |
| | | |
| | | |
| 292,332 | | |
| | | |
| | |
The
fair values of stock options granted were estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes
model was originally developed for use in estimating the fair value of traded options, which have different characteristics from Celsion’s
stock options. The model is also sensitive to changes in assumptions, which can materially affect the fair value estimate. The Company
used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:
SCHEDULE OF ASSUMPTIONS USED TO DETERMINE FAIR VALUE OF OPTIONS GRANTED
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Risk-free
interest rate | |
| 1.54
% to 1.74 | % | |
| 0.65%
to 1.33 | % |
Expected
volatility | |
| 106.8%
to 113.2 | % | |
| 100.4%
to 109.1 | % |
Expected
life (in years) | |
| 7.5
to 10.0 | | |
| 7.5
to 10.0 | |
Expected
dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected
volatilities utilized in the model are based on historical volatility of the Company’s stock price. As of December 31, 2021, there
was $1.7 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected
to be recognized over a weighted-average period of 1.0 years.
12.
EARN-OUT MILESTONE LIABILITY
The
total aggregate purchase price for the EGEN Acquisition included potential future Earn-out Payments contingent upon achievement of certain
milestones. The difference between the aggregate $30.4 million in future Earn-out Payments and the $13.9 million included in the fair
value of the acquisition consideration at June 20, 2014 was based on the Company’s risk-adjusted assessment of each milestone (10%
to 67%) and utilizing a discount rate based on the estimated time to achieve the milestone (1.5 to 2.5 years). The earn-out milestone
liability will be fair valued at the end of each quarter and any change in their value will be recognized in the Financial Statements.
On
March 28, 2019, the Company and EGWU, Inc., entered into the Amended Asset Purchase Agreement. Pursuant to the Amended Asset Purchase
Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of $12.4 million has been modified. The
Company has the option to make the payment as follows:
a) |
$7.0
million in cash within 10 business days of achieving the milestone; or |
b) |
$12.4
million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone. |
The
Company provided EGWU, Inc. 13,333 warrants to purchase common stock at a strike price of $0.15 per warrant share as consideration for
entering into this amended agreement. The warrant shares have no expiration and were fair valued at $30.00 using the closing price of
a share of Celsion stock on the date of issuance offset by the exercise price and recorded as a non-cash expense in the income statement
and were classified as equity on the balance sheet. In October of 2020, EGWU, Inc. elected to receive 13,151 shares through a non-cash
conversion and exercised all 13,333 warrant shares.
At
December 31, 2021, the Company fair valued the earn-out milestone liability at $5.4 million and recognized a non-cash gain of $1.6 million
during 2021 as a result of the change in the fair value of the earn-out milestone liability of $7.0 million at December 31, 2020. In
assessing the fair value of the earnout milestone liability at December 31, 2021, the Company considered each of the settlement provisions
per the Amended Asset Purchase Agreement and equally weighted the probability of a cash or cash and common stock payment.
At
December 31, 2020, the Company fair valued the earn-out milestone liability at $7.0 million and recognized a non-cash charge of $1.3
million during 2020 as a result of the change in the fair value of earn-out milestone liability of $5.7 million at December 31, 2019.
In assessing the fair value of the earnout milestone liability at December 31, 2020, the Company considered each of the settlement provisions
per the Amended Asset Purchase Agreement and equally weighted the probability of a cash or cash and common stock payment.
The
following is a summary of the changes in the earn-out milestone liability for 2020 and 2021:
SCHEDULE OF CHANGES IN EARN-OUT MILESTONE LIABILITY
Balance
at January 1, 2020 | |
$ | 5,717,709 | |
Non-cash
loss from the adjustment for the change in fair value included in 2020 net loss | |
| 1,300,291 | |
Balance
at December 31, 2020 | |
| 7,018,000 | |
Non-cash
gain from the adjustment for the change in fair value included in 2021 net loss | |
| (1,622,000 | ) |
Balance
at December 31, 2021 | |
$ | 5,396,000 | |
13.
WARRANTS
Following
is a summary of all warrant activity for the two years ended December 31, 2021:
SUMMARY OF WARRANT ACTIVITY
Warrants | |
Number
of Warrants Issued | | |
Weighted Average Exercise Price | |
Warrants
outstanding at January 1, 2020 | |
| 41,739 | | |
$ | 28.05 | |
Warrants
issued during 2020 | |
| 234,834 | | |
$ | 18.15 | |
Warrants
exercised during 2020 (see Note 12) | |
| (13,333 | ) | |
$ | 0.15 | |
Warrants
cancelled during 2020 | |
| (6,337 | ) | |
$ | 39.45 | |
Warrants
outstanding and exercisable at December 31, 2020 | |
| 256,903 | | |
$ | 20.10 | |
Warrants
exercised during 2021 (see Note 10) | |
| (81,111 | ) | |
$ | 18.60 | |
Warrants
outstanding and exercisable at December 31, 2021 | |
| 175,792 | * | |
$ | 21.00 | |
| |
| | | |
| | |
Aggregate
intrinsic value of outstanding warrants at December 31, 2021 | |
$ | -0- | | |
| | |
| |
| | | |
| | |
Weighted
average remaining contractual terms (years) | |
| 3.9 | * | |
| | |
* |
Warrants to exercise 7,273 shares of common stock at an exercise price of $48.30 per share expired on February 21, 2022. |
In
connection with the February 2020 Registered Direct financing (Note 10), the Company issued warrants to purchase 213,333 shares of common
stock in February 2020 of which 81,111 of these were exercised during 2021. In connection with the Horizon Credit Agreement Amendment,
the Company cancelled warrants to purchase 6,337 shares of common stock and issued warrants to purchase 16,501 shares of common stock
in August 2020. Pursuant to a consulting agreement dated September 21, 2020, the Company issued warrants to purchase 5,000 shares of
common stock vesting immediately and having a 4-year term. The shares underlying these warrants are unregistered and have a strike price
of $11.85 per share. The Company fair valued these warrants $9.00 per share, recognizing $45,000 as professional fee expense.
14.
CELSION EMPLOYEE BENEFIT PLANS
Celsion
maintains a defined-contribution plan under Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees
over the age of 21. Participating employees may defer a portion of their pretax earnings, up to the IRS annual contribution limit. The
Company makes a matching contribution up to a maximum of 3% of an employee’s annual salary. The Company’s total matching
contributions for the years ended December 31, 2021 and 2020 was $107,000 and $111,000, respectively. The Company also provided a discretionary
contribution totaling $172,000 and $178,000 in 2021 and 2020, respectively. The discretionary contribution represented 5% both years
of each eligible participant’s annual salary in 2021 and 2020, respectively. Each year’s discretionary contribution was paid
out in January of the following year.
15.
LEASES
In
2011, the Company executed a lease (the “Lease”) with Brandywine Operating Partnership, L.P. (Brandywine), a Delaware limited
partnership, for a 10,870 square foot premises located in Lawrenceville, New Jersey and relocated its offices to Lawrenceville, New Jersey
from Columbia, Maryland. The Lease had an initial term of 66 months. In late 2015, Lenox Drive Office Park LLC, purchased the real estate
and office building and assumed the Lease. This Lease was set to expire on April 30, 2017. In April 2017, the Company and the landlord
amended the Lease effective May 1, 2017. The 1st Lease Amendment extended the term of the agreement for an additional 64 months,
reduced the premises to 7,565 square feet, reduced the monthly rent and provided four months free rent. The monthly rent ranged from
approximately $18,900 in the first year to approximately $20,500 in the final year of the 1st Lease Amendment. Effective January
9, 2019, the Company amended the terms of the 1st Lease Amendment to increase the size of the premises by 2,285 square feet
to 9,850 square feet and extended the lease term by one year to September 1, 2023. The Company had a one-time option to cancel the lease
after 40 months as part of the 1st Lease Amendment, which was extended with the 2nd Lease Amendment. The option
to cancel the lease expired on August 31, 2020. The monthly rent under the 2nd Lease Amendment ranges from approximately $25,035
in the first year to approximately $27,088 in the final year of the lease.
In
connection with the EGEN Asset Purchase Agreement in June 2014, the Company assumed the existing lease with another landlord for an 11,500
square foot premises located in Huntsville Alabama. In January 2018, the Company and the Huntsville landlord entered into a new 60-month
lease which reduced the premises to 9,049 square feet with rent payments of approximately $18,100 per month. On June 9, 2021 and, as
amended on July 7, 2021, the Company and the Huntsville landlord entered into a 22-month lease for an additional 2,197 square foot premises
with rent payments of approximately $5,500 per month.
As
previously mentioned in Note 4, the Company adopted ASC Topic 842 on January 1, 2019 using the modified retrospective transition method
for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented
under ASC Topic 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting
under Topic 840, Leases. The standard had a material impact on the Company’s Consolidated Condensed Balance Sheet but had no impact
on the Company’s consolidated net earnings and cash flows. The most significant impact of adopting ASC Topic 842 was the recognition
of the right-of-use (ROU) asset and lease liabilities for operating leases, which are presented in the following three-line items on
the Consolidated Condensed Balance Sheet: (i) operating lease right-of-use asset; (ii) current operating lease liabilities; and (iii)
operating lease liabilities. Therefore, on date of adoption of ASC Topic 842, the Company recognized a ROU asset of $1.4 million, operating
lease liabilities, current and non-current collectively, of $1.5 million and reduced other liabilities by approximately $0.1 million.
The Company elected the package of practical expedients for leases that commenced before the effective date of ASC Topic 842 whereby
the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification
for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, the Company has lease agreements
with lease and non-lease components, and the Company has elected the practical expedient for all underlying asset classes and account
for them as a single lease component. The Company has no finance leases. The Company determines if an arrangement is a lease at inception.
The Company has operating leases for office space and research and development facilities. Neither of the Company’s leases include
options to renew, however, one contains an option for early termination. The Company has considered the option of early termination in
measurement of right-of-use assets and lease liabilities and has determined it is not reasonably certain to be terminated. In connection
with the 2nd Lease Amendment for the New Jersey office lease in January 2019, the Company considered this as one modified
lease and not as two separate leases. Therefore, in January 2019, the Company determined this lease was an operating lease and remeasured
the ROU asset and lease liability. Therefore, the Company increased the ROU asset and operating lease liabilities by $0.4 million to
$1.8 million and $1.9 million, respectively. Following is a table of the lease payments and maturity of the Company’s operating
lease liabilities as of December 31, 2021:
SCHEDULE OF LEASE PAYMENTS AND MATURITY OF OPERATING LEASE LIABILITIES
| |
For
the year
ending December 31, | |
2022 | |
$ | 601,495 | |
2023 | |
| 238,609 | |
2024
and thereafter | |
| - | |
Subtotal
future lease payments | |
| 840,104 | |
Less
imputed interest | |
| (60,485 | ) |
Total
lease liabilities | |
$ | 779,619 | |
| |
| | |
Weighted
average remaining life | |
| 1.45
years | |
| |
| | |
Weighted
average discount rate | |
| 9.98 | % |
For
2021, operating lease expense was $560,513 and cash paid for operating leases included in operating cash flows was $568,269. For 2020,
operating lease expense was $522,380 and cash paid for operating leases included in operating cash flows was $525,809.
16.
COMMITMENTS AND CONTINGENCIES
On
October 29, 2020, a putative securities class action was filed against the Company and certain of its officers and directors (the “Spar
Individual Defendants”) in the U.S. District Court for the District of New Jersey, captioned Spar v. Celsion Corporation, et al.,
Case No. 1:20-cv-15228. The plaintiff alleges that the Company and Individual Defendants made false and misleading statements regarding
one of the Company’s product candidates, ThermoDox®, and brings claims for damages under Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder against all Defendants, and under Section 20(a) of the Exchange Act of 1934 against the Spar Individual
Defendants. The Company believes that the case is without merit and intends to defend it vigorously. Due to the early stage of the case
neither the likelihood that a loss, if any, will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
In
February 2021, a derivative shareholder lawsuit was filed against the Company, as the nominal defendant, and certain of its directors
and officers as defendants in the U.S. District Court for the District of New Jersey, captioned Fidler v. Michael H. Tardugno et al.,
Case No. 3:21-cv-02662. The plaintiff alleges breach of fiduciary duty and other claims arising out of alleged statements made by certain
of the Company’s directors and/or officers regarding ThermoDox®. The Company believes it has meritorious defenses
to these claims and intends to vigorously contest this suit. Due to the early stage of the case neither the likelihood that a loss, if
any, will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
In
August 2021, a complaint regarding a corporate books and records demand was filed against the Company in the Court of Chancery of
the State of Delaware, captioned Pacheco v. Celsion Corporation, Case No. 2021-0705. The plaintiff alleges he is entitled to inspect
the Company’s books and records concerning the OPTIMA Study and other materials. The Company believes that the scope of the demand
is without merit and intends to defend it vigorously. Due to the early stage of the case neither the likelihood that a loss, if any,
will be realized, nor an estimate of possible loss or range of loss, if any, can be determined.
17.
LICENSES OF INTELLECTUAL PROPERTY AND PATENTS
On
November 10, 1999, the Company entered into a license agreement with Duke University (“Duke”) under which the Company received
worldwide exclusive rights (subject to certain exceptions) to commercialize and use Duke’s thermally sensitive liposome technology.
The license agreement contains annual royalty and minimum payment provisions due on net sales. The agreement also required milestone-based
royalty payments measured by various events, including product development stages, FDA applications and approvals, foreign marketing
approvals and achievement of significant sales. However, in lieu of such milestone-based cash payments, Duke agreed to accept shares
of the Company’s common stock to be issued in installments at the time each milestone payment is due, with each installment of
shares to be calculated at the average closing price of the common stock during the 20 trading days prior to issuance.
The
total number of shares issuable to Duke under these provisions is subject to adjustment in certain cases, and Duke has piggyback registration
rights for public offerings taking place more than one year after the effective date of the license agreement. On January 31, 2003, the
Company issued 253,691 shares of common stock to Duke University valued at $2.2 million as payment for milestone-based royalties under
this license agreement. An amendment to the Duke license agreement contains certain development and regulatory milestones, and other
performance requirements that the Company has met with respect to the use of the licensed technologies. The Company will be obligated
to make royalty payments based on sales to Duke upon commercialization, until the last of the Duke patents expire. For the years ended
December 31, 2021 and 2020, the Company has not incurred any expense under this agreement and will not incur any future liabilities until
commercial sales commence.
Under
the November 1999 license agreement with Duke, the Company has rights to the thermally sensitive liposome technology, including Duke’s
U.S. patents covering the technology as well as all foreign counterparts and related pending applications. Foreign counterpart applications
have been issued in the EU, Hong Kong, Australia and Canada and have been allowed in Japan. The EU patent has been validated in Austria,
Belgium, France, Germany, Great Britain, Italy, Luxembourg, Monaco, Spain and Switzerland. In addition, the Duke license agreement provides
the Company with rights to multiple issued U.S. patents related to the formulation, method of making and use of heat sensitive liposomes.
The Company’s rights under the license agreement with Duke extend for the life of the last-to-expire of the licensed patents.
In
addition to the rights available to the Company under completed or pending license agreements, the Company is actively pursuing patent
protection for technologies developed by the Company. Among these patents is a family of a pending US, and international issued patents,
which seek to protect the Company’s proprietary method of storing ThermoDox® which is critical for worldwide distribution
channels.
Finally,
through proprietary information agreements with employees, consultants and others, the Company seeks to protect its own proprietary know-how
and trade secrets. The Company cannot offer assurances that these confidentiality agreements will not be breached, that the Company will
have adequate remedies for any breach, or that these agreements, even if fully enforced, will be adequate to prevent third-party use
of the Company’s proprietary technology. Similarly, the Company cannot guarantee that technology rights licensed to it by others
will not be successfully challenged or circumvented by third parties, or that the rights granted will provide the Company with adequate
protection.
18.
TECHNOLOGY DEVELOPMENT AND LICENSING AGREEMENTS
On
May 7, 2012, the Company entered into a long-term commercial supply agreement with Zhejiang Hisun Pharmaceutical Co. Ltd. (Hisun) for
the production of ThermoDox® in the China territory. In accordance with the terms of the agreement, Hisun will be responsible
for providing all of the technical and regulatory support services, including the costs of all technical transfer, registration and bioequivalence
studies, technical transfer costs, Celsion consultative support costs and the purchase of any necessary equipment and additional facility
costs necessary to support capacity requirements for the manufacture of ThermoDox®. Celsion will repay Hisun for the aggregate
amount of these development costs and fees commencing on the successful completion of three registration batches of ThermoDox®.
Hisun is also obligated to certain performance requirements under the agreement. The agreement will initially be limited to a percentage
of the production requirements of ThermoDox® in the China territory with Hisun retaining an option for additional global
supply after local regulatory approval in the China territory. In addition, Hisun will collaborate with Celsion around the regulatory
approval activities for ThermoDox® with the China State Food and Drug Administration (CHINA FDA).
On
January 18, 2013, we entered into a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable research
and development fee of $5 million to support our development of ThermoDox® in mainland China, Hong Kong and Macau (the
China territory). Following our announcement on January 31, 2013 that the HEAT study failed to meet its primary endpoint, Celsion and
Hisun have agreed that the Technology Development Contract entered into on January 18, 2013 will remain in effect while the parties continue
to collaborate and are evaluating the next steps in relation to ThermoDox®, which include the sub-group analysis of patients
in the Phase III HEAT Study for the HCC clinical indication and other activities to further the development of ThermoDox®
for the Greater China market. The $5.0 million received as a non-refundable payment from Hisun in the first quarter 2013 has been recorded
to deferred revenue and will continue to be amortized over the 10 -year term of the agreement, until such time as the parties find a
mutually acceptable path forward on the development of ThermoDox® based on findings of the ongoing post-study analysis
of the HEAT Study data.
19.
SUBSEQUENT EVENTS
The
Company has evaluated events subsequent to the date of the balance sheet through the date of the Financial Statements.
In
January 2022, the Company invested $250,000 in a company which uses next generation gene modulation tools providing services to the Huntsville
operations. The funds are in the form of a senior convertible note that bears fixed interest and is classified as a short-term investment
on the balance sheet.
On
January 10, 2022, the Company entered into a Securities Purchase Agreement (the “Preferred Stock Purchase Agreement”) with
several institutional investors, pursuant to which the Company agreed to issue and sell, in concurrent registered direct offerings (the
“Preferred Offerings”), (i) 50,000
shares of the Company’s Series A Convertible
Redeemable Preferred Stock, par value $0.01
per share (the “Series A Preferred Stock”),
and (ii) 50,000
shares of the Company’s Series B Convertible
Redeemable Preferred Stock, par value $0.01
per share (the “Series B Preferred Stock”
and together with the Series A Preferred Stock, the “Preferred Stock”), in each case at an offering price of $285
per share, representing a 5% original issue discount
to the stated value of $300
per share, for gross proceeds of each Offering
of $14.25
million, or approximately $28.50 million in the
aggregate for the Offerings, before the deduction of the Placement Agent’s (as defined below) fee and offering expenses. The shares
of Series A Preferred Stock will have a stated value of $300
per share and will be convertible, at a conversion
price of $13.65
per share, into 1,098,901
shares of common stock (subject in certain circumstances
to adjustments). The shares of Series B Preferred Stock will have a stated value of $300
per share and will be convertible, at a conversion
price of $15.00
per share, into 1,000,000
shares of common stock (subject in certain circumstances
to adjustments). The Series A Preferred Stock and the Series B Preferred Stock are being offered by the Company pursuant to a registration
statement on Form S-3 (File No. 333-254515) (the “Registration Statement”) filed under the Securities Act of 1933, as amended
(the “Securities Act”). The Purchase Agreement contains customary representations, warranties and agreements by the Company
and customary conditions to closing. The closing of the Offerings occurred on January 13, 2022.
On
March 3, 2022, the Company redeemed for cash at a price equal to 105% of the $300 stated value per share all of its 50,000 outstanding
shares of Series A Preferred Stock and its 50,000 outstanding Series B Preferred Stock. As a result, all shares of the Preferred Stock
have been retired and are no longer outstanding and Celsion’s only class of outstanding stock is its common stock. Each share of
common stock entitles the holder to one vote.
On
February 28, 2022, the Company effected a 15-for-1 reverse stock split of its common stock which was made effective for trading purposes
as of the commencement of trading on March 1, 2022. As of that date, each 15 shares of issued and outstanding common stock and equivalents
was consolidated into one share of common stock. All shares have been restated to reflect the effects of the 15-for-1 reverse stock split.
In addition, at the market open on March 1, 2022, the Company’s common stock started trading under a new CUSIP number 15117N602
although the Company’s ticker symbol, CLSN, remained unchanged. See Note 10 to the Financial Statements. The reverse stock split
was previously approved by the Company’s stockholders at the 2022 Special Meeting held on February 24, 2022, and the Company subsequently
filed a Certificate of Amendment to its Certificate of Incorporation to effect the stock consolidation.
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