NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Business
Caladrius Biosciences, Inc. (“we,” “us,” "our," “Caladrius” or the “Company”) is a late-stage therapeutics development biopharmaceutical company committed to the development of innovative products that have the potential to restore the health of people with chronic illnesses. The Company's leadership team collectively has decades of biopharmaceutical development experience and world-recognized scientific achievement in the fields of cardiovascular and autoimmune disease, among other areas. The Company's goal is to build a broad portfolio of novel and versatile products that address important unmet medical needs. The Company's current product candidates include three developmental treatments for cardiovascular diseases based on its CD34+ cell therapy platform: CLBS12, recipient of SAKIGAKE designation, in Phase 2 testing in Japan and eligible for early conditional approval in Japan for the treatment of critical limb ischemia ("CLI"); CLBS14-CMD, in Phase 2 in the U.S. for the treatment of coronary microvascular dysfunction ("CMD"); and CLBS14-NORDA, for which the Company is in discussions with the U.S. Food and Drug Administration (the "FDA") to finalize the Phase 3 trial protocol for no-option refractory disabling angina ("NORDA") for which it has received RMAT designation.
Ischemic Repair (CD34 Cell Technology)
The Company's CD34+ cell technology has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia. Ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted. Through the administration of CD34+ cells, the Company seeks to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area. The Company believes that a number of conditions caused by underlying ischemic injury can be improved through its CD34+ cell technology, including but not limited to CLI, CMD and NORDA.
Regarding CLBS12, the Company's product candidate for CLI, after detailed discussion and agreement with the Japanese Pharmaceutical and Medical Device Agency ("PMDA"), the Company opened a Phase 2 trial for enrollment in December 2017 and announced in March 2018 treatment of the first patient. Based on discussions with the PMDA, the Company expects that a successful outcome of this trial will make CLBS12 eligible for early conditional approval in Japan, thereby effectively making the Phase 2 trial a potential registration trial in that strategic market. The initial responses observed in the small number of subjects who have reached an endpoint in this open label study are consistent with a positive therapeutic effect and safety profile as reported by previously published clinical trials in Japan and the U.S. While these early signs are encouraging, it is clear that the final outcome of the trial will be dependent on all data from all subjects.
In October 2017, the Company announced the award of a
$1.9 million
grant from the National Institutes of Health to support a clinical study of CD34+ cells in patients with CMD. This led to the initiation of development of CLBS14-CMD and enrollment of patients in the Company's ESCaPE-CMD Phase 2 proof-of-concept study at the Mayo Clinic in Rochester, MN and Cedars-Sinai Medical Center, Los Angeles, CA. The early results observed in this open label trial from the small number of subjects who have reached the 6-month (primary endpoint) follow-up visit support our expectations for CLBS14-CMD and a positive therapeutic effect and acceptable safety profile in this indication. While the final outcome of the trial will be dependent on the 6-month data from all subjects, these early observations of increased coronary flow reserve and decreased angina symptoms in treated patients are encouraging.
To support a development program of CD34+ cells in the indication of NORDA, the Company acquired the rights to data and regulatory filings for a CD34+ cell therapy program for refractory angina that had been advanced to Phase 3 under the previous investigational new drug application (“IND”) holder. The Company has designated this program CLBS14-NORDA and reactivated the IND with the FDA with Caladrius as the sponsor. The Company is presently working with the FDA to finalize the design of a single registration trial for the registration of CLBS14-NORDA and is targeting the initiation of that trial in fall of 2019.
Immunomodulation (Treg Technology)
The Company has been developing for the last several years an innovative therapy for T1D (identified as CLBS03) that is based on a proprietary T regulatory cell platform technology for immunomodulation. CLBS03 was granted Fast Track and Orphan drug designations from the FDA for this proposed indication and was granted Advanced Therapeutic Medicinal Product ("ATMP") classification from the European Medicines Agency ("EMA"). This program is based on the use of Tregs (T-regulatory cells) to treat diseases caused by imbalances in an individual's immune system. This novel approach seeks to restore immune balance by enhancing Treg number and function. Tregs are a natural part of the human immune system and regulate the activity of effector T cells, the cells that are responsible for protecting the body from pathogens and foreign antigens. When Tregs function properly,
only harmful foreign materials are attacked by effector T cells. In autoimmune disease, however, it is thought that deficient Treg activity and numbers permit the effector T cells to attack the body's own beneficial cells. In the case of T1D, the beta cells in the pancreas are attacked, thereby reducing and/or eliminating over time the patient's ability to produce insulin.
In 2016, the Company commenced patient enrollment in the first of two cohorts in The Sanford Project: T-Rex Study, a Phase 2a prospective, randomized, placebo-controlled, double-blind clinical trial to evaluate the safety and efficacy of CLBS03 in adolescents with recent onset T1D (the "T-Rex Study"). On February 13, 2019, the Company announced top line results indicating that the therapy was well-tolerated but that the study's primary endpoint of preservation of C-peptide had not been achieved. The Company further indicated that it and its collaborators are conducting a comprehensive analysis of all data from the trial (including any 2-year follow-up data to come) and will make decisions regarding further development of CLBS03 based on the results of those analyses.
Additional Out-licensing Opportunities
The Company's broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing in order to continue their clinical development. These include additional indications for both its Treg product and its CD34+ cell technology.
The Company's current long-term strategy focuses on advancing its therapies through development with the aim eventually to obtain market authorizations and enter commercialization, either alone or with partners, to provide treatment options to patients suffering from life-threatening medical conditions. The Company believes that it is positioned to realize potentially meaningful value increases within its own proprietary pipeline if it is successful in advancing its product candidates to their next significant development milestones.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of
March 31, 2019
, and the results of its operations and its cash flows for the periods presented. The unaudited consolidated financial statements herein should be read together with the historical consolidated financial statements of the Company for the years ended
December 31, 2018
and
2017
included in our 2018 Form 10-K. Operating results for the
three months ended
March 31, 2019
are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes critical estimates and assumptions in determining stock-based awards values and income taxes. Accordingly, actual results could differ from those estimates and assumptions.
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results of operations and if it requires management’s most difficult, subjective and complex judgments in its application.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Caladrius Biosciences, Inc. and its wholly-owned and partially-owned subsidiaries and affiliates. All intercompany activities have been eliminated in consolidation.
Note 2 – Summary of Significant Accounting Policies
In addition to the policies below, our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our 2018 Form 10-K. There were no changes to these policies during the
three months ended
March 31, 2019
.
Concentration of Risks
We are subject to credit risk from our portfolio of cash, cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. Cash is held at major banks in the United States. Therefore, the Company is not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements, and a competitive after-tax rate of return.
Share-Based Compensation
The Company expenses all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. The Company determines the fair value of option awards using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. The fair value of the Company’s restricted stock and restricted stock units is based on the closing market price of the Company’s common stock on the date of grant.
Income Taxes
The Company recognizes (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
The Tax Cuts and Jobs Act (“the Tax Act”) was enacted on December 22, 2017. The income tax effects of changes in tax laws are recognized in the period when enacted. The Tax Act provides for significant tax law changes and modifications with varying effective dates, which include reducing the U.S. federal corporate income tax rate from 35% to 21%, creating a territorial tax system (with a one-time mandatory repatriation tax on previously deferred foreign earnings), and allowing for immediate capital expensing of certain qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.
In response to the enactment of the Tax Act in late 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address situations where the accounting is incomplete for certain income tax effects of the Tax Act upon issuance of an entity’s financial statements for the reporting period in which the Tax Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement period for specific income tax effects of the Tax Act for which the accounting is incomplete, but a reasonable estimate can be determined, and when unable to determine a reasonable estimate for any income tax effects, report provisional amounts in the first reporting period in which a reasonable estimate can be determined.
The Company continues to evaluate the accounting for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. The position ascertained inherently requires judgment and estimates by management. The Company recognizes interest and penalties as a component of income tax expense.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires that a lessee recognize lease assets and lease liabilities for those leases classified as operating leases. The guidance was effective for interim and annual periods beginning after December 15, 2018 and was adopted as of January 1, 2019. The Company adopted the standard using the optional transition method, with an immaterial adjustment to accumulated deficit upon adoption. The comparative information has not been restated and continues to be reported under the accounting standards that were in effect for those periods. The Company concluded that the adoption of ASU 2016-02 was non-cash in nature, did not affect the Company's cash position, and did not have a material impact on the Company's financial statements.
In June 2018, the FASB issued ASU No. 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting", which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective
for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company's adoption date of ASC 606. The Company determined that the adoption of this new accounting guidance did not have a material impact on its financial statements and footnote disclosures.
Note 3 – Available-for-Sale-Securities
The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in our Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Corporate debt securities
|
$
|
25,532
|
|
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
$
|
25,514
|
|
|
$
|
33,536
|
|
|
$
|
—
|
|
|
$
|
(32
|
)
|
|
$
|
33,504
|
|
Money market funds
|
10,607
|
|
|
—
|
|
|
—
|
|
|
10,607
|
|
|
4,314
|
|
|
—
|
|
|
—
|
|
|
4,314
|
|
Total
|
$
|
36,139
|
|
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
$
|
36,121
|
|
|
$
|
37,850
|
|
|
$
|
—
|
|
|
$
|
(32
|
)
|
|
$
|
37,818
|
|
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes the classification of the available-for-sale securities in our Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
12,175
|
|
|
$
|
5,064
|
|
Marketable securities
|
23,946
|
|
|
32,754
|
|
Total
|
$
|
36,121
|
|
|
$
|
37,818
|
|
The following table summarizes our portfolio of available-for-sale securities by contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Less than one year
|
$
|
36,139
|
|
|
$
|
36,121
|
|
Greater than one year
|
—
|
|
|
—
|
|
Total
|
$
|
36,139
|
|
|
$
|
36,121
|
|
Note 4 – Loss Per Share
For the
three months ended
March 31, 2019
and
2018
, the Company incurred net losses from continuing operations and therefore no common stock equivalents were utilized in the calculation of diluted loss per share as they are anti-dilutive. At
March 31, 2019
and
2018
, the Company excluded the following potentially dilutive securities (in thousands):
|
|
|
|
|
|
|
|
March 31,
|
|
2019
|
|
2018
|
Stock Options
|
1,214
|
|
|
1,073
|
|
Warrants
|
30
|
|
|
210
|
|
Restricted Shares
|
155
|
|
|
182
|
|
Restricted Stock Units
|
118
|
|
|
10
|
|
Note 5 – Fair Value Measurements
The fair value of financial assets and liabilities that are being measured and reported are defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal
market at the measurement date (exit price). The Company is required to classify fair value measurements in one of the following categories:
Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy the Company's financial assets that were accounted for at fair value on a recurring basis as of
March 31, 2019
, and
December 31, 2018
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - available for sale
|
|
$
|
—
|
|
|
$
|
23,946
|
|
|
$
|
—
|
|
|
$
|
23,946
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
|
$
|
—
|
|
|
$
|
23,946
|
|
|
$
|
—
|
|
|
$
|
23,946
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
|
$
|
—
|
|
|
$
|
32,754
|
|
Note 6 – Accrued Liabilities
Accrued liabilities as of
March 31, 2019
and
December 31, 2018
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Salaries, employee benefits and related taxes
|
$
|
908
|
|
|
$
|
1,758
|
|
Operating lease liabilities - current
|
396
|
|
|
—
|
|
CIRM upfront funding - current
|
2,583
|
|
|
2,583
|
|
Other
|
661
|
|
|
516
|
|
Total
|
$
|
4,548
|
|
|
$
|
4,857
|
|
Note 7 – Operating Leases
The Company has operating leases for
two
offices with terms that expire in 2022 and 2023. In addition, the Company pays for facility space through a third-party manufacturing contract that contains an embedded operating lease, with an estimated expiration in 2020. The Company estimates its incremental borrowing rate, at lease commencement, to determine the present value of lease payments, since most of the Company's leases do not provide an implicit rate of return. The Company recognizes lease expense on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company elected to account for non-lease components associated with its leases and lease components as a single lease component. Upon adoption of Topic 842 on January 1, 2019, we recognized
$1.4 million
of operating lease liabilities and
$1.3 million
of operating lease right-of-use assets for our existing operating leases in our balance sheet. As of
March 31, 2019
, our operating lease liabilities and right-of-use assets were
$1.3 million
and
$1.2 million
, respectively. Each of our leases include options for us to extend the lease term.
Operating lease liabilities and right-of-use assets were recorded in the following captions of our balance sheet were as follows (in thousands):
|
|
|
|
|
|
March 31, 2019
|
Right-of Use Assets:
|
|
Other assets
|
$
|
1,184
|
|
Total Right-of-Use Asset
|
$
|
1,184
|
|
|
|
Operating Lease Liabilities:
|
|
Accrued liabilities
|
$
|
396
|
|
Other long-term liabilities
|
868
|
|
Total Operating Lease Liabilities
|
$
|
1,264
|
|
As of
March 31, 2019
, the weighted average remaining lease term for our operating leases was
2.7 years
, and the weighted average discount rate for our operating leases was
9.625%
. Future minimum lease payments under the lease agreements as of
March 31, 2019
were as follows (in thousands):
|
|
|
|
|
Years ended
|
Operating Leases
|
2019
|
$
|
428
|
|
2020
|
403
|
|
2021
|
411
|
|
2022
|
236
|
|
2023
|
27
|
|
Total lease payments
|
1,505
|
|
Less: Amounts representing interest
|
(241
|
)
|
Present value of lease liabilities
|
$
|
1,264
|
|
Note 8 – Stockholders' Equity
Equity Issuances
Purchase Agreement
In March 2019, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company has the right to sell to Lincoln Park shares of the Company’s common stock having an aggregate value of up to
$26.0 million
, subject to certain limitations and conditions set forth in the Purchase Agreement (the “Offering”). As consideration for entering into the Purchase Agreement, the Company issued to Lincoln Park an additional
181,510
shares of common stock as commitment shares.
Pursuant to the Purchase Agreement, Lincoln Park purchased
250,000
shares of common stock, at a price of
$4.00
per share, for a total gross purchase price of
$1.0 million
(the “Initial Purchase”) upon commencement. Thereafter, as often as every business day from and after one business day following the date of the Initial Purchase and over the
36
-month term of the Purchase Agreement the Company has the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to
100,000
shares of common stock, with such amount increasing as the closing sale price of the common stock increases; provided Lincoln Park’s obligation under any single such purchase will not exceed
$2.5 million
, unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single purchase (each, a “Regular Purchase”). If the Company directs Lincoln Park to purchase the maximum number of shares of common stock it then may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the Purchase Agreement, the Company may direct Lincoln Park in an “accelerated purchase” to purchase an additional amount of common stock that may not exceed the lesser of (i)
300%
the number of shares purchased pursuant to the corresponding Regular Purchase or (ii)
30%
of the total number of shares of the Company’s common stock traded during a specified period on the applicable purchase date as set forth in the Purchase Agreement. Under certain circumstances and in accordance with the Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day.
The Company controls the timing and amount of any sales of its common stock to Lincoln Park. There is no upper limit on the price per share that Lincoln Park must pay for its common stock under the Purchase Agreement, but in no event will shares be sold to Lincoln Park on a day the closing price is less than the floor price specified in the Purchase Agreement. In all instances,
the Company may not sell shares of its common stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park beneficially owning more than
9.99%
of its common stock.
The Purchase Agreement does not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that (subject to certain exceptions) the Company may not enter into any Variable Rate Transaction (as defined in the Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the
36
months after the date of the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time, at no cost to the Company.
Common Stock Sales Agreement
In February 2018, the Company entered into a common stock sales agreement (the "Sales Agreement") with H.C. Wainwright & Co., LLC ("HCW") as sales agent, in connection with an “at the market offering” under which the Company from time to time may offer and sell shares of its common stock, having an aggregate offering price of up to
$12 million
(limited to a maximum of
2,790,697
shares). Subject to the terms and conditions of the Sales Agreement, HCW will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon the Company's instructions, including any price, time or size limits specified by the Company. The Company has provided HCW with customary indemnification rights, and HCW will be entitled to a commission at a fixed commission rate equal to
3.0%
of the gross proceeds per share sold. The Company has no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement.
In August 2018, the Company entered into an amendment to the Sales Agreement to reflect that the shares will be issued pursuant to a Registration Statement on Form S-3 (Registration No. 333-226319) that was declared effective in August 2018 and that replaced the Company’s previously effective shelf registration statement. In connection with the amendment, the number of shares of common stock that may be sold pursuant to the Sales Agreement was increased from an aggregate offering amount of
$12 million
to
$25 million
(limited to a maximum of
4,921,260
shares). All other provisions of the Sales Agreement remained unchanged. During the
three months ended
March 31, 2019
, the Company did not issue shares of common stock under the Sales Agreement. As of
March 31, 2019
, the Company has issued
149,041
shares of common stock under the Sales Agreement for net proceeds of
$1.0 million
since inception.