UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20182019

¨         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________.

Commission file number0-20713

CASI PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

9620 Medical Center Drive, Suite 300

Rockville, Maryland

(Address of principal executive offices)

20850

(Zip code)

(240) 864-2600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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.

YESx    NO¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YESx    NO¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES¨    NOx

Securities registered pursuant to Section 12(b) of the Act:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.

CASI PHARMACEUTICALS, INC.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements also may be included in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. These statements can generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology. These forward-looking statements include, among others, statements regarding the timing of our clinical trials, our cash position and future expenses, and our future revenues.

Our

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and no duty to update forward-looking statements are based on information available to us today, and we will not update these statements.

is assumed. Actual results could differ materially from those currently anticipated due to a number of factors, including: risks relating to interests of our largest stockholders that differ from our other stockholders; the difficulty of executing our business strategy in China; the risk that we will not be able to effectively select, register and commercialize products from our recently acquired portfolio of abbreviated new drug applications (ANDAs);  our lack of experience in manufacturing products and uncertainty about our resources and capabilities to do so on a clinical or commercial scale; risks relating to the commercialization, if any, of our products and proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks); our inability to predict when or if our product candidates will be approved for marketing by the FDA, China Food and DrugNational Medical Products Administration, or other regulatory authorities; our inability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidates or future candidates; the volatility in the market price of our common stock; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; risks associated with CID-103, CNCT19, and our product candidates; risks associated with anyCID-103, CNCT19, and our other early-stage products under development; riskrisks that results in preclinical and early clinical models are not necessarily indicative of later clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials; our ability to protect our intellectual property rights; the lack of success in the clinical development of any of our products; and our dependence on third parties. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. Additional information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our filings with the U.S. Securities and Exchange Commission (“SEC”), which are available atwww.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CASI Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Balance Sheets

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

CASI Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Unaudited Condensed Consolidated StatementStatements of Stockholders’ Equity

(Unaudited)Cash Flows

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2018 (unaudited)

1.            Basis of Presentation

CASI Pharmaceuticals, Inc. (“CASI” or the “Company”) (Nasdaq: CASI) is a U.S. biopharmaceutical company focused on developing and commercializing innovative therapeutics and pharmaceutical products in China, U.S., and throughout the world. The Company is focused on acquiring, licensing, developing and commercializing products in hematology oncology as well as other therapeutic areas of unmet medical need. The Company intends to execute its plan to become a leading platform to launch medicines in the greater China market leveraging its China-based regulatory and commercial competencies and its global drug development expertise.

The Company’s China operations are conducted through its wholly-owned subsidiary, CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”), which is based in Beijing, China. CASI China has established China operations that are growing as the Company continues to further in-license or acquire products for its pipeline.

The accompanying condensed consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc.the Company and its subsidiaries, (“CASI”in which CASI, directly or “the Company”),indirectly, has a controlling financial interest. These subsidiaries include Miikana Therapeutics, Inc. (“Miikana”) and, CASI China, CASI Pharmaceuticals (Beijing)(Wuxi) Co., Ltd. (“CASI China”Wuxi”), andCASI Biopharmaceuticals (WUXI) Co., Ltd. (“CASI Biopharmaceuticals”). The Company previously operated under a different name prior to restructuring its business in 2012 in connection with an investment led by one of the Company’s largest stockholders. CASI China is a non-stock Chinese entity with 100% of its interest owned by CASI. CASI China received approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has operating facilities in Beijing. CASI Wuxi was established on December 26, 2018 in China to develop a manufacturing capability in China in 2019. CASI Biopharmaceuticals is a wholly owned subsidiary of CASI Wuxi and was established in April 2019. The Company controls CASI Wuxi through 80% voting rights (see Note 8). Accordingly, the financial statements of CASI Wuxi have been consolidated in the Company’s consolidated financial statements since its inception. All inter-company balances and transactions have been eliminated in consolidation. The Company currently operates in one operating segment, which is the development of innovative therapeutics addressing cancer and other unmet medical needs for the global market.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such condensed consolidated financial statements do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying December 31, 20172018 financial information was derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. Operating results for the three and six month periods ended June 30, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 20182019 or any other future period. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in its Form 10-K for the year ended December 31, 2017.2018.

Certain line items in the prior-year unaudited condensed consolidated statement of cash flows relating to the acquired in-process research and development and inventory have been reclassified to conform to the December 31, 2018 presentation resulting in an increase in net cash used in operating activities and a decrease in net cash used in investing activities by $564,000 for the six months ended June 30, 2018. Inventory in the amount of $282,709 as of December 31, 2018, which was included in prepaid expenses and other, has been separately presented on the condensed consolidated balance sheet as of December 31, 2018.

Liquidity Risks and Management’s Plans

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $460.9$502.4 million. The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy.   The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In 2018, the Company entered into securities purchase agreements pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement (the “2018 Financing”). The 2018 Financing closing included an investment from ETP Global Fund, L.P., a healthcare investment fund. The managing member of Emerging Technology Partners, LLC, which is the general partner of ETP Global Fund, L.P., is also the Executive Chairman of the Company. The 2018 Financing also included an investment from IDG-Accel China Growth Fund III L.P. (“IDG-Accel Growth”) and IDG-Accel China III Investors L.P. (“IDG-Accel Investors”). A director and shareholder of IDG-Accel China Growth Fund GP III Associates Ltd., which is the ultimate general partner of IDG-Accel Growth and IDG-Accel Investors, is also a member of the Company’s Board of Directors. In October 2017, the Company entered into securities purchase agreements for an approximately $23.8 million strategic financing. The Company held its initial closing on October 17, 2017, a second closing on October 23, 2017 and a final closing on November 20, 2017 and received approximately $23.4 million in net proceeds (collectively, the “2017 Closings”). Net proceeds from the 2018 Financing and the 2017 Closings are being used to prepare for the anticipated launch of the Company’s first commercial product in China, to support the Company’s business development activities, to advance the development of the Company’s pipeline, to support its marketing and commercial planning activities, and for other general corporate purposes.activities.

As a result

Taking into consideration the cash balance as of the 2018 Financing and 2017 Closings,June 30, 2019, the Company believes that it has sufficient resources to fund its operations at least through August 14, 2019.9, 2020. As of June 30, 2018,2019, approximately $17.9$8.7 million of the Company’s cash balance was held by CASI China.China, and approximately $29.0 million was held by CASI Wuxi. The Company intends to continue to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive capital raising arrangements in China to support the Company’s dual-country approach to drug development.

2.            New License and Investment Agreements

On January 26, 2018,Black Belt Therapeutics Limited:

In April 2019, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”a license agreement withBlack Belt Therapeutics Limited (“Black Belt”) with Sandoz, Inc. (“Sandoz”). Pursuantfor exclusive worldwide rights to the Asset Purchase Agreement,investigational anti-CD38 monoclonal antibody (Mab) TSK011010. TSK011010 is at the IND/IMPD submission stage of development, with Phase 1 trials targeted to start in early 2020.CASI is responsible for all development and commercialization activities of the TSK011010. Under the terms of the agreement, CASI obtained global rights to TSK011010 for an upfront payment of 5 million euros ($5,657,500) as well as certain milestone and royalty payments. Because TSK011010 underlying the acquired rights has not reached technological feasibility and have no alternative uses, the Company acquired a portfolio of 29 abbreviated new drug applications (“ANDAs”), including 25 ANDAs approved by the U.S. Food and Drug Administration (“FDA”) and four pipeline ANDAs that are pending FDA approval, limited quantities of certain active pharmaceutical ingredient (“API”), and certain manufacturing and other information related to the products (collectively, the ANDAs, API and other information are referred to as the “Acquired Assets”). To facilitate the sale and transition, the parties also entered into several limited term ancillary arrangements.

The Acquired Assets enhance the Company’s strategic focus to build a robust pipeline and commercialize quality drug candidates in China. The Company intends to select and commercialize certain products from the portfolio that have unique market and cost-effective manufacturing opportunities in China (and potentially in the U.S.).

The total purchase price for the Acquired Assets was $18.0expensed 5 million in cash. The Company accounted for the purchase of the Acquired Assets as an asset acquisition (consisting of a concentrated group of similar identifiable assets, including ANDAs and API) following the guidance contained in Accounting Standards Update (“ASU”) 2017-01. The total purchase price, along with approximately $1.2 million of transaction expenses, was allocated to the Acquired Assets based on their relative fair values, as follows:

Of the total value allocated to the ANDAs, approximately $553,000 was immediately expensedeuros as acquired in-process research and development since the underlying ANDAs have not been approved by the FDA, and of the total value allocated to the API, approximately $134,000 was immediately expensed as acquired in-process research and development since the Company does not intend to use all of the API. The allocated cost of the capitalized ANDAs will be amortized over their estimated useful lives of 13 years. The capitalized API will be expensed in the period it is used or if its value is otherwise impaired.accompanying condensed consolidated statement of operations and comprehensive loss.

The fair valuesCompany also invested 2 million euros ($2,249,600), representing 15% shareholding, as an equity investment in Black Belt TX Ltd, a newly established company of Black Belt focusing on novel immuno-oncology targets (see Note 4).

Juventas Cell Therapy:

Juventas Cell TherapyLtd. (“Juventas”) is a China-based domestic company located in Tianjin City, China engaged in cell therapy. The company’s lead product, CNCT19, devolved from the CD19 CAR-T, is used to treat cancer patients with acute lymphoblastic leukemia and relapsed non-Hodgkin lymphoma. Through its commercial collaboration with CASI, Juventas targets to be the first domestic company to launch a CD19 CAR-T in China.

In June 2019, the Company entered into a license agreement for exclusive worldwide license and commercialization rights to an autologous anti-CD19 T-cell therapy product (CNCT19) from Juventas. Juventas will continue to develop CNCT19 with CASI’s participation on the steering committee. CASI will be responsible for payment of certain acquired ANDAs were estimated using the discounted cash flow method (an income approach), which involves the use of Level 3 inputs such as estimates for projectedfuture development milestones and sales expenses, and cash flows, estimates of total addressable markets and market penetration rates, future sales growth and inflation rates, expected income and value-added tax rates, and a required rate of return adjusted for both industry and Company-specific risks, among other inputs. The fair values of the remaining ANDAs were estimated using a multiple of values method (an income approach), which involved using Level 3 inputs such as estimated addressable markets and market penetration rates. The fair value of the API was estimated using Level 2 inputs, such as quoted market prices for similar API from various suppliers or other sources. The ANDAsroyalties. All contingent payments will be tested for impairmentrecognized when events or circumstances indicate that the carrying value of the asset may notsubsequent milestones are probable to be recoverable; no such triggering events were identified during the period from the date of acquisition to June 30, 2018.met.

CASI Biopharmaceuticals also invested RMB 80 million (approximately $11.6 million), representing 16.3% shareholding, as an equity investment in Juventas (see Note 4).

3.            New Accounting Pronouncements

Recently Adopted Pronouncements

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02,Leases (“Topic 842”). The guidance amends the accounting requirements for leases and requires lessees to recognize assets and liabilities related to long-term leases on the balance sheets and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company adopted this guidance effective January 1, 2019 using the following practical expedients:

Additionally, the Company made ongoing accounting policy elections whereby it (i) does not recognize Right-of-use (“ROU”) assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease components for facilities leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees of operating leases.

Upon adoption of the new guidance on January 1, 2019, the Company recorded right of use assets of approximately $3.0 million and recognized lease liabilities of approximately $3.2 million; there was no cumulative effect impact to accumulated deficit as of January 1, 2019. No adjustments were made to prior comparative periods.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The update is effective for calendar-year public business entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods in 2022. Early adoption is permitted. The Company early adopted this guidance effective January 1, 2019. The net impact to the financial statements was approximately $140,000 of capitalized cost.

There are no other recently issued accounting pronouncements that are expected to have a material effect on the Company's financial position, results of operations or cash flows.

4.            Investment in Equity Securities, at fair value and long-term investments

The Company has an equity investment in the common stock of a publicly traded company. The fair value of this security was measured using its quoted market price, a Level 1 input as of June 30, 2019 and December 31, 2018 (see Note 13). The following table summarizes the Company’s investment as of June 30, 2019:

Unrealized losses on the Company’s equity investment for the six months ended June 30, 2019 and 2018 were $195,542 and $11,325, respectively, and are recognized as change in fair value of investment in equity securities in the accompanying condensed consolidated statements of operations and comprehensive loss.

In April 2019, in conjunction with its license agreement entered into with Black Belt, the Company made a 2 million euro ($2,249,600) equity investment in a newly established, privately held UK Company (see Note 2).

In June 2019, in conjunction with its license agreement entered into with Juventas, a subsidiary of the Company made an RMB 80 million ($11,648,160) equity investment in Juventas, a privately held, China-based company (see Note 2).

As the Company does not have significant influence over operating and financial policies of Black Belt TX Ltd andJuventas, and the equity interests do not have readily determinable fair value, the investments in Black Belt TX Ltd andJuventasare stated at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. The Company did not record any adjustments or impairments during the quarter ended June 30, 2019.

5.            Inventories

Inventories consist of EVOMELA finished goods and raw materials to be used in production of ANDAs and are stated at the lower of cost or net realizable value. Cost is determined using a first-in, first-out method.

The carrying value of finished goods inventory was approximately $490,000 and raw materials was approximately $180,000 as of June 30, 2019 and the carry value of raw materials was approximately $280,000 as of December 31, 2018, which are included in “Inventories” in the accompanying condensed consolidated balance sheets.

6.            Leases

As discussed in Note 3, effective January 1, 2019, the Company adopted Topic 842. At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a straight-line basis over the lease term.

The Company has made certain accounting policy elections whereby it (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease components for facilities leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees of its operating leases. Operating lease ROU assets are included in other assets (noncurrent) and operating lease liabilities (see below) are included in accrued liabilities and other liabilities (noncurrent) in the condensed consolidated balance sheets as of June 30, 2019. As of June 30, 2019, the Company did not have any finance leases.

All of the Company’s existing leases as of June 30, 2019 are classified as operating leases. As of June 30, 2019, the Company has four material operating leases for facilities and office equipment with remaining terms expiring from 2021 through 2022 and a weighted average remaining lease term of 2.49 years. The Company has fair value renewal options for many of the Company’s existing leases, none of which have considered reasonably certain of being exercised or included in the minimum lease term. Discount rates used in the calculation of the lease liability is 5.4%. The discount rates reflect the estimated incremental borrowing rate, which includes an assessment of the credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to the lease payments in a similar economic environment.

Rent expense for the six months ended June 30, 2019 consisted of approximately $611,000 of total operating lease cost. There was no variable lease costs or sublease income for the six months ended June 30, 2019.

The impact of Topic 842 on the June 30, 2019 condensed consolidated balance sheet was as follows:

Supplemental cash flow information related to leases was as follows:

A maturity analysis of our operating leases as of June 30, 2019 follows:

Future undiscounted cash flows:

In 2018 the Company entered into a lease on behalf of CASI Wuxi. As of June 30, 2019, the underlying asset of the lease has not been made available for use by the Company. The minimum lease payments for this lease, totaling approximately $3,789,000, beginning in November 2019 and expiring in 2024, are not included in the above table.

As previously disclosed in the consolidated financial statements for the year ended December 31, 2018 and under the previous lease standard (Topic 840), future minimum annual lease payments for the years subsequent to December 31, 2018 and in aggregate are as follows:

Rental expense for the year ended December 31, 2018 was approximately $916,000.

7.            Intangible Assets

Intangible assets include ANDAs that were acquired as part of the 2018 asset acquisition from Sandozacquisitions and include ANDAs for a total of 25 previously marketed generic products.products and capitalized cost related to a cloud computing arrangement (CCA). These intangible assets were originally recorded at relative estimated fair values based on the purchase price for the asset acquisitionacquisitions and are stated net of accumulated amortization.

The ANDAs are being amortized over their estimated useful lives of 13 years, using the straight-line method. Management reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in a manner similar to that for property and equipment. No impairment lossesLoss on disposal of $48,391 related to intangible assets werethe withdrawal of ANDAs was recognized in the sixthree months ended June 30, 2018.March 31, 2019 and classified as research and development expenses. The cloud computing arrangement is being amortized over its useful life of 5 years.

As discussed in Note 2, in January 2018, the Company purchased the Acquired Assets from Sandoz for a total purchase price of $18.0 million. The total purchase price, along with transaction expenses of approximately $1.2 million, was allocated to the ANDAs and API acquired based on their relative fair values. Net finite-liveddefinite-lived intangible assets at June 30, 20182019, excluding the withdrawn ANDAs discussed above consists of the following:

Expected future amortization expense is as follows for the years ending December 31:as of June 30, 2019:

8.            Redeemable Noncontrolling Interest

The U.S. dollar is the reporting currency of the Company. Foreign currency denominated assets and liabilities of the Company and its foreign subsidiary are translated into U.S. dollars. Accordingly, assets and liabilities are translated using the exchange rates in effect at the consolidated balance sheet date and revenues and expenses at the rates of exchange prevailing when the transactions occurred, using an average periodic exchange rate. In 2017, remeasurement adjustments were included in income (loss). As discussed in Note 2,1, on JanuaryDecember 26, 2018, the Company, acquiredtogether with Wuxi Jintou Huicun Investment Enterprise, a portfoliolimited partnership organized under Chinese law (“Wuxi LP”) established CASI Wuxi to build and operate a manufacturing facility in the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. The Company holds 80% of ANDAs. Management believes that this transaction provides significantthe equity interests in CASI Wuxi and permanent changes to its operationswill invest, over time, $80 million in China,CASI Wuxi. The Company’s investment will consist of (i) $21 million in cash (paid in February 2019), (ii) a transfer of selected ANDAs valued at $30 million (transferred in May 2019), and that it may allow its subsidiary in China to generate operating revenues(iii) an additional $29 million cash payment within three years from the China marketplace in the future and potentially sustain its own operations without the necessitydate of parent support. Accordingly, effective January 1, 2018, the functional currencyestablishment of CASI Wuxi. Wuxi LP holds 20% of the Company’s subsidiary basedequity interest in China has been changedCASI Wuxi through its investment in RMB of $20 million in cash (paid in March 2019). As the transfer of ANDAs valued at $30 million was to the local currencyCompany’s consolidated subsidiary (CASI Wuxi), the Company recognized the transfer of the China Renminbi (“RMB”).The change in functional currencyANDAs at their carrying value and did not haverecognize a material impactgain on the consolidated financial statements.transfer.

Beginning January 1, 2018, translation gains and losses relatingPursuant to the financial statementsinvestment contract between the Company and Wuxi LP and Articles of Association of CASI Wuxi, the Company has the call option to purchase the 20% equity interest in CASI Wuxi held by Wuxi LP at any time within 5 years from the date of establishment of CASI Wuxi (i.e. up to December 26, 2023). Wuxi LP has the put option to require the Company to redeem the 20% equity interest in CASI Wuxi at any time after December 26, 2023. The redemption value under both the Company’s embedded put option and Wuxi LP’s embedded call option is equal to $20 million plus interest at the bank loan interest rate issued by the People's Bank of China for the period beginning with the initial capital contribution by Wuxi LP to the date of redemption. In addition, Wuxi LP has the put option to require the Company to redeem the 20% equity interest in CASI Wuxi at $20 million upon the occurrence of any of the Company’s China subsidiary are included as accumulated other comprehensive loss infollowing conditions: (i) the accompanying Condensed Consolidated Balance Sheets.Company fails to fulfill its investment obligation to CASI Wuxi; (ii) CASI Wuxi suffers serious losses, discontinued operation, dissolution, goes into process of bankruptcy liquidation; or (iii) the Company substantially violates the investment contract and Articles of Association of CASI Wuxi.

The Company has an equity investment in the publicly traded common stock of a company. Beginning on January 1, 2018 with the adoption of ASU 2016-01, the Company’s investment in this equity security is considered a trading security and is carried at its estimated fair value, with changes in fair value reported in the statement of operations each reporting period.  The fair value of this security was measured using its quoted market price, a Level 1 input, and was approximately $1.2 million as of June 30, 2018.

In January 2016,The investment of Wuxi LP in CASI Wuxi is treated as redeemable noncontrolling interest and is classified outside of permanent equity on the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “Financial Instruments–Overall: Recognitionconsolidated balance sheets because (1) the noncontrolling interest is not mandatorily redeemable financial instruments, and Measurement(2) it is redeemable at the option of Financial Assets and Financial Liabilities.” In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments–Overall: Recognition and Measurementholder, or upon the occurrence of Financial Assets and Financial Liabilities.” The accounting standards primarily affectan event that is not solely within the accounting for equity investments, financial liabilities undercontrol of the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017.Company. The Company adopted ASU 2016-01 and ASU 2018-03 on January 1, 2018 andinitially recorded a cumulative effect adjustment that decreased accumulated deficit by approximately $1.2 million. Effective January 1, 2018, the adoption date, changes in the fair value of the Company’s investments in equity securities are recognized in the statements of operations and comprehensive loss.

Inventories consist of raw materials and are stated at the lower of cost or net realizable value. Cost is determined using an average cost method. The carrying value of raw materials inventory was approximately $430,000 as of June 30, 2018 and is included in “prepaid expenses and other assets” in the accompanying condensed consolidated balance sheets.

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with pre-clinical testing and clinical trials of the Company’s product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses, along with the amortization of acquired ANDAs. Research and development costs are expensed as incurred.

The Company has certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together referred to as “Spectrum”) to develop and commercialize the following commercial oncology drugs and drug candidates in the greater China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):

EVOMELA^® (melphalan) for Injection (“EVOMELA”);

MARQIBO^® (vinCRIStine sulfate LIPOSOME injection) (“MARQIBO”); and

ZEVALIN^® (ibritumomab tiuxetan) (“ZEVALIN”).

CASI is responsible for developing and commercializing these three drugs in the Territories, including the submission of import drug registration applications and conducting confirmatory clinical trials as needed.

The Company is in various stages of the regulatory and development process to obtain marketing approval for EVOMELA^®, MARQIBO^®, and ZEVALIN^® in its territorial region, with ZEVALIN^® commercially available in Hong Kong. In January 2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration application for MARQIBO^® and has completed the quality testing phase of the regulatory process and is currently in technical review by Center for Drug Evaluation (CDE) of the CFDA as part of the regulatory process. On March 10, 2016, Spectrum received notification from the FDA of the grant of approval of its New Drug Application (NDA) for EVOMELA^® primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma. In December 2016, the CFDA accepted for review the Company’s import drug registration application for EVOMELA^® and in 2017 has granted priority review of the import drug registration clinical trial application (CTA). EVOMELA^® has completed the quality testing phase of the regulatory process, as well as the technical review by CDE of the CFDA, and was evaluated under a CFDA CDE Advisory Committee meeting held in the second quarter of 2018 followed by a series of standard questions from the CFDA related to EVOMELA^® drug product production which usually reflects the final stage of CFDA assessment before approval based on the Import Drug Approval registration pathway. CASI is diligently working with Spectrum and their vendors to address the questions and submit the requested documents. In 2017, the CFDA accepted for review the Company’s import drug registration for ZEVALIN^® including both the antibody kit and the radioactive Yttrium-90 component. ZEVALIN^® is currently under the quality testing phase of the regulatory process by National Institute for Food and Drug Control (NIFDC) as well as the technical review by CDE of the CFDA.

As part of the license arrangements with Spectrum (see Note 8), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally due March 17, 2016 which was subsequently amended and extended to September 17, 2019. All other terms remain the same. The promissory note was recorded initiallyredeemable noncontrolling interest at its fair value giving riseof $20 million. The carrying amount of the redeemable noncontrolling interest is subsequently recorded at the greater of the amount of (1) the initial carrying amount, increased or decreased for the redeemable noncontrolling interest’s share of net income or loss in CASI Wuxi or (2) the redemption value, assuming the noncontrolling interest is redeemable at the balance sheet date. Accretion of the carrying amount of redeemable noncontrolling interests to a discount of approximately $136,000; the promissory noteredemption value is presentedrecorded in additional paid-in capital.

Changes in redeemable noncontrolling interest during the three and six month periods ended June 30, 2019 are as note payable, net of discount in the accompanying condensed consolidated balance sheets. Forfollows:

9.           Stockholders’ Equity

Stock purchase warrants activity for the six months ended June 30, 2018 and 2017, the Company recognized $354 and $3,738 of non-cash interest expense, respectively, related to the amortization of the debt discount, using the effective interest rate method.2019 is as follows:

Securities Purchase AgreementsAll outstanding warrants are equity classified.

As described in Note 1, in 2018, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement. The purchase price for each share of common stock and warrant was $3.24. The warrants will become exercisable on September 17, 2018 at a $3.69 per share exercise price and will expire on March 21, 2023. The fair value of the warrants issued is $15,062,000, or $2.44 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 5 years, an assumed volatility of 75.4%, and a risk-free interest rate of 2.69%. The Securities Purchase Agreements and warrants each include additional customary representations, warranties and covenants. The Company filed a resale registration covering the shares of common stock issued and the shares of common stock underlying the warrants on Form S-3 (File No. 333-226206) which became effective on August 8, 2018.10.         Net Loss Per Share

Common Stock Sales Agreement

On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time, at its option, shares of the Company’s common stock through HCW, as sales agent, with an aggregate sales price of up to $25 million (the “Shares”).

Any sales of Shares pursuant to the Sales Agreement will be made under the Company’s effective “shelf” registration statement (the “Registration Statement”) on Form S-3 (File No. 333-222046) which became effective on December 22, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2018.

In March 2018, the Company issued 143,248 Shares under the Sales Agreement resulting in net proceeds to the Company of approximately $475,000. As of June 30, 2018, approximately $24.5 million remained available under the Sales Agreement.

Net loss per share (basic and diluted) was computed by dividing net loss applicableattributable to common stockholders, considering the accretions to redemption value of the redeemable noncontrolling interest, by the weighted average number of shares of common stock outstanding. Outstanding stock options and warrants totaling 17,059,36829,900,340 and 11,416,70128,476,069 as of June 30, 2019 and 2018, respectively, were anti-dilutive and, therefore, were not included in the computation of weighted average shares used in computing diluted loss per share.

11.         Stock-Based Compensation

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants. In June 2018,2019, the Company’s stockholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares of common stock reserved for issuance from 14,230,00020,230,000 to 20,230,00025,230,000 to be available for grants and awards.

As of June 30, 2018, there are 17,059,368 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $0.86 to $8.23. Options granted under the plans generally vest over periods varying from immediately to one to five years, are not transferable and generally expire ten years from the date2019, a total of grant. As of June 30, 2018, 8,245,17411,708,053 shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan. On March 13, 2018, upon the recommendation of the Compensation Committee of the Board of Directors (the “Board”), the Board approved a grant of stock options to the Company’s Executive Chairman exercisable for 1 million shares of common stock that will vest and become exercisable on the first anniversary date of the grant. In addition, the Board approved the grant of a performance-based option covering 4 million shares of common stock that will vest if, within 18 months of the date of grant, specific operational and strategic milestones are achieved. Both grants were approved by the Company’s stockholders at the 2018 Annual Meeting of Stockholders.

The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance. Compensation costs are recognized over the requisite service period, which is generally the option vesting term of up to five years. Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. There was no expense recorded for share awards with performance conditions during the six months ended June 30, 2018 and 2017.

The Company’s net loss for the six months ended June 30, 2019 and 2018 includes $3,309,408 and 2017 includes $1,812,219, and $350,565, respectively, of non-cash compensation expense related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of service based and performance-based stock options granted to employees. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk- free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. Following are the weighted-average assumptions used in valuing the stock options granted to employees during the six-month periods ended June 30, 20182019 and 2017:2018:

The weighted average fair value of stock options granted during the six-month periods ended June 30, 2019 and 2018 were $2.20 and 2017 were $4.53, and $0.77, respectively.

A summary of the Company's stock option plans and of changes in options outstanding under the plans during the six-month period ended June 30, 20182019 is as follows:

Cash received from option exercises under all share-based payment arrangements for the six months ended June 30, 2019 and 2018 was $176,833. There were no option exercises during$38,302 and $176,833, respectively.

During the six monthsquarter ended June 30, 2017.

Warrants

Warrants issued generally expire after 2-5 years from2019, the 4 million shares of a performance-based option award to the Company’s Chairman and CEO was cancelled, which was accompanied by a concurrent grant of replacement award. The replacement grant of stock options was approved by the Company’s stockholders at the 2019 Annual Meeting on June 20, 2019. Under the terms of the grant, he received a stock option covering 4 million shares of common stock, at an exercise price of $2.85, vesting at the earlier of (i) the completion of a transformative event by the Company as determined in the discretion of the Compensation Committee and (ii) the second anniversary of the date of issuance. Stock warrant activity ishis appointment as follows:CEO on April 2, 2019.

12.         Income Taxes

Cash received from warrants exercised during the six months ended June 30, 2018 was $1,960,535. There were no warrants exercised during the six months ended June 30, 2017.

At December 31, 2017,2018, the Company had a $3.2$3.0 million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements as of December 31, 2017.2018.

During the six months ended June 30, 2018,2019, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The tax returns for all years in the Company’s major tax jurisdictions are not settled as of June 30, 2018.2019. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

13.         Fair Value Measurements

The majority of the Company’s financial instruments (consisting principally of cash and cash equivalents, accounts payable and accrued liabilities) are carried at cost which approximates their fair values due to the short-term nature of the instruments. The Company’s investment in equity securities is carried at fair value (see Note 4). The Company’s note payable is carried at amortized cost which approximates fair value due to its classification as a short-term note payable.

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include: 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis  

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the hierarchy.

The Company has an equity investment in the common stock of publicly traded company. The Company’s investment in this equity security is carried at its estimated fair value, with changes in fair value reported in the consolidated statement of operations and comprehensive loss each reporting period (see Note 4). Thefair value of the common stock is based on quoted market price for the investee’s common stock, a Level 1 input.

The following tables presents the Company’s financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2019 and December 31, 2018, by level within the fair value hierarchy:

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis  

The Company has no financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company has no non-financial assets and liabilities that are measured at fair value on a non-recurring basis.

14.          Related Party Transactions

In June 2019, CASI Pharmaceuticals, Inc.entered into a license agreement for exclusive worldwide license and commercialization rights to CNCT19 from Juventas (see Note 2). Transactions with Juventas are considered to be related party transactions as the Company’s CEO and Chairman is the chairman and one of the founding shareholders of Juventas. A committee of independent directors of CASI negotiated the terms of the investment and license agreements and recommended that the board of directors approve the transaction. The Company’s CEO did not participate in the committee’s deliberations or the board of directors’ approval of the transaction.

There were no other material transactions entered into with Juventas during the six months ended June 30, 2019 and 2018.

The Company has supply agreements with Spectrum Pharmaceuticals, Inc. (“Spectrum”) for the purchase of EVOMELA,^®, ZEVALIN, and MARQIBO^®, and ZEVALIN^® in China for quality testing purposes to support CASI’s application for import drug registration and for commercialization purposes. The former CEO of Spectrum and current board member of Spectrum is also a member of CASI’s Board. All amounts payable toBoard, and Spectrum is a greater than 10% shareholder of the Company.

In 2018, the Company entered into commercial purchase obligation commitments for material purchases have been paid asEVOMELA from Spectrum totaling approximately $9.2 million. As of June 30, 2018.2019, the Company paid $7.625 million as a deposit for these commitments to purchase of EVOMELA. The Company received the first shipment of EVOMELA of approximately $480,000 in June 2019. The Company has also incurred estimated expenses of approximately $263,000 related to other material costs associated with EVOMELA. There were no other materials purchased from Spectrum forduring the six months ended June 30, 2019 or 2018.

The advance payments made to Spectrum are included in the prepaid expenses and other in the accompanying condensed consolidated balance sheets, of which $7.625 million was recorded as of June 30, 2019 and $4.6 million recorded as of December 31, 2018. In AprilAs of June 30, 2019, and June 2017, under supply agreements with Spectrum,December 31, 2018, the Company received shipmentsincluded accrued expenses payable to Spectrum of EVOMELA®$743,000 and MARQIBO®,$0 respectively in China for quality testing purposes to support CASI’s application for import drug registration. The total cost of the materials was approximately $477,000 which is included in research and development expense for the six months ended June 30, 2017.accompanying condensed consolidated balance sheets.