UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2015
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 000-54852
CELATOR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 20-2680869 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 PrincetonSouth Corporate Center Suite 180 Ewing, New Jersey | 08628 | |
| (Address of principal executive offices) | (Zip Code) | |
(609)-243-0123
(Registrant’s telephone number, including area code)
(Former name or former address, 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. Yes x 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 11, 2015 was 34,545,524.
CELATOR PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Celator Pharmaceuticals, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| September 30, 2015 | December 31, 2014 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 24,104,631 | $ | 32,413,777 | ||||
| Restricted cash | 190,082 | 194,561 | ||||||
| Other receivables | 78,252 | 21,102 | ||||||
| Prepaid expenses and deposits | 513,995 | 482,472 | ||||||
| Other current assets | 419,376 | 458,278 | ||||||
| Total current assets | 25,306,336 | 33,570,190 | ||||||
| Property and equipment, net | 900,836 | 1,004,412 | ||||||
| Other assets | 543,250 | 544,501 | ||||||
| Total assets | $ | 26,750,422 | $ | 35,119,103 | ||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Current portion of debt | $ | 4,416,459 | $ | 284,961 | ||||
| Accounts payable | 304,463 | 723,765 | ||||||
| Accrued liabilities | 2,313,482 | 1,735,420 | ||||||
| Current portion of deferred revenue | 180,995 | 542,986 | ||||||
| Total current liabilities | 7,215,399 | 3,287,132 | ||||||
| Deferred revenue | - | 45,249 | ||||||
| Deferred rent | 38,155 | 45,408 | ||||||
| Loan payable | 10,840,263 | 9,836,256 | ||||||
| Total liabilities | 18,093,817 | 13,214,045 | ||||||
| Stockholders' equity | ||||||||
| Preferred stock | ||||||||
| Authorized 20,000,000 shares, par value $0.001 | - | - | ||||||
| Common stock | ||||||||
| Authorized 200,000,000 shares, par value $0.001 | ||||||||
| Issued and outstanding 33,799,539 and 33,681,355 shares as of September 30, 2015 and December 31, 2014, respectively | 33,800 | 33,681 | ||||||
| Warrants | 1,083,193 | 1,083,193 | ||||||
| Additional paid-in capital | 172,943,931 | 171,289,703 | ||||||
| Accumulated other comprehensive loss | (1,133,266 | ) | (1,133,266 | ) | ||||
| Accumulated deficit | (164,271,053 | ) | (149,368,253 | ) | ||||
| Total stockholders' equity | 8,656,605 | 21,905,058 | ||||||
| Total liabilities and stockholders' equity | $ | 26,750,422 | $ | 35,119,103 | ||||
See accompanying notes to consolidated financial statements.
| 1 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Loss
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Expenses | ||||||||||||||||
| Research and development | $ | 2,859,852 | $ | 3,334,789 | $ | 9,020,994 | $ | 9,238,756 | ||||||||
| Leukemia & Lymphoma Society funding | (135,747 | ) | (135,747 | ) | (1,307,240 | ) | (907,240 | ) | ||||||||
| General and administrative | 1,943,003 | 1,874,412 | 5,718,986 | 5,491,779 | ||||||||||||
| Amortization and depreciation | 49,740 | 48,521 | 148,062 | 144,609 | ||||||||||||
| Operating loss | (4,716,848 | ) | (5,121,975 | ) | (13,580,802 | ) | (13,967,904 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Foreign exchange loss | (8,631 | ) | (1,408 | ) | (20,894 | ) | (27,721 | ) | ||||||||
| Interest and miscellaneous income | 248 | 2,887 | 6,500 | 7,144 | ||||||||||||
| Interest expense | (485,060 | ) | (359,321 | ) | (1,307,604 | ) | (560,031 | ) | ||||||||
| Net loss | $ | (5,210,291 | ) | $ | (5,479,817 | ) | $ | (14,902,800 | ) | $ | (14,548,512 | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic and diluted | $ | (0.15 | ) | $ | (0.21 | ) | $ | (0.44 | ) | $ | (0.56 | ) | ||||
| Weighted average of common shares outstanding | ||||||||||||||||
| Basic and diluted | 33,799,539 | 26,078,532 | 33,759,351 | 26,065,006 | ||||||||||||
See accompanying notes to consolidated financial statements.
| 2 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2015
(Unaudited)
| Common Stock | Additional Paid- | Accumulated Other | Stockholders’ | |||||||||||||||||||||||||
| Number | Amount | Warrants | In Capital | Comprehensive Loss | Accumulated Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2014 | 33,681,355 | $ | 33,681 | $ | 1,083,193 | $ | 171,289,703 | $ | (1,133,266 | ) | $ | (149,368,253 | ) | $ | 21,905,058 | |||||||||||||
| Issued for cash on exercise of stock options | 57,667 | 58 | - | 129,693 | - | - | 129,751 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | 1,278,856 | - | - | 1,278,856 | |||||||||||||||||||||
| Warrants issued | - | - | - | 76,897 | - | - | 76,897 | |||||||||||||||||||||
| Stock issued for payment of accrued bonuses | 60,517 | 61 | - | 168,782 | - | - | 168,843 | |||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (14,902,800 | ) | (14,902,800 | ) | |||||||||||||||||||
| Balance at September 30, 2015 | 33,799,539 | $ | 33,800 | $ | 1,083,193 | $ | 172,943,931 | $ | (1,133,266 | ) | $ | (164,271,053 | ) | $ | 8,656,605 | |||||||||||||
See accompanying notes to consolidated financial statements.
| 3 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (14,902,800 | ) | $ | (14,548,512 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization and depreciation | 148,062 | 144,609 | ||||||
| Non-cash stock-based compensation expense | 1,278,856 | 996,801 | ||||||
| Non-cash financing costs | 317,708 | 165,232 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Other receivables | (58,060 | ) | 1,407,230 | |||||
| Prepaid expenses and deposits | (33,353 | ) | (189,470 | ) | ||||
| Restricted cash | (27 | ) | (38 | ) | ||||
| Other current assets | 38,902 | (73,079 | ) | |||||
| Other assets | 179 | (16,568 | ) | |||||
| Accounts payable | (410,621 | ) | (1,007,161 | ) | ||||
| Accrued liabilities | 715,827 | 400,843 | ||||||
| Deferred rent | (7,253 | ) | (5,458 | ) | ||||
| Deferred revenue | (407,240 | ) | (407,240 | ) | ||||
| Cash used in operating activities | (13,319,820 | ) | (13,132,811 | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | (44,487 | ) | (14,456 | ) | ||||
| Cash used in investing activities | (44,487 | ) | (14,456 | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock and on options exercised | 129,751 | 104,387 | ||||||
| Proceeds from loans payable | 5,000,000 | 9,827,216 | ||||||
| Payment of debt issuance costs | (50,000 | ) | (184,469 | ) | ||||
| Repayments of loans payable | - | - | ||||||
| Cash provided by financing activities | 5,079,751 | 9,747,134 | ||||||
| Effect of foreign exchange rate changes | (24,590 | ) | (8,893 | ) | ||||
| Net change in cash | (8,309,146 | ) | (3,409,026 | ) | ||||
| Cash and cash equivalents, beginning of period | 32,413,777 | 23,589,516 | ||||||
| Cash and cash equivalents, end of period | $ | 24,104,631 | $ | 20,180,490 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | 951,980 | 311,458 | ||||||
| Deferred financing costs incurred but not paid | 54,404 | - | ||||||
| Warrants issued in connection with debt issuance costs | 76,897 | - | ||||||
| Common stock issued in payment of accrued bonuses | 168,843 | - | ||||||
See accompanying notes to consolidated financial statements
| 4 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
| 1. | Nature of Business and Liquidity |
Celator Pharmaceuticals, Inc., with locations in Ewing, N.J., and Vancouver, B.C., is a clinical stage biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. The Company’s proprietary technology platform, CombiPlex®, enables the rational design and rapid evaluation of optimized combinations incorporating traditional chemotherapies as well as molecularly targeted agents to deliver enhanced anti-cancer activity. CombiPlex addresses several fundamental shortcomings of conventional combination regimens, as well as the challenges inherent in combination drug development, by identifying the most effective synergistic molar ratio of the drugs being combined in vitro, and fixing this ratio in a nano-scale drug delivery complex to maintain the optimized combination until exposure to the tumor following administration. The Company’s pipeline includes lead product, CPX-351 (a liposomal formulation of cytarabine:daunorubicin) being studied for the treatment of acute myeloid leukemia, which the Company has named “VYXEOSTM”; CPX-1 (a liposomal formulation of irinotecan:floxuridine) for the treatment of colorectal cancer; a preclinical stage product candidate; CPX-8 (a hydrophobic docetaxel prodrug nanoparticle formulation), being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory; and several programs exploring novel combinations of existing drugs, including molecularly targeted therapies.
The Company has incurred recurring losses and negative cash flows from operations since inception. As of September 30, 2015, the Company had an accumulated deficit of $164.3 million. The Company expects operating losses and negative cash flows to continue for the foreseeable future until such time, if ever, that it can generate significant revenues from its product candidates currently in development. At September 30, 2015, the Company had cash and cash equivalents of $24.1 million. Management believes that the cash and cash equivalents at September 30, 2015 will be sufficient to meet estimated working capital requirements and fund planned operations into the second half of 2016.
The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. Substantial additional financing will be needed by the Company to fund its operations and to commercialize its product candidates. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.
| 2. | Summary of Significant Accounting Policies |
The accompanying unaudited consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”) and should be read in conjunction with the consolidated financial statements and notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted.
In the opinion of management of the Company, the interim consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, operating results and cash flows of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
Basis of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Celator Pharmaceuticals Corp. (“CPC”) and Celator UK Ltd. All intercompany transactions have been eliminated.
Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, amongst other things, assessment of other receivables, accrued liabilities, impairment and amortization of property and equipment, valuation allowance for deferred income taxes, valuation of stock-based compensation and contingencies.
New Accounting Pronouncements: In April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance, which requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge. The updated guidance is effective retroactively for financial statements covering fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted but we do not anticipate electing early adoption. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
| 5 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
In August 2014, the FASB issued guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
| 3. | Fair Value Measurements |
Financial instruments of the Company consist of cash deposits, money market investments, other receivables, accounts payable, certain accrued liabilities and debt. The carrying value of these financial instruments generally approximates fair value due to their short-term nature.The Company believes that the current carrying amount of its long-term debt approximates fair value because interest rate on this instrument is similar to rates that the Company would be able to receive for similar instruments of comparable maturity.
FASB Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
ASC 820 requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.
The Company recognizes transfers between input levels as of the actual date of event. There were no transfers between levels and the following table provides the assets carried at fair value:
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| September 30, 2015 | ||||||||||||||||
| Assets: | ||||||||||||||||
| Money Market Fund | $ | 23,257,454 | $ | 23,257,454 | $ | - | $ | - | ||||||||
| December 31, 2014 | ||||||||||||||||
| Assets: | ||||||||||||||||
| Money Market Fund | $ | 29,500,819 | $ | 29,500,819 | $ | - | $ | - | ||||||||
| 4. | Other Current Assets |
Other current assets as of September 30, 2015 and December 31, 2014 consist of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Clinical trial materials | $ | 419,376 | $ | 458,278 | ||||
| 5. | Property and Equipment |
Property and equipment as of September 30, 2015 and December 31, 2014 including assets held under capital lease, consists of the following:
| 6 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
| September 30, 2015 | December 31, 2014 | |||||||
| Computer and equipment | $ | 148,969 | $ | 144,138 | ||||
| Furniture and office equipment | 96,457 | 96,457 | ||||||
| Laboratory equipment | 1,749,039 | 1,723,331 | ||||||
| Capital lease equipment | 155,524 | 155,524 | ||||||
| Leaseholds | 51,737 | 37,789 | ||||||
| 2,201,726 | 2,157,239 | |||||||
| Less: Accumulated depreciation | (1,300,890 | ) | (1,152,827 | ) | ||||
| $ | 900,836 | $ | 1,004,412 | |||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Depreciation and amortization | $ | 49,740 | $ | 48,521 | $ | 148,062 | $ | 144,609 | ||||||||
| 6. | Other Assets |
Other assets as of September 30, 2015 and December 31, 2014 consist of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Deferred financing costs | $ | 483,990 | $ | 539,296 | ||||
| Other non-current assets | 59,260 | 5,205 | ||||||
| $ | 543,250 | $ | 544,501 | |||||
| 7. | Accrued Liabilities |
Accrued liabilities as of September 30, 2015 and December 31, 2014 consist of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Accrued bonuses | $ | 751,183 | $ | 816,144 | ||||
| Accrued clinical trial expenses | 767,844 | 633,395 | ||||||
| Accrued drug manufacturing expenses | 250,756 | - | ||||||
| Accrued salaries and vacation | 246,184 | 152,700 | ||||||
| Interest payable | 121,875 | 83,958 | ||||||
| Accrued professional fees | 61,772 | 8,904 | ||||||
| Accrued trade payables other | 113,868 | 40,319 | ||||||
| $ | 2,313,482 | $ | 1,735,420 | |||||
| 8. | Loans Payable |
On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Capital Growth (“Hercules”). The first $10 million of the term loan was funded at closing. On March 30, 2015, the Company drew down the remaining $5 million of the term loan. The term loan is repayable in installments over forty-eight months including an interest-only period of eighteen months after closing. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate with interest only period until December 1, 2015. The funds will be used to provide general working capital.
| 7 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase an aggregate of 210,675 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The warrant is exercisable beginning on the date of issuance and expires May 9, 2019. The fair value of the warrants of $397,649 and financing costs of $407,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $65,718 and $57,670 for the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, the amortization of debt issuance costs was $182,203 and $88,176, respectively. The remaining unamortized debt issuance costs of $483,990 are included in other non-current assets.
In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan becomes due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $45,592 and $50,396 of this fee during the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, the Company accrued $135,505 and $77,056, respectively.
Long-term debt as of September 30, 2015 and December 31, 2014, consists of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Loan payable | $ | 15,000,000 | $ | 10,000,000 | ||||
| End of term fee | 256,722 | 121,217 | ||||||
| 15,256,722 | 10,121,217 | |||||||
| Less: Current portion | (4,416,459 | ) | (284,961 | ) | ||||
| Long-term debt | $ | 10,840,263 | $ | 9,836,256 | ||||
| 9. | Stock Based Compensation |
2013 Equity Incentive Plan
In 2013, the Company adopted the Celator Pharmaceuticals, Inc. 2013 Equity Incentive Plan (the “Plan”). Options granted under the Plan may be incentive stock options or non-qualified stock options. Incentive stock options may only be granted to employees. The board of directors, or a committee of the board of directors appointed to administer the Plan, determines the period over which options become exercisable and the conditions under which stock awards are granted and become vested.
The following table summarizes the activity of the Company’s stock option plan for the nine months ended September 30, 2015:
| Number of options | Exercise price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| December 31, 2014 | 3,005,287 | $ | 3.02 | |||||||||||||
| Granted | 1,206,500 | 2.52 | ||||||||||||||
| Exercised | (57,667 | ) | 2.25 | |||||||||||||
| Expired | (155,482 | ) | 2.38 | |||||||||||||
| Cancelled | (54,125 | ) | 3.15 | |||||||||||||
| September 30, 2015 | 3,944,513 | $ | 2.90 | 7.7 | $ | 6,281 | ||||||||||
| Exercisable at September 30, 2015 | 1,675,144 | $ | 2.98 | 6.2 | $ | 6,281 | ||||||||||
The following table provides information regarding stock options activity during the periods:
| 8 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Stock compensation expense recognized | $ | 484,718 | $ | 354,204 | $ | 1,278,856 | # | $ | 996,801 | |||||||
| Weighted average grant-date fair value of stock options issued (per share) | $ | 1.66 | $ | 2.22 | $ | 2.01 | # | $ | 2.68 | |||||||
| Grant-date fair value of stock options issued | $ | 840,314 | $ | 45,732 | $ | 2,425,065 | # | $ | 1,337,588 | |||||||
| Volatility | 95.1 | % | 112.0 | % | 101.3 | % | 114.4 | % | ||||||||
| Risk-free interest rate | 1.8 | % | 1.9 | % | 1.7 | % | 2.0 | % | ||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Expected life in years | 5.8 | 6.0 | 6.0 | 6.2 | ||||||||||||
| Intrinsic value of stock options exercised | $ | - | $ | - | $ | - | $ | 38,892 | ||||||||
The grant-date fair value of stock options is estimated using the Black Scholes option pricing model. The Company determined the options’ life based on the simplified method and determined the options’ expected volatility based on peer group volatility and dividend yield based on the historical dividend payments. The risk free interest rate is based on the yield of an applicable term Treasury instrument.
The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. At September 30, 2015, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $4,660,270 and 2.5 years, respectively.
Stock Issuance
In February 2015, the Company issued 60,517 shares of common stock to certain Company employees as payment for bonus accrued or earned in 2014 fiscal year. For one year from the date of issuance, the shares issued are non-transferable and are subject to forfeiture if the holder violates any confidentiality undertaking, non-competition agreement, non-solicitation agreement or other restrictive covenant under the employee’s employment agreement with the Company.
| 10. | Geographic Segment Information |
The Company operates in the United States and Canada. The Company’s CPX-351 clinical trial materials are manufactured by a third party using the Company’s equipment located in Germany. Geographic net loss information is based on the location whereby the expenses were incurred. The geographic information about total assets is based on the physical location of the assets.
| Total Assets | ||||||||
| September 30, 2015 | December 31, 2014 | |||||||
| United States | $ | 25,765,002 | $ | 34,027,837 | ||||
| Canada | 229,811 | 223,572 | ||||||
| Germany | 755,609 | 867,694 | ||||||
| Total Assets | $ | 26,750,422 | $ | 35,119,103 | ||||
| Net Loss | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| United States | (4,602,453 | ) | (5,046,236 | ) | (13,305,489 | ) | (12,977,790 | ) | ||||||||
| Canada | (607,838 | ) | (433,581 | ) | (1,597,311 | ) | (1,570,722 | ) | ||||||||
| Total Net Loss | $ | (5,210,291 | ) | $ | (5,479,817 | ) | $ | (14,902,800 | ) | $ | (14,548,512 | ) | ||||
| 9 |
Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
| 11. | Commitments and Contingencies |
In September 2015, the Company entered into a lease agreement for both office and laboratory space in Vancouver, British Columbia, which expires in August 2017. The remaining minimum lease payments as of September 30, 2015 were $210,000. The Company also vacated its current lease for office space effective October 1, 2015. The vacated lease expires in June 2016. The Company recognized contract termination costs of $15,375 for the remaining lease payments which has been recorded in general and administration expenses.
In March 2013, the Company entered into an office lease agreement for office space in Ewing, New Jersey, which commenced in June 2013 with a term of sixty months. The remaining minimum lease payments as of September 30, 2015 were $392,000. Under the Ewing, New Jersey lease agreement, the Company will be obligated to maintain a letter of credit from a bank with respect to its security deposit obligations in the amount of $200,000 during the first year of the Agreement, which amount will be reduced by $40,000 per year on each of December 1, 2014, 2015, and 2016 and by $60,000 on December 1, 2017.
The Company has a worldwide exclusive license agreement with Princeton University dated June 2007 that provides the Company with exclusive rights to some aspects of its nanoparticle polymer technology arising from research sponsored by the Company at Princeton University between 2003 and 2007. These inventions are generally characterized as particulate constructs for release of active agents for medical application. Of the products currently in the Company’s pipeline, only the hydrophobic docetaxel prodrug nanoparticle (HDPN) formulation is subject to this agreement. The Company is obligated to pay a royalty on net sales to Princeton University of a low single-digit percentage if any invention is sold by the Company or a company to which the product covered by the invention was licensed by the Company, which was generated under the exclusive licensing agreement. No royalty or other product/sub-license-related payments have been made to date. The Company is obligated to provide Princeton University a percentage within the range of 45% to 55% of proceeds obtained from a sub-license of the intellectual property to a third party in cases where the Company has not conducted any research or development activities and is solely licensing out the original intellectual property jointly developed by the Company and Princeton University. The Company may terminate the agreement at any time by giving 90 days written notice to Princeton University. Princeton may terminate the agreement if the Company should breach or fail to perform under the agreement, with written notice of default provided by Princeton University to the Company and only if the Company fails to cure the default within 60 days. The Company is obligated under the agreement to provide an annual progress report to Princeton University on any developments of the licensed technology as well as prosecution of the patents covering the technology and the use of commercially reasonable efforts to develop licensed products.
The Company has a collaborative research agreement dated May 2001 with the British Columbia Cancer Agency (“BCCA”) whereby in consideration for the license and conditional assignment of all Company-sponsored intellectual property to the Company by BCCA, the Company will pay to BCCA a royalty in the low single digits on net sales of royalty-bearing products in territories so long as a valid claim exists for inventions made between June 2000 and June 2005 under the agreement. All obligations relating to the conduct of the research and assignment of intellectual property have been completed. No payments of royalties have been made to date. Either party may terminate the agreement if the other party commits a material breach or default and such breach or default is not reasonably cured within 45 days.
In consideration of funding by the Leukemia & Lymphoma Society ® (“LLS”) and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company may be required to pay LLS a cash multiple on the LLS funding, (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from out-licenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.
| 12. | Subsequent Events |
On October 16, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of common stock with aggregate gross proceeds of up to $20,000,000, from time to time, through an “at-the-market” equity offering program under which Cantor will act as sales agent. The Sales Agreement provides that Cantor will be entitled to compensation for its services in an amount equal to 3.0% of the gross proceeds from the sales of shares sold under the Sales Agreement.
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Celator Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
During the period October 19, 2015 through November 11, 2015, the Company has sold 745,985 shares of common stock under the Sales Agreement at an average price of approximately $1.73 per share for gross proceeds of $1.29 million and net proceeds of $1.26 million after deducting Cantor’s commission. As of November 11, 2015, $18.71 million of common stock remains available to be sold under this facility.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties that may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. Examples of forward-looking statements contained in this Form 10-Q quarterly report include, among others, statements about the sufficiency of its capital to fund its activities into the second half of 2016, the expected timeline for its milestones in connection with its Phase 3 clinical study, its product pipeline, statements regarding the efficacy of the Company's CombiPlex® technology, the safety, tolerability, efficacy and therapeutic potential of CPX-351, whether clinical results for CPX-351 obtained to date will be predictive of future clinical study results, the Company's expectations regarding the Company's development plans for CPX-351 and our drug candidates, and the Company's expectations about expanding the Company's product pipeline and advancing the Company's CombiPlex platform. Forward-looking statements in this release involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, capital market conditions, the uncertainties inherent in the conduct of future clinical studies, enrollment in clinical studies, availability of data from ongoing clinical studies, expectations for regulatory approvals, other matters that could affect the availability or commercial potential of the Company’s drug candidates, and the Company’s ability to pay its debt obligations on a timely basis or otherwise pay its expenses and enhance its liquidity position. Forward-looking statements in this Form 10-Q quarterly report involve substantial risks and uncertainties that could cause the Company's clinical development programs, future results, performance of achievements to differ significantly from those expressed or implied in the forward-looking statements. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.
The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.
Overview
Celator Pharmaceuticals, Inc. is a clinical stage biopharmaceutical company that is transforming the science of combination therapy, and developing products to improve patient outcomes in cancer. The Company’s proprietary technology platform, CombiPlex®, enables the rational design and rapid evaluation of optimized combinations incorporating traditional chemotherapies as well as molecularly targeted agents to deliver enhanced anti-cancer activity. CombiPlex addresses several fundamental shortcomings of conventional combination regimens, as well as the challenges inherent in combination drug development, by identifying the most effective synergistic molar ratio of the drugs being combined in vitro, and fixing this ratio in a nano-scale drug delivery complex to maintain the optimized combination after administration and ensure its exposure to the tumor. The Company’s pipeline includes lead product, CPX-351, a liposomal formulation of cytarabine:daunorubicin, for the treatment of acute myeloid leukemia, which the Company has named VYXEOSTM; CPX-1, a liposomal formulation of irinotecan:floxuridine for the treatment of colorectal cancer; a preclinical stage product candidate, CPX-8, a hydrophobic docetaxel prodrug nanoparticle formulation, being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory. The Company is advancing the CombiPlex platform and broadening its application to include molecularly targeted therapies. Areas of investigation include:
| • | Combinations targeting signaling pathways associated with major cancer indications; and |
| • | Combinations of existing chemotherapeutics with molecularly targeted agents. |
The four major studies for the Company’s lead product candidate, CPX-351, are:
| • | Study 204 — Randomized Phase 2 Study of CPX-351 in Newly Diagnosed AML Patients, Age 60-75; |
| • | Study 205 — Randomized Phase 2 Study of CPX-351 in AML in First Relapse Patients, Age 18-65; |
| • | Study 206 — Phase 2 Pharmacokinetic and Pharmacodynamic Study of CPX-351, Patients Age 18-80; and |
| • | Study 301 — Randomized Phase 3 Study in Patients with High-Risk (Secondary) AML (sAML), Age 60-75. |
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Study 204 was intended to be a direct test of whether delivery of a fixed, synergistic ratio of two drugs cytarabine and daunorubicin (i.e., CPX-351 which is a 90-minute infusion on days 1, 3 and 5) provided increased clinical efficacy over conventional administration of the same agents (i.e., which is a 7-day continuous infusion of cytarabine, combined with daunorubicin on days 1, 2 and 3, commonly referred to as the 7+3 regimen) in newly diagnosed AML patients age 60 – 75. This study is complete. In the overall population, in patients treated with CPX-351 the response rate increased by 30.3% (66.7% vs. 51.2%), the 60-day mortality was decreased by 67.8% (4.7% vs. 14.6%), median event-free survival increased by 225.0% (6.5 months vs. 2.0 months) and the median overall survival increased approximately 14.0% (14.7 months vs. 12.9 months). In sAML patients as defined in the protocol, (approximately 41% of the overall population), the response rate increased by 82.0% (57.5% vs. 31.6%), the 60-day mortality decreased approximately 80.7% (6.1% vs. 31.6%), the median event-free survival increased approximately 246.2% (4.5 months vs. 1.3 months) and the median overall survival increased by 98.4% (12.1 months vs. 6.1 months).
Study 205 was a randomized Phase 2 clinical study designed to be a direct test of whether CPX-351 provides increased clinical efficacy over salvage therapies in first relapse AML patients age 18-65. This study is complete. In the overall population, CPX-351 resulted in a 20.8% relative increase in response rate (49.4% vs. 40.9%) compared to the control arm of salvage therapies, a 6.9% decrease in the 60-day mortality (14.8% vs. 15.9%), a 34.9% increase in median overall survival (8.5 months vs. 6.3 months) and an approximately 31.1% increase in 1-year survival rate (35.8% vs. 27.3%). For patients in the unfavorable risk category (68% of the overall population), CPX-351 resulted in a 42.4% relative increase in response rate (39.3% vs. 27.6%) compared to the control arm of salvage therapies, a 33.2% decrease in 60-day mortality (16.1% vs. 24.1%), a 57.1% increase in median overall survival (6.6 months vs. 4.2 months) and a higher 1-year survival rate of 177.7% (28.6% vs. 10.3%).
Study 206 is a Phase 2 pharmacokinetic and pharmacodynamics (“PK/PD”) study evaluating the effects of CPX-351 on cardiac repolarization in adult patients with acute hematologic malignancies, including AML and acute lymphoblastic leukemia. The open-label, single-arm, Phase 2 study is a thorough PK/PD assessment designed to measure the effects of CPX-351 on cardiac repolarization following the first induction cycle of CPX-351, and correlate changes in cardiac repolarization with plasma pharmacokinetic data for cytarabine and daunorubicin and their metabolites. The study began enrolling patients in August 2014 and achieved full enrollment in June 2015.
Study 301 is a randomized controlled Phase 3 study in patients with high risk (e.g. secondary) AML, with overall survival as the primary endpoint. This Phase 3 study has been undertaken to confirm the Study 204 clinical observations where CPX-351 provided the largest efficacy improvements in these patients and to provide the necessary data for product registration. This Phase 3 study is a multicenter, randomized, open-label study testing CPX-351 versus the current standard of care, conventional cytarabine and daunorubicin therapy (7+3). The Phase 3 clinical study is being conducted in patients 60 – 75 years of age who can tolerate intensive chemotherapy. Sites in the U.S. and Canada are participating in this study. This patient population is intended to be the first indication for which the Company is seeking regulatory approval. The Company achieved the following milestones related to this Phase 3 clinical study:
| • | Study 301 enrolled the first patient in December 2012 and closed enrollment in November 2014. |
| • | In October 2014, the Company achieved the target enrollment, of 300 patients, in Study 301. |
| • | In December 2014, the independent Data and Safety Monitoring Board reviewed the first 225 patients randomized and recommended that the study continue as planned without any modifications. |
| • | In June 2015, the Company announced the final analysis of the induction response rate (CR+CRi), a secondary endpoint of the study. CPX-351 resulted in a 43.2% relative increase in induction response rate (47.7% vs. 33.3%) compared to the 7+3 control arm. |
The Company expects the following milestones related to its Phase 3 clinical study (assuming a favorable result in the study):
| • | Q1 2016 — Analysis of overall survival, the primary endpoint of the study. |
| • | Q3 2016 — New Drug Application (NDA) submission - U.S. |
| • | Q1 2017 — Marketing Authorisation Application (MAA) submission - Europe. |
| • | Q2 2017 — Prescription Drug User Fee Act (PDUFA) date - U.S. (assuming FDA grants priority review). |
| • | Q1 2018 — Committee for Medicinal Products for Human Use (CHMP) opinion - Europe. |
AML accounts for 25 percent of all adult leukemias in the Western world, with the highest incidence rates occurring in the United States, Australia and Europe. AML is generally a disease of older adults, and the median age at the time of diagnosis is about 66 years. AML has one of the lowest survival rates of all leukemias. In 2015, the American Cancer Society’s Cancer Facts & Figures estimates 20,830 new cases and 10,460 deaths in the U.S. In Europe, the incidence is reported to be approximately 18,000 new cases. sAML is reported as 20-30% of the AML incidence and it is estimated as 40% of AML cases for persons age 60 or older. Median overall survival is estimated to be 9-12 months for AML patients; however, it is only estimated to be 6-7 months for sAML patients.
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Published scientific literature and the Company’s own clinical experience suggest that response rate is the best available surrogate for overall survival and clinical benefit in AML patients. It should be noted that other factors can affect overall survival, such as, but not limited to, early mortality, response duration and subsequent treatment.
In addition to Study 301, there are a number of clinical studies either ongoing or planned, with estimated data availability dates. Timing of data availability is less certain when conducting investigator initiated or oncology cooperative group studies.
Company-sponsored studies:
| • | Phase 2 High-risk AML patients; <60 years of age (planned) |
| • | Phase 2 AML patients who failed induction treatment; ≥18 years of age (planned) |
Investigator-initiated studies:
| • | Phase 2 Pre-conditioning prior to haplo cord blood hematopoietic stem cell transplant (ongoing, data expected Q2 - 2016) |
| • | Phase 2 Patients with High-risk Myelodysplastic Syndrome or newly diagnosed AML and high risk of induction mortality (ongoing, data expected Q2 - 2016) |
| • | Patients with High-risk Myelodysplastic Syndrome or AML after hypomethylating agent therapy (ongoing, data expected Q3 - 2016) |
| • | Patients with newly diagnosed AML and high risk of induction mortality (ongoing, data expected Q1 - 2017) |
| • | Pediatric and young adult patients with recurrent or refractory hematologic malignancies (ongoing, leading to a Children’s Oncology Group study) |
| • | Older patients with AML (≥ 60 years of age), previously untreated with intensive therapy, two cohorts, one in combination with gemtuzumab ozogamicin (planned, Q4 - 2017) |
Cooperative Group studies:
| • | Relapsed or refractory AML in children (planned, Q4 - 2017) |
| • | Patients <60 years of age at high risk because of unfavorable features including an inadequate response to induction (first relapse) or adverse karyotype, etc. (planned, Q2 - 2021) |
The clinical development activities are designed to evaluate CPX-351 in other AML patient populations as well as other blood cancers. The studies are taking into consideration a variety of patient variables, including, but not limited to, age, suitability (or fitness) for intensive treatment, and patients line of therapy (first line, relapse, and refractory).
AML is recognized as an orphan disease in the U.S. and in Europe. The Company believes that the highly concentrated target audience allows the Company to commercialize CPX-351 in the U.S. with a small, focused infrastructure. According to a Health and Human Services report on stem cell transplants in AML, in 2013, 50 centers performed 20 or more transplants in AML patients and accounted for more than 70% of AML stem cell transplants. Twenty-three of those centers are participating in the Company’s Phase 3 clinical study.
The Company owns worldwide development and commercialization rights to CPX-351. In 2008, the Food and Drug Administration (“FDA”) granted orphan drug designation to CPX-351 for the treatment of AML. In 2012, the European Commission granted orphan drug status to CPX-351 for the treatment of AML. In January 2015, the FDA granted fast track designation to CPX-351 for the treatment of elderly patients with sAML. The Company has been granted, or notified of allowance of, a number of key patents for CPX-351.
In June 2012, the Company entered into an agreement with LLS pursuant to which the LLS is providing $5.0 million in funding from the LLS Therapy Acceleration Program (“TAP”) program for the Phase 3 study of CPX-351. The agreement provided for LLS to make an upfront payment of $2.0 million to the Company, which was received in July 2012, and further payments totaling an additional $3.0 million on the achievement of clinical milestones; however, the amount may be refundable by the Company in the event of a material breach by the Company under the agreement. The $2.0 million upfront payment was recorded as deferred revenue and will be recognized over the estimated performance period of the research and development services to be provided under the agreement. As of September 30, 2015, $0.2 million was deferred. Since November 2012, the Company has received a total of $2.9 million for milestones achieved under this agreement. In consideration of LLS’s funding, and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, if CPX-351 is successful, the Company must pay LLS a multiple on the LLS funding. (The Company has received $4.9 million of the proposed $5 million from LLS in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study during 2010 and 2011.) Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from outlicenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.
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On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Capital Growth (“Hercules”). The first $10 million of the term loan was funded at closing. On March 30, 2015, the Company drew down the remaining $5 million of the term loan. The term loan is repayable in installments over forty-eight months including an interest-only period of eighteen months after closing. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate with interest only period until December 1, 2015. The funds will be used to provide general working capital.
On October 16, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of common stock with aggregate gross proceeds of up to $20,000,000, from time to time, through an “at-the-market” equity offering program under which Cantor will act as sales agent. The Sales Agreement provides that Cantor will be entitled to compensation for its services in an amount equal to 3.0% of the gross proceeds from the sales of shares sold under the Sales Agreement.
During the period October 19, 2015 through November 11, 2015, the Company has sold 745,985 shares of common stock under the Sales Agreement at an average price of approximately $1.73 per share for gross proceeds of $1.29 million and net proceeds of $1.26 million after deducting Cantor’s commission. As of November 11, 2015, $18.71 million of common stock remains available to be sold under this facility.
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Results of Operations
Three months ended September 30, 2015 compared to the three months ended September 30, 2014
Expenses
Research and Development: The Company charges research and development costs to operations as incurred. The Company’s research and development expenses were $2,860,000 for the three months ended September 30, 2015 compared to $3,335,000 for the three months ended September 30, 2014 reflecting a decrease of $475,000. The decrease was primarily attributable to $259,000 decrease in regulatory and clinical trial costs related to the Phase 3 trial of CPX-351, $355,000 decrease in manufacturing and drug and lipid costs, $121,000 decrease in costs associated with a metabolism study, which began during the second half of 2013 for CPX-351 and ended in July 2014, $93,000 decrease in costs related to drug storage and shipping costs, and $60,000 decrease in intellectual property related costs. These decreases were offset by increases in costs associated with the advancement of the CombiPlex combination work initiated in 2014 of $231,000, compensation and stock option expenses of $97,000, and stability and validation studies of $85,000.
LLS Funding: The LLS revenue recognized was $136,000 for both the three months ended September 30, 2015 and September 30, 2014. The amount recognized in both periods represents an amortization of a $2,000,000 upfront payment received during 2012, which was deferred and is being recognized over the estimated performance period of the research and development services to be provided under the agreement.
General and Administrative: General and administrative expenses consist largely of salaries and related benefits, external costs for professional fees relating to legal, accounting and tax services, investor relations expenses, director and scientific advisory services as well as the lease expense for the facilities.
General and administrative expenses were $1,943,000 for the three months ended September 30, 2015 compared to $1,874,000 for the three months ended September 30, 2014, reflecting an increase of $69,000. The increase was primarily attributable to $190,000 compensation and stock option expenses, $25,000 increase in facilities and lease costs related to a Vancouver lease termination. These increases were offset by a reduction inconsulting costs associated with commercial planning of $121,000, and recruitment costs of $84,000.
Amortization and Depreciation: Amortization and depreciation expense was $50,000 for the three months ended September 30, 2015 and $49,000 for the three months ended September 30, 2014.
Other Income and Expenses
Interest Expense: Interest expense was $485,000 and $359,000 for the three months ended September 30, 2015 and 2014, respectively, and was related to interest on a Hercules term loan entered into in May 2014. Interest expense of $485,000 for three months September 30, 2015 includes $111,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge. Interest expense of $359,000 for the three months ended September 30, 2014 included $108,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge.
Nine months ended September 30, 2015 compared to the nine months ended September 30, 2014
Expenses
Research and Development: The Company charges research and development costs to operations as incurred. The Company’s research and development expenses were $9,021,000 for the nine months ended September 30, 2015 compared to $9,239,000 for the nine months ended September 30, 2014 reflecting a decrease of $218,000. The decrease was primarily attributable to $593,000 decrease in costs associated with a metabolism study, which began during the second half of 2013 for CPX-351 and ended in July 2014, $339,000 decrease in costs related to manufacturing, $125,000 decrease in drug storage and shipping costs and $84,000 decrease in quality audits and external consulting associated with manufacturing activities. These decreases were offset by increases in costs associated with the advancement of the CombiPlex combination work initiated in 2014 of $542,000, stability and validation studies of $201,000, travel costs for in-house clinical research associates and research personnel of $133,000, and compensation and stock option expenses of $104,000.
Leukemia & Lymphoma Society Funding: The LLS revenue recognized for the nine months ended September 30, 2015 was $1,307,000 and $907,000 for the three months ended September 30, 2014. The amount recognized in 2015 included a $900,000 milestone achieved related to the induction response rate analysis of the Phase 3 trial of CPX-351 completed in June 2015 and $407,000 amortization of a $2,000,000 upfront payment received during 2012, which was deferred and is being recognized over the estimated performance period of the research and development services to be provided under the agreement. The $907,000 recognized in 2014 represents receipt of $500,000 from LLS for a milestone achieved in January 2014 and amortization of the upfront payment received during 2012 of $407,000.
General and Administrative: General and administrative expenses consist of salaries and related benefits, lease expense of the facilities, professional fees relating to legal, accounting, and tax services and other administrative costs.
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General and administrative expenses were $5,719,000 for the nine months ended September 30, 2015 compared to $5,492,000 for the nine months ended September 30, 2014, reflecting an increase of $227,000. The increase was primarily attributable to $212,000 increase in compensation and stock option expenses, $156,000 increase in public company, investor relations, and consulting costs, $140,000 increase in professional fees and $35,000 increase in facilities and lease related costs. These increases were offset by decreases in consulting associated with commercial planning of $255,000, and recruitment costs of $84,000.
Amortization and Depreciation: Amortization and depreciation expense was $148,000 for the nine months ended September 30, 2015 and $145,000 for the nine months ended September 30, 2014.
Other Income and Expenses
Interest Expense: Interest expense was $1,308,000 and $560,000 for the nine months ended September 30, 2015 and 2014, respectively, and was related to interest on a Hercules term loan entered into in May 2014. Interest expense of $1,308,000 for nine months September 30, 2015 includes $318,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge. Interest expense of $560,000 for the nine months ended September 30, 2014 included $165,000 related to non-cash amortization of deferred financing costs and the accrual of the end of term charge.
Liquidity and Capital Resources
Overview
There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. To date, the Company has funded its operations primarily through private placements of preferred stock and common stock, convertible debt and debt financings. However, the Company may pursue additional financing options, including entering into agreements with collaborative partners in order to provide milestone payments, license fees and equity investments.
The Company believes that, with $24.1 million in cash and cash equivalents as of September 30, 2015, it has the resources to meet estimated working capital requirements to fund operations into the second half of 2016. The Company expects to continue to incur losses as it funds research and development activities and commercial launch activities, and the Company does not expect material revenues for at least the next few years.
On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules. The first $10 million of the term loan was funded at closing. On March 30, 2015, the Company drew down the remaining $5 million of the term loan. The term loan is repayable in installments over forty-eight months including an interest-only period of eighteen months after closing. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate with interest only period until December 1, 2015. The funds will be used to provide general working capital.
On October 16, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of common stock with aggregate gross proceeds of up to $20,000,000, from time to time, through an “at-the-market” equity offering program under which Cantor will act as sales agent. The Sales Agreement provides that Cantor will be entitled to compensation for its services in an amount equal to 3.0% of the gross proceeds from the sales of shares sold under the Sales Agreement.
During the period October 19, 2015 through November 11, 2015, the Company has sold 745,985 shares of common stock under the Sales Agreement at an average proce of approximately $1.73 per share for gross proceeds of $1.29 million and net proceeds of $1.26 million after deducting Cantor’s commission. As of November 11, 2015, $18.71 million of common stock remains available to be sold under this facility.
The Company’s future capital requirements will depend on many factors, including those factors described in Item 1A. “Risk Factors” of the 2014 Form 10-K annual report and this Form 10-Q as well as the Company’s ability to execute on its business and strategic plans as currently conceived.
Cash Flows
Net cash used in operating activities was $13,319,000 for the nine months ended September 30, 2015. The nine months ended September 30, 2015 amount reflected the Company’s net loss of $14,903,000 offset by $1,745,000 in net non-cash charges including a non-cash charge relating to amortization and depreciation of $148,000, stock-based compensation expense of $1,279,000 and non-cash interest expense of $318,000 related to the deferred financing costs amortization for a term loan. In addition, the Company used $161,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the nine months ended September 30, 2015. The changes in operating assets and liabilities were decreases in accounts payable of $411,000, deferred revenue of $407,000, deferred rent of $7,000 and increases in prepaid expenses and deposits of $33,000, and other receivables of $58,000; offset by an increase in accrued expenses of $716,000, and a decrease in other current assets of $39,000.
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Net cash used in operating activities was $13,133,000 for the nine months ended September 30, 2014. The nine months ended September 30, 2014 amount reflected the Company’s net loss of $14,549,000, offset by $1,307,000 in net non-cash charges including non-cash charge relating to amortization and depreciation of $145,000, stock-based compensation expense of $997,000 and non-cash interest expense of $165,000 related to the deferred financing costs amortization for a term loan. In addition, the Company generated $109,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the nine months ended September 30, 2014. The changes in operating assets and liabilities were a decrease in other receivables of $1,407,000, and an increase in accrued expenses of $401,000; offset by increases in prepaid expenses and deposits of $189,000, other current assets of $73,000, and other assets of $17,000 and decreases in accounts payable of $1,007,000, deferred rent of $6,000 and deferred revenue of $407,000.
Cash used in investing activities was $44,000 and $14,000 for the nine months ended September 30, 2015 and 2014, respectively, and was for property and equipment expenditures.
Cash provided by financing activities for the nine months ended September 30, 2015 was $5,080,000. The cash inflow was from the proceeds on issuance of debt of $4,950,000 and from exercised stock options of $130,000. Cash provided by financing activities for the nine months ended September 30, 2014 was $9,747,000. The cash inflow was from the net proceeds on issuance of debt of $9,643,000 and from exercised stock options of $104,000.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The Company does not have any interest in special purpose entities, structured finance entities or other variable interest entities.
Critical Accounting Policies
The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2014 included in Celator Pharmaceuticals Inc.’s Form 10-K filed. There have been no significant changes in the Company’s critical accounting policies since December 31, 2014.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Company invests excess cash in investment grade, interest-bearing securities and at September 30, 2015, had approximately $23.3 million invested in money market instruments. Such investments are subject to interest rate and credit risk and are not fully insured by the federal government. The Company believes its policy of investing in highly rated securities, whose liquidities are, at September 30, 2015, all less than 90 days minimizes such risks. In addition, while a hypothetical one percent per annum decrease in market interest rates would have decreased the Company’s interest income for the period, it would not have resulted in a loss of the principal and the decline in interest income would have been immaterial to the Company.
The Company had outstanding total debt at September 30, 2015 of $15 million. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the U.S. prime rate.
The majority of the Company’s business is conducted in U.S. dollars. However, the Company does conduct certain transactions in other currencies, including Canadian dollars. Historically, fluctuations in foreign currency exchange rates have not materially affected the Company’s results of operations, and during the nine months ended September 30, 2015 and 2014, the Company’s results of operations were not materially affected by fluctuations in foreign currency exchange rates.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commission rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
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Change in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Item 1. | Legal Proceedings |
There are no material pending legal proceedings.
| Item 1A. | Risk Factors |
Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. The Company’s operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. These factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors may have a material adverse effect upon the Company’s business, results of operations and financial condition.
You should consider carefully the risk factors, together with all of the other information included in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Each of these risk factors could adversely affect the Company’s business, results of operations and financial condition, as well as adversely affect the value of an investment in the Company’s common stock..
Updated Risk Factor Disclosure
The Company believes it has sufficient funds to conduct our current plan of operations into the second half of 2016. The Company will need to raise additional funding to complete the potential registration and commercialization of CPX-351, service and pay the Company’s debt obligations and enhance liquidity.
The Company has $24.1 million in cash and cash equivalents as of September 30, 2015 and debt obligations under the Hercules Technology Growth Capital, Inc. (“Hercules”) term loan of $15.0 million and future interest payments. The Company believes it currently has the cash to meet estimated working capital requirements and fund operations into the second half of 2016. The Company will need to raise additional capital or identify other funding sources to:
| • | complete the potential registration and commercialization of CPX-351; |
| • | fund additional clinical studies of CPX-351 and seek regulatory approvals; |
| • | expand the Company’s development activities; |
| • | implement additional internal systems and infrastructure; |
| • | build or access commercialization and additional manufacturing capabilities and supplies; and |
| • | service and pay the Company’s debt obligations, including the Hercules term loan, and otherwise pay the Company’s expenses and enhance the liquidity position. |
The Company’s future funding requirements and sources will depend on many factors, including but not limited to:
| • | the rate of progress and cost of its clinical studies; |
| • | the need for additional or expanded clinical studies; |
| • | the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which the Company may enter; |
| • | the costs and timing of seeking and obtaining FDA and other regulatory approvals; |
| • | the extent of the Company’s other development activities; |
| • | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and |
| • | the effect of competing technological and market developments. |
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In the event the Company does not successfully raise funds in subsequent financing(s) or obtain funding from other sources, the Company’s product development and commercialization activities will necessarily be curtailed commensurate with the magnitude of the shortfall or may cease altogether and the Company may not be able to pay its debts on a timely basis. If the Company’s product development and commercialization activities are slowed or stopped, the Company will be unable to meet the timelines and projections set forth in the Form 10-K annual report or the Company’s other filings with the Commission. Failure to progress our product candidates as anticipated or pay debts on a timely basis will have a negative effect on the Company’s business, future prospects and ability to obtain further financing on acceptable terms (if at all), and on the value of the enterprise.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
There were no sales of equity securities during the nine months ended September 30, 2015. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Recent Developments.
| Item 6. | Exhibits |
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto and include the following:
| 3.1 | Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.) | ||
| 3.2 | Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.) | ||
| 10.1 | Employment Agreement dated as of August 20, 2015 between the Company and Michael R. Dougherty. (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K current report filed on August 24, 2015.) | ||
| 10.2 | Controlled Equity OfferingSM Sales Agreement dated October 16, 2015 between the Company and Cantor Fitzgerald & Co. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K current report filed on October 16, 2015.) | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act. | ||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act. | ||
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer. | ||
| 101.1 | The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Loss for the three and nine months ended September 30, 2015 and 2014, (iii) Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2015, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (v) Notes to Consolidated Financial Statements. |
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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.
CELATOR PHARMACEUTICALS, INC.
| Signature | Title | Date | ||
| /s/ Scott T. Jackson | Chief Executive Officer and a Director | November 12, 2015 | ||
| Scott T. Jackson | (principal executive officer) | |||
| /s/ Fred M. Powell | Vice President and Chief Financial Officer | November 12, 2015 | ||
| Fred M. Powell | (principal financial and accounting officer) |
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EXHIBIT INDEX
| Exhibit No. | Description | ||
| 3.1 | Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q quarterly report filed on August 7, 2014.) | ||
| 3.2 | Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.) | ||
| 10.1 | Employment Agreement dated as of August 20, 2015 between the Company and Michael R. Dougherty. (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K current report filed on August 24, 2015.) | ||
| 10.2 | Controlled Equity OfferingSM Sales Agreement dated October 16, 2015 between the Company and Cantor Fitzgerald & Co. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K current report filed on October 16, 2015.) | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act. | ||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act. | ||
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer. | ||
| 101.1 | The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Loss for the three and nine months ended September 30, 2015 and 2014, (iii) Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2015, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (v) Notes to Consolidated Financial Statements. | ||
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