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 June 30, 2019

 

OR

 

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

 

For the transition period from ____________ to ____________

 

Commission file number: 001-15911

 

CELSION CORPORATION

(Exact name of Registrant as specified in its charter)

 

Delaware   52-1256615

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

997 Lenox Drive, Suite 100,

Lawrenceville, NJ 08648

(Address of principal executive offices)

 

(609) 896-9100

(Registrant’s telephone number, including area code)

 

NA

(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.

Yes [X] No [  ]

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes [X] No [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [  ] Smaller reporting company [X]
   
Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

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

 

Title of each class   Trading symbol(s)  

Name of each exchange on

which registered

Common stock, par value $0.01
per share
  CLSN   Nasdaq Capital Market

 

As of August 13, 2019, the Registrant had 21,387,418 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

   
 

 

CELSION CORPORATION

QUARTERLY REPORT ON

FORM 10-Q

 

TABLE OF CONTENTS

 

    Page(s)
PART I: FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Periods as of and through June 30, 2019 and 2018 are Unaudited) 2
  Condensed Consolidated Balance Sheets 2
  Condensed Consolidated Statements of Operations 4
  Condensed Consolidated Statements of Comprehensive Loss 5
  Condensed Consolidated Statements of Cash Flows 6
  Condensed Consolidated Statements of Changes in Stockholders’ Equity 8
  Notes to the Condensed Consolidated Financial Statements 12
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 42
     
Item 4. Controls and Procedures 42
     
PART II: OTHER INFORMATION  
     
Item 1. Legal Proceedings 43
Item 1A. Risk Factors 43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 60
Item 3. Defaults Upon Senior Securities 60
Item 4. Mine Safety Disclosures 60
Item 5. Other Information 60
Item 6. Exhibits 60
     
SIGNATURES 61

 

i
 

 

Forward-Looking Statements

 

This report includes “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. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q, including, without limitation, any projections of earnings, revenue or other financial items, any statements of the plans and objectives of management for future operations (including, but not limited to, pre-clinical development, clinical trials, manufacturing and commercialization), any statements concerning proposed drug candidates, potential therapeutic benefits, or other new products or services, any statements regarding future economic conditions or performance, any changes in the course of research and development activities and in clinical trials, any possible changes in cost and timing of development and testing, capital structure, financial condition, working capital needs and other financial items, any changes in approaches to medical treatment, any introduction of new products by others, any possible licenses or acquisitions of other technologies, assets or businesses, our ability to realize the full extent of the anticipated benefits of our acquisition of the assets of EGEN, Inc., including achieving operational cost savings and synergies in light of any delays we may encounter in the integration process and additional unforeseen expenses, any possible actions by customers, suppliers, partners, competitors and regulatory authorities, compliance with listing standards of The Nasdaq Capital Market and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or other comparable terminology. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will not differ materially from our expectations.

 

Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, but not limited to, the risk factors set forth in Part II, Item 1A “Risk Factors” below and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof and we do not intend to update any forward-looking statements, except as required by law or applicable regulations. The discussion of risks and uncertainties set forth in this Quarterly Report on Form 10-Q is not necessarily a complete or exhaustive list of all risks facing us at any particular point in time. We operate in a highly competitive, highly regulated and rapidly changing environment and our business is in a state of evolution. Therefore, it is likely that new risks will emerge, and that the nature and elements of existing risks will change, over time. It is not possible for management to predict all such risk factors or changes therein, or to assess either the impact of all such risk factors on our business or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially from those contained in any forward-looking statement.

 

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, the “Company,” “Celsion,” “we,” “us,” and “our” refer to Celsion Corporation, a Delaware corporation and its wholly-owned subsidiary CLSN Laboratories, Inc., also a Delaware corporation.

 

Trademarks

 

The Celsion brand and product names, including but not limited to Celsion® and ThermoDox® contained in this document are trademarks, registered trademarks or service marks of Celsion Corporation or its subsidiary in the United States (“U.S.”) and certain other countries. This document also contains references to trademarks and service marks of other companies that are the property of their respective owners.

 

1
 

 

PART I: FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

BALANCE SHEETS

 

  

June 30, 2019

  December 31, 2018
   (Unaudited)   
ASSETS          
Current assets:          
Cash and cash equivalents  $6,013,318   $13,353,543 
Investment securities - available for sale, at fair value   15,702,388    14,257,998 
Accrued interest receivable on investment securities   65,673    68,309 
Advances and deposits on clinical programs and other current assets   1,271,670    451,293 
Total current assets   23,053,049    28,131,143 
           
Property and equipment (at cost, less accumulated depreciation of $2,627,919 and $2,968,259, respectively)   386,671    184,627 
           
Other assets:          
In-process research and development, net   15,736,491    15,736,491 
Goodwill   1,976,101    1,976,101 
Operating lease right-of-use assets, net   1,609,882     
Other intangible assets, net   454,634    568,292 
Deposits and other assets   370,210    258,933 
Total other assets   20,147,318    18,539,817 
           
Total assets  $43,587,038   $46,855,587 

 

See accompanying notes to the condensed consolidated financial statements.

 

2
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

BALANCE SHEETS

(Continued)

 

  

June 30, 2019

   December 31, 2018 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable ─ trade  $3,392,593   $3,020,638 
Other accrued liabilities   2,389,482    2,585,898 
Operating lease liability – current portion   366,541     
Deferred revenue - current portion   500,000    500,000 
Total current liabilities   6,648,616    6,106,536 
           
Earn-out milestone liability   5,904,725    8,907,664 
Note Payable, net of deferred financing costs   9,608,761    9,417,037 
Operating lease liability – non-current portion   1,343,225     
Deferred revenue - non-current portion   1,250,000    1,500,000 
Other liabilities - non-current       63,278 
Total liabilities   24,755,327    25,994,515 
           
Commitments and contingencies        
           
Stockholders’ equity:          
           
Preferred Stock - $0.01 par value (100,000 shares authorized, and no shares issued or outstanding at June 30, 2019 and December 31, 2018)        
           
Common stock - $0.01 par value (112,500,000 shares authorized; 21,002,629 and 18,832,168 shares issued at June 30, 2019 and December 31, 2018, respectively, and 21,002,295 and 18,831,834 shares outstanding at June 30, 2019 and December 31, 2018, respectively)   210,026    188,322 
Additional paid-in capital   300,549,511    294,393,313 
Accumulated other comprehensive gain   94,576    29,872 
Accumulated deficit   (281,937,214)   (273,665,247)
Total stockholders’ equity before treasury stock   18,916,899    20,946,260 
           
Treasury stock, at cost (334 shares at June 30, 2019 and December 31, 2018)   (85,188)   (85,188)
Total stockholders’ equity   18,831,711    20,861,072 
           
Total liabilities and stockholders’ equity  $43,587,038   $46,855,587 

 

See accompanying notes to the condensed consolidated financial statements.

 

3
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

(Unaudited)

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
                 
Licensing revenue  $125,000   $125,000   $250,000   $250,000 
                     
Operating expenses:                    
Research and development   3,558,074    4,593,544    6,325,733    7,334,620 
General and administrative   2,136,684    3,542,809    4,354,548    5,207,837 
Total operating expenses   5,694,758    8,136,353    10,680,281    12,542,457 
                     
Loss from operations   (5,569,758)   (8,011,353)   (10,430,281)   (12,292,457)
                     
Other (expense) income:                    
(Loss) gain from change in valuation of earn-out milestone liability   (127,061)   (277,129)   3,002,939    (547,324)
Fair value of warrants issued in connection with amendment to modify GEN-1 earn-out milestone payments           (400,000)    
Investment income   144,602    73,461    258,393    147,185 
Interest expense   (349,448)   (15,031)   (700,195)   (15,031)
Other (expense) income   (2,850)   (504)   (2,823)   76 
Total other (expense) income, net   (334,757)   (219,203)   2,158,314    (415,094)
                     
Net loss  $(5,904,515)  $(8,230,556)  $(8,271,967)  $(12,707,551)
                     
Net loss per common share                    
Basic and diluted  $(0.29)  $(0.46)  $(0.42)  $(0.73)
                     
Weighted average shares outstanding                    
Basic and diluted   20,605,762    17,743,229    19,713,449    17,503,796 

 

See accompanying notes to the condensed consolidated financial statements.

 

4
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Other comprehensive (loss) gain                    
                     
Changes in:                    
Realized (gains) losses on investment securities recognized in investment income, net  $(969)  $(3,909)  $(10,350)  $(8,337)
Unrealized gains (losses) on investment securities, net   8,721    31,406    75,054    12,584 
                     
Change in unrealized gains (losses) on available for sale securities, net   7,752    27,497    64,704    4,247 
                     
Net loss   (5,904,515)   (8,230,556)   (8,271,967)   (12,707,551)
                     
Comprehensive loss  $(5,896,763)  $(8,203,059)  $(8,207,263)  $(12,703,304)

 

See accompanying notes to the condensed consolidated financial statements.

 

5
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Six Months Ended

June 30,

 
   2019   2018 
Cash flows from operating activities:          
           
Net loss  $(8,271,967)  $(12,707,551)
           

Adjustments to reconcile net loss to net cash from operating activities;

          
Depreciation and amortization   362,027    174,342 
Change in fair value of earn-out milestone liability   (3,002,939)   547,324 
Fair value of warrants issued in connection with amendment to modify the GEN-1 earn-out milestone payments   400,000    - 
Recognition of deferred revenue   (250,000)   (250,000)
Stock-based compensation costs   1,308,492    3,371,301 
Shares issued in exchange for services   5,350    29,841 
Amortization of deferred finance charges and debt discount
associated with notes payable
   191,724    4,237 
Change in deferred rent liability   -    (2,955)
Net changes in:          
Accrued interest on investment securities   2,636    (2,392)
Advances, deposits and other current assets   (931,654)   (62,000)
Accounts payable and accrued liabilities   24,460    35,776 
Net cash (used in) operating activities:   (10,161,871)   (8,862,077)
           
Cash flows from investing activities:          
Purchases of investment securities   (13,279,686)   (5,712,170)
Proceeds from sale and maturity of investment securities   11,900,000    5,000,000 
Purchases of property and equipment   (262,728)   (77,698)
Net cash used in investing activities   (1,642,414)   (789,868)
           
Cash flows from financing activities:          
Proceeds from sale of common stock equity, net of issuance costs   4,464,060    1,236,584 
Proceeds received from notes payable   -    9,725,000 
Net cash provided by financing activities   4,464,060    10,961,584 
           
(Decrease) increase in cash and cash equivalents   (7,340,225)   1,309,639 
Cash and cash equivalents at beginning of period   13,353,543    11,444,055 
Cash and cash equivalents at end of period  $6,013,318   $12,753,694 

 

See accompanying notes to the condensed consolidated financial statements.

 

6
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

  

Six Months Ended

June 30,

 
   2019   2018 
         
Supplemental disclosures of cash flow information:          
Interest paid  $508,471   $10,794 
           
Cash paid for amounts included in measurement of lease liabilities:          
Operating cash flows from lease payments  $224,585   $- 
           
Non-cash financing and investing activities          
Fair value of warrants issued in connection with amendment to modify the GEN-1 earn-out milestone payments  $400,000   $- 
           
Fair value of warrants issued in connection with the debt facility  $-   $507,116 
           
Right of use assets obtained in exchange for lease liabilities          
Operating leases  $1,797,561   $- 
           
Realized and unrealized gains and losses, net, on investment securities  $64,704   $5,917 

 

See accompanying notes to the condensed consolidated financial statements.

 

7
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

 

THREE MONTHS ENDED JUNE 30, 2019

 

  

Common Stock

Outstanding

   Additional
Paid in
   Treasury Stock  

Accum.

Other
Compr.

   Accumulated     
   Shares   Amount  

Capital

   Shares   Amount  

Income

  

Deficit

   Total 
                                 

Balance at

April 1, 2019

   19,662,020   $196,624   $297,231,041    334   $(85,188)  $86,824   $(276,032,699)  $21,396,602 
Net loss   -    -    -    -    -    -    (5,904,515)   (5,904,515)
Sale of equity through equity financing facilities   1,337,775    13,378    2,695,798    -    -    -    -    2,709,176 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    7,752    -    7,752 
Stock-based compensation expense   -    -    617,347    -    -    -    -    617,347 
Issuance of restricted stock   2,500    24    5,325    -    -    -    -    5,349 
Balance at June 30, 2019   21,002,295   $210,026   $300,549,511    334   $(85,188)  $94,576   $(281,937,214)  $18,831,711 

 

See accompanying notes to the condensed consolidated financial statements.

 

8
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

 

THREE MONTHS ENDED JUNE 30, 2018

 

  

Common Stock

Outstanding

  

Additional

Paid in
   Treasury Stock  

Accum.

Other
Compr.

   Accumulated     
   Shares   Amount  

Capital

   Shares   Amount  

Income

  

Deficit

   Total 
                                 

Balance at

April 1, 2018

   17,740,035   $177,403   $289,810,437    334   $(85,188)  $(33,414)  $(266,258,883)  $23,610,355 
Net loss   -    -    -    -    -    -    (8,230,556)   (8,230,556)
Warrants issued in connection with debt facility             507,116                        507,116 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    29,167    -    29,167 
Stock-based compensation expense   -    -    3,217,633    -    -    -    -    3,217,633 
Issuance of restricted stock   6,250    63    13,938    -    -    -    -    14,001 
Balance at June 30, 2018   17,746,285   $177,466   $293,549,124    334   $(85,188)  $(4,247)  $(274,489,439)  $19,147,716 

 

See accompanying notes to the condensed consolidated financial statements.

 

9
 

 

CELSION CORPORATION

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

 

SIX MONTHS ENDED JUNE 30, 2019

 

  

Common Stock

Outstanding

  

Additional

Paid in
   Treasury Stock  

Accum.

Other Compr.

   Accumulated     
   Shares   Amount  

Capital

   Shares   Amount  

Income

  

Deficit

   Total 
                                 
Balance at January 1, 2019   18,831,834   $188,322   $294,393,313    334   $(85,188)  $29,872   $(273,665,247)  $20,861,072 
Net loss   -    -    -    -    -    -    (8,271,967)   (8,271,967)
Sale of equity through equity financing facilities   2,159,961    21,599    4,442,461    -    -    -    -    4,464,060 
Common stock warrants issued in connection with amendment to modify GEN-1 earn-out milestone payments   -    -    400,000    -    -    -    -    400,000 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    64,704    -    64,704 
Stock-based compensation expense   -    -    1,308,492    -    -    -    -    1,308,492 
Issuance of restricted stock   10,500    105    5,245    -    -    -    -    5,350 
Balance at June 30, 2019   21,002,295   $210,026   $300,549,511    334   $(85,188)  $94,576   $(281,937,214)  $18,831,711 

 

See accompanying notes to the condensed consolidated financial statements.

 

10
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

 

SIX MONTHS ENDED JUNE 30, 2018

 

  

Common Stock

Outstanding

  

Additional

Paid in
   Treasury Stock  

Accum.

Other
Compr.

   Accumulated     
   Shares   Amount  

Capital

   Shares   Amount  

Income

  

Deficit

   Total 
                                 
Balance at January 1, 2018   17,276,965   $172,772   $288,408,976    334   $(85,188)  $(10,164)  $(261,781,888)  $26,704,508 
Net loss   -    -    -    -    -    -    (12,707,551)   (12,707,551)
Sale of equity through ATM purchase agreement   457,070    4,571    1,232,013    -    -    -    -    1,236,584 
Warrants issued in connection with debt facility             507,116                        507,116 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    5,917    -    5,917 
Stock-based compensation expense   -    -    3,371,301    -    -    -    -    3,371,301 
Issuance of restricted stock   12,250    123    29,718    -    -    -    -    29,841 
Balance at June 30, 2018   17,746,285   $177,466   $293,549,124    334   $(85,188)  $(4,247)  $(274,489,439)  $19,147,716 

 

See accompanying notes to the condensed consolidated financial statements.

 

11
 

 

CELSION CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

 

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 

Note 1. Business Description

 

Celsion Corporation (“Celsion” and the “Company”) is a fully-integrated development stage oncology drug company focused on advancing a portfolio of innovative cancer treatments, including directed chemotherapies, DNA-mediated immunotherapy and RNA based therapies. Our lead product candidate is ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in a Phase III clinical trial for the treatment of primary liver cancer (the “OPTIMA Study”). Second in our pipeline is GEN-1, a DNA-mediated immunotherapy for the localized treatment of ovarian cancer. These investigational products are based on our two platform technologies which, in addition, provide the basis for the future development of a range of therapeutics for difficult-to-treat forms of cancers. Our first platform is Lysolipid Thermally Sensitive Liposomes, a heat sensitive liposomal based dosage form that targets disease with known therapeutics in the presence of mild heat. Our second is TheraPlas, a novel nucleic acid-based treatment for local transfection of therapeutic plasmids. With these technologies we are working to develop and commercialize more efficient, effective and targeted oncology therapies that maximize efficacy while minimizing side-effects common to cancer treatments.

 

Note 2. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiary, CLSN Laboratories, Inc, have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany balances and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

 

In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the three and six-month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for any other interim period(s) or for any full year. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission (SEC) on March 29, 2019.

 

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amount reported in the Company’s financial statements and accompanying notes. Actual results could differ materially from those estimates. Events and conditions arising subsequent to the most recent balance sheet date have been evaluated for their possible impact on the financial statements and accompanying notes. No events and conditions would give rise to any information that required accounting recognition or disclosure in the financial statements other than those arising in the ordinary course of business.

 

Certain reclassifications have been made to the prior year financial statements to conform to classifications used in the current year. There classifications had no impact on net loss, stockholder’s equity or cashflows as previously reported.

 

Note 3. Financial Condition and Business Plan

 

Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs, clinical trials conducted in connection with the Company’s product candidates, and applications and submissions to the U.S. Food and Drug Administration. The Company has not generated significant revenue and have incurred significant net losses in each year since our inception. As of June 30, 2019, the Company has incurred approximately $282 million of cumulative net losses and we had approximately $21.8 million in cash, investment securities and interest receivable. We have substantial future capital requirements to continue our research and development activities and advance our product candidates through various development stages. The Company believes these expenditures are essential for the commercialization of its technologies.

 

12
 

 

The Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts, and when it undertakes marketing and sales activities. The Company’s ability to achieve profitability is dependent upon its ability to obtain governmental approvals, manufacture, and market and sell its new product candidates. There can be no assurance that the Company will be able to commercialize its technology successfully or that profitability will ever be achieved. The operating results of the Company have fluctuated significantly in the past. We have substantial future capital requirements associated with our continued research and development activities and to advance our product candidates through various stages of development. The Company believes these expenditures are essential for the commercialization of its technologies.

 

The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’s control. These factors include the following:

 

  the progress of research activities;
     
  the number and scope of research programs;
     
  the progress of preclinical and clinical development activities;
     
  the progress of the development efforts of parties with whom the Company has entered into research and development agreements;
     
  the costs associated with additional clinical trials of product candidates;
     
  the ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
     
  the ability to achieve milestones under licensing arrangements;
     
  the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
     
  the costs and timing of regulatory approvals.

 

The Company has based its estimate on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt, the sale of the Company’s State of New Jersey net operating losses and other sources. If the Company raises funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of existing stockholders may be diluted.

 

Annually, the State of New Jersey enables approved technology and biotechnology businesses with New Jersey net operating tax losses the opportunity to sell these losses through the Technology Business Tax Certificate Program (the “NOL Program”), thereby providing cash to companies to help fund their operations. The Company determined it met the eligibility requirements of the NOL Program and filed its application with the New Jersey Economic Development Authority (NJEDA) in June 2018. In this application, the Company requested authorization of up to $12.5 million in tax benefits from its cumulative New Jersey net operating losses to be eligible for sale. In September 2018, the NJEDA notified the Company that its application received approval to transfer $11.1 million of tax benefits. In December 2018, the Company successfully transferred these approved tax benefits which resulted in the receipt of $10.4 million in net cash proceeds to the Company at the end of 2018. The Company has approximately $3.9 million in future tax benefits remaining under the NOL Program for future years subsequent to 2018. In June 2019, the Company filed an application under the NOL Program to transfer an additional $2.0 million of tax benefits.

 

13
 

 

With $21.8 million in cash, investment securities and interest receivable at June 30, 2019 coupled with potential future sales of the Company’s New Jersey NOL’s and, as more fully described in Note 11, the remaining availability under the Capitol on Demand™ with JonesTrading Institutional Services LLC and the common stock purchase agreement with Aspire Capital Fund LLC, the Company believes it has sufficient capital resources to fund its operations into the first quarter of 2021. The Company will be required to obtain additional funding to continue development of its current product candidates within the anticipated time periods, if at all, and to continue to fund operations.

 

Note 4. New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by Financial Accounting Standards Board (FASB) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements will not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows, or do not apply to our operations.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” - Topic 842 (ASC Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update became effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. The FASB subsequently issued the following amendments to ASC Topic 842, which have the same effective date and transition date of January 1, 2019:

 

  ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02; and
     
  ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component.

 

We adopted Topic ASC 842 effective January 1, 2019 and elected to apply the available practical expedients and implement internal controls to enable the preparation of financial information on adoption. We identified two of our leases consisting of the New Jersey corporate office lease and the Alabama lab facility lease as being subject to Topic ASC 842. The adoption of this standard resulted in the recognition of right-of-use assets of approximately $1.4 million, related operating lease liabilities of $1.5 million and reduced other liabilities by approximately $0.1 million on the consolidated balance sheets as of January 1, 2019 with no material impact to the opening balance of retained earnings. See Note 15 for further discussions regarding the adoption of ASC Topic 842.

 

In August 2018, the SEC issued a final rule to simplify certain disclosure requirements. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. In August and September 2018, further amendments were issued to provide implementation guidance on adoption of the SEC rule and transition guidance for the new interim stockholders’ equity disclosure. We adopted this amended guidance in the first quarter of 2019. The adoption of this amended guidance resulted in us disclosing the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month and six-month periods ending June 30, 2019 and 2018.

 

In January 2017, the FASB issued Accounting Standard Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The adoption of ASU 2017-01 did not have an impact on our financial statement or disclosures.

 

14
 

 

In January 2017, the FASB issued Accounting Standard Update No. 2017-04, “Intangibles-Goodwill and Other, Simplifying the Test for Goodwill Impairment,” which eliminated Step 2 from the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for any interim or annual impairment tests for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted this method for its impairment testing of goodwill during 2017 and 2018. Based on the Company’s evaluation, the adoption of the ASU 2017-04 did not have any material impact on its consolidated financial statements or its disclosures.

 

Note 5. Net Loss per Common Share

 

Basic loss per share is calculated based upon the net loss available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated after adjusting the denominator of the basic earnings per share computation for the effects of all dilutive potential common shares outstanding during the period. The dilutive effects of preferred stock, options and warrants and their equivalents are computed using the treasury stock method.

 

The total number of shares of common stock issuable upon exercise of warrants, stock option grants and equity awards were 4,595,990 shares for the six-month period ended June 30, 2019. Warrants with an exercise price of $0.01 (as more fully described in Note 13 of these financial statements) exercisable for 200,000 shares of common stock was considered issued in calculating basic loss per share. For the three and six-month periods ended June 30, 2019, diluted loss per common share was the same as basic loss per common share as the other 4,395,990 warrants and equity awards that were convertible into shares of the Company’s common stock were excluded from the calculation of diluted loss per common share as their effect would have been anti-dilutive.

 

The total number of shares of common stock issuable upon exercise of warrants and equity awards was 6,255,757 shares for the three-month and six-month periods ended June 30, 2018. For the three and six-month periods ended June 30, 2018, diluted loss per common share was the same as basic loss per common share as all options and all warrants that were exercisable into shares of the Company’s common stock were excluded from the calculation of diluted earnings attributable to common shareholders per common share as their effect would have been anti-dilutive.

 

The Company did not pay any dividends during the six-month periods ended June 30, 2019 and 2018.

 

Note 6. Fair Value of Financial Instruments

 

Short-term investments available for sale were approximately $15.7 million and $14.3 million as of June 30, 2019 and December 31, 2018, respectively, and consist of corporate debt securities. These investments are valued at estimated fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in accumulated other comprehensive loss.

 

Securities available for sale are evaluated periodically to determine whether a decline in their value is other than temporary. The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. Management reviews criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

 

A summary of the cost, fair value and maturities of the Company’s short-term investments is as follows:

 

   June 30, 2019   December 31, 2018 
   Cost   Fair Value   Cost   Fair Value 
Short-term investments                    
Corporate debt securities  $15,607,812   $15,702,388   $14,228,126   $14,257,998 
Total  $15,607,812   $15,702,388   $14,228,126   $14,257,998 

 

15
 

 

   June 30, 2019   December 31, 2018 
   Cost   Fair Value   Cost   Fair Value 
Short-term investment maturities                    
Within 3 months  $9,821,406   $9,897,504   $5,383,488   $5,393,743 
Between 3-12 months   5,786,406    5,804,884    8,844,638    8,864,255 
Total  $15,607,812   $15,702,388   $14,228,126   $14,257,998 

 

The following table shows the Company’s investment securities gross unrealized gains (losses) and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2019 and December 31, 2018. The Company has reviewed individual securities to determine whether a decline in fair value below the amortizable cost basis is other than temporary.

 

   June 30, 2019   December 31, 2018 
Available for sale securities (all unrealized holding gains and losses are less than 12 months at date of measurement)  Fair Value  

Unrealized

Holding

Gains

(Losses)

   Fair Value  

Unrealized

Holding

Gains

(Losses)

 
                 
Investments with unrealized gains  $14,395,809   $95,013   $7,515,676   $38,068 
Investments with unrealized losses   1,306,579    (437)   6,742,322    (8,196)
Total  $15,702,388   $94,576   $14,257,998   $29,872 

 

Investment income, which includes net realized losses on sales of available for sale securities and investment income interest and dividends, is summarized as follows:

 

  

Three Months Ended

June 30,

 
   2019   2018 
Interest and dividends accrued and paid  $143,633   $69,559 
Realized gains   969    3,902 
Investment income, net  $144,602   $73,461 

 

  

Six Months Ended

June 30,

 
   2019   2018 
Interest and dividends accrued and paid  $248,043   $138,848 
Realized gains   10,350    8,337 
Investment income, net  $258,393   $147,185 

 

Note 7. Fair Value Measurements

 

FASB Accounting Standards Codification (ASC) Section 820 “Fair Value Measurements and Disclosures,” establishes a three-level hierarchy for fair value measurements which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

 

Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date;

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

 

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability.

 

16
 

 

Cash and cash equivalents, other current assets, accounts payable and other accrued liabilities are reflected in the condensed consolidated balance sheet at their approximate estimated fair values primarily due to their short-term nature. The fair values of securities available for sale is determined by relying on the securities’ relationship to other benchmark quoted securities and classified its investments as Level 2 items in both 2019 and 2018. There were no transfers of assets or liabilities between Level 1 and Level 2 and no transfers in or out of Level 3 thus far in 2019 and during the year ended December 31, 2018. The changes in Level 3 liabilities were the result of changes in the fair value of the earn-out milestone liability included in earnings and in-process R&D. The earnout milestone liability is valued using a risk-adjusted assessment of the probability of payment of each milestone, discounted to present value using an estimated time to achieve the milestone (see Note 13 for significant unobservable inputs). The in-process R&D – GBM is valued using a multi-period excess earnings method (see Note 8 for significant unobservable inputs).

 

The table below summarizes assets and liabilities measured at fair value. This table only includes those assets and liabilities with fair values that have changed since December 31, 2018:

 

    Total Fair Value     Quoted Prices in Active Markets for Identical Assets/Liabilities
(Level 1)
    Significant Other Observable Inputs
(Level 2)
    Significant Unobservable Inputs
(Level 3)
 
Assets:                                          
                                 
Recurring items as of June 30, 2019                                
Corporate debt securities, available for sale   $ 15,702,388     $     $ 15,702,388     $  
                                 
Recurring items as of December 31, 2018                                
Corporate debt securities, available for sale   $ 14,257,998     $     $ 14,257,998     $  
                                 
Liabilities:                                
                                 
Recurring items as of June 30, 2019                                
Earn-out milestone liability (Note 13)   $ 5,904,725     $     $     $ 5,904,725  
                                 
Recurring items as of December 31, 2018                                
Earn-out milestone liability (Note 13)   $ 8,907,664     $     $     $ 8,907,664  

 

Note 8. Acquisition of EGEN Assets

 

On June 20, 2014, we completed the acquisition of substantially all of the assets of EGEN, which has changed its company name to EGWU, Inc. after the closing of the acquisition (“EGEN”), pursuant to an Asset Purchase Agreement dated as of June 6, 2014, by and between EGEN and Celsion (the “Asset Purchase Agreement”). We acquired all EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.

 

At the time of the acquisition, the total purchase price for the asset acquisition was up to $44.4 million, including potential future earnout payments of up to $30.4 million contingent upon achievement of certain earnout milestones set forth in the Asset Purchase Agreement. We paid approximately $3.0 million in cash after the expense adjustment and issued 241,590 shares of our common stock to EGEN. The shares of common stock were issued in a private transaction exempt from registration under the Securities Act, pursuant to Section 4 (2) thereof.

 

17
 

 

Acquired In-process Research and Development

 

Acquired in-process research and development (IPR&D) consists of EGEN’s drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be $24.2 million as of the acquisition date. As of the closing of the acquisition, the IPR&D was considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. On December 31, 2016, the Company determined one of its IPR&D assets related to its RNA delivery system was impaired and wrote off its fair value, incurring a non-cash charge of $1.4 million during 2016. During its annual assessments on September 30, 2017 and 2018, the Company determined its IPR&D asset related to its glioblastoma multiforme cancer (GBM) product candidate, originally fair valued at $9.4 million on the date of acquisition, was impaired and wrote this asset’s carrying value down to $2.4 million collectively after those two assessments, incurring non-cash charges of $2.5 million and $4.5 million during 2017 and 2018, respectively. On September 30, 2018 and 2017, the Company evaluated its IPR&D of the ovarian cancer indication and concluded that it is not more likely than not that the asset is impaired. As no other indicators of impairment existed during the fourth quarter of 2018 and thus far in 2019, the Company concluded none of the other IPR&D assets were impaired at December 31, 2018 and June 30, 2019. The carrying amount of the ovarian cancer indication was $13.3 million at June 30, 2019 and December 31, 2018.

 

Covenants Not To Compete

 

Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed, during the period ending on the seventh anniversary of the closing date of the acquisition on June 20, 2014, not to enter into any business, directly or indirectly, which competes with the business of the Company nor will it contact, solicit or approach any of the employees of the Company for purposes of offering employment. The Covenant Not to Compete, which was valued at approximately $1.6 million at the date of the EGEN asset acquisition, has a definitive life and is amortized on a straight-line basis over its life of 7 years. The Company recognized amortization expense of $56,829 in each of the three-month periods ended June 30, 2019 and 2018. The Company recognized amortization expense of $113,658 in each of the six-month periods ended June 30, 2019 and 2018. The carrying value of the Covenant Not to Compete was $454,634, net of $1,136,580 in accumulated amortization expense, as of June 30, 2019. The carrying value of the Covenant Not to Compete was $568,929, net of $1,022,922 in accumulated amortization expense, as of December 31, 2018.

 

Following is a schedule of future amortization amounts during the remaining life of the Covenant Not to Compete.

 

  

Year Ended

June 30,

 
2020  $227,316 
2021   227,318 
2022 and thereafter   - 
Total  $454,634 

 

Goodwill

 

The purchase price exceeded the estimated fair value of the net assets acquired by approximately $2.0 million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of our third quarter ended September 30 or sooner if we believe indicators of impairment exist. As of September 30, 2018, we concluded that the Company’s fair value exceeded its carrying value therefore “it is not more likely than not” that the Goodwill was impaired. As no other indicators of impairment existed during the fourth quarter of 2018 and thus far in 2019, the Company concluded it is “not more likely than not” Goodwill was impaired.

 

18
 

 

Following is a summary of the net fair value of the assets acquired in the EGEN asset acquisition for the six-month period ended June 30, 2019:

 

   IPR&D   Goodwill   Covenant Not To Compete 
For the six-months ended June 30, 2019            
Balance at January 1, 2019, net  $15,736,491   $1,976,101   $568,292 
Amortization   -    -    (113,658)
Balance at June 30, 2019, net  $15,736,491   $1,976,101   $454,634 

 

Note 9. Accrued Liabilities

 

Other accrued liabilities at June 30, 2019 and December 31, 2018 include the following:

 

  

June 30, 2019

   December 31, 2018 
   (Unaudited)     

Amounts due to contract research organizations

and other contractual agreements

  $1,061,448   $749,369 
Accrued payroll and related benefits   1,004,120    1,592,590 
Accrued professional fees   304,504    198,654 
Other   19,410    45,285 
Total  $2,389,482   $2,585,898 

 

Note 10. Note Payable

 

Horizon Credit Agreement

 

On June 27, 2018, the Company entered into a loan agreement with Horizon Technology Finance Corporation (“Horizon”) that provided $10 million in new capital (the “Horizon Credit Agreement”). The Company drew down $10 million upon closing of the Horizon Credit Agreement on June 27, 2018. The Company will use the funding provided under the Horizon Credit Agreement for working capital and advancement of its product pipeline.

 

The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. The obligations will bear interest at a rate calculated based on one-month LIBOR plus 7.625%. The effective interest rate at December 31, 2018 was 9.98%. Payments under the loan agreement are interest only for the first twenty-four (24) months after loan closing, followed by a 24-month amortization period of principal and interest through the scheduled maturity date. At its option, the Company can prepay all the outstanding principal balance by prepaying the outstanding principal balance and an amount equal to 1-3% of the outstanding principal balance at that time, based on the amount of time prior to the maturity date of the notes.

 

The Horizon Credit Agreement contains customary representations, warranties and affirmative and negative covenants including, among other things, covenants that limit or restrict Celsion’s ability to grant liens, incur indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets. Upon the occurrence of an event of default under the Horizon Credit Agreement, the lenders may cease making loans, terminate the Horizon Credit Agreement, declare all amounts outstanding to be immediately due and payable and foreclose on or liquidate Celsion’s assets that comprise the lenders’ collateral. The Horizon Credit Agreement specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, a material adverse effect on Celsion or its assets, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

 

19
 

 

As a fee in connection with the Horizon Credit Agreement, Celsion issued Horizon warrants exercisable for a total of 190,114 shares of Celsion’s common stock (the “Horizon Warrants”) at a per share exercise price of $2.63. The Horizon Warrants are immediately exercisable for cash or by net exercise from the date of grant and will expire after ten years from the date of grant. Celsion registered the Horizon Warrants on Form S-3 (File No. 333 - 227236) filed with the Securities and Exchange Commission on September 7, 2018 and declared effective on October 10, 2018. The Company valued the Horizon Warrants issued using the Black-Scholes option pricing model and recorded a total of $507,116 as a direct deduction from the debt liability consistent with the presentation of a debt discount and are being amortized as interest expense using the effective interest method over the life of the loan.

 

In connection with the Horizon Credit Agreement, the Company incurred financing fees and expenses totaling $175,000 which are recorded and classified as debt discount. In addition, the Company paid loan origination fees of $100,000 which has been recorded and classified as debt discount. These debt discount amounts totaling $782,116 are being amortized as interest expense using the effective interest method over the life of the loan. Also, in connection with each of the Horizon Credit Agreements, the Company is required to pay an end of term charge equal to 4.0% of the original loan amount at time of maturity. Therefore, these amounts totaling $400,000 are being amortized as interest expense using the effective interest method over the life of the loan.

 

During the three-month period ending June 30, 2019, the Company incurred $255,182 in interest expense and amortized $94,266 as interest expense for debt discounts and end of term charges in connection with the Horizon Credit Agreement. During the six-month period ending June 30, 2019, the Company incurred $508,471 in interest expense and amortized $191,724 as interest expense for debt discounts and end of term charges in connection with the Horizon Credit Agreement. The Company incurred $10,794 in interest expense and amortized $4,237 as interest expense for debt discounts and end of term charges in connection with the Horizon Credit Agreement. during each of the three-month and six-month periods ending June 30, 2019,

 

Following is a schedule of future principal payments, net of unamortized debt discounts and amortized end of term charges, due on the Horizon Credit Agreement:

 

   As of June 30, 
2020  $- 
2021   4,583,333 
2022   5,000,000 
2023   416,667 
2024 and thereafter   - 
Subtotal of future principal payments   10,000,000 
Unamortized debt issuance costs, net   (391,239)
   $9,608,761 

 

Note 11. Stockholders’ Equity

 

In September 2018, the Company filed with the SEC a new $75 million shelf registration statement on Form S-3 (the “2018 Shelf Registration Statement”) (File No. 333-227236) that allows the Company to issue any combination of common stock, preferred stock or warrants to purchase common stock or preferred stock. This shelf registration was declared effective on October 12, 2018 and will expire three years from that date.

 

Aspire Purchase Agreement

 

On August 31, 2018, we entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $15.0 million of shares of the Company’s common stock over the 24-month term of the Aspire Purchase Agreement. On October 12, 2018, the Company filed with the SEC a prospectus supplement to the 2018 Shelf Registration Statement registering all the shares of common stock that may be offered to Aspire Capital from time to time.

 

20
 

 

Under the Aspire Purchase Agreement, on any trading day selected by the Company, the Company has the right, in its sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”), directing Aspire Capital (as principal) to purchase up to 100,000 shares of the Company’s common stock per business day, up to $15.0 million of the Company’s common stock in the aggregate at a per share price (the “Purchase Price”) equal to the lesser of:

 

  the lowest sale price of the Company’s common stock on the purchase date; or
  the arithmetic average of the three (3) lowest closing sale prices for the Company’s common stock during the ten (10) consecutive trading days ending on the trading day immediately preceding the purchase date.

 

The Company and Aspire Capital also may mutually agree to increase the number of shares that may be sold to as much as an additional 2,000,000 shares per business day.

 

In addition, on any date on which the Company submits a Purchase Notice to Aspire Capital in an amount equal to at least 100,000 shares, the Company also has the right, in its sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on its principal market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares the Company may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for the Company’s common stock traded on its principal market on the VWAP Purchase Date.

 

The Purchase Price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the period(s) used to compute the Purchase Price. The Company may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

 

There are no trading volume requirements or restrictions under the Aspire Purchase Agreement, and the Company will control the timing and amount of sales of the Company’s common stock to Aspire Capital. Aspire Capital has no right to require any sales by the Company but is obligated to make purchases from the Company as directed by the Company in accordance with the Aspire Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Aspire Purchase Agreement. In consideration for entering into the Aspire Purchase Agreement, concurrently with the execution of the Aspire Purchase Agreement, the Company issued to Aspire Capital 164,835 shares of the Company’s common stock (the “Commitment Shares”). The Company’s policy is to record specific incremental costs directly attributable to an offering as a charge against the gross proceeds, if any, when the offering becomes effective. These Commitment Shares valued at $450,000 were recorded in September 2018 as costs of equity financing and charged against additional paid-in capital. The Aspire Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost to the Company. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of the Company’s common stock during any time prior to the termination of the Aspire Purchase Agreement. Any proceeds from the Company receives under the Aspire Purchase Agreement are expected to be used for working capital and general corporate purposes. During 2018, the Company sold and issued an aggregate of 100,000 shares under the Aspire Purchase Agreement, receiving approximately $0.2 million. The Company sold and issued an aggregate of 1.9 million shares under the Aspire Purchase Agreement, receiving approximately $3.9 million during the first six months of 2019. Subsequent to June 30, 2019 and through August 13, 2019, the Company sold 300,000 shares under the Aspire Purchase Agreement, receiving approximately $0.5 million in additional gross proceeds. As of June 30, 2019, the Company has $10.5 million remaining under the Aspire Purchase Agreement.

 

Capital on DemandTM Sales Agreement

 

On December 4, 2018, the Company entered into a Capital on DemandTM Sales Agreement (the “Capital on Demand Agreement”) with JonesTrading Institutional Services LLC, as sales agent (“JonesTrading”), pursuant to which the Company may offer and sell, from time to time, through JonesTrading shares of common stock having an aggregate offering price of up to $16.0 million. The Company intends to use the net proceeds from the offering, if any, for general corporate purposes, including research and development activities, capital expenditures and working capital.

 

21
 

 

The Company is not obligated to sell any common stock under the Capital on Demand Agreement and, subject to the terms and conditions of the Capital on Demand Agreement, JonesTrading will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market, to sell common stock from time to time based upon the Company’s instructions, including any price, time or size limits or other customary parameters or conditions the Company may impose. Under the Capital on Demand Agreement, JonesTrading may sell common stock by any method deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

 

The Capital on Demand Agreement will terminate upon the earlier of (i) the sale of all shares of our common stock subject to the Sales Agreement, and (ii) the termination of the Capital on Demand Agreement by JonesTrading or Celsion. The Capital on Demand Agreement may be terminated by JonesTrading or the Company at any time upon 10 days’ notice to the other party, or by JonesTrading at any time in certain circumstances, including the occurrence of a material adverse change in the Company.

 

The Company will pay JonesTrading a commission of 3.0% of the aggregate gross proceeds from each sale of Common Stock and has agreed to provide JonesTrading with customary indemnification and contribution rights.

 

The Shares will be issued pursuant to the Company’s previously filed and effective Registration Statement on Form S-3 (File No. 333-227236), the base prospectus dated October 12, 2018, filed as part of such Registration Statement, and the prospectus supplement dated December 4, 2018, filed by Celsion with the Securities and Exchange Commission. The Company did not sell any shares under the Capital on Demand Agreement as of December 31, 2018. During the first six months of 2019, the Company sold and issued an aggregate of 259,961 shares under the Capital on Demand Agreement, receiving approximately $0.6 million in net proceeds. Subsequent to June 30, 2019 and through August 13, 2019, the Company sold approximately 85,000 shares under the Capital on Demand Agreement, receiving approximately $154,000 in additional net proceeds. As of June 30, 2019, the Company has $15.4 million remaining under the Capital on Demand Agreement.

 

Controlled Equity Offering

 

On February 1, 2013, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “ATM Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company could offer and sell, from time to time, through Cantor, shares of its common stock having an aggregate offering price of up to $25.0 million (the “ATM Shares”) pursuant to the registration statement on Form S-3 (File No. 333-183286). Under the ATM Agreement, Cantor may sell ATM Shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market, on any other existing trading market for the Company’s common stock or to or through a market maker. On October 10, 2018, the Company delivered notice to Cantor terminating the ATM effective as of October 20, 2018. The Company has no further obligations under the ATM Agreement. From February 1, 2013 through the date of the termination of the ATM Agreement, the Company sold and issued an aggregate of 1,784,396 shares of common stock under the ATM Agreement, receiving approximately $12.8 million in gross proceeds. During 2018 through the date of its termination in October 2018, the Company received approximately $1.2 million in proceeds from the sale of 457,070 shares of common stock under the ATM Agreement.

 

Note 12. Stock-Based Compensation

 

The Company has long-term compensation plans that permit the granting of equity based-awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, other stock awards, and performance awards.

 

At the 2018 Annual Stockholders Meeting of the Company held on May 15, 2018, stockholders approved the Celsion Corporation 2018 Stock Incentive Plan (the “2018 Plan”). The 2018 Plan, as adopted, permits the granting of 2,700,000 shares of Celsion common stock as equity awards in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, other stock awards, performance awards, or in any combination of the foregoing. At the 2019 Annual Stockholders Meeting of the Company held on May 14, 2019, stockholders approved an amendment to the 2018 Plan whereby the Company increased the number of common stock shares available by 1,200,000 to a total of 3,900,000 under the 2018 Plan, as amended. Prior to the adoption of the 2018 Plan, the Company had maintained the Celsion Corporation 2007 Stock Incentive Plan (the “2007 Plan”).

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The 2007 Plan permitted the granting of 688,531 shares of Celsion common stock as equity awards in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock, performance awards, or in any combination of the foregoing. The 2018 Plan replaced the 2007 Plan although the 2007 Plan remains in effect for awards previously granted under the 2007 Plan. Under the terms of the 2018 Plan, any shares subject to an award under the 2007 Plan which are not delivered because of the expiration, forfeiture, termination or cash settlement of the award will become available for grant under the 2018 Plan.

 

The Company has issued stock awards to employees and directors in the form of stock options and restricted stock. Options are generally granted with strike prices equal to the fair market value of a share of Celsion common stock on the date of grant. Incentive stock options may be granted to purchase shares of common stock at a price not less than 100% of the fair market value of the underlying shares on the date of grant, provided that the exercise price of any incentive stock option granted to an eligible employee owning more than 10% of the outstanding stock of Celsion must be at least 110% of such fair market value on the date of grant. Only officers and key employees may receive incentive stock options.

 

Option and restricted stock awards vest upon terms determined by the Compensation Committee of the Board of Directors and are subject to accelerated vesting in the event of a change of control or certain terminations of employment. The Company issues new shares to satisfy its obligations from the exercise of options or the grant of restricted stock awards.

 

On September 28, 2018, and again on February 19, 2019, the Compensation Committee of the Board of Directors approved the grant of (i) inducement stock options (the “Inducement Option Grants”) to purchase a total of 164,004 and 140,004 shares of Celsion common stock, respectively and (ii) inducement restricted stock awards (the “Inducement Stock Grants”) totaling 19,000 and 13,000 shares of Celsion common stock to five new employees collectively. Each award has a grant date of the date of grant. Each Inducement Option Grant has an exercise price per share equal to 2.77 and $2.18 which represents the closing price of Celsion’s common stock as reported by Nasdaq on September 28, 2018 and February 19, 2019, respectively. Each Inducement Option Grant will vest over three years, with one-third vesting on the one-year anniversary of the employee’s first day of employment with the Company and one-third vesting on the second and third anniversaries thereafter, subject to the new employee’s continued service relationship with the Company on each such date. Each Inducement Option Grant has a ten-year term and is subject to the terms and conditions of the applicable stock option agreement. Each of Inducement Stock Grant will vest on the one-year anniversary of the employee’s first day of employment with the Company and are subject to the new employee’s continued service relationship with the Company through such date and is subject to the terms and conditions of the applicable restricted stock agreement.

 

As of June 30, 2019, there was a total of 4,582,893 shares of Celsion common stock reserved for issuance under the 2018 Plan which were comprised of 3,710,386 shares of Celsion common stock subject to equity awards previously granted under the 2018 Plan and 2007 Plan and 872,507 shares of Celsion common stock available for future issuance under the 2018 Plan. As of June 30, 2019, there was a total of 259,506 of Celsion common stock subject to outstanding inducement awards.

 

Total compensation cost related to stock options and restricted stock awards amounted to $622,697 and $3,217,633 for the three-month periods ended June 30, 2019, and 2018, respectively. Of these amounts, $239,407 and $1,056,866 was charged to research and development during the three-month periods ended June 30, 2019 and 2018, respectively, and $383,290 and $2,160,767 was charged to general and administrative expenses during the three-month periods ended June 30, 2019 and 2018, respectively. Total compensation cost related to stock options and restricted stock awards amounted to $1,313,842 and $3,387,141 for the six-month periods ended June 30, 2019, and 2018, respectively. Of these amounts, $479,794 and $1,109,188 was charged to research and development during the six-month periods ended June 30, 2019 and 2018, respectively, and $834,048 and $2,277,953 was charged to general and administrative expenses during the six-month periods ended June 30, 2019 and 2018, respectively.

 

As of June 30, 2019, there was $2.3 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.5 years. The weighted average grant date fair values of the stock options granted during the six-month periods ended June 30, 2019 and 2018 was $1.88 and $2.23, respectively.

 

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A summary of stock option awards and restricted stock grants for the six-months ended June 30, 2019 is presented below:

 

   Stock Options   Restricted Stock Awards   Weighted
Average
 
   Options
Outstanding
  

Weighted

Average

Exercise

Price

   Non-vested
Restricted
Stock
Outstanding
  

Weighted

Average

Grant

Date

Fair Value

   Contractual
Terms of
Equity
Awards
(in years)
 
Equity awards outstanding at January 1, 2019   3,148,743   $2.67    22,500   $2.72      
                          
Equity awards granted   805,004   $2.16    15,500   $2.17      
                          
Vested and issued   -   $-    (10,500)  $2.49      
                          
Equity awards forfeited, cancelled or expired   (11,355)  $2.37    -   $-      
                          
Equity awards outstanding at June 30, 2019   3,942,392   $2.56    27,500   $2.30    8.9 
                          
Aggregate intrinsic value of outstanding equity awards at June 30, 2019  $-        $27,500           
                          
Equity awards exercisable at June 30, 2019   2,420,261   $2.77              8.7 
                          
Aggregate intrinsic value of equity awards exercisable at June 30, 2019  $50,050                     

 

The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model was originally developed for use in estimating the fair value of traded options, which have different characteristics from Celsion’s stock options. The model is also sensitive to changes in assumptions, which can materially affect the fair value estimate. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:

 

  

Six Months Ended

June 30,

 
   2019   2018 
Risk-free interest rate   2.42% - 2.65%   3.08%
Expected volatility   101.3 -106.2%   99.9 - 100.0%
Expected life (in years)   7.5 - 9.3    9.5-10.0 
Expected dividend yield   -%   -%

 

Expected volatilities utilized in the model are based on historical volatility of the Company’s stock price. The risk-free interest rate is derived from values assigned to U.S. Treasury bonds with terms that approximate the expected option lives in effect at the time of grant. Starting in 2017, the Company elected to account for any forfeitures when they occur.

 

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Note 13. Earn-out Milestone Liability

 

The total aggregate purchase price for the EGEN asset acquisition included potential future Earn-out Payments contingent upon achievement of certain milestones. The difference between the aggregate $30.4 million in future Earn-out Payments and the $13.9 million included in the fair value of the acquisition consideration at June 20, 2014 was based on the Company’s risk-adjusted assessment of each milestone (10% to 67%) and utilizing a discount rate based on the estimated time to achieve the milestone (1.5 to 2.5 years). The earn-out milestone liability will be fair valued at the end of each quarter and any change in their value will be recognized in the financial statements.

 

On March 28, 2019, the Company and EGWU, Inc, entered into the Amended Asset Purchase Agreement. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of $12.4 million has been modified. The Company has the option to make the payment as follows:

 

  a) $7.0 million in cash within 10 business days of achieving the milestone; or
     
  b) $12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone.

 

The Company provided EGWU, Inc. 200,000 warrants to purchase common stock at a strike price of $0.01 per warrant share as consideration for entering into this amended agreement. The warrant shares have no expiration and were fair valued at $2.00 using the closing price of a share of Celsion stock on the date of issuance offset by the exercise price and recorded as a non-cash expense in the income statement and were classified as equity on the balance sheet.

 

As of June 30, 2019, March 31, 2019 and December 31, 2018, the Company fair valued the earn-out milestone liability at $5.9 million, $5.8 million and $8.9 million, respectively and recognized a non-cash charge for the three month period ended June 30, 2019 and a non-cash benefit of $3.0 million for the six month period ended June 30, 2019. In assessing the earnout milestone liability at March 31, 2019 and June 30, 2019, the Company the fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 80% and 20% probability for the $7.0 million and the $12.4 million payments, respectively.

 

As of June 30, 2018, March 31, 2018, and December 31, 2017, the Company fair valued these milestones at $13.1 million, $12.8 million and $12.5 million, respectively, and recognized a non-cash charge of $270,195 and 547,324 during the three and six-month periods ended June 30, 2018, respectively, as a result of the change in the fair value of these milestones from December 31, 2017.

 

The following is a summary of the changes in the earn-out milestone liability for 2019:

 

Balance at January 1, 2019  $(8,907,664)
Non-cash gain from the adjustment for the change in fair value   3,002,939 
Balance at June 30, 2019  $(5,904,725)

 

The following is a schedule of the Company’s risk-adjustment assessment of each milestone:

 

Date  

Risk-adjustment Assessment

of achieving each Milestone

    Discount Rate    

Estimated Time

to Achieve

                 
June 30, 2019     80%       9%     0.75 to 1.75 years
March 31, 2019     80%       9%     1.00 to 2.00 years
December 31, 2018     80%       9%     1.25 years
                     
June 30, 2019     35% to 80%       9%     0.83 to 1.00 years
March 31, 2018     35% to 80%       9%     1.08 to 1.25 years
December 31, 2017     35% to 80%       9%     1.33 to 1.50 years

 

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Note 14. Warrants

 

Common Stock Warrants

 

Following is a summary of all warrant activity for the six months ended June 30, 2019:

 

Warrants 

Number of Warrants

Issued

  

Weighted

Average

Exercise Price

 
         
Warrants outstanding at December 31, 2018   1,593,162   $5.36 
Warrants issued during the six months ended June 30, 2019 (see Note 13)   200,000   $0.01 
Warrants expired during the six months ended June 30, 2019   (1,167,064)  $6.32 
           
Warrants outstanding at June 30, 2019   626,098   $1.87 
           
Aggregate intrinsic value of outstanding warrants at June 30, 2019  $362,000      

 

Schedule of weighted average remaining contractual terms at June 30, 2019 

Number of Warrants

Issued

  

Weighted

Average

Exercise Price

   Weighted Average Contractual Terms Remaining  
              
Warrants provided to EGWU, Inc (Note 13)   200,000   $0.01   No expiration  
                
All other warrants outstanding   426,098   $2.74   5.8 years  

 

Note 15. Leases

 

In July 2011, the Company executed a lease (the “Lease”) with Brandywine Operating Partnership, L.P. (Brandywine), a Delaware limited partnership for a 10,870 square foot premises located in Lawrenceville, New Jersey. In October 2011, the Company relocated its offices to Lawrenceville, New Jersey from Columbia, Maryland. The Lease had an initial term of 66 months. In late 2015, Lenox Drive Office Park LLC, purchased the real estate and office building and assumed the Lease. This Lease was set to expire on April 30, 2017. In April 2017, the Company and the landlord amended the Lease effective May 1, 2017. The 1st Lease Amendment extended the term of the agreement for an additional 64 months, reduced the premises to 7,565 square feet, reduced the monthly rent and provided four months free rent. The monthly rent ranged from approximately $18,900 in the first year to approximately $20,500 in the final year of the 1st Lease Amendment. The Company also had a one-time option to cancel the lease as of the 40th month after the commencement date of the 1st Lease Amendment and must provide the landlord notice by the 28th month of the lease. Effective January 9, 2019, the Company amended the current terms of the 1st Lease Amendment to increase the size of the premises by 2,285 square feet to 9,850 square feet and also extended the lease term by one year to September 1, 2023. In conjunction with this 2nd Lease Amendment, we agreed to modify our one-time option to cancel the lease as of the end of August 2021 and we must provide notice to the landlord by the end of August 2020. The monthly rent will range from approximately $25,035 in the first year to approximately $27,088 in the final year of the 2nd Lease Amendment.

 

In connection with the EGEN Asset Purchase Agreement in June 2014, the Company assumed the existing lease with another landlord for an 11,500 square foot premises located in Huntsville Alabama. In January 2018, the Company and the Huntsville landlord entered into a new 60-month lease which reduced the premises to 9,049 square feet with rent payments of approximately $18,100 per month.

 

26
 

 

As previously mentioned in Note 4, we adopted ASC Topic 842 on January 1, 2019 using the modified retrospective transition method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 840, Leases. The standard had a material impact on our Consolidated Condensed Balance Sheet but had no impact on our consolidated net earnings and cash flows. The most significant impact of adopting ASC Topic 842 was the recognition of the right-of-use (ROU) asset and lease liabilities for operating leases, which are presented in the following three-line items on the Consolidated Condensed Balance Sheet: (i) operating lease right-of-use asset; (ii) current operating lease liabilities; and (iii) operating lease liabilities. Therefore, on date of adoption of ASC Topic 842, the Company recognized a ROU asset of $1.4 million, operating lease liabilities, current and non-current collectively, of $1.5 million and reduced other liabilities by approximately $0.1 million. We elected the package of practical expedients for leases that commenced before the effective date of ASC Topic 842 whereby we elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with lease and non-lease components, and we have elected the practical expedient for all underlying asset classes and account for them as a single lease component. We have no finance leases. We determine if an arrangement is a lease at inception. We have operating leases for office space and research and development facilities. Neither of our leases include options to renew, however, one contains an option for early termination. We considered the option of early termination in measurement of right-of-use assets and lease liabilities and we determined it is not reasonably certain to be terminated. In connection with the 2nd Lease Amendment for the New Jersey office lease in January 2019, the Company considered this as one modified lease and not as two separate leases. Therefore, in January 2019, the Company determined this lease was an operating lease and remeasured the ROU asset and lease liability. Therefore, the Company increased the ROU asset and operating lease liabilities by $0.4 million to $1.8 million and $1.9 million, respectively.

 

Following is a table of the lease payments and maturity of our operating lease liabilities as of June 30, 2019:

 

   For the year ending December 31, 
Remainder of 2019  $261,263 
2020   525,809 
2021   530,734 
2022   535,579 
2023   233,117 
2024 and thereafter   - 
Subtotal future lease payments   2,086,502 
Less imputed interest   (376,736)
Total lease liabilities  $1,709,766 
      
Weighted average remaining life   3.95 years 
      
Weighted average discount rate   9.98%

 

For the three-month and six-month periods ended June 30, 2019, operating lease cost was $130,595 and $261,190, respectively. During the three-month and six-month periods ended June 30, 2019, cash paid for operating leases included in operating cash flows was $118,415 and 224,585, respectively. For the three-month and six-month periods ended June 30, 2018, operating lease cost was $109,554 and 224,553 respectively. During the three-month and six-month periods ended June 30, 2018, cash paid for operating leases included in operating cash flows was $111,662 and $228,138, respectively.

 

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Note 16. Technology Development and Licensing Agreements

 

On May 7, 2012, the Company entered into a long-term commercial supply agreement with Zhejiang Hisun Pharmaceutical Co. Ltd. (Hisun) for the production of ThermoDox® in the China territory. In accordance with the terms of the agreement, Hisun will be responsible for providing all of the technical and regulatory support services, including the costs of all technical transfer, registration and bioequivalence studies, technical transfer costs, Celsion consultative support costs and the purchase of any necessary equipment and additional facility costs necessary to support capacity requirements for the manufacture of ThermoDox®. Celsion will repay Hisun for the aggregate amount of these development costs and fees commencing on the successful completion of three registration batches of ThermoDox®. Hisun is also obligated to certain performance requirements under the agreement. The agreement will initially be limited to a percentage of the production requirements of ThermoDox® in the China territory with Hisun retaining an option for additional global supply after local regulatory approval in the China territory. In addition, Hisun will collaborate with Celsion around the regulatory approval activities for ThermoDox® with the China State Food and Drug Administration (CHINA FDA). During the first quarter of 2015, Hisun completed the successful manufacture of three registration batches of ThermoDox®.

 

On January 18, 2013, we entered into a technology development contract with Hisun, pursuant to which Hisun paid us a non-refundable research and development fee of $5 million to support our development of ThermoDox® in mainland China, Hong Kong and Macau (the China territory). Following our announcement on January 31, 2013 that the HEAT study failed to meet its primary endpoint, Celsion and Hisun have agreed that the Technology Development Contract entered into on January 18, 2013 will remain in effect while the parties continue to collaborate and are evaluating the next steps in relation to ThermoDox® , which include the sub-group analysis of patients in the Phase III HEAT Study for the hepatocellular carcinoma clinical indication and other activities to further the development of ThermoDox® for the Greater China market. The $5.0 million received as a non-refundable payment from Hisun in the first quarter 2013 has been recorded to deferred revenue and will continue to be amortized over the 10 -year term of the agreement, until such time as the parties find a mutually acceptable path forward on the development of ThermoDox® based on findings of the ongoing post-study analysis of the HEAT Study data.

 

On July 19, 2013, the Company and Hisun entered into a Memorandum of Understanding to pursue ongoing cooperation for the continued clinical development of ThermoDox® as well as the technology transfer relating to the commercial manufacture of ThermoDox® for the China territory. This expanded level of cooperation includes development of the next generation liposomal formulation with the goal of creating safer, more efficacious versions of marketed cancer chemotherapeutics.

 

Among the key provisions of the Celsion-Hisun Memorandum of Understanding are:

 

  Hisun will provide the Company with internal resources necessary to complete the technology transfer of the Company’s proprietary manufacturing process and the production of registration batches for the China territory;
     
  Hisun will coordinate with the Company around the clinical and regulatory approval activities for ThermoDox® as well as other liposomal formations with the CHINA FDA; and
     
  Hisun will be granted a right of first offer for a commercial license to ThermoDox® for the sale and distribution of ThermoDox® in the China territory.

 

On August 8, 2016, we signed a Technology Transfer, Manufacturing and Commercial Supply Agreement (“GEN-1 Agreement”) with Hisun to pursue an expanded partnership for the technology transfer relating to the clinical and commercial manufacture and supply of GEN- 1, Celsion’s proprietary gene mediated, IL- 12 immunotherapy, for the greater China territory, with the option to expand into other countries in the rest of the world after all necessary regulatory approvals are in effect. The GEN- 1 Agreement will help to support supply for both ongoing and planned clinical studies in the U.S., and for potential future studies of GEN- 1 in China. GEN- 1 is currently being evaluated by Celsion in first line ovarian cancer patients.

 

Key provisions of the GEN-1 Agreement are as follows:

 

  the GEN-1 Agreement has targeted unit costs for clinical supplies of GEN-1 that are substantially competitive with the Company’s current suppliers;
     
  once approved, the cost structure for GEN-1 will support rapid market adoption and significant gross margins across global markets;
     
  Celsion will provide Hisun a certain percentage of China’s commercial unit demand, and separately of global commercial unit demand, subject to regulatory approval;
     
  Hisun and Celsion will commence technology transfer activities relating to the manufacture of GEN-1, including all studies required by CHINA FDA for site approval; and
     
  Hisun will collaborate with Celsion around the regulatory approval activities for GEN-1 with the CHINA FDA. A local China partner affords Celsion access to accelerated CHINA FDA review and potential regulatory exclusivity for the approved indication.

 

The Company evaluated the Hisun arrangement in accordance with ASC 606 and determined that its performance obligations under the agreement include the non-exclusive, royalty-free license, research and development services to be provided by the Company, and its obligation to serve on a joint committee. The Company concluded that the license was not distinct since its value is closely tied to the ongoing research and development activities. As such, the license and the research and development services are be bundled as a single performance obligation. Since the provision of the license and research and development services are considered a single performance obligation, the $5,000,000 upfront payment is being recognized as revenue ratably through 2022.

 

28
 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements

 

Statements and terms such as “expect”, “anticipate”, “estimate”, “plan”, “believe” and words of similar import regarding our expectations as to the development and effectiveness of our technologies, the potential demand for our products, and other aspects of our present and future business operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our industry, business and operations, we cannot guarantee that actual results will not differ materially from our expectations. In evaluating such forward-looking statements, readers should specifically consider the various factors contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on March 29, 2019, which factors include, without limitation, plans and objectives of management for future operations or programs or proposed new products or services; changes in the course of research and development activities and in clinical trials; possible changes in cost and timing of development and testing; possible changes in capital structure, financial condition, working capital needs and other financial items; changes in approaches to medical treatment; clinical trial analysis and future plans relating thereto; our ability to realize the full extent of the anticipated benefits of our acquisition of substantially all of the assets of EGEN, Inc., including achieving operational cost savings and synergies in light of any delays we may encounter in the integration process and additional unforeseen expenses; introduction of new products by others; possible licenses or acquisitions of other technologies, assets or businesses; and possible actions by customers, suppliers, partners, competitors and regulatory authorities. These and other risks and uncertainties could cause actual results to differ materially from those indicated by forward-looking statements.

 

The discussion of risks and uncertainties set forth in this Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K, as well as in other filings with the SEC, is not a complete or exhaustive list of all risks facing the Company at any particular point in time. We operate in a highly competitive, highly regulated and rapidly changing environment and our business is constantly evolving. Therefore, it is likely that new risks will emerge, and that the nature and elements of existing risks will change, over time. It is not possible for management to predict all such risk factors or changes therein, or to assess either the impact of all such risk factors on our business or the extent to which any individual risk factor, combination of factors, or new or altered factors, may cause results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.

 

Strategic and Clinical Overview

 

Celsion is a fully-integrated development clinical stage oncology drug company focused on advancing innovative cancer treatments, including directed chemotherapies, DNA-mediated immunotherapy and RNA based therapies. Our lead product candidate is ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in a Phase III clinical trial for the treatment of primary liver cancer (the “OPTIMA Study”). Second in our pipeline is GEN-1, a DNA-mediated immunotherapy for the localized treatment of ovarian cancer. These investigational products are based on technologies that provide the platform for the future development of a range of therapeutics for difficult-to-treat forms of cancer. The first technology is Lysolipid Thermally Sensitive Liposomes, a heat sensitive liposomal based dosage form that targets disease with known chemotherapeutics in the presence of mild heat. The second technology is TheraPlas, a novel nucleic acid-based treatment for local transfection of therapeutic DNA plasmids. With these technologies we are working to develop and commercialize more efficient, effective and targeted oncology therapies that maximize efficacy while minimizing side effects common to cancer treatments.

 

ThermoDox®

 

ThermoDox® is being evaluated in a Phase III clinical trial for primary liver cancer, which we call the OPTIMA Study, which was initiated in 2014. ThermoDox® is a liposomal encapsulation of doxorubicin, an approved and frequently used oncology drug for the treatment of a wide range of cancers. Localized heat at hyperthermia temperatures (greater than 40° Celsius) releases the encapsulated doxorubicin from the liposome enabling high concentrations of doxorubicin to be deposited preferentially in and around the targeted tumor.

 

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The OPTIMA Study. The OPTIMA Study represents an evaluation of ThermoDox® in combination with a first line therapy, RFA, for newly diagnosed, intermediate stage HCC patients. HCC incidence globally is approximately 755,000 new cases per year and is the third largest cancer indication globally. Approximately 30% of newly diagnosed patients can be addressed with RFA.

 

On February 24, 2014, we announced that the United States Food and Drug Administration (the “FDA”) provided clearance for the OPTIMA Study, which is a pivotal, double-blind, placebo-controlled Phase III trial of ThermoDox®, in combination with standardized RFA, for the treatment of primary liver cancer. The trial design of the OPTIMA Study is based on the comprehensive analysis of data from an earlier clinical trial called the HEAT Study (the “HEAT Study”). The OPTIMA Study is supported by a hypothesis developed from an overall survival analysis of a large subgroup of patients from the HEAT Study.

 

The OPTIMA Study was designed with extensive input from globally recognized HCC researchers and expert clinicians and after receiving formal written feedback from the FDA. The OPTIMA Study was designed to enroll up to 550 patients globally at approximately 65 clinical sites in the U.S., Canada, European Union (EU), China and other countries in the Asia-Pacific region and will evaluate ThermoDox® in combination with standardized RFA, which will require a minimum of 45 minutes across all investigators and clinical sites for treating lesions three to seven centimeters, versus standardized RFA alone. The primary endpoint for this clinical trial is overall survival (“OS”), and the secondary endpoints are progression free survival and safety. The statistical plan calls for two interim efficacy analyses by an independent Data Monitoring Committee (“DMC”).

 

Post-hoc data analysis from our earlier Phase III HEAT Study suggest that ThermoDox® may substantially improve OS, when compared to the control group, in patients if their lesions undergo a 45-minute RFA procedure standardized for a lesion greater than 3 cm in diameter. Data from nine OS sweeps have been conducted since the top line progression free survival (“PFS”) data from the HEAT Study were announced in January 2013, with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical significance. On August 15, 2016, we announced updated results from its final retrospective OS analysis of the data from the HEAT Study. These results demonstrated that in a large, well bounded, subgroup of patients with a single lesion (n=285, 41% of the HEAT Study patients), treatment with a combination of ThermoDox® and optimized RFA provided an average 54% risk improvement in OS compared to optimized RFA alone. The Hazard Ratio (“HR”) at this analysis is 0.65 (95% CI 0.45 - 0.94) with a p-value of 0.02. Median OS for the ThermoDox® group has been reached which translates into a two-year survival benefit over the optimized RFA group (projected to be greater than 80 months for the ThermoDox® plus optimized RFA group compared to less than 60 months projection for the optimized RFA only group).

 

While this information should be viewed with caution since it is based on a retrospective analysis of a subgroup, we also conducted additional analyses that further strengthen the evidence for the HEAT Study subgroup. We commissioned an independent computational model at the University of South Carolina Medical School. The results unequivocally indicate that longer RFA heating times correlate with significant increases in doxorubicin concentration around the RFA treated tissue. In addition, we conducted a prospective preclinical study in 22 pigs using two different manufacturers of RFA and human equivalent doses of ThermoDox® that clearly support the relationship between increased heating duration and doxorubicin concentrations.

 

We completed enrollment of 556 patients in the Phase III OPTIMA Study in August 2018. Data for the study will be reviewed as it matures up to two interim analyses expected to be conducted in the second half of 2019 and in the first half of 2020. We expect that the final efficacy analysis, if necessary, will be completed in the first half of 2021. If the study proves to provide a clinically meaningful improvement in overall survival, Celsion will immediately apply for marketing authorization in the US, Europe and China. ThermoDox® has received U.S. FDA Fast Track Designation and has been granted orphan drug designation for primary liver cancer in both the U.S. and the EU. Additionally, the U.S. FDA has provided ThermoDox® with a 505(b)(2) registration pathway. Subject to a successful trial, the OPTIMA Study has been designed to support registration in all key primary liver cancer markets. We fully expect to submit registrational applications in the U.S., Europe and China. We expect to submit and believes that applications will be accepted in South Korea, Taiwan and Vietnam, three other significant markets for ThermoDox® if it were to receive approval in Europe, China or the U.S.

 

On December 18, 2018, we announced that the DMC for the OPTIMA Study completed its last scheduled review of all patients enrolled in the trial and unanimously recommended that the OPTIMA Study continue according to protocol to its final data readout. The DMC’s recommendation was based on the Committee’s assessment of safety and data integrity of all patients randomized in the trial as of October 4, 2018. The DMC reviewed study data at regular intervals throughout the patient enrollment period, with the primary responsibilities of ensuring the safety of all patients enrolled in the study, the quality of the data collected, and the continued scientific validity of the study design. As part of its review of all 556 patients enrolled into the trial, the DMC evaluated a quality matrix relating to the total clinical data set, confirming the timely collection of data, that all data are current as well as other data collection and quality criteria.

 

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On August 5, 2019, the Company announced that the prescribed number of events has been reached for the first prespecified interim analysis of the OPTIMA Phase III Study with ThermoDox® plus RFA in patients with HCC, or primary liver cancer. Following preparation of the data, the first interim analysis will be conducted by the Independent Data Monitoring Committee (iDMC). The Company expects the iDMC meeting to occur by mid-October. This timeline is consistent with the Company’s stated expectations and is necessary to provide a full and comprehensive data set that may represent the potential for a successful trial outcome. Celsion expects to announce iDMC recommendations as soon as possible after the meeting. In accordance with the statistical plan, this initial interim analysis has a target of 118 events, or 60% of the total number required for the final analysis. At the time of the data cutoff, the Company received reports of 128 events. The hazard ratio for success at 128 events is approximately 0.63, which represents a 37% reduction in the risk of death compared with RFA alone and is consistent with the 0.65 hazard ratio that was observed in the prospective HEAT Study subgroup, which demonstrated a two-year overall survival advantage and a median time to death of more than seven and a half years.

 

On August 13, 2019, the Company announced that results from an independent analysis of the Company’s ThermoDox® HEAT Study conducted by the National Institutes of Health (NIH) were published in the peer-reviewed publication, Journal of Vascular and Interventional Radiology. The analysis was conducted by the intramural research program of the NIH and the NIH Center for Interventional Oncology (CIO), with the full data set from the Company’s HEAT Study. The analysis evaluated the full data set to determine if there was a correlation between baseline tumor volume and radiofrequency ablation (RFA) heating time (minutes/tumor volume in milliliters), with or without ThermoDox® treatment, for patients with HCC. The NIH analysis was conducted under the direction of Dr. Bradford Wood, MD, Director, NIH Center for Interventional Oncology and Chief, NIH Clinical Center Interventional Radiology.

 

The article titled, “RFA Duration Per Tumor Volume May Correlate With Overall Survival in Solitary Hepatocellular Carcinoma Patients Treated With RFA Plus Lyso-thermosensitive Liposomal Doxorubicin,” discussed the NIH analysis of results from 437 patients in the HEAT Study (all patients with a single lesion representing 62.4% of the study population). The key finding was that increased RFA heating time per tumor volume significantly improved overall survival (OS) in patients with single-lesion HCC who were treated with RFA plus ThermoDox®, compared to patients treated with RFA alone. A one-unit increase in RFA duration per tumor volume was shown to result in about a 20% improvement in OS for patients administered ThermoDox®, compared to RFA alone. The authors conclude that increasing RFA heating time in combination with ThermoDox® significantly improves OS and establishes an improvement of over two years versus the control arm when the heating time per milliliter of tumor is greater than 2.5 minutes. This finding is consistent with the Company’s own results, which defined the optimized RFA procedure as a 45-minute treatment for tumors with a diameter of 3 centimeters. Thus, the NIH analysis lends support to the hypothesis underpinning the OPTIMA Study. 

 

The HEAT Study. On January 31, 2013, the Company announced that the HEAT Study, ThermoDox® in combination with RFA, did not meet the primary endpoint, PFS, in the Phase III clinical trial enrolling 701 patients with primary liver cancer. This determination was made after conferring with the HEAT Study independent DMC, that the HEAT Study did not meet the goal of demonstrating a clinically meaningful improvement in progression free survival. In the trial, ThermoDox® was well-tolerated with no unexpected serious adverse events. Following the announcement of the HEAT Study results, we continued to follow patients for OS, the secondary endpoint of the HEAT Study. We have conducted a comprehensive analysis of the data from the HEAT Study to assess the future strategic value and development strategy for ThermoDox®.

 

Acquisition of EGEN Assets

 

On June 20, 2014, we completed the acquisition of substantially all of the assets of EGEN, which has changed its company name to EGWU, Inc. after the closing of the acquisition (“EGEN”), pursuant to an Asset Purchase Agreement dated as of June 6, 2014, by and between EGEN and Celsion (the “Asset Purchase Agreement”). We acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.

 

At the time of the acquisition, the total purchase price for the asset acquisition was up to $44.4 million, including potential future earnout payments of up to $30.4 million contingent upon achievement of certain earnout milestones set forth in the Asset Purchase Agreement. We paid approximately $3.0 million in cash after the expense adjustment and issued 241,590 shares of our common stock to EGEN. The shares of common stock were issued in a private transaction exempt from registration under the Securities Act, pursuant to Section 4 (2) thereof.

 

On March 28, 2019, the Company entered into an amendment to the Asset Purchase Agreement discussed in Note 8 (the “Amended Asset Purchase Agreement”) with EGWU, Inc. Pursuant to the Amended Asset Purchase Agreement, payment of the earnout milestone liability related to the Ovarian Cancer Indication of $12.4 million has been modified. The Company has the option to make the payment as follows:

 

  a) $7.0 million in cash within 10 business days of achieving the milestone; or
     
  b) $12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone.

 

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The Company provided EGWU, Inc. 200,000 warrants to purchase common stock at a strike price of $0.01 per warrant share as consideration for entering into this amended agreement. The warrant shares have no expiration and were fair valued at $2.00 using the closing price of a share of Celsion stock on the date of issuance offset by the exercise price and recorded as a non-cash expense in the income statement and were classified as equity on the balance sheet.

 

Acquired In-process Research and Development

 

Acquired in-process research and development (IPR&D) consists of EGEN’s drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be $24.2 million as of the acquisition date. As of the closing of the acquisition, the IPR&D was considered indefinite-lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. On December 31, 2016, the Company determined one of its IPR&D assets related to its RNA delivery system was impaired and wrote off its fair value, incurring a non-cash charge of $1.4 million during 2016. During its annual assessments on September 30, 2017 and 2018, the Company determined its IPR&D asset related to its glioblastoma multiforme cancer (GBM) product candidate, originally fair valued at $9.4 million on the date of acquisition, was impaired and wrote this asset’s carrying value down to $2.4 million collectively after those two assessments, incurring non-cash charges of $2.5 million and $4.5 million during 2017 and 2018, respectively. At September 30, 2018 and 2017, the Company evaluated its IPR&D of the ovarian cancer indication and concluded that it is not more likely than not that the asset is impaired. As no other indicators of impairment existed during the fourth quarter of 2018 and thus far in 2019, the Company concluded none of the other IPR&D assets were impaired at December 31, 2018 and June 30, 2019. The carrying amount of the ovarian cancer indication was $13.3 million at June 30, 2019 and December 31, 2018.

 

Covenants Not To Compete

 

Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed, during the period ending on the seventh anniversary of the closing date of the acquisition on June 20, 2014, not to enter into any business, directly or indirectly, which competes with the business of the Company nor will it contact, solicit or approach any of the employees of the Company for purposes of offering employment. The Covenant Not to Compete, which was valued at approximately $1.6 million at the date of the EGEN asset acquisition, has a definitive life and is amortized on a straight-line basis over its life of 7 years. The Company recognized amortization expense of $56,829 in each of the three-month periods ended June 30, 2019 and 2018. The Company recognized amortization expense of $113,658 in each of the six-month periods ended June 30, 2019 and 2018. The carrying value of the Covenant Not to Compete was $454,634, net of $1,136,580, as of June 30, 2019. The carrying value of the Covenant Not to Compete was $568,929, net of $1,022,922 in accumulated amortization expense, as of December 31, 2018.

 

Goodwill

 

The purchase price exceeded the estimated fair value of the net assets acquired by approximately $2.0 million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of our third quarter ending on September 30 or sooner if we believe indicators of impairment exist. As of September 30, 2018, we concluded that the Company’s fair value exceeded its carrying value therefore “it is not more likely than not” that the Goodwill was impaired. As no other indicators of impairment existed during the fourth quarter of 2018 and thus far in 2019, the Company concluded it is “not more likely than not” Goodwill was impaired.

 

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GEN-1

 

GEN-1 is a DNA-based immunotherapeutic product candidate for the localized treatment of ovarian cancer by intraperitoneally administering an Interleukin-12 (“IL-12”) plasmid formulated with our proprietary TheraPlas delivery system. In this DNA-based approach, the immunotherapy is combined with a standard chemotherapy drug, which can potentially achieve better clinical outcomes than with chemotherapy alone. We believe that increases in IL-12 concentrations at tumor sites for several days after a single administration could create a potent immune environment against tumor activity and that a direct killing of the tumor with concomitant use of cytotoxic chemotherapy could result in a more robust and durable antitumor response than chemotherapy alone. We believe the rationale for local therapy with GEN-1 is based on the following.

 

  Loco-regional production of the potent cytokine IL-12 avoids toxicities and poor pharmacokinetics associated with systemic delivery of recombinant IL-12;
     
  Persistent local delivery of IL-12 lasts up to one week and dosing can be repeated; and
     
  Ideal for long-term maintenance therapy.

 

OVATION Study

 

In February 2015, we announced that the FDA accepted, without objection, the Phase Ib dose-escalation clinical trial of GEN-1 in combination with the standard of care in neo-adjuvant ovarian cancer (the “OVATION Study”). On September 30, 2015, we announced enrollment of the first patient in the OVATION Study. The OVATION Study was designed (i) to identify a safe, tolerable and potentially therapeutically active dose of GEN-1 by recruiting and maximizing an immune response and (ii) to enroll three to six patients per dose level to evaluate safety and efficacy and attempt to define an optimal dose for a follow-on Phase II study. In addition, the OVATION Study establishes a unique opportunity to assess how cytokine-based compounds such as GEN-1 directly affect ovarian cancer cells and the tumor microenvironment in newly diagnosed patients. The study was designed to characterize the nature of the immune response triggered by GEN-1 at various levels of the patients’ immune system, including:

 

We initiated the OVATION Study at four clinical sites at the University of Alabama at Birmingham, Oklahoma University Medical Center, Washington University in St. Louis and the Medical College of Wisconsin. During 2016 and 2017, we announced data from the first fourteen patients in the OVATION Study who completed treatment. On October 3, 2017 and again on March 2, 2109, we announced final clinical and translational research data from the OVATION Study, a Phase Ib dose escalating clinical trial combining GEN-1 with the standard of care for the treatment of newly-diagnosed patients with advanced Stage III/IV ovarian cancer who will undergo neoadjuvant chemotherapy followed by interval debulking surgery.

 

The Company reported positive clinical data from the first fourteen patients who have completed treatment in the OVATION Study. GEN-1 plus standard chemotherapy produced positive clinical results, with no dose limiting toxicities and positive dose dependent efficacy signals which correlate well with positive surgical outcomes. The OVATION Study evaluated escalating doses of GEN-1 (36 mg/m2, 47 mg/m2, 61 mg/m2 and 79 mg/m2) administered intraperitoneally in combination with three cycles of neoadjuvant chemotherapy prior to interval debulking surgery, followed by three cycles of NAC in the treatment of newly diagnosed patients with Stage III/IV ovarian cancer.

 

In this Phase IB dose-escalation study, the 14 patients who were evaluable for response demonstrated median PFS of 21 months in patients treated per protocol and 17.1 months for the intent-to-treat population (n=18) for all dose cohorts, including three patients who dropped out of the study after 13 days or less, and two patients who did not receive full NAC and GEN-1 cycles. In addition, 100% of patients administered NAC plus the two higher doses of GEN-1 experienced an objective tumor response (defined as a partial or complete response) compared to only 60% of patients given the two lower doses. Pathological changes were assessed as part of the study, with the density of markers measured in tissue sections assessed via immunohistochemistry staining. Dose-limiting toxicity was not reached in the OVATION I Study.

 

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OVATION 2 Study

 

On November 13, 2017, the Company filed its Phase I/II clinical trial protocol with the U.S. Food and Drug Administration for GEN-1 for the localized treatment of ovarian cancer. The protocol is designed with a single dose escalation phase to 100 mg/m² to identify a safe and tolerable dose of GEN-1 while maximizing an immune response. The Phase I portion of the study will be followed by a continuation at the selected dose in 130 patient randomized Phase II study. The study protocol is summarized below:

 

  Open label, 1:1 randomized design
     
  Enrollment up to 130 patients with Stage III/IV ovarian cancer patients at ten U.S. centers
     
  Primary endpoint of improvement in progression-free survival (PFS) comparing GEN-1 with neoadjuvant chemotherapy versus neoadjuvant chemotherapy alone.

 

Because of the risks and uncertainties discussed in this Annual Report on Form 10-K, among others, we are unable to estimate the duration and completion costs of our research and development projects or when, if ever, and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete any of our research and development activities, preclinical studies or clinical trials in a timely manner or our failure to enter into collaborative agreements when appropriate could significantly increase our capital requirements and could adversely impact our liquidity. While our estimated future capital requirements are uncertain and could increase or decrease as a result of many factors, including the extent to which we choose to advance our research, development activities, preclinical studies and clinical trials, or if we are in a position to pursue manufacturing or commercialization activities, we will need significant additional capital to develop our product candidates through development and clinical trials, obtain regulatory approvals and manufacture and commercialize approved products, if any. We do not know whether we will be able to access additional capital when needed or on terms favorable to us or our stockholders. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

 

TheraPlas Technology Platform. TheraPlas is a technology platform for the delivery of DNA and messenger RNA (“mRNA”) therapeutics via synthetic non-viral carriers and is capable of providing cell transfection for double-stranded DNA plasmids and large therapeutic RNA segments such as mRNA. There are two components of the TheraPlas system, a plasmid DNA or mRNA payload encoding a therapeutic protein and a delivery system. The delivery system is designed to protect the DNA/RNA from degradation and promote trafficking into cells and through intracellular compartments. We designed the delivery system of TheraPlas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity. We believe TheraPlas is a viable alternative to current approaches to gene delivery due to several distinguishing characteristics, including enhanced molecular versatility that allows for complex modifications to improve activity and safety.

 

Technology Development and Licensing Agreements. Our current efforts and resources are applied on the development and commercialization of cancer drugs including tumor-targeting chemotherapy treatments using focused heat energy in combination with heat-activated drug delivery systems, immunotherapies and RNA-based therapies.

 

On August 8, 2016, we signed the GEN-1 Agreement with Hisun to pursue an expanded partnership for the technology transfer relating to the clinical and commercial manufacture and supply of GEN-1, Celsion’s proprietary gene mediated, IL-12 immunotherapy, for the China territory, with the option to expand into other countries in the rest of the world after all necessary regulatory approvals are obtained. The GEN-1 Agreement will help to support supply for both ongoing and planned clinical studies in the U.S. and for potential future studies of GEN-1 in China. GEN-1 is currently being evaluated by Celsion in first line ovarian cancer patients.

 

In June 2012, Celsion and Hisun signed a long-term commercial supply agreement for the production of ThermoDox®. Hisun is one the largest manufacturers of chemotherapy agents globally, including doxorubicin. In July 2013, the ThermoDox® collaboration was expanded to focus on next generation liposomal formulation development with the goal of creating safer, more efficacious versions of marketed cancer chemotherapeutics. During 2015, Hisun successfully completed the manufacture of three registration batches for ThermoDox® and has obtained regulatory approvals to supply ThermoDox® to participating clinical trial sites in all of the countries of South East Asia and North America, as well as to the European Union countries allowing for early access to ThermoDox®. The future manufacturing of clinical and commercial supplies by Hisun will result in a cost structure allowing Celsion to profitably access all global markets, including third world countries, and help accelerate the Company’s product development program in China for ThermoDox® in primary liver cancer and other approved indications.

 

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Business Plan

 

As a clinical stage biopharmaceutical company, our business and our ability to execute our strategy to achieve our corporate goals are subject to numerous risks and uncertainties. Material risks and uncertainties relating to our business and our industry are described in “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.

 

Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs, clinical trials conducted in connection with the Company’s product candidates, and applications and submissions to the FDA. We have not generated significant revenue and have incurred significant net losses in each year since our inception. As of June 30, 2019, we have incurred approximately $282 million of cumulative net losses. As of June 30, 2019, we had approximately $21.8 million in cash, investment securities and interest receivable. We have substantial future capital requirements to continue our research and development activities and advance our product candidates through various development stages. The Company believes these expenditures are essential for the commercialization of its technologies.

 

The Company expects its operating losses to continue for the foreseeable future as it continues its product development efforts and when it undertakes marketing and sales activities. The Company’s ability to achieve profitability is dependent upon its ability to obtain governmental approvals, produce, and market and sell its new product candidates. There can be no assurance that the Company will be able to commercialize its technology successfully or that profitability will ever be achieved. The operating results of the Company have fluctuated significantly in the past. We have substantial future capital requirements associated with our continued research and development activities and to advance our product candidates through various stages of development. The Company believes these expenditures are essential for the commercialization of its technologies.

 

The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’s control. These factors include the following:

 

  the progress of research activities;
     
  the number and scope of research programs;
     
  the progress of preclinical and clinical development activities;
     
  the progress of the development efforts of parties with whom the Company has entered into research and development agreements;
     
  the costs associated with additional clinical trials of product candidates;
     
  the ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
     
  the ability to achieve milestones under licensing arrangements;
     
  the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
     
  the costs and timing of regulatory approvals.

 

The Company has based its estimate on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt and other sources. If the Company raises funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of existing stockholders may be diluted.

 

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With $21.8 million in cash, investment securities and interest receivable at June 30, 2019 coupled with future sales of the Company’s New Jersey NOL’s and, as more fully described in Note 11, the remaining availability under the Capitol on Demand™ with JonesTrading Institutional Services LLC and the common stock purchase agreement with Aspire Capital Fund LLC, the Company believes it has sufficient capital resources to fund its operations into the first quarter of 2021. The Company will be required to obtain additional funding to continue development of its current product candidates within the anticipated time periods, if at all, and to continue to fund operations.

 

Financing Overview

 

Equity and Debt Financings

 

During 2018 and thus far in 2019, we entered into a $10 million loan facility and we issued a total of 3.7 million shares of common stock in the following equity transactions for an aggregate $5.5 million in gross proceeds.

 

  On June 27, 2018, the Company entered into the Horizon Credit Agreement with Horizon that provided $10 million in new capital. The Company drew down $10 million upon closing of the Horizon Credit Agreement on June 27, 2018. The Company anticipates that it will use the funding provided under the Horizon Credit Agreement for working capital and advancement of its product pipeline. The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. The obligations will bear interest at a rate calculated based on one-month LIBOR plus 7.625%. Payments under the loan agreement are interest only for the first twenty-four (24) months after loan closing, followed by a 24-month amortization period of principal and interest through the scheduled maturity date.
     
  On August 31, 2018, the Company entered into the Aspire Purchase Agreement with Aspire Capital Fund which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $15.0 million of shares of the Company’s common stock over the 24-month term of the Aspire Purchase Agreement. On October 12, 2018, the Company filed with the SEC a prospectus supplement to the 2018 Shelf Registration Statement registering all of the shares of common stock that may be offered to Aspire Capital from time to time. The timing and amount of sales of the Company’s common stock to Aspire Capital. Aspire Capital has no right to require any sales by the Company but is obligated to make purchases from the Company as directed by the Company in accordance with the Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, the Company issued to Aspire Capital 164,835 Commitment Shares. The Aspire Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost to the Company. Any proceeds from the Company receives under the Aspire Purchase Agreement are expected to be used for working capital and general corporate purposes. During 2018 and as of June 30, 2019, the Company sold and issued an aggregate of 2.2 million shares under the Purchase Agreement, receiving approximately $4.5 million.
     
  On October 29, 2018, the Company and certain investors holding warrants to purchase 1.6 million shares collectively of the Company’s common stock received in the February 27, 2017 Public Offering and the October 2017 Underwritten Offering, entered into warrant exchange agreements whereby the Company issued 820,714 shares collectively of common stock to these investors in exchange for the warrants. After the warrant exchange, warrants outstanding totaled 1.6 million with a weighted average exercise price of $5.75 per share. Approximately 1.2 million of these outstanding warrants with a strike price of $6.20 per share expired on April 4, 2019.
     
  On December 4, 2018, the Company entered into a new Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC, as sales agent (“JonesTrading”), pursuant to which the Company may offer and sell, from time to time, through JonesTrading shares of common stock having an aggregate offering price of up to $16.0 million. The Company intends to use the net proceeds from the offering, if any, for general corporate purposes, including research and development activities, capital expenditures and working capital. The Company is not obligated to sell any common stock under the Capital on Demand Agreement and, subject to the terms and conditions of the Capital on Demand Agreement, JonesTrading will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market, to sell common stock from time to time based upon the Company’s instructions, including any price, time or size limits or other customary parameters or conditions the Company may impose. Under the Capital on Demand Agreement, JonesTrading may sell common stock by any method deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Capital on Demand Agreement will terminate upon the earlier of (i) the sale of all shares of our common stock subject to the Sales Agreement, and (ii) the termination of the Capital on Demand Agreement by JonesTrading or Celsion. The Capital on Demand Agreement may be terminated by JonesTrading or the Company at any time upon 10 days’ notice to the other party, or by JonesTrading at any time in certain circumstances, including the occurrence of a material adverse change in the Company. During 2018 and as of June 30, 2019, the Company sold and issued an aggregate of 259,961 shares under the Capital on Demand Agreement, receiving approximately $0.6 million.

 

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Significant Accounting Policies

 

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our 2018 Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 29, 2019.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” - Topic 842 (ASC Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update became effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. The FASB subsequently issued the following amendments to ASC Topic 842, which have the same effective date and transition date of January 1, 2019:

 

  ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02; and