UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2020

 

OR

 

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

 

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)

 

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

 

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]

 

As of November 13, 2020, Celsion Corporation had 37,417,716 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 (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 10
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 49
     
Item 4. Controls and Procedures 50
     
PART II: OTHER INFORMATION  
     
Item 1. Legal Proceedings 51
     
Item 1A. Risk Factors 51
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 78
     
Item 3. Defaults Upon Senior Securities 78
     
Item 4. Mine Safety Disclosures 78
     
Item 5. Other Information 78
     
Item 6. Exhibits 79
     
SIGNATURES 80

 

 i 
 

 

Forward-Looking Statements

 

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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), uncertainties and assumptions regarding the impact of the COVID-19 pandemic on our business, operations, clinical trials, supply chain, strategy, goals and anticipated timelines, 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

 

   September 30, 2020   December 31, 2019 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $18,339,728   $6,875,273 
Investment in debt securities - available for sale, at fair value       7,985,886 
Accrued interest receivable on investment securities       21,369 
Advances and deposits on clinical programs and other current assets   1,565,651    1,352,670 
Total current assets   19,905,379    16,235,198 
           
Property and equipment (at cost, less accumulated depreciation of $3,213,681 and $3,096,681, respectively)   302,281    405,363 
           
Other assets:          
Deferred tax asset       1,819,324 
In-process research and development, net   13,366,234    15,736,491 
Goodwill   1,976,101    1,976,101 
Operating lease right-of-use assets, net   1,147,062    1,431,640 
Other intangible assets, net   170,489    340,976 
Deposits and other assets   407,284    333,274 
Total other assets   17,067,170    21,637,806 
           
Total assets  $37,274,830   $38,278,367 

 

See accompanying notes to the condensed consolidated financial statements.

 

 2 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

BALANCE SHEETS

(Continued)

 

   September 30, 2020   December 31, 2019 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable — trade  $2,168,076   $2,862,949 
Other accrued liabilities   1,919,779    2,303,547 
Notes payable – current portion, net of deferred financing costs   416,476    1,840,228 
Operating lease liability - current portion   421,564    387,733 
Deferred revenue - current portion   500,000    500,000 
Total current liabilities   5,425,895    7,894,457 
           
Earn-out milestone liability   7,115,000    5,717,709 
Notes payable – non-current portion, net of deferred financing costs   4,626,987    7,963,449 
Operating lease liability - non-current portion   823,147    1,143,717 
Deferred revenue - non-current portion   625,000    1,000,000 
Total liabilities   18,616,029    23,719,332 
           
Commitments and contingencies        
           
Stockholders’ equity:          
           
Preferred stock - $0.01 par value (100,000 shares authorized, and no shares issued or outstanding at September 30, 2020 and December 31, 2019)        
           
Common stock - $0.01 par value (112,500,000 shares authorized; 36,160,114 and 23,256,152 shares issued at September 30, 2020 and December 31, 2019, respectively, and 36,159,780 and 23,255,818 shares outstanding at September 30, 2020 and December 31, 2019, respectively)   361,601    232,562 
Additional paid-in capital   327,370,577    304,885,663 
Accumulated other comprehensive gain       42,778 
Accumulated deficit   (308,988,189)   (290,516,780)
Total stockholders’ equity before treasury stock   18,743,989    14,644,223 
           
Treasury stock, at cost (334 shares at September 30, 2020 and December 31, 2019)   (85,188)   (85,188)
Total stockholders’ equity   18,658,801    14,559,035 
           
Total liabilities and stockholders’ equity  $37,274,830   $38,278,367 

 

See accompanying notes to the condensed consolidated financial statements.

 

 3 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

(Unaudited)

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2020   2019   2020   2019 
                 
Licensing revenue  $125,000   $125,000   $375,000   $375,000 
                     
Operating expenses:                    
Research and development   2,491,696    3,674,239    8,534,606    9,999,972 
General and administrative   1,792,904    1,838,287    5,532,946    6,192,835 
Total operating expenses   4,284,600    5,512,526    14,067,552    16,192,807 
                     
Loss from operations   (4,159,600)   (5,387,526)   (13,692,552)   (15,817,807)
                     
Other (expense) income:                    
(Loss) gain from change in valuation of earn-out milestone liability   (1,099,721)   85,882    (1,397,291)   3,088,821 
Impairment of in-process research and development   (2,370,257)       (2,370,257)    
Fair value of warrants issued in connection with amendment to modify GEN-1 earn-out milestone payments               (400,000)
Investment income   10,114    174,439    119,383    432,832 
Interest expense   (450,732)   (349,602)   (1,130,699)   (1,049,797)
Other (expense) income   (1,400)       7    (2,823)
Total other (expense) income, net   (3,911,996)   (89,281)   (4,778,857)   2,069,033 
                     
Net loss  $(8,071,596)  $(5,476,807)  $(18,471,409)  $(13,748,774)
                     
Net loss per common share                    
Basic and diluted  $(0.24)  $(0.25)  $(0.62)  $(0.67)
                     
Weighted average shares outstanding                    
Basic and diluted   34,112,254    21,662,824    29,934,764    20,524,799 

 

See accompanying notes to the condensed consolidated financial statements.

 

 4 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2020   2019   2020   2019 
Other comprehensive (loss) gain                    
                     
Changes in:                    
Realized (gains) losses on investment securities recognized in investment income, net  $(7,257)  $(58,068)  $(53,354)  $(68,418)
Unrealized gains on investment securities, net   (609)   (2,433)   10,576    72,621 
                     
Change in unrealized gains (losses) on available for sale securities, net   (7,866)   (60,501)   (42,778)   4,203 
                     
Net loss   (8,071,596)   (5,476,807)   (18,471,409)   (13,748,774)
                     
Comprehensive loss  $(8,079,462)  $(5,537,308)  $(18,514,187)  $(13,744,571)

 

See accompanying notes to the condensed consolidated financial statements.

 

 5 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Nine Months Ended

September 30,

 
   2020   2019 
Cash flows from operating activities:          
           
Net loss  $(18,471,409)  $(13,748,774)
Adjustments to reconcile net loss to net cash from operating activities:          
Depreciation and amortization   572,065    537,211 
Change in fair value of earn-out milestone liability   1,397,291    (3,088,821)
Impairment of in-process research and development   2,370,257     
Fair value of warrants issued in connection with amendment to modify the GEN-1 earn-out milestone payments       400,000 
Recognition of deferred revenue   (375,000)   (375,000)
Stock-based compensation costs   1,448,202    1,762,172 
Shares and warrants issued in exchange for services   44,798    5,350 
Deferred income tax asset   1,819,324     
Amortization of deferred finance charges and debt discount associated with notes payable   439,786    289,182 
Net changes in:          
Accrued interest receivable on investment securities   21,369    41,338 
Advances and deposits on clinical programs and other current assets   (286,991)   (951,877)
Accounts payable- trade and other accrued liabilities   (866,748)   486,857 
Net cash (used in) operating activities:   (11,887,056)   (14,642,362)
           
Cash flows from investing activities:          
Purchases of investment securities   (9,956,892)   (19,338,177)
Proceeds from sale and maturity of investment securities   17,900,000    23,310,000 
Purchases of property and equipment   (13,918)   (336,445)
Net cash provided by investing activities   7,929,190    3,635,378 
           
Cash flows from financing activities:          
Proceeds from sale of common stock equity, net of issuance costs   20,250,426    6,175,527 
Proceeds from issuance of common stock upon conversion of stock options   371,895     
Payments on notes payable including end-of-term fees   5,200,000     
Proceeds from Payroll Protection Program (PPP) loans   1,324,750     
Repayments on Payroll Protection Program (PPP) loans   (1,324,750)    
Net cash provided by financing activities   15,422,321    6,175,527 
           
Increase (decrease) in cash and cash equivalents   11,464,455    (4,831,457)
Cash and cash equivalents at beginning of period   6,875,273    13,353,543 
Cash and cash equivalents at end of period  $18,339,728   $8,522,086 

 

See accompanying notes to the condensed consolidated financial statements.

 

 6 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

   Nine Months Ended September 30, 
   2020   2019 
         
Supplemental disclosures of cash flow information:          
Interest paid  $(685,913)  $(760,615)
           
Cash paid for amounts included in measurement of lease liabilities:          
Operating cash flows from lease payments  $393,947   $355,216 
           
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 
           
Right of use assets obtained in exchange for lease liabilities          
Right of use assets  $   $1,797,561 
           
Stock issued in lieu of cash bonus payments  $498,632   $ 
           
Realized and unrealized (gains) losses, net, on investment securities  $(42,778)  $4,203 

 

See accompanying notes to the condensed consolidated financial statements.

 

 7 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

THREE MONTHS ENDED SEPTEMBER 30, 2020

 

Three Months Ended 

Common Stock

Outstanding

  

Additional

Paid in

   Treasury Stock   Accumulated Other Comprehensive   Accumulated     
September 30, 2020  Shares   Amount   Capital   Shares   Amount   Income   Deficit   Total 
                                 
Balance at July 1, 2020   33,229,380   $332,297   $324,869,780    334   $(85,188)  $7,866   $(300,916,593)  $24,208,162 
Net loss   -    -    -    -    -    -    (8,071,596)   (8,071,596)
Sale of equity through financing facilities   2,927,400    29,274    2,038,553    -    -    -    -    2,067,827 
Common stock warrants issued in exchange for services   -    -    44,798    -    -    -    -    44,798 
Issuance of restricted stock   3,000    30    (30)   -    -    -    -    - 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    (7,866)   -    (7,866)
Stock-based compensation expense   -    -    417,476    -    -    -    -    417,476 
Balance at September 30, 2020   36,159,780   $361,601   $327,370,577    334   $(85,188)  $-   $(308,988,189)  $18,658,801 

 

THREE MONTHS ENDED SEPTEMBER 30, 2019

 

Three Months Ended 

Common Stock

Outstanding

  

Additional

Paid in

   Treasury Stock   Accumulated Other Comprehensive   Accumulated     
September 30, 2019  Shares   Amount   Capital   Shares   Amount   Income   Deficit   Total 
                                 
Balance at July 1, 2019   21,002,295   $210,026   $300,549,511    334   $(85,188)  $94,576   $(281,937,214)  $18,831,711 
Net loss   -    -    -    -    -    -    (5,476,807)   (5,476,807)
Sale of equity through equity financing facilities   985,123    9,852    1,701,615    -    -    -    -    1,711,467 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    (60,501)   -    (60,501)
Stock-based compensation expense   -    -    453,680    -    -    -    -    453,680 
Issuance of restricted stock   15,000    150    (150)   -    -    -    -    - 
Balance at September 30, 2019   22,002,418   $220,028   $302,704,656    334   $(85,188)  $34,075   $(287,414,021)  $15,459,550 

 

See accompanying notes to the condensed consolidated financial statements.

 

 8 
 

 

CELSION CORPORATION

 

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(Unaudited)

 

NINE MONTHS ENDED SEPTEMBER 30, 2020

 

Nine Months Ended 

Common Stock

Outstanding

  

Additional

Paid in

   Treasury Stock   Accumulated Other Comprehensive   Accumulated     
September 30, 2020  Shares   Amount   Capital   Shares   Amount   Income   Deficit   Total 
                                 
Balance at January 1, 2020   23,255,818   $232,562   $304,885,663    334   $(85,188)  $42,778   $(290,516,780)  $14,559,035 
Net loss   -    -    -    -    -    -    (18,471,409)   (18,471,409)
Sale of equity through financing facilities   12,330,243    123,301    20,127,125    -    -    -    -    20,250,426 
Issuance of common stock upon exercise of options   140,864    1,409    370,486    -    -    -    -    371,895 
Common stock warrants issued in exchange for services   -    -    44,798    -    -    -    -    44,798 
Issuance of restricted stock   3,000    30    (30)   -    -    -    -    - 
Realized and unrealized gains and losses, net, on investments securities   -    -    -    -    -    (42,778)   -    (42,778)
Stock-based compensation expense   -    -    1,448,202    -    -    -    -    1,448,202 
                                         
Issuance of common stock in lieu of cash bonus   429,855    4,299    494,333    -    -    -    -    498,632 
Balance at September 30, 2020   36,159,780   $361,601   $327,370,577    334   $(85,188)  $-   $(308,988,189)  $18,658,801 

 

NINE MONTHS ENDED SEPTEMBER 30, 2019

 

Nine Months Ended 

Common Stock

Outstanding

  

Additional

Paid in

   Treasury Stock   Accumulated Other Comprehensive   Accumulated     
September 30, 2019  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   -    -    -    -    -    -    (13,748,774)   (13,748,774)
Sale of equity through equity financing facilities   3,145,084    31,451    6,144,076    -    -    -    -    6,175,527 
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   -    -    -    -    -    4,203    -    4,203 
Stock-based compensation expense   -    -    1,762,172    -    -    -    -    1,762,172 
Issuance of restricted stock   25,500    255    5,095    -    -    -    -    5,350 
Balance at September 30, 2019   22,002,418   $220,028   $302,704,656    334   $(85,188)  $34,075   $(287,414,021)  $15,459,550 

 

See accompanying notes to the condensed consolidated financial statements.

 

 9 
 

 

CELSION CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

 

FOR THE THREE AND NINE MONTHS ENDED SEPTMBER 30, 2020

 

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. Celsion is a fully integrated oncology company focused on developing a portfolio of innovative cancer treatments, including immunotherapies, DNA-based therapies and directed chemotherapies. The Company’s product pipeline includes GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian cancer and ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in Phase III development for the treatment of primary liver cancer and in development for other cancer indications. Celsion has two feasibility stage platform technologies for the development of novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies. Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection. 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 significant 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-month and nine-month periods ended September 30, 2020 and 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, 2019 filed with the Securities and Exchange Commission (SEC) on March 25, 2020.

 

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amounts 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. With the introduction of the COVID-19 pandemic to the United States, the Company continues to monitor the impact of this pandemic on its financial condition and results of operations, along with the valuation of its long-term assets, intangible assets, and goodwill. The effect of this matter could potentially have an impact on the valuation of such assets in the future. The COVID-19 matter is discussed in more detail in Note 3 to the financial statements.

 

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 has incurred significant net losses in each year since our inception. As of September 30, 2020, the Company has incurred approximately $309 million of cumulative net losses and we had approximately $18.3 million in cash and cash equivalents. 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.

 

 10 
 

 

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.

 

COVID-19 Pandemic

 

In January 2020, the World Health Organization (“WHO”) declared an outbreak of coronavirus, COVID-19, to be a “Public Health Emergency of International Concern,” and the U.S. Department of Health and Human Services declared a public health emergency to aid the U.S. healthcare community in responding to COVID-19. This virus has spread to over 100 countries, including the United States. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets. The Company did not observe significant impacts on its business or results of operations for the three-month and nine-month periods ended September 30, 2020 due to the global emergence of COVID-19. While the extent to which COVID-19 impacts the Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash flows.

 

The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. The disruptions caused by COVID-19 may also disrupt the clinical trials process and enrolment of patients. This may delay commercialization efforts. The Company continues to monitor its operating activities in light of these events, and it is reasonably possible that the virus could have a negative effect on the Company’s financial condition and results of operations. The specific impact, if any, is not readily determinable as of the date of these financial statements.

 

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

 

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

 

 11 
 

 

On July 13, 2020, the Company announced that it has received a recommendation from the independent Data Monitoring Committee (DMC) to consider stopping the global Phase III OPTIMA Study of ThermoDox® in combination with radiofrequency ablation (RFA) for the treatment of hepatocellular carcinoma (HCC), or primary liver cancer. The recommendation was made following the second pre-planned interim safety and efficacy analysis by the DMC on July 9, 2020. The DMC’s analysis found that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. The Company followed the advice of the DMC and considered its options to either stop the study or continue to follow patients after a thorough review of the data, and an evaluation of the probability of success. Timing for this decision was made less urgent by the fact that the OPTIMA Study has been fully enrolled since August 2018 and that the vast majority of the trial expenses have already been incurred. On August 4, 2020, the Company issued a press release announcing it will continue following patients for overall survival (“OS”), noting that the unexpected and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis on July 9, 2020, may be associated with a data maturity issue. On October 12, 2020, the Company issued a letter to stockholders providing an update on the ongoing data analysis from its Phase III OPTIMA Study with ThermoDox® as well as growing interest among clinical investigators in conducting studies with ThermoDox® as a monotherapy or in combination with other therapies. In summary, the Company will continue to report findings from these independent statistical analyses before the end of the year, either or both of which will guide our decision to continue to follow patients to the final analysis at 197 or more deaths, a milestone that should be reached sometime in mid-2021.

 

During 2019 and 2018, the Company submitted applications to sell a portion of the Company’s State of New Jersey net operating losses as part of the Technology Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies with unused NOLs and unused research and development credits are allowed to sell these benefits to other New Jersey-based companies. In 2018 and 2019, the Company sold NOLs totaling $13 million receiving net proceeds of $12.2 million. In June 2020 and as updated in September 2020, the Company filed an application with the New Jersey Economic Development Authority to sell substantially all of its remaining State of New Jersey net operating losses totaling $2.0 million available under the program.

 

In June 2018, the Company entered into a Credit Agreement with Horizon Technology Finance Corporation (“Horizon”) that provided $10 million in capital (the “Horizon Credit Agreement”). The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. Payments under the loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first twenty-four (24) months through July 2020, followed by a 24-month amortization period of principal and interest starting on August 1, 2020 and ending through the scheduled maturity date. On August 28, 2020, in connection with an Amendment to the Horizon Credit Agreement, Celsion repaid $5 million of the $10 million loan and $0.2 million in related end of term charges, and the remaining $5 million in obligations were restructured as more fully discussed in Note 10.

 

With $18.3 million in cash and cash equivalents and up to $2.0 million in potential proceeds from the sale of the 2019 State of New Jersey net operating losses, coupled with $10.8 million of remaining availability under the Capital-on-Demand™ Sales Agreement with JonesTrading Institutional Services LLC, as well as up to $24.5 million of remaining availability under the LPC Purchase Agreement with Lincoln Park Capital Fund, LLC, the Company believes it has sufficient capital resources to fund its operations through the end of 2021.

 

The Company has based its estimates on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt, the sale of the Company’s 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.

 

Note 4. New and Recently Adopted Accounting Pronouncements

 

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

 

 12 
 

 

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which modifies the measurement of expected credit losses on certain financial instruments. The Company is considering adopting ASU 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio and current market conditions, the adoption of ASU 2016-13 is not expected to have a material impact on its condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its condensed consolidated financial statements.

 

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 8,507,041 and 4,598,990 shares for the nine-month periods ended September 30, 2020 and 2019, respectively. Warrants (Note 14) with an exercise price of $0.01 exercisable for 200,000 shares of common stock were considered issued in calculating basic loss per share. For the three-month and nine-month periods ended September 30, 2020 and 2019, diluted loss per common share was the same as basic loss per common share as the other 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 Company did not pay any dividends during the nine-month periods ended September 30, 2020 and 2019.

 

Note 6. Investment in Debt Securities Available for Sale

 

Investments in debt securities available for sale with a fair value of $7,985,886 as of December 31, 2019 consisted 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. The Company only had investments in cash and cash equivalents at September 30, 2020.

 

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

 

 13 
 

 

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

 

   September 30, 2020   December 31, 2019 
   Cost   Fair Value   Cost   Fair Value 
Short-term investments                    
Investments in debt securities  $        -   $        -   $7,943,108   $7,985,886 
Total  $-   $-   $7,943,108   $7,985,886 

 

   September 30, 2020   December 31, 2019 
   Cost   Fair Value   Cost   Fair Value 
Short-term investment maturities                    
Within 3 months  $           -   $           -   $7,943,108   $7,985,886 
Total  $-   $-   $7,943,108   $7,985,886 

 

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 September 30, 2020 and December 31, 2019. The Company has reviewed individual securities to determine whether a decline in fair value below the amortizable cost basis is other than temporary.

 

   September 30, 2020   December 31, 2019 
Available for sale securities (all unrealized holding gains and losses are less than 12 months at date of measurement)  Fair Value  

Unrealized

Holding

Gains

   Fair Value  

Unrealized

Holding

Gains

 
                 
Investments in debt securities with unrealized Gains  $          -   $          -   $7,985,886   $42,778 
Total  $-   $-   $7,985,886   $42,778 

 

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

 

  

Three Months Ended

September 30,

 
   2020   2019 
Interest and dividends accrued and paid  $2,857   $116,371 
Realized gains   7,257    58,068 
Investment income, net  $10,114   $174,439 

 

  

Nine Months Ended

September 30,

 
   2020   2019 
Interest and dividends accrued and paid  $66,029   $364,414 
Realized gains   53,354    68,418 
Investment income, net  $119,383   $432,832 

 

 14 
 

 

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.

 

Cash and cash equivalents, 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 are determined by relying on the securities’ relationship to other benchmark quoted securities and classified its investments as Level 2 items at September 30, 2020 and December 31, 2019. There were no transfers of assets or liabilities between Level 1 and Level 2 and no transfers in or out of Level 3 during the nine-month period ended September 30, 2020 or during the year ended December 31, 2019. 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). The in-process R&D is valued using a multi-period excess earnings method (see Note 8).

 

Assets and liabilities measured at fair value are summarized below:

 

   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 September 30, 2020                      
Corporate debt securities, available for sale  $   $                $     $ 
                       
Recurring items as of December 31, 2019                      
Corporate debt securities, available for sale  $7,985,886   $   $7,985,886     $ 
                       
Liabilities:                      
                       
Recurring items as of September 30, 2020                      
Earn-out milestone liability (Note 13)  $7,115,000   $   $     $7,115,000 
                       
Recurring items as of December 31, 2019                      
Earn-out milestone liability (Note 13)  $5,717,709   $   $     $5,717,709 

 

Note 8. Intangible Assets

 

In June 2014, we completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama corporation, which has changed its company name to EGWU, Inc. after the closing of the acquisition (“EGEN”). 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.

 

 15 
 

 

Acquired In-process Research and Development

 

Acquired in-process research and development (IPR&D) consists of EGEN’s drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be $24.2 million as of the acquisition date. As of the closing of the acquisition, the IPR&D was considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. The Company’s IPR&D consisted of three core elements, its RNA delivery system, its glioblastoma multiforme cancer (GBM) product candidate and its ovarian cancer indication.

 

The Company’s ovarian cancer indication, with original value of $13.3 million, has not been impaired since its acquisition. At September 30, 2020, the Company evaluated its IPR&D of the ovarian cancer indication and concluded that it is not more likely than not that the asset is impaired. As no other indicators of impairment existed during the fourth quarter of 2019, or first nine months of 2020, no impairment charges were recorded during the nine-months ended September 30, 2020 and 2019.

 

The Company’s GBM candidate, with original value of $9.4 million had cumulative impairments through 2018 of $7 million, with remaining carrying value of $2.4 million at December 31, 2019. On September 30, 2020, the Company evaluated its IPR&D for the (GBM) product candidate and concluded that it is more likely than not that the asset is further impaired. After this assessment on September 30, 2020, the Company wrote off the remaining $2.4 million of this asset, thereby recognizing a non-cash charge of $2.4 million in the third quarter of 2020.

 

The Company’s RNA delivery system, with an initial value of $1.5 million was previously fully impaired and written off.

 

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 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 September 30, 2020 and 2019. The Company recognized amortization expense of $170,487 in each of the nine-month periods ended September 30, 2020 and 2019.

 

The carrying value of the Covenant Not to Compete was $170,489, net of $1,420,725 accumulated amortization as of September 30, 2020 and $340,976, net of $1,250,238 accumulated amortization, as of December 31, 2019.

 

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

 

   Year Ended September 30, 
2021  $170,489 
2022 and thereafter    
Total  $170,489 

 

 16 
 

 

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, 2020, 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.

 

Following is a summary of the net fair value of the assets acquired in the EGEN asset acquisition for the nine-month period ended September 30, 2020:

 

   IPR&D   Goodwill   Covenant Not To Compete 
For the nine-months ended September 30, 2020               
Balance at January 1, 2020, net  $15,736,491   $1,976,101   $340,976 
Amortization   -    -    (170,487)
Impairment charge   (2,370,257)   -    - 
Balance at September 30, 2020, net  $13,366,234   $1,976,101   $170,489 

 

Note 9. Other Accrued Liabilities

 

Other accrued liabilities at September 30, 2020 and December 31, 2019 include the following:

 

   September 30, 2020   December 31, 2019 
         
Amounts due to contract research organizations and other contractual agreements  $475,400   $475,440 
Accrued payroll and related benefits   1,368,118    1,604,541 
Accrued professional fees   56,850    204,155 
Other   19,411    19,411 
Total  $1,919,779   $2,303,547 

 

Note 10. Notes and Loans Payable

 

Horizon Credit Agreement

 

On August 28, 2020, Celsion entered into the First Amendment (the “Amendment”) to the Venture Loan and Security Agreement with Horizon Technology Finance Corporation (“Horizon”) dated June 27, 2018 (the “Initial Horizon Credit Agreement”).

 

On June 27, 2018, in connection with the closing of the Initial Horizon Credit Agreement, Celsion drew down $10 million in new capital. On August 28, 2020, in connection with the Amendment, Celsion repaid $5 million of the $10 million loan and $0.2 million in related end of term charges, and the remaining $5 million in obligations were restructured as set forth below.

 

Pursuant to the Amendment, the remaining $5 million in obligations of Celsion under the Initial Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. The obligations bear interest at a rate calculated based an amount by which the one-month LIBOR exceeds 2% plus 9.625%. In no event shall the interest rate be less than 9.625%. Payments pursuant to the Amendment are interest only for the first twelve (12) months after August 1, 2020, followed by a 21-month amortization period of principal and interest through the scheduled maturity date. In addition, the remaining $5 million in obligations is subject to an end of term fee equal, in the aggregate, to $275,000, which amount shall be payable upon the maturity of the obligations or upon the date of final payment or default, as applicable. In connection with the Amendment, Celsion agreed to a liquidity covenant which provides that, at all times, Celsion shall maintain unrestricted cash and/or Cash Equivalents on deposit in accounts over which the applicable Lenders maintain an account control agreement in an amount not less than $2.5 million. In addition, pursuant to the Amendment, Celsion has agreed to provide evidence to Horizon on or before March 31, 2021, that it has received aggregate cash proceeds of not less than $5 million from the sale of equity, debt, its New Jersey net operating losses, or a combination thereof, subsequent to the date of the Amendment.

 

 17 
 

 

As a fee in connection with the Initial Horizon Credit Agreement, Celsion issued Horizon warrants exercisable for a total of 190,114 shares of Celsion’s common stock (the “Existing Warrants”) at a per share exercise price of $2.63. Pursuant to the Amendment, one-half of the aggregate Existing Warrants, exercisable for a total of 95,057 shares of Celsion’s common stock, have been canceled, and, in connection with the Amendment, Celsion issued Horizon new warrants exercisable at a per share exercise price equal to $1.01 for a total of 247,525 shares of Celsion’s common stock (the “New Warrants” and, together with the Existing Warrants, the “Warrants”). The remaining 95,057 Existing Warrants issued in connection with the Initial Horizon Credit Agreement remain outstanding at a per share exercise price of $2.63.

 

The 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. Effective October 27, 2020, Celsion registered for resale the common stock underlying the Warrants on Form S-3 with the Securities and Exchange Commission (333-249420). The Horizon Credit Agreement contains customary representations, warranties and affirmative and negative covenants including, among other things, covenants that limit or restrict Celsion’s ability to grant liens, incur indebtedness, make certain restricted payments, merge, or consolidate and make dispositions of assets.

 

The Amendment was evaluated in accordance with FASB Accounting Standards Codification 470-50, Debt-Modifications and Extinguishments, for debt modification and extinguishment accounting. We accounted for the $5 million we repaid as a debt extinguishment thereby reducing the principal obligations accordingly. Also, in connection with the $5 million repayment, we recognized as interest expense, approximately $0.2 million of unamortized debt discount, deferred financing and end of term fees related to the repaid obligation in August 2020.

 

We accounted for the remaining $5 million of obligation under the Amendment as a debt modification to the initial agreement with respect to the minor changes in cash flows. Also, in connection with the $5 million remaining obligations, we recorded $5,000 of financing fees and the New Warrant fair value of $247,548 as additional debt discount on the $5 million remaining obligation. Therefore, approximately $109,706 of unamortized debt discount will be amortized over the remaining life of the new obligations. The $275,000 of end of term fees, net of previously amortized end of term fees totaling $142,605 previously accrued on the original note associated with the $5 million remaining obligation, will be amortized as interest expense over the remaining life of the new obligations.

 

During the three-month period ended September 30, 2020, the Company incurred $198,738 in interest expense and amortized $251,993 as interest expense for debt discounts and end of term charges in connection with the Initial Horizon Credit Agreement and Amendment. During the three-month period ended September 30, 2019, the Company incurred $252,144 in interest expense and amortized $97,458 as interest expense for debt discounts and end of term charges in connection with the Initial Horizon Credit Agreement. During the nine-month period ended September 30, 2020, the Company incurred $685,913 in interest expense and amortized $444,786 as interest expense for debt discounts and end of term charges in connection with the Initial Horizon Credit Agreement and Amendment. During the nine-month period ended September 30, 2019, the Company incurred $760,615 in interest expense and amortized $289,182 as interest expense for debt discounts and end of term charges in connection with the Initial Horizon Credit Agreement.

 

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

 

  

As of

September 30,

 
2021  $476,190 
2022   2,857,140 
2023   1,666,670 
2024 and thereafter   - 
Subtotal of future principal payments   5,000,000 
Unamortized debt issuance costs and end of term charges, net   43,463 
Total  $5,043,463 

 

 18 
 

 

Paycheck Protection Program

 

On April 23, 2020, we entered into a loan agreement with Silicon Valley Bank (the “April PPP Loan”), pursuant to the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). We thereafter received proceeds of $632,220 under the April PPP Loan. The April PPP Loan application required Celsion to certify that there was economic uncertainty surrounding the Company and that, as such, the April PPP Loan was necessary to support our ongoing operations. Celsion made this certification in good faith after analyzing, among other things, its financial situation and access to alternative forms of capital, and believed that the Company satisfied all eligibility criteria for the April PPP Loan, and that our receipt of the April PPP Loan proceeds was consistent with the broad objectives of the PPP of the CARES Act. The certification given with respect to the April PPP Loan did not contain any objective criteria and was subject to interpretation. Considering subsequent guidance issued by the SBA in consultation with the U.S. Department of the Treasury at that time, out of an abundance of caution we returned the proceeds of the PPP Loan in full on May 13, 2020.

 

Shortly after the April PPP Loan was repaid, the SBA provided further guidance with respect to these certifications providing a safe harbor under which companies such as Celsion with PPP loans of less than $2 million will be deemed to have made these certifications in good faith. Therefore, as the Company continued to believe it qualifies for a loan under the PPP, it reapplied for and eventually received the new PPP Loan for $692,530 on May 26, 2020 (the “May PPP Loan”). The May PPP Loan was guaranteed by the SBA and evidenced by a promissory note of the Company dated May 26, 2020 (the “Note”) in the principal amount of $692,530 payable to the lender. Pursuant to the terms of the Note, was payable in part or in full, at any time, without penalty. On June 22, 2020, as disclosed in the Company’s Current Report on Form 8-K filed on the same date, the Company commenced an offering of 2,666,667 shares of its common stock which closed on June 24, 2020 (Note 11) and received net proceeds of approximately $9.1 million. In light of the proceeds received from this equity offering, the Company elected to repay the May PPP Loan in full (including interest accrued of $577) on June 24, 2020, terminating all obligations of the Company under the Note.

 

Note 11. Stockholders’ Equity

 

In September 2018, the Company filed with the SEC a $75 million shelf registration statement on Form S-3 (the “2018 Shelf Registration Statement”) (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 Agreements

 

On August 31, 2018, the Company entered into a common stock purchase agreement (the “2018 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 was 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 2019 Aspire Purchase Agreement. During 2018, the Company sold and issued an aggregate of 0.1 million shares under the 2018 Aspire Purchase Agreement, receiving approximately $0.2 million. During 2019, the Company sold and issued an aggregate of 3.3 million shares under the 2018 Aspire Purchase Agreement, receiving approximately $6.3 million. As a result of the Company and Aspire entering into a new purchase agreement on October 28, 2019 (the “2019 Aspire Purchase Agreement”) discussed in the next paragraph, the 2018 Aspire Purchase Agreement was terminated.

 

The 2019 Aspire Purchase Agreement provided that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over the 24-month term of the 2019 Aspire Purchase Agreement. During 2019, the Company sold and issued an aggregate of 0.5 million shares under the 2019 Aspire Purchase Agreement, receiving approximately $0.7 million. During the first quarter of 2020 through March 5, 2020 when the Company delivered notice to Aspire terminating the 2019 Aspire Purchase Agreement, the Company sold 1.0 million shares of common stock under the Aspire Purchase Agreement, receiving approximately $1.6 million in additional gross proceeds.

 

 19 
 

 

Capital on DemandTM Sales Agreement

 

On December 4, 2018, the Company entered into the Capital on Demand Agreement with JonesTrading, pursuant to which the Company may offer and sell, from time to time, through JonesTrading shares of Common Stock having an aggregate offering price of up to $16.0 million.

 

The Shares will be issued pursuant to Celsion’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. During 2019, the Company sold and issued an aggregate of 0.5 million shares under the Capital on Demand Agreement, receiving approximately $1.0 million in gross proceeds. From January 1, 2020 through September 30, 2020, the Company sold and issued an aggregate of 2.1 million shares under the Capital on Demand Agreement, receiving approximately $4.3 million in gross proceeds. The Company has sold and issued an aggregate of 0.5 million shares under the Capital on Demand Agreement, receiving approximately $0.3 million in gross proceeds under the Capital on Demand Agreement subsequent to September 30, 2020 through the date of this Quarterly Report on Form 10Q. As of September 30, 2020, the Company has approximately $10.8 million available under the Capital on Demand Agreement.

 

Registered Direct Offering

 

On February 27, 2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with several institutional investors, pursuant to which we agreed to issue and sell, in a registered direct offering (the “February 2020 Offering”), an aggregate of 4,571,428 shares (the “Shares”) of our common stock at an offering price of $1.05 per Share for gross proceeds of approximately $4.8 million before the deduction of the Placement Agent fees and offering expenses. The Shares were offered by the Company pursuant to a registration statement on Form S-3 (File No. 333-227236). The Purchase Agreement contained customary representations, warranties and agreements by the Company and customary conditions to closing. In a concurrent private placement (the “Private Placement”), the Company issued to the investors that participated in the February 2020 Offering, for no additional consideration, warrants, to purchase up to 2,971,428 shares of Common Stock (the “Original Warrants”). The Original Warrants were initially exercisable six months following their date of issue and were set to expire on the five-year anniversary of such initial exercise date. The Original Warrants had an exercise price of $1.15 per share subject to adjustment as provided therein. On March 12, 2020, the Company entered into private exchange agreements (the “Exchange Agreements”) with holders of the Original Warrants. Pursuant to the Exchange Agreements, in return for a higher exercise price of $1.24 per share of Common Stock, the Company issued new warrants to the Investors to purchase up to 3,200,000 shares of Common Stock (the “Exchange Warrants”) in exchange for the Original Warrants. The Exchange Warrants, like the Original Warrants, are initially exercisable six months following their issuance (the “Initial Exercise Date”) and expire on the five-year anniversary of their Initial Exercise Date. Other than having a higher exercise price, different issue date, Initial Exercise Date and expiration date, the terms of the Exchange Warrants are identical to those of the Original Warrants. On July 31, 2020, the Company filed a Form S-3 Registration Statement to register the shares of Common Stock issuable under the Exchange Warrants; the Registration Statement was declared effective by the SEC on August 13, 2020.

 

Underwritten Offering

 

On June 22, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc. (the “Underwriter”), relating to the issuance and sale (the “Underwritten Offering”) of 2,666,667 shares of the Company’s common stock. Pursuant to the terms of the Underwriting Agreement, the Underwriter agreed to purchase the shares at a price of $3.4875 per share. The Underwriter offered the shares at a public offering price of $3.75 per share, reflecting an underwriting discount equal to $0.2625, or 7.0% of the public offering price. The net proceeds to the Company from the Underwritten Offering, after deducting the underwriting discount and estimated offering expenses payable by the Company, were approximately $9.1 million. The Underwritten Offering closed on June 24, 2020 and was made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-227236) filed with the Securities and Exchange Commission on September 7, 2018, and declared effective on October 12, 2018, including the base prospectus dated October 12, 2018 included therein and the related prospectus supplement.

 

 20 
 

 

The Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriter including for liabilities under the Securities Act, other obligations of the parties, and termination provisions. Pursuant to the Underwriting Agreement, until December 31, 2020, the Underwriter shall have a right of first refusal to act as sole underwriter, initial purchaser, placement/selling agent, or arranger, as the case may be, on any new financing for the Company (excluding equipment lease financings, loans or grants from governmental authorities or in connection with government programs and financings relating to or sales of tax attributes) during such period. The Underwriter shall have the sole right to determine whether or not any other broker dealer shall have the right to participate in any such offering and the economic terms of any such participation. Pursuant to the Underwriting Agreement, subject to certain exceptions, the Company and certain of the Company’s executive officers and directors have agreed that, without the prior written consent of the Underwriter and subject to certain negotiated exceptions, they will not, for a period of 60 days, in either case, following the date of the final prospectus supplement, sell or otherwise dispose of any of the Company’s securities held by them.

 

LPC Purchase Agreement

 

On September 8, 2020, the Company entered into a purchase agreement (the “LPC Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to sell to Lincoln Park up to $26.0 million of shares of the Company’s Common Stock at the Company’s discretion as described below (the “ LPC Offering”).

 

Over the 36-month term of the LPC Purchase Agreement, we have the right, but not the obligation, from time to time, in our sole discretion and subject to certain conditions, including that the closing price of our Common Stock is not below $0.25 per share, to direct Lincoln Park to purchase up to an aggregate amount of $26.0 million (subject to certain limitations) of shares of Common Stock. Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 400,000 shares (the “Regular Purchase Share Limit”) of our Common Stock (each such purchase, a “Regular Purchase”). Lincoln Park’s maximum obligation under any single Regular Purchase will not exceed $1,500,000 unless we mutually agree to increase the maximum amount of such Regular Purchase. The purchase price for shares of Common Stock to be purchased by Lincoln Park under a Regular Purchase will be the equal to the lower of (in each case, subject to the adjustments described in the LPC Purchase Agreement): (i) the lowest sale price for our Common Stock on The Nasdaq Capital Market on the applicable purchase date, and (ii) the arithmetic average of the three lowest sale prices for our Common Stock on The Nasdaq Capital Market during the ten trading days prior to the purchase date.

 

If we direct Lincoln Park to purchase the maximum number of shares of Common Stock we then may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the LPC Purchase Agreement, we may direct Lincoln Park to make an “accelerated purchase” of an additional amount of Common Stock that may not exceed the lesser of (i) 300% of the number of shares purchased pursuant to the corresponding Regular Purchase and (ii) 30% of the total number of shares of our Common Stock traded on The Nasdaq Capital Market during a specified period on the applicable purchase date as set forth in the Purchase Agreement. Under certain circumstances and in accordance with the Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day.

 

The Purchase Agreement prohibits us from issuing or selling to Lincoln Park under the Purchase Agreement: (i) in excess of 6,688,588 shares of our Common Stock (the “Exchange Cap”), unless we obtain stockholder approval to issue shares in excess of the Exchange Cap or the average price of all applicable sales of our Common Stock to Lincoln Park under the LPC Purchase Agreement equal or exceed the lower of (a) the Nasdaq Official Closing Price (as defined in the Purchase Agreement) immediately preceding the execution of the LPC Purchase Agreement or (b) the average of the five Nasdaq Official Closing Prices for the Common Stock immediately preceding the execution of the LPC Purchase Agreement, as adjusted in accordance with the rules of The Nasdaq Capital Market, and (ii) any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Lincoln Park and its affiliates would result in Lincoln Park and its affiliates having beneficial ownership of more than 9.99% of the then total outstanding shares of our Common Stock.

 

 21 
 

 

The LPC Purchase Agreement does not limit our ability to raise capital from other sources at our sole discretion, except that we may not enter into any equity line or similar transaction for 36 months, other than an “at-the-market” offering. The LPC Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties and agreements of us and Lincoln Park, indemnification rights and other obligations of the parties. We have the right to terminate the Purchase Agreement at any time on one business day’s notice to Lincoln Park, at no cost to us.

 

As consideration for entering into the Purchase Agreement, we issued 437,828 shares of our Common Stock to Lincoln Park (the “LPC Commitment Shares”). We will not receive any cash proceeds from the issuance of the LPC Commitment Shares. Also pursuant to the LPC Purchase Agreement, Lincoln Park agreed to an initial purchase of 1,000,000 shares of our Common Stock for an aggregate purchase price of $1,000,000 or $1.00 per share. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares of Common Stock.

 

The LPC Offering is being made pursuant to our effective Registration Statement on Form S-3 (File No. 333-227236) (the “Registration Statement”), which was previously filed with the SEC on September 7, 2018, and declared effective by the SEC on October 12, 2018, and the prospectus supplement related to the offering filed with the SEC on September 8, 2020. Pursuant to the Registration Rights Agreement, under certain circumstances, if the Registration Statement is no longer available for use with respect to the offering, we will be required to file additional registration statement(s).

 

During September 2020, the Company sold and issued an aggregate of 2.0 million shares, including the LPC Commitment Shares, under the LPC Purchase Agreement, receiving approximately $1.5 million in gross proceeds. The Company has sold and issued an aggregate of 0.6 million shares under the LPC Purchase Agreement, receiving approximately $0.4 million in gross proceeds under the LPC Purchase Agreement subsequent to September 30, 2020 through the date of this Quarterly Report on Form 10-Q. As of September 30, 2020, the Company has approximately $24.5 million available under the LPC Purchase 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, the Company’s 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 shares of common stock 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”). At the 2020 Annual Stockholders Meeting of the Company held on June 15, 2020, stockholders approved an amendment to the 2018 Plan, as previously amended, whereby the Company increased the number of shares of common stock available by 2,500,000 to a total of 6,400,000 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”). 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.

 

 22 
 

  

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 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 140,004 shares of Celsion common stock, and (ii) inducement restricted stock awards (the “Inducement Stock Grants”) totaling 13,000 shares of Celsion common stock to two 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 $2.18 which represents the closing price of Celsion’s common stock as reported by the Nasdaq Capital Market on the date of grant. 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 Inducement Stock Grant will vest on the one-year anniversary of the employee’s first day of employment with the Company and is subject to the new employee’s continued service relationship with the Company through such date and is subject to the terms and conditions of the applicable restricted stock agreement.

 

23
 

 

A summary of stock option awards and restricted stock grants for the nine-months ended September 30, 2020 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, 2020   4,332,142   $2.63    8,750   $1.59      
                          
Equity awards granted   654,000   $3.48    429,855   $1.16      
                          
Options exercised   (140,864)  $2.64                
                          
Vested and issued   -   $-    (434,105)  $1.16      
                          
Equity awards forfeited, cancelled, or expired   (192,803)  $2.23    (3,500)  $1.59      
                          
Equity awards outstanding at September 30, 2020   4,652,475   $2.77    1,000   $1.59   8.0 
                          
Aggregate intrinsic value of outstanding equity awards at September 30, 2020  $        $730           
                          
Equity awards exercisable at September 30, 2020   3,220,997   $2.85              7.6 
                          
Aggregate intrinsic value of equity awards exercisable at September 30, 2020  $                     

 

As of September 30, 2020, there was a total of 6,505,924 shares of Celsion common stock reserved for issuance under the 2018 Plan which were comprised of 4,513,471 shares of Celsion common stock subject to equity awards previously granted under the 2018 Plan and 2007 Plan and 1,992,453 shares of Celsion common stock available for future issuance under the 2018 Plan. As of September 30, 2020, there was a total of 140,004 shares of Celsion common stock subject to outstanding inducement awards.

 

Total compensation cost related to stock options and restricted stock awards amounted to $417,476 and $453,680 for the three-month periods ended September 30, 2020 and 2019, respectively. Of these amounts, $164,035 and $188,264 was charged to research and development during the three-month periods ended September 30, 2020 and 2019, respectively, and $253,441 and $265,416 was charged to general and administrative expenses during the three-month periods ended September 30, 2020 and 2019, respectively.

 

Total compensation cost related to stock options and restricted stock awards amounted to $1,448,202 and $1,767,522 for the nine-month periods ended September 30, 2020 and 2019, respectively. Of these amounts, $542,157 and $668,058 was charged to research and development during the nine-month periods ended September 30, 2020 and 2019, respectively, and $906,045 and $1,099,464 was charged to general and administrative expenses during the nine-month periods ended September 30, 2020 and 2019, respectively.

 

24
 

 

As of September 30, 2020, there was $1.9 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 1.3 years. The weighted average grant date fair values of the stock options granted was $3.07 and $1.86 during the nine-month periods ended September 30, 2020 and 2019, respectively. In connection with the Company’s annual 2019 bonus program, the Company issued 429,855 shares of common stock from the 2018 Stock Incentive Plan in lieu of paying cash for 50% of the annual bonus awards. These amounts were fully accrued for in the consolidated financial statements for the year ended December 31, 2019.

 

During 2020, the Company received gross proceeds of $371,895 from the issuance of 140,864 shares of common stock upon exercise of stock option awards under the 2018 Plan. All stock options were exercised under previously established 10b-5 plans. No stock options were exercised in 2019.

 

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:

 

      Nine Months Ended September 30,  
      2020       2019  
Risk-free interest rate     0.66% to 1.33 %     1.69% - 2.65 %
Expected volatility     100.4% to 104.8 %     101.3 -106.2 %
Expected life (in years)     8.0 to 10.0       6.5 - 9.2  
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.

 

Note 13. Earn-out Milestone Liability

 

Pursuant to the Amended Asset Purchase Agreement entered by and between Company and EGWU, Inc in March 2019, payment of the earnout milestone liability related to the Ovarian Cancer Indication of $12.4 million was modified. The Company has the option to make a $7.0 million payment within 10 business days of achieving the milestone; or make a payment of $12.4 million in cash, common stock of the Company, or a combination of either, within one year of achieving the milestone.

 

As of September 30, 2020, June 30, 2020 and December 31, 2019, the Company fair valued the earn-out milestone liability at $7.1 million, $6.0 million, and $5.7 million, respectively, and recognized a non-cash charge of $1.1 and $1.4 million for the three-month and nine-month periods ended September 30, 2020, respectively. In assessing the earnout milestone liability at September 30, 2020, the Company fair valued each of the two payment options per the Amended Asset Purchase Agreement and weighted them at 50% and 50% probability for the $7.0 million and the $12.4 million payments, respectively, and at September 30, 2020, the Company 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 September 30, 2019, June 30, 2019, and December 31, 2018, the Company fair valued the earn-out milestone liability at $5.8 million, $5.9 million and $8.9 million, respectively and recognized a non-cash benefit of $0.1 million and $3.1 million for the three and nine-month periods ended September 30, 2019, respectively. In assessing the earnout milestone liability at September 30, 2019 and June 30, 2019, the Company 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.

 

25
 

 

The following is a summary of the changes in the earn-out milestone liability for the nine-month period ended September 30, 2020:

 

Balance at January 1, 2020  $5,717,709 
Non-cash loss from the change in fair value   1,397,291 
Balance at September 30, 2020  $7,115,000 

 

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
 
             
September 30, 2020   80%   9%  0.38 to 1.38 years 
June 30, 2020   80%   9%  0.54 to 1.54 years 
December 31, 2019   80%   9%  1.12 to 2.12 years 
               
September 30, 2019   80%   9%  0.92 to 1.92 years 
June 30, 2019   80%   9%  0.75 to 1.75 years 
December 31, 2018   80%   9%  1.25 years 

 

Note 14. Warrants

 

Common Stock Warrants

 

Following is a summary of all warrant activity for the nine months ended September 30, 2020:

 

Warrants 

Number of Warrants

Issued

  

Weighted

Average

Exercise Price

 
         
Warrants outstanding at December 31, 2019   626,098   $1.87 
Warrants issued during the nine months ended September 30, 2020   3,522,525   $1.21 
Warrants cancelled during the nine months ended September 30, 2020   (95,057)  $2.63 
           
Warrants outstanding at September 30, 2020   4,053,566   $1.28 
           
Aggregate intrinsic value of outstanding warrants at September 30, 2020  $144,000      

 

26
 

 


Schedule of weighted average exercise price and remaining contractual terms at September 30, 2020 

Warrants provided to EGWU, Inc.

(Note 13)

   All other warrants 
         
Number of warrants issued   200,000    3,853,566 
Weighted average exercise price  $0.01   $1.35 
Weighted average contractual terms remaining   No expiration    5.0 years 

 

Note 15. Leases

 

The Company maintains a lease, as amended, for its 10,870 square foot premises located in Lawrenceville, New Jersey which is currently set to expire September 1, 2023. Also, the Company maintains a lease for an 11,500 square foot premises located in Huntsville Alabama, which is currently set to expire in January 2023.

 

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 Condensed Consolidated Balance Sheet but had no impact on our condensed 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.

 

27
 

 

Following is a table of the lease payments and maturity of our operating lease liabilities as of September 30, 2020:

 

  

For the

year ending

December 31,

 
Remainder of 2020  $131,863 
2021   530,734 
2022   535,579 
2023   233,116 
2024 and thereafter   - 
Subtotal future lease payments   1,431,292 
Less imputed interest   (186,581)
Total lease liabilities  $1,244,711 
      
Weighted average remaining life   2.7 years 
      
Weighted average discount rate   9.98%

 

For the three-month and nine-month periods ended September 30, 2020, operating lease expense was $130,595 and $391,785, respectively and cash paid for operating leases included in operating cash flows was $131,863 and $393,947, respectively. For the three-month and nine-month periods ended September 30, 2019, operating lease expense was $130,595 and $391,785, respectively and cash paid for operating leases included in operating cash flows was $130,631 and $355,216, respectively.

 

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.

 

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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 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.

 

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Note 17. Commitments and Contingencies

 

On September 20, 2019, a purported stockholder of the Company filed a derivative and putative class action lawsuit against the Company and certain officers and directors (the “Shareholder Action”). The Company is a defendant in this derivative and putative class action lawsuit in the Superior Court of New Jersey, Chancery Division, filed by a shareholder against the Company (as both a class action defendant and nominal defendant), and certain of its officers and directors (the “Individual Defendants”), with the caption O’Connor v. Braun et al., Docket No. MER-C-000068-19 (the “Shareholder Action”). The Shareholder Action alleges breaches of the defendants’ fiduciary duties based on allegations that the defendants omitted or made improper statements when seeking shareholder approval of the 2018 Stock Incentive Plan. The Shareholder Action seeks, among other things, any damages sustained by the Company as a result of the defendants’ alleged wrongdoing, a declaratory judgment against all defendants invalidating the 2018 Stock Incentive Plan and declaring any awards made under the Plan invalid, rescinded, and subject to disgorgement, an order disgorging the equity awards granted to the Individual Defendants under the 2018 Stock Incentive Plan, and attorneys’ fees and costs. Without admitting the validity of any of the claims asserted in the Shareholder Action, or any liability with respect thereto, and expressly denying all allegations of wrongdoing, fault, liability, or damage against the Company and the Individual Defendants arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Shareholder Action, the Company and the Individual Defendants have concluded that it is desirable that the claims be settled on the terms and subject to the conditions set forth in the Settlement Agreement. The Company and the Individual Defendants are entering into the Settlement Agreement for settlement purposes only and solely to avoid the cost and disruption of further litigation.

 

On April 24, 2020, the Company, the Individual Defendants, and the plaintiff (the “Parties”) entered into a Settlement Agreement and Release (the “Settlement Agreement”), which memorializes the terms of the Parties’ settlement of the Shareholder Action (the “Settlement”). The Settlement calls for repricing of certain stock options and payment of plaintiff legal fees of $187,500. On July 24, 2020, the Court issued an order approving the Parties’ proposed form of notice to shareholders regarding the Settlement. On August 3, 2020, the Company filed notice of the Settlement Agreement on Form 8-K as filed with the SEC. A hearing was held on September 8, 2020 whereby the Court issued a final approval approving the Settlement. Pursuant to the Settlement, the Company paid $187,500 on October 1, 2020.

 

On October 29, 2020, a putative securities class action was filed against the Company and certain of its officers and directors (the “Spar Individual Defendants”) in the United States District Court for the District of New Jersey, captioned Spar v. Celsion Corporation, et al., Case No. 1:20-cv-15228. The plaintiff alleges that the Company and Individual Defendants made false and misleading statements regarding one of the Company’s product candidates, ThermoDox®, and brings claims for damages under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against all Defendants, and under Section 20(a) of the Exchange Act of 1934 against the Spar Individual Defendants. The Company believes that the case is without merit and intend to defend it vigorously. Due to the early stage of the case, neither the likelihood that a loss, if any, will be realized, nor an estimate of the possible loss or range of loss, if any, can be determined.

 

On October 13, 2020, we received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for our common stock had been below $1.00 per share for the previous 30 consecutive business days, and that we are therefore not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Rule”). Nasdaq’s notice has no immediate effect on the listing or trading of our common stock on The Nasdaq Capital Market. The notice indicates that we will have 180 calendar days, until April 12, 2021, to regain compliance with this requirement. We can regain compliance with the $1.00 minimum bid listing requirement if the closing bid price of our common stock is at least $1.00 per share for a minimum of ten (10) consecutive business days during the 180-day compliance period. If we do not regain compliance during the initial compliance period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for market value of our publicly held shares and all other Nasdaq initial listing standards, except the bid price requirement, and will need to provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period. If we meet these requirements, we expect that Nasdaq will grant us an additional 180 calendar days to regain compliance with the minimum bid price requirement. If it appears to Nasdaq that we will not be able to cure the deficiency, or if we are otherwise not eligible, we expect that Nasdaq will notify us that our common stock will be subject to delisting. We will have the right to appeal a determination to delist our common stock, and our common stock would remain listed on The Nasdaq Capital Market until the completion of the appeal process. We intend to actively monitor the minimum bid price of our common stock and may, as appropriate, consider available options to regain compliance with the Rule.

 

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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, 2019, filed with the SEC on March 25, 2020, 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 oncology company focused on developing a portfolio of innovative cancer treatments, including immunotherapies, DNA-based therapies and directed chemotherapies. The Company’s product pipeline includes GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian cancer and ThermoDox®, a proprietary heat-activated liposomal encapsulation of doxorubicin, currently in Phase III development for the treatment of primary liver cancer and in development for other cancer indications. Celsion has two feasibility stage platform technologies for the development of novel nucleic acid-based immunotherapies and other anti-cancer DNA or RNA therapies. Both are novel synthetic, non-viral vectors with demonstrated capability in nucleic acid cellular transfection. 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.

 

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.

 

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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.

 

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.

 

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”). The Company completed enrollment of 556 patients in the Phase III OPTIMA Study in August 2018.

 

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.

 

On August 5, 2019, the Company announced that the prescribed number of OS events had been reached for the first prespecified interim analysis of the OPTIMA Phase III Study. Following preparation of the data, the first interim analysis was conducted by the DMC on November 1, 2019. This timeline was 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. 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.

 

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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.

 

On November 4, 2019, the Company announced that the DMC unanimously recommended the OPTIMA Study continue according to protocol. The recommendation was based on a review of blinded safety and data integrity from 556 patients enrolled in the Company’s multinational, double-blind, placebo-controlled pivotal Phase III OPTIMA Study. The DMC’s pre-planned interim efficacy review followed 128 patient events, or deaths, which occurred in August 2019. Data presented demonstrated that PFS and OS data appear to be tracking with patient data observed at a similar point in the Company’s subgroup of patients followed prospectively in the earlier Phase III HEAT Study, upon which the OPTIMA Study is based.

 

The data review demonstrated the following:

 

  The OPTIMA Study patient demographics and risk factors are consistent with what the Company observed in the HEAT Study subgroup with all data quality metrics meeting expectations.
     
  Median PFS for the OPTIMA Study reached 17 months as of August 2019. These blinded data compare favorably with 16 months median PFS for all 285 patients in the HEAT Study subgroup of patients treated with RFA >45 minutes.
     
  Median OS for the OPTIMA Study has not been reached as of August 5, 2019, however median OS appears to be consistent with the HEAT Study subgroup of patients treated with RFA >45 minutes and followed prospectively for overall survival.
     
  The OPTIMA Study has lost only 4 patients to follow-up from the initiation of the trial in September 2014 through August 2019 while the trial design allows for 3% risk for loss per year, which at this point would have exceeded 60 patients.

 

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Unblinded PFS and OS were tracking similarly to the subgroup of patients who received more than 45 minutes of RFA in our HEAT Study and followed prospectively for more than three years. This subgroup in the HEAT Study demonstrated a 2-year overall survival advantage and a median time to death of more than 7 ½ years. This tracking appears to bode well for success at the second of two pre-planned interim efficacy analysis, which is intended after a minimum of 158 patient deaths and is projected to occur during the second quarter of 2020. The hazard ratio for success at 158 events is 0.70. This is below the hazard ratio of 0.65 observed in the HEAT Study subgroup of patients treated with RFA > 45 minutes.

 

On April 15, 2020, the Company announced that the prescribed minimum number of events of 158 patient deaths had been reached for the second pre-specified interim analysis of the OPTIMA Phase III Study. The hazard ratio for success at 158 deaths is 0.70, which represents a 30% reduction in the risk of death compared with RFA alone.

 

On July 13, 2020, the Company announced that it has received a recommendation from the DMC to consider stopping the global OPTIMA Study. The recommendation was made following the second pre-planned interim safety and efficacy analysis by the DMC on July 9, 2020. The DMC analysis found that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. However, the 2-sided p-value of 0.524 for this analysis provides uncertainty, subsequently, the DMC has left the final decision of whether or not to stop the OPTIMA Study to Celsion. There were no safety concerns noted during the interim analysis. The Company intends to follow the advice of the DMC and will consider our options either to stop the study or continue to follow patients after a thorough review of the data, and an evaluation of our probability of success. Timing for this decision is made less urgent by the fact that the OPTIMA Study has been fully enrolled since August 2018 and that the vast majority of the trial expenses have already been incurred. On August 4, 2020, the Company issued a press release announcing it will continue following patients for overall survival (“OS”), noting that the unexpected and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis on July 9, 2020, may be associated with a data maturity issue.

 

On October 12, 2020, the Company issued a letter to stockholders providing an update on the ongoing data analysis from its Phase III OPTIMA Study with ThermoDox® as well as growing interest among clinical investigators in conducting studies with ThermoDox® as a monotherapy or in combination with other therapies. In summary, the Company will continue to report findings from these independent statistical analyses before the end of the year, either or both of which will guide our decision to continue to follow patients to the final analysis at 197 or more deaths, a milestone that should be reached sometime in mid-2021.

 

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®.

 

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 tumours 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.

 

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GEN-I OVATION Study. In February 2015, we announced that the FDA accepted, without objection, the Phase I dose-escalation clinical trial of GEN-1 in combination with the standard of care in neoadjuvant ovarian cancer (the “OVATION Study”). On September 30, 2015, we announced enrollment of the first patient in the OVATION Study. The OVATION Study was designed to (i) identify a safe, tolerable and potentially therapeutically active dose of GEN-1 by recruiting and maximizing an immune response; (ii) to enroll three to six patients per dose level and will evaluate safety and efficacy and (iii) attempt to define an optimal dose for a follow-on Phase I/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:

 

  Infiltration of cancer fighting T-cell lymphocytes into primary tumor and tumor microenvironment including peritoneal cavity, which is the primary site of metastasis of ovarian cancer;
     
  Changes in local and systemic levels of immuno-stimulatory and immunosuppressive cytokines associated with tumor suppression and growth, respectively; and
     
  Expression profile of a comprehensive panel of immune related genes in pre-treatment and GEN-1-treated tumor tissue.

 

We initiated the OVATION 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, we announced final clinical and translational research data from the OVATION Study.

 

Key translational research findings from all evaluable patients are consistent with the earlier reports from partial analysis of the data and are summarized below:

 

  The intraperitoneal treatment of GEN-1 in conjunction with neoadjuvant chemotherapy resulted in dose dependent increases in IL-12 and Interferon-gamma (IFN-γ) levels that were predominantly in the peritoneal fluid compartment with little to no changes observed in the patients’ systemic circulation. These and other post-treatment changes including decreases in VEGF levels in peritoneal fluid are consistent with an IL-12 based immune mechanism;
     
  Consistent with the previous partial reports, the effects observed in the IHC analysis were pronounced decreases in the density of immunosuppressive T-cell signals (Foxp3, PD-1, PDL-1, IDO-1) and increases in CD8+ cells in the tumor microenvironment;
     
  The ratio of CD8+ cells to immunosuppressive cells was increased in approximately 75% of patients suggesting an overall shift in the tumor microenvironment from immunosuppressive to pro-immune stimulatory following treatment with GEN-1. An increase in CD8+ to immunosuppressive T-cell populations is a leading indicator and believed to be a good predictor of improved overall survival; and
     
  Analysis of peritoneal fluid by cell sorting, not reported before, shows a treatment-related decrease in the percentage of immunosuppressive T-cell (Foxp3+), which is consistent with the reduction of Foxp3+ T-cells in the primary tumor tissue, and a shift in tumor naïve CD8+ cell population to more efficient tumor killing memory effector CD8+ cells.

 

The Company also reported positive clinical data from the first fourteen patients who completed treatment in the OVATION 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 as summarized below:

 

  Of the fourteen patients treated in the entire study, two patients demonstrated a complete response, ten patients demonstrated a partial response and two patients demonstrated stable disease, as measured by RECIST criteria. This translates to a 100% disease control rate and an 86% objective response rate (“ORR”). Of the five patients treated in the highest dose cohort, there was a 100% ORR with one complete response and four partial responses;

 

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  Fourteen patients had successful resections of their tumors, with nine patients (64%) having a complete tumor resection (“R0”), which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed. Seven out of eight (88%) patients in the highest two dose cohorts experienced a R0 surgical resection. All five patients treated at the highest dose cohort experienced a R0 surgical resection; and
     
  All patients experienced a clinically significant decrease in their CA-125 protein levels as of their most recent study visit. CA-125 is used to monitor certain cancers during and after treatment. CA-125 is present in greater concentrations in ovarian cancer cells than in other cells.

 

On March 2, 2019, the Company announced final PFS results from the OVATION Study. Median PFS in patients treated per protocol (n=14) was 21 months and was 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. Under the current standard of care, in women with Stage III/IV ovarian cancer undergoing NAC, the disease progresses within about 12 months on average. The results from the OVATION Study support continued evaluation of GEN-1 based on promising tumor response, as reported in the PFS data, and the ability for surgeons to completely remove visible tumor at debulking surgery. GEN-1 was well tolerated, and no dose-limiting toxicities were detected. Intraperitoneal administration of GEN-1 was feasible with broad patient acceptance.

 

GEN-1 OVATION 2 Study. The Company held an Advisory Board Meeting on September 27, 2017 with the clinical investigators and scientific experts including those from Roswell Park Cancer Institute, Vanderbilt University Medical School, and M.D. Anderson Cancer Center to review and finalize clinical, translational research and safety data from the Phase IB OVATION Study in order to determine the next steps forward for our GEN-1 immunotherapy program.

 

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

 

In the OVATION 2 Study, patients in the GEN-1 treatment arm will receive GEN-1 plus chemotherapy pre- and post-interval debulking surgery. The OVATION 2 Study will include up to 130 patients with Stage III/IV ovarian cancer, with 12 to 15 patients in the Phase I portion and up to 118 patients in Phase II. The study is powered to show a 33% improvement in the primary endpoint, PFS, when comparing GEN-1 with neoadjuvant + adjuvant chemotherapy versus neoadjuvant + adjuvant chemotherapy alone. The PFS primary analysis will be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months, whichever is later.

 

On November 5, 2019, the Company announced that the independent Data Safety Monitoring Board (DSMB) completed its safety review of data from the first eight patients enrolled in the ongoing Phase I/II OVATION 2 Study. Based on the DSMB’s recommendation, the study will continue as planned and the Company will proceed with completing enrollment in the Phase I portion of the trial.

 

In March 2020, the Company announced encouraging initial clinical data from the first 15 patients enrolled in the ongoing Phase I/II OVATION 2 Study for patients newly diagnosed with Stage III and IV ovarian cancer. The OVATION 2 Study combines GEN-1, the Company’s IL-12 gene-mediated immunotherapy, with standard-of-care neoadjuvant chemotherapy (NACT). Following NACT, patients undergo interval debulking surgery (IDS), followed by three additional cycles of chemotherapy.

 

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GEN-1 plus standard NACT produced positive dose-dependent efficacy results, with no dose-limiting toxicities, which correlates well with successful surgical outcomes as summarized below:

 

  Of the 15 patients treated in the Phase I portion of the OVATION 2 Study, nine patients were treated with GEN-1 at a dose of 100 mg/m² plus NACT and six patients were treated with NACT only. All 15 patients had successful resections of their tumors, with seven out of nine patients (78%) in the GEN-1 treatment arm having an R0 resection, which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed. Only three out of six patients (50%) in the NACT only treatment arm had a R0 resection.
     
  When combining these results with the surgical resection rates observed in the Company’s prior Phase Ib dose-escalation trial (the OVATION 1 Study), a population of patients with inclusion criteria identical to the OVATION 2 Study, the data reflect the strong dose-dependent efficacy of adding GEN-1 to the current standard of care NACT:

 

      % of Patients
with
R0 Resections
 
0, 36, 47 mg/m² of GEN-1 plus NACT  n=12   42%
61, 79, 100 mg/m² of GEN-1 plus NACT  n=17   82%

 

  The objective response rate (ORR) as measured by Response Evaluation Criteria in Solid Tumors (RECIST) criteria for the 0, 36, 47 mg/m² dose GEN-1 patients were comparable, as expected, to the higher (61, 79, 100 mg/m²) dose GEN-1 patients, with both groups demonstrating an approximate 80% ORR.

 

On March 23, 2020, the Company announced that the European Medicines Agency (EMA) Committee for Orphan Medicinal Products (COMP) has recommended that GEN-1 be designated as an orphan medicinal product for the treatment of ovarian cancer. GEN-1, designed using Celsion’s proprietary TheraPlas platform technology, is an IL-12 DNA plasmid vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent, local secretion of the IL-12 protein. GEN-1 previously received orphan designation from the FDA and is currently being evaluated in a Phase I/II clinical trial (the OVATION 2 Study) for the treatment of newly diagnosed patients with Stage III and IV ovarian cancer.

 

On March 26, 2020, the Company announced with Medidata, a Dassault Systèmes company, that examining matched patient data provided by Medidata in a synthetic control arm (SCA) with results from the Company’s completed Phase Ib dose-escalating OVATION I Study with GEN-1 in Stage III/IV ovarian cancer patients showed positive results in progression-free survival (PFS). The hazard ratio (HR) was 0.53 in the intent-to-treat (ITT) group, showing strong signals of efficacy. GEN-1, designed using Celsion’s proprietary TheraPlas platform technology, is an IL-12 DNA plasmid vector encased in a non-viral nanoparticle delivery system, which enables cell transfection followed by persistent, local secretion of the IL-12 protein. Celsion believes these data may warrant consideration of strategies to accelerate the clinical development program for GEN-1 in newly diagnosed, advanced ovarian cancer patients by the FDA. In its March 2019 discussion with Celsion, the FDA noted that preliminary findings from the Phase Ib OVATION I Study were exciting but lacked a control group to evaluate GEN-1’s independent impact on impressive tumor response, surgical results and PFS. The FDA encouraged the Company to continue its GEN-1 development program and consult with FDA with new findings that may have a bearing on designations such as Fast Track and Breakthrough Therapy. SCAs have the potential to revolutionize clinical trials in certain oncology indications and some other diseases where a randomized control is not ethical or practical. SCAs are formed by carefully selecting control patients from historical clinical trials to match the demographic and disease characteristics of the patients treated with the new investigational product. SCAs have been shown to mimic the results of traditional randomized controls so that the treatment effects of an investigational product can be visible by comparison to the SCA. SCAs can help advance the scientific validity of single arm trials, and in certain indications, reduce time and cost, and expose fewer patients to placebos or existing standard-of-care treatments that might not be effective for them.

 

On July 27, 2020, the Company announced the randomization of the first two patients in the Phase II portion of the Phase I/II OVATION 2 Study with GEN-1 in advanced ovarian cancer. The Company anticipates completing enrolment of up to 118 patients in the third quarter of 2021. Because this is an open-label study, the Company intends to provide clinical updates throughout the course of treatment including response rates and surgical resection scores.

 

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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.

 

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 U.S. Food and Drug Administration. The Company has not generated significant revenue and has incurred significant net losses in each year since our inception. As of September 30, 2020, the Company has incurred approximately $309 million of cumulative net losses and we had approximately $18.3 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, 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.

 

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COVID-19 Pandemic

 

In January 2020, the World Health Organization (“WHO”) declared an outbreak of coronavirus, COVID-19, to be a “Public Health Emergency of International Concern,” and the U.S. Department of Health and Human Services declared a public health emergency to aid the U.S. healthcare community in responding to COVID-19. This virus has spread to over 100 countries, including the United States. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets. The Company did not observe significant impacts on its business or results of operations for the three-month and nine-month periods ended September 30, 2020 due to the global emergence of COVID-19. While the extent to which COVID-19 impacts the Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash flows.

 

The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. The disruptions caused by COVID-19 may also disrupt the clinical trials process and enrolment of patients. This may delay commercialization efforts. The Company continues to monitor its operating activities in light of these events and it is reasonably possible that the virus could have a negative effect on the Company’s financial condition and results of operations. The specific impact, if any, is not readily determinable as of the date of these financial statements.

 

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

 

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

 

On July 13, 2020, the Company announced that it has received a recommendation from the independent Data Monitoring Committee (DMC) to consider stopping the global Phase III OPTIMA Study of ThermoDox® in combination with radiofrequency ablation (RFA) for the treatment of hepatocellular carcinoma (HCC), or primary liver cancer. The recommendation was made following the second pre-planned interim safety and efficacy analysis by the DMC on July 9, 2020. The DMC’s analysis found that the pre-specified boundary for stopping the trial for futility of 0.900 was crossed with an actual value of 0.903. The Company followed the advice of the DMC and considered its options to either stop the study or continue to follow patients after a thorough review of the data, and an evaluation of the probability of success. Timing for this decision was made less urgent by the fact that the OPTIMA Study has been fully enrolled since August 2018 and that the vast majority of the trial expenses have already been incurred. On August 4, 2020, the Company issued a press release announcing it will continue following patients for overall survival (“OS”), noting that the unexpected and marginally crossed futility boundary, suggested by the Kaplan-Meier analysis at the second interim analysis on July 9, 2020, may be associated with a data maturity issue. On October 12, 2020, the Company issued a letter to stockholders providing an update on the ongoing data analysis from its Phase III OPTIMA Study with ThermoDox® as well as growing interest among clinical investigators in conducting studies with ThermoDox® as a monotherapy or in combination with other therapies. In summary, the Company will continue to report findings from these independent statistical analyses before the end of the year, either or both of which will guide our decision to continue to follow patients to the final analysis at 197 or more deaths, a milestone that should be reached sometime in mid-2021.

 

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During 2019 and 2018, the Company submitted applications to sell a portion of the Company’s State of New Jersey net operating losses as part of the Technology Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies with unused NOLs and unused research and development credits are allowed to sell these benefits to other New Jersey-based companies. In 2018 and 2019, the Company sold NOLs totaling $13 million receiving net proceeds of $12.2 million. In June 2020 and as updated in September 2020, the Company filed an application with the New Jersey Economic Development Authority to sell substantially all of its remaining State of New Jersey net operating losses totaling $2.0 million available under the program.

 

In June 2018, the Company entered into the Horizon Credit Agreement with Horizon Technology Finance Corporation (“Horizon”) that provided $10 million in new capital (the “Horizon Credit Agreement”). The obligations under the Horizon Credit Agreement are secured by a first-priority security interest in substantially all assets of Celsion other than intellectual property assets. Payments under the loan agreement are interest only (calculated based on one-month LIBOR plus 7.625%) for the first twenty-four (24) months through July 2020, followed by a 24-month amortization period of principal and interest starting on August 1, 2020 and ending through the scheduled maturity date. On August 28, 2020, in connection with the Amendment to the Horizon Credit Agreement, Celsion repaid $5 million of the initial $10 million and $0.2 million in related end of term charges, and the remaining $5 million in obligations were restructured as more fully discussed in Note 10.

 

With $18.3 million in cash, investments, interest receivable and up to $2.0 million in potential proceeds from the sale of the 2019 State of New Jersey net operating losses, coupled with $10.8 million of remaining availability under the Capital-on-Demand™ Sales Agreemen