FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission file number 0-20713
ENTREMED, INC.
_______________
(Exact name of registrant as specified in its charter)
Delaware
58-1959440
(State of Incorporation)
(I.R.S. Employer Identification No.)
9620 Medical Center Drive, Suite 300, Rockville, MD
(Address of principal executive offices)
20850
(Zip Code)
Registrant's telephone number, including area code: (240) 864-2600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
(Title of each class)
The NASDAQ Stock Market LLC
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ___No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act.
Yes___ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes__ No X
As of June 30, 2013, the aggregate market value of the shares of common stock held by non-affiliates was
approximately $51,879,703.
As of March 14, 2014, 27,040,429 shares of the Company’s common stock were outstanding.
Documents Incorporated By Reference
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within
120 days of the end of the fiscal year ended December 31, 2013. The proxy statement is incorporated
herein by reference into the following parts of the Form 10K:
Part III, Item 10, Directors, Executive Officers and Corporate Governance;
Part III, Item 11, Executive Compensation;
Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters;
Part III, Item 13, Certain Relationships and Related Transactions, and Director Independence; and
Part III, Item 14, Principal Accounting Fees and Services.
ENTREMED, INC.
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 2013
TABLE OF CONTENTS
Form 10-K
Part No.
I
Form 10-K
Item No.
1
1A
1B
2
3
4
5
6
7
7A
8
9
9A
9B
10
11
12
13
14
15
II
III
IV
Business 3
Description
Page No.
Risk Factors 13
Unresolved Staff Comments 21
Properties 21
Legal Proceedings 21
Mine Safety Disclosure 21
Market for Registrant's Common Equity,
Related Stockholder Matters
And Issuer Purchases of Equity Securities
21
Selected Financial Data 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
Quantitative and Qualitative Disclosures
About Market Risk 30
Financial Statements and Supplementary Data 30
Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 31
Controls and Procedures
Other Information
31
31
Directors, Executive Officers and Corporate Governance 32
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Audited Consolidated Financial Statements
32
32
33
33
33
37
F-1
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities
Exchange Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-
looking statements also may be included in other statements that we make. All statements that are not descriptions of
historical facts are forward-looking statements. These statements can generally be identified by the use of forward-looking
terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology.
These forward-looking statements include, among others, statements regarding the timing of our clinical trials, our cash
position and future expenses, and our future revenues.
Actual results could differ materially from those currently anticipated due to a number of factors, including: the
risk that we may be unable to continue as a going concern as a result of our inability to raise sufficient capital for our
operational needs; the possibility that we may be delisted from trading on the Nasdaq Capital Market; the volatility of our
common stock; the difficulty of executing our business strategy in China; our inability to enter into strategic partnerships
for the development, commercialization, manufacturing and distribution of our proposed product candidate or future
candidates; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable
terms; risks associated with our product candidates; risks associated with any early-stage products under development; the
risk that results in preclinical models are not necessarily indicative of clinical results; uncertainties relating to preclinical
and clinical trials, including delays to the commencement of such trials; the lack of success in the clinical development of
any of our products; dependence on third parties; and risks relating to the commercialization, if any, of our proposed
products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks).
We caution investors that actual results or business conditions may differ materially from those projected or
suggested in forward-looking statements as a result of various factors including, but not limited to, those described above
and in Section IA, “Risk Factors” of this Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (this
“Annual Report”) and our other filings with the Securities and Exchange Commission (“SEC”). We cannot assure you
that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not
possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to
which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking
statements. Readers should not place undue reliance on forward-looking statements. We undertake no obligation to
publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
2
ITEM 1. BUSINESS.
PART I
EntreMed, Inc. (“EntreMed” or “the Company”) (Nasdaq: ENMD) is a clinical-stage pharmaceutical
company employing a drug development strategy that leverages resources in both North America and in China to
develop therapeutics for the treatment of cancer and other diseases. The Company is currently conducting activities
in both China and North America in order to accelerate delivery of clinical data and to reduce costs of clinical trials.
Our lead drug candidate is ENMD-2076, a selective Aurora A and angiogenic kinase inhibitor for the treatment of
cancer, which we will continue to develop with approval by the United States Food and Drug Administration (the
“FDA”). In parallel, we will include ENMD-2076 in clinical sites in China as an import drug as well as develop
ENMD-2076 in China locally under the China Food and Drug Administration (“CFDA”). The Company’s market
focus includes developed countries, and also in particular, China, which has a pharmaceutical products market that
we believe will continue to grow rapidly. Through partnerships, collaborations and strategic acquisitions, we intend
to add additional drug candidates to our pipeline for development using the Company’s US and China strategy. The
Company intends to employ a market-oriented approach to identify pharmaceutical candidates that it believes have
the potential for gaining widespread market acceptance, either globally or in China, and for which development can
be accelerated under the Company’s US and China drug development strategy.
ENMD-2076
ENMD-2076 is an orally-active, Aurora A/angiogenic kinase inhibitor with a unique kinase selectivity
profile and multiple mechanisms of action. ENMD-2076 exerts its effects through multiple mechanisms of action,
including anti-proliferative activity and the inhibition of angiogenesis. ENMD-2076 has been shown to inhibit a
distinct profile of angiogenic tyrosine kinase targets in addition to the Aurora A kinase. Aurora kinases are key
regulators of mitosis (cell division), and are often over-expressed in human cancers. ENMD-2076 also targets the
VEGFR, Flt-3, and FGFR3 kinases which have been shown to play important roles in the pathology of several
cancers. ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including
tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-
treated human leukemia patient cells. ENMD-2076 also has shown promising activity in Phase 1 clinical trials in
solid tumor cancers including ovarian, breast, liver, renal and sarcoma, as well as in leukemia and multiple
myeloma. EntreMed is completing a Phase 2 trial of ENMD-2076 in ovarian cancer. In addition, EntreMed is
currently conducting a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast cancer, a Phase 2
study in advanced/metastatic soft tissue sarcoma, and a Phase 2 study in advanced ovarian clear cell carcinoma. The
status and development of ENMD-2076 is outlined below:
Disease Indication
Status
Sites
Advanced Solid
tumors
Phase 1 trial completed
(cid:2) University of Colorado
(cid:2) Dana-Farber Cancer Institute
Leukemia
Phase 1 trial completed
(cid:2) Princess Margaret Hospital
Multiple Myeloma
Phase 1 trial completed
(cid:2) Indiana University Melvin & Bren Simon Cancer Center
Ovarian Cancer
Phase 2 trial being completed,
enrollment closed
(cid:2) Dana-Farber Cancer Institute
(cid:2) University of Colorado
(cid:2) Memorial Sloan-Kettering Cancer Center
(cid:2) Indiana University Melvin & Bren Simon Cancer Center
(cid:2) University of Chicago Medical Center
(cid:2) Princess Margaret Hospital
Triple-Negative Breast
Cancer
Phase 2 currently enrolling
(cid:2) University of Colorado
(cid:2) Indiana University
3
New trial application accepted
by CFDA, pending review
and approval
(cid:2) China site(s) to be determined
Advanced/Soft Tissue
Sarcoma
Phase 2 currently enrolling
(cid:2) Princess Margaret Hospital
Healthy Volunteer
Advanced Ovarian
Clear Cell Carcinoma
New trial application accepted
by CFDA, pending review
and approval
Phase 1 crossover
bioequivalent trial being
completed, enrollment closed
Phase 2 currently enrolling
New trial application accepted
by CFDA, pending review
and approval
(cid:2) China site(s) to be determined
(cid:2) Celerion, Inc.
(cid:2) Princess Margaret Hospital
(cid:2) China site(s) to be determined
Clinical Phase 1 results were published (Clin Cancer Res 2011;17:849-860) and data from the leukemia and
myeloma studies were presented during the American Society of Hematology meeting in December 2010. Anti-
cancer activity was demonstrated with ENMD-2076 treatment in a variety of solid and hematological cancer
patients. Also, as previously reported, at the American Society of Clinical Oncology (ASCO) Annual Meeting in
June 2011, Phase 2 data in ovarian cancer patients was presented by the principal investigator conducting the Phase
2 ENMD-2076 study. The data demonstrated ENMD-2076 activity in a population of difficult to treat platinum
resistant patients. In October 2011, we announced that the final data for the primary endpoint of progression free
survival rate at 6 months was 22 percent. Phase 2 data in ovarian cancer were also published in the European
Journal of Cancer in September 2012 in an article entitled “ENMD-2076, an Oral Inhibitor of Angiogenic and
Proliferation Kinases, Has Activity in Recurrent, Platinum Resistant Ovarian Cancer.” We believe that the data,
together with the Phase 1 results, provide support for additional clinical studies in ovarian cancer and other forms of
cancer. We continue to monitor patients who are receiving ENMD-2076, and are focused on collecting additional
data on overall survival and other endpoints.
In July 2012, we commenced a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast
cancer. The study is being conducted at the University of Colorado Cancer Center, with a second sited added in
December 2012 at Indiana University Melvin & Bren Simon Cancer Center.
In November 2012, results of a preclinical study in triple-negative breast cancer (TNBC) of ENMD-2076
were published in the article, entitled “Predictive Biomarkers of Sensitivity to the Aurora and Angiogenic Kinase
Inhibitor ENMD-2076 in Preclinical Breast Cancer Models.” Through this study, ENMD-2076 shows activity
against preclinical models of breast cancer with more robust activity against TNBC. We believe the study also
supports further clinical investigation of ENMD-2076 in patients with metastatic TNBC with an emphasis on the
continued development of p53-based predictive biomarkers. We also believe the study provides additional support
for our ongoing Phase 2 TNBC trial.
In December 2012, to advance our global development strategy, we filed a new drug clinical trial
application with the CFDA to conduct global clinical trials in triple-negative breast cancer patients using our
proprietary drug candidate, ENMD-2076. The CFDA has accepted our application package, and we are working
with the CFDA to move the process forward towards approval. The CFDA’s approval of our application would
allow us to conduct clinical trials in China and supplement our ongoing Phase 2 triple-negative breast cancer trial
currently underway at the University of Colorado and Indiana University.
In January 2013, we commenced a single-center Phase 2 study of Oral ENMD-2076 administered to
patients with advanced/metastatic soft tissue sarcoma. The study is being conducted at Princess Margaret Hospital
in Toronto, Canada.
4
In June 2013, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2
clinical trial of ENMD-2076 in advanced/metastatic sarcoma. The CFDA has accepted our application package, and
we are working with the CFDA to move the process forward towards approval. The CFDA’s approval of our
application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2
advanced/metastatic sarcoma trial currently underway at Princess Margaret Hospital.
In July 2013, we initiated a crossover bioavailability and food effect study of ENMD-2076. The study was
to be a single-blind, randomized, single-dose, crossover study with a food effect arm to investigate the safety and
relative bioavailability of two dosage forms of ENMD-2076 administered as escalating doses in two cohorts of
healthy subjects. The study was expected to enroll approximately 29 healthy adult volunteers and be conducted in
Tempe, Arizona by a clinical research organization. The pharmacokinetic data from the first cohort (compared the
two dosage forms in fasted state), demonstrated ENMD-2076’s relative bioavailability, and EntreMed took the
position that continuing the study would be unnecessary. The data was submitted for review by the FDA, and the
FDA gave EntreMed permission to stop the study after the first cohort. Cohort 1 involved 14 healthy volunteers that
were dosed with the two dosage forms. The final clinical study report is expected to be completed in the second
quarter of 2014.
In October 2013, we commenced a multi-center Phase 2 study of Oral ENMD-2076 administered to
patients with ovarian clear cell carcinomas. The study is being conducted at Princess Margaret Hospital in Toronto,
Canada with participation of up to seven additional cancer centers in Canada and the United States.
In January 2014, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2
clinical trial of ENMD-2076 in advanced ovarian clear cell carcinoma. The CFDA has accepted our application
package, and we are working with the CFDA to move the process forward towards approval. The CFDA’s approval
of our application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2 ovarian
clear cell carcinoma trial currently underway at Princess Margaret Hospital.
ENMD-2076 has received orphan drug designation from the FDA for the treatment of ovarian cancer,
multiple myeloma and acute myeloid leukemia. In the United States, the Orphan Drug Act is intended to encourage
companies to develop therapies for the treatment of diseases that affect fewer than 200,000 people in this country.
Orphan drug designation provides us with seven years of market exclusivity that begins once ENMD-2076 receives
FDA marketing approval for a specific indication. It also provides certain financial incentives that can help support
the development of ENMD-2076.
We intend to advance clinical development of ENMD-2076, and the implementation of our plans will
include leveraging our resources in both the United States and China. In order to capitalize on the drug development
and capital resources available in China, the Company is doing business in China through its wholly-owned Chinese
subsidiary. The Chinese subsidiary will execute the China portion of the Company’s drug development strategy,
including conducting clinical trials in China, pursuing local funding opportunities and strategic collaborations, and
implementing the Company’s plan for accelerated development and commercialization in the Chinese market.
OTHER PRODUCT CANDIDATES
ENMD-2076 is our only program currently under active clinical evaluation. Our other product candidates
in the pipeline include (i) 2-methoxyestrdiol (2ME2) for autoimmune diseases for which we have an approved
Investigational New Drug Application (IND) in rheumatoid arthritis treatment and (ii) MKC-1. We own or have
exclusive license to these products.
2ME2 (2-methoxyestradiol) for Autoimmune Diseases. 2ME2 (2-methoxyestradiol) is an orally active
compound that has antiproliferative, antiangiogenic and anti-inflammatory properties. The inhibition of
angiogenesis is an important approach to the treatment of both cancer and rheumatoid arthritis (“RA”). 2ME2 (2-
methoxyestradiol) has potential as a single agent in RA based on its antiangiogenic, anti-inflammatory, and anti-
osteoclastic (bone resorption) properties. Clinical trial activities have previously been conducted with 2ME2 in RA,
but in an effort to focus on the development of ENMD-2076, no significant additional resources have been expended
5
on this program. In December 2012, preclinical results for 2ME2 were published online in the Early Edition of
Proceedings of the National Academy of Sciences (PNAS). Together with our previous findings of its disease
modifying activity in RA animal models, the study further extended 2ME2’s therapeutic value to the management of
multiple sclerosis, RA and possibly other autoimmune disorders. The Company is exploring multiple strategies for
the development of 2ME2 including potential internal development and partnership opportunities.
MKC-1 for Oncology. MKC-1 is an orally-active, small molecule, cell cycle inhibitor with in vitro and in
vivo efficacy against a broad range of human solid tumor cell lines, including multi-drug resistant cell lines. MKC-
1 acts through multiple mechanisms of action, arresting cellular mitosis and inducing cell death (apoptosis) by
binding to a number of different cellular proteins, including tubulin and members of the importin (cid:3) family. MKC-1
has demonstrated broad antitumor effects in multiple preclinical models, including paclitaxel-resistant models, and
was evaluated in several Phase 1 and 2 clinical studies prior to the licensing of the drug from Hoffman La Roche.
Since acquired by EntreMed, MKC-1 has shown single agent antitumor activity in breast cancer patients and in
combination with Alimta® in [non-small cell lung carcinoma] patients. MKC-1 has completed multiple Phase 2
clinical trials for cancer. MKC-1 is available to potential parties interested in partnering with the Company for
further clinical evaluation.
PRECLINICAL
Our focus is on clinical-stage or clinical-stage ready drug candidates so that we can immediately employ
our US and China drug development model to accelerate clinical and regulatory progress. We will however be
opportunistic with innovative compounds presented to us and will continue to foster our deep relationships with the
science, research and academic communities.
OPERATING LOSSES
To date, we have been engaged exclusively in research and development activities. As a result, we have
incurred operating losses through December 31, 2013 and expect to continue to incur operating losses for the
foreseeable future before commercialization of any products. We spent $2,749,000 on research and development in
2013, as compared to $2,375,000 in 2012. The increase in research and development spending relates to patients
enrolling in and remaining on clinical trials during 2013, offset by a decrease in patent fees. To accomplish our
business goals, we, or prospective development partners, will be required to conduct substantial development
activities for ENMD-2076 and any future product candidates that we intend to pursue to commercialization. We
may continue to raise capital through the public or private sale of securities. There can be no assurance that we will
be successful in securing such additional capital on favorable terms, if at all.
MANAGEMENT
The current senior management team includes: Dr. Ken K. Ren, Chief Executive Officer; Cynthia W. Hu,
Chief Operating Officer, General Counsel & Secretary; and Sara B. Capitelli, Vice President, Finance & Principal
Accounting Officer. Dr. Wei-Wu He serves as our Chairman. The Company, as part of its normal operations, also
has consulting relationships with a core team of experts in clinical trial design, FDA and CFDA strategy, scientific
research, manufacturing and formulation, among others.
Our management team promotes and instills a corporate culture of prudent resource management, fiscal
responsibility and accountability, while maintaining an environment of innovation and entrepreneurialism in order to
quickly respond to opportunities and to react to any changes in market conditions and in the regulatory landscape.
SCIENTIFIC FOUNDATION
We developed our product candidates based on comprehensive research into the relationship between
malignancy and angiogenesis (the growth of new blood vessels). This research led to a focus on product candidates
that act on the cellular pathways that affect biological processes important in multiple diseases, specifically
angiogenesis and cell cycle regulation through the inhibition of key kinases. Our product candidate, ENMD-2076,
6
has potential applications in oncology and other diseases that are dependent on the regulation of these processes.
Kinase Inhibition. Kinases are enzymes that are primary regulators of many essential processes in living
cells. There are approximately 500 different kinases encoded in the human genome, and these proteins act together
in intricate communication networks and pathways to control virtually every aspect of cellular function. The
reliance of a cell on kinases to regulate function can be disastrous when kinase signaling becomes aberrant. Many
human diseases have been linked to these enzymes including all forms of cancer, arthritis, inflammation, diabetes,
and cardiovascular disease. The inhibition of kinases as a targeted therapeutic approach has now been validated by
several drugs that have advanced successfully through clinical trials to the marketplace. The integral role kinases
play in angiogenesis and cell cycle regulation has led us to develop inhibitors to key kinases involved in these
processes.
Cell Cycle Regulation. Precise regulation of the cell cycle is essential for healthy cell functions including
the replication, growth, and differentiation. One specific aspect of cell cycle regulation is the programmed control
of cell death (apoptosis). In certain diseases, such as cancer, the balance between cell proliferation and cell death is
altered, resulting in inappropriate cell growth. Our compounds impact biochemical pathways in cells that result in
their death via apoptosis. We believe that the selective induction of apoptosis through drugs that induce cell cycle
arrest can either stabilize or cause the regression of cancer, inflammation and other disease processes characterized
by inappropriate cell growth.
Angiogenesis. Angiogenesis is a multi-step process whereby new blood vessels are formed. This tightly
regulated process involves the migration, proliferation and differentiation of endothelial cells. In normal
physiology, angiogenesis is a necessary component of the menstrual cycle and wound healing, where the process is
regulated through appropriate shifts in the balance of pro-angiogenic and anti-angiogenic signals. This tight
regulation of angiogenesis in normal physiology is absent or aberrant in multiple disease settings that are
characterized by persistent, inappropriate blood vessel development. Inappropriate angiogenesis occurs in more
than 80 diseases, particularly in various cancers where the growth of new blood vessels is necessary to sustain tumor
growth.
BUSINESS DEVELOPMENT AND COMMERCIALIZATION STRATEGY
Oncology is our principal clinical and commercial focus. Based on ENMD-2076’s strong preclinical anti-
tumor activity, favorable safety profile and bioavailability, we believe that it has significant therapeutic potential in a
broad range of tumor types and will continue to invest behind ENMD-2076 as our lead program. We believe that
ENMD-2076 represents a potential Phase 3 partnering opportunity for large biopharmaceutical companies or drug
development companies for either global or other territory rights outside of China. As a result, our strategy is to
pursue the development of ENMD-2076 for oncology, obtain additional clinical data while being selective and
opportunistic in exploring strategic alliances for this and other future compounds in our pipeline. We intend to
employ a market-oriented approach to identify pharmaceutical candidates that we believe have the potential for
gaining widespread market acceptance, either globally or in China, and for which development can be accelerated
under the Company’s US and China drug development strategy. We may pursue co-development partners for our
other pipeline product candidates to help accelerate their development and strengthen the development program with
complementary expertise. We can also provide our co-development partners with substantial know-how relating to
small molecules that inhibit angiogenesis and inflammation, as well as regulate cell cycle pathways.
In 2012, we established a wholly-owned Chinese subsidiary that is executing the China portion of our drug
development strategy, which will include conducting clinical trials in China, pursuing local funding opportunities
and strategic collaborations, and implementing our plan for accelerated development and commercialization in the
Chinese market.
RELATIONSHIPS RELATING TO CLINICAL PROGRAMS
Contract Manufacturing. The manufacturing efforts for the production of our clinical trial materials are
performed by contract manufacturing organizations. Established relationships, coupled with supply agreements,
have secured the necessary resources to supply clinical materials for our clinical development program. We believe
7
that our current strategy of outsourcing manufacturing is cost-effective and allows for the flexibility we require.
Sponsored Research Agreements. To support development efforts, we have entered into sponsored
research agreements with outside scientists to conduct specific projects. Under these agreements, we have secured
the rights to intellectual property and to develop under exclusive license any discoveries resulting from these
collaborations. The funds, if any, we provide in accordance with these agreements partially support the scientists’
laboratory, research personnel and research supplies.
Clinical Trial Centers. As of March 14, 2014, we are conducting clinical trials for ENMD-2076 at the
following institutions:
Clinical Trial
Phase 2 Ovarian Cancer
(being completed; enrollment closed)
Institution
(cid:2) Princess Margaret Hospital, Toronto, Ontario
(cid:2) Indiana University Melvin & Bren Simon Cancer Center,
Indianapolis, IN
Phase 2 Triple-Negative Breast Cancer
(currently enrolling)
(cid:2) University of Colorado Cancer Center, Aurora, CO
(cid:2) Indiana University Melvin & Bren Simon Cancer Center,
Indianapolis, IN
Phase 2 Advanced/Soft Tissue Sarcoma
(currently enrolling)
Phase 1 Crossover Bioavailability
Equivalent (being completed;
enrollment closed)
Phase 2 Advanced Ovarian Clear Cell
Carcinoma (currently enrolling)
(cid:2) Princess Margaret Hospital, Toronto, Ontario
(cid:2) Celerion, Inc., Tempe, AZ
(cid:2) Princess Margaret Hospital, Toronto, Ontario
INTELLECTUAL PROPERTY
We generally seek patent protection for our technology and product candidates in the United States,
Canada, China and other key markets. The patent position of biopharmaceutical companies generally is highly
uncertain and involves complex legal and factual questions. Our success will depend, in part, on whether we can: (i)
obtain patents to protect our own products; (ii) obtain licenses to use the technologies of third parties, which may be
protected by patents; (iii) protect our trade secrets and know-how; and (iv) operate without infringing the intellectual
property and proprietary rights of others.
With respect to our lead drug candidate, ENMD-2076, we directly own 9 granted patents or allowed patent
applications (including 2 granted United States patents, 1 granted Chinese patent, and 6 granted patents and 5
additional pending patent applications in other countries). The patent term for U.S. Patent No. 7,563,787 will expire
March 5, 2027, assuming all maintenance fees are paid. If and when the FDA approves ENMD-2076, this patent
term may be extended. The patent terms of our granted patents (including any patents issuing from our pending
patent applications) in other countries will expire September 29, 2026, assuming all annuities are paid and not
considering any term extensions for regulatory approval that might be available.
With respect to our entire patent estate for all of our product candidates, we directly own 7 granted patents
and pending patent applications in the United States, 20 foreign granted patents and pending patent applications, and
in connection with MKC-1, we have exclusively in-licensed an extensive patent estate of granted patents and
pending patent applications worldwide. We review and assess our portfolio on a regular basis to secure protection
and to align our patent strategy with our overall business strategy.
We have trademark protection for the trademark ENTREMED.
8
GOVERNMENT REGULATION
U.S. Food and Drug Administration (FDA)
Our development, manufacture, and potential sale of therapeutics in the United States, China and other
countries are subject to extensive regulations by federal, state, local and foreign governmental authorities.
In the United States, the FDA regulates product candidates currently being developed as drugs or biologics.
New drugs are subject to regulation under the Federal Food, Drug, and Cosmetic Act (FFDCA), and biological
products, in addition to being subject to certain provisions of that Act, are regulated under the Public Health Service
Act (PHSA). We believe that the FDA will regulate the products currently being developed by us or our
collaborators as new drugs. Both the FFDCA and PHSA and corresponding regulations govern, among other things,
the testing, manufacturing, safety, efficacy, labeling, storage, recordkeeping, advertising and other promotion of
biologics or new drugs, as the case may be. FDA clearances or approvals must be obtained before clinical testing,
and before manufacturing and marketing of biologics or drugs.
Preparing drug candidates for regulatory approval has historically been a costly and time-consuming
process. Generally, in order to gain FDA permission to test a new agent, a developer first must conduct preclinical
studies in the laboratory and in animal model systems to gain preliminary information on an agent's effectiveness
and to identify any safety problems. The results of these studies are submitted as a part of an Investigational New
Drug Application (“IND”) for a drug or biologic, which the FDA must review before human clinical trials of an
investigational drug can begin. In addition to the known safety and effectiveness data on the drug or biologic, the
IND must include a detailed description of the clinical investigations proposed. Based on the current FDA
organizational structure, ENMD-2076 is regulated as a new chemical entity by the FDA’s Center for Drug
Evaluation and Research. Generally, as new chemical entities like our small molecules are discovered, formal IND-
directed toxicology studies are required prior to initiating human testing. Clinical testing may begin 30 days after
submission of an IND to the FDA unless FDA objects to the initiation of the study or has outstanding questions to
discuss with the IND sponsor.
In order to commercialize any drug or biological products, we or our collaborators must sponsor and file an
IND and conduct clinical studies to demonstrate the safety and effectiveness necessary to obtain FDA approval of
such products. For studies conducted under INDs sponsored by us or our collaborators, we or our collaborators will
be required to select qualified investigators (usually physicians within medical institutions) to supervise the
administration of the products, test or otherwise assess patient results, and collect and maintain patient data; monitor
the investigations to ensure that they are conducted in accordance with applicable requirements, including the
requirements set forth in the general investigational plan and protocols contained in the IND; and comply with
applicable reporting and recordkeeping requirements.
Clinical trials of drugs or biologics are normally done in three phases, although the phases may overlap.
Phase 1 trials for drug candidates to be used to treat cancer patients are concerned primarily with the safety and
preliminary effectiveness of the drug, involve a small group ranging from 15 - 40 subjects, and may take from six
months to over one year to complete. Phase 2 trials normally involve 30 - 200 patients and are designed primarily to
demonstrate effectiveness in treating or diagnosing the disease or condition for which the drug is intended, although
short-term side effects and risks in people whose health is impaired may also be examined. Phase 3 trials are
expanded clinical trials with larger numbers of patients which are intended to evaluate the overall benefit-risk
relationship of the drug and to gather additional information for proper dosage and labeling of the drug. Phase 3
clinical trials generally take two to five years to complete, but may take longer. The FDA receives reports on the
progress of each phase of clinical testing, as well as reports of unexpected adverse experiences occurring during the
trial. The FDA may require the modification, suspension, or termination of clinical trials, if it concludes that an
unwarranted risk is presented to patients, or, in Phase 2 and 3, if it concludes that the study protocols are deficient in
design to meet their stated objectives.
If clinical trials of a new drug candidate are completed successfully, the sponsor of the product may seek
FDA marketing approval. If the product is classified as a new drug, an applicant must file a New Drug Application
(NDA) with the FDA and receive approval before marketing the drug commercially. The NDA must include
9
detailed information about the product and its manufacturer and the results of product development, preclinical
studies and clinical trials.
The testing and approval processes require substantial time and effort, and there can be no assurance that
any approval will be obtained on a timely basis, if at all. Although it is the policy of the FDA to complete the
review of the initial submission of NDAs within six to twelve months, the entire FDA review process may take
several years. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the NDA does
not satisfy its regulatory criteria and deny the approval. Further, the FDA may require additional clinical studies
before making a decision on approval. In addition, the FDA may condition marketing approval on the conduct of
specific post-marketing studies to further evaluate safety and effectiveness. Even if FDA regulatory clearances are
obtained, a marketed product is subject to continuing regulatory requirements and review relating to Good
Manufacturing Practices, adverse event reporting, promotion and advertising, and other matters. Discovery of
previously unknown problems or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the market, as well as possible civil or
criminal sanctions.
China Food and Drug Administration (CFDA)
We are also subject to regulation and oversight by different levels of the food and drug administration in
China, in particular, the CFDA. Our development activities in China follow two purposes: (1) to obtain clinical data
to support our global FDA-regulated trials, and (2) to obtain clinical data to support local registration with the
CFDA. The “Law of the PRC on the Administration of Pharmaceuticals,” as amended on February 28, 2001,
provides the basic legal framework for the administration of the production and sale of pharmaceuticals in China and
covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products in China. Its
implementation regulations set out detailed implementation rules with respect to the administration of
pharmaceuticals in China. We are also subject to other PRC laws and regulations that are applicable to
manufacturers and distributors in general.
Product Manufacturing. To support local registration with the CFDA, both drug substance and drug product
need to be manufactured locally in China through either a self-owned facility or a contract manufacturing
organization. The drug substance and drug product to be used for clinical trials must be manufactured in compliance
with CFDA Good Manufacturing Practice (GMP) guidelines. A manufacturer of pharmaceutical products and raw
materials must obtain the GMP certification to produce pharmaceutical products and raw materials for marketing in
China. GMP certification criteria include institution and staff qualifications, production premises and facilities,
equipment, raw materials, hygiene conditions, production management, quality controls, product distributions,
maintenance of sales records and manner of handling customer complaints and adverse reaction reports. A GMP
certificate is valid for five years. The certificate must be renewed at least six months before its expiration date. A
manufacturer is required to obtain GMP certificates to cover all of its production operations.
Our current drug substance and product for our China subsidiary has been and will be manufactured through
contract manufacturing for clinical trials supporting local registration with the CFDA. They are all manufactured in
compliance with CFDA GMP guidelines.
In addition, before commencing business, a pharmaceutical manufacturer must also obtain a business license
from the relevant administration for industry and commerce.
Preclinical Research and Clinical Trials. Approval from the CFDA is required to conduct clinical trials. In
order to apply for a clinical trial application approval to support local registration in China, a pharmaceutical
company is required to conduct a series of preclinical research including research on chemistry, pharmacology,
toxicology and pharmacokinetics of pharmaceuticals. This preclinical research should be conducted in compliance
with the relevant regulatory guidelines issued by the CFDA. In particular, safety evaluation research must be
conducted in compliance with China’s Good Laboratory Practice.
After completion of preclinical studies and obtaining the clinical trial approval from the CFDA, clinical
trials are conducted in compliance with China’s Good Clinical Practice and include:
10
Phase 1 – preliminary trial of clinical pharmacology and human safety evaluation studies. The
primary objective is to observe the pharmacokinetics and the tolerance level of the human body to the new
medicine as a basis for ascertaining the appropriate methods of dosage.
Phase 2 – preliminary exploration on the therapeutic efficacy. The purpose is to assess
preliminarily the efficacy and safety of pharmaceutical products on patients with the target indication of the
pharmaceutical products and to provide the basis for the design and dosage tests for Phase 3. The dosing
and methodology of research in this phase generally adopts double-blind, random methods with limited
sample sizes.
Phase 3 – confirm the therapeutic efficacy. The objective is to further verify the efficacy and
safety of pharmaceutical products on patients within the target indication, to evaluate the benefits and risks
and finally to provide sufficient experimentally proven evidence to support the registration application of
the pharmaceutical products. In general, the trial should adopt double-blind random methods with
sufficient sample sizes.
Import Drug Registration or “Global” Clinical Trials. CFDA regulations allow foreign drug developers
to conduct import drug registration or “global” clinical trials in China for a new drug as part of a global drug
development program. A Global Clinical Trial Application needs to be filed with the CFDA and approval is required
prior to conducting the trials. Before a Global Clinical Trial Application is filed with the CFDA, regulations require
the investigational new product that is the subject of the trial to have at least completed a phase 1 clinical trial
overseas, and the new product must currently be in the process of later stages of development.
In order to apply for a Global Clinical Trial Application in China, a biopharmaceutical company is required
to submit a comprehensive investigation new drug application package filed with foreign regulatory agency, i.e. the
FDA, in a format compliant with CFDA guidance.
After obtaining the global clinical trial approval from the CFDA, clinical trials are conducted in compliance
with the both FDA/ICH and CFDA Good Clinical Practice guidelines.
New Drug Registration and Application. After completion of the 3 phases of clinical trials demonstrating
the safety and effectiveness of a pharmaceutical in its targeted indication, a New Drug Registration Application
needs to be filled with the CFDA, which includes research data of chemistry, manufacturing and controls, pre-
clinical studies and clinical trials.
Once new drug registration approval is received, the product can be sold nationwide in China.
COMPETITION
Competition in the pharmaceutical, biotechnology and biopharmaceutical industries is intense and based
significantly on scientific and technological factors, the availability of patent and other protection for technology
and products, the ability and length of time required to obtain governmental approval for testing, manufacturing and
marketing and the ability to commercialize products in a timely fashion. Moreover, the biopharmaceutical industry
is characterized by rapidly evolving technology that could result in the technological obsolescence of any products
that we develop.
We compete with many specialized biopharmaceutical firms, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations. It is probable that the number of
companies seeking to develop products and therapies for the treatment of unmet needs in oncology will increase.
Many biopharmaceutical companies have focused their development efforts in the human therapeutics area,
including oncology and inflammation, and many major pharmaceutical companies have developed or acquired
internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies.
These companies, as well as academic institutions, governmental agencies and private research organizations, also
compete with us in recruiting and retaining highly qualified scientific personnel and consultants.
11
The biopharmaceutical industry has undergone, and is expected to continue to undergo, rapid and
significant technological change. Consolidation and competition are expected to intensify as technical advances in
each field are achieved and become more widely known. In order to compete effectively, we will be required to
continually expand our scientific expertise and technology, identify and retain capable personnel and pursue
scientifically feasible and commercially viable opportunities.
Our competition will be determined in part by the potential indications for which our product candidates
may be developed and ultimately approved by regulatory authorities. The relative speed with which we develop
new products, complete clinical trials, obtain regulatory approvals, and complete the other requirements to get a
pharmaceutical product on the market are critical factors in gaining a competitive advantage. We may rely on third
parties to commercialize our products, and accordingly, the success of these products will depend in significant part
on these third parties' efforts and ability to compete in these markets. The success of any collaboration will depend
in part upon our collaborative partners' own competitive, marketing and strategic considerations, including the
relative advantages of alternative products being developed and marketed by our collaborative partners and our
competitors.
Many of our existing or potential competitors have substantially greater financial, technical and human
resources than we do and may be better equipped to develop, manufacture and market products. In addition, many
of these competitors have extensive experience in preclinical testing and human clinical trials and in obtaining
regulatory approvals. The existence of competitive products, including products or treatments of which we are not
aware, or products or treatments that may be developed in the future, may adversely affect the marketability of
products that we may develop. Our competitors’ drugs may be more effective than any drug we may commercialize
and may render our product candidates obsolete or non-competitive before we can recover the expenses of
developing our product candidates.
EMPLOYEES
Our work force, based in Rockville, MD and Beijing, China, currently consists of 15 full-time employees
and 1 part-time employee. Certain of our activities, such as manufacturing and clinical trial operations, are
outsourced at the present time. We may hire additional personnel, in addition to utilizing part-time or temporary
consultants, on an as-needed basis. None of our employees are represented by a labor union, and we believe our
relations with our employees are satisfactory.
CORPORATE HEADQUARTERS
We were incorporated under Delaware law in 1991. Our principal executive offices are located at 9620
Medical Center Drive, Suite 300, Rockville, Maryland 20850, and our telephone number is (240) 864-2600. We
also lease office space in Beijing, China, where our China operations are based, and also lease laboratory space in
Beijing, China which serves as our R&D Center.
CHINA OPERATIONS
In August 2012, we established a wholly-owned Chinese subsidiary and an office in Beijing, and in 2014,
established a R&D Center in Beijing. Our staff in Beijing currently consists of 10 full-time employees. Among its
activities, our Beijing office helps to oversee the Company’s local manufacturing and formulation activities, as well
as its CFDA regulatory activities. In addition, the Beijing office provides support to our business development
activities.
AVAILABLE INFORMATION
Through our website at www.entremed.com, we make available, free of charge, our filings with the SEC,
including our annual proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after such reports are filed with
or furnished to the SEC. Our filings are also available through the SEC via their website, http://www.sec.gov. You
12
may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The information contained on our website is not incorporated by reference in
this Annual Report on Form 10-K (this “Annual Report”) and should not be considered a part of this report.
ITEM 1A. RISK FACTORS.
We Have a History of Losses and Anticipate Future Losses and May Never Become Profitable on a Sustained
Basis
To date, we have been engaged primarily in research and development activities. Although in the past we
have received limited revenues on royalties from the sales of pharmaceuticals, license fees and research and
development funding from a former collaborator and limited revenues from certain research grants, we have not
derived significant revenues from operations.
We have experienced losses in each year since inception. Through December 31, 2013, we had an
accumulated deficit of approximately $399 million. We will seek to raise capital to continue our operations and
although we have been successfully funded to date through the sales of our equity securities and through limited
royalty payments, there is no assurance that our capital-raising efforts will be able to attract the funding needed to
sustain our operations. If we are unable to obtain additional funding for operations, we may not be able to continue
operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease
operations. In any such event, investors may lose a portion or all of their investment.
Losses have continued since December 31, 2013. We expect that our ongoing clinical and corporate
activities will result in operating losses for the foreseeable future before we commercialize any products, if ever. In
addition, to the extent we rely on others to develop and commercialize our products, our ability to achieve
profitability will depend upon the success of these other parties. To support our research and development of certain
product candidates, we may seek and rely on cooperative agreements from governmental and other organizations as
a source of support. If a cooperative agreement were to be reduced to any substantial extent, it may impair our
ability to continue our research and development efforts. Even if we do achieve profitability, we may be unable to
sustain or increase it.
Our Common Stock May be Delisted From The NASDAQ Capital Market, Which Could Negatively Impact
the Price of Our Common Stock and Our Ability to Access the Capital Markets
If we are not able to comply with the listing standards of the Nasdaq Capital Market, our common stock
will be delisted from Nasdaq and an associated decrease in liquidity in the market for our common stock will occur.
In addition, the delisting of our common stock could materially adversely affect our access to the capital markets,
and any limitation on liquidity or reduction in the price of our common stock could materially adversely affect our
ability to raise capital on terms acceptable to us or at all. Delisting from The NASDAQ Capital Market could also
result in other negative implications, including the potential loss of confidence by our research partners and
suppliers, the loss of institutional investor interest and fewer business development opportunities.
IDG is Our Largest Holder Of Common Stock And May Have Different Interests Than Our Other
Stockholders
IDG-Accel China and its affiliated entities (collectively, “IDG”) hold approximately 20.2% of the
outstanding shares of our common stock (excluding the shares issuable under the warrants held by IDG). IDG is
permitted to have a representative on the Board of Directors and may have interests that are different from the
interests of our other stockholders. We cannot assure that IDG will not seek to influence our business in a manner
that is contrary to our goals or strategies or the interests of our other stockholders.
Subsequent Resales Of Shares Of Our Common Stock In The Public Market May Cause The Market Price
Of Our Common Stock To Fall
13
The market value of our common stock could decline as a result of sales by investors from time to time of a
substantial amount of the shares of common stock held by them.
We Plan To Conduct Development And Operations In China, Which Exposes Us To Risks Inherent In Doing
Business In China
We expect to continue to conduct clinical development related activities in China in 2014. To be
successful in China we will need to: establish clinical trials; attract and retain qualified personnel to operate our
Chinese subsidiary; and attract and retain research and development employees. We cannot assure you that we will
be able to do any of these. Employee turnover in China is high due to the intensely competitive and fluid market for
skilled labor. Operations in China are subject to greater political, legal and economic risks than our operations in
other countries. In particular, the political, legal and economic climate in China, both nationally and regionally, is
fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in Chinese laws and
regulations such as those related to, among other things, taxation, import and export tariffs, environmental
regulations, land use rights, intellectual property, employee benefits and other matters. In addition, we may not
obtain or retain the requisite legal permits to operate in China, and costs or operational limitations may be imposed
in connection with obtaining and complying with such permits. Any one of the factors cited above, or a combination
of them, could result in unanticipated costs, which could materially and adversely affect our business and planned
operations and development in China.
We May Not Be Able To Successfully Identify And Acquire New Product Candidates
Our growth strategy relies on our in-license of new product candidates from third parties. Our pipeline will be
dependent upon the availability of suitable acquisition candidates at favorable prices and upon advantageous terms
and conditions. Even if such opportunities are present, we may not be able to successfully identify appropriate
acquisition candidates. Moreover, other companies, many of which may have substantially greater financial
resources are competing with us for the right to acquire such product candidates.
If a product candidate is identified, the third parties with whom we seek to cooperate may not select us as a
potential partner or we may not be able to enter into arrangements on commercially reasonable terms or at all.
Furthermore, the negotiation and completion of collaborative and license arrangements could cause significant
diversion of management’s time and resources and potential disruption of our ongoing business.
The Current Capital and Credit Market Conditions May Adversely Affect the Company’s Access to Capital,
Cost of Capital, and Ability to Execute its Business Plan as Scheduled
Access to capital markets is critical to our ability to operate. Traditionally, biopharmaceutical companies
(such as we) have funded their research and development expenditures through raising capital in the equity
markets. Declines and uncertainties in these markets over the past few years have severely restricted raising new
capital in amounts sufficient to conduct our ENMD-2076 program and have affected our ability to continue to
expand or fund research and development efforts with our other product candidates. We require significant capital
for research and development for our product candidates and clinical trials. In recent years, the general economic
and capital market conditions in the United States have deteriorated significantly and have adversely affected our
access to capital and increased the cost of capital, and there is no certainty that a recovery in the capital and credit
markets, enabling us to raise capital in an amount to sufficiently fund our short-term and long-term plans, will occur
in 2014. If these economic conditions continue or become worse, our future cost of equity or debt capital and access
to the capital markets could be adversely affected. In addition, our inability to access the capital markets on
favorable terms because of our low stock price, or upon our delisting from the NASDAQ Capital Market if we fail to
satisfy a listing requirement, could affect our ability to execute our business plan as scheduled. Moreover, we rely
and intend to rely on third parties, including our clinical research organizations, third party manufacturers, and
certain other important vendors and consultants. As a result of the current volatile and unpredictable global
economic situation, there may be a disruption or delay in the performance of our third-party contractors and
14
suppliers. If such third parties are unable to adequately satisfy their contractual commitments to us in a timely
manner, our business could be adversely affected.
We Do Not Have Any Active Revenue Streams and We Are Uncertain Whether Additional Funding Will Be
Available For Our Future Capital Needs and Commitments. If We Cannot Raise Additional Funding, or
Access the Capital Markets, We May Be Unable to Complete Development of Our Product Candidates
We will require substantial funds in addition to our existing working capital to develop our product
candidates and otherwise to meet our business objectives. We have never generated sufficient revenue during any
period since our inception to cover our expenses and have spent, and expect to continue to spend, substantial funds
to continue our clinical development programs. Any one of the following factors, among others, could cause us to
require additional funds or otherwise cause our cash requirements in the future to increase materially:
progress of our clinical trials or correlative studies;
results of clinical trials;
changes in or terminations of our relationships with strategic partners;
changes in the focus, direction, or costs of our research and development programs;
competitive and technological advances;
establishment of marketing and sales capabilities;
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2) manufacturing;
(cid:2)
(cid:2)
(cid:3)
the regulatory approval process; or
product launch.
At December 31, 2013, we had cash of approximately $15,132,000. We currently have no commitments or
arrangements for any new additional financing. We may continue to seek additional capital through public or
private financing or collaborative agreements in 2014 and beyond. Our operations require significant amounts of
cash. We may be required to seek additional capital for the future growth and development of our business. We can
give no assurance as to the availability of such additional capital or, if available, whether it would be on terms
acceptable to us. In addition, we may continue to seek capital through the public or private sale of securities, if
market conditions are favorable for doing so. If we are successful in raising additional funds through the issuance of
equity securities, stockholders will likely experience substantial dilution. If we are not successful in obtaining
sufficient capital because we are unable to access the capital markets on favorable terms, it could reduce our
research and development efforts, curtail significantly our development of ENMD-2076 and materially adversely
affect our future growth, results of operations and financial results.
We Do Not Have Any Late Stage Product Candidates
We do not have any late stage clinical programs, and ENMD-2076 is in Phase 2 trials. There is no
assurance that ENMD-2076 will progress to further Phase 2 trials or advance to a Phase 3 trial, or that we will be
able to finance such clinical trials. Accordingly, we do not have any near-term prospects of generating revenues
from the commercial sale of ENMD-2076 or any of our product candidates.
The Market Price of Our Common Stock May Be Highly Volatile or May Decline Regardless of Our
Operating Performance
Our common stock price has fluctuated from year-to-year and quarter-to-quarter and will likely continue to
be volatile. During 2013, our stock price ranged from $1.38 to $3.47. We expect that the trading price of our
common stock is likely to be highly volatile in response to factors that are beyond our control. The valuations of
many biotechnology companies without consistent product revenues and earnings are extraordinarily high based on
conventional valuation standards, such as price to earnings and price to sales ratios. These trading prices and
valuations may not be sustained. In the future, our operating results in a particular period may not meet the
expectations of any securities analysts whose attention we may attract, or those of our investors, which may result in
a decline in the market price of our common stock. Any negative change in the public’s perception of the prospects
15
of biotechnology companies could depress our stock price regardless of our results of operations. These factors may
materially and adversely affect the market price of our common stock.
Development of Our Products is Uncertain
ENMD-2076 is in Phase 2 development and our other product candidates were in the early stage of clinical
development and require significant, time-consuming and costly research and development, testing and regulatory
clearances. In developing our products, we are subject to risks of failure that are inherent in the development of
these product candidates. For example, it is possible that any or all of our proposed products will be ineffective or
toxic, or otherwise will fail to receive necessary FDA and CFDA clearances. There is a risk that the proposed
products will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk
that third parties may hold proprietary rights that preclude us from marketing our proposed products or that others
will market a superior or equivalent product. Further, our research and development activities might never result in
commercially viable products.
A number of companies in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials even after promising results in earlier trials. Since ENMD-2076 is our primary
product candidate any significant clinical setback or an unfavorable outcome in our Phase 2 trials for ENMD-2076
may require us to delay, reduce the scope of, or eliminate this program and could have a material adverse effect on
our company and the value of our common stock.
Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of factors,
including:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
ongoing discussions with regulatory authorities regarding the scope or design of our clinical trials
or requests by them for supplemental information with respect to our clinical trial results;
failure to conduct clinical trials in accordance with regulatory requirements;
lower than anticipated retention rate of patients in clinical trials;
serious adverse events or side effects experienced by participants; and
insufficient supply or deficient quality of product candidates or other materials necessary for the
conduct of our clinical trials.
Many of these factors may also ultimately lead to denial of regulatory approval of a product candidate. If
we experience delays, suspensions or terminations in a clinical trial, the commercial prospects for the related
product candidate will be harmed, and our ability to generate product revenues will be delayed.
Although product candidates may demonstrate promising results in early clinical (human) trials and
preclinical (animal) studies, they may not prove to be effective in subsequent clinical trials. For example, testing on
animals may occur under different conditions than testing in humans and therefore the results of animal studies may
not accurately predict human experience. Likewise, early clinical studies may not be predictive of eventual safety or
effectiveness results in larger-scale pivotal clinical trials. Our clinical development primary focus is on ENMD-
2076, and as such we do not expect to internally pursue clinical investigation of our other product candidates.
There are many regulatory steps that must be taken before any of these product candidates will be eligible
for regulatory approval and subsequent sale, including the completion of preclinical and clinical trials. We do not
expect that our product candidates will be commercially available for several years, if ever.
Developments By Competitors May Render Our Products Obsolete
If competitors were to develop superior drug candidates, our products could be rendered noncompetitive or
obsolete, resulting in a material adverse effect to our business. Developments in the biotechnology and
16
pharmaceutical industries are expected to continue at a rapid pace. Success depends upon achieving and
maintaining a competitive position in the development of products and technologies. Competition from other
biotechnology and pharmaceutical companies can be intense. Many competitors have substantially greater research
and development capabilities, marketing, financial and managerial resources and experience in the industry. Even if
a competitor creates a product that is not superior, we may not be able to compete.
We Must Show the Safety and Efficacy of Our Product Candidates Through Clinical Trials, the Results of
Which are Uncertain
Before obtaining regulatory approvals for the commercial sale of our products, we must demonstrate,
through preclinical studies (animal testing) and clinical trials (human testing), that our proposed products are safe
and effective for use in each target indication. Testing of our product candidates will be required, and failure can
occur at any stage of testing. Clinical trials may not demonstrate sufficient safety and efficacy to obtain the required
regulatory approvals or result in marketable products. The failure to adequately demonstrate the safety and efficacy
of a product under development could delay or prevent regulatory approval of the potential product.
Clinical trials for the product candidates we are developing may be delayed by many factors, including that
potential patients for testing are limited in number. The failure of any clinical trials to meet applicable regulatory
standards could cause such trials to be delayed or terminated, which could further delay the commercialization of
any of our product candidates. Newly emerging safety risks observed in animal or human studies also can result in
delays of ongoing or proposed clinical trials. Any such delays will increase our product development costs. If such
delays are significant, they could negatively affect our financial results and the commercial prospects for our
products.
The Independent Clinical Investigators and Contract Research Organizations That We Rely Upon to Assist
in the Conduct of Our Clinical Trials May Not Be Diligent, Careful or Timely, and May Make Mistakes, in
the Conduct of Our Trials
We depend on independent clinical investigators and contract research organizations, or CROs, to assist in
the conduct of our clinical trials under their agreements with us. The investigators are not our employees, and we
cannot control the amount or timing of resources that they devote to our programs. If independent investigators fail
to devote sufficient time and resources to our drug development programs, or if their performance is substandard, it
could delay the approval of our FDA applications and our introduction of new drugs. The CROs we contract with to
assist with the execution of our clinical trials play a significant role in the conduct of the trials and the subsequent
collection and analysis of data. Failure of the CROs to meet their obligations could adversely affect clinical
development of our products.
The Success of Our Business Depends Upon the Members of Our Senior Management Team, Our Clinical
Development Expertise in Both U.S. and China, and Our Ability to Continue to Attract and Retain Qualified
Clinical, Technical and Business Personnel
We are dependent on the principal members of our senior management team and clinical development team
for our business success. The loss of any of these people could impede the achievement of our development and
business objectives. We do not carry key man life insurance on the lives of any of our key personnel. There is
intense competition for human resources, including management, in the scientific fields in which we operate and
there can be no assurance that we will be able to attract and retain qualified personnel necessary for the successful
development of ENMD-2076 and any new product candidates, and any expansion into areas and activities requiring
additional expertise. In addition, there can be no assurance that such personnel or resources will be available when
needed. In addition, we rely on a significant number of consultants to assist us in formulating our clinical strategy
and other business activities. All of our consultants may have commitments to, or advisory or consulting
agreements with, other entities that may limit their availability to us.
17
We May Need New Collaborative Partners to Further Develop and Commercialize Products, and if We Enter
Into Such Arrangements, We May Give Up Control Over the Development and Approval Process and
Decrease our Potential Revenue
We plan to develop and commercialize our product candidates both with and without corporate alliances
and partners. Nonetheless, we intend to explore opportunities for new corporate alliances and partners to help us
develop, commercialize and market our product candidates. We expect to grant to our partners certain rights to
commercialize any products developed under these agreements, and we may rely on our partners to conduct research
and development efforts and clinical trials on, obtain regulatory approvals for, and manufacture and market any
products licensed to them. Each individual partner will seek to control the amount and timing of resources devoted
to these activities generally. We anticipate obtaining revenues from our strategic partners under such relationships
in the form of research and development payments and payments upon achievement of certain milestones. Since we
generally expect to obtain a royalty for sales or a percentage of profits of products licensed to third parties, our
revenues may be less than if we retained all commercialization rights and marketed products directly. In addition,
there is a risk that our corporate partners will pursue alternative technologies or develop competitive products as a
means for developing treatments for the diseases targeted by our programs.
We may not be successful in establishing any collaborative arrangements. Even if we do establish such
collaborations, we may not successfully commercialize any products under or derive any revenues from these
arrangements. There is a risk that we will be unable to manage simultaneous collaborations, if any, successfully.
With respect to existing and potential future strategic alliances and collaborative arrangements, we will depend on
the expertise and dedication of sufficient resources by these outside parties to develop, manufacture, or market
products. If a strategic alliance or collaborative partner fails to develop or commercialize a product to which it has
rights, we may not recognize any revenues on that particular product.
We Have No Current Manufacturing or Marketing Capacity and Rely on Only One Supplier For Some of
Our Products
We do not expect to manufacture or market products in the near term, but we may try to do so in certain
cases. We do not currently have the capacity to manufacture or market products and we have limited experience in
these activities. The manufacturing processes for all of the small molecules we are developing have not yet been
tested at commercial levels, and it may not be possible to manufacture these materials in a cost-effective manner. If
we elect to perform these functions, we will be required to either develop these capacities, or contract with others to
perform some or all of these tasks. We may be dependent to a significant extent on corporate partners, licensees, or
other entities for manufacturing and marketing of products. If we engage directly in manufacturing or marketing,
we will require substantial additional funds and personnel and will be required to comply with extensive regulations.
We may be unable to develop or contract for these capacities when required to do so in connection with our
business.
We depend on our third-party manufacturers to perform their obligations effectively and on a timely basis.
These third parties may not meet their obligations and any such non-performance may delay clinical development or
submission of products for regulatory approval, or otherwise impair our competitive position. Any significant
problem experienced by one of our suppliers could result in a delay or interruption in the supply of materials to us
until such supplier resolves the problem or an alternative source of supply is located. Any delay or interruption
would likely lead to a delay or interruption of manufacturing operations, which could negatively affect our
operations. Although we have identified alternative suppliers for our product candidates, we have not entered into
contractual or other arrangements with them. If we needed to use an alternate supplier for any product, we would
experience delays while we negotiated an agreement with them for the manufacture of such product. In addition, we
may be unable to negotiate manufacturing terms with a new supplier as favorable as the terms we have with our
current suppliers.
Problems with any manufacturing processes could result in product defects, which could require us to delay
shipment of products or recall products previously shipped. In addition, any prolonged interruption in the operations
of the manufacturing facilities of one of our sole-source suppliers could result in the cancellation of shipments. A
18
number of factors could cause interruptions, including equipment malfunctions or failures, or damage to a facility
due to natural disasters or otherwise. Because our manufacturing processes are or are expected to be highly complex
and subject to a lengthy regulatory approval process, alternative qualified production capacity may not be available
on a timely basis or at all. Difficulties or delays in our manufacturing could increase our costs and damage our
reputation.
The manufacture of pharmaceutical products can be an expensive, time consuming, and complex process.
Manufacturers often encounter difficulties in scaling-up production of new products, including quality control and
assurance and shortages of personnel. Delays in formulation and scale-up to commercial quantities could result in
additional expense and delays in our clinical trials, regulatory submissions, and commercialization.
Failure of Manufacturing Facilities Producing Our Product Candidates to Maintain Regulatory Approval
Could Delay or Otherwise Hinder Our Ability to Market Our Product Candidates
Any manufacturer of our product candidates will be subject to applicable Good Manufacturing Practices
(GMP) prescribed by the FDA or other rules and regulations prescribed by the CFDA and other foreign regulatory
authorities. We and any of our collaborators may be unable to enter into or maintain relationships either
domestically or abroad with manufacturers whose facilities and procedures comply or will continue to comply with
GMP and who are able to produce our small molecules in accordance with applicable regulatory standards. Failure
by a manufacturer of our products to comply with GMP could result in significant time delays or our inability to
obtain marketing approval or, should we have market approval, for such approval to continue. Changes in our
manufacturers could require new product testing and facility compliance inspections. In the United States, failure to
comply with GMP or other applicable legal requirements can lead to federal seizure of violated products, injunctive
actions brought by the federal government, inability to export product, and potential criminal and civil liability on
the part of a company and its officers and employees.
We Depend on Patents and Other Proprietary Rights, Some of Which are Uncertain
Our success will depend in part on our ability to obtain and maintain patents for ENMD-2076 and our other
products, in the United States, China and elsewhere. The patent position of biotechnology and pharmaceutical
companies in general is highly uncertain and involves complex legal and factual questions. Risks that relate to
patenting our products include the following:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
our failure to obtain additional patents;
challenge, invalidation, or circumvention of patents already issued to us;
failure of the rights granted under our patents to provide sufficient protection;
independent development of similar products by third parties; or
ability of third parties to design around patents issued to our collaborators or us.
Our potential products may conflict with composition, method, and use of patents that have been or may be
granted to competitors, universities or others. As the biotechnology industry expands and more patents are issued,
the risk increases that our potential products may give rise to claims that may infringe the patents of others. Such
other persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected products. Any such litigation could result in substantial cost to us and
diversion of effort by our management and technical personnel. If any of these actions are successful, in addition to
any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or
market the affected products. We may not prevail in any action and any license required under any needed patent
might not be made available on acceptable terms, if at all.
We also rely on trade secret protection for our confidential and proprietary information. However, trade
secrets are difficult to protect and others may independently develop substantially equivalent proprietary information
and techniques and gain access to our trade secrets and disclose our technology. We may be unable to meaningfully
19
protect our rights to unpatented trade secrets. We require our employees to complete confidentiality training that
specifically addresses trade secrets. All employees, consultants, and advisors are required to execute a
confidentiality agreement when beginning an employment or a consulting relationship with us. The agreements
generally provide that all trade secrets and inventions conceived by the individual and all confidential information
developed or made known to the individual during the term of the relationship automatically become our exclusive
property. Employees and consultants must keep such information confidential and may not disclose such
information to third parties except in specified circumstances. However, these agreements may not provide
meaningful protection for our proprietary information in the event of unauthorized use or disclosure of such
information.
To the extent that consultants, key employees, or other third parties apply technological information
independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary
rights to such information. Any such disputes may not be resolved in our favor. Certain of our consultants are
employed by or have consulting agreements with other companies and any inventions discovered by them generally
will not become our property.
Our Potential Products Are Subject to Government Regulatory Requirements and an Extensive Approval
Process
Our research, development, preclinical and clinical trials, manufacturing, and marketing of our product
candidates are subject to an extensive regulatory approval process by the FDA, the CFDA in China and other
regulatory agencies. The process of obtaining FDA, CFDA and other required regulatory approvals for drug and
biologic products, including required preclinical and clinical testing, is time consuming and expensive. Even after
spending time and money, we may not receive regulatory approvals for clinical testing or for the manufacturing or
marketing of any products. Our collaborators or we may encounter significant delays or costs in the effort to secure
necessary approvals or licenses. Even if we obtain regulatory clearance for a product, that product will be subject to
continuing review. Later discovery of previously unknown defects or failure to comply with the applicable
regulatory requirements may result in restrictions on a product’s marketing or withdrawal of the product from the
market, as well as possible civil or criminal penalties.
Potential Products May Subject Us to Product Liability for Which Insurance May Not Be Available
The use of our potential products in clinical trials and the marketing of any pharmaceutical products may
expose us to product liability claims. We have obtained a level of liability insurance coverage that we believe is
adequate in scope and coverage for our current stage of development. However, our present insurance coverage
may not be adequate to protect us from liabilities we might incur. In addition, our existing coverage will not be
adequate as we further develop products and, in the future, adequate insurance coverage and indemnification by
collaborative partners may not be available in sufficient amounts or at a reasonable cost. If a product liability claim
or series of claims are brought against us for uninsured liabilities, or in excess of our insurance coverage, the
payment of such liabilities could have a negative effect on our business and financial condition.
We May Engage in Strategic and Other Corporate Transactions, Which Could Negatively Affect Our
Business and Earnings
In 2014, we may consider strategic and other corporate transactions as opportunities present
themselves. There are risks associated with such activities. These risks include, among others, incorrectly assessing
the quality of a prospective strategic partner, encountering greater than anticipated costs in integration, being unable
to profitably deploy assets acquired in the transaction, such as drug candidates, possible dilution to our stockholders,
and the loss of key employees due to changes in management. Further, strategic transactions may place additional
constraints on our resources by diverting the attention of our management from our business operations. To the
extent we issue securities in connection with additional transactions, these transactions and related issuances may
have a dilutive effect on earnings per share and our ownership. Our earnings, financial condition, and prospects
after an acquisition depend in part on our ability to successfully integrate the operations of the acquired business or
20
technologies. We may be unable to integrate operations successfully or to achieve expected cost savings. Any cost
savings which are realized may be offset by losses in revenues or other charges to earnings.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and
are not required to provide the information under this item.
ITEM 2. PROPERTIES.
As of December 31, 2013, we leased approximately 4,200 square feet of office space in Rockville,
Maryland where our headquarters are located. In addition, as of December 31, 2013, we leased approximately 1,900
square feet of office space in Beijing, China where our China operations are based. Additionally, on February 1,
2014, we entered into a lease for approximately 2,600 square feet of lab space in Beijing, China. We believe that
our existing facilities are adequate to meet our needs for the foreseeable future. We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS.
EntreMed is subject in the normal course of business to various legal proceedings in which claims for
monetary or other damages may be asserted. Management does not believe such legal proceedings, except as
otherwise disclosed herein, are material.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Common Equity
The following table sets forth the high and low closing price for our common stock by quarter, as reported
by the NASDAQ Capital Market, for the periods indicated:
Closing Prices
2013:
First Quarter .................................................
Second Quarter ............................................
Third Quarter ...............................................
Fourth Quarter..............................................
2012:
First Quarter .................................................
Second Quarter ............................................
Third Quarter ...............................................
Fourth Quarter……………………………..
HIGH
LOW
$
3.47
2.25
2.04
1.90
$
1.00
1.59
1.72
1.26
$
1.38
1.73
1.75
1.55
$
2.95
2.16
2.48
1.94
On March 14, 2014, the closing price of our common stock, as reported by The NASDAQ Capital Market,
was $1.86 per share. As of March 14, 2014 there were approximately 581 holders of record of our common stock.
Dividend Policy
Since our initial public offering in 1996, we have not paid cash dividends on our common stock. We
currently anticipate that any earnings will be retained for the continued development of our business and we do not
21
anticipate paying any cash dividends on our common stock in the foreseeable future.
In connection with the Company’s financing in 2012, Celgene Corporation (“Celgene”) waived all accrued
dividends on its Series A Preferred, and converted its shares of Series A Preferred to shares of common stock. Upon
conversion, the liquidation preference on such shares of Series A Preferred was eliminated and the class of Series A
Preferred has since been eliminated.
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and
are not required to provide the information under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this report. See also “Risk Factors” in Item 1A of this Annual Report.
OVERVIEW
We are a clinical-stage pharmaceutical company employing a drug development strategy that leverages
resources in both North America and in China to develop therapeutics for the treatment of cancer and other diseases.
We are currently conducting activities in both China and North America in order to accelerate delivery of clinical
data and to reduce costs of clinical trials. Our lead drug candidate is ENMD-2076, a selective Aurora A and
angiogenic kinase inhibitor for the treatment of cancer, which we will continue to develop under the FDA. In
parallel, we will include ENMD-2076 in clinical sites in China as an import drug as well as develop ENMD-2076 in
China locally under the CFDA. Our market focus includes developed countries, and also in particular, China, which
has a pharmaceutical products market that we believe will continue to grow rapidly. Through partnerships,
collaborations, and strategic acquisitions, we intend to add additional drug candidates to our pipeline for
development using our US and China strategy. We intend to employ a market-oriented approach to identify
pharmaceutical candidates that we believe have the potential for gaining widespread market acceptance, either
globally or in China, and for which development can be accelerated under our US and China drug development
strategy.
ENMD-2076 is an orally-active, Aurora A/angiogenic kinase inhibitor with a unique kinase selectivity
profile and multiple mechanisms of action. ENMD-2076 exerts its effects through multiple mechanisms of action,
including anti-proliferative activity and the inhibition of angiogenesis. ENMD-2076 has been shown to inhibit a
distinct profile of angiogenic tyrosine kinase targets in addition to the Aurora A kinase. Aurora kinases are key
regulators of mitosis (cell division), and are often over-expressed in human cancers. ENMD-2076 also targets the
VEGFR, Flt-3, and FGFR3 kinases which have been shown to play important roles in the pathology of several
cancers. ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including
tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-
treated human leukemia patient cells. ENMD-2076 also has shown promising activity in Phase 1 clinical trials in
solid tumor cancers including ovarian, breast, liver, renal and sarcoma, as well as in leukemia and multiple
myeloma. EntreMed is completing a Phase 2 trial of ENMD-2076 in ovarian cancer. In addition, EntreMed is
currently conducting a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast cancer, a Phase 2
study in advanced/metastatic soft tissue sarcoma, and a Phase 2 study in advanced ovarian clear cell carcinoma.
Clinical Phase 1 results were published (Clin Cancer Res 2011;17:849-860) and data from the leukemia and
myeloma studies were presented during the American Society of Hematology meeting in December 2010. Anti-
cancer activity was demonstrated with ENMD-2076 treatment in a variety of solid and hematological cancer
patients. Also, as previously reported, at the American Society of Clinical Oncology (ASCO) Annual Meeting in
June 2011, Phase 2 data in ovarian cancer patients was presented by the principal investigator conducting the Phase
2 ENMD-2076 study. The data demonstrated ENMD-2076 activity in a population of difficult to treat platinum
resistant patients. In October 2011, we announced that the final data for the primary endpoint of progression free
22
survival rate at 6 months was 22 percent. Phase 2 data in ovarian cancer were also published in the European
Journal of Cancer in September 2012 in an article entitled “ENMD-2076, an Oral Inhibitor of Angiogenic and
Proliferation Kinases, Has Activity in Recurrent, Platinum Resistant Ovarian Cancer.” We believe that the data,
together with the Phase 1 results, provide support for additional clinical studies in ovarian cancer and other forms of
cancer. We continue to monitor patients who are receiving ENMD-2076, and are focused on collecting additional
data on overall survival and other endpoints.
In July 2012, we commenced a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast
cancer. The study is being conducted at the University of Colorado Cancer Center, with a second sited added in
December 2012 at Indiana University Melvin & Bren Simon Cancer Center.
In November 2012, results of a preclinical study in triple-negative breast cancer (TNBC) of ENMD-2076
were published in the article, entitled “Predictive Biomarkers of Sensitivity to the Aurora and Angiogenic Kinase
Inhibitor ENMD-2076 in Preclinical Breast Cancer Models.” Through this study, ENMD-2076 shows activity
against preclinical models of breast cancer with more robust activity against TNBC. The study also supports further
clinical investigation of ENMD-2076 in patients with metastatic TNBC with an emphasis on the continued
development of p53-based predictive biomarkers. It provides strong support for the rational of our ongoing Phase 2
TNBC trial.
In December 2012, to advance our global development strategy, we filed a new drug clinical trial
application with the CFDA to conduct global clinical trials in triple-negative breast cancer patients using our
proprietary drug candidate, ENMD-2076. The CFDA has accepted our application package and we are working
with the CFDA to move the process forward towards approval. The CFDA’s approval of our application would
allow us to conduct clinical trials in China and supplement our ongoing Phase 2 triple-negative breast cancer trial
currently underway at the University of Colorado and Indiana University.
In January 2013, we commenced a single-center Phase 2 study of Oral ENMD-2076 administered to
patients with advanced/metastatic soft tissue sarcoma. The study is being conducted at Princess Margaret Hospital
in Toronto, Canada.
In June 2013, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2
clinical trial of ENMD-2076 in advanced/metastatic sarcoma. The CFDA has accepted our application package and
we are working with the CFDA to move the process forward towards approval. The CFDA’s approval of our
application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2
advanced/metastatic sarcoma trial currently underway at Princess Margaret Hospital.
In July 2013, we initiated a crossover bioavailability and food effect study of ENMD-2076. The study was
to be a single-blind, randomized, single-dose, crossover study with a food effect arm to investigate the safety and
relative bioavailability of two dosage forms of ENMD-2076 administered as escalating doses in two cohorts of
healthy subjects. The study was expected to enroll approximately 29 healthy adult volunteers and be conducted in
Tempe, Arizona by a clinical research organization. The pharmacokinetic data from the first cohort (compared the
two dosage forms in fasted state), demonstrated ENMD-2076’s relative bioavailability, and EntreMed took the
position that continuing the study would be unnecessary. The data was submitted for review by the FDA, and the
FDA gave EntreMed permission to stop the study after the first cohort. Cohort 1 involved 14 healthy volunteers that
were dosed with the two dosage forms. The final clinical study report is expected to be completed in early 2014.
In October 2013, we commenced a multi-center Phase 2 study of Oral ENMD-2076 administered to
patients with ovarian clear cell carcinomas. The study is being conducted at Princess Margaret Hospital in Toronto,
Canada with participation of up to seven additional cancer centers in Canada and the United States.
In January 2014, we filed a new drug global clinical trial application with the CFDA to expand our Phase 2
clinical trial of ENMD-2076 in advanced ovarian clear cell carcinoma. The CFDA has accepted our application
package, and we are working with the CFDA to move the process forward towards approval. The CFDA’s approval
of our application would allow us to conduct clinical trials in China and supplement our ongoing Phase 2 ovarian
clear cell carcinoma trial currently underway at Princess Margaret Hospital.
23
ENMD-2076 has received orphan drug designation from the FDA for the treatment of ovarian cancer,
multiple myeloma and acute myeloid leukemia.
ENMD-2076 is our only program currently under active clinical evaluation. Our other product candidates
in the pipeline include 2-methoxyestrdiol (2ME2) for autoimmune diseases, for which we have an approved IND in
RA treatment, and MKC-1. We own or have exclusive licenses to these products.
We intend to advance clinical development of ENMD-2076, and the implementation of our plans will
include leveraging our resources in both the United States and China. In order to capitalize on the drug development
and capital resources available in China, the Company is doing business in China through its wholly-owned Chinese
subsidiary that will execute the China portion of the Company’s drug development strategy, including conducting
clinical trials in China, pursuing local funding opportunities and strategic collaborations, and implementing the
Company’s plan for accelerated development and commercialization in the Chinese market.
Since inception, we have incurred significant losses from operations and have incurred an accumulated
deficit of $399.1 million. We expect to continue to incur operating losses for the foreseeable future due to, among
other factors, our continuing clinical activities. In developing drug candidates, we intend to use and leverage
resources available to us in both the United States and China. We intend to pursue additional financing
opportunities as well as opportunities to raise capital through forms of non- or less- dilutive arrangements, such as
partnerships and collaborations with organizations that have capabilities and/or products that are complementary to
our capabilities and products in order to continue the development of our product candidate that we intend to pursue
to commercialization. However, there can be no assurance that adequate additional financing under such
arrangements will be available to us on terms that we deem acceptable, if at all.
On March 1, 2013, the Company entered into a definitive agreement with certain investors (the “2013
Investors”) for a registered financing in the aggregate amount of approximately $10.8 million (the “2013
Financing”). In connection with the 2013 Financing, we entered into a Securities Purchase Agreement with the
2013 Investors pursuant to which the Company agreed to sell in a registered transaction 4,495,828 shares of the
Company’s common stock and warrants to purchase up to an aggregate of 2,247,912 shares of common stock (the
“2013 Warrants”). The 2013 Warrants cover a number of shares of common stock equal to 50% of the number of
shares purchased by each 2013 Investor. The 2013 Warrants have an exercise price of $2.91 per share and were
exercisable beginning on September 4, 2013 and expire on September 4, 2016. The Company completed the
closings on the 2013 Financing on March 14, 2013 and received net proceeds of approximately $10.3 million.
On January 20, 2012, we entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase
Agreement”) with certain accredited investors (the “2012 Investors”), pursuant to which we issued and sold to the
2012 Investors, in a private placement, subordinated mandatorily convertible promissory notes (collectively, the
“Notes”) with an aggregate principal amount of $10 million (the “2012 Financing”). We also issued warrants (the
“2012 Warrants”) to the Investors to purchase an aggregate of 1,739,132 shares of the Company's common stock.
The 2012 Warrants cover a number of shares of common stock equal to 20% of the principal amount of the Notes
purchased by each investor, divided by $1.15. The 2012 Warrants have an exercise price of $1.40 per share and
were exercisable beginning on July 29, 2012 and expire on July 29, 2017.
The 2012 Financing was completed on February 2, 2012. We received net proceeds of approximately $9.3
million. We received approval of the 2012 Financing from the Company's stockholders at the 2012 annual
stockholders meeting held on April 30, 2012. On May 1, 2012, the Notes, including accrued interest of $144,658,
automatically and immediately converted into 8,821,431 shares of common stock and the 2012 Warrants became
exercisable on July 29, 2012. The Notes bore an interest rate of 6% and converted at a conversion price of $1.15 per
share. The conversion price reflected the 10-day average closing sale price of our Common Stock ended on January
20, 2012.
Additional funds raised by issuing equity securities may result in dilution to existing shareholders.
24
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. Actual results could differ materially from those
estimates. Our critical accounting policies, including the items in our financial statements requiring significant
estimates and judgments, are as follows:
-
-
-
-
Revenue Recognition - We recognize revenue in accordance with the provisions of authoritative guidance
issued, whereby revenue is not recognized until it is realized or realizable and earned. Revenue is
recognized when all of the following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and
collectibility is reasonably assured.
Royalty Revenue – Royalties from licenses are based on third-party sales and recorded as earned in
accordance with contract terms, when third-party results are reliably measured and collectibility is
reasonably assured. Our 2012 revenues were from royalties on the sale of Thalomid®. In 2004, certain
provisions of a purchase agreement, dated June 14, 2001, by and between Bioventure Investments kft
(“Bioventure”) and the Company were satisfied and, as a result, beginning in 2005 we became entitled to
share in the royalty payments received by Royalty Pharma Finance Trust, successor to Bioventure, on
annual Thalomid® sales above a certain threshold. Based on the licensing agreement royalty formula,
annual royalty sharing commences when net royalties received by Royalty Pharma exceeds $15,375,000.
We did not meet the threshold to earn any revenue from royalties on the sale of Thalomid® in 2013 and do
not expect to meet the threshold in any subsequent year.
- We are also eligible to receive royalties from Oxford Biomedica, PLC based on a portion of the net
sales of products developed for the treatment of ophthalmic (eye) diseases based in part on the
Endostatin gene. We did not receive any payment from Oxford Biomedica, PLC in 2012 or 2013. We
do not expect to receive payments from Oxford Biomedica, PLC in 2014.
-
Royalty payments, if any, are recorded as revenue when received and/or when collectibility is
reasonably assured.
Research and Development - Research and development expenses consist primarily of compensation and
other expenses related to research and development personnel, research collaborations, costs associated
with preclinical testing and clinical trials of our product candidates, including the costs of manufacturing
drug substance and drug product, regulatory maintenance costs, and facilities expenses. Research and
development costs are expensed as incurred.
Expenses for Clinical Trials – Expenses for clinical trials are incurred from planning through patient
enrollment to reporting of the data. We estimate expenses incurred for clinical trials that are in process
based on patient enrollment and based on clinical data collection and management. Costs that are
associated with patient enrollment are recognized as each patient in the clinical trial completes the
enrollment process. Estimated clinical trial costs related to enrollment can vary based on numerous factors,
including expected number of patients in trials, the number of patients that do not complete participation in
a trial, and when a patient drops out of a trial. Costs that are based on clinical data collection and
management are recognized in the reporting period in which services are provided. In the event of early
termination of a clinical trial, we accrue an amount based on estimates of the remaining non-cancelable
obligations associated with winding down the clinical trial.
Stock-Based Compensation – All share-based payment transactions are recognized in the financial
statements at their fair values. Compensation expense associated with service, performance, market
condition based stock options and other equity-based compensation is recorded in accordance with
provisions of authoritative guidance. The fair value of awards whose fair values are calculated using the
Black-Scholes option pricing model is generally being amortized on a straight-line basis over the requisite
25
service period and is recognized based on the proportionate amount of the requisite service period that has
been rendered during each reporting period. The fair value of awards with market conditions, which are
valued using a binomial model, is being amortized based upon the estimated derived service period. Share
based awards granted to employees with a performance condition are measured based on the probable
outcome of that performance condition during the requisite service period. Such an award with a
performance condition will be expensed if it is probable that a performance condition will be achieved. As
of December 31, 2013, no expense has been recorded for share awards with performance conditions. Using
the straight-line expense attribution method over the requisite service period, which is generally the option
vesting term ranging from immediately to one to three years, share-based compensation expense
recognized in the years ended December 31, 2013 and 2012 totaled $2,044,000 and $978,000, respectively.
The determination of fair value of stock-based payment awards on the date of grant using the
Black-Scholes or binomial model is affected by our stock price, as well as the input of other subjective
assumptions. These assumptions include, but are not limited to, the expected forfeiture rate and expected
term of stock options and our expected stock price volatility over the term of the awards. Changes in the
assumptions can materially affect the fair value estimates.
Any future changes to our share-based compensation strategy or programs would likely affect the
amount of compensation expense recognized.
RESULTS OF OPERATIONS
Years Ended December 31, 2013 and 2012.
Revenues. There was no revenue recorded in 2013. Revenues were $669,000 in 2012. Our revenues for
2012 reflect royalty revenues received from the sales of Thalomid®. The lack of revenue for 2013 was consistent
with our expectations and results from decreased royalty revenue earned on sales of Thalomid® in the United States.
Annual sales of Thalomid® in 2013 decreased to a level below the threshold amount to trigger a royalty payment to
the Company. As a result we did not earn any royalty revenue in 2013 and do not expect to earn any in any
subsequent year. Beginning in 2005, we became entitled to share in the royalty payments received by Royalty
Pharma Finance Trust on annual Thalomid® sales when Royalty Pharma Finance Trust receives more than
$15,375,000 in royalties. Thalomid® sales in 2012 surpassed the annual revenue targets and we recorded royalty
revenues of $669,000.
Research and Development Expenses. Our 2013 research and development expenses totaled $2,749,000 as
compared to $2,375,000 in 2012, a 16% increase. In 2013, our research and development expenses reflect direct
project costs for ENMD-2076 of $1,452,000 and $64,000 for 2ME2. The 2012 amount reflects direct project costs
for ENMD-2076 of $1,312,000 and $190,000 for 2ME2. The increase in 2013 research and development spending
reflects increased costs associated with the clinical development of ENMD-2076 in the U.S. and China during 2013,
as well as an increase in non-cash stock-based compensation expense, offset by lower patent costs and the absence
of severance related costs in 2013.
At December 31, 2013, accumulated direct project expenses for 2ME2 were $58,087,000 and, since acquired,
accumulated direct project expenses for ENMD-2076 totaled $23,440,000. Our research and development expenses
also include non-cash stock-based compensation totaling $763,000 and $273,000, respectively, for 2013 and 2012.
The increase in stock-based compensation expense is related to the increase in stock options granted in 2013. The
balance of our research and development expenditures includes facility costs and other departmental overhead, and
expenditures related to the non-clinical support of our programs.
We expect the majority of our research and development expenses in 2014 to be devoted to the development
of our ENMD-2076 program. We expect our ENMD-2076 expenses in 2014 to increase based on our clinical
development plan. We will continue to conduct research on ENMD-2076 in order to comply with stipulations made
by the FDA, as well as to increase understanding of the mechanism of action and toxicity parameters of ENMD-
2076 and its metabolites. Completion of clinical development may take several years or more, but the length of time
generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.
26
We estimate that clinical trials of the type we generally conduct are typically completed over the following
timelines:
Global FDA Trial:
Local CFDA Trial:
CLINICAL PHASE
Phase 1
Phase 2
Phase 3
CLINICAL PHASE
Phase 1
Phase 2
Phase 3
ESTIMATED
COMPLETION
PERIOD
1-2 Years
2-3 Years
2-4 Years
ESTIMATED
COMPLETION
PERIOD
1 Year
2 Years
2-3 Years
The duration and the cost of clinical trials may vary significantly over the life of a project as a result of
differences arising during the clinical trial protocol, including, among others, the following:
- the number of patients that ultimately participate in the trial;
- the duration of patient follow-up that seems appropriate in view of the results;
- the number of clinical sites included in the trials; and
-
the length of time required to enroll suitable patient subjects.
We test our potential product candidates in numerous preclinical studies to identify indications for which they
may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each
product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain indications
in order to focus our resources on more promising indications.
Our proprietary product candidates have also not yet achieved regulatory approval, which is required before
we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately
achieve regulatory approval, regulatory agencies must conclude that our clinical data establish safety and efficacy.
Historically, the results from preclinical testing and early clinical trials have often not been predictive of results
obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials,
but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
Our business strategy includes being opportunistic with collaborative arrangements with third parties to
complete the development and commercialization of our product candidates. In the event that third parties take over
the clinical trial process for one of our product candidates, the estimated completion date would largely be under the
control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary
products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how
such arrangements would affect our capital requirements.
As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and
completion costs of our research and development projects. Our inability to complete our research and development
27
projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could
significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could
force us to seek additional, external sources of financing from time to time in order to continue with our business
strategy. There can be no assurance that we will be able to successfully access external sources of financing in the
future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize
the future success of our business.
Research and development expenses consist primarily of compensation and other expenses related to research
and development personnel, research collaborations, costs associated with internal and contract preclinical testing
and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product,
regulatory maintenance costs, and facilities expenses. Overall research and development expenses increased to
$2,749,000 in 2013 from $2,375,000 in 2012.
The fluctuations in research and development expenses were specifically impacted by the following:
-
-
-
-
-
Outside Services – We utilize outsourcing to conduct our product development activities. We spent $41,000
in 2013 and $42,000 in 2012 on these activities associated with clinical trials for the development of the
ENMD-2076.
Clinical Trial Costs – Clinical trial costs, which include clinical site fees, monitoring costs and data
management costs, increased to $647,000 in 2013, from $227,000 in 2012. The increase in 2013 relates to
costs associated with enrolling patients in Phase 2 clinical trials for TNBC and ovarian clear cell carcinoma
during 2013 and increased costs associated with clinical research organization costs related to our crossover
bioavailability and food effect study of ENMD-2076 during 2013.
Contract Manufacturing Costs – The costs of manufacturing the material used in clinical trials for our
product candidates is reflected in contract manufacturing. These costs include bulk manufacturing,
encapsulation and fill and finish services, and product release costs. Contract manufacturing costs
decreased in 2013 to $212,000, from $276,000 in 2012. The decrease in 2013 primarily reflects the timing
of manufacturing costs incurred by our operations in China related to manufacturing of ENMD-2076.
Personnel Costs – Personnel costs increased to $1,331,000 in 2013 from $1,048,000 in 2012. This increase
is attributed to an increase in non-cash stock-based compensation expense totaling $490,000 during 2013
and increased salary and benefit costs associated with new employees in China during 2013, offset by
severance expense of $286,000 in 2012.
Also reflected in our 2013 research and development expenses are patent costs of $72,000, and facility and
related expenses of $110,000. In 2012, these expenses totaled $439,000 and $70,000, respectively. The
decrease in patent costs during 2013 reflects higher costs in 2012 associated with the execution of our
intellectual property strategy, including maintaining our patent portfolio and expanding our patent
protection internationally. The increase in expenses in facilities and related expenses in 2013 resulted from
leased office space in China.
General and Administrative Expenses. General and administrative expenses include compensation and other
expenses related to finance, business development and administrative personnel, professional services and facilities.
General and administrative expenses increased to $2,991,000 in 2013 from $2,798,000 in 2012. This increase
is primarily related to an increase of $576,000 related to non-cash stock-based compensation in 2013 due to an
increase in stock option awards during the year, offset by the reduction in personnel costs of $275,000, a reduction
in Board of Directors fees of $60,000, as well as lower professional fees of $71,000 compared to 2012.
Interest Expense. Interest expense for the year ended December 31, 2012 was $10,041,000. All of the
interest expense was non-cash interest (including $684,000, related to amortization of deferred financing costs;
$2,156,000, related to amortization of debt discount; and $145,000, related to accrued interest on our Notes payable
which was converted to shares of common stock on May 1, 2012). Also included in the $10 million non-cash
28
interest expense for the year ended December 31, 2012 was $7,057,000, representing the value of the beneficial
conversion feature associated with the Notes. There was no interest expense for the year ended December 31, 2013.
Dividends on Series A Convertible Preferred Stock. The Consolidated Statement of Operations for the year
ended December 31, 2012 reflects accrued, but unpaid, dividends of $335,000, related to Series A Convertible
Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. Celgene,
the holder of Series A Preferred Stock accumulated dividends at a rate of 6% and participated in dividends declared
and paid on the common stock, if any. In connection with the stockholder approval of the 2012 Financing on April
30, 2012, Celgene waived all accrued dividends on the Series A Preferred Stock, and is no longer entitled to any
liquidation preference on its shares. There are no outstanding shares of Series A Convertible Preferred Stock and
the Series A class of preferred stock has been eliminated.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have been engaged primarily in research and development activities. As a result, we have
incurred and expect to continue to incur operating losses in 2014 and the foreseeable future before we
commercialize any products. Based on our current plans, we expect our current available cash and cash equivalents
to meet our cash requirements for at least the next twelve months.
We will require significant additional funding to fund operations until such time, if ever, we become
profitable. We intend to augment our cash balances by pursuing other forms of capital infusion, including strategic
alliances or collaborative development opportunities with organizations that have capabilities and/or products that
are complementary to our capabilities and products in order to continue the development of our potential product
candidates that we intend to pursue to commercialization. If we seek strategic alliances, licenses, or other
alternative arrangements, such as arrangements with collaborative partners or others, to raise further financing, we
may need to relinquish rights to certain of our existing product candidates, or products we would otherwise seek to
develop or commercialize on our own, or to license the rights to our product candidates on terms that are not
favorable to us.
We will continue to seek to raise additional capital to fund our research and development and advance the
clinical development of ENMD-2076 and new product candidates, if any. We intend to explore one or more of the
following alternatives to raise additional capital:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
selling additional equity securities;
out-licensing product candidates to one or more corporate partners;
completing an outright sale of non-priority assets; and/or
engaging in one or more strategic transactions.
We also will continue to manage our cash resources prudently and cost-effectively.
There can be no assurance that adequate additional financing under such arrangements will be available to
us on terms that we deem acceptable, if at all. If additional funds are raised by issuing equity securities, dilution to
existing shareholders may result, or the equity securities may have rights, preferences, or privileges senior to those
of the holders of our common stock. If we fail to obtain additional capital when needed, we may be required to
delay or scale back our Phase 2 plans for ENMD-2076 or plans for other product candidates, if any.
At December 31, 2013, we had cash of $15,131,671, with working capital of $14,846,278.
FINANCING ACTIVITIES
On September 27, 2012, we filed a Form S-3 registration statement with the SEC utilizing a “shelf”
registration process. On October 9, 2012, the Form S-3 registration statement was declared effective by the SEC.
Pursuant to this shelf registration statement, we may sell debt or equity securities in one or more offerings up to a
29
total public offering price of $30.0 million. We believe that this shelf registration statement currently provides us
additional flexibility with regard to potential financings that we may undertake when market conditions permit or
our financial condition may require. Our registered direct equity financing completed on March 14, 2013 (see
below) was offered under the shelf registration statement.
On March 1, 2013, the Company entered into a definitive agreement with the 2013 Investors for a
registered financing in the aggregate amount of approximately $10.8 million. In connection with the 2013
Financing, we entered into a Securities Purchase Agreement with the 2013 Investors pursuant to which the Company
agreed to sell in a registered transaction 4,495,828 shares of the Company’s common stock and warrants to purchase
up to an aggregate of 2,247,912 shares of common stock. The 2013 Warrants cover a number of shares of common
stock equal to 50% of the number of shares purchased by each 2013 Investor. The 2013 Warrants have an exercise
price of $2.91 per share and are exercisable on September 4, 2013 and expire on September 4, 2016. The Company
completed the closings on the 2013 Financing on March 14, 2013 and received net proceeds of approximately $10.3
million.
Prior to the 2013 Financing, on February 2, 2012, we completed a financing with the 2012 Investors, for an
aggregate gross amount of $10,000,000. In connection with the 2012 Financing, on January 20, 2012, we entered
into the Purchase Agreement with the 2012 Investors, pursuant to which we issued and sold to the 2012 Investors, in
a private placement, the Notes with an aggregate principal amount of $10 million. We also issued warrants to the
Investors to purchase an aggregate of 1,739,132 shares of the Company's common stock. The 2012 Warrants cover
a number of shares of common stock equal to 20% of the principal amount of the Notes purchased by each Investor,
divided by $1.15. The 2012 Warrants have an exercise price of $1.40 per share and are exercisable on or after July
29, 2012 and expire five years after the exercisable date. At the closing of the 2012 Financing, we received net
proceeds of approximately $9.3 million. We received approval of the 2012 Financing from the Company's
stockholders at the 2012 annual stockholders meeting held on April 30, 2012. On May 1, 2012, the Notes, including
accrued interest of $144,658, automatically and immediately converted into 8,821,431 shares of common stock and
the 2012 Warrants became exercisable on July 29, 2012. The Notes bore an interest rate of 6% and converted at a
conversion price of $1.15 per share. The conversion price reflects the 10-day average closing sale price of our
common stock ending on January 20, 2012.
INFLATION AND INTEREST RATE CHANGES
Management does not believe that our working capital needs are sensitive to inflation and changes in
interest rates.
TABLE OF CONTRACTUAL OBLIGATIONS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and
are not required to provide the information under this item.
OFF-BALANCE-SHEET ARRANGEMENTS
We had no off-balance sheet arrangements during fiscal year 2013.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and
are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in a separate section of this report. See Index to Consolidated
Financial Statements on page F-1.
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of December 31, 2013, we carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Principal Accounting Officer (our principal executive
officer and principal financial officer, respectively) and our Chief Operating Officer & General Counsel, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Our Chief Executive Officer, Principal Accounting Officer
and Chief Operating Officer & General Counsel have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and that such information is accumulated and communicated to
our management (including our Chief Executive Officer, Principal Accounting Officer, and Chief Operating Officer
& General Counsel) to allow timely decisions regarding required disclosures. Based on such evaluation, our Chief
Executive Officer, Principal Accounting Officer, and Chief Operating Officer & General Counsel have concluded
these disclosure controls are effective as of December 31, 2013.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fiscal quarter
ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control
over financial reporting is designed to provide reasonable assurance to our management and board of directors
regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for
external purposes in accordance with generally accepted accounting principles. Any internal control over financial
reporting, no matter how well designed, has inherent limitations. As a result of these inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those internal controls
determined to be effective can provide only reasonable assurance with respect to reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
Under the supervision and with the participation of our management, including our Chief Executive
Officer, Chief Operating Officer & General Counsel and Principal Accounting Officer, we conducted an assessment
of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.
Based on our assessment, we concluded that our internal control over financial reporting was effective as of
December 31, 2013.
ITEM 9B. OTHER INFORMATION.
Our 2014 Annual Meeting of Stockholders will be held on June 12, 2014. Further information will be
provided in our proxy statement that will be filed with the SEC and mailed to stockholders of record as soon as
practicable.
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120
days after the close of the Company’s fiscal year ended December 31, 2013.
We have adopted a Code of Ethics, as defined in applicable SEC rules, that applies to directors, officers and
employees, including our principal executive officer and principal accounting officer. The Code of Ethics is
available on the Company’s website at www.entremed.com.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120
days after the close of the Company’s fiscal year ended December 31, 2013.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required under this item, with the exception of information relating to compensation plans
under which equity securities of the Company are authorized for issue, which appears below, is incorporated herein
by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will
be filed with the SEC not later than 120 days after the close of the Company’s fiscal year ended December 31, 2013.
Options under Employee Benefit Plans
The following table discloses certain information about the options issued and available for issuance under
all outstanding Company option plans, as of December 31, 2013.
Plan category
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans [excluding
securities reflected in
column (a)]
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
3,586,394
$2.69
1,110,876
0
$ 0.00
0
3,586,394
$2.69
1,110,876
Warrants issued under the unauthorized plans represent compensation for consulting services rendered by
the holders.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120
days after the close of the Company’s fiscal year ended December 31, 2013.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120
days after the close of the Company’s fiscal year ended December 31, 2013.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) 1. FINANCIAL STATEMENTS - See index to Consolidated Financial Statements.
2. Schedules
All financial statement schedules are omitted because they are not applicable, not required under the
instructions or all the information required is set forth in the financial statements or notes thereto.
3. Exhibits
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4. 4
Agreement and Plan of Merger, dated as of December 22, 2005 among EntreMed, Inc., E.M.K. Sub,
Inc., Miikana Therapeutics, Inc., and Andrew Schwab (incorporated by reference from our Form 8-K
previously filed with the Securities and Exchange Commission on December 29, 2005)
Amended and Restated Certificate of Incorporation of EntreMed, Inc. (incorporated by reference from
our Form 10-Q for the quarter ended June 30, 2006 previously filed with the Securities and Exchange
Commission)
Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by
reference from our Form 8-K previously filed with the Securities and Exchange Commission on July 7,
2010)
Amended and Restated By-laws of EntreMed, Inc. (incorporated by reference from our Form 8-K
previously filed with the Securities and Exchange Commission on December 12, 2007)
Certificate of Elimination of Series A Preferred Stock filed with the Secretary of State of Delaware on
September 13, 2012. (Incorporated by reference to Exhibit 3.1 of our Form 8-K previously filed with
the Securities and Exchange Commission on September 20, 2012.)
Form of Common Stock Purchase Warrant, dated September 7, 2010 (incorporated by reference from
our Form 8-K previously filed with the Securities and Exchange Commission on September 10, 2010)
Form of Common Stock Purchase Warrant (incorporated by reference from our Form 8-K previously
filed with the Securities and Exchange Commission on January 26, 2012)
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of our Form 8-K
filed with the Securities and Exchange Commission on March 6, 2013)
33
4.5
10.1
10.2
Form of Agent’s Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of our
Form 8-K filed with the Securities and Exchange Commission on March 6, 2013)
License Agreement between Children's Hospital Medical Center Corporation and EntreMed, Inc.
signed December 20, 1996 regarding Estrogenic Compounds as Anti-Mitotic Agents (incorporated by
reference from our Form 10-K for the year ended December 31, 1996 previously filed with the
Securities and Exchange Commission)
License Agreement between Celgene Corporation and EntreMed, Inc. signed December 9, 1998
regarding thalidomide intellectual property + (incorporated by reference from our Form 10-K for the
year ended December 31, 1998 previously filed with the Securities and Exchange Commission)
10.3
Lease Agreement between EntreMed, Inc. and Red Gate III Limited Partnership, dated June 10, 1998
(incorporated by reference from our Form 10-K for the year ended December 31, 1998 previously filed
with the Securities and Exchange Commission)
10.4
EntreMed, Inc. 2001 Long-Term Incentive Plan* (incorporated by reference from Appendix A to our
Definitive Proxy Statement filed with the Securities and Exchange Commission on May 12, 2006)
10.5.1
Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated June 15, 2001+
(incorporated by reference from our Form 10-Q for the quarter ended June 30, 2001 previously filed
with the Securities and Exchange Commission)
10.5.2
10.5.3
10.5.4
10.6
10.7
10.8
10.9
Amendment 1 to Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated
July 13, 2001(incorporated by reference from our Form 10-Q for the quarter ended June 30, 2001
previously filed with the Securities and Exchange Commission)
Amendment 2 to Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated
July 30, 2001(incorporated by reference from our Form 10-Q for the quarter ended June 30, 2001
previously filed with the Securities and Exchange Commission)
Amendment 3 to Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated
August 3, 2001 (incorporated by reference from our Form 10-Q for the quarter ended June 30, 2001
previously filed with the Securities and Exchange Commission)
EntreMed, Inc. 2001 Long Term Incentive Plan Non-Qualified Stock Option Grant Agreement
(Director)* (incorporated by reference from our Form 8-K previously filed with the Securities and
Exchange Commission on April 17, 2007)
EntreMed, Inc. 2001 Long Term Incentive Plan Non-Qualified Stock Option Grant Agreement (Non-
Director Employee)* (incorporated by reference from our Form 8-K previously filed with the
Securities and Exchange Commission on April 17, 2007)
Form of Change in Control Agreement* (incorporated by reference from our Form 8-K previously
filed with the Securities and Exchange Commission on April 17, 2007)
Employment Agreement by and between EntreMed and Cynthia W. Hu, dated as of June 1, 2006*
(incorporated by reference from our Form 8-K previously filed with the Securities and Exchange
Commission on June 6, 2006)
10.10
Amendment to Employment Agreement by and between the Company and Cynthia W. Hu, effective
April 16, 2007* (incorporated by reference from our Form 8-K previously filed with the Securities and
Exchange Commission on April 17, 2007)
10.11
Form of Restricted Stock Award under EntreMed, Inc. 2001 Long Term Incentive Plan* (incorporated
34
by reference from our Form 8-K previously filed with the Securities and Exchange Commission on
March 11, 2005.
10.12
10.13
License Agreement between EntreMed and Celgene Corporation signed March 23, 2005 regarding the
development and commercialization of Celgene’s small molecule tubulin inhibitor compounds for the
treatment of cancer+ (incorporated by reference from our Form 10-Q for the quarter ended March 31,
2005 previously filed with the Securities and Exchange Commission)
Securities Purchase Agreement, dated September 7, 2010 by and between EntreMed, Inc. and the
investors party thereto (incorporated by reference from our Form 8-K previously filed with the
Securities and Exchange Commission on September 10, 2010)
10.14
Employment Agreement, by and between EntreMed, Inc. and Sara Capitelli, dated as of January 10,
2011* (incorporated by reference from our Form 10-K for the fiscal year ended December 31, 2010,
previously filed with the Securities and Exchange Commission)
10.15 Convertible Note and Warrant Purchase Agreement, dated January 20, 2012, by and among EntreMed,
Inc. and the investors party thereto (incorporated by reference from our Form 8-K previously filed
with the Securities and Exchange Commission on January 26, 2012)
10.16 EntreMed, Inc. 2011 Long-Term Incentive Plan* (incorporated by reference from Appendix A to our
Definitive Proxy Statement previously filed with the Securities and Exchange Commission on April
16, 2013)
10.17
10.18
10.19
Employment Agreement by and between EntreMed, Inc. and Ken K. Ren, dated as of March 30, 2012*
(incorporated by reference to Exhibit 10.1 of our Form 8-K filed with the Securities and Exchange
Commission on April 3, 2012)
Securities Purchase Agreement, dated March 1, 2013, by and among EntreMed, Inc. and the investors
thereto (incorporated by reference from our Form 8-K previously filed with the Securities and
Exchange Commission on March 6, 2013)
Employment Agreement by and between EntreMed, Inc. and Ken K. Ren, dated as of April 2, 2013*
(incorporated by reference to Exhibit 10.1 of our Form 10-Q filed with the Securities and Exchange
Commission on May 15, 2013)
23.1 Consent of Independent Registered Public Accounting Firm
31.1
31.2
32.1
32.2
101**
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Principal Accounting Officer
Rule 13a-14(b) Certification by Chief Executive Officer
Rule 13a-14(b) Certification by Principal Accounting Officer
Interactive Data Files The following financial information from the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2013, formatted in eXtensible Business Reporting
(i) Consolidated Balance Sheets as of December 31, 2013 and 2012,
Language (XBRL):
(ii) Consolidated Statements of Operations for the years ended December 31, 2013 and 2012,
(iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013 and
2012 (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
and (v) Notes to Consolidated Financial Statements.
35
* Management Contract or any compensatory plan, contract or arrangement.
+ Certain portions of this exhibit have been omitted based upon a request for confidential treatment. The
omitted portions have been filed with the Commission pursuant to our application for confidential
treatment.
**
This exhibit is furnished and will not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit
will not be deemed to be incorporated by reference into any filing under the Securities Act or
Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by
reference.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 21, 2014
ENTREMED, INC.
By: /s/Ken K. Ren
Ken K. Ren
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE
/s/Ken K. Ren
Ken K. Ren
TITLE
DATE
Chief Executive Officer
(Principal Executive
Officer)
March 21, 2014
/s/Sara B. Capitelli
Sara B. Capitelli
Principal Accounting
Officer
March 21, 2014
/s/Wei-Wu He
Wei-Wu He
/s/Tak W. Mak
Tak W. Mak
/s/James Z. Huang
James Z. Huang
/s/Jennie C. Hunter-Cevera
Jennie C. Hunter-Cevera
/s/Y. Alexander Wu
Y. Alexander Wu
Chairman
March 21, 2014
March 21, 2014
March 21, 2014
March 21, 2014
March 21, 2014
Director
Director
Director
Director
37
[This page intentionally left blank.]
The following consolidated financial statements of EntreMed, Inc. are included in Item 8:
Report of Independent Registered Public Accounting Firm......................................................................................... F-2
Consolidated Balance Sheets as of December 31, 2013 and 2012 ............................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012........................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2013 and 2012........................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
F-6
Notes to Consolidated Financial Statements ................................................................................................................. F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of EntreMed, Inc.:
We have audited the accompanying consolidated balance sheets of EntreMed, Inc. as of December 31,
2013 and 2012, and the related consolidated statements of operations, stockholders’ equity and cash flows for the
years then ended. EntreMed, Inc.’s management is responsible for these financial statements. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of EntreMed, Inc. as of December 31, 2013 and 2012, and the
consolidated results of its operations and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ CohnReznick LLP
Vienna, Virginia
March 21, 2014
F-2
EntreMed, Inc.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of
$12,536 at December 31, 2013 and 2012
Prepaid expenses and other
Total current assets
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Payable to related party
Accrued liabilities
Total current liabilities
DECEMBER 31,
2013
2012
$
15,131,671
$
8,049,237
-
279,773
15,411,444
78,142
669,310
189,465
8,908,012
52,556
17,965
15,507,551
$
17,427
8,977,995
$
$
402,456
-
162,710
565,166
$
504,851
86,683
151,219
742,753
Commitments and Contingencies
-
-
Stockholders' equity:
Convertible preferred stock, $1.00 par value;
5,000,000 shares authorized and 0 shares issued and
outstanding at December 31, 2013 and 2012
Common stock, $.01 par value:
170,000,000 shares authorized at December 31, 2013 and 2012;
27,119,974 and 22,582,938 shares issued and outstanding
at December 31, 2013 and 2012, respectively
Additional paid-in capital
Treasury stock, at cost: 79,545 shares held at
December 31, 2013 and 2012
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes.
-
-
271,198
421,775,039
(8,034,244)
(399,069,608)
14,942,385
15,507,551
$
225,828
409,374,905
(8,034,244)
(393,331,247)
8,235,242
8,977,995
$
F-3
EntreMed, Inc.
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
2013
2012
$ -
-
$ 669,310
669,310
2,749,430
2,990,589
5,740,019
2,375,339
2,797,971
5,173,310
Revenues:
Royalties
Costs and expenses:
Research and development
General and administrative
Interest (income) expense, net
(1,658)
10,041,224
Net loss
(5,738,361)
(14,545,224)
Dividends on Series A convertible preferred stock
-
(335,000)
Net loss attributable to common shareholders
$
(5,738,361)
$ (14,880,224)
Net loss per share (basic and diluted)
Weighted average number of shares outstanding (basic
$
(0.22)
$
(0.78)
and diluted)
26,125,852
19,055,064
See accompanying notes.
F-4
)
,
l
a
t
o
T
,
(
)
,
,
t
i
c
i
f
e
D
(
d
e
t
a
l
u
m
u
c
c
A
l
a
n
o
i
t
i
d
d
A
n
i
-
d
i
a
P
l
a
t
i
p
a
C
y
r
u
s
a
e
r
T
k
c
o
t
S
k
c
o
t
S
n
o
m
m
o
C
k
c
o
t
S
d
e
r
r
e
f
e
r
P
t
n
u
o
m
A
s
e
r
a
h
S
t
n
u
o
m
A
s
e
r
a
h
S
.
c
n
I
,
d
e
M
e
r
t
n
E
y
t
i
u
q
E
'
s
r
e
d
l
o
h
k
c
o
t
S
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
2
1
0
2
d
n
a
3
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
d
n
E
s
r
a
e
Y
3
4
7
,
1
3
5
,
2
$
)
3
2
0
,
6
8
7
,
8
7
3
(
$
4
3
6
,
9
7
8
,
5
8
3
$
)
4
4
2
,
4
3
0
,
8
(
$
6
7
3
,
2
2
1
$
9
9
0
,
8
5
1
,
2
1
0
0
0
,
0
5
3
,
3
$
0
0
0
,
0
5
3
,
3
1
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
1
1
7
2
2
,
5
1
6
3
1
,
1
7
2
7
,
2
2
5
,
1
)
0
0
0
,
0
5
3
,
3
(
)
0
0
0
,
0
5
3
,
3
(
k
c
o
t
s
n
o
m
m
o
c
o
t
n
i
k
c
o
t
s
d
e
r
r
e
f
e
r
p
f
o
n
o
i
s
r
e
v
n
o
C
-
-
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
r
o
f
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
9
9
9
,
1
-
1
0
8
,
5
5
0
,
0
1
7
2
5
,
5
5
1
,
2
3
4
2
,
8
7
9
3
5
1
,
7
5
0
,
7
-
-
-
-
-
-
)
4
2
2
,
5
4
5
,
4
1
(
)
4
2
2
,
5
4
5
,
4
1
(
8
8
9
,
1
3
7
7
,
4
3
3
,
3
7
8
5
,
7
6
9
,
9
7
2
5
,
5
5
1
,
2
-
3
4
2
,
8
7
9
3
5
1
,
7
5
0
,
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
1
2
,
8
8
1
3
4
,
1
2
8
,
8
2
4
2
,
5
3
2
,
8
)
7
4
2
,
1
3
3
,
3
9
3
(
5
0
9
,
4
7
3
,
9
0
4
)
4
4
2
,
4
3
0
,
8
(
8
2
8
,
5
2
2
3
9
3
,
3
0
5
,
2
2
0
9
1
,
7
7
4
3
,
2
5
5
5
2
,
2
5
6
,
6
0
3
3
,
9
8
6
,
3
2
8
3
,
4
4
0
,
2
)
1
6
3
,
8
3
7
,
5
(
-
-
-
-
-
)
1
6
3
,
8
3
7
,
5
(
2
5
1
,
7
3
7
9
,
1
5
7
9
2
,
7
0
6
,
6
-
0
3
3
,
9
8
6
,
3
2
8
3
,
4
4
0
,
2
-
-
-
-
-
-
8
3
4
7
3
7
1
8
,
3
1
9
3
,
7
3
8
5
9
,
4
4
8
2
8
,
5
9
4
,
4
-
-
-
-
-
-
5
8
3
,
2
4
9
,
4
1
$
)
8
0
6
,
9
6
0
,
9
9
3
(
$
9
3
0
,
5
7
7
,
1
2
4
$
)
4
4
2
,
4
3
0
,
8
(
$
8
9
1
,
1
7
2
$
9
2
4
,
0
4
0
,
7
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
,
g
n
i
c
n
a
n
i
F
2
1
0
2
e
h
t
o
t
t
n
a
u
s
r
u
p
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
2
1
0
2
e
h
t
o
t
t
n
a
u
s
r
u
p
d
e
u
s
s
i
s
t
n
a
r
r
a
w
f
o
e
u
l
a
v
r
i
a
F
)
6
e
t
o
N
(
s
t
s
o
c
e
c
n
a
u
s
s
i
k
c
o
t
s
f
o
t
e
n
o
t
t
n
a
u
s
r
u
p
s
e
t
o
n
f
o
n
o
i
s
r
e
v
n
o
c
l
a
i
c
i
f
e
n
e
b
f
o
e
u
l
a
v
r
i
a
F
s
e
r
u
t
i
e
f
r
o
f
f
o
t
e
n
,
e
s
n
e
p
x
e
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
)
6
e
t
o
N
(
g
n
i
c
n
a
n
i
F
2
1
0
2
e
h
t
)
6
e
t
o
N
(
g
n
i
c
n
a
n
i
F
2
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
s
s
o
l
t
e
N
,
g
n
i
c
n
a
n
i
F
3
1
0
2
e
h
t
o
t
t
n
a
u
s
r
u
p
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
d
e
s
i
c
r
e
x
e
s
t
n
a
r
r
a
w
r
o
f
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
r
o
f
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
3
1
0
2
e
h
t
o
t
t
n
a
u
s
r
u
p
d
e
u
s
s
i
s
t
n
a
r
r
a
w
f
o
e
u
l
a
v
r
i
a
F
)
6
e
t
o
N
(
s
t
s
o
c
e
c
n
a
u
s
s
i
k
c
o
t
s
f
o
t
e
n
s
e
r
u
t
i
e
f
r
o
f
f
o
t
e
n
,
e
s
n
e
p
x
e
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
)
6
e
t
o
N
(
g
n
i
c
n
a
n
i
F
3
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
s
s
o
l
t
e
N
5
-
F
.
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
EntreMed, Inc.
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
Stock-based compensation expense
Non-cash interest
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other
Accounts payable
Payable to related party
Accrued liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible notes and warrants
Debt issuance costs
Proceeds from sale of common stock and warrants
Stock issuance costs
Proceeds from exercise of options and warrants
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
YEAR ENDED DECEMBER 31,
2013
2012
$
(5,738,361)
$ (14,545,224)
17,389
2,044,382
-
669,310
(90,846)
(102,395)
(86,683)
11,491
(3,275,713)
20,457
978,243
10,041,292
1,263,432
(9,051)
51,522
86,683
(99,543)
(2,212,189)
(42,975)
(42,975)
(48,392)
(48,392)
-
-
10,789,987
(448,402)
59,537
10,401,122
7,082,434
8,049,237
$ 15,131,671
10,000,000
(683,955)
-
(88,856)
1,999
9,229,188
6,968,607
1,080,630
$ 8,049,237
$ 10,144,658
$ 3,500,000
$ -
Non-cash financing activity:
Common stock issued in connection with conversion of convertible
notes and accrued interest
$ -
Common stock issued in connection with conversion of preferred stock
$ -
Warrant issued to placement agent
$ 115,150
Non-cash investing activity:
Disposal of fully depreciated property and equipment, at cost
$ 123,980
$ 129,672
See accompanying notes.
F-6
EntreMed, Inc.
Notes to Consolidated Financial Statements
December 31, 2013
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EntreMed, Inc. and its subsidiaries (“EntreMed” or “the Company”) (Nasdaq: ENMD) is a clinical-stage
pharmaceutical company employing a drug development strategy that leverages resources in both North America
and in China to develop therapeutics for the treatment of cancer and other diseases. The Company is currently
conducting activities in both China and North America in order to accelerate delivery of clinical data and to reduce
costs of clinical trials. The Company’s lead drug candidate is ENMD-2076, a selective Aurora A and angiogenic
kinase inhibitor for the treatment of cancer. ENMD-2076 has completed Phase 1 studies in patients with advanced
solid tumors, multiple myeloma and leukemia and is currently completing data for a multi-center Phase 2 study in
patients with platinum resistant ovarian cancer. In 2012, the Company initiated a dual-institutional Phase 2 study of
ENMD-2076 in triple-negative breast cancer. Additionally, in January 2013, the Company initiated a Phase 2 trial
in advanced/metastatic soft tissue sarcoma, and in October 2013, the Company initiated a Phase 2 trial in advanced
ovarian clear cell carcinoma. The Company intends to pursue additional trials and is in various assessment and
planning stages. The Company employs a market-oriented approach to identify pharmaceutical candidates that it
believes has the potential for gaining widespread market acceptance either globally or in China and for which
development can be accelerated under the Company’s US and China drug development strategy.
ENMD-2076 is an orally-active, Aurora A/angiogenic kinase inhibitor with a unique kinase selectivity
profile and multiple mechanisms of action. ENMD-2076 exerts its effects through multiple mechanisms of action,
including anti-proliferative activity and the inhibition of angiogenesis. ENMD-2076 has been shown to inhibit a
distinct profile of angiogenic tyrosine kinase targets in addition to the Aurora A kinase. Aurora kinases are key
regulators of mitosis (cell division), and are often over-expressed in human cancers. ENMD-2076 also targets the
VEGFR, Flt-3, and FGFR3 kinases which have been shown to play important roles in the pathology of several
cancers. ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including
tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-
treated human leukemia patient cells. ENMD-2076 also has shown promising activity in Phase 1 clinical trials in
solid tumor cancers, including ovarian, breast, liver, renal and sarcoma, as well as in leukemia and multiple
myeloma. The Company is completing a Phase 2 trial of ENMD-2076 in ovarian cancer. In addition, EntreMed is
currently conducting a dual-institutional Phase 2 study of ENMD-2076 in triple-negative breast cancer, a Phase 2
study in advanced/metastatic soft tissue sarcoma, and a Phase 2 study in advanced ovarian clear cell carcinoma.
ENMD-2076 has received orphan drug designation for the treatment of ovarian cancer, multiple myeloma
and acute myeloid leukemia.
ENMD-2076 is the only program currently under active clinical evaluation. Other product candidates in
the pipeline include 2-methoxyestrdiol (2ME2) for autoimmune diseases for which the Company has an approved
Investigational New Drug Application in rheumatoid arthritis treatment and MKC-1. The Company owns or has
exclusive license to these products.
The Company intends to advance clinical development of ENMD-2076 and the implementation of its plans
will include leveraging resources in both the United States and China. In order to capitalize on the drug
development and capital resources available in China, the Company is doing business in China through its wholly-
owned Chinese subsidiary. The Chinese subsidiary will execute the China portion of the Company’s drug
development strategy, including conducting clinical trials in China, pursuing local funding opportunities and
strategic collaborations, and implementing the Company’s plan for accelerated development and commercialization
in the Chinese market.
The Company intends to pursue additional financing opportunities as well as opportunities to raise capital
through forms of non- or less- dilutive arrangements, such as partnerships and collaborations with organizations that
F-7
have capabilities and/or products that are complementary to our capabilities and products in order to continue the
development of the product candidate that the Company intends to pursue to commercialization.
The accompanying consolidated financial statements include the accounts of EntreMed, Inc. and its
subsidiaries, Miikana Therapeutics, Inc. (Miikana) and EntreMed (Beijing) Co., Ltd. (EntreMed China). EntreMed
China is a non-stock Chinese entity with 100% of its interest owned by EntreMed. EntreMed China received
approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has
operating facilities in Beijing. All inter-company balances and transactions have been eliminated in consolidation.
LIQUIDITY RISKS AND MANAGEMENT’S PLANS
Since inception, the Company has incurred significant losses from operations and has incurred an
accumulated deficit of $399.1 million. The Company expects to continue to incur operating losses for the
foreseeable future due to, among other factors, its continuing clinical activities. In February 2012 (the “2012
Financing”), the Company received the proceeds from a $10 million convertible note financing. Upon approval by
the Company’s stockholders at the 2012 annual stockholders meeting, the convertible notes automatically converted
into common stock on May 1, 2012 (see Note 6). In addition, on March 14, 2013 (the “2013 Financing”), the
Company closed on the sale of 4,495,828 shares of common stock and 2,247,912 warrants to certain investors for
approximately $10.8 million (see Note 6). As a result of these transactions, along with on-going cost containment
measures, the Company has sufficient resources to fund its operations for at least the next twelve months. The
Company will continue to exercise tight controls over operating expenditures and will continue to pursue
opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive arrangements
in China to support the Company’s dual-country approach to drug development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEGMENT INFORMATION
The Company currently operates in one business segment, which is the development of targeted
therapeutics primarily for the treatment of cancer. The Company is managed and operated as one business.
EntreMed’s senior management team reports to the Board of Directors and is responsible for aligning the
Company’s business strategy with its core scientific strengths, while maintaining prudent resource management,
fiscal responsibility and accountability. The Company employs a drug development strategy in the United States and
China to develop targeted therapeutics for the global market and its current lead drug candidate is ENMD-2076, an
Aurora A and angiogenic kinase inhibitor for the treatment of cancer.
The Company does not operate separate lines of business with respect to its product candidates.
Accordingly, the Company does not have separately reportable segments as defined by authoritative guidance issued
by the Financial Accounting Standards Board (FASB).
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of compensation and other expenses related to
research and development personnel, research collaborations, costs associated with pre-clinical correlative testing
and clinical trials of our drug candidate, including the costs of manufacturing drug substance and drug product,
regulatory maintenance costs, and facilities expenses. Research and development costs are expensed as incurred,
including costs incurred in filing, defending and maintaining patents.
PROPERTY AND EQUIPMENT
Furniture and equipment and leasehold improvements are stated at cost and are depreciated over their
estimated useful lives of 3 to 10 years. Depreciation and amortization is determined on a straight-line basis.
Depreciation and amortization expense was $17,389 and $20,457 in 2013 and 2012, respectively.
F-8
Property and equipment consists of the following:
Furniture and equipment
Leasehold improvements
Less: accumulated depreciation
and amortization
DECEMBER 31,
2013
248,732
6,382
255,114
(176,972)
78,142
$
$
2012
235,093
101,026
336,119
(283,563)
52,556
$
$
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with authoritative guidance issued by FASB, the Company periodically evaluates the value
reflected in its balance sheet of long-lived assets, such as equipment, when events and circumstances indicate that
the carrying amount of an asset may not be recovered. Such events and circumstances include the use of the asset in
current research and development projects, any potential alternative uses of the asset in other research and
development projects in the short to medium term and restructuring plans entered into by the Company. No
impairment charges were recorded in 2013 and 2012.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments with original maturities of less than
90 days. Substantially all of the Company's cash equivalents are held in short-term money market accounts.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts. Allowances for doubtful accounts
are determined on a specific item basis. Management reviews the credit worthiness of individual customers and past
payment history to determine the allowance for doubtful accounts. There is an allowance for doubtful accounts of
$12,536 at December 31, 2013 and 2012.
As of December 31, 2012, one customer represented 100% of the total accounts receivable.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional and reporting currency of the Company. Foreign currency denominated
assets and liabilities of the Company and all of its subsidiaries are translated into U.S. dollars. Accordingly,
monetary assets and liabilities are translated using the exchange rates in effect at the consolidated balance sheet date
and revenues and expenses at the rates of exchange prevailing when the transactions occurred. Remeasurement
adjustments are included in income.
DEFERRED RENT
The Company accounts for rent expense related to operating leases by determining total minimum rent
payments on the leases over their respective periods and recognizing the rent expense on a straight-line basis. The
difference between the actual amount paid and the amount recorded as rent expense in each fiscal year is recorded as
an adjustment to deferred rent. Deferred rent as of December 31, 2013 and 2012 was $6,871 and $2,029,
respectively, and is included in accrued liabilities in the accompanying consolidated balance sheets.
DEBT ISSUANCE COST
Amortization expense of debt issuance costs is calculated using the interest method over the term of the
debt and is recorded in interest expense for 2012 in the accompanying consolidated statements of operations.
F-9
CONVERTIBLE NOTES WITH DETACHABLE WARRANTS AND BENEFICIAL CONVERSION
FEATURE
The Company accounts for the issuance of detachable stock purchase warrants in accordance with
Accounting Standards Codification (ASC) Topic 470, whereby the proceeds received from convertible notes are
allocated between the convertible notes and the detachable warrants based on the relative fair value of the
convertible notes without the warrants and the warrants. The portion of the proceeds allocated to the warrants is
recognized as additional paid-in capital and a debt discount. The debt discount related to warrants is accreted into
interest expense through maturity of the notes.
In accordance with the provisions of ASC Topic 470, the Company allocated a portion of the proceeds
received in connection with the 2012 Financing to the embedded beneficial conversion feature, based on the
difference between the effective conversion price of the proceeds allocated to the convertible notes and the fair value
of the underlying common stock on the date the convertible notes were issued. Since the convertible notes also had
detachable stock purchase warrants, the Company first allocated the proceeds to the stock purchase warrants and the
convertible notes and then allocated the resulting convertible notes proceeds between the beneficial conversion
feature, which was accounted for as paid-in capital, and the initial carrying amount of the convertible notes. The
discount resulting from the beneficial conversion feature is recorded as a debt discount.
EXPENSES FOR CLINICAL TRIALS
Expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data.
The Company estimates expenses incurred for clinical trials that are in process based on patient enrollment and
based on clinical data collection and management. Costs that are associated with patient enrollment are recognized
as each patient in the clinical trial completes the enrollment process. Estimated clinical trial costs related to
enrollment can vary based on numerous factors, including expected number of patients in trials, the number of
patients that do not complete participation in a trial, and the length of participation for each patient. Costs that are
based on clinical data collection and management are recognized in the reporting period in which services are
provided. In the event of early termination of a clinical trial, the Company accrues an amount based on estimates of
the remaining non-cancelable obligations associated with winding down the clinical trial. As of December 31, 2013
and 2012, clinical trial accruals were $244,192 and $222,304, respectively, and are included in accounts payable in
the accompanying consolidated balance sheets.
INCOME TAXES
Income tax expense is accounted for in accordance with authoritative guidance issued by FASB. Income
tax expense has been provided using the liability method. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax
rates that will be in effect when these differences reverse. The Company provides a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is not more likely than not that the deferred tax assets
will be realized.
The Company accounts for uncertain tax positions pursuant to the guidance of FASB ASC Topic 740,
Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income
tax expense. As of December 31, 2013 and 2012, the Company did not accrue any interest related to uncertain tax
positions. To date, there have been no interest or penalties charged to the Company in relation to the underpayment
of income taxes.
REVENUE RECOGNITION
Revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of
the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the price to the buyer is fixed and determinable and collectibility is reasonably assured. Royalties
from licenses are based on third-party sales and recorded as earned in accordance with contract terms, when third-
party results are reliably measured and collectibility is reasonably assured.
F-10
All of the Company’s 2012 revenues were from royalties based on the sale of Thalomid®, distributed by
Celgene Corporation (“Celgene”). In 2004, certain provisions of a purchase agreement dated June 14, 2001 by and
between Bioventure Investments kft (“Bioventure”) and the Company were satisfied, and, as a result, in 2005 the
Company became entitled to share in the royalty payments received by Royalty Pharma Finance Trust, successor to
Bioventure, on annual Thalomid® sales above a certain threshold. Based on the licensing agreement royalty
formula, the Company’s right to share in the annual royalty commences when net royalties received by Royalty
Pharma exceeds $15,375,000. The Company did not recognize any royalty revenue in 2013, as it did not meet the
threshold to earn royalties on the sale of Thalomid® in 2013. The Company does not expect to earn royalties from
the sale of Thalomid® in any subsequent year.
NET LOSS PER SHARE
Net loss per share (basic and diluted) was computed by dividing net loss attributable to common
shareholders by the weighted average number of shares of common stock outstanding. Outstanding options and
warrants totaling 7,907,959 and 3,686,338 for 2013 and 2012, respectively, were anti-dilutive and, therefore, were
not included in the computation of weighted average shares used in computing diluted loss per share.
SHARE-BASED COMPENSATION
The Company records compensation expense associated with service, performance, market condition based
stock options and other equity-based compensation in accordance with provisions of authoritative guidance. The
fair value of awards whose fair values are calculated using the Black-Scholes option pricing model is generally
being amortized on a straight-line basis over the requisite service period and is recognized based on the
proportionate amount of the requisite service period that has been rendered during each reporting period. The fair
value of awards with market conditions, which are valued using a binomial model, is being amortized based upon
the derived service period. Share based awards granted to employees with a performance condition are measured
based on the probable outcome of that performance condition during the requisite service period. Awards with
performance conditions will be expensed if it is probable that the performance condition will be achieved. As of
December 31, 2013, no expense has been recorded for share awards with performance conditions.
NEW ACCOUNTING PRONOUNCEMENTS
EntreMed has implemented all new accounting pronouncements that are in effect and that may impact the
Company’s consolidated financial statements, and the Company does not believe that there are any other new
accounting pronouncements that have been issued that might have a material impact on its consolidated financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank deposit
accounts, which, at times, may exceed federally insured amounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents. The carrying amount of current assets and liabilities
approximates their fair values due to their short-term maturities.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Our most critical accounting estimates relate to
accounting policies for clinical trial accruals and share-based arrangements. Management bases its estimates on
historical experience and on various other assumptions that it believes are reasonable under the circumstances.
Actual results may differ from those estimates, and such differences may be material to the consolidated financial
statements.
F-11
3. RELATED PARTY TRANSACTIONS
On October 31, 2012, EntreMed China obtained the necessary local regulatory approvals to establish a
bank account in Beijing. Prior to establishing a bank account, EntreMed China incurred certain startup and initial
operating expenses, which were advanced by the Company’s Chief Executive Officer on behalf of EntreMed China,
totaling $86,683. The full amount was repaid to the Company’s Chief Executive Officer in February 2013.
In connection with the successful completion of the 2012 Financing, as discussed in Note 6 below, and
prior to his appointment to the Board of Directors, the Company paid a 6% advisory fee to Emerging Technology
Partners LLC, of which the Company’s Chairman is a general partner, for due diligence, its role in structuring and
negotiating the transaction and as reimbursement for fees incurred. The 2012 Financing was approved by
stockholders at the Company’s annual meeting in 2012.
4. LICENSE AGREEMENTS
Pursuant to a purchase agreement dated June 14, 2001 by and between and the Company, as amended July
13, 2001, July 30, 2001 and August 3, 2001, Bioventure purchased all of the Company’s right, title and interest to
the net royalty payments payable by Celgene to the Company under the agreement dated as of December 9, 1998 by
and between the Company and Celgene (the “Celgene Sublicense”).
A provision of the Bioventure purchase agreement provided the potential for an adjustment in the purchase
price if cumulative sales of Thalomid® exceeded $800 million by December 31, 2004. Based on Thalomid® sales
reported publicly by Celgene, the Company concluded that cumulative Thalomid® sales had reached this milestone
by December 31, 2004, thus triggering a royalty sharing provision. Beginning the year after cumulative sales reach
$800 million, EntreMed is entitled to share in the royalty payments received by Royalty Pharma Finance Trust,
successor to Bioventure, on annual Thalomid® sales above a certain threshold. The Company is entitled to receive
these sub-royalty payments until the last relevant patent expires, as described under the agreement. In 2012
Thalomid® sales surpassed the royalty-sharing point and the Company recognized royalty revenues of $669,310.
The Company did not earn any royalties under the royalty sharing provision in 2013 and does not expect to earn any
in the future.
In January 2006, the Company entered into a License Agreement with Elan Corporation, plc (“Elan”) in
which the Company has been granted rights to utilize Elan’s proprietary NanoCrystal Technology in connection
with the development of the oncology product candidate, 2ME2 NCD. Under the terms of the License Agreement,
Elan is eligible to receive payments upon the achievement of certain clinical, manufacturing, and regulatory
milestones and to receive royalty payments based on sales of 2ME2 NCD. Additionally, under the agreement and
the corresponding Services Agreement, Elan has the right to manufacture EntreMed’s 2ME2 NCD. Milestones
related to the initiation of Phase 2 clinical trials for 2ME2 NCD have been paid and there are no additional
milestones achieved as of December 31, 2013. The Company does not expect to achieve any milestones in 2014, as
the Company does not expect to devote any significant resources to develop 2ME2 utilizing the NCD formulation.
5. INCOME TAXES
The income tax provision is based on loss before income taxes of $(5,314,629) in the U.S. and $(423,732)
in China. The Company has net operating loss carryforwards for income tax purposes of approximately
$343,555,000 at December 31, 2013 ($339,553,000 at December 31, 2012) that expire in years 2018 through 2033.
The Company also has research and development (R&D) tax credit carryforwards of approximately $9,037,000 as of
December 31, 2013 that expire in years 2018 through 2033. These net operating loss carryforwards include
approximately $20,000,000, related to exercises of stock options for which the income tax benefit, if realized, would
increase additional paid-in capital. The utilization of the net operating loss and research and development
carryforwards may be limited in future years due to changes in ownership of the Company pursuant to Internal
Revenue Code Section 382. For financial reporting purposes, a valuation allowance has been recognized to reduce
the net deferred tax assets to zero due to uncertainties with respect to the Company's ability to generate taxable
income in the future sufficient to realize the benefit of deferred income tax assets.
F-12
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax assets and liabilities as of December 31, 2013 and 2012 are as
follows:
Deferred income tax assets (liabilities):
Net operating loss carryforwards
Research and development credit carryforward
Equity investment
Other
Depreciation
Valuation allowance for deferred income tax assets
Net deferred income tax assets
DECEMBER 31,
2013
2012
$ 134,395,000
9,037,000
72,000
4,361,000
4,000
(147,869,000)
$ -
$ 132,994,000
9,019,000
72,000
3,665,000
64,000
(145,814,000)
$ -
A reconciliation of the provision for income taxes to the federal statutory rate is as follows:
Tax benefit at statutory rate
State taxes
Net R&D credit adjustment
Attribute expiration and other
Disallowed expenses
Change in valuation allowance
Other
Change in tax rates
2013
$ (1,951,000)
(217,000)
(122,000)
8,000
2,000
2,055,000
231,000
( 6,000)
-
$
2012
$ ( 4,945,000)
( 701,000)
(97,000)
4,068,000
1,000
2,015,000
67,000
( 408,000)
-
$
The Company had $3,006,000 of unrecognized tax benefits as of January 1, 2013 related to net R&D tax
credit carryforwards. The Company had a full valuation allowance on the net deferred tax asset recognized in the
consolidated financial statements. For the year ended December 31, 2013, there were additional unrecognized tax
benefits of $33,000 related to R&D tax credits, and a reduction in unrecognized tax benefits of $26,000 related to
the remeasurement of certain prior year R&D credit carryforwards. The Company has a full valuation allowance at
January 1, 2013 and at December 31, 2013 against the full amount of its net deferred tax assets and therefore, there
was no impact on the Company’s financial position.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
2013
$3,006,000
Unrecognized tax benefits balance at January 1
Reductions for Tax Positions of Prior Periods
(26,000)
Additions for Tax Positions of Current Period 33,000
2012
$3,103,000
(97,000)
-
Unrecognized tax benefits balance at December 31
$3,013,000 $3,006,000
The Company recognizes interest and penalties related to uncertain tax positions as a component of income
tax expense. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to
uncertain tax positions, respectively.
The tax returns for all years in the Company’s major tax jurisdictions are not settled as of December 31,
2013. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance),
the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these
attributes.
The Company believes that the total unrecognized tax benefit, if recognized, would impact the effective
rate, however, such reversal may be offset by a corresponding adjustment to the valuation allowance.
F-13
6. STOCKHOLDERS' EQUITY
In 2002, the Company issued 3,350,000 shares of Series A Convertible Preferred Stock (“Series A
Preferred Stock”) to Celgene. The value of the common stock at the date the Series A Preferred Stock was issued
was $9.46. The Series A Preferred Stock was convertible, at the option of Celgene, at any time, into common stock
at an initial per common share conversion price of $11.00 (1 share of preferred converts into .45 shares of common).
The conversion price was subject to change for certain dilutive events, as defined. The Series A Preferred Stock
accrued and accumulated dividends at a rate of 6% and participated in dividends declared and paid on the common
stock, if any. In connection with the 2012 Financing, as described below, and upon stockholder approval of the
2012 Financing at the 2012 annual meeting on April 30, 2012, Celgene converted all of its preferred stock to an
aggregate of 1,522,727 shares of common stock, pursuant to the terms and conditions of the Series A Preferred
Stock. As a result, as of May 1, 2012, there is no Series A Preferred Stock or any class of preferred stock
outstanding. As of April 30, 2012, cumulative unpaid preferred stock dividends totaled $9,380,000, or $2.80 per
share. In connection with the stockholder approval of the 2012 Financing, Celgene waived all accrued dividends on
the Series A Preferred Stock, and Celgene is no longer entitled to any liquidation preference on its shares.
2013 FINANCING
As described in Note 1 and in connection with the 2013 Financing, on March 1, 2013, the Company entered
into a definitive agreement with certain investors (collectively, the “2013 Investors”) for a financing in the aggregate
amount of approximately $10.8 million. In connection with the 2013 Financing, the Company entered into a
Securities Purchase Agreement with the 2013 Investors pursuant to which the Company agreed to sell in a
transaction registered under the Securities Act of 1933, as amended, 4,495,828 shares of the Company’s common
stock and warrants to purchase up to an aggregate of 2,247,912 shares of common stock (the “2013 Warrants”). The
2013 Warrants cover a number of shares of common stock equal to 50% of the number of shares purchased by each
2013 Investor. The 2013 Warrants have an exercise price of $2.91 per share and became exercisable on September
4, 2013 and expire on September 4, 2016. The fair value of the 2013 Warrants issued is $3,574,180, calculated
using the Black-Scholes-Merton valuation model value of $1.59 with an expected and contractual life of 3.5 years,
an assumed volatility of 102.3%, and a risk-free interest rate of 0.40%. The Company completed the closings on the
2013 Financing on March 14, 2013 and received net proceeds of approximately $10.3 million.
In connection with the 2013 Financing, the Company also issued a warrant to its placement agent to
purchase up to 61,250 shares of common stock at an exercise price of $3.00 per share of common stock (the
“Agent’s Warrant”). The Agent’s Warrant became exercisable on September 4, 2013 and will expire on October 9,
2017. The fair value of the Agent’s Warrant issued is $115,150, calculated using the Black-Scholes-Merton
valuation model value of $1.88 with an expected and contractual life of 4.6 years, an assumed volatility of 111.9%,
and a risk-free interest rate of 0.85%.
2012 FINANCING
As described in Note 1 and in connection with the 2012 Financing, on January 20, 2012, the Company
entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase Agreement”) with certain strategic
accredited investors (the “Investors”), pursuant to which the Company issued and sold to the Investors, in a private
placement, subordinated mandatorily convertible promissory notes (collectively, the “Notes”) with an aggregate
principal amount of $10 million. The Company also issued warrants (the “2012 Warrants”) to the Investors to
purchase an aggregate of 1,739,132 shares of the Company's common stock, par value $0.01 per share. The 2012
Warrants cover a number of shares of common stock equal to 20% of the principal amount of the Notes purchased
by each Investor, divided by $1.15. The 2012 Warrants have an exercise price of $1.40 per share and became
exercisable on July 29, 2012 and expire on July 29, 2017. The relative fair value of the 2012 Warrants issued was
$2,155,527, calculated using the Black-Scholes-Merton valuation model value of $1.58 with an expected and
contractual life of 5.5 years, an assumed volatility of 103%, and a risk-free interest rate of 0.71%. The 2012
Warrants were recorded as additional paid-in-capital and a discount on the Notes of $2,155,527 was fully amortized
as non-cash interest expense during the year ended December 31, 2012 as a result of the conversion of the Notes.
F-14
The 2012 Financing was completed on February 2, 2012. The Company received net proceeds of
approximately $9.3 million. The Company paid one of the investors, in a related-party transaction, a fee in the
amount of 6% of the aggregate amount raised in the 2012 Financing. In connection with the 2012 Financing, the
Company incurred a total of $683,955 of debt issuance costs. All debt issuance costs were fully amortized and
recorded as interest expense upon conversion of the Notes in the second quarter of 2012.
The Company received approval of the 2012 Financing from the Company's stockholders at the 2012
annual stockholders meeting held on April 30, 2012. On May 1, 2012, the Notes, including accrued interest of
$144,658, automatically and immediately converted into 8,821,431 shares of common stock and the 2012 Warrants
became exercisable as of July 29, 2012. The Notes bore an interest rate of 6% and converted at a conversion price
of $1.15 per share. The conversion price reflected the 10-day average closing sale price of the Company’s common
stock ended on January 20, 2012.
The Notes were not convertible, and the 2012 Warrants were not exercisable, prior to receiving stockholder
approval. The Notes contained a contingent beneficial conversion feature as the conversion price of the shares was
less than the share price on the date of the Notes issuance. The beneficial conversion feature was valued at
$7,057,153 and was recorded as non-cash interest expense and additional paid-in-capital in the second quarter of
2012, upon removal of the contingency and conversion of the Notes on May 1, 2012.
7. SHARE-BASED COMPENSATION
The Company has adopted incentive and nonqualified stock option plans for executive, scientific and
administrative personnel of the Company as well as outside directors and consultants. In May 2013, the Company’s
shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares
reserved for issuance from 1,730,000 to 4,230,000 shares of common stock to be available for grants and awards. In
April 2012, 150,000 options were granted to the Company’s Chief Executive Officer outside of the Company’s 2011
Long-Term Incentive Plan, as an inducement award material to his employment, in accordance NASDAQ Listing
Rule 5635(c)(4). As of December 31, 2013, there are 3,586,394 shares issuable under options previously granted
and currently outstanding, with exercise prices ranging from $1.59 to $34.10. In 2012, the Company awarded
options to two officers, a portion of which is subject to certain performance conditions and market conditions.
Options granted under the plans generally vest over periods varying from immediately to one to three years, are not
transferable and generally expire ten years from the date of grant. As of December 31, 2013, 1,110,876 shares
remained available for grant under the Company’s 2011 Long-Term Incentive Plan.
The Company’s net loss for the years ended December 31, 2013 and 2012 includes $2,044,382 and
$978,243, respectively, of non-cash compensation expense related to the Company’s share-based compensation
awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded
as components of general and administrative expense and research and development expense, as follows:
Research and development
General and administrative
Share-based compensation expense
Net share-based compensation expense, per common share:
Basic and diluted
2013
$ 763,470
1,280,912
$2,044,382
2012
$ 273,204
705,039
$ 978,243
$ 0.078
$ 0.051
F-15
Stock Options
The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of service based
and performance based stock options granted to employees. For market condition based options, the Company uses
a binomial model to estimate fair value. These option valuation models require the input of highly subjective
assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These
assumptions include the risk free rate of interest, expected dividend yield, expected volatility, and the expected life
of the award.
Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share
price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The
Company uses the historical volatility based on the daily price observations of its common stock during the period
immediately preceding the share-based award grant that is equal in length to the award’s expected term. EntreMed
believes that historical volatility represents the best estimate of future long term volatility.
Risk-Free Interest Rate—This is the average interest rate consistent with the yield available on a U.S.
Treasury note (with a term equal to the expected term of the underlying grants) at the date the option was granted.
Expected Term of Options—This is the period of time that the options granted are expected to remain
outstanding. EntreMed uses a simplified method for estimating the expected term of service based awards granted.
For performance based and market based awards, the expected term of service is based on the derived service
period.
Expected Dividend Yield—EntreMed has never declared or paid dividends on its common stock and does
not anticipate paying any dividends in the foreseeable future. As such, the dividend yield percentage is assumed to
be zero.
Forfeiture Rate—This is the estimated percentage of options granted that are expected to be forfeited or
cancelled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on
historical forfeiture experience for similar levels of employees to whom options were granted.
Following are the weighted-average assumptions used in valuing the stock options granted to employees
during the years ended December 31, 2013 and 2012:
Years ended December 31,
Expected volatility
Risk free interest rate
Expected term of option
Forfeiture rate
Expected dividend yield - -
*5.00%
2013
105.30%
1.03%
5.77 years
*5.00%
2012
101.67%
0.94%
5.74 years
*-Throughout 2013 and 2012, forfeitures were estimated at 5%; the actual forfeiture rate was 0% and 6.4% for 2013
and 2012, respectively. The Company adjusted stock compensation expense for 2013 and 2012 based on the actual
forfeiture rate.
The weighted average fair value of stock options granted was $1.42 and $1.59 in 2013 and 2012,
respectively.
Share-based compensation expense recognized in the Consolidated Statements of Operations is based on
awards ultimately expected to vest, net of estimated forfeitures. The authoritative guidance requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates.
A summary of the Company's stock option plans and of changes in options outstanding under the plans
during the years ended December 31, 2013 and 2012 is as follows:
F-16
Number of Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
In years
Aggregate Intrinsic
Value
Outstanding at December 31, 2011
Exercised
Granted
Expired
Forfeited
Outstanding at December 31, 2012
Exercised
Granted
Expired
Forfeited
Outstanding at December 31, 2013
Vested and expected to vest at
December 31, 2013
Exercisable at December 31, 2013
621,889
(1,136)
1,249,000
(197,833)
(35,376)
1,636,544
(3,817)
2,034,500
(80,833)
-
3,586,394
3,512,769
2,113,901
$ 16.23
1.76
$
$
2.04
$ 21.13
4.69
$
5.07
$
1.88
$
$
1.78
$ 27.37
-
$
2.69
$
$
$
2.71
3.26
8.64
8.48
8.24
$ -
$ -
$ -
The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common
stock at December 31, 2013 and (ii) the weighted average exercise price of the underlying awards, multiplied by the
number of options that had an exercise price less than the closing price on the last trading day of 2013. The total
intrinsic value of options exercised during the years ended December 31, 2013 and 2012 totaled approximately
$2,500 and $400, respectively.
Cash received from option exercises under all share-based payment arrangements for the years ended
December 31, 2013 and 2012 was $7,190 and $1,999, respectively. Due to the availability of net operating loss
carryforwards and research tax credits, tax deductions for option exercises were not recognized in the years ended
December 31, 2013 and 2012.
The following summarizes information about stock options granted to employees and directors outstanding
at December 31, 2013:
Range of
Exercise Prices
$0.00 - $3.00
$3.01 - $10.00
$10.01 - $20.00
$20.01 - $30.00
$30.01 - $40.00
Number
Outstanding at
December 31, 2013
3,305,701
178,040
61,070
20,814
20,769
Options Outstanding
Weighted
Average
Remaining
Contractual
Life in Years
9.0
6.6
3.0
0.5
1.6
3,586,394
8.6
Weighted
Average
Exercise
Price
1.88
$
$
6.55
$ 17.28
$ 23.72
$ 34.09
$
2.69
Options Exercisable
Number
Exercisable at
December 31, 2013
1,844,333
166,915
61,070
20,814
20,769
2,113,901
Weighted
Average
Exercise
Price
1.92
$
$
6.58
$ 17.28
$ 23.72
$ 34.09
$
3.26
As of December 31, 2013, there was approximately $1,911,000 of total unrecognized compensation cost
related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 1.5
years.
Warrants
Warrants granted generally expire after 3-5 years from the date of grant. Stock warrant activity to non-
employees is as follows:
Outstanding at December 31, 2011
Granted
Exercised
Expired
Outstanding at December 31, 2012
Granted
Exercised
Expired
Outstanding at December 31, 2013
Exercisable at December 31, 2013
Number of Shares
333,387
1,739,132
-
(22,725)
2,049,794
2,309,162
(37,391)
-
4,321,565
4,321,565
Weighted Average
Exercise Price
$ 4.13
1.40
$
-
$
$ 22.00
$
1.62
$ 2.91
$
1.40
$ -
$
$
2.31
2.31
F-17
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
ENMD-2076. In January 2006, the Company acquired Miikana, a private biotechnology company.
Pursuant to the Merger Agreement, the Company acquired all of the outstanding capital stock of Miikana
Therapeutics, Inc. In 2008, EntreMed initiated a Phase 1 clinical trial with its Aurora A and angiogenic kinase
inhibitor, ENMD-2076, in patients with solid tumors. A dosing of the first patient with ENMD-2076 triggered a
purchase price adjustment milestone of $2 million, which the Company opted to pay in stock. As ENMD-2076
successfully completed Phase 1 clinical trials and advanced to Phase 2, the dosing of the first patient in 2010
triggered an additional purchase price adjustment milestone of $3 million, which was paid stock in 2010. Under the
terms of the merger agreement, the former Miikana stockholders may earn up to an additional $4 million of potential
payments upon the satisfaction of additional clinical and regulatory milestones for ENMD-2076 and up to the $9
million of potential milestone payments that pertain to a preclinical program that the Company has discontinued. As
of December 31, 2013, a $4 million potential milestone payment remains, payable in cash or shares of stock at our
option, related to the ENMD-2076 program and the dosing of the first patient in a phase 3 pivotal trial.
MKC-1. Through the acquisition, the Company acquired rights to MKC-1, a Phase 2 clinical candidate
licensed from Hoffman-LaRoche, Inc. (“Roche”) by Miikana in April 2005. Under the terms of the agreement,
Roche may be entitled to receive future payments upon successful completion of Phase 3 developmental milestones.
The Company does not anticipate reaching any of these milestones in 2014. Roche is also eligible to receive
royalties on sales and certain one-time payments based on attainment of annual sales milestones. The Company is
also obligated to make certain “success fee” payments to ProPharma based on successful completion of
developmental milestones under the Roche license agreement. MKC-1 is currently not under active clinical
evaluation.
2ME2 NCD (2-methoxyestradiol, NanoCrystal Dispersion, 2ME2 NCD) for Oncology. In January 2006,
the Company entered into a License Agreement with Elan in which the Company has been granted rights to utilize
Elan’s proprietary NanoCrystal Technology in connection with the development of the oncology product candidate,
2ME2 NCD. Under the terms of the License Agreement, Elan is eligible to receive payments upon the achievement
of certain clinical, manufacturing, and regulatory milestones and to receive royalty payments based on sales of
2ME2 NCD. Additionally, under the agreement and the corresponding Services Agreement, Elan has the right to
manufacture EntreMed’s 2ME2 NCD. Milestones related to the initiation of Phase 2 clinical trials for 2ME2 NCD
have been paid and there are no additional milestones achieved as of December 31, 2013. The Company has
discontinued clinical development of 2ME2 NCD for oncology.
Endostatin and Angiostatin for Eye Diseases. The Company is a party to a February 2004 agreement with
Children’s Medical Center Corporation (“CMCC”) and Alchemgen Therapeutics pertaining to Endostatin and
Angiostatin proteins, programs which have been discontinued by the Company, and pursuant to which Alchemgen
received rights to market Endostatin and Angiostatin in Asia. In April 2008, the Company was advised that
Alchemgen Therapeutics ceased operations, therefore eliminating our ability to receive any royalties from
Alchemgen under the agreement. However, the Company is a party to a sublicense agreement with Oxford
BioMedica PLC (“Oxford”) to develop and market Endostatin and Angiostatin for ophthalmologic (eye) diseases.
Pursuant to this sublicense, the Company is eligible to receive a portion of upfront payments and royalties from
Oxford based on a portion of the payments received and net sales of gene products of Endostatin and Angiostatin
and certain development milestone payments. There was no royalty payment received in 2013 or 2012. The
Company does not control the drug development efforts of Oxford and has no information or control over when or
whether any milestones will be reached that would result in additional payments to the Company in 2014 or beyond.
2ME2 (2-methoxyestradiol, 2ME2) for Oncology. The Company entered into a license agreement with
CMCC for the exclusive, world-wide, royalty-bearing license to 2ME2, an inhibitor of angiogenesis. In
consideration for retaining the 2ME2 rights, the Company must pay a royalty on any sublicensing fees, as defined in
the agreement, to Children's Hospital, Boston. The agreement obligates the Company to pay up to $1,000,000 “upon
the attainment of certain milestones.” As of December 31, 2013, the Company has paid $500,000 under this
F-18
agreement for the milestones that have been achieved to date. The Company has discontinued research and
development of 2ME2 for oncology and currently is evaluating 2ME2 for possible other indications.
ENMD-2076 is the only program currently under active clinical evaluation by the Company. Pursuant to
the Company’s commitments for ENMD-2076, it could potentially pay $4 million, in stock or cash at the
Company’s election, when the next development milestone is reached. With respect to the Company’s other product
candidates, which are not actively pursued or have been discontinued pursuant to the commitments detailed above,
in aggregate, the Company could potentially pay up to $41 million if each licensed product candidate is fully
developed and approved for commercial use in all of the major territories of the world. In this event, the Company
would also be obligated to pay annual sales-based royalties under the license agreements. However, the Company
does not expect any of the other product candidates will reach additional developmental milestones in 2014 and
accordingly does not anticipate any future milestone payments for these programs.
As of December 31, 2013, the Company also has purchase obligation commitments, in the normal course of
business, for clinical trial contracts totaling $395,000.
The Company leases its principal executive offices in Rockville, MD under a lease agreement that
continues through December 31, 2016. The Company leases office space in China under a lease agreement that
continues through June 2017. Effective February 1, 2014, the Company entered into a one year lease in China for
lab space. Rent expense is recognized under the straight-line method.
The future minimum payments under its facilities leases are as follows:
2014
2015
2016
2017
Thereafter
Total minimum
payments
$ 233,040
163,309
161,338
39,214
-
$ 596,901
Rental expense for the years ended December 31, 2013 and 2012 was $175,000 and $152,000, respectively.
CONTINGENCIES
EntreMed is subject in the normal course of business to various legal proceedings in which claims for
monetary or other damages may be asserted. Management does not believe such legal proceedings, unless otherwise
disclosed herein, are material.
9. EMPLOYEE RETIREMENT PLAN
The Company sponsors the EntreMed, Inc. 401(k) and Trust. The plan covers substantially all employees
and enables participants to contribute a portion of salary and wages on a tax-deferred basis. Contributions to the
plan by the Company are discretionary. Contributions by the Company totaled approximately $21,614 and $26,500
in 2013 and 2012, respectively.
F-19