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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, 2015
Commission file number 0-20713
CASI PHARMACEUTICALS, 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, 2015, the aggregate market value of the shares of common stock held by non-affiliates was
approximately $36,273,034.
As of March 18, 2016, 42,583,301 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, 2015. The proxy statement is incorporated
herein by reference into the following parts of the Form 10-K:
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.
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CASI PHARMACEUTICALS, INC.
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 2015
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 12
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 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
Quantitative and Qualitative Disclosures
About Market Risk 28
Financial Statements and Supplementary Data 28
Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 28
Controls and Procedures
Other Information
28
29
Directors, Executive Officers and Corporate Governance 29
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
29
29
30
30
30
34
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 the second closing of our recent private placement offering does not occur; 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 in the market price of our common stock;
risks relating to interests of our largest stockholders that differ from our other stockholders; the risk of substantial dilution
of existing stockholders in future stock issuances, including as a result of the closing of the private placement offering; 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 candidates 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, 2015 (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.
OVERVIEW
PART I
CASI Pharmaceuticals, Inc. (“CASI”, the “Company”) (Nasdaq: CASI) is a late-stage biopharmaceutical
company dedicated to the acquisition, development and commercialization of innovative therapeutics for the
treatment of cancer and other unmet medical needs. Our mission is to become a leading fully-integrated
pharmaceutical company delivering new medicines to patients with unmet medical needs. We conduct clinical
development activities internationally and focus our commercial and marketing strategy on the China region, and the
rest of the world through partnerships for development and commercialization.
Our pipeline features (1) our lead proprietary drug candidate, ENMD-2076, in multiple Phase 2 clinical
trials, (2) MARQIBO®, ZEVALIN® and EVOMELA™, all U.S. Food and Drug Administration (FDA) approved
drugs in-licensed from Spectrum Pharmaceuticals, Inc. for China regional rights, and currently under development
by CASI for market approval in China, and (3) proprietary early-stage candidates in preclinical development. We
believe that our pipeline reflects a risk-balanced approach between products in various stages of development, and
between products that we develop ourselves and those that we develop with our partners for the China regional
market. We intend to continue building a significant product pipeline of innovative drug candidates that we will
commercialize alone in China and with partners for the rest of the world. For ENMD-2076, our current
development is focused on niche and orphan indications. For in-licensed products, the Company uses 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
drug development strategy.
Our primary research and development focus is on oncology therapeutics. Our strategy is to develop
innovative drugs that are potential first-in-class or market-leading compounds for treatment of cancer. 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 development and commercialization in the China
market.
ENMD-2076
Our lead internal drug candidate is ENMD-2076. ENMD-2076 is an orally-active, Aurora A/angiogenic
kinase inhibitor with a unique kinase selectivity profile and multiple mechanisms of action that has shown anti-
angiogenic and anti-proliferative properties in multiple preclinical and clinical cancer studies. 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.
3
ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including
tumor regression, in multiple animal models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-
treated human leukemia patient cells. ENMD-2076 has shown promising activity in a completed Phase 1 clinical
trial in various different solid tumor cancers including ovarian, breast, liver, renal and sarcoma, as well as in
leukemia, and multiple myeloma, and has also completed a Phase 2 clinical trial in advanced ovarian cancer, as well
as a healthy volunteer crossover bioavailability and food effect study.
We are currently conducting multiple Phase 2 studies of ENMD-2076 in advanced fibrolamellar carcinoma
(FLC),
triple-negative breast cancer (TNBC), advanced ovarian clear cell carcinomas (OCCC), and
advanced/metastatic soft tissue sarcoma (STS). Our development strategy for clinical-stage products includes
expanding the clinical trials to China allowing for more patient recruitment and the combination of clinical data to
support the registration submission in both the U.S. and China. We have submitted clinical trial applications with
the China Food and Drug Administration (CFDA) for each of these indications, and to date, have received approvals
from the CFDA to proceed with trials in China for TNBC, OCCC and STS. In March 2015, the Company expanded
the Phase 2 clinical trial of ENMD-2076 in TNBC to China at the Cancer Hospital of Chinese Academy of Medical
Sciences in Beijing, China.
The status of ENMD-2076 current trials is outlined below:
Disease
Indication
Status
Sites
Advanced
Fibrolamellar
Carcinoma
U.S. sites:
Phase 2 trial currently enrolling
● Memorial Sloan-Kettering Cancer Center
● University of Colorado Cancer Center
● University of Texas Southwestern Medical Center
● University of California at San Francisco
● Dana-Farber Cancer Institute
China sites: New trial application accepted by
● China site(s) to be determined
CFDA and is currently under review
Triple-Negative
Breast Cancer
U.S. sites:
Phase 2 trial enrollment ongoing;
biomarker analysis ongoing
China sites:
Phase 2 trial currently enrolling
● University of Colorado
● Indiana University
● Cancer Hospital of Chinese Academy of
Medical Sciences
● Additional China site(s) to be determined
Advanced/Soft
Tissue Sarcoma
U.S. sites:
Phase 2 trial enrollment completed;
biomarker analysis ongoing
● Princess Margaret Hospital
Advanced
Ovarian Clear
Cell Carcinoma
China sites: Received CFDA approval to expand
● China site(s) to be determined
U.S. sites:
trial to China sites
Phase 2 currently enrolling;
biomarker analysis ongoing
● Princess Margaret Hospital
China sites: Received CFDA approval to expand
● China site(s) to be determined
trial to China sites
ENMD-2076 has received orphan drug designation from the FDA for the treatment of ovarian cancer,
multiple myeloma, acute myeloid leukemia and hepatocellular carcinoma (HCC). In October 2015, the Company
also received orphan drug designation from the European Medicines Agency (EMA) for the treatment of HCC
including FLC. 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.
4
ENMD-2076 development is based on comprehensive research into the relationship between malignancy
and angiogenesis (the growth of new blood vessels). ENMD-2076 acts on the cellular pathways that affect
biological processes important in multiple diseases, specifically angiogenesis and cell cycle regulation through the
inhibition of key kinases. ENMD-2076 has potential applications in oncology and other diseases that are dependent
on the regulation of these processes.
IN-LICENSED PRODUCTS FOR THE CHINA REGIONAL MARKET
In September 2014, we acquired from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together
referred to as “Spectrum”) exclusive rights in greater China (including Taiwan, Hong Kong and Macau) to three in-
licensed oncology products, including MARQIBO® (vinCRIStine sulfate LIPOSOME injection) approved in the
U.S. for advanced adult Ph- acute lymphoblastic leukemia (ALL), ZEVALIN® (ibritumomab tiuxetan) approved in
the U.S. for advanced non-Hodgkin’s lymphoma, as well as EVOMELA™ (melphalan hydrochloride for injection)
approved in the U.S. primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor
(stem) cell transplantation in patients with multiple myeloma. A description of the products and its current status is
described below.
MARQIBO®
MARQIBO® is a novel, sphingomyelin/cholesterol liposome-encapsulated, formulation of vincristine
sulfate, a microtubule inhibitor. MARQIBO® is approved by the FDA for the treatment of adult patients with
Philadelphia chromosome-negative (Ph-) acute lymphoblastic leukemia (ALL) in second or greater relapse or whose
disease has progressed following two or more anti-leukemia therapies. We have initiated the regulatory and
development process towards marketing approval for MARQIBO in China. In January 2016, the CFDA accepted
for review our import drug registration application for MARQIBO®.
ZEVALIN®
ZEVALIN® injection for intravenous use is a CD20-directed radiotherapeutic antibody. It is indicated for
the treatment of patients with relapsed or refractory, low-grade or follicular B-cell non-Hodgkin’s lymphoma
(NHL). ZEVALIN® is also indicated for the treatment of patients with previously untreated follicular non-Hodgkin’s
Lymphoma who achieve a partial or complete response to first-line chemotherapy. ZEVALIN® therapeutic regimen
consists of two components: rituximab, and Yttrium-90 (Y-90) radiolabeled ZEVALIN® for therapy. ZEVALIN®
builds on the combined effect of a targeted biologic monoclonal antibody augmented with the therapeutic effects of
a beta-emitting radioisotope. Since ZEVALIN® is already approved in the U.S. and marketed by Spectrum, we
expect that gaining approval from local regulatory authorities for commercialization in greater China will require a
shorter timeframe compared to clinical-stage drugs. We have initiated the regulatory and development process
towards marketing approval for ZEVALIN® in China, and have initiated commercial activities for ZEVALIN® in
Hong Kong.
EVOMELA™
EVOMELA™ is a new intravenous formulation of melphalan being investigated by Spectrum in the
multiple myeloma transplant setting. The formulation avoids the use of propylene glycol, which is used as a co-
solvent in the current formulation of melphalan and has been reported to cause renal and cardiac side-effects that
limit the ability to deliver higher quantities of intended therapeutic compounds. The use of Captisol technology to
reformulate melphalan is anticipated to allow for longer administration durations and slower infusion rates,
potentially enabling clinicians to avoid reductions and safely achieve a higher dose intensity of pre-transplant
chemotherapy. On March 10, 2016, Spectrum received notification from the FDA of the grant of approval of its
NDA for EVOMELA™ (melphalan) for Injection primarily for use as a high-dose conditioning treatment prior to
hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma. We have initiated the
regulatory and development process towards marketing approval for EVOMELA™ in China.
5
PRECLINICAL DEVELOPMENT
Our primary focus is on clinical-stage and late-stage drug candidates so that we can immediately employ
our U.S. and China drug development model to accelerate clinical and regulatory progress. In addition to our
clinical-and late-stage approach, we have two potential drug candidates in preclinical development that we will
continue to evaluate in 2016. In addition to these early compounds, our pipeline includes 2ME2 (2-
methoxyestradial), an orally active compound that has antiproliferative, antiangiogenic and anti-inflammatory
properties. We maintain strong intellectual property around our 2ME2 asset and are currently seeking a partner to
advance its development.
MANAGEMENT
The current senior management team includes: Dr. Ken K. Ren, Chief Executive Officer; Cynthia W. Hu,
Chief Operating Officer, General Counsel & Secretary; Dr. Rong Chen, Chief Medical Officer; and Sara B.
Capitelli, Vice President, Finance & Principal Accounting Officer. 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.
BUSINESS DEVELOPMENT AND COMMERCIALIZATION STRATEGY
We intend to continue our path to become fully integrated with drug development and commercial
operations. Our current external business development effort is concentrated on acquiring additional drug
candidates through in-license and acquisitions to expand our pipeline. Our pipeline will reflect a diversified and
risk-balanced set of assets that include (1) proprietary innovative drug candidates, such as our ENMD-2076, (2) late-
stage clinical drug candidates in-licensed for China regional rights, such as MARQIBO®, ZEVALIN®, and
EVOMELA™, and (3) new drug candidates under internal preclinical development. We use 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 drug
development strategy. Although oncology is our principal clinical and commercial focus, we will be opportunistic
about other pharmaceuticals that can address unmet medical needs.
We believe that ENMD-2076 has therapeutic potential in a broad range of tumor types. We will continue
to advance ENMD-2076 in our current indications. We believe that for these indications ENMD-2076 represents a
potential Phase 3 partnering opportunity for large pharmaceutical companies for territory rights outside of greater
China. As a result, our strategy is to pursue the development of ENMD-2076, obtain additional clinical data while
being selective and opportunistic in exploring strategic alliances for territories outside of greater China. For
fibrolamellar carcinoma, a much smaller indication, we intend to maintain our global rights and commercialize on
our own. Similarly, we believe that 2ME2 and other new drug candidates in early development represent future
partnering opportunities for large pharmaceutical companies for territory rights outside of greater China.
In 2012, we established a wholly-owned Chinese subsidiary that is executing the China portion of our drug
development strategy, including 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
that our current strategy of outsourcing manufacturing is cost-effective and allows for the flexibility we require.
6
Sponsored Research Agreements. To support development efforts, we may enter 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 18, 2016, we are conducting clinical trials for ENMD-2076 at the
following institutions:
Clinical Trial
Phase 2 Advanced Fibrolamellar
Carcinoma
(currently enrolling)
Phase 2 Triple-Negative Breast Cancer
(currently enrolling in the U.S. and
China)
Institution
● Memorial Sloan-Kettering Cancer Center, New York, NY
● University of Colorado Cancer Center, Aurora, CO
● University of Texas Southwestern Medical Center, Dallas, TX
● University of California at San Francisco, San Francisco, CA
● Dana-Farber Cancer Institute, Boston, MA
● University of Colorado Cancer Center, Aurora, CO
● Indiana University Melvin & Bren Simon Cancer Center,
Indianapolis, IN
● Cancer Hospital of Chinese Academy of Medical Sciences,
Beijing, China
Phase 2 Advanced/Soft Tissue Sarcoma
(currently enrolling)
Phase 2 Advanced Ovarian Clear Cell
Carcinoma (currently enrolling)
● Princess Margaret Hospital, Toronto, Ontario
● 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 22 granted patents or allowed
patent applications (including 2 granted United States patents, 1 granted Chinese patent, and 18 granted patents and
1 additional pending patent applications in Brazil). 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 regard to our in-licensed drug candidates (MARQIBO®, ZEVALIN® and EVOMELA™), we have
acquired exclusive licenses to intellectual property to enable us to develop and commercialize the drug candidates in
our commercial markets.
With respect to our drug candidate, 2ME2, we directly own 4 issued US patents, 5 granted foreign patents,
and 1 pending foreign application. Assuming all maintenance fees are paid not considering any term extensions for
regulatory approval that might be available, the patent term of US Patent No. 7,087,592 expires March 12, 2022, the
patent term of US Patent No. 7,235,540 expires August 23, 2020, the patent term of US Patent No. 8,399,440
expires September 10, 2029, and, if granted, the patent term of US Patent No. 9,132,138 expires March 8, 2033.
The corresponding foreign patents will expire August 23, 2020, and March 20, 2027, assuming all annuities are paid
and not considering any term extensions for regulatory approval that might be available.
We have pending trademark applications for CASI and CASI PHARMACEUTICALS.
7
We review and assess our portfolio on a regular basis to secure protection and to align our patent strategy
with our overall business strategy.
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.
8
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
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. For clinical-stage product candidates, our development activities in China can
follow two purposes: (1) to obtain clinical data to support our global FDA-regulated trials as is the case for our
proprietary ENMD-2076, and (2) to obtain clinical data to support local registration with the CFDA. For late-stage
product candidates that we in-license for greater China rights, such as MARQIBO®, ZEVALIN®, and
EVOMELA™, our development activities in China are to secure marketing approval from CFDA by conducting
import drug registration. 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. For local registration only, 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
study drug to be used for clinical trials must be manufactured in compliance with CFDA Good Manufacturing
Practice (GMP) guidelines. A manufacturer of pharmaceutical products and active pharmaceutical ingredient (API)
must obtain the drug manufacturing license and the GMP certification to produce pharmaceutical products and API
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. Both the drug manufacturing license and the GMP certificate is valid for five years, and 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.
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. For an investigational new drug application, a clinical trial
approval issued from the CFDA is required to conduct clinical trials. Chemical generics, on the other hand, only
need to undergo bioequivalent studies upon a filing for record with the CFDA. 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
9
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:
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 Multi Regional Clinical Trials. CFDA regulations allow foreign drug
developers to conduct import drug registration or multi regional clinical trials in China for a new drug as part of a
global drug development program. A Multi Regional Clinical Trial Application needs to be filed with the CFDA and
approval is required prior to conducting the trials. Before a Multi Regional 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 Multi Regional 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 multi regional 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 trial report.
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.
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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.
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, Maryland and Beijing, China, currently consists of 19 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. The Company was restructured in 2012 and
implemented a name change in 2014 to “CASI Pharmaceuticals, Inc.” 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 15 full-time employees. Among its
activities, our Beijing office helps to oversee the Company’s local clinical operation activities, as well as its CFDA
regulatory activities. In addition, the Beijing office provides support to our business development activities.
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AVAILABLE INFORMATION
Through our website at www.casipharmaceuticals.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. Additionally, our board committee charters and code of ethics are available on
our website. We intend to post to this website all amendments to the charters and code of ethics. Our filings are also
available through the SEC via their website, http://www.sec.gov. You 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.
Risks Relating to our Financial Position and Need for Additional Capital
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, 2015, we had an
accumulated deficit of approximately $432.5 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.
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 Could Be Delisted From The NASDAQ Capital Market, Which Could Affect Our Common
Stock’s Market Price and Liquidity.
Our listing on the NASDAQ Capital Market is contingent upon meeting all the continued listing
requirements of the NASDAQ Capital Market which include maintaining a minimum bid price of not less than
$1.00 per share and a minimum of $2.5 million in stockholders’ equity. NASDAQ Listing Rule 5810(c)(3)(A)
provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of
30 consecutive business days.
On March 15, 2016, we received written notice from NASDAQ that the closing bid price for our common
stock had been below $1.00 per share for the previous 30 consecutive business days, and that we were therefore not
in compliance with the requirements for continued inclusion on the NASDAQ Capital Market under NASDAQ
Listing Rule 5550(a)(2). In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have 180 calendar days, or
until September 12, 2016, to regain compliance with the minimum bid price requirement. To regain compliance with
the $1.00 minimum bid listing requirement of the NASDAQ Capital Market, the closing bid price per share of our
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common stock would have to be $1.00 or higher for a minimum of ten consecutive business days during this initial
180-day compliance period.
If we do not regain compliance with the minimum $1.00 bid price per share requirement, we may be
eligible for an additional 180 calendar day period to regain compliance if we meet certain conditions, including
providing notice to NASDAQ that we intend to regain compliance by undertaking a reverse stock split, if necessary.
This second 180 day period would relate exclusively to the bid price deficiency. Our common stock may be delisted
during the 180 days for failure to maintain compliance with any other listing requirements. There can be no
assurance that we will be able to regain compliance with the minimum bid price requirement or will otherwise be in
compliance with other NASDAQ listing criteria.
If our common stock is delisted from the NASDAQ Capital Market, our ability to raise capital in the future
may be limited. Delisting could also result in less liquidity for our stockholders and a lower stock price.
We May Engage in Strategic and Other Corporate Transactions, Which Could Negatively Affect Our Financial
Condition and Prospects
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 financial condition and prospects after an acquisition depend in
part on our ability to successfully integrate the operations of the acquired business or 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.
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 2016. 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 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
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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;
• manufacturing;
•
•
the regulatory approval process; or
product launch.
At December 31, 2015, we had cash of approximately $5,131,000. On January 15, 2016, we completed an
initial closing of the Company’s strategic financing resulting in net proceeds of approximately $10.2 million to the
Company. We currently have additional commitments for a remaining $14.8 million of strategic financing that is
expected to close in the first half of 2016. There can be no assurance that this additional closing will occur. We may
continue to seek additional capital through public or private financing or collaborative agreements in 2016 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.
Risks Relating to Our Business
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 2016. 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
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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.
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:
•
•
•
•
•
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.
We May Not Be Able to Commercialize Our Drugs or Drug Candidates in China
We have exclusive licenses to develop and commercialize MARQIBO® (vinCRIStine sulfate LIPOSOME
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injection), EVOMELA™ (melphalan hydrochloride) for injection and ZEVALIN® (ibritumomab tiuxetan) in Greater
China. Our success in commercializing these drugs may be inhibited by a number of factors, including:
•
•
•
•
•
our inability to obtain regulatory approvals;
our inability to recruit, train and retain adequate numbers of effective sales and marketing
personnel;
the inability of sales personnel to obtain access to or educate physicians on the benefits of our
products;
the lack of complementary products to be offered by sales personnel, which may put us at a
competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing
organization.
If we decide to rely on third parties to sell, market and distribute our product candidates, we may not be
successful in entering into arrangements with such third parties or may be unable to do so on terms that are
favorable to us. In addition, our product revenues and our profitability, if any, may be lower if we rely on third
parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We
likely will have little control over such third parties, and any of them may fail to devote the necessary resources and
attention to sell and market our products effectively. If we do not establish sales, marketing and distribution
capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in
commercializing our product candidates, which would adversely affect our business and financial condition.
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
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 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
16
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.
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 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:
•
•
•
•
•
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,
17
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
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.
Risks Relating to Our Reliance on Third Parties
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
18
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.
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
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
19
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.
Risks Relating to Our Common Stock
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 2015, our stock price has ranged from $0.91 to $1.92. 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
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.
Our Largest Holders Of Common Stock May Have Different Interests Than Our Other Stockholders
A small number of our stockholders hold a significant amount of our outstanding common stock. These
stockholders may have interests that are different from the interests of our other stockholders. We cannot assure that
our largest stockholders 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. In addition, the significant concentration of ownership in our common
stock may adversely affect the trading price for our common stock because investors often perceive disadvantages in
owning stock in companies with significant stockholders. Our largest stockholders, if they acted together, could
significantly influence all matters requiring approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. Our largest stockholders together may be able to
determine all matters requiring stockholder approval.
Subsequent Resales Of Shares Of Our Common Stock In The Public Market May Cause The Market Price Of
Our Common Stock To Fall
The market value of our common stock could decline as a result of sales by investors from time to time, or
perceptions that such sales may occur, of a substantial amount of the shares of common stock held by them.
Issuances of Additional Shares of Our Common Stock May Cause Substantial Dilution of Existing Stockholders
Spectrum has a contingent right to purchase shares of our common stock at par value ($0.01 per share) in
order to maintain its post-investment equity ownership percentage as of September 17, 2014, which was 16.66%, if
we issue securities (subject to a limited exception for certain equity compensation grants) in the future. This right
expires upon the earliest of (1) the date on which we have raised, in the aggregate, $50 million in net proceeds
through capital raising activities or (2) September 17, 2019 (subject to extension for certain outstanding derivative
securities). The future exercise of this contingent purchase right will subject our existing stockholders to immediate
dilution of their ownership interests. We may also issue additional shares of common stock or other securities that
are convertible into or exercisable for common stock in connection with future acquisitions, future sales of our
securities for capital raising purposes, future strategic relationships, or for other business purposes. The future
issuance of any additional shares of our common stock may create downward pressure on the trading price of our
common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other
convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise
prices) below the price at which shares of our common stock are then traded.
20
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, 2015, we leased approximately 4,200 square feet of office space in Rockville,
Maryland where our headquarters are located. In addition, as of December 31, 2015, we leased approximately 4,100
square feet of office space in Beijing, China where our China operations are based and approximately 3,400 square
feet of laboratory 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.
CASI 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.
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
2015:
First Quarter .................................................
Second Quarter ............................................
Third Quarter ...............................................
Fourth Quarter..............................................
2014:
First Quarter .................................................
Second Quarter ............................................
Third Quarter ...............................................
Fourth Quarter……………………………..
HIGH
LOW
$
1.71
1.92
1.82
1.46
$
2.17
1.97
2.03
1.79
$
1.22
1.34
0.91
0.96
$
1.69
1.62
1.55
1.16
On March 18, 2016, the closing price of our common stock, as reported by The NASDAQ Capital Market,
was $1.45 per share. As of March 18, 2016 there were approximately 359 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
anticipate paying any cash dividends on our common stock in the foreseeable future.
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.
21
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 late-stage biopharmaceutical company dedicated to the acquisition, development and
commercialization of innovative therapeutics for the treatment of cancer and other unmet medical needs. Our
mission is to become a leading fully-integrated pharmaceutical company delivering new medicines to patients with
unmet medical needs. We conduct clinical development activities internationally and focus our commercial and
marketing strategy on the China region, and the rest of the world through partnerships for development and
commercialization.
Our pipeline features (1) our lead proprietary drug candidate, ENMD-2076, in multiple Phase 2 clinical
trials, (2) MARQIBO®, ZEVALIN® and EVOMELA™, all FDA approved drugs in-licensed from Spectrum
Pharmaceuticals, Inc. for China regional rights, and currently under development by CASI for market approval in
China, and (3) proprietary early-stage candidates in preclinical development. We believe our pipeline reflects a risk-
balanced approach between products in various stages of development, and between products that we develop
ourselves and those that we develop with our partners for the China regional market. We intend to continue building
a significant product pipeline of innovative drug candidates that we will commercialize alone in China and with
partners for the rest of the world. For ENMD-2076, our current development is focused on niche and orphan
indications. For in-licensed products, the Company uses 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 drug development strategy.
Our primary research and development focus is on oncology therapeutics. Our strategy is to develop
innovative drugs that are potential first-in-class or market-leading compounds for treatment of cancer. 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 development and commercialization in the China
market.
Since inception, the Company has incurred significant losses from operations and has incurred an
accumulated deficit of $432.5 million. The Company expects to continue to incur operating losses for the
foreseeable future due to, among other factors, its continuing clinical activities. In September 2015, the Company
entered into stock purchase agreements for a $25.1 million strategic financing, the closing of which was subject to
certain regulatory and customary closing conditions. In January 2016, the Company completed the first closing and
received approximately $10.3 million (“Initial Closing”). The Company and Investors are working to close on the
remaining $14.8 million (“Second Closing”) which is expected during the first half of 2016. There can be no
assurance that the Second Closing will occur. Net proceeds of the closing will be used to further fund its operations,
accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and
commercial planning activities.
As a result of the Initial Closing, the Company believes that it has sufficient resources to fund its operations
for at least the twelve months subsequent to December 31, 2015. We intend to continue to exercise tight controls
over operating expenditures. 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.
Additional funds raised by issuing equity securities may result in dilution to existing stockholders.
22
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
condensed 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.
- 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
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. For
the year ended December 31, 2014, $686,600 was expensed for share awards with performance conditions
that became probable during that period. For the year ended December 31, 2015, 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 for the year ended December 31, 2015
and 2014 totaled approximately $1,541,000 and $2,189,000, respectively.
The determination of fair value of stock-based payment awards on the date of grant using the
Black-Scholes valuation 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.
23
Any future changes to our share-based compensation strategy or programs would likely affect the
amount of compensation expense recognized.
− Fair Value Measurements – At each reporting period, we perform a detailed analysis of our assets and
liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is
based on significant unobservable inputs or instruments which trade infrequently and therefore have little
or no price transparency are classified as Level 3 in accordance with the hierarchy established by U.S.
GAAP. As of December 31, 2015, we remeasured the Contingent Rights and will continue to do so at
every balance sheet date until settlement. In measuring the fair value of both financial instruments we used
Level 3 unobservable inputs, including such inputs as our estimated borrowing rate and our future capital
requirements, and the timing, probability, size and characteristics of those capital raises, among other
inputs.
RESULTS OF OPERATIONS
Years Ended December 31, 2015 and 2014.
Revenues and Cost of Product Sales. Revenues were approximately $47,700 and $23,700 in 2015 and
2014, respectively. Our product sales related to the dosing of ZEVALIN® to patients in Hong Kong. The cost of
sales for 2015 and 2014 were $6,274 and $7,467, respectively. These expenses include the cost of the Zevalin Kit
and Isotope purchase.
Research and Development Expenses. Our 2015 research and development expenses totaled $4,076,000 as
compared to $2,765,000 in 2014, a 47% increase. In 2015, our research and development expenses reflect direct
project costs for ENMD-2076 of $1,555,000 and $744,000 for development of our drug delivery platform in China.
The 2014 amount reflects direct project costs for ENMD-2076 of $970,000 and $419,000 for development of our
drug delivery platform. The increase in 2015 research and development spending reflects higher clinical trial costs in
2015 due to costs associated with our food effect study of ENMD-2076 in healthy human subjects in advance of
initiating our FLC trial, an increase in start-up costs and patient enrollment in the FLC trial and TNBC trial in China,
costs related to our new Chief Medical Officer, as well as increased costs associated with our research and
development operations, in China during 2015.
At December 31, 2015, and, since acquired, accumulated direct project expenses for ENMD-2076 totaled
$25,959,000, and for development of our new drug delivery platform, accumulated project expenses totaled
$1,176,000. Our research and development expenses also include non-cash stock-based compensation totaling
$747,000 and $690,000, respectively, for 2015 and 2014. The increase in stock-based compensation expense is
related to the increase in stock options granted in 2015. 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 2016 to be devoted to the development
of our ENMD-2076 program, our early-stage candidates in preclinical development, and advancing our in-licensed
products towards market approval in China. We expect our expenses in 2016 to increase based on our clinical
development plan. 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.
We estimate that clinical trials of the type we generally conduct are typically completed over the following
timelines:
Global FDA Trial:
CLINICAL PHASE
Phase 1
Phase 2
Phase 3
24
ESTIMATED
COMPLETION
PERIOD
1-2 Years
2-3 Years
2-4 Years
Local CFDA Trial:
CLINICAL PHASE
Phase 1
Phase 2
Phase 3
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
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
$4,076,000 in 2015 from $2,765,000 in 2014.
25
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
$186,000 in 2015 and $127,000 in 2014. The increase in 2015 is primarily associated with greater
regulatory activities for MARQIBO® and ZEVALIN®.
- Clinical Trial Costs – Clinical trial costs, which include clinical site fees, monitoring costs and data
management costs, increased to $939,000 in 2015, from $175,000 in 2014. This increase primarily relates
to costs associated with our food effect study of ENMD-2076 in healthy human subjects in 2015, as well as
costs associated with our Phase 2 clinical trials in TNBC, OCCC and STS during 2015, and start-up costs
and patient enrollment associated with the FLC trial that we initiated in November 2015.
- 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 2015 to $171,000, from $388,000 in 2014. The decrease in 2015 primarily reflects the
manufacturing costs incurred in 2014 in the U.S. related to the production of new formulated capsules of
ENMD-2076 as well as manufacturing of 2ME2 in China.
- Personnel Costs – Personnel costs increased to $1,754,000 in 2015 from $1,514,000 in 2014. This variance
is primarily attributed to increased salary and benefit costs associated with new employees, including our
Chief Medical Officer, in China during 2015.
- Also reflected in our 2015 research and development expenses are outsourced consultant costs of $306,000,
and facility and related expenses of $402,000. In 2014, these expenses totaled $151,000 and $214,000,
respectively. The fluctuation in outsourced consultant costs reflects higher costs associated with clinical
trial management, including site visits and regulatory activities. The increase in costs associated with
facilities and related expenses in 2015 resulted from more leased laboratory and 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 decreased to $3,118,000 in 2015 from $3,757,000 in 2014. This
decrease is primarily related to a decrease of $705,000 related to non-cash stock-based compensation in 2015 due
mainly to the vesting of performance based options that occurred during 2014, offset by increase in legal
professional fees and travel related costs associated with business development and investor relations activities
during 2015.
In-process R&D. In September 2014, we acquired certain product rights and perpetual exclusive licenses
from Spectrum to develop and commercialize the three commercial oncology drugs and drug candidates in China,
Taiwan, Hong Kong and Macau. As consideration for the acquisition, we issued a total 5,405,382 shares of our
common stock, a $1.5 million 0.5% secured promissory note due in March 2016 (which has been extended to March
2017), and certain contingent rights (“Contingent Rights”) to purchase additional shares of our common stock. We
accounted for the acquisition of the product rights and licenses as an “asset acquisition” and, accordingly, recorded
the acquired product rights and licenses at their estimate fair values based on the fair value of the consideration
exchanged (including transaction costs) of approximately $19.7 million. Because the products underlying the
acquired product rights and licenses have not reached technological feasibility and have no alternative uses, they are
considered “in-process research and development” costs; as such, we expensed the total purchase price at the
acquisition date as acquired in-process R&D in the accompanying December 31, 2014 consolidated statement of
operations.
Interest expense, net. Interest expense, net for year ended December 31, 2015 and 2014 was $81,533 and
$26,581, respectively. This includes interest on our note payable of $7,500 and $2,142, respectively; non-cash
interest of $74,955 and $25,922, respectively, representing the amortization of the debt discount; offset by interest
income of $922 and $1,483, respectively.
26
Change in fair value of contingent rights. The Contingent Rights issued to Spectrum in connection with the
license arrangements are considered derivative liabilities and were recorded initially at their estimated fair value,
and are marked to market each reporting period until settlement. The change in fair value of the Contingent Rights
for the years ended December 31, 2015 and 2014 was $27,513 and $11,764, respectively.
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 2016 and the foreseeable future before we
commercialize any products and penetrate significant markets such as China. Based on our current plans, we expect
our current available cash and cash equivalents to meet our cash requirements for at least the twelve months
subsequent to December 31, 2015.
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:
•
•
•
•
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, 2015, we had cash of $5,131,114, with working capital of $4,515,781.
FINANCING ACTIVITIES
On October 6, 2015, we filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration
process. On October 15, 2015, 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 total public
offering price of $30 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.
As discussed above, on January 15, 2016, the Company completed the Initial Closing and received
approximately $10.3 million and yielded approximately $10.2 million after minimum offering expenses. The Initial
Closing resulted in the issuance of 8,448,613 shares of Common Stock, priced at $1.19 per share, and 1,689,722
warrants, with a purchase price of $0.125 per warrant. The warrants will become exercisable on April 15, 2016 at
27
$1.69 per share exercise price, and will expire on April 15, 2019. The fair value of the warrants issued is $321,047,
calculated using the Black-Scholes-Merton valuation model value of $0.19 with an expected and contractual life of
3.25 years, an assumed volatility of 70.1%, and a risk-free interest rate of 1.08%.
The Company and Investors are working to close on the remaining $14.8 million which is expected during
the first half of 2016. There can be no assurance that the Second Closing will occur or will occur within our
expected timeline.
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 2015.
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.
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, 2015, 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, 2015.
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, 2015 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
28
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, 2015.
ITEM 9B. OTHER INFORMATION.
Our 2016 Annual Meeting of Stockholders will be held on June 2, 2016. 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.
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, 2015.
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.casipharmaceuticals.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, 2015.
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, 2015.
29
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, 2015.
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
6,694,744
$1.99
1,957,876
0
$ 0.00
0
6,694,744
$1.99
1,957,876
Warrants issued under the unauthorized plans represent compensation for consulting services rendered by
the holders.
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, 2015.
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, 2015.
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
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 to Exhibit 2.1 of our
Form 8-K filed with the Securities and Exchange Commission on December 29, 2005)
Amended and Restated Certificate of Incorporation of EntreMed, Inc. (incorporated by reference to
Exhibit 3.1 of our Form 10-Q for the quarter ended June 30, 2006 filed with the Securities and
Exchange Commission)
30
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of our Form 8-K filed with the Securities and Exchange Commission on July
7, 2010)
Amended and Restated Bylaws of EntreMed, Inc. (incorporated by reference to Exhibit 3.1 of our
Form 8-K filed with the Securities and Exchange Commission on December 12, 2007)
Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of our Form 8-K filed with the Securities and Exchange Commission on June
13, 2014)
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 filed with the
Securities and Exchange Commission on September 20, 2012.)
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.1 of our Form 8-K
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)
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)
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 (included in
Exhibit 10.1) of our Form 10-Q filed with the Securities and Exchange Commission on November 13,
2015)
Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 of our
Form 8-K filed with the Securities and Exchange Commission on September 19, 2014)
Secured Promissory Note, dated as of September 17, 2014, issued to Talon Therapeutics, Inc.
(incorporated by reference to Exhibit 4.2 of our Form 8-K filed with the Securities and Exchange
Commission on September 19, 2014)
First Amendment to Secured Promissory Note, dated as of September 28, 2015, by and between the
CASI Pharmaceuticals, Inc. and Talon Therapeutics, Inc. (incorporated by reference to Exhibit 4.2 of
our Form 8-K filed with the Securities and Exchange Commission on October 1, 2015)
License Agreement between Celgene Corporation and EntreMed, Inc. signed December 9, 1998
regarding thalidomide intellectual property + (incorporated by reference to Exhibit 10.28 of our Form
10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission)
Lease Agreement between EntreMed, Inc. and Red Gate III Limited Partnership, dated June 10, 1998
(incorporated by reference to Exhibit 10.31 our Form 10-K for the year ended December 31, 1998 filed
with the Securities and Exchange Commission)
10.3
EntreMed, Inc. 2001 Long-Term Incentive Plan* (incorporated by reference to Appendix A to our
Definitive Proxy Statement filed with the Securities and Exchange Commission on May 12, 2006)
10.4.1
Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated June 15, 2001+
(incorporated by reference to Exhibit 10.39.1 of our Form 10-Q for the quarter ended June 30, 2001
filed with the Securities and Exchange Commission)
10.4.2
Amendment 1 to Purchase Agreement between Bioventure Investments kft and EntreMed, Inc., dated
31
10.4.3
10.4.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
July 13, 2001(incorporated by reference to Exhibit 10.39.2 of our Form 10-Q for the quarter ended
June 30, 2001 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 to Exhibit 10.39.3 of our Form 10-Q for the quarter ended
June 30, 2001 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 to Exhibit 10.39.4 of our Form 10-Q for the quarter ended
June 30, 2001 filed with the Securities and Exchange Commission)
EntreMed, Inc. 2001 Long Term Incentive Plan Non-Qualified Stock Option Grant Agreement
(Director)* (incorporated by reference to Exhibit 10.7 of our Form 8-K 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 to Exhibit 10.8 of our Form 8-K filed with the
Securities and Exchange Commission on April 17, 2007)
Form of Change in Control Agreement* (incorporated by reference to Exhibit 19.1 of our Form 8-K
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 to Exhibit 10.1 of Form 8-K filed with the Securities and Exchange
Commission on June 6, 2006)
Amendment to Employment Agreement by and between the Company and Cynthia W. Hu, effective
April 16, 2007* (incorporated by reference to Exhibit 10.5 of our Form 8-K filed with the Securities
and Exchange Commission on April 17, 2007)
Form of Restricted Stock Award under EntreMed, Inc. 2001 Long Term Incentive Plan* (incorporated
by reference to Exhibit 10.2 of our Form 8-K filed with the Securities and Exchange Commission on
March 11, 2005)
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 to Exhibit 10.25 of our Form 10-Q for the quarter
ended March 31, 2005 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 to Exhibit 10.1 of our Form 8-K filed with the
Securities and Exchange Commission on September 10, 2010)
10.13
Employment Agreement, by and between EntreMed, Inc. and Sara Capitelli, dated as of January 10,
2011* (incorporated by reference to Exhibit 10.33 of our Form 10-K for the fiscal year ended
December 31, 2010 filed with the Securities and Exchange Commission)
10.14 Convertible Note and Warrant Purchase Agreement, dated January 20, 2012, by and among EntreMed,
Inc. and the investors party thereto (incorporated by reference to Exhibit 10.1 of our Form 8-K filed
with the Securities and Exchange Commission on January 26, 2012)
10.15
Securities Purchase Agreement, dated March 1, 2013, by and among EntreMed, Inc. and the investors
thereto (incorporated by reference to Exhibit 10.1 of our Form 8-K filed with the Securities and
Exchange Commission on March 6, 2013)
32
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
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)
Investment Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc.
and Spectrum Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of our Form 8-K filed
with the Securities and Exchange Commission on September 19, 2014)
Investment Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc.
the Company and Spectrum Pharmaceuticals Cayman, L.P (incorporated by reference to Exhibit 10.2
of our Form 8-K filed with the Securities and Exchange Commission on September 19, 2014)
License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and
Spectrum Pharmaceuticals, Inc. + (incorporated by reference to Exhibit 10.3 of our Form 10-Q/A filed
with the Securities and Exchange Commission on January 21, 2015)
License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and
Spectrum Pharmaceuticals Cayman, L.P. + (incorporated by reference to Exhibit 10.4 of our Form 10-
Q/A filed with the Securities and Exchange Commission on January 21, 2015)
License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and
Talon Therapeutics, Inc. + (incorporated by reference to Exhibit 10.5 of our Form 10-Q/A filed with
the Securities and Exchange Commission on January 21, 2015)
CASI Pharmaceuticals, Inc. 2011 Long-Term Incentive Plan, as amended* (incorporated by reference
to Appendix A to the Company’s Definitive Proxy Statement filed with the Securities and Exchange
Commission on April 17, 2015)
Form of Securities Purchase Agreement, dated September 20, 2015, by and among CASI
Pharmaceuticals, Inc. and the investors thereto (incorporated by reference to Exhibit 10.1 of our Form
10-Q filed with the Securities and Exchange Commission on November 13, 2015)
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, 2015, formatted in eXtensible Business Reporting
Language (XBRL):
(i) Consolidated Balance Sheets as of December 31, 2015 and 2014,
(ii) Consolidated Statements of Operations for the years ended December 31, 2015 and 2014,
(iii) Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31,
2015 and 2014 (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015
and 2014 and (v) Notes to Consolidated Financial Statements.
* 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.
**
Filed herewith
33
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 28, 2016
CASI Pharmaceuticals, 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
and Director
(Principal Executive
Officer)
March 28, 2016
/s/Sara B. Capitelli
Sara B. Capitelli
Principal Accounting
Officer
March 28, 2016
/s/Wei-Wu He
Wei-Wu He
/s/James Z. Huang
James Z. Huang
/s/Tak W. Mak
Tak W. Mak
/s/Franklin C. Salisbury
Franklin C. Salisbury
/s/Rajesh C. Shrotriya
Rajesh C. Shrotriya
/s/Y. Alexander Wu
Y. Alexander Wu
Chairman
March 28, 2016
Director
March 28, 2016
Director
March 28, 2016
Director
March 28, 2016
Director
March 28, 2016
Director
March 28, 2016
34
The following consolidated financial statements of CASI Pharmaceuticals, Inc. are included in Item 8:
Report of Independent Registered Public Accounting Firm......................................................................................... F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 ............................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014........................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2015 and 2014......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014 ...................................... F-6
Notes to Consolidated Financial Statements ................................................................................................................. F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CASI Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of CASI Pharmaceuticals, Inc. as of
December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity (deficit)
and cash flows for the years then ended. CASI Pharmaceuticals, Inc.’s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated 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 financial position of CASI Pharmaceuticals, Inc. as of December 31, 2015 and 2014, and the results of
their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ CohnReznick LLP
Roseland, New Jersey
March 28, 2016
F-2
CASI Pharmaceuticals, 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, 2014
Prepaid expenses and other
Total current assets
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Note payable, net of discount
Contingent rights derivative liability
Total liabilities
Commitments and contingencies
DECEMBER 31,
2015
2014
$ 5,131,114
$ 10,669,919
-
438,231
5,569,345
218,796
38,174
5,826,315
23,727
328,150
11,021,796
261,781
26,011
11,309,588
$
884,100
169,464
1,053,564
$
754,628
164,420
919,048
1,464,970
9,395,222
11,913,756
1,390,015
9,422,735
11,731,798
$
$
Stockholders' deficit:
Convertible preferred stock, $1.00 par value;
5,000,000 shares authorized and 0 shares issued and
outstanding at December 31, 2015 and 2014
Common stock, $.01 par value:
170,000,000 shares authorized at December 31, 2015 and
2014; 32,525,356 shares issued at December 31, 2015 and 2014
Additional paid-in capital
Treasury stock, at cost: 79,545 shares held at December 31, 2015 and
December 31, 2014
Accumulated deficit
Total stockholders' deficit
Total liabilities and stockholders' deficit
-
-
325,252
434,099,890
325,252
432,558,698
(8,034,244)
(432,478,339)
(6,087,441)
5,826,315
$
(8,034,244)
(425,271,916)
(422,210)
11,309,588
$
See accompanying notes.
F-3
CASI Pharmaceuticals, Inc.
Consolidated Statements of Operations
Revenues:
Product sales
Costs and expenses:
Cost of product sales
Research and development
General and administrative
Acquired in-process research and development
YEAR ENDED DECEMBER 31,
2015
2014
$ 47,712
47,712
$ 23,727
23,727
6,274
7,467
4,075,572
2,765,492
3,118,269
3,756,548
-
7,200,115
19,681,711
26,211,218
Interest expense, net
81,533
26,581
Change in fair value of contingent rights
(27,513)
(11,764)
Net loss
$
(7,206,423)
$ (26,202,308)
Net loss per share (basic and diluted)
Weighted average number of shares outstanding (basic
$
(0.22)
$
(0.92)
and diluted)
32,445,811
28,595,402
See accompanying notes.
F-4
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F
CASI Pharmaceuticals, 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
Acquired in-process research and development
Non-cash interest
Change in fair value of contingent rights
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other
Accounts payable
Accrued liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment
Cash paid for acquired in-process research and development
Net cash used in investing activities
YEAR ENDED DECEMBER 31,
2015
2014
$
(7,206,423)
$ (26,202,308)
68,381
1,541,192
-
74,955
(27,513)
23,727
(122,244)
129,472
5,044
(5,513,409)
48,179
2,189,102
19,681,711
25,922
(11,764)
(23,727)
(56,423)
352,172
1,710
(3,995,426)
(25,396)
-
(25,396)
(231,818)
(234,508)
(466,326)
Net decrease in cash and cash equivalents
(5,538,805)
(4,461,752)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
10,669,919
$ 5,131,114
15,131,671
$ 10,669,919
Cash paid for interest
$
7,500
$ -
Non-cash financing activity:
Common stock issued in connection with acquired in-process research
and development
$ -
$ 8,648,611
Promissory note, net of discount, issued in connection with acquired in-
process research and development
$ -
$ 1,364,093
Contingent rights issued in connection with acquired in-process
research and development
$ -
$ 9,434,499
See accompanying notes.
F-6
CASI Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
CASI Pharmaceuticals, Inc. (“CASI” or the “Company”) is a late-stage biopharmaceutical company
dedicated to the acquisition, development and commercialization of innovative therapeutics for the treatment of
cancer and other unmet medical needs. The Company’s mission is to become a leading fully-integrated
pharmaceutical company delivering new medicines to patients with unmet medical needs. The Company conducts
clinical development activities internationally and focuses its commercial and marketing strategy on the China
region, and in the rest of the world through partnerships.
The Company’s pipeline features (1) its lead proprietary drug candidate, ENMD-2076, in multiple Phase 2
clinical trials, (2) MARQIBO®, ZEVALIN® and EVOMELA™, all U.S. Food and Drug Administration (FDA)
approved drugs in-licensed from Spectrum Pharmaceuticals, Inc. for China regional rights, and currently under
development by CASI for market approval in China, and (3) proprietary early-stage candidates in preclinical
development. The Company’s pipeline reflects a risk-balanced approach between products in various stages of
development, and between products that it develops itself and those that it develops with the Company’s partners for
the China regional market. The Company intends to continue building a significant product pipeline of innovative
drug candidates that it will commercialize alone in China and with partners for the rest of the world. For ENMD-
2076, the Company’s current development is focused on niche and orphan indications. For in-licensed products, the
Company uses 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 drug development strategy.
The Company’s primary research and development focus is on oncology therapeutics. The Company’s
strategy is to develop innovative drugs that are potential first-in-class or market-leading compounds for treatment of
cancer. The implementation of its plans will include leveraging the Company’s 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 development and
commercialization in the China market.
ENMD-2076 has received orphan drug designation from the FDA for the treatment of ovarian cancer,
multiple myeloma, acute myeloid leukemia and hepatocellular carcinoma (HCC). In October 2015, the Company
also received orphan drug designation from the European Medicines Agency (EMA) for the treatment of HCC.
In September 2014, the Company acquired from Spectrum Pharmaceuticals, Inc. and certain of its affiliates
(together referred to as “Spectrum”) exclusive rights in greater China (including Taiwan, Hong Kong and Macau) to
three in-licensed oncology products, including MARQIBO® (vinCRIStine sulfate LIPOSOME injection) approved
in the U.S. for advanced adult Ph- acute lymphoblastic leukemia (ALL), ZEVALIN® (ibritumomab tiuxetan)
approved in the U.S. for advanced non-Hodgkin’s lymphoma, as well as EVOMELA™ (melphalan hydrochloride for
injection) approved in the U.S. primarily for use as a high-dose conditioning treatment prior to hematopoietic
progenitor (stem) cell transplantation in patients with multiple myeloma.
The Company’s primary focus is on clinical-stage and late-stage drug candidates so that it can immediately
employ its U.S. and China drug development model to accelerate clinical and regulatory progress. In addition to its
clinical-and late-stage approach, the Company has two potential drug candidates in preclinical development which it
will continue to evaluate in 2016. In addition to these early compounds, the Company’s pipeline includes 2ME2 (2-
methoxyestradial), an orally active compound that has antiproliferative, antiangiogenic and anti-inflammatory
properties.
F-7
The accompanying consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc.
and its subsidiaries, Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI
China”). CASI China is a non-stock Chinese entity with 100% of its interest owned by CASI. CASI China received
approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has
operating facilities in Beijing. 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 $432.5 million. The Company expects to continue to incur operating losses for the
foreseeable future due to, among other factors, its continuing clinical activities. In September 2015, the Company
entered into stock purchase agreements for a $25.1 million strategic financing, the closing of which was subject to
certain regulatory and customary conditions. In January 2016, the Company completed the first closing and
received approximately $10.3 million (“Initial Closing”) (see Note 8). The Company and Investors are working to
close on the remaining $14.8 million (“Second Closing”) which is expected during the first half of 2016. There can
be no assurance that the Second Closing will occur. Net proceeds of the closing will be used to further fund its
operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and
commercial planning activities. As a result of the Initial Closing, the Company believes that it has sufficient
resources to fund its operations for at least the twelve months subsequent to December 31, 2015. The Company
intends to continue to exercise tight controls over operating expenditures and will continue to pursue opportunities,
as required, to raise additional capital and will also actively pursue non- or less-dilutive capital raising arrangements
in China to support the Company’s dual-country approach to drug development.
The Company intends to advance clinical development of its drugs and drug candidates, and the
implementation of the Company’s plans will include leveraging its 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 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
have capabilities and/or products that are complementary to the Company’s capabilities and products in order to
continue the development of the product candidate that the Company intends to pursue to commercialization.
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. CASI’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
F-8
and clinical trials of the Company’s drug 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.
PROPERTY AND EQUIPMENT
Furniture and equipment and leasehold improvements are stated at cost and are depreciated over their
estimated useful lives of 3 to 5 years. Depreciation and amortization is determined on a straight-line basis.
Depreciation and amortization expense was $68,381 and $48,179 in 2015 and 2014, respectively.
Property and equipment consists of the following:
Furniture and equipment
Leasehold improvements
Less: accumulated depreciation
and amortization
DECEMBER 31,
2015
505,946
6,382
512,328
(293,532)
218,796
$
$
2014
480,550
6,382
486,932
(225,151)
261,781
$
$
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with authoritative guidance issued by the FASB, the Company periodically evaluates the
value reflected in its consolidated balance sheets 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 2015 and 2014.
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 was an allowance for doubtful accounts of
$12,536 at December 31, 2014.
For the years ended December 31, 2015 and 2014, one customer represented 100% of revenue. As of
December 31, 2014, one customer represented 100% of net 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 (loss).
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
F-9
an adjustment to deferred rent. Deferred rent as of December 31, 2015 and 2014 was $4,086 and $9,593,
respectively, and is included in accrued liabilities in the accompanying consolidated balance sheets.
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, 2015
and 2014, clinical trial accruals were $187,322 and $262,997, 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 asset and 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 Accounting Standards
Codification 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, 2015 and 2014, 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 for product sales 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.
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 10,705,647 and 8,568,585 as of December 31, 2015 and 2014, 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
F-10
performance conditions will be expensed if it is probable that the performance condition will be achieved. During
the year ended December 31, 2014, $686,600 of stock compensation expense was recorded for share awards with
performance conditions. For the year ended December 31, 2015, no expense has been recorded for share awards
with performance conditions.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new accounting pronouncements that are in effect and that may impact
the Company’s consolidated financial statements.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update
(“ASU”) 2014-15, Presentation of Financial Statements – Going Concern. The new standard requires management
to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about
the entity’s ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial
doubt,” 2) requires an evaluation every reporting period, interim periods included, 3) provides principles for
considering the mitigating effect of management’s plans to alleviate the substantial doubt, 4) requires certain
disclosures if the substantial doubt is alleviated as a result of management’s plans, 5) requires an express statement,
as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires an assessment period of one
year from the date the financial statements are issued. The standard is effective for the Company’s reporting year
beginning January 1, 2017 and early adoption is not permitted. The Company is currently evaluating the impact, if
any, that this new accounting pronouncement will have on its financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides
guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along
with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1)
identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the
transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the
nature, amount, timing and uncertainty of revenue arising from contracts with customers. In July 2015, the FASB
delayed the effective date of this standard by one year. The new standard will be effective for the Company’s
reporting year beginning on January 1, 2018, and early adoption of the standard as of January 1, 2017 is permitted.
The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its
financial statements.
In April 2015, the FASB issued an accounting standards update amending the presentation of debt issuance
costs. These costs will now be presented as a direct reduction from the carrying amount of that debt liability. The
update is effective for financial statements issued for reporting periods beginning after December 15, 2015. This
guidance should be applied on a retrospective basis with disclosures for a change in accounting principle, if
applicable. The Company adopted this update on January 1, 2016. The adoption of this guidance did not have an
impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued new guidance on the balance sheet classification of deferred taxes. To
simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the balance sheet. The accounting standard is effective for public
business entities for annual reporting periods (including interim reporting periods within those periods) beginning
after December 15, 2016. Early adoption is permitted. The Company has not yet adopted this pronouncement and is
currently evaluating the impact, if any, it may have on its consolidated financial statements.
In January 2016, the FASB issued a new accounting standard on recognition and measurement of financial
assets and financial liabilities. The accounting standard primarily affects the accounting for equity investments,
financial liabilities under the fair value option, and the presentation and disclosure requirements for financial
instruments. In addition, it includes a clarification related to the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is
effective for annual reporting periods (including interim periods within those periods) beginning after December 15,
2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities under the fair
F-11
value option resulting from instrument-specific credit risk in other comprehensive income. The Company is
currently evaluating the impact, if any, that the pronouncement will have on the consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT 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
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. The Company’s most critical accounting estimates
relate to accounting policies for derivatives, notes payable valuation, 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.
DERIVATIVES
The Company entered into investment agreements with Spectrum (see Note 4) resulting in a purchase price
derivative. In accordance with GAAP, derivative instruments are recognized as either assets or liabilities on the
consolidated balance sheets and are measured at fair value with gains or losses recognized in earnings or other
comprehensive income depending on the nature of the derivative. The Company determines the fair value of
derivative instruments based on available market data using appropriate valuation models, giving consideration to all
of the rights and obligations of each instrument. The derivative liability is re-measured at fair value at the end of
each reporting period as long as it is outstanding.
3. RELATED PARTY TRANSACTIONS
In 2015, the Company began utilizing the services of Crown Biosciences, Inc. (“Crown Bio”) to perform
certain research and development testing. The CEO of Crown Bio is also a board member of CASI. The total value
of the services is $66,545, of which $20,898 was payable as of December 31, 2015. The research and development
expense recognized for the services provided for the year ended December 31, 2015 was $33,648.
In October 2015, the Company entered into a material transfer and research agreement with Origene
Technologies, Inc. (“Origene”) for certain research materials. The CEO of Origene is also the Chairman of the
Board of CASI. No materials have been purchased as of December 31, 2015, and there is no minimum commitment
associated with this agreement.
4. LICENSE ARRANGEMENTS AND ACQUISITION OF IN-PROCESS RESEARCH AND
DEVELOPMENT
In September 2014, the Company acquired certain product rights and perpetual exclusive licenses from
Spectrum to develop and commercialize the following commercial oncology drugs and drug candidates in China,
Taiwan, Hong Kong and Macau (the “Territories”):
• MARQIBO® (vinCRIStine sulfate LIPOSOME injection) (“Marqibo”);
• ZEVALIN® (ibritumomab tiuxetan) (“Zevalin”); and
• EVOMELA™ (melphalan hydrochloride) for injection (“Evomela”).
F-12
CASI is responsible for developing and commercializing these three drugs in the Territories, including the
submission of import drug registration applications and conducting confirmatory clinical trials as needed.
The Company has initiated the regulatory and development process to obtain marketing approval for
MARQIBO® and ZEVALIN® in its territorial region, and has initiated commercial activities for ZEVALIN® in
Hong Kong. In January 2016, the China Food and Drug Administration (CFDA) accepted for review the
Company’s import drug registration application for MARQIBO®. On March 10, 2016, Spectrum received
notification from the FDA of the grant of approval of its NDA for EVOMELA™ primarily for use as a high-dose
conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple
myeloma. The Company has initiated the regulatory and development process towards marketing approval for
EVOMELA™ in China.
As consideration for the acquisition from Spectrum, the Company issued a total 5,405,382 shares of its
common stock, a $1.5 million 0.5% secured promissory note originally due in March 2016, and certain contingent
rights (“Contingent Rights”) to purchase additional shares of its common stock, which Contingent Rights expire
upon the occurrence of certain events. The note was subsequently amended to extend the due date to March 2017
(see Note 4). The Company accounted for the acquisition of the product rights and licenses as an asset acquisition
and, accordingly, recorded the acquired product rights and licenses at their estimated fair values based on the fair
value of the consideration exchanged (including transaction costs) of approximately $19.7 million. Because the
products underlying the acquired product rights and licenses have not reached technological feasibility and have no
alternative uses, they are considered “in-process research and development” costs; as such, the Company expensed
the total purchase price at the acquisition date as acquired in-process research and development in the consolidated
statement of operations for the year ended December 31, 2014.
The fair value of the common stock issued was based on the closing market price of the Company’s
common stock on the acquisition date. The fair value of the promissory note was measured using Level 3
unobservable inputs including primarily the Company’s estimated incremental borrowing rate as provided by a
commercial lending institution.
The Contingent Rights provide Spectrum with the option to acquire, at a strike price of par value, a variable
number of additional shares of common stock that allows Spectrum to maintain its fully-diluted ownership
percentage for a certain time period and under certain terms and conditions. These Contingent Rights will expire on
the earlier of raising an aggregate of $50 million or September 17, 2019 (subject to possible extension only for
certain outstanding derivative securities). Based on the terms and conditions of the Contingent Rights, the Company
has determined that the Contingent Rights are a derivative financial instrument that is not indexed to its common
stock and therefore is required to be accounted for at fair value, initially and on a recurring basis. The fair value of
the Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates
of the Company’s future capital requirements, and the timing, probability, size and characteristics of those capital
raises, among other inputs. The total estimated fair value of the Contingent Rights was $9,395,222 and $9,422,735
as of December 31, 2015 and 2014, respectively; the change in fair value is reflected as change in fair value of
contingent rights in the accompanying consolidated statements of operations.
As a result of the Initial Closing (see Note 8), Spectrum exercised its Contingent Rights in February 2016,
and the Company issued Spectrum 1,688,877 shares of common stock. The Company has recorded a reduction to
the contingent rights derivative liability and an increase to additional paid-in capital of $1,922,312 in February 2016
which will be reflected in the Company’s March 31, 2016 consolidated financial statements.
5. NOTE PAYABLE
As part of the license arrangements with Spectrum (see Note 4), the Company issued to Spectrum a $1.5
million 0.5% secured promissory note originally due March 17, 2016. The promissory note was recorded initially at
its fair value, giving rise to a discount of approximately $136,000; the promissory note is presented as note payable,
net of discount in the accompanying consolidated balance sheets. For the years ended December 31, 2015 and 2014,
the Company recognized approximately $75,000 and $26,000 of non-cash interest expense, respectively, related to
the amortization of the debt discount, using the effective interest rate method. On September 28, 2015, the
F-13
Company entered into a First Amendment to Secured Promissory Note (the “Amendment”) with Spectrum.
Pursuant to the Amendment, the Company and Spectrum agreed to extend the maturity date of the note to March 17,
2017. All other terms remain the same.
6.
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability
assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a
hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring
fair value. These tiers include:
• Level 1, defined as observable inputs such as quoted prices in active markets for identical assets;
• Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities; and
• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. At each reporting period, the Company performs a detailed analysis of its
assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is
based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price
transparency are classified as Level 3.
The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in
accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements
supplied by the various banks and brokers that held the majority of the Company’s funds. The fair value of short-
term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses,
and other current assets and liabilities) approximate their carrying values because of their short-term nature.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The Contingent Rights issued to Spectrum in connection with the license arrangements (see Note 4) are
considered derivative liabilities and were recorded initially at their estimated fair value, and are marked to market
each reporting period until settlement. The fair value of the Contingent Rights was measured using Level 3
unobservable inputs; the unobservable inputs include estimates of the Company’s future capital requirements, and
the timing, probability, size and characteristics of those capital raises, among other inputs. Generally, if the
estimates of the size and probability of the Company’s future capital requirements increase, the fair value of the
Contingent Rights will also increase.
The following table presents the Company’s financial liabilities accounted for at fair value on a recurring
hierarchy:
by
as
of December
level within
value
2015
2014
and
fair
31,
the
basis
As of December 31, 2015
Level 1
Level 2
Level 3
Total
Liabilities - Contingent Rights
$
-
$
-
$
9,395,222
$
9,395,222
As of December 31, 2014
Level 1
Level 2
Level 3
Total
Liabilities - Contingent Rights
$
-
$
-
$
9,422,735
$
9,422,735
F-14
The following table presents the changes in the Company’s financial liabilities accounted for at fair value
on a recurring basis using Level 3 unobservable inputs:
December 31, 2014
$
9,422,735
Change in fair value of Contingent Rights
(27,513)
Balance at December 31, 2015
$
9,395,222
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The promissory note issued to Spectrum in connection with the license arrangements (see Note 4) was
initially recorded at its fair value using Level 3 unobservable inputs including primarily the Company’s estimated
incremental borrowing rate as provided by a commercial lending institution.
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The Company does not have any non-financial assets and liabilities that are measured at fair value on a
recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The Company measures its long-lived assets, including property and equipment, at fair value on a non-
recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value
impairment was recognized for the years ended December 31, 2015 and 2014.
7. INCOME TAXES
The income tax provision is based on loss before income taxes of $(5,670,207) in the U.S. and $(1,536,216)
in China. The Company has net operating loss carryforwards for income tax purposes of approximately
$352,574,000 at December 31, 2015 that expire in years 2018 through 2035. The Company also has research and
development (“R&D”) tax credit carryforwards of approximately $9,291,000 as of December 31, 2015 that expire in
years 2018 through 2035. 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.
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, 2015 and 2014 are as
follows:
Deferred income tax assets (liabilities):
Net operating loss carryforwards
Research and development credit carryforward
Intangible assets
Equity based compensation
Other
Valuation allowance for deferred income tax assets
Net deferred income tax assets
DECEMBER 31,
2015
2014
$ 137,811,000
9,291,000
7,273,000
4,510,000
309,000
(159,194,000)
$ -
$ 135,607,000
9,201,000
8,079,000
4,316,000
297,000
(157,500,000)
$ -
F-15
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
Nondeductible expenses
Change in valuation allowance
Other
Changes in applicable tax rates
2015
$ (2,450,000)
(128,000)
(101,000)
-
5,000
1,694,000
143,000
837,000
-
$
2014
$ (8,909,000)
(1,273,000)
(104,000)
8,000
4,000
9,631,000
(38,000)
681,000
-
$
The Company had $3,067,000 of unrecognized tax benefits as of December 31, 2014 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, 2015, there were net additional unrecognized
tax benefits of $30,000 related to R&D tax credits. The Company has a full valuation allowance at December 31,
2014 and at December 31, 2015 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:
Unrecognized tax benefits balance at January 1
2014
$3,013,000
Additions for Tax Positions of Prior Periods - 20,000
-
34,000
Reductions for Tax Positions of Prior Periods
(4,000)
Additions for Tax Positions of Current Period 34,000
2015
$3,067,000
Unrecognized tax benefits balance at December 31
$3,097,000 $3,067,000
The Company recognizes interest and penalties related to uncertain tax positions as a component of income
tax expense. As of December 31, 2015 and 2014, 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,
2015. 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.
8. STOCKHOLDERS' EQUITY
SECURITIES PURCHASE AGREEMENTS
As described in Note 1, on September 20, 2015, the Company entered into stock purchase agreements with
certain institutional and accredited investors (the “Investors”) for a $25.1 million financing. Pursuant to these
agreements, the Company agreed to sell to the Investors in a private placement an aggregate of 20,658,434 shares of
the Company's common stock, at $1.19 per share, based on the closing bid price of the Company's common stock on
the Nasdaq Capital Market on September 18, 2015, and a total of 4,131,686 warrants, representing a 20% warrant
coverage, with a purchase price of $0.125 per whole warrant share. The warrants become exercisable three months
after issuance at $1.69 per share exercise price, and expire three years from the date the warrants become
exercisable.
The offering was expected to close after satisfaction of certain regulatory and customary closing conditions,
with the net proceeds being subject to payment of offering expenses, including fees and expenses to be finalized
prior to the closing.
F-16
On January 15, 2016, the Company completed the Initial Closing and received approximately $10.3 million
and yielded approximately $10.2 million after minimum offering expenses. The Initial Closing resulted in the
issuance of 8,448,613 shares of Common Stock, priced at $1.19 per share, and 1,689,722 warrants, with a purchase
price of $0.125 per warrant. The warrants will become exercisable on April 15, 2016 at $1.69 per share exercise
price, and will expire on April 15, 2019. The fair value of the warrants issued is $321,047, calculated using the
Black-Scholes-Merton valuation model value of $0.19 with an expected and contractual life of 3.25 years, an
assumed volatility of 70.1%, and a risk-free interest rate of 1.08%.
The Company and Investors are working to close on the remaining $14.8 million (“Second Closing”) which
is expected during the first half of 2016. There can be no assurance that the Second Closing will occur.
The Company has granted registration rights to the Investors and has agreed to file a resale registration
statement covering the shares of common stock and the shares of common stock underlying the warrants within 120
days of the closing.
9. 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 June 2015, the Company’s
shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares
reserved for issuance from 5,730,000 to 8,230,000 shares of common stock to be available for grants and awards.
As of December 31, 2015, there are 6,694,744 shares issuable under options previously granted and currently
outstanding, with exercise prices ranging from $1.30 to $19.36. During the year ended December 31, 2015, 963,000
options were awarded to certain board members, officers and employees, in which vesting is subject to achievement
of certain performance milestones. 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, 2015, 1,957,876 shares remained available for grant under the Company’s 2011 Long-Term Incentive
Plan.
On September 17, 2014, the vesting of all of the performance condition options awarded in 2014 became
probable as a result of the Spectrum transaction discussed in Note 4. Therefore, for the year ended December 31,
2014, non-cash compensation expense of $686,600 was recorded for share awards with performance conditions. For
the year ended December 31, 2015, no expense was recorded for share awards with performance conditions.
The Company’s net loss for the years ended December 31, 2015 and 2014 includes $1,541,192 and
$2,189,102, 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
2015
$ 747,285
793,907
$ 1,541,192
2014
$ 690,409
1,498,693
$ 2,189,102
$ 0.05
$ 0.08
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
F-17
immediately preceding the share-based award grant that is equal in length to the award’s expected term. The
Company 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. The Company 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—The Company 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, 2015 and 2014:
Years ended December 31,
Expected volatility
Risk free interest rate
Expected term of option
Forfeiture rate
Expected dividend yield - -
2014
102.41%
1.78%
5.63 years
*3.00%
2015
85.17%
1.57%
5.67 years
*3.00%
*-Throughout 2015 and 2014, forfeitures were estimated at 3%; the actual forfeiture rate was 0% and 1% for 2015
and 2014, respectively. The Company adjusted stock compensation expense for 2015 and 2014 based on the actual
forfeiture rate.
The weighted average fair value of stock options granted was $1.02 and $1.44 in 2015 and 2014,
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, 2015 and 2014 is as follows:
Number of Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
In years
Aggregate Intrinsic
Value
Outstanding at December 31, 2013
Exercised
Granted
Expired
Forfeited
Outstanding at December 31, 2014
Exercised
Granted
Expired
Forfeited
Outstanding at December 31, 2015
Vested and expected to vest at
December 31, 2015
Exercisable at December 31, 2015
3,586,394
-
1,090,000
(107,168)
(11,544)
4,557,682
-
2,775,000
(637,938)
-
6,694,744
6,634,597
4,689,850
2.69
$
-
$
1.83
$
$
6.21
$ 1.78
$
2.40
$ -
1.43
$
2.47
$
-
$
1.99
$
$
$
1.99
2.20
F-18
7.80
7.73
7.30
$ -
$ -
$ -
The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common
stock at December 31, 2015 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 the year. There
were no options exercised in 2015 or 2014.
The following summarizes information about stock options granted to employees and directors outstanding
at December 31, 2015:
Range of
Exercise Prices
$0.00 - $2.00
$2.01 - $5.00
$5.01 - $10.00
$10.01 - $15.00
$15.01 - $20.00
Number
Outstanding at
December 31, 2015
5,982,678
475,000
176,540
5,268
55,258
Options Outstanding
Weighted
Average
Remaining
Contractual
Life in Years
8.1
6.2
4.6
2.0
0.9
6,694,744
7.8
Weighted
Average
Exercise
Price
1.68
$
2.26
$
6.56
$
$ 13.75
$ 17.64
$
1.99
Options Exercisable
Number
Exercisable at
December 31, 2015
3,977,784
475,000
176,540
5,268
55,258
4,689,850
Weighted
Average
Exercise
Price
1.77
$
2.26
$
6.56
$
$ 13.75
$ 17.64
$
2.20
As of December 31, 2015, there was approximately $966,000 of total unrecognized compensation cost
related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 1.2
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, 2013
Granted
Exercised
Expired
Outstanding at December 31, 2014
Granted
Exercised
Expired
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Number of Shares
4,321,565
-
-
310,662
4,010,903
-
-
4,010,903
4,010,903
Weighted Average
Exercise Price
$ 2.31
-
$
-
$
$ 2.83
$
2.27
$ -
$
-
$ -
$
$
2.27
2.27
10. 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, the Company 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, 2015, a $4 million potential milestone payment remains, payable in cash or shares of stock at the
Company’s option, related to the ENMD-2076 program and the dosing of the first patient in a Phase 3 pivotal trial.
F-19
MKC-1. 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 2016. 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 and the Company has no plans to
advance the program.
2ME2 NCD (2-methoxyestradiol, NanoCrystal Dispersion, 2ME2 NCD) for Oncology. 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 using its nanocrystal dispersion formulation. Under the terms of the License
Agreement, Elan is eligible to receive payments upon the achievement of certain 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 the Company’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, 2015. The Company has discontinued clinical development of the NCD formulation of 2ME2.
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 the Company’s 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 2015 or 2014. 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 2016 or beyond.
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 pivotal trial 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 that these other product candidates will reach additional developmental
milestones in 2015 and accordingly does not anticipate any future milestone payments for these programs.
With respect to the Company’s in-licensed drug candidates for the Greater China market, the Company
does not have to pay any milestone payments or royalties to Spectrum; however, CASI is responsible for paying
royalties or milestones, if and when applicable, owed by Spectrum to upstream licensors that licensed related
technology to Spectrum in accordance with the terms of the relevant upstream licenses, and only to the extent of the
Greater China portion of such upstream royalties or milestones. The Company’s sales of Zevalin in Hong Kong are
subject to royalties. In 2015, the Company paid royalties of approximately $9,500 related to Zevalin sales in 2014
and 2015. The Company does not expect to pay royalties for ZEVALIN® in China and Taiwan until commercial
activities begin which will not occur until after ZEVALIN® receives marketing approval from the regulatory
agencies and which is not expected to occur in 2016. The Company does not expect to have sales of MARQIBO®
and EVOMELA™ in 2016 as these products are not yet approved for marketing in the Greater China market, and
accordingly the Company does not anticipate any payment obligations for these programs in 2016.
As of December 31, 2015, the Company also has purchase obligation commitments, in the normal course of
business, for clinical trial contracts totaling approximately $690,000.
F-20
The Company leases its principal executive offices in Rockville, MD under a lease agreement that
continues through December 31, 2016. Effective February 23, 2016, the Company extended the lease through
December 31, 2019, under the same terms. The Company leases office space in China under a lease agreement that
continues through June 2017. Effective February 1, 2016, the Company renewed a one year lease in China for lab
space.
The future minimum payments under its facilities leases are as follows:
2016
2017
2018
2019
Thereafter
Total minimum
payments
$ 350,744
265,773
159,959
84,000
-
$ 860,476
Rental expense for the years ended December 31, 2015 and 2014 was approximately $309,000 and
$240,000, respectively.
CONTINGENCIES
The Company 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.
11. EMPLOYEE RETIREMENT PLAN
The Company sponsors the CASI Pharmaceuticals, 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
$29,200 and $28,400 in 2015 and 2014, respectively.
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