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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20713
CASI PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
9620 Medical Center Drive, Suite 300, Rockville, MD
(Address of principal executive offices)
58-1959440
(I.R.S. Employer Identification No.)
20850
(Zip Code)
(240) 864-2600
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
(Title of each class)
Trading Symbol
CASI
NASDAQ
(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 ⌧
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 ⌧
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 ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ◻
Accelerated filer ◻
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
As of June 30, 2020, the aggregate market value of the shares of common stock held by non-affiliates was $183,834,503.
As of March 26, 2021, 139,797,487 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, 2020. 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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Form 10-K
Part No.
I
Form 10-K
Item No.
1
CASI PHARMACEUTICALS, INC.
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Description
Page No.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1A
1B
2
3
4
5
6
7
7A
Quantitative and Qualitative Disclosures About Market Risk
8
9
9A
9B
10
11
12
13
14
15
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants On Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
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
2
4
21
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46
46
46
47
47
47
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F-1
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III
IV
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TRADEMARKS AND SERVICE MARKS
We own or have rights to trademarks and trademark applications for use in connection with the operation of our business,
including, but not limited to, CASI and CASI PHARMACEUTICALS. All other trademarks appearing in this Annual Report on Form 10-
K that are not identified as marks owned by us are the property of their respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements also may be included in other
statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. These statements can
generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or
“anticipates” or similar terminology. These forward-looking statements include, among others, statements regarding the timing of our
clinical trials, our cash position and future expenses, and our future revenues.
Actual results could differ materially from those currently anticipated due to a number of factors, including: the risk that we may
be unable to continue as a going concern as a result of our inability to raise sufficient capital for our operational needs; the possibility that
we may be delisted from trading on The Nasdaq Capital Market; the volatility in the market price of our common stock; the outbreak of the
COVID-19 pandemic and its effects on global markets and supply chains; the risk of substantial dilution of existing stockholders in future
stock issuances; 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; our lack of
experience in manufacturing products and uncertainty about our resources and capabilities to do so on a clinical or commercial scale; risks
relating to the commercialization, if any, of our products and proposed products (such as marketing, safety, regulatory, patent, product
liability, supply, competition and other risks); our inability to predict when or if our product candidates will be approved for marketing by
the U.S. Food and Drug Administration (FDA), National Medical Products Administration (NMPA), or other regulatory authorities; our
inability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed
product candidates or future candidates; the risks relating to the need for additional capital and the uncertainty of securing additional
funding on favorable terms; the risks associated with our product candidates, and the risks associated with our other early-stage products
under development; the risk that result in preclinical and clinical models are not necessarily indicative of clinical results; uncertainties
relating to preclinical and clinical trials, including delays to the commencement of such trials; our ability to protect our intellectual property
rights; our ability to design and implement a development plan for our ANDAs held by CASI Wuxi; the lack of success in the clinical
development of any of our products; and our dependence on third parties; the risks related to our dependence on Juventas to conduct the
clinical development of CNCT19 and to partner with us to co-market CNCT19; risks related to our dependence on Juventas to ensure the
patent protection and prosecution for CNCT19; risks relating to the commercialization, if any, of our proposed products (such as marketing,
safety, regulatory, patent, product liability, supply, competition and other risks); risks relating to interests of our largest stockholders and
our Chairman and CEO that differ from our other stockholders; and risks related to the development of a new manufacturing facility by
CASI Wuxi. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial
condition.
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, 2020 (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, which only relate to events or
information as of the date made. 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. Additional
information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our
filings with the U.S. Securities and Exchange Commission (“SEC”), which are available at www.sec.gov.
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ITEM 1. BUSINESS.
PART I
CASI Pharmaceuticals, Inc. (“CASI” or the “Company”) (Nasdaq: CASI) is a U.S. biopharmaceutical company focused on
developing and commercializing innovative therapeutics and pharmaceutical products in China, the United States, and throughout the
world. We are focused on acquiring, developing and commercializing products that augment our hematology oncology therapeutic focus as
well as other areas of unmet medical need. The Company is executing our plan to become a biopharmaceutical leader by launching
medicines in the greater China market leveraging our China-based regulatory, clinical and commercial competencies and our global drug
development expertise. The Company’s operations in China are conducted primarily through two of our subsidiaries: (i) CASI
Pharmaceuticals (China) Co., Ltd. (“CASI China”), which is wholly owned and is located in Beijing, China, and (ii) CASI Pharmaceuticals
(Wuxi) Co., Ltd. (“CASI Wuxi”), which is located in Wuxi, China.
We launched in China our first commercial product, EVOMELA® (Melphalan for Injection) in August 2019. In China
EVOMELA is approved for use as a conditioning treatment prior to stem cell transplantation and as a palliative treatment for patients with
multiple myeloma. The Company’s other core hematology/oncology assets in our pipeline include:
● CNCT19 is an autologous CD19 CAR-T investigative product (CNCT19) being developed by our partner Juventas Cell
Therapy Ltd (“Juventas”) for which we have co-commercial and profit-sharing rights. CNCT19 is being developed as a
potential treatment for patients with hematological malignancies which express CD19 including, B-cell acute lymphoblastic
leukemia (“B-ALL”) and B-cell non-Hodgkin lymphoma (“B-NHL”). China Phase 1 studies have been substantially
completed by Juventas, with the Phase 2 B-NHL registration study in China currently enrolling. The Phase 2 B-ALL
registration study is expected to start by the end of March 2021. In December 2020, Juventas received a breakthrough
therapy designation for CNCT19 in the treatment of adults with relapsed/refractory B-ALL from the Chinese Center for Drug
Evaluation, a division of the China National Medical Products Administration.
● BI-1206 is an antibody which has a novel mode-of-action, blocking the inhibitory antibody checkpoint receptor FcγRIIB to
unlock anti-cancer immunity in both hematological malignancies and solid tumors for which we have exclusive greater China
rights BI-1206 is our partner’s lead drug candidate and is being investigated in a Phase 1/2 trial, in combination with anti-
PD1 therapy Keytruda® (pembrolizumab), in solid tumors, and in a Phase 1/2a trial in combination with MabThera®
(rituximab) in patients with relapsed/refractory non-Hodgkin lymphoma (NHL). Our partner, BioInvent International AB,
released positive interim results from its Phase 1/2a trial that suggests that novel anti-FcyRIIB antibody BI-1206 restores
activity of rituximab in patients with relapsed/refractory non-Hodgkin’s lymphoma. An FDA End of Phase 1 meeting for the
NHL development program is planned for the third quarter of 2021.
● CB-5339 is a novel oral second-generation, small molecule VCP/p97 inhibitor for which we have greater China rights. CB-
5339 is our partner’s lead drug candidate and is being evaluated in a Phase 1 clinical trial in patients with acute myeloid
leukemia (AML) and myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is sponsoring and
evaluating CB-5339 in a Phase 1 clinical trial of patients with solid tumors and lymphomas.
● CID-103 is a full human IgG1 anti-CD38 monoclonal antibody recognizing a unique epitope that has demonstrated
encouraging preclinical efficacy & safety profile compared to other anti-CD38 monoclonal antibodies for which we have
exclusive global rights. CID-103 is being developed by CASI for the treatment of patients with multiple myeloma. The
CID-103 Phase 1 study in EU was initiated in March 2021.
Other assets in our pipeline for which we have exclusive rights in China are Octreotide Long Acting Injectable (“LAI”), for which
we plan to begin the China registration study in 2021, and a novel formulation of Thiotepa, for which our partner plans to begin the China
registration study in 2021. Thiotepa is used as a conditioning treatment for certain allogeneic haemopoietic stem cell transplants. Subject
to regulatory and marketing approvals, we intend to advance and commercialize these established products in China.The Company’s assets
include a few FDA-approved ANDAs which the Company is evaluating due to generic drug pricing reforms by the Chinese government
and its impact on the pricing and competitiveness of these products.
The Company will continue to pursue building a robust pipeline of drug candidates for development and commercialization in
China as our primary market, and if rights are available for the rest of the world. For in-licensed products, we use a market-oriented
approach to identify pharmaceutical/biotechnology candidates that we believe have the potential for gaining widespread market acceptance,
either globally or in China, and for which development can be accelerated under our drug development strategy. We have
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focused on US/EU approved product candidates, and product candidates with proven targets or product candidates that have reduced
clinical risk with a greater emphasis on innovative therapeutics. Our business development strategy is currently focused on acquiring
additional targeted drugs and immuno-oncology therapeutics through licensing that will expand our hematology-oncology franchise. In
many cases our business development strategy includes direct equity investments in the licensor company.
We believe our China operations offer a significant market and growth potential due to the extraordinary increase in demand for
high quality medicines coupled with regulatory reforms in China that facilitate the entry of new pharmaceutical products into the country.
We will continue to in-license clinical-stage and late-stage drug candidates, and leverage our cross-border operations and expertise, and
hope to be the partner of choice to provide access to the China market. We expect the implementation of our plans will include leveraging
our resources and expertise in both the U.S. and China so that we can maximize regulatory, development and clinical strategies in both
countries.
The Company’s commercial product, EVOMELA, was originally licensed from Spectrum Pharmaceuticals, Inc. (“Spectrum”) and
the Company had a supply agreement with Spectrum to support the Company’s application for import drug registration and for
commercialization purposes. On March 1, 2019, Spectrum completed the sale of its portfolio of FDA-approved hematology/oncology
products including EVOMELA to Acrotech Biopharma L.L.C. (“Acrotech”). The original supply agreement with Spectrum was assumed
by Acrotech; Spectrum agreed to continue with a short-term supply agreement for EVOMELA for the initial commercial product supply in
connection with the Company’s launch, with the long-term supply assumed by Acrotech. During the second quarter 2020, the Company
completed a plan to change the manufacturing site for EVOMELA to an alternative manufacturer that significantly reduced the cost of
revenue since the third quarter 2020.
As part of the long-term strategy to support our future clinical and commercial manufacturing needs and to manage our supply
chain for certain products, on December 26, 2018, we established CASI Pharmaceuticals (Wuxi) Co., Ltd. (“CASI Wuxi”) to develop a
future GMP manufacturing facility that will be located in the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. In
November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in China for the construction of
a manufacturing facility. In April 2020, CASI Wuxi received RMB 15.9 million (equivalent to $2.2 million) from the Jiangsu Province
Wuxi Huishan Economic Development Zone as government grant for this development project which was recorded as deferred income in
April 2020. On August 27, 2020, CASI Wuxi entered into a Construction Project Contract for RMB 74,588,000 (equivalent to
$10,923,000) to complete the phase 1 project of CASI Wuxi's research and development production base. The estimated completion date is
October 2023.
Since its inception in 1991, the Company has incurred significant losses from operations and, as of December 31, 2020, has
incurred an accumulated deficit of $570.5 million. In 2012, with new leadership, the Company shifted its business strategy to China and
has since built an infrastructure in China that includes sales and marketing, medical affairs, regulatory and clinical development and in the
foreseeable future, manufacturing. In 2014, the Company changed its name to “CASI Pharmaceuticals, Inc.” The majority of the
Company’s operations are now located in China. The Company expects to continue to incur operating losses for the foreseeable future due
to, among other factors, its continuing clinical and development activities and expansion of our operations. Our operations in China are
conducted primarily through two of our subsidiaries, CASI Pharmaceuticals (China) Co., Ltd. (“CASI China”) and CASI Pharmaceuticals
(Wuxi) Co., Ltd. (“CASI Wuxi”). Our Beijing office is primarily responsible for our day-to-day operations and our commercial team of
over 80 hematology and oncology sales and marketing specialists based in China. CASI Wuxi is part of the long-term strategy to support
our future clinical and commercial manufacturing needs, to manage our supply chain for certain products, and to develop a GMP
manufacturing facility in China.
Taking into consideration the cash and cash equivalents as of December 31, 2020, the Company believes that it has sufficient
resources to fund its operations at least one year beyond the date that the audited consolidated financial statements are issued. As of
December 31, 2020, the Company had a balance of cash and cash equivalents of $57.1 million of which $4.5 million was held by CASI
China, and $19.5 million was held by CASI Wuxi. 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.
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CORE PRODUCT AND CANDIDATES IN HEMATOLOGY/ONCOLOGY
EVOMELA® (Melphalan for Injection) - Launched In China
EVOMELA (Melphalan for Injection) is an intravenous formulation of melphalan commercialized by Acrotech (formally
by Spectrum) in the multiple myeloma treatment setting in the United States, of which we have exclusive greater China
rights. The EVOMELA formulation avoids the use of propylene glycol, which is used as a co-solvent in other
formulations of injectable melphalan. The use of Captisol in the EVOMELA formulation improves the melphalan
stability when reconstituted, allowing for longer preparation and infusion times. In August 2019, CASI launched
EVOMELA in China as its first commercial product. The NMPA required post-marketing study is ongoing and actively
recruiting.
CNCT19 (CD19 CAR-T).
In June 2019, the Company acquired worldwide license and commercialization rights to CNCT19 from Juventas Cell Therapy Ltd
(“Juventas), a China-based domestic company engaged in cell therapy. Juventas continues to be responsible for the clinical development
and regulatory submission and maintenance of CNCT19 regulatory applications and CASI is responsible for the launch and commercial
activities of CNCT19 under the direction of a joint steering committee.
CNCT19 is an autologous CD19 CAR-T investigative product (CNCT19) being developed by our partner Juventas Cell Therapy
Ltd (“Juventas”) for which we have co-commercial and profit-sharing rights. CNCT19 targets CD19, a B-cell surface protein widely
expressed during all phases of B-cell development and a validated target for B-cell driven hematological malignancies. CD19 targeted
CAR constructs from several different institutions have demonstrated consistently high antitumor efficacy in children and adults with
relapsed B-cell acute lymphoblastic leukemia (B-ALL), chronic lymphocytic leukemia (CLL), and B-cell non-Hodgkin lymphoma (B-
NHL).
CNCT19 is being developed as a potential treatment for patients with hematological malignancies which express CD19 including,
B-cell acute lymphoblastic leukemia (“B-ALL”) and B-cell non-Hodgkin lymphoma (“B-NHL”). China Phase 1 studies have been
substantially completed by Juventas, with the Phase 2 B-NHL registration study in China currently enrolling. The Phase 2 B-ALL
registration study is expected to start by the end of March 2021. In December 2020, Juventas received a breakthrough therapy designation
for CNCT19 in the treatment of adults with relapsed/refractory B-ALL from the Chinese Center for Drug Evaluation, a division of the
China National Medical Products Administration.
Subsequently, the worldwide license and commercialization rights to CNCT19 acquired in June 2019 were amended. In
September 2020, Juventas and CASI agreed to certain terms and conditions to facilitate the Series B financing of Juventas, pursuant to
which the Company agreed to amend and supplement the Original License Agreement with a supplementary agreement (the
"Supplementary Agreement") by agreeing to pay Juventas a certain percentage of profits generated from commercial sales of CNCT19 and
for the payment of certain future sales royalties to Juventas. The Supplementary Agreement also specifies a minimum annual target net
profit to be distributed to Juventas and certain other terms and obligations. In return, Juventas issued additional equity interests to the
Company.
BI-1206 (anti-FcyRIIB antibody)
BI-1206 is an antibody which has a novel mode-of-action, blocking the inhibitory antibody checkpoint receptor FcγRIIB to unlock
anti-cancer immunity in both hematological malignancies and solid tumors for which we have exclusive greater China rights. BI-1206 was
added to our portfolio in October 2020 pursuant to a license agreement with our partner, BioInvent International AB (“BioInvent”). BI-
1206 is BioInvent’s lead drug candidate and is being investigated in a Phase 1/2 trial, in combination with anti-PD1 therapy Keytruda®
(pembrolizumab), in solid tumors, and in a Phase 1/2a trial in combination with MabThera® (rituximab) in patients with
relapsed/refractory non-Hodgkin lymphoma (NHL). Data released by BioInvent include positive interim results from its Phase 1/2a trial
that suggests that novel anti-FcyRIIB antibody BI-1206 restores activity of rituximab in patients with relapsed/refractory non-Hodgkin’s
lymphoma. An FDA End of Phase 1 meeting for the NHL development program is planned for the third quarter of 2021.
CB-5339 (VCP/p97inhibitor)
CB-5339 is an oral second-generation, small molecule valosin-containing protein (VCP)/p97inhibitor for which we have exclusive
greater China rights. CB-5339 was added to our portfolio in March 2020 pursuant to a license agreement with our partner,
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Cleave Therapeutics, Inc. (“Cleave”). CB-5339 is being evaluated by Cleave in a Phase 1 clinical trial in patients with acute myeloid
leukemia (AML) and myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is sponsoring and evaluating CB-5339
in a Phase 1 clinical trial of patients with solid tumors and lymphomas.
CID 103 (anti-CD38 monoclonal antibody)
CID-103 is a full human IgG1 anti-CD38 monoclonal antibody recognizing a unique epitope that has demonstrated encouraging
preclinical efficacy & safety profile compared to other anti-CD38 monoclonal antibodies for which we have exclusive global rights. CID-
103 is being developed by CASI for the treatment of patients with multiple myeloma. CID-103 was added to our portfolio in April 2019
pursuant to a license agreement with our partner, Black Belt Therapeutics Limited. The CID-103 Phase 1 study in EU was initiated in
March 2021.
OTHER ASSETS
Thiotepa. The Company has exclusive China license and distribution rights to a novel formulation of thiotepa, a chemotherapeutic
agent, which has multiple indications including use as a conditioning treatment for certain allogeneic haemopoietic stem cell transplants.
Thiotepa has a long history of established use in the hematology/oncology setting, CASI intends to advance the development, import drug
registration, and market approval of this product in China. The Company expects the registration of the clinical development program to
begin during 2021.
Octreotide LAI. Octreotide LAI formulations are considered a standard of care for the treatment of acromegaly and for the control
of symptoms associated with certain neuroendocrine tumors. In October 2019, the Company acquired exclusive China development and
distribution rights for Octreotide LAI from Pharmathen Global BV. Octreotide LAI has been approved in various European countries.
CASI intends to advance the development, import drug registration, and market approval of this product in China. The Company expects to
initiate an Octreotide LAI registration study in China in 2021.
Miscellaneous Assets. The Company’s assets include a few FDA-approved ANDAs which the Company is evaluating due to
generic drug pricing reforms by the Chinese government and its impact on the pricing and competitiveness of these products. The
Company also has greater China rights to ZEVALIN® (Ibritumomab Tiuxetan), a CD20-directed radiotherapeutic antibody that is approved
in the U.S. to treat patients with NHL and MARQIBO® (vincristine sulfate LIPOSOME injection) a novel, sphingomyelin/cholesterol
liposome-encapsulated, formulation of vincristine sulfate, a microtubule inhibitor, 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. However, due to the evolving standard of care environment, the rare and niche
indications for these products, and our commitment to prioritize resources, the Company is currently evaluating future development
options.
BUSINESS DEVELOPMENT
CASI has built a fully integrated, world class biopharmaceutical company dedicated to the successful development and
commercialization of innovative and other therapeutic products.
Our business development strategy is currently focused on acquiring additional targeted drugs and immuno-oncology therapeutics
through licensing that will expand our hematology-oncology franchise. In many cases our business development strategy includes direct
equity investments in our licensor partner. We intend for our pipeline to reflect a diversified and risk-balanced set of assets that include (1)
late-stage clinical drug candidates in-licensed for China regional rights, (2) proprietary or licensed innovative drug candidates, and (3)
identify
select high quality pharmaceuticals
pharmaceutical/biotechnology candidates that we believe have the potential for gaining widespread market acceptance, either globally or in
China, and for which development can be accelerated under our global drug development strategy. Although oncology with a focus on
hematological malignancies is our principal clinical and commercial target, we are opportunistic about other therapeutic areas that can
address unmet medical needs.
focus. We use a market-oriented approach
therapeutic
fit our
that
to
CASI PHARMACEUTICALS (CHINA) CO., LTD. (“CASI China”)
In August 2012, we established a wholly-owned China-based subsidiary CASI Pharmaceuticals (China) Co., Ltd. (“CASI China”).
CASI China is headquartered in Beijing, and in 2020, we established an office in Shanghai. CASI China’s staff currently consists of 118
full-time employees which includes our commercial team of over 80 hematology and oncology sales and marketing
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specialists based in China. Among its activities, our China operations help to oversee the Company’s sales and marketing of EVOMELA
and the anticipated commercial activities of our pipeline products, technology transfer, local preclinical and clinical operation activities, as
well as its NMPA regulatory activities. In addition, our Beijing operations include business development activities and executive
management activities. Management decisions are primarily being made out of CASI China where our executive team spends a significant
amount of time. We expect our operations in China to continue to grow.
CASI PHARMACEUTICALS (WUXI) CO., LTD (“CASI Wuxi”)
On December 26, 2018, the Company, together with Wuxi Jintou Huicun Investment Enterprise, a limited partnership organized
under Chinese law (“Wuxi LP”) established CASI Pharmaceuticals (WUXI) Co., Ltd (“CASI Wuxi”) to build and operate a GMP
manufacturing facility in the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. The Company controls CASI Wuxi
through 80% voting and ownership rights. Accordingly, the financial statements of CASI Wuxi have been consolidated in the Company’s
consolidated financial statements since its inception.
In November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in China for the
construction of a GMP manufacturing facility. Pursuant to the agreement, CASI Wuxi has committed to invest land use right and property,
plant and equipment of RMB1 billion (equivalent to $143 million) within three years from the date of establishment of CASI Wuxi. In
April 2020, CASI Wuxi received RMB 15.9 million (equivalent to $2.2 million) from the Jiangsu Province Wuxi Huishan Economic
Development Zone as government grant for this development project which was recorded as deferred income in April 2020. On August 27,
2020, CASI Wuxi entered into the Construction Project Contract for RMB 74,588,000 (equivalent to $10,923,000) to complete the phase 1
project of CASI Wuxi's research and development production base. The estimated completion date is October 2023.
RELATIONSHIPS RELATING TO PROGRAMS
EVOMELA® (Melphalan Hydrochloride For Injection)
The Company has product rights and perpetual exclusive licenses from Acrotech Biopharma L.L.C. (“Acrotech”) to develop and
commercialize its commercial product EVOMELA® in the greater China region (which includes China, Taiwan, Hong Kong and Macau).
On December 3, 2018, the Company received NMPA’s approval for importation, marketing and sales in China, and in August 2019 the
Company launched EVOMELA in China. The NMPA required post-marketing study is ongoing and is actively recruiting.
The Company has established relationships, coupled with supply agreements, to secure the necessary resources to supply clinical
trials materials for our clinical development program and to supply commercial drug product for EVOMELA. As an import product into
China, we expect that the future supply of EVOMELA will continue to be met by our partner Acrotech and its contract manufacturers.
On March 7, 2019, the Company entered into a three-year exclusive distribution agreement with China Resources Guokang
Pharmaceuticals Co., Ltd (“CRGK”) to appoint CRGK on an exclusive basis as its distributor to distribute EVOMELA in the territory of
the People’s Republic of China (excluding Hong Kong, Taiwan and Macau), subject to certain terms and conditions. The Company’s
internal marketing and sales team will continue to be responsible for commercial activities, including, for example, direct interaction with
Key Opinion Leaders (KOL), physicians, hospital centers and the generating of sales.
CNCT19 (CAR-T CD19)
On June 15, 2019, we entered into a license agreement with Juventas pursuant to which we obtained exclusive commercialization
rights to CNCT19 (“Original License Agreement”). Under the agreement, CASI agreed to a development milestone payment of RMB 70
million upon the initiation of a Phase 2 clinical trial by Juventas and sales royalties after commercialization. In addition, as a part of the
transaction, CASI Biopharmaceuticals (WUXI) Co., Ltd, a subsidiary of CASI Wuxi, invested RMB 80 million in Juventas’ Series A plus
financing, representing an 16.327% equity stake in Juventas on a fully-diluted basis upon the closing of such equity financing.
In connection with Juventas’ Series B financing, on September 22, 2020, the Company entered into a Supplementary Agreement
(“Supplementary Agreement”) which amended and supplemented the Original License Agreement. Pursuant to the Supplementary
Agreement, we agreed to pay Juventas certain percentage of profits generated from commercial sales of CNCT19. The
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Supplementary Agreement also specifies a minimum annual target net profit to be distributed to Juventas and certain other terms and
obligations.
Juventas continues to be responsible for the clinical development and regulatory submission of CNCT19 and post-
commercialization, Juventas is also responsible for manufacturing and supplying CASI with the future commercial supply of CNCT19.
Under the Supplementary Agreement, Juventas and the Company will jointly market CNCT19, including, but not limited to,
establishing medical teams, developing medical strategies, conducting post-marketing clinical studies, establishing Standardized Cell
Therapy Centers, establishing and training providers with respect to cell therapy, testing for cell therapy, and monitoring quality controls
(cell collection and transfusion, etc.), and patient management (adverse reactions treatment, patients’ follow-up visits, and establishment of
a database), such commercial activities to be overseen by the joint steering committee. The Company also will reimburse Juventas for a
portion of Juventas’ marketing expenses as reviewed and approved by a joint commercial committee to be constituted. The Company will
continue to be responsible for recruiting and establishing a sales team to commercialize CNCT19.
Under the Supplementary Agreement, the Company and Juventas will share a percentage of total net profits, with CASI receiving
a tiered percentage increasing up to 50% of the net profit from commercial sales of CNCT19 depending on annual net sales. The
Supplementary Agreement also specifies a minimum annual target net profit to be distributed to Juventas as a percentage of net profit from
commercial sales. In addition, we will continue to be obligated to pay Juventas a single digit royalty fee equal to a percentage of net sales
that varies by region. In return for the new terms set forth in the Supplementary Agreement, Juventas issued additional equity to CASI
Biopharmaceuticals (WUXI) Co., Ltd, a subsidiary of CASI Wuxi and through which the Company holds its investment.
BI-1206 (anti-FcyRIIB antibody)
In October 2020, the Company entered into an exclusive licensing agreement with BioInvent International AB (“BioInvent”) for
the development and commercialization of novel anti-FcγRIIB antibody, BI-1206, in mainland China, Taiwan, Hong Kong and Macau.
BioInvent is a biotechnology company focused on the discovery and development of first-in-class immune-modulatory antibodies for
cancer immunotherapy.
Under the terms of the agreement, BioInvent and CASI will develop BI-1206 in both hematological malignancies and solid
tumors, with CASI responsible for commercialization in China and associated markets. BioInvent received a $5.9 million upfront payment
made in November 2020 and is eligible to receive up to $83 million in development and commercial milestone payments plus tiered
royalties in the high-single to mid-double-digit range on net sales of BI-1206.
In conjunction with its license agreement entered into with BioInvent, CASI made a $6.3 million investment (SEK 53.8 million)
in 1.2 million new shares of BioInvent, and 14,700,000 new warrants, each warrant with a right to subscribe for 0.04 new shares in
BioInvent within a period of five years and at a subscription price of SEK 78.50 per share.
As an import product into China, we expect that future supply of BI-1206 will be met by our partner BioInvent and its contract
manufacturers. For local development in China, we expect that our clinical materials and commercial inventory will be supplied by one or
more contract manufacturers.
CB-5339 (VCP/p97inhibitor)
In March 2021, the Company entered into an exclusive license with Cleave Therapeutics, Inc. (Cleave”) for the development and
commercialization of CB-5339, a novel VCP/p97 inhibitor, in both hematological malignancies and solid tumors, in Mainland China, Hong
Kong, Macau and Taiwan. Cleave is a private biopharmaceutical company focused on VCP/p97 as a novel target in protein homeostasis
and cellular stress pathways for therapeutic use in cancer.
CB-5339 is being evaluated by Cleave in a Phase 1 clinical trial in patients with acute myeloid leukemia (AML) and
myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is sponsoring and evaluating CB-5339 in a Phase 1 clinical
trial of patients with solid tumors and lymphomas. Under the terms of the agreement, CASI is responsible for development and
commercialization in China and associated markets. Cleave received a $5.5 million upfront payment and is eligible to receive up to $74
million in development and commercial milestone payments plus tiered royalties in the high-single to mid-double-digit range on net sales
of CB-5339. In conjunction with the license agreement, CASI made a $5.5 million investment in Cleave through a convertible note.
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As an import product into China, we expect that future supply of CB-5339 will be met by our partner Cleave and its contract
manufacturers. For local development in China, we expect that our clinical materials and commercial inventory will be supplied by one or
more contract manufacturers.
CID-103 (anti-CD38 Monoclonal Antibody)
In April 2019, the Company entered into a license agreement with Black Belt Therapeutics Limited (“Black Belt”) for exclusive
worldwide rights to CID-103, an investigational anti-CD38 monoclonal antibody (Mab) (formerly known as TSK011010). Black Belt
received a 5 million euros upfront payment and is eligible to receive additional milestone payments plus tiered royalties on net sales of
CID-103. In conjunction with the license agreement, CASI invested 2 million euros in a newly established spinoff company of Black Belt.
The CID-103 Phase 1 study is scheduled to begin in EU in March 2021. We expect to work with our third-party contract research
organization ("CRO") to monitor and manage data for the clinical program, and expect that our clinical materials and commercial inventory
will be supplied by one or more contract manufacturers with whom we are in current discussions.
Octreotide (Long Acting Injectable)
In October 2019, the Company entered into an Exclusive Distribution License Agreement with Pharmathen Global BV
(“Pharmathen”), pursuant to which we obtained exclusive distribution rights for Octreotide LAI in China. Under the agreement,
Pharmathen is responsible for manufacturing and supplying CASI with clinical trials materials and commercial drug product. The terms of
the agreement include an upfront payment of 1 million euros which was paid by the Company in 2019, and up to 2 million euros of
additional milestone payments. During the year ended December 31, 2020, milestones were achieved related to Pharmathen's approval of
Octreotide in the UK, which triggered a 1 million euros payment to Pharmathen, and related to the first submission to the NMPA in China,
triggering a 500,000 euros payment to Pharmathen.
Thiotepa
In August 2019, the Company entered into an Exclusive License and Distribution Agreement with Riemser Pharma GmbH
(“Riemser”), pursuant to which we obtained exclusive distribution rights for Thiotepa in China. Under the agreement, Riemser will be
responsible for manufacturing and supplying CASI with clinical trials materials and commercial drug product, and costs of clinical trials (if
any) for the registration, product launch and commercialization of Thiotepa in China.
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 regards to our commercial drug EVOMELA licensed for greater China rights from our partner, we have acquired exclusive
licenses to intellectual property to enable us to develop and continue to commercialize in China.
With regards to CNCT19, we have acquired an exclusive license to intellectual property from our partner Juventas to enable us to
co-commercialize CNCT19 in China and well as the rest of the world. Juventas is responsible for prosecuting and maintaining the licensed
intellectual property.
With regards to BI-1206, we have acquired an exclusive license to intellectual property and the know-how from our partner
BioInvent to enable us to develop and commercialize BI-1206 in our greater China commercial markets. BioInvent is responsible for
prosecuting and maintaining the licensed BioInvent intellectual property.
With regards to CB-5339, we have acquired an exclusive license to intellectual property and the know-how from our partner
Cleave to enable us to develop and commercialize CB-5339 in our greater China commercial markets. Cleave is responsible for
prosecuting and maintaining the licensed Cleave intellectual property. With regards to our in-licensed anti-CD38 antibody candidate CID-
103, we have acquired an exclusive worldwide license to patents around CID-103 and other anti-CD38 antibodies, covering50 pending
applications worldwide, directed to the antibodies themselves and treatment methods using the antibodies. We have since filed
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additional applications, with current 55 pending applications including U.S., Australia, Canada, China, Europe, India, Japan, Korea, New
Zealand, Singapore and Hong Kong. We intend to further expand our patent portfolio and in the submission stage of additional
applications. The patent term for any patents granted from the earliest of these pending applications will expire in June 2038, assuming all
annuities are paid and not considering any term extensions for regulatory approval that might be available.
With regards to our drug candidates Octreotide LAI and Thiotepa, we have acquired exclusive licenses to intellectual property
and/or the know-how to enable us to develop and commercialize the drug candidates in the China market.
The Company holds certain intellectual property in connection with a proprietary aurora kinase inhibitor that we no longer devote
resources to. Our intellectual property for this asset remains available for business development partnering.
We have pending trademark applications for CASI and CASI PHARMACEUTICALS.
We review and assess our portfolio on a regular basis to secure protection and to align our intellectual property strategy with our
overall business strategy.
GOVERNMENT REGULATION
U.S. Food and Drug Administration (FDA)
Our research, development, testing, manufacture, labeling, sale, marketing, advertising, and distribution 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 the development and commercialization of drugs and biologics. 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 the FFDCA, 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 drugs or biologics. 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 and drugs, as the case may be.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory
provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA
regulations and policies are often revised or reinterpreted by the agency in ways that may significantly affect our business and our product
candidates or any future product candidates we may develop. It is impossible to predict whether further legislative or FDA regulation or
policy changes will be enacted or implemented and what the impact of such changes, if any, may be.
Preparing drug and biologic candidates for regulatory approval is a costly and time-consuming process. Generally, a developer
first must conduct preclinical studies in the laboratory and in animal model systems in accordance with applicable FDA requirements,
including Good Laboratory Practice regulations, to gain preliminary information on an agent’s effectiveness and to identify any safety
problems. The results of these studies, together with manufacturing information and analytical data as well as protocols and detailed
descriptions for proposed clinical investigations, are submitted to FDA as a part of an Investigational New Drug Application (IND) for a
drug or biologic, which must become effective before human clinical trials of an investigational drug can begin. An IND application will
automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about
issues, such as the conduct of the clinical trials as outlined in the IND application, and places the clinical trial(s) on a clinical hold. In such
a case, the IND application sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can
proceed. We cannot be certain that submission of an IND application will result in the FDA allowing clinical trials to begin.
We or our collaborators must then conduct adequate and well-controlled clinical trials, in accordance with applicable IND
regulations, Good Clinical Practices (“GCPs”), and other clinical-trial related regulations, to establish the safety and efficacy of the
candidate for each proposed indication 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. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an
institutional review board (“IRB”) for each institution where the trials will be conducted before the trial can begin, and
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each IRB must monitor the study until completion. Study subjects must provide informed consent and sign an informed consent form
before participating in a clinical trial.
Clinical trials of drugs or biologics are normally done in three phases, although the phases may overlap or be combined. Phase 1
trials usually involve the initial introduction of the investigational candidate into humans to evaluate its short-term safety, dosage tolerance,
metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness. Phase 2 trials
normally involve trials in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects
and safety risks, and evaluate preliminarily the efficacy of the candidate for specific target indications. 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 may take several years to complete. Annual progress reports
detailing the results of the clinical studies must be submitted to the FDA and IND safety reports must be submitted to the FDA and
investigators within 15 calendar days for serious and unexpected adverse events, any findings from other studies, tests in laboratory
animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious
suspected adverse reaction over that listed in the protocol or investigator brochure. We or our collaborators, the FDA, or an IRB (with
respect to a particular study site) may suspend or terminate clinical trials at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after receiving initial marketing approval.
These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly
intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the
performance of Phase 4 clinical trials as a condition of approval of the product or, in certain circumstances, post-approval.
The FDA has various programs, including fast track designation, breakthrough therapy designation, priority review, accelerated
approval, and, for regenerative medicine therapies, regenerative medicine advanced therapy designation, which are intended to expedite or
simplify the process for the development, and FDA’s review, of drugs and biologics (e.g., granting approval on the basis of surrogate
endpoints subject to post-approval trials). Generally, drugs or biologics that may be eligible for one or more of these programs are those
intended to treat serious or life-threatening diseases or conditions, those with the potential to address unmet medical needs for those disease
or conditions, and/or those that provide a meaningful benefit over existing treatments. Moreover, if a sponsor submits a marketing
application for a product intended to treat certain rare pediatric or tropical diseases or for use as a medical countermeasure for a material
threat, and that meets other eligibility criteria, upon approval such sponsor may be granted a priority review voucher that can be used for a
subsequent application. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer
meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, these
programs do not change the standards for approval and may not ultimately expedite the development or approval process.
If clinical trials of a product 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). For biological products, an applicant must
file a Biologics License Application (BLA). In each case, FDA must approve the application before the product can be marketed
commercially. NDAs and BLAs must include, among other things, detailed information about the product’s chemistry, manufacture,
controls, and proposed labeling and the results of preclinical studies and clinical trials. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety and efficacy of a drug, and safety, purity, and potency of a biologic, to the
satisfaction of the FDA. A user fee must be paid with the submission of an NDA or BLA (unless a fee waiver applies) in order to support
the cost of agency review, which is currently almost $3 million. FDA usually will inspect the facility or the facilities at which the drug is
manufactured and will not approve the product unless the manufacturing and production and testing facilities are in compliance with
current Good Manufacturing Practice (cGMP) regulations. In addition, FDA may also inspect clinical trial sites that generated data for the
NDA or BLA as well as us or our collaborators as a clinical trial sponsor.
The testing and approval processes require substantial time and effort, and there can be no assurance that FDA will accept the
application for filing or that any approval will be obtained on a timely basis, if at all. Under the goals and policies agreed to by the FDA
under the Prescription Drug User Fee Act, the FDA has ten months from the 60 day filing date in which to complete its initial review of a
standard application and respond to the applicant. However, the time required by the FDA to review and approve NDAs and BLAs is
variable and, to a large extent, beyond our control. Notwithstanding the submission of relevant data, the FDA may ultimately decide that an
NDA or BLA does not satisfy its regulatory criteria and deny the approval. In such instance, FDA will issue a Complete Response Letter,
describing all the deficiencies that the FDA has identified in an application that must be satisfactorily addressed before it can be approved.
A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or
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other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. Further, even
if such additional information is submitted, the FDA may ultimately decide that the application does not satisfy the criteria for approval.
The FDA may also refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory
committee, but the Agency historically has tended to follow such recommendations. In addition, the FDA may condition marketing
approval on the conduct of specific post-marketing studies to further evaluate safety and effectiveness or a Risk Evaluation and Mitigation
Strategy (REMS) that may include both special labeling and controls, known as Elements to Assure Safe Use, on the distribution,
prescribing, dispensing and use of a drug product. After approval is obtained, a marketed product is subject to continuing regulatory
requirements and review relating to cGMP, adverse event reporting, promotion and advertising, and other matters. The FDA strictly
regulates labeling, advertising, promotion and other types of information on products that are placed on the market. Products may be
promoted only for the approved indications and consistent with the provisions of the approved label. Discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product,
mandated labeling changes, or withdrawal of the product from the market, as well as possible civil or criminal sanctions.
Drugs and biological products may be eligible to receive certain regulatory exclusivities upon approval. For example, a drug that
constitutes a new chemical entity (i.e., an active moiety that has not been previously approved in another NDA) is entitled to five years of
exclusivity during which FDA may not accept an ANDA or 505(b)(2) NDA for filing referencing such chemical entity, unless a “Paragraph
IV certification” is made in which case FDA may accept such applications four years after initial approval of the new chemical entity. In
addition, three years of exclusivity can be awarded for applications (including supplements) containing the results of new clinical
investigations (other than bioavailability studies) conducted by the applicant and essential to the FDA’s approval of new versions or
conditions of use of previously approved drug products, such as new indications, delivery mechanisms, dosage forms, strengths, or other
conditions of use. A reference biological product is granted twelve years of data exclusivity from the time of first licensure of the product,
and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four
years after the date of first licensure of the reference product. Moreover, a drug or biologic may receive orphan drug designation if intended
to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United
States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing
and making the product available in the United States for this type of disease or condition will be recovered from sales of the product in the
United States. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which
it has such designation, the product is entitled to orphan drug exclusivity, which restricts FDA from approving any other applications to
market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, by providing a
major contribution to patient care, or in instances of an inability to assure drug supply.
FDA may approve generic drugs and biological products through abbreviated pathways. Generic drugs may be marketed upon
approval of an ANDA, which contains information to show that the proposed product is identical in active ingredient, dosage form,
strength, route of administration, labeling, quality, performance characteristics, and intended use, among other things, to a previously
approved drug. Approval is generally supported by data from bioequivalence studies, rather than complete preclinical and clinical studies.
Biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product are eligible for an
abbreviated approval pathway. Although licensure of biosimilar or interchangeable products is generally expected to require less than the
full complement of product-specific preclinical and clinical data required for reference products, the FDA has considerable discretion over
the kind and amount of scientific evidence required to demonstrate biosimilarity and interchangeability. Under section 610 of the Further
Consolidated Appropriations Act, 2020, entitled “Actions for Delays of Generic Drugs and Biological Products”, generic drug and
biosimilar developers may sue brand manufacturers, or generic or biosimilar manufacturers, to obtain sufficient quantities of reference
product necessary for approval of the developers’ generic or biosimilar product. If a generic drug or biosimilar developer is successful in its
suit, the defendant manufacturer would be required to provide sufficient quantities of product on commercially-reasonable, market-based
terms and may be required to pay the developer’s reasonable attorney’s fees and costs as well as financial compensation under certain
circumstances. While intended to facilitate the timely entry of lower-cost generic and biosimilar products, we cannot determine what effect
this new private right of action may have on the development and approval of generic drug and biosimilar products at this time.
The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in connection with the development or
submission of an application. In general, the FDA is authorized to temporarily or permanently bar companies and individuals, from
submitting or assisting in the submission of applications to FDA, and to temporarily deny approval and suspend applications to market
drugs under certain circumstances. FDA’s debarment authority has also been expanded to apply to certain import-related offenses. In
addition to debarment, the FDA has numerous enforcement and disciplinary powers, including the authority to withdraw approval of an
application or to approve an application under certain circumstances, to suspend the distribution of all drugs approved or developed in
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connection with certain wrongful conduct, and various civil and criminal penalties. The FDA may also withdraw product approval or take
other corrective measures if, among other things, ongoing regulatory requirements are not met or if safety or efficacy questions are raised
after the product reaches the market.
Manufacturers and other entities involved in the manufacturing and distribution of approved products are required to register their
establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state
agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the manufacturing process, including
the production, processing, sterilization, packaging, labeling, storage and shipment of the product. Manufacturers must establish validated
systems to ensure that products meet specifications and regulatory requirements, and test each product batch or lot prior to its release. We
rely, and expect to continue to rely, on third parties for the production of clinical quantities of our product candidates and any future
product candidates we may develop. Future FDA and state inspections may identify compliance issues at the facilities of our contract
manufacturers that may disrupt production or distribution or may require substantial resources to correct.
Healthcare Regulation
Federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, also apply to our
business. If we fail to comply with those laws, we could face substantial penalties and our business, results of operations, financial
condition and prospects could be adversely affected. The laws that may affect our ability to operate include, but are not limited to: the
federal Anti-Kickback Statute, which prohibits, among other things, soliciting, receiving, offering or paying remuneration, directly or
indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare
program, such as the Medicare and Medicaid programs; and federal civil and criminal false claims laws and civil monetary penalty laws,
which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from
Medicare, Medicaid, or other third-party payers that are false or fraudulent. Additionally, we are subject to state law equivalents of each of
the above federal laws, which may be broader in scope and apply regardless of whether the payer is a federal healthcare program, and
many of which differ from each other in significant ways and may not have the same effect, further complicate compliance efforts.
Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and
federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or
are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who are
expected to prescribe our products and from whom we obtain patient health information, are subject to privacy and security requirements
under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology and Clinical
Health Act (HIPAA). Although we are not directly subject to HIPAA, we could be subject to criminal penalties if we obtain and/or disclose
individually identifiable health information from a HIPAA-covered entity, including healthcare providers, in a manner that is not authorized
or permitted by HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an
increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws
in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business.
In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act
(PPACA), created a federal requirement under the federal Open Payments program, that requires certain manufacturers to track and report
to the Centers for Medicare and Medicaid Services, or CMS, annually certain payments and other transfers of value provided to physicians
and teaching hospitals made in the previous calendar year. In addition, there are also an increasing number of state laws that require
manufacturers to make reports to states on pricing and marketing information. These laws may affect our sales, marketing, and other
promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these
laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities.
For those marketed products which are covered in the United States by certain government healthcare programs (e.g., Medicare
and Medicaid), we have various obligations, including government price reporting and rebate requirements, which generally require
products be offered at substantial rebates/discounts to Medicaid and certain purchasers (including “covered entities” purchasing under the
340B Drug Discount Program). We are also required to discount such products to authorized users of the Federal Supply Schedule of the
General Services Administration, under which additional laws and requirements apply. These programs require submission of pricing data
and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement
contracts governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always
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clear. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly
calculate prices, or offer required discounts or rebates could subject us to substantial penalties.
National Medical Products Administration (NMPA, formerly the China Food and Drug Administration)
In the PRC, the NMPA is the authority under the State Administration for Market Regulation (SAMR) that monitors and
supervises the administration of pharmaceuticals products, medical appliances and equipment, and cosmetics. We are also subject to
regulation and oversight by different levels of the Medical Products Administration and Administration of Market Regulation in China. 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 NMPA. For late-stage product candidates that we in-license for greater China rights, such as EVOMELA, which has been launched,
ZEVALIN and MARQIBO, our development activities in China are to secure marketing approval from NMPA by conducting import drug
registration. The “Law of the PRC on the Administration of Pharmaceuticals,” as last amended on August 26, 2019 and effective as of
December 1, 2019, 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.
We are also subject to other PRC laws and regulations that are applicable to pharmaceutical manufacturers and distributors in
general.
The Marketing Authorization Holder System.
Pursuant to the amended Law of the PRC on the Administration of Pharmaceuticals, the Marketing Authorization Holder System,
previously implemented in a few pilot regions in China, is now implemented nationwide. Companies and research and development
institutions can be drug marketing authorization holders after they receive drug approvals. The drug marketing authorization holder are
responsible for their products throughout the life cycle, including nonclinical studies, clinical trials, production and distribution, post-
market studies, and the monitoring, reporting, and handling of adverse reactions in connection with pharmaceuticals in accordance with the
amended law.
The marketing authorization holders may engage contract manufacturers for manufacturing, provided that the contract
manufacturers are licensed pharmaceutical manufacturers, and may engage pharmaceutical distribution enterprises with a valid drug
distribution license to sell their products. Upon receiving the marketing authorizations from the NMPA, a drug marketing authorization
holder may transfer its drug marketing authorization and the transferee should have the capability of quality management, risk prevention
and control, and liability compensation to ensure the safety, effectiveness and quality controllability of drugs, and fulfill the obligations of
the drug marketing authorization holder.
Product Manufacturing
For the registration of locally manufactured drugs, the drug products need to be manufactured 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 NMPA Good Manufacturing Practice (GMP) guidelines. A domestic manufacturer of pharmaceutical products and active
pharmaceutical ingredient (API) must obtain the drug manufacturing license to produce pharmaceutical products and API for marketing in
China. Pursuant to the newly amended Law of the PRC on the Administration of Pharmaceuticals, the GMP certification has been
cancelled, but with its cancellation, drug manufacturing enterprises are still required to strictly comply with GMP requirements. GMP
requirements include institution and staff qualifications, production premises and facilities, equipment, raw materials, hygiene conditions,
production management, quality controls, product distributions, maintenance of records and manner of handling customer complaints and
adverse reaction reports. The drug manufacturing license is valid for five years, and must be renewed at least six months before its
expiration date.
In addition, before commencing business, a pharmaceutical manufacturer must also obtain a business license from the
Administration of Market Regulation at the local level.
Preclinical Research and Clinical Trials.
For an investigational new drug application, a clinical trial approval issued from the Center of Drug Evaluation (CDE) under the
NMPA was historically required to conduct clinical trials. However, since July 24, 2018, the NMPA announced to adopt a negative
notification system for clinical trial approvals. In particular, if the applicant does not receive negative comments within 60 days after
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the CDE accepts the clinical trial application, the applicant can proceed with the clinical trial immediately based on the protocol submitted
without waiting to receive an explicit clinical trial approval. Chemical generics, on the other hand, only need to undergo bioequivalent
studies upon a filing for record with the NMPA. In order to apply for a clinical trial application approval to support local registration in
China, a pharmaceutical company is required to conduct a series of preclinical research including research on chemistry, pharmacology,
toxicology and pharmacokinetics of pharmaceuticals. This preclinical research should be conducted in compliance with the relevant
regulatory guidelines issued by the NMPA. In particular, safety evaluation research must be conducted in compliance with China’s Good
Laboratory Practice.
After completion of preclinical studies and obtaining permission to conduct the clinical trial from the NMPA, clinical trials are
generally conducted in three sequential phases that may overlap or be combined, known as Phase 1, Phase 2, and Phase 3 clinical trials, and
Phase 4 clinical trials may be conducted at the post-marketing surveillance stage, in compliance with China’s Good Clinical Practice
(GCP):
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.
Phase 4 –assess therapeutic efficacy and adverse reactions post-approval. The purpose is, by conducting a new drug’s
post-marketing study, to assess therapeutic efficacy and adverse reactions when the drug is widely used, to evaluate overall
benefit-risk relationships of the drug when used among the general population or specific groups and to adjust the administration
dose, among others.
In April 2020, the NMPA and the National Health Commission (NHC) released the amended GCP, which took effect on July 1,
2020. The amended GCP is harmonized with the ICH-GCP. Compared to the previous GCP, the amended GCP provides comprehensive
and substantive requirements on the design and conduct of clinical trials in China. In particular, the amended GCP enhances the protection
for study subjects and tightens the control over bio-samples collected under clinical trials.
Collecting and Using Patients’ Biospecimens and Derived Data.
Foreign-invested sponsors that collect and use patients’ biospecimens in clinical trials are required to file with the China Human
Genetic Resources Administrative Office, or the HGRAO, under the Ministry of Science and Technology, or the MOST. In 2017, the
MOST issued the Circular on Optimizing the Administrative Examination and Approval of Human Genetic Resources, which simplified
the approval for collecting and using human genetic resources for the purpose of commercializing a drug in the PRC. In June 2019, the
State Council of the PRC issued the Regulation on the Administration of PRC Human Genetic Resources (effective as of July 1, 2019),
which formalized the approval requirements pertinent to research collaborations between Chinese and foreign-owned entities.
Pursuant to this new HGR Regulation, a new notification system (as opposed to the advance approval approach originally in
place) was put in place for clinical trials using PRC patients’ biospecimens at clinical study sites without involving the export of such
specimens outside of China. The notification filing must specify the type, quantity and usage of the biospecimens, among others, with the
HGRAO is required before conducting such clinical trials. The collection and use of PRC patients’ biospecimens in international basic
research collaboration are still subject to the approval of the HGRAO. The notification filing with the HGRAO also applies to access to
clinical study data by foreign entities.
In October 2020, the Standing Committee of the NPC promulgated the PRC Biosecurity Law, which will take effect on April 15,
2021. The PRC Biosecurity Law, the higher law to the HGR Regulation, reaffirms the regulatory requirements stipulated by the
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HGR Regulation while potentially increasing the administrative fines significantly in cases where foreign entities are alleged to have
collected, preserved or exported Chinese human genetic resources.
Import Drug Registration or Multi Regional Clinical Trials.
NMPA 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. An International Multicenter Clinical Trial (IMCCT) Application needs to be filed
with the NMPA and approval is required prior to conducting the trials.
In October, 2017, the NMPA released the Decision on Adjusting Items concerning the Administration of Imported Drug
Registration, which includes the following key points:
● Phase 1 IMCCT is allowed to be conducted in China. The IMCCT drug does not need to gain prior approval or have entered into
either a Phase 2or 3 clinical trial in a foreign country before the IMCCT could be conducted in China, except for preventive
biological products.
● If the IMCCT is conducted in China, the application for drug marketing authorization can be submitted directly after the
completion of the IMCCT.
● With respect to clinical trial and market authorization applications for imported innovative chemical drugs and therapeutic
biological products, the marketing authorization in the country or region where the foreign drug manufacturer is located will not
be required.
● With respect to drug applications that have been accepted before the release of this Decision, importation permission can be
granted if such applications request exemption of clinical trials for the imported drugs based on the data generated from IMCCT
and if relevant requirements under the Administrative Measures of the Drug Registration are met.
The NMPA Decision on IMCCT and the application for imported new drugs has streamlined and accelerated the applications for
imported new drugs.
In order to apply for an IMCCT 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 our case, in a format compliant with
NMPA guidance.
After obtaining the IMCCT approval from the NMPA, clinical trials should be conducted in compliance with both the FDA/ICH
and NMPA Good Clinical Practice guidelines.
Data derived from IMCCT can be used for the marketing authorization applications with the NMPA. When using IMCCT data to
support marketing authorization applications in China, applicants shall submit completed global clinical trial report, statistical analysis
report and database, along with relevant supporting data in accordance with the ICH-CTD (International Conference on Harmonization-
Common Technical Document) content and format requirements; subgroup research results summary and comparative analysis shall also
be conducted concurrently.
Marketing Authorization Application
After completion of the first 3 phases of clinical trials demonstrating the safety and effectiveness of a pharmaceutical in its
targeted indication, a Marketing Authorization Application needs to be filled with the NMPA, which includes research data of chemistry,
manufacturing and controls, pre-clinical studies and clinical trial report in order to register the new drug. For imported drugs, the New
Drug Registration Application is also known as the Import Drug License Application.
Once a marketing authorization is received, the product can be sold nationwide in China.
Generic Quality Consistency Evaluation
The NMPA has launched the generic quality consistency evaluation (GQCE) since 2013, which requires domestically-
manufactured generic drugs to conform to the quality standards and therapeutic efficacy of originator products. In 2016, the Chinese
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regulatory authorities announced that imported generic drugs must also pass the GQCE in China. The GQCE generally required the
manufacturers of generics to conduct bioequivalent studies (or dissolution tests) of a generic drug against a qualified reference drug
(typically the originator drug) in order to establish equivalence to the originator products. If there is no qualified reference drug, the generic
manufacturer has to conduct a clinical efficacy trial.
The first wave of GQCE focuses on 289 oral formulations of chemical drugs listed in China’s Essential Drug List. The NMPA will
reject to renew the marketing authorizations of these generic drugs if their manufacturers fail to complete the GQCE by the end of 2018 (or
the end of 2021 if clinical efficacy trials are required). If the manufacturers can prove that the generics are products in shortage and
clinically essential, they can apply for an extension up to 5 years in order to pass the GQCE. Once one generic manufacturer successfully
passes the GQCE, all of the other manufacturers producing the same generic drug must complete their GQCE within three years following
the first successful GQCE. Otherwise, the NMPA will not renew their respective marketing authorizations.
The launch of GQCE significantly elevated the bar of entry of generic manufacturers. Generics that pass the GQCE will be on a
preferred list at public hospital tenders and will be entitled to a more favorable reimbursement status. Public hospitals will only be allowed
to purchase from the first three generic manufacturers who pass the GQCE.
Pricing
The government regulates prices for pharmaceuticals (except for narcotic and Type 1 psychotropic drugs) mainly by establishing a
price negotiation, consolidated procurement mechanism, and revising medical insurance reimbursement standards. The Chinese
government has initiated several rounds of price negotiations with manufacturers of patented drugs, drugs with an exclusive source of
supply, and oncology drugs since 2016. The average percentage of price reduction has been over 50%. Once the government agreed with
the drug manufacturers on the supply prices, the drugs would be automatically listed in the National Reimbursement Drug List (NRDL)
and qualified for public hospital purchase.
Reimbursement
China is a single-payor market with near universal healthcare provided by the government. Over 95% of the population receives
healthcare coverage at various levels of reimbursement. Commercial insurance is available but is minimally adopted, and is seen as a
supplement above and beyond government reimbursement. To obtain government reimbursement for a drug, the government must agree to
add it to the NRDL or the provincial reimbursement drug lists at a negotiated price (at times at a significant discount to prevailing market
price). Prior to this time, the market is self-pay, where patients will be responsible for 100% of the launch price determined by the
company. We believe the self-pay market in China is expanding, given the rise in personal income levels in the country. In December 2020,
the National Healthcare Security Administration (NHSA) and the PRC Ministry of Human Resources and Social Security released the
National Drug Catalogue for Basic Medical Insurance, Work-Related Injury Insurance and Maternity Insurance, or the 2020 NRDL , and
119 new drugs were admitted to the 2020 NRDL. Previous updates to the NRDL occurred in 2019, 2017 and 2009. In addition, there were
also NRDL price negotiations in 2018, 2019, and 2020. In 2020, the average price reduction of the 119 new drugs added to the 2020 NRDL
is 50.64%. Admission to the NRDL depends on a number of factors, including on-market experience, scale of patient adoption, physician
endorsement, cost effectiveness and budget impact. Provincial governments have some discretion to add additional drugs not listed in the
NRDL to provincial reimbursement drug lists.
Medicines included in the NRDL are divided into two classes, Class A and Class B. Patients purchasing medicines included in the
NRDL are entitled to reimbursement of the entire amount or a certain percentage of the purchase price. The percentage of reimbursement
for Class B medicines differs from region to region in the PRC.
Hospital Listing
Government hospitals currently represent over 90% of the pharmaceutical market in China. In order for a new drug to be
prescribed at a government hospital, it has to be listed in the hospital formulary. The process of entering into the formulary is commonly
referred to as “hospital listing”, and typically requires a long lead time. These decisions are made on a hospital-by-hospital basis with
timing that can range from every six months to every five years. Some hospitals also have temporary listing procedures that can accelerate
timing. Private hospital and non-hospital pharmacies, which represent less than 10% of the drug market in China, do not require a
formulary process to sell a drug.
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Centralized Procurement and Tenders
Provincial and municipal government agencies will establish a provincial drug procurement agency to operate a mandatory
collective tender process for purchases by government hospitals of a medicine included in provincial or local medicine procurement
catalogs. The provincial or local medicine procurement catalogs are determined by the provincial drug procurement agency based on the
National Essential Drugs List, the NRDL, local hospital formularies, etc. If a new drug has been included in a government hospital
formulary, the NRDL or the provincial reimbursement drug list, the relevant hospitals must participate in collective tender processes for the
purchase of such new drug. The centralized tender process is in principle conducted once every year in the relevant province or city in
China. During the collective tender process, the provincial drug procurement agency will establish a committee consisting of recognized
pharmaceutical experts. The committee will assess the bids submitted by the various participating pharmaceutical manufacturers, taking
into consideration, among other things, the quality and price of the drug product and the service and reputation of the manufacturer. Only
drug products that have been selected in the collective tender processes may be purchased by participating hospitals.
“4+7” Volume-based Drug Procurement and Tenders. In June 2018, the State Council decided to launch a new round of drug
pricing and procurement reform. The reform policy aims to lower drug costs for patients, reduce transaction costs for enterprises, regulate
drug use of hospitals, and improve the centralized drug procurement and pricing system. This reform is implemented mainly by the NHSA.
The NHC supports the reform by introducing policy that encourages purchasing and prescribing of the selected drug. The NMPA is
responsible for the quality assurance of the drugs submitted for tenders.
The national pilot scheme for centralized volume-based drug procurement and tenders under the reform was launched in
November 2018. The selected drugs must pass the GQCE on quality and effectiveness.
The centralized volume-based procurement is open to all approved enterprises that manufacture drugs on the government-set
procurement list in China. The NHSA organized four rounds of volume-based procurement and tenders to this date. On February 3, 2021,
the results of the fourth round of the volume-based procurement and tender were announced. All of the 45 listed products were successfully
qualified to enter into a supply agreement with the group procurement organization and the average price reduction was 52%.
COMPETITION
Competition in the pharmaceutical, biotechnology and biopharmaceutical industries is intense and based significantly on scientific
and technological factors, the availability of patent and other protection for technology and products, the ability and length of time required
to obtain governmental approval for testing, manufacturing and marketing and the ability to commercialize products in a timely fashion.
Moreover, the biopharmaceutical industry is characterized by rapidly evolving technology that could result in the technological
obsolescence of any products that we develop.
We compete with many specialized biopharmaceutical firms, as well as a growing number of large pharmaceutical companies that
are applying biotechnology to their operations. It is probable that the number of companies seeking to develop products and therapies for
the treatment of unmet needs in oncology will increase. Many biopharmaceutical companies have focused their development efforts in the
human therapeutics area, including oncology and inflammation, and many major pharmaceutical companies have developed or acquired
internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well
as academic institutions, governmental agencies and private research organizations, also compete with us in recruiting and retaining highly
qualified scientific personnel and consultants.
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.
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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 currently consists of 144 employees, of which 144 are full-time employees, the majority of whom are located in
China. 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. In 2012, under new leadership, we refocused our clinical and regulatory
strategy to leverage resources in China and implemented a name change in 2014 to “CASI Pharmaceuticals, Inc.” Our offices are located at
9620 Medical Center Drive, Suite 300, Rockville, Maryland 20850, and our telephone number is (240) 864-2600. Our wholly-owned
subsidiary, CASI China, is headquartered in Beijing, China and CASI Wuxi is headquartered in Wuxi, China. We conduct substantially all
of our China commercial, regulatory and related operations through CASI China and our operations in Wuxi through CASI Wuxi. CASI
China’s headquarters are located at 1701-1702, China Central Office Tower 1, No.81 Jianguo Road, Chaoyang District, Beijing, 100025
China.
We also lease office and laboratory space from a related party at 425 Eccles Avenue South San Francisco, CA 94080. In 2020, we
leased office space in Shanghai, China to accommodate our growing staff in that region. Our address in Shanghai is No. 2904, Shengbang
International, North Sichuan Road, Hongkou District, Shanghai, China.
Management decisions are primarily being made out of CASI China where our executive team spends a substantial amount of
time.
CHINA OPERATIONS
In August 2012, we established a wholly-owned China-based subsidiary and an office in Beijing. In November 2018, in
conjunction with the Wuxi local government, we established CASI Wuxi in Huishan District Wuxi, as a holding company for CASI’s R&D
center, distribution center and manufacturing facilities. CASI Wuxi has a lease on industrial land, for 7.33 hectare. In December 2018,
CASI Wuxi established a new subsidiary named “CASI Wuxi Biopharmaceuticals (WUXI) Co., Ltd.,” as an investment platform for
Chinese pharmaceutical asset acquisition or cooperation. In December 2020, CASI China established a new branch in Shanghai and rented
an office.
We have about 130 FTEs in China. Over 80 employees are dedicated to commercial operations, which mainly account for
EVOMELA’s sales and marketing activities. The clinical and regulatory team has 15 FTEs, who oversee local preclinical and clinical
operations, and NMPA regulatory activities. The Wuxi R&D and manufacturing center has 12 employees at the current stage, and the team
size will expand according to the progress of the facility’s construction.
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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. 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.
Investing in our securities involves a high degree of risk and uncertainty. Before making an investment decision, you should
carefully consider the risks described below, and all other information contained or incorporated by reference in our filings with the SEC.
We expect to update these Risk Factors from time to time in the periodic and current reports that we file with the SEC. Please refer to these
subsequent reports for additional information relating to the risks associated with investing in our common stock. If any of such risks and
uncertainties actually occurs, our business, financial condition, and results of operations could be severely harmed. This could cause the
trading price of our common stock to decline, and you could lose all or part of your investment.
Risk Factors Summary
Risks Relating to our Financial Position and Need for Additional Capital
● Our business has been and may continue to be adversely affected by the COVID-19 pandemic.
● We anticipate that we will continue to incur operating losses and we may never achieve or maintain profitability.
● Our common stock could be delisted from the Nasdaq Capital Market.
● Market conditions may adversely affect our access to capital, cost of capital, and ability to execute our business plan.
● We have limited revenue streams and we are uncertain whether additional funding will be available for our future capital needs
and commitments.
● We are currently ineligible to use registration statements on Form S-3, which may impair our ability to raise capital.
Risks Related to Doing Business in China
● We conduct a majority of our operations in China and are subject to certain laws of the United States and China. Changes in
international trade and economic policy by the U.S. and Chinese governments, and changes in China’s economic, political or
social conditions or government policies, could have a material adverse effect on our business and operations.
● The China government exerts substantial influence over the manner in which we must conduct our business activities.
● Uncertainties with respect to the China legal system may limit legal protections available to us.
● The commercial success of EVOMELA (Melphalan for Injection) in China may be slow or limited for a variety of reasons.
● The success of our CASI Wuxi is subject to uncertainty and may reduce our earnings, be difficult to accomplish, take longer than
expected or require us to obtain additional financing.
Risks Relating to Our Auditors
● The audit report is prepared by auditors who are not currently inspected by the PCAOB. Legislative and regulatory developments
related to U.S.-listed China based companies due to lack of PCAOB inspection may have a material adverse impact on our
common stock. We could be delisted if we are unable to meet the PCAOB inspection requirements in time.
Risks Relating to Our Business
● If we are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially harmed.
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● If we are unable to develop our sales, marketing and distribution capability, we will not be successful in commercializing product
candidates.
● We may need new collaborative partners to further develop and commercialize products, and if we enter into such arrangements,
we may lose control over the development and approval process.
● We do not control the clinical development of CNCT19 and rely exclusively on Juventas to plan and conduct clinical trials, seek
regulatory approvals, maintain CNCT19 regulatory applications, and secure sufficient funding for its operations.
● Juventas’ interests may differ from those of our stockholders.
● We may not be able to successfully identify and acquire new product candidates.
● We must show the safety and efficacy of our product candidates through clinical trials, the results of which are uncertain.
● Compliance with ongoing post-marketing obligations for our approved products may uncover new safety information that could
give rise to regulatory actions that could have an adverse impact on our business.
● Potential products may subject us to product liability for which insurance may not be available.
● We are subject to certain U.S. healthcare laws, regulation and enforcement. Current healthcare laws and regulations and future
legislative or regulatory reforms to the healthcare system may affect our ability to sell our products profitably.
● Cybersecurity incidents could impair our ability to conduct business effectively.
● If we are unable to obtain both adequate coverage and adequate reimbursement from third-party payers for our products, our
revenues and prospects for profitability will suffer.
● Our business depends substantially on the continuing efforts of our senior management, key employees and qualified personnel,
and our business operations may be adversely and negatively impacted if we lose their services.
● Certain of our directors and officers may have business interests that may conflict with our interests and those of our
stockholders.
Risks Relating to Our Intellectual Property
● We depend on patents and other proprietary rights, some of which are uncertain. If we are unable to protect our intellectual
property rights our business and competitive position would be harmed.
● Third parties may initiate legal proceedings alleging infringement of intellectual property rights, the outcome of which would be
uncertain and could harm our business.
● We have agreed not to develop or seek to commercialize any T-cell therapy product specifically binding to CD19.
Risks Relating to Our Reliance on Third Parties or Natural Disasters
● Independent clinical investigators and contract research organizations that we engage to conduct our clinical trials may not devote
sufficient time or attention to our clinical trials or be able to repeat their past success.
● We have no current manufacturing capacity and rely on limited suppliers for some of our products. The design and manufacture
of a manufacturing facility by CASI (Wuxi) may be delayed.
● We may be adversely affected by epidemic outbreaks, earthquakes, tornadoes, hurricanes or other natural disasters, and our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
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 largest holders of common stock may have different interests than our other stockholders.
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General Risk Factors
● We may engage in transactions that could negatively affect our financial condition and prospects.
● Subsequent resales of shares of our common stock in the public market may cause the price of our common stock to fall.
● Issuances of additional shares of our common stock may cause substantial dilution of existing stockholders.
Risks Relating to our Financial Position and Need for Additional Capital
Our business has been and may continue to be adversely affected by the COVID-19 pandemic.
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. Due to the evolving and
highly uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact
our business, results and financial condition. The impact will depend on many factors that are not known at this time. These include, among
others, the extent of harm to public health, the continued disruption to operations, and the impact of the global business and economic
environment on liquidity and the availability of capital.
As previously reported, we have experienced operational interruptions as a result of COVID-19, including the temporary
suspension of operations in China due to a Chinese government mandated quarantine protocol, including mandatory business closures,
social distancing measures, and various travel restrictions. Although our operations in China are beginning to normalize, there can be no
assurance that such operations will continue to do so or that there will not be a renewed outbreak of COVID-19 or other significant
contagious diseases in China or elsewhere. To the extent that such events occur, demand for our products may decline, and the Chinese
government or other governments may impose additional restrictions resulting in further shutdowns, further work restrictions, and the
disruption of our supply and distribution channels.
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, the economies and financial markets of
many countries, which may result in a period of regional, national, and global economic slowdown or regional, national, or global
recessions that could affect our ability to continue to commercialize and expand distribution of EVOMELA (Melphalan For Injection) or
other drugs in our existing product pipeline. The effectiveness of our sales teams may be negatively impacted by the lack of travel and their
reduced ability to engage with decision-makers. In the first quarter 2020, during which the peak of the pandemic occurred in China, we
experienced some disruptions to our EVOMELA marketing and sales activities due to travel restrictions and the prioritization of hospitals
and physicians to attend to patients with COVID-19 infection. During the second half of 2020, operations have returned to expected levels;
however, there can be no assurance that restrictions will not be imposed again. In addition, economic and other uncertainties may adversely
affect other parties’ willingness to negotiate and execute product licenses and thus hamper our ability to in-license clinical-stage and late-
stage drug candidates in China or elsewhere.
We currently rely on a single source for our supply of EVOMELA. Due to COVID-19 we experienced a disruption to our supply
chain for EVOMELA. That disruption, along with a recent change in the manufacturer of EVOMELA, contributed to a decrease in our
revenue for the second quarter of 2020. We have returned to expected levels of sales as indicated by the increase in sales in the third quarter
and fourth quarter of 2020. If suppliers refuse or are unable to provide products for any reason (including the occurrence of an event like
the COVID-19 pandemic that makes delivery impractical), we would be required to negotiate an agreement with a substitute supplier,
which would likely interrupt further manufacturing of EVOMELA, cause delays or increase our costs.
Clinical trials, whether planned or ongoing, may be affected by the COVID-19 pandemic. Our partner, Juventas, experienced
some delay in the start of the CNCT19 clinical trials due to the COVID-19 pandemic. The COVID-19 pandemic has also impacted our
targeted start time of our CID-103 trial due to the lock-down of many medical facilities in Europe. Study procedures (particularly any
procedures that may be deemed non-essential), site initiation, participant recruitment and enrollment, participant dosing, shipment of our
product candidates, distribution of clinical trial materials, study monitoring, site inspections and data analysis may be paused or delayed
due to changes in hospital or research institution policies, federal, state or local regulations, prioritization of hospital and other medical
resources toward COVID-19 efforts, or other reasons related to the pandemic. In addition, there could be a potential effect of COVID-19
on the operations of the health regulatory authorities, which could result in delays of reviews and approvals, including with respect to our
product candidates. Any prolongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions
could materially affect the development and study of our product candidates.
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We have incurred significant operating losses since inception and anticipate that we will continue to incur operating losses for the
foreseeable future and may never achieve or maintain profitability.
To date, we have been engaged primarily in research and development activities. Previously, we have not derived significant
revenues from operations; however, in the years ended December 31, 2020 and 2019, we had sales totaling $15.0 million and 4.1 million,
respectively
We have experienced losses in each year since inception. Through December 31, 2020, we had an accumulated deficit of $570.5
million. We expect that 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, our capital-raising efforts may not produce 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 preclinical, clinical, marketing and corporate activities will result in operating losses for the
foreseeable future. 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. To become and
remain profitable, we must successfully commercialize one or more product candidates with significant market potential. This will require
us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, developing
commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any current and future
product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We may never succeed
in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability.
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. In the past, we have received written notices from Nasdaq for failing to maintain a minimum bid price of not less than $1.00 per
share and a minimum of $2.5 million in stockholders’ equity. Although we have regained compliance with Nasdaq’s continued listing
standards, there can be no assurance that we will remain in compliance in the future.
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.
The current capital and credit market conditions may adversely affect our access to capital, cost of capital, and ability to execute our
business plan as scheduled.
Access to capital markets is critical to our ability to operate. Traditionally, we have funded our operations by raising capital in the
equity markets. Declines and uncertainties in these markets over the past few years have restricted raising new capital in amounts sufficient
to conduct our current operations and have affected our ability to continue to expand or fund additional development efforts. We require
significant capital for research and development for our product candidates, clinical trials, and marketing activities. 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 have limited 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 the development and
commercialization of our products and product candidates.
We will require substantial funds in addition to our existing working capital to develop and commercialize our products and
product candidates and to otherwise meet our business objectives. We have never generated sufficient revenue during any period since
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our inception to cover our expenses and have spent, and expect to continue to spend, substantial funds to continue our clinical development
programs and commercialization of our products and product candidates. 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 and expansion of marketing and sales capabilities;
● manufacturing;
● the regulatory approval process; or
● product launch and distribution.
At December 31, 2020, we had cash and cash equivalents of $57.1 million. We may continue to seek additional capital through
public or private financing or collaborative agreements in 2021 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. 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 and materially
adversely affect our future growth, results of operations and financial results. There can be no assurance that we would be able to obtain
any required financing on a timely basis or at all.
Absent relief, as a result of our failure to timely file a periodic report with the SEC, we are currently ineligible to continue to use or file
short form shelf registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely
manner or at all.
Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to
incorporate by reference its past and future filings and reports made under the Exchange Act of 1934, as amended (the “Exchange Act”). In
addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”). The shelf registration process, combined with the ability to forward incorporate information, allows issuers
to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than
raising capital in a standard registered offering pursuant to a registration statement on Form S-3. The ability to newly register securities for
resale may also be limited as a result of the loss of Form S-3 eligibility with respect to such registrations.
As a result of our failure to timely file a periodic report with the SEC in connection with the adoption of our amended and restated
bylaws, absent a waiver of the Form S-3 eligibility requirements, we are ineligible to use or file new short form registration statements on
Form S-3 until October 1, 2021. In the event of the absence of a waiver, our inability to use or file new registration statements on Form S-3
may significantly impair our ability to raise necessary capital to run our operations and progress our clinical and product development
programs. If we seek to access the capital markets through a registered offering during the period of time that we are unable to file a new
registration statement on Form S-1, we may be required to publicly disclose a proposed offering and the material terms thereof before the
offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement, and we
may incur increased offering and transaction costs and other considerations. Disclosing a public offering prior to the formal
commencement of an offering may result in downward pressure on our stock price. If we are unable to raise capital through a registered
offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing,
size and other limitations imposed under Nasdaq rules, or seek other sources of capital. In addition, we will not be permitted to conduct an
“at the market offering” absent an effective primary registration statement on Form S-3.
Absent a waiver of the Form S-3 eligibility requirements and assuming we continue to timely file our required Exchange Act
reports, the earliest we would regain the ability to use or file a new registration statement on Form S-3 is October 1, 2021. In the interim,
however, we may raise capital pursuant to a registration statement on Form S-1 or on a private placement basis.
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Risks Related to Doing Business in China
We conduct a majority of our operations in China, which exposes us to risks associated with operating outside of the U.S. Changes in
international trade and economic policy by the U.S. and Chinese governments could have a material adverse effect on our business and
operations.
We have operations and conduct business in China, and we plan to continue to expand these operations. Therefore, we are subject
to risks related to operating in foreign countries, which include unfamiliar foreign laws or regulatory requirements or unexpected changes
to those laws or requirements; other laws and regulatory requirements to which our business activities abroad are subject, such as the
Foreign Corrupt Practices Act; changes in the political or economic condition of a specific country or region; fluctuations in the value of
foreign currency versus the U.S. dollar; our ability to deploy overseas funds in an efficient manner; tariffs, trade protection measures,
import or export licensing requirements, trade embargoes, and sanctions (including those administered by the Office of Foreign Assets
Control of the U.S. Department of the Treasury), and other trade barriers; difficulties in attracting and retaining qualified personnel; and
cultural differences in the conduct of business. There is currently significant uncertainty about the future relationship between the U.S. and
various other countries, including China, with respect to trade policies, treaties, government regulations and tariffs. Any of the foregoing
could harm our business and we cannot anticipate all of the ways in which the current political climate could adversely impact our
business.
Governmental control of currency conversion and payments of RMB out of mainland China may limit our ability to utilize our cash
balances effectively and affect the value of your investment.
Our China subsidiaries have cash and cash equivalents of 158.7 million China Renminbi (“RMB”), valued at $24.3 million in U.S.
dollars as of December 31, 2020. On a consolidated basis this balance accounts for 43% of our total cash and cash equivalents. The
Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of RMB
out of mainland China. Control on payments out of mainland China may restrict the ability of our China subsidiaries to remit RMB to us.
Approval from China’s State Administration of Foreign Exchange (“SAFE”) and the People’s Bank of China (“PBOC”) may be required
where RMB are to be converted into foreign currencies, including U.S. dollars, and approval from SAFE and the PBOC or their branches
may be required where RMB are to be remitted out of mainland China. Specifically, under the existing restrictions, without prior approval
from SAFE and the PBOC, the cash balance of our China subsidiaries is not available to us for activities outside of China, including the
support of our in-licensing efforts. Furthermore, because repatriation of funds requires the prior approval of SAFE and the PBOC, such
repatriation could be delayed, restricted or limited.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business
and operations.
Chinese society and the Chinese economy continue to undergo significant change. Adverse changes in the political and economic
policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could adversely
affect our ability to conduct business in China. The Chinese government continues to adjust economic policies to promote economic
growth. Some of these measures benefit the overall Chinese economy but may also have a negative effect on us. For example, our financial
condition and results of operations in China may be adversely affected by government control over capital investments or changes in tax
regulations. As the Chinese pharmaceutical industry grows and evolves, the Chinese government may also implement measures to change
the structure of foreign investment in this industry. We are unable to predict the frequency and scope of such policy changes, any of which
could materially and adversely affect our liquidity, access to capital and its ability to conduct business in China. Any failure on our part to
comply with changing government regulations and policies could result in the loss of our ability to develop and commercialize our product
candidates in China.
The China government exerts substantial influence over the manner in which we must conduct our business activities.
The China government has exercised and continues to exercise substantial control over virtually every sector of the Chinese
economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations,
including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property, healthcare regulations,
and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations
of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or
interpretations.
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Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to
return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a
significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we
then hold in Chinese properties, subsidiaries, or joint ventures.
Uncertainties with respect to the China legal system may limit legal protections available to us and could have a material adverse effect
on us.
The legal system of China is a civil law system primarily based on written statutes. Unlike in a common law system, prior court
decisions may be cited for reference but are not binding. Because the China legal system continues to rapidly evolve, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which
may limit legal protections available to us. Moreover, decision makers in the China judicial system have significant discretion in
interpreting and implementing statutory and contractual terms, which may render it difficult for us to enforce the contracts entered into with
our business partners, customers and suppliers. Different government departments may have different interpretations of certain laws and
regulations, and licenses and permits issued or granted by one government authority may be revoked by a higher government authority at a
later time. Navigating the uncertainty and the evolution of change in the China legal system will require the devotion of significant
resources and time, and there can be no assurance that our contractual and other rights will ultimately be enforced.
We are subject to the Foreign Corrupt Practice Act and China laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties for the purpose of obtaining or retaining business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of
payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the
purpose of obtaining or retaining business. We have agreements with third parties and most of our operations are in China. China also
strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by
our employees, consultants, sales agents, manufacturers and distributors, even though they may not always be subject to our control.
Although it is our policy to implement safeguards to discourage these practices by our employees, our existing safeguards and any future
improvements may prove to be less than effective, and our employees, consultants, sales agents, or distributors may engage in conduct for
which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
In addition, the U.S. government may seek to hold us liable for successor liability of FCPA violations committed by companies in which
we may invest or acquire in the future.
We are subject to the Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.
Under the PRC Enterprise Income Tax Law and its implementing rules, both of which came into effect on January 1, 2008,
enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be
considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their
global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control
over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the
Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the
basis of de facto management bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining
whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular
82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the
determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto
management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are
controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at
the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global
income being taxed under the Enterprise Income Tax Law. Although we believe that none of our entities outside of China should be
considered a PRC resident enterprise for PRC tax purposes. the tax resident status of an enterprise is subject to determination by the PRC
tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
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China regulations relating to investments in offshore companies by China residents may subject our China-resident stockholders,
beneficial owners or our China subsidiaries to liability or penalties, limit our ability to inject capital into our China subsidiaries or limit
our China subsidiaries’ ability to increase their registered capital or distribute profits to us.
The State Administration of Foreign Exchange, or SAFE, promulgated the Circular on Relevant Issues Concerning Foreign
Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose
Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated
by SAFE on October 21, 2005. SAFE Circular 37 requires China residents to register with local branches of SAFE in connection with their
direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such China
residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as
a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with
respect to the special purpose vehicle, such as increase or decrease of capital contributed by China individuals, share transfer or exchange,
merger, division or other material event. In the event that a China shareholder holding interests in a special purpose vehicle fails to fulfill
the required SAFE registration, the China subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to
the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be
restricted in its ability to contribute additional capital into its China subsidiary. Moreover, failure to comply with the various SAFE
registration requirements described above could result in liability under China law for evasion of foreign exchange controls. According to
the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on
February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including
the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.
According to SAFE Circular 37, our stockholders or beneficial owners, who are China residents, are subject to SAFE Circular 37
or other foreign exchange administrative regulations in respect of their investment in our company. We may not be aware of the identities
of all of our stockholders or beneficial owners who are China residents, and we do not know whether they are aware of SAFE Circular 37.
We do not have control over our stockholders or beneficial owners and there can be no assurance that all of our China-resident stockholders
or beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules, and there is no assurance that the
registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of
our stockholders or beneficial owners who are China residents to register or amend their foreign exchange registrations in a timely manner
pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future stockholders or beneficial owners who are
China residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject
such stockholders or beneficial owners or our China subsidiaries to fines and legal sanctions. Failure to register or comply with relevant
requirements may also limit our ability to contribute additional capital to our China subsidiaries and limit our China subsidiaries’ ability to
distribute dividends to us. Because a majority of our operating activities take place in and our strategic focus is on China, any such
limitations would have a material adverse effect on our business, financial condition and results of operations.
We may be subject to fines and legal sanctions by SAFE or other China government authorities if we or our employees who are China
citizens fail to comply with regulations relating to employee stock options granted by companies listed on exchanges outside of China to
China citizens.
On February 15, 2012, SAFE promulgated the Circular on Relevant Issues Concerning the Foreign Exchange Administration for
Domestic Individuals’ Participating in the Share Incentive Plans of Overseas-Listed Companies, or SAFE Circular 7, replacing earlier
rules promulgated in 2007. Under SAFE Circular 7, China resident individuals who participate in a share incentive plan of a company that
is listed on an overseas exchange are required to register with SAFE and complete certain other procedures. All participants to a plan need
to retain a China agent through Chinese subsidiaries of the overseas listed company to handle foreign exchange registration, account
opening, funds transfer and remittance and other related matters. An overseas agent should also be designated to handle matters in
connection with the exercise or sale of share awards and proceeds transferring for the share incentive plan participants. We believe that our
share incentive plans for our China resident employees are in compliance with SAFE Circular 7; however, any failure to comply with these
or similar regulations in the future may subject us or our Chinese employees to fines and legal sanctions imposed by SAFE or other
government authorities and may prevent us from further granting options under our share incentive plans to our employees. Such events
could adversely affect our business operations.
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We may not be able to commercialize our drugs or drug candidates in China without obtaining regulatory approval from NMPA.
We have exclusive licenses to develop and commercialize EVOMELA in greater China, which was launched in China in
August 2019, and a pipeline that includes (i) global rights to an autologous CD19 CAR-T investigative product (CNCT19) being developed
as a treatment for patients with B-ALL and B-NHL; (ii) global rights to CID-103, an anti-CD38 monoclonal antibody being developed for
the treatment of patients with multiple myeloma; (iii) greater China rights to two U.S. Food and Drug Administration (FDA)-approved
hematology oncology drugs, consisting of ZEVALIN and MARQIBO; (iv) China rights to an octreotide long acting injectable (LAI)
microsphere formulation indicated for the treatment of certain symptoms associated with particular neuroendocrine cancers and
acromegaly, and (v) to a novel formulation of thiotepa, which has multiple indications and a long history of established use in the
hematology/oncology. Our commercial focus is primarily China; however, the majority of our drug candidates are still in clinical
development in China.
The commercial success of EVOMELA (Melphalan for Injection) in China may be slow or limited for a variety of reasons.
On December 3, 2018, we received the NMPA approval for importation, marketing and sales in China for EVOMELA, and on
August 12, 2019, we announced the commercial launch of EVOMELA in China. We will continue to spend our time, resources and efforts
on the commercialization of EVOMELA in China; however, there are no guarantees that we will successfully commercialize EVOMELA
in China.
Reimbursement and hospital listing may be the most critical market access factors for our commercialization success in China.
There is no regular update schedule for the National Reimbursement Drug List (“NRDL”). The China government recently announced the
latest NRDL on August 20, 2019. Provincial governments have some discretion to add EVOMELA to provincial reimbursement drug lists.
With or without being listed on the NRDL, we can apply for inclusion in the provincial reimbursement drug lists of selected provinces.
Until EVOMELA is listed in the NRDL or the majority of provincial reimbursement drug lists, our market will be extremely limited given
only a small portion of the Chinese population would be able to afford EVOMELA through self-pay.
Even when EVOMELA has been included in a government hospital formulary, the NRDL or the provincial reimbursement drug
lists, we need to win tenders during the collective tender process in order to supply the drug to state-owned or state-controlled hospitals. If
we are unable to win purchase contracts through the collective tender processes in which we decide to participate, there will be limited
demand for EVOMELA, and sales revenues from EVOMELA will be materially and adversely affected. In addition, we need to ensure that
EVOMELA has been quickly added to hospitals’ formulary. If we were unable to quickly add EVOMELA to hospitals’ formulary, doctors
and patients will not have access to EVOMELA through hospital pharmacies.
The restructuring of the Chinese drug regulatory authorities may delay approval of our products or drug candidates in China.
On March 17, 2018, China’s highest legislative body, the National People’s Congress, approved a sweeping government
restructuring plan. This is generally considered to be the most comprehensive government restructuring that China has undertaken since its
“Open Door” policy in the late 1970s. As part of the new plan, China has established the State Administration for Market Regulation
(“SAMR”), which merges and undertakes the responsibilities previously held by the China Food and Drug Administration, the State
Administration for Industry and Commerce (SAIC), General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ),
the Certification and Accreditation Administration (CAC), and the Standardization Administration of China (SAC). The central
government has completed the restructuring at the state level, but municipal and county-level restructuring are still ongoing.
The new NMPA reports to the SAMR, is responsible for the review and approval of drugs, medical devices and cosmetics, and
maintains its own branches at the provincial level and leave the post-approval enforcement authorities at the local level to the consolidated
SAMR branches.
Although the NMPA is fully functional as of 2018, the reorganization will continue at the provincial and local levels into 2021.
This massive restructuring exercise could result in the delay of key decision-making in various sectors, including the pharmaceutical and
medical device industry. In addition, there could be delays in the NMPA’s implementation of the new reform initiatives and disruption in
the NMPA’s routine operations due to personnel reshuffling.
In addition, the recently created National Healthcare Security Administration (“NHSA”), an agency responsible for administering
China’s social security system, organized a price negotiation with drug companies for 18 oncology drugs in October 2018, which resulted
in a price reduction by over 50%. The NHSA included 17 of the 18 oncology drugs on the NRDL after the price negotiation. We may also
be invited to attend the price negotiation with NHSA upon receiving regulatory approval in China, but we will
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likely need to significantly reduce our prices, and to negotiate with each of the provincial healthcare security administrations on
reimbursement ratios. If we were to successfully launch commercial sales of EVOMELA, our revenue from such sales is largely expected
to be self-paid by patients, which may make our drug candidates less desirable. Even if the NHSA or any of its local counterparts include
EVOMELA in the NRDL or provincial Reimbursement Drug List, which may increase the demand for our drug candidates, our potential
revenue from the sales of our drug candidates may still decrease as a result of lower prices.
The retail prices of any product candidates that we develop may be subject to control, including periodic downward adjustment, by
Chinese government authorities.
The price for pharmaceutical products is highly regulated in China, both at the national and provincial level. Price controls may
reduce prices to levels significantly below those that would prevail in less regulated markets or limit the volume of products that may be
sold, either of which may have a material and adverse effect on potential revenues from sales of our drug products in China. Moreover, the
process and timing for the implementation of price restrictions is unpredictable, which may cause potential revenues from the sales of our
drug product to fluctuate from period to period.
The existence of counterfeit pharmaceutical products in pharmaceutical markets may compromise our brand and reputation and have
a material adverse effect on our business, operations and prospects.
Counterfeit products, including counterfeit pharmaceutical products, are a significant problem, particularly in China. Counterfeit
pharmaceuticals are products sold or used for research under the same or similar names, or similar mechanism of action or product class,
but which are sold without proper licenses or approvals. Such products may be used for indications or purposes that are not recommended
or approved or for which there is no data or inadequate data with regard to safety or efficacy. Such products divert sales from genuine
products, often are of lower cost, often are of lower quality (having different ingredients or formulations, for example), and have the
potential to damage the reputation for quality and effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold or used
for research result in adverse events or side effects to consumers, we may be associated with any negative publicity resulting from such
incidents. Consumers may buy counterfeit pharmaceuticals that are in direct competition with our pharmaceuticals, which could have an
adverse impact on our revenues, business and results of operations. In addition, the use of counterfeit products could be used in non-clinical
or clinical studies, or could otherwise produce undesirable side effects or adverse events that may be attributed to our products as well,
which could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the delay or denial of regulatory
approval by the FDA or other regulatory authorities and potential product liability claims. With respect to China, although the government
has recently been increasingly active in policing counterfeit pharmaceuticals, there is not yet an effective counterfeit pharmaceutical
regulation control and enforcement system in China. As a result, we may not be able to prevent third parties from selling or purporting to
sell our products in China. The proliferation of counterfeit pharmaceuticals has grown in recent years and may continue to grow in the
future. The existence of and any increase in the sales and production of counterfeit pharmaceuticals, or the technological capabilities of
counterfeiters, could negatively impact our revenues, brand reputation, business and results of operations.
The success of CASI Wuxi is subject to uncertainty and may reduce our earnings, be difficult to accomplish, take longer than expected
or require us to obtain additional financing.
We intend to invest $80 million in CASI Pharmaceuticals (Wuxi) Co., Ltd, that is building a manufacturing facility in the Wuxi
Huishan Economic Development Zone in Jiangsu Province, China with an expected completion date in 2023. Since the construction
began, we have incurred capital expenditures of $1.1 million. CASI Wuxi will also operate the facility upon completion. As of
December 31, 2020, we have invested $21 million in cash, transferred selected ANDAs valued at $30 million and will invest an additional
$29 million in cash in the future. The Company’s total investment is intended to account for 80% of the equity of the CASI Wuxi. CASI
Wuxi may not achieve the expected goal as the planned manufacturing facility will not be entirely within our control. It can take years to
build and establish a new manufacturing facility. Once built, the new facility might fail validation or not meet regulatory standards for a
commercial manufacturing facility. In addition, we may not obtain or retain the requisite legal permits to manufacture in China, and costs
or operational limitations may be imposed in connection with obtaining and complying with such permits. Our ability to establish and
operate a manufacturing facility 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. The success of CASI Wuxi also relies on our ability to make additional payments in the future, which is uncertain. Our
plan may require us to obtain additional debt or equity financing, resulting in additional debt obligations, increased interest expense or
dilution of equity ownership. If we are unable to establish a new manufacturing facility, purchase equipment, hire adequate personnel to
support our manufacturing efforts or implement necessary process improvements, we may be unable to produce commercial materials or
meet demand, if any should develop, for our product candidates. Any one of the factors cited
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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.
Risks Relating to Our Auditors
The audit report included in this Annual Report on Form 10-K are prepared by auditors who are not currently inspected by the PCAOB
and, as such, our stockholders are deprived of the benefits of such inspection. In addition, various legislative and regulatory
developments related to U.S.-listed China based companies due to lack of PCAOB inspection and other developments due to political
tensions between the United States and China may have a material adverse impact on our listing and trading in the United States and
the trading prices of our shares of common stock
Our auditor, the independent registered public accounting firm that issued the audit report included in this Annual Report on
Form 10-K, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company
Accounting Oversight Board (“PCAOB”), is subject to laws in the United States pursuant to which the PCAOB conducts regular
inspections to assess its compliance with applicable professional standards. Our auditor is located in, and organized under the laws of, the
PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities.
On April 21, 2020, the SEC and the PCAOB released a joint statement highlighting the risks associated with investing in
companies based in or having substantial operations in emerging markets including China. The joint statement emphasized the risks
associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging
markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies
primarily operating in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of
directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on
the qualifications of the company’s auditor.
On December 18, 2020, the President signed the “Holding Foreign Companies Accountable Act” into law. This legislation
requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must
make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm
not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer's public accounting firm for three
consecutive years, the issuer's securities are banned from trading on a national exchange or through other methods.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control
procedures of the auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability
of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firm’s
audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which
could cause investors and potential investors in our common stock to lose confidence in our audit procedures and reported financial
information and the quality of our financial statements.
We could be delisted if we are unable to meet the PCAOB inspection requirements in time.
The Holding Foreign Companies Accountable Act requires the SEC to prohibit securities of any foreign companies from being
listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by
the PCAOB for three consecutive years, beginning in 2021. Our independent registered public accounting firm is located in and organized
under the laws of the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese
authorities, and therefore our auditors are not currently inspected by the PCAOB.
The enactment of the Holding Foreign Companies Accountable Act and any additional rulemaking efforts to increase U.S.
regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market
price of our shares of common stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct
inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of
our control. If we are unable to meet the PCAOB inspection requirement in time, we could be delisted from the Nasdaq Capital Market and
our shares of common stock will not be permitted for trading "over-the-counter" market. Such a delisting would substantially impair your
ability to sell or purchase our shares of common stock when you wish to do so, and the risk and uncertainty
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associated with delisting would have a negative impact on the price of our shares. Also, such a delisting would significantly affect our
ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition
and prospects.
Risks Relating to Our Business
The regulatory approval process of the regulatory authorities in the U.S. and China are lengthy, time-consuming and inherently
unpredictable. If we are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially
harmed.
The time required to obtain approval by FDA and NMPA is unpredictable and typically takes many years following the
commencement of preclinical studies and clinical trials and depends on numerous factors, including the substantial discretion of the
regulatory authorities.
Our drug candidates could be delayed or fail to receive regulatory approval for many reasons, including:
● failure to begin or complete clinical trials due to disagreements with regulatory authorities;
● delays in subject enrollment or interruptions in clinical trial supplies or investigational product;
● failure to demonstrate that a drug candidate is safe and effective or that a biologic candidate is safe, pure, and potent for its
proposed indication;
● failure of clinical trial results to meet the level of statistical significance required for approval;
● reporting or data integrity issues related to our clinical trials;
● disagreement with our interpretation of data from preclinical studies or clinical trials;
● changes in approval policies or regulations that render our preclinical and clinical data insufficient for approval or require us to
amend our clinical trial protocols;
● regulatory requests for additional analyses, reports, data, nonclinical studies and clinical trials, or questions regarding
interpretations of data and results and the emergence of new information regarding our drug or biologic candidates or other
products;
● failure to satisfy regulatory conditions regarding endpoints, patient population, available therapies and other requirements for our
clinical trials in order to support marketing approval on an accelerated basis or at all;
● our failure to conduct a clinical trial in accordance with regulatory requirements or our clinical trial protocols; and
● clinical sites, investigators or other participants in our clinical trials deviating from a trial protocol, failing to conduct the trial in
accordance with regulatory requirements, or dropping out of a trial.
The FDA, NMPA or a comparable regulatory authority may require more information, including additional preclinical, chemistry,
manufacturing and controls, and/or clinical data, to support approval, which may delay or prevent approval and our commercialization
plans, or we may decide to abandon the development program.
Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols submitted to
applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics
committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial.
If we experience delays in the completion of, or the termination of, a clinical trial of any of our product candidates, the
commercial prospects of that candidate may be harmed, and our ability to generate product sales revenues from any of those candidates
may be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our candidate development and
approval process, and jeopardize our ability to commence product sales and generate related revenues for that candidate. Any of
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these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or
lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our
product candidates.
Our success in commercializing these drugs and biologics may be inhibited by a number of factors, including:
● our inability to obtain/maintain 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;
● our lack of experience in manufacturing drugs for commercial sales;
● our or our partners’ inability to secure widespread acceptance of our products from physicians, healthcare payors, patients and the
medical community;
● our ability to win tenders through the collective tender processes in which we decide to participate;
● 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;
● unforeseen costs and expenses associated with creating an independent sales and marketing organization;
● generic and biosimilar competition; and
● regulatory exclusivities or patents held by competitors that may inhibit our products’ entry to the market.
If we decide to rely on third parties to manufacture, sell, market and distribute our products and 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.
We are currently building our sales and distribution infrastructure. If we are unable to develop our sales, marketing and distribution
capability on our own or through collaborations with marketing partners, we will not be successful in commercializing EVOMELA or
any other product candidates.
We are in the process of building our sales and marketing team with technical expertise and supporting distribution capabilities to
successfully commercialize EVOMELA and our other product candidates. We may not be able to hire a sales force in China that is large
enough or has adequate expertise in the medical markets that we intend to target. Any failure or delay in the development of our sales,
marketing capabilities, distribution capabilities or external infrastructure would adversely impact the commercialization of EVOMELA and
other product candidates.
We have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for
any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. We will
need to commit significant time and financial and managerial resources to maintain and further develop our marketing and sales force to
ensure they have the technical expertise required to address any challenges we may face with the commercialization of EVOMELA and
future products.
Factors that may inhibit our efforts to maintain and develop our commercialization capabilities include:
● our ability to retain an adequate number of effective commercial personnel in the medical markets we intend to target;
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● our ability to train sales personnel, who may have limited experience with our Company or EVOMELA, to deliver a consistent
message regarding the medicine and be effective in convincing physicians to prescribe it;
● a 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 maintaining and further developing an independent sales and marketing
organization.
If we are not successful in establishing and maintaining an effective sale and marketing infrastructure and a distribution network,
we will have difficulty commercializing EVOMELA and our future product revenue will suffer, which would adversely affect our business
and financial condition. If we decide to enter into arrangements with third parties to perform sales, marketing and other services, our
product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products
that we develop ourselves. In addition, 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 are not successful in commercializing any approved
products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may
incur significant additional losses.
We may need new collaborative partners to further develop and commercialize products, and if we enter into such arrangements, we
may lose control over the development and approval process.
We may 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 may 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 product candidates.
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 do not control the clinical development of CNCT19 and rely exclusively on Juventas to plan and conduct clinical trials, seek
regulatory approvals, and maintain CNCT19 regulatory applications.
Although we have worldwide rights to commercialize CNCT19 and participate in a joint steering committee with Juventas
regarding the development and commercialization of CNCT19, Juventas controls all clinical development activities, including those
relating to the design and timing of clinical trials and the strategies for seeking and maintaining regulatory approvals. Unless and until
Juventas obtains marketing approval for CNCT19, we will not be able to successfully commercialize this product candidate. In addition, if
Juventas were to suspend or cease clinical development of CNCT19, we do not have any recourse under the terms our commercial license
to seek specific performance or damages for Juventas’ action or inaction.
Juventas’ interests may differ from those of our stockholders.
Juventas’ management and board of directors owe duties to Juventas’ investors to seek to maximize the value of such investors’
investments in Juventas and do not owe duties to our stockholders. If Juventas’ current or new investors object to the terms of our
commercial license in order to increase value for its own shareholders, Juventas may attempt to renegotiate our commercial license or
obtain other concessions from us. Although the ultimate outcome of any such negotiations, including our response or willingness to amend
the terms of our agreement, are not yet known, such negotiations could delay the continued clinical development of CNCT19
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and our ability to commercialize this product candidate and could adversely affect the value of the license to us as well as our investment in
Juventas.
We are dependent on Juventas to secure sufficient funding for its operations so that it can conduct clinical trials and obtain marketing
approval of CNCT19 before we can commercialize and distribute a product.
We expect Juventas’ expenses to increase in parallel with its ongoing activities, particularly as it initiates and expands clinical
trials of, and seeks marketing approval for, CNCT19. Juventas has experienced cash shortages in the past and may do so again in the future.
As a result of such shortages, Juventas may be forced to delay, reduce, or eliminate its clinical development of CNCT19, which would
materially and adversely affect the value of our commercialization rights. In June 2020, through CASI Pharmaceuticals (Wuxi) Co., Ltd.
(“CASI Wuxi”), we agreed to loan Juventas, on an unsecured basis, RMB 30,000,000 ($4.2 million) to help Juventas continue its clinical
activities. In August 2020, we entered in a second one year loan with Juventas in the amount of RMB 40 million ($5.8 million. In
September 2020, we received early repayments for both principals and accrued interest from Juventas.
Juventas will need to raise additional funding for continuing operations which may not be available on acceptable terms, or at all.
Failure to obtain the necessary capital when needed, may force Juventas to delay, limit or terminate its product development efforts or other
operations.
We may not be able to successfully identify and acquire new product candidates.
Our growth strategy relies on our in-license of new product candidates from third parties. Our pipeline will be dependent upon the
availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions. Even if such opportunities
are present, we may not be able to successfully identify appropriate acquisition candidates. Moreover, other companies, many of which
may have substantially greater financial resources are competing with us for the right to acquire such product candidates.
If a product candidate is identified, the third parties with whom we seek to cooperate may not select us as a potential partner or we
may not be able to enter into arrangements on commercially reasonable terms or at all. Furthermore, the negotiation and completion of
collaborative and license arrangements could cause significant diversion of management’s time and resources and potential disruption of
our ongoing business.
We face significant competition from other biotechnology and pharmaceutical companies and our business will suffer if we fail to
compete effectively.
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.
In the generic products market, we face competition from other generic pharmaceutical companies, which may impact our selling
price and revenues from such products. The FDA approval process often results in the FDA granting final approval to a number of ANDAs
for a given product at the time a patent for a corresponding brand product or other market exclusivity expires. This may force us to face
immediate competition when we seek to introduce a generic product into the market. If competition from other generic pharmaceutical
companies intensifies, revenues may decline.
The availability of our competitors’ products could limit the demand, and the price we are able to charge, for product candidates
we develop. We will not achieve our business plan if the acceptance of our products is inhibited by price competition or reimbursement
issues or if physicians switch to other new drug products or choose to reserve our product candidates for use in limited circumstances. The
inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business,
financial condition and prospects.
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
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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.
Compliance with ongoing post-marketing obligations for our approved products may uncover new safety information that could give
rise to a product recall, updated warnings, or other regulatory actions that could have an adverse impact on our business.
After the FDA approves a drug or biologic for marketing, the product’s sponsor must comply with several post-marketing
obligations that continue until the product is discontinued. These post-marketing obligations include the reporting of adverse events to the
agency within specified timeframes, the submission of product-specific annual reports that include changes in the distribution,
manufacturing, and labeling information, and notification when a drug product is found to have significant deviations from its approved
manufacturing specifications (among others). Our ongoing compliance with these types of mandatory reporting requirements could result
in additional requests for information from the FDA and, depending on the scope of a potential product issue that the FDA may decide to
pursue, potentially also result in a request from the agency to conduct a product recall or to strengthen warnings and/or revise other label
information about the product. FDA may also require or request the withdrawal of the product from the market. Any of these post-
marketing regulatory actions could materially affect our sales and, therefore, have the potential to adversely affect our business, financial
condition, results of operations and cash flows.
Potential products may subject us to product liability for which insurance may not be available.
The use of our potential products in clinical trials and the marketing of any pharmaceutical products may expose us to product
liability claims. We have obtained a level of liability insurance coverage that we believe is adequate in scope and coverage for our current
stage of development. However, our present insurance coverage may not be adequate to protect us from liabilities we might incur. In
addition, our existing coverage will not be adequate as we further develop products and, in the future, adequate insurance coverage and
indemnification by collaborative partners may not be available in sufficient amounts or at a reasonable cost. If a product liability claim or
series of claims are brought against us for uninsured liabilities, or in excess of our insurance coverage, the payment of such liabilities could
have a negative effect on our business and financial condition.
We are subject to certain U.S. healthcare laws, regulation and enforcement; our failure to comply with those laws could have a material
adverse effect on our results of operations and financial condition.
We are subject to certain U.S. healthcare laws and regulations and enforcement by the federal government and the states in which
we conduct our business. The laws that may affect our ability to operate include, without limitation:
● the federal Anti-Kickback Statute (“AKS”), which governs our business activities, including our marketing practices, educational
programs, pricing policies, and relationships with healthcare providers or other entities. The AKS prohibits, among other things,
persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in
exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service
for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. Remuneration
has been broadly interpreted to include anything of value, including for example, gifts, discounts, coupons, the furnishing of
supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything
at less than its fair market value. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers,
purchasers and formulary managers, among others;
● the FFDCA, and its regulations which prohibit, among other things, the introduction or delivery for introduction into interstate
commerce of any food, drug, device, biologic, or cosmetic that is adulterated or misbranded;
● the PHSA, which prohibits, among other things, the introduction into interstate commerce of biological product unless a biologics
license is in effect for that product;
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● federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or
entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party
payers that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government;
● federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
● HIPAA and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of
individually identifiable health information;
● state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or
services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of
health information in certain circumstances, many of which differ from each other in significant ways and may not have the same
effect, thus complicating compliance efforts;
● federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities
that potentially harm consumers;
● federal and state government price reporting laws that require us to calculate and report complex pricing metrics to government
programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs
(participation in these programs and compliance with the applicable requirements may subject us to potentially significant
discounts on our products, increased infrastructure costs, and could potentially affect our ability to offer certain marketplace
discounts); and
● federal and state financial transparency laws, which generally require certain types of expenditures in the U.S. to be tracked and
reported (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed
properly, and some of these laws result in the public disclosure of various types of payments and relationships with healthcare
providers and healthcare entities, which could potentially have a negative effect on our business and/or increase enforcement
scrutiny of our activities).
In addition, certain marketing practices, including off-label promotion, may also violate certain federal and state healthcare fraud
and abuse laws, FDA rules and regulations, as well as false claims laws. If our operations are found to be in violation of any of the laws
described above or any other governmental regulations that apply to us, we, or our officers or employees, may be subject to penalties,
including administrative civil and criminal penalties, damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of
our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely
affect our ability to sell our products or operate our business and also adversely affect our financial results.
Cybersecurity incidents could impair our ability to conduct business effectively.
Cybersecurity incidents against us or against a third party that has authorized access to our data or networks, failure of our disaster
recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business,
negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our
electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data.
We depend heavily upon computer systems to perform necessary business functions. Our computer systems, networks, and data,
like those of other companies, could be subject to cyberattacks and unauthorized access, use, alteration, or destruction. If one or more of
these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted
through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result
in financial losses, litigation, regulatory penalties, reputational damage, and increased costs associated with mitigation of damages and
remediation. Third parties with which we do business may also be sources of cybersecurity or other technological risk.
The use of quarantines and social distancing restrictions to reduce the spread of COVID-19, including employees who have
transitioned to working remotely, may present additional cybersecurity risks to us. Policies of extended periods of remote working,
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whether by us or third parties with which we do business with, could strain technology resources, introduce operational risks and otherwise
heighten the risks described above.
If we are unable to obtain both adequate coverage and adequate reimbursement from third-party payers for our products, our revenues
and prospects for profitability will suffer.
Successful commercialization of our products is highly dependent on the extent to which coverage and reimbursement is, and will
be, available from third-party payers, including governmental payers and private health insurers. Patients may not be capable of paying for
our products themselves and may rely on third-party payers to pay for, or subsidize, the costs of their medications, among other medical
costs. If third-party payers do not provide coverage or reimbursement for our products, our revenues and prospects for profitability will
suffer. In addition, even if third-party payers provide some coverage or reimbursement for our products, the availability of such coverage or
reimbursement for prescription drugs under private health insurance and managed care plans often varies based on the type of contract or
plan purchased.
Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system may affect our ability to
sell our products profitably.
The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payers in the
U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare
costs, improving quality and/or expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and
has been significantly affected by major legislative initiatives.
We expect that healthcare reform measures, including the potential repeal and replacement of the Patient Protection and
Affordable Care Act (“PPACA”), that may be adopted in the future, may have a significant impact on our business. Most recently, the Tax
Cuts and Jobs Acts was enacted, which, among other things, removed penalties for not complying with the individual mandate to carry
health insurance. Additionally, all or a portion of PPACA and related subsequent legislation may be modified, repealed or otherwise
invalidated through judicial challenge, which could result in lower numbers of insured individuals, reduced coverage for insured
individuals and adversely affect our business. If PPACA is repealed or replaced, it is unclear how the replacement statute may impact our
business. If PPACA is not repealed or replaced, it will continue to impose requirements on our business.
Moreover, certain politicians have announced intentions to propose initiatives to regulate the prices of pharmaceutical products.
We cannot know what form any such legislation may take or the market’s perception of how such legislation would affect us. Any
reduction in reimbursement from government programs may result in a similar reduction in payments from private payors. The
implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability, or commercialize our current products and/or those for which we may receive regulatory approval in the future.
Our business depends substantially on the continuing efforts of our senior management, key employees and qualified personnel, and
our business operations may be adversely and negatively impacted if we lose their services.
Our future success depends substantially on the continued efforts of our senior management team and key employees. Our
employees play key roles in the areas of product development, marketing, sales, and general and administrative functions. Competition for
qualified staff or other key employees in the biopharmaceutical industry in China is intense, particularly for individuals with multinational
experience. If one or more of our members of senior management or key employees are unable or unwilling to continue their services with
us, we might not be able to replace them easily, at an acceptable cost or in a timely manner, if at all.
Many of the companies with which we compete for experienced personnel have greater resources than we have and some of these
companies may offer more lucrative compensation packages. If any of our key personnel joins a competitor or forms a competing
company, we may lose customers, know-how and key professionals and staff members. Even if we enter into employment agreements and
non-compete agreements with our employees, certain provisions under these agreements may be deemed invalid or unenforceable under
PRC laws. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our
existing employees. Since the demand and competition for talent is intense in our industry, we may need to offer higher compensation and
other benefits in order to attract and retain key personnel in the future, which could increase our compensation expenses. If we do not
succeed in attracting additional highly skilled personnel or retaining or motivating our existing personnel, we may be unable to grow
effectively.
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Certain of our directors and officers may have business interests that may conflict with our interests and those of our stockholders.
Certain of our directors and officers have relationships with venture capital or similar funds that invest in life sciences companies
that may compete with us. James Huang, a director, is the founding partner of Panacea Venture, a global venture fund focusing on
investments in innovative and transformative early and growth stage healthcare and life science companies. Dr. Quan Zhou, another
director, previously served as the president of IDG Technology Venture Investment Inc. and has been the managing member of IDG
Technology Venture Investments, LP and its successor fund since 2000 and the director of various IDG-Accel China funds since 2005.
Our Chairman and CEO, Dr. Wei-Wu He, is the founder and General Partner of Emerging Technology Partners, LLC (“ETP”), a
life science focused venture fund, and its related investing entities. Through funds affiliated with ETP, Dr. He is a founder and significant
shareholder of Juventas and currently serves as chairman of Juventas’ board of directors. Mr. Huang, through Panacea Venture, also is an
investor in Juventas. In addition, we have an equity investment in Juventas.
Although we require that all transactions with Juventas must be approved by a committee of independent directors, our
commercial license, loan to, and other transactions with Juventas could create conflicts of interests for Dr. He or Mr. Huang. Even though
we are an investor in Juventas, Dr. He and Mr. Huang may have different business and personal interests than our other stockholders. In
particular, Dr. He, as a founder of Juventas, has a direct interest in the financial success of Juventas that may encourage him to support
strategies to further the financial success of Juventas that could potentially adversely impact us. To the extent we fail to appropriately deal
with any such conflicts of interests, it could negatively impact our reputation and ability to raise additional funds and the willingness of
counterparties to do business with us, all of which could have an adverse effect on our business, financial condition, results of operations,
and cash flows.
Risks Relating to Our Intellectual Property
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 our products in the U.S., 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, 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
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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.
If we are unable to protect our intellectual property rights our business and competitive position would be harmed.
We have in-licensed worldwide rights to an investigational anti-CD38 monoclonal antibody and an anti-CD19 T-cell therapy
product candidate, and we may in-license other product candidates in the future. Our success, competitive position and future revenues
with respect to these product candidates will depend, in part, on our ability to protect our intellectual property. We will be able to protect
our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by maintaining trade
secrets and by filing U.S. and foreign patent applications related to our in-licensed technology, inventions and improvements that are
important to the development of our business. Our failure to do so may adversely affect our business and competitive position.
The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and
factual questions for which important legal principles remain unresolved. We may not be able to protect our intellectual property rights
throughout the world. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the
U.S. or in many jurisdictions outside of the U.S. Changes in either the patent laws or interpretations of patent laws in the U.S. and other
countries may diminish the value of our intellectual property and therefore we cannot predict with certainty whether any patent applications
that we have filed or that we may file in the future will be approved, will cover our products or product candidates or that any resulting
patents will be enforced. In addition, third parties may challenge, seek to invalidate, limit the scope of or circumvent any of our patents,
once they are issued. Thus, any patents that we own or license from third parties or CASI Wuxi or development partners may not provide
any protection against competitors. Any patent applications that we have filed or that we may file in the future, or those we may license
from third parties or CASI Wuxi or development partners, may not result in patents being issued. Moreover, disputes between our licensing
or joint development partners and us may arise over license scope, or ownership, assignment, inventorship and/or rights to use or
commercialize patent or other proprietary rights, which may adversely impact our ability to obtain and protect our proprietary technology
and products. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors
with similar technologies or products.
Patent protection for our anti-CD19 T-cell therapy product candidate may not be available and may be subject to infringement claims in
China and other countries.
Although we have entered into a worldwide licensing and commercialization rights agreement with Juventas Cell Therapy Ltd, a
China-based domestic company, for an autologous anti-CD19 T-cell therapy product candidate, Juventas retains ownership of, and all other
rights to, the intellectual property rights associated with this product candidate. As a result, we are dependent on Juventas to ensure that its
proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. Juventas has not filed patent
applications covering this product candidate in China or in other countries. Accordingly, even if we are successful in commercializing an
anti-CD19 T-cell therapy in China, Juventas may be unable to obtain intellectual property rights in China or in other countries, including
the U.S. As a result, we may be unable to prevent other companies from competing with us or alleging infringement by competitors. The
lack of patent protection may limit our ability to sell our product and may severely and adversely affect our financial results, business and
business prospects.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which
would be uncertain and could harm our business.
Third parties may assert patent or other intellectual property infringement claims against us, or Juventas, or our other licensors
arising from the manufacture, use and sale of our current or future product candidates in China or in any other jurisdictions we ultimately
commercialize in. The validity of our current or future patents or patent applications or those of our licensors may be challenged in
litigation, interference or derivation proceedings, opposition, post grant review, inter parts review, or other similar enforcement and
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revocation proceedings, provoked by third parties or brought by us, may be necessary to determine the validity of our patents or patent
applications or those of our licensors. Our patents could be found invalid, unenforceable, or their scope significantly reduced.
An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the
prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our
defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our
management and other employees. In the event of a successful claim of infringement against us, we may have to pay substantial damages,
including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more
licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
We have agreed not to develop or seek to commercialize any T-cell therapy product specifically binding to CD19.
Under the terms of our license agreement with Juventas Cell Therapy Ltd, unless otherwise agreed to by Juventas or specifically
permitted under the license, we have agreed not to develop or seek to commercialize any other T-cell therapy product specifically binding
to CD19 during the term of the license agreement and for three years thereafter. We also have agreed not to market or sell any such
products during this period of time. As a result, we may not be able to develop or collaborate on other similar CD19 T-cell therapy products
that could lead to a viable commercial product and could cause us to miss valuable future opportunities thus potentially severely and
adversely affect our financial results, business and business prospects.
Third parties may initiate legal proceedings alleging that Juventas is infringing, misappropriating or otherwise violating their
intellectual property rights, the outcome of which would be uncertain and could significantly harm Juventas’, and in turn, our
business.
Juventas’ CNCT19 has two unpublished patent applications pending in China. Our commercial success depends, in part, on the
ability of Juventas to develop and manufacture its CAR-T cell technology without infringing, misappropriating or otherwise violating the
intellectual property and other proprietary rights of third parties. Numerous third-party U.S. and non-U.S. issued patents exist in the area of
biotechnology, including relating to the modification of T cells and the production of CAR-T cells.
Third parties may allege that CNCT19 infringes certain of these patents. While we believe that Juventas would have valid
defenses against any assertion of such patents against it, such defenses may be unsuccessful. If any CNCT19 is found to infringe any of
these patents, Juventas could be required to obtain a license from the respective patent owners, or, if applicable, their licensees, to continue
developing CNCT19 and for us to commercialize such product in the future. However, Juventas may not be able to obtain any required
license on commercially reasonable terms or at all. Even if it were able to obtain a license, it could be non-exclusive, thereby giving the
licensor and other third parties the right to use the same technologies, and it could require substantial licensing, royalty and other payments.
Juventas also could be forced, including by court order, to permanently cease development, manufacturing, marketing and commercializing
CNCT19. In addition, it could be found liable for significant monetary damages, including treble damages and attorneys’ fees.
Risks Relating to Our Reliance on Third Parties or Natural Disasters
Independent clinical investigators and contract research organizations that we engage to conduct our clinical trials may not devote
sufficient time or attention to our clinical trials or be able to repeat their past success.
We depend on independent clinical investigators and contract research organizations (“CROs”) to assist in the conduct of our
clinical trials under their agreements with us. The investigators are not our employees, and we cannot control the amount or timing of
resources that they devote to our programs. If independent investigators fail to devote sufficient time and resources to our drug
development programs, or if their performance is substandard or deviates from regulatory requirements, GCPs, or the protocol, it could
delay the approval of our FDA applications and our introduction of new products. 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, as well as any failure of us or our collaborators to effectively monitor and audit our CROs and clinical
trials, could adversely affect clinical development of our products.
We have no current manufacturing capacity and rely on limited suppliers for some of our products.
We plan to operate a manufacturing facility in the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. We do
not currently have the capacity to manufacture products and we have limited experience in these activities. The manufacturing
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processes for the pipeline 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 of our products. If we engage directly in manufacturing, 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, including deviations from cGMP, could result in product defects, which could
require us to delay shipment of products or recall products previously shipped, as well as regulatory action. 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. We expect our future manufacturing processes 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 cGMP prescribed by the FDA or other rules and
regulations prescribed by the NMPA 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 cGMP and who are able to produce our products in accordance with applicable regulatory standards. Failure by a
manufacturer of our products to comply with cGMP could result in significant time delays or our inability to obtain marketing approval or,
should we have market approval, for such approval to continue. Changes in our manufacturers could require new product testing and
facility compliance inspections. In the U.S., failure to comply with cGMP or other applicable legal requirements can lead to federal seizure
of violated products, injunctive actions brought by the federal government, inability to export product, and potential criminal and civil
liability on the part of a company and its officers and employees.
We or the third parties upon whom we rely on may be adversely affected by epidemic outbreaks, earthquakes, tornadoes, hurricanes or
other natural disasters, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
We have offices in Rockville, Maryland, and a wholly owned subsidiary in Beijing, China through which substantially all of our
operations are conducted. We also rely and intend to rely on third parties, including our clinical research organizations, third party
manufacturers, and certain other important vendors and consultants in China and in United States. The occurrence of one or more epidemic
outbreaks such as Ebola, Zika, SARS-CoV, COVID-19 or measles, natural disasters, such as tornadoes, hurricanes, fires, floods, hail
storms and earthquakes, unusual weather conditions, terrorist attacks or disruptive political events in regions where we operate our business
could adversely affect the operations of the third parties we rely on and our business, results of operations, financial condition and our
prospects.
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If an epidemic outbreak, natural disaster, power outage or other event occurred that prevented us or the third parties we rely on
from using all or a significant portion of our or their offices, damaged critical infrastructure or disrupted operations, it may be difficult, or
in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity
plan we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may
incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
The design and manufacture of a manufacturing facility by CASI Wuxi may be delayed.
Together with our partner, Wuxi Jintou Huicun Investment Enterprise, a limited partnership organized under Chinese law, we
established CASI Wuxi, to build and operate a GMP manufacturing facility in the Wuxi Huishan Economic Development Zone in Jiangsu
Province, China. Under the terms of our agreement, we have agreed to invest $80 million in CASI Wuxi. As of December 31, 2020, we
have invested $21 million in cash and transferred selected ANDAs valued at $30 million to CASI Wuxi . We are required to invest an
additional $29 million in cash before November 2021. We have an 80% interest in CASI Wuxi and our partner has a 20% interest.
In November 2019, CASI Wuxi entered into a lease agreement for the right to use state-owned land in China for the construction
of a manufacturing facility. Pursuant to this agreement, CASI Wuxi has committed to invest in land use rights and property, plant and
equipment of RMB1 billion (equivalent to US $143 million) within three years from the date of establishment of CASI Wuxi. The lease
agreement also specifies dates by which certain milestones must be met, including a construction start date in August 2020. Construction
of the manufacturing facility began in the fourth quarter of 2020 with an expected completion date of October 2023.
The undertaking of building and establishing a new manufacturing facility can take years. Once completed, the new facility might
fail validation or not meet regulatory standards for a commercial manufacturing facility. In addition, the facility may not obtain or retain
the requisite legal permits to manufacture in China, and costs or operational limitations may be imposed in connection with obtaining and
complying with such permits. Accordingly, there can be no assurance that CASI Wuxi will meet the expenditure requirements and other
deadlines set forth in the lease agreement.
The success of CASI Wuxi also relies on our ability to make additional payments in the future, which is uncertain. Our plan may
require us to obtain additional debt or equity financing, resulting in additional debt obligations, increased interest expense or dilution of
equity ownership.
The timing of the development and investment plans for a manufacturing facility are subject to further discussions with the
government. We may seek to renegotiate the terms of our investment in CASI Wuxi, as well as the terms of the various agreements to
which CASI Wuxi is a party. There can be no assurance that we will be able to obtain more favorable terms. If CASI Wuxi is unable to
complete construction of a manufacturing facility or we are unable to contribute additional capital, we may lose the capital that we have
invested in CASI Wuxi.
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.
The volatile price of our stock makes it difficult for investors to predict the value of their investments, to sell shares at a profit at
any given time, or to plan purchases and sales in advance. Our common stock price has fluctuated from year-to-year and quarter-to-quarter
and will likely continue to be volatile. During 2020, our stock price ranged from $1.44 to $3.30. We expect that the trading price of our
common stock is likely to be highly volatile in response to a variety of factors that are beyond our control, such as:
● our ability to maintain regulatory approval for EVOMELA and obtain regulatory approval for our other product candidates;
● issues in importation, marketing and sales of EVOMELA;
● the results of any future clinical trials of ZEVALIN or our other product candidates;
● the success of CASI Wuxi to build and operate a manufacturing facility in China;
● the clinical development of CID-103, BI-1206 and CNCT19;
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● publicity regarding actual or potential clinical test results relating to products under development by our competitors or us;
● initiating, completing or analyzing, or a delay or failure in initiating, completing or analyzing, preclinical or clinical trials or
animal trials or the design or results of these trials for products in development;
● the entry into, or termination of, key agreements, including key commercial partner agreements;
● the initiation of, material developments in, or conclusion of litigation to enforce or defend any of our intellectual property rights
or defend against the intellectual property rights of others;
● achievement or rejection of regulatory approvals for products in development by our competitors or us;
● announcements of technological innovations or new commercial products by our competitors or us;
● developments concerning our collaborations and supply chain;
● regulatory developments in the United States and foreign countries;
● economic or other crises and other external factors;
● COVID-19 pandemic, especially as a result of investor concerns and uncertainty related to the impact of the outbreak on the
economics of countries worldwide;
● the loss of key employees;
● period-to-period fluctuations in our revenues and other results of operations;
● changes in financial estimates by securities analysts; or
● publicity or activity involving possible future acquisitions, strategic investments, partnerships or alliances.
We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will
not necessarily be indicative of our future performance. 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 stockholders, including our directors and executive officers and investment funds with which they are associated, hold a
significant amount of our outstanding common stock and, if they acted together, could influence our management and affairs.
A small number of our stockholders, including our directors and executive officers and investment funds with which they are
associated, hold a significant amount of our outstanding common stock. In addition, our executive officers and directors and investment
funds with which they are associated could determine to make additional purchases of common stock, to the extent permitted by law. In the
future, our executive officers and directors also could be issued shares of common stock as determined by the Compensation Committee
and the Board in connection with current or future equity incentive plans.
These stockholders, if they acted together, could significantly influence the vote on all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or other business combination transactions. We cannot assure
you that our largest stockholders will not seek to influence our business and affairs in a manner that is contrary to 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.
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Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain
legal actions between us and our stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of our
stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with us or our directors,
officers or other employees.
Our amended and restated bylaws, effective September 10, 2020, provide that unless CASI consents in writing to the selection of
an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i) any derivative action
or proceeding brought on behalf of CASI, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or
other employee of CASI to CASI or CASI’s stockholders, (iii) any action asserting a claim arising under any provision of the General
Corporation Law of the State of Delaware, CASI’s certificate of incorporation or CASI’s Amended and Restated By-Laws or (iv) any
action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to bring a claim,
discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage such lawsuits against us or our directors, officers and other employees.
Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or
unenforceable in an action, CASI may incur additional costs associated with resolving such action in other jurisdictions. In addition, unless
CASI consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be
the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933.
General Risk Factors
We may engage in strategic, commercial and other corporate transactions that could negatively affect our financial condition and
prospects.
We may consider strategic, commercial, 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 existing shareholders. 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.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts
publish about us or our business. If one or more of the analysts who may cover us downgrade our common stock or publish inaccurate or
unfavorable research about our business, our common stock price would likely decline.
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.
We may 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.
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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, 2020, we hold leases for land, office and laboratory space, as follows:
China:
● The primary office of CASI China is located in Beijing, China with approximately 14,000 square feet of office space.
● In November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in Wuxi.
China. The land parcel is approximately 666,000 square feet, and the Company is building a GMP manufacturing facility,
which will be completed in 2023.
● CASI Wuxi has workshop space for approximately 90,000 square feet.
● CASI China has office space in Shanghai for approximately 1,600 square feet.
United States:
● We have office space in Rockville, Maryland for approximately 6,100 square feet.
● We also have office and laboratory space from a related party in San Francisco, California for 600 square feet.
We believe that our facilities are adequate for current needs; however, the Company is in the process of expanding operations in
China and, accordingly, intends to increase facilities to meet our foreseeable and long-term needs. 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.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Market for Common Equity
Our common stock trades on The Nasdaq Capital Market under the symbol “CASI.” As of March 25, 2021, there were 276
holders of record of our common stock.
Dividend Policy
The Company has never declared or paid dividends on its common stock or any other securities and does not anticipate paying
any dividends 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.
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
CASI Pharmaceuticals, Inc. (“CASI” or the “Company”) (Nasdaq: CASI) is a U.S. biopharmaceutical company focused on
developing and commercializing innovative therapeutics and pharmaceutical products in China, the United States, and throughout the
world. We are focused on acquiring, developing and commercializing products that augment our hematology oncology therapeutic focus as
well as other areas of unmet medical need. We are executing our plan to become a biopharmaceutical leader by launching medicines in the
greater China market leveraging our China-based regulatory, clinical and commercial competencies and our global drug development
expertise. Our operations in China are conducted primarily through two of our subsidiaries: (i) CASI Pharmaceuticals (China) Co., Ltd.
(“CASI China”), which is wholly owned and is located in Beijing, China, and (ii) CASI Pharmaceuticals (Wuxi) Co., Ltd. (“CASI Wuxi”),
which is located in Wuxi, China.
We launched in China our first commercial product, EVOMELA® (Melphalan for Injection) in August 2019. In China
EVOMELA is approved for use as a conditioning treatment prior to stem cell transplantation and as a palliative treatment for patients with
multiple myeloma. Our other core hematology/oncology assets in our pipeline include:
● CNCT19 is an autologous CD19 CAR-T investigative product (CNCT19) being developed by our partner Juventas Cell
Therapy Ltd (“Juventas”) for which we have co-commercial and profit-sharing rights. CNCT19 is being developed as a
potential treatment for patients with hematological malignancies which express CD19 including, B-cell acute lymphoblastic
leukemia (“B-ALL”) and B-cell non-Hodgkin lymphoma (“B-NHL”). China Phase 1 studies have been substantially
completed by Juventas, with the Phase 2 B-NHL registration study in China currently enrolling. The Phase 2 B-ALL
registration study is expected to start by the end of March 2021. In December 2020, Juventas received a breakthrough
therapy designation for CNCT19 in the treatment of adults with relapsed/refractory B-ALL from the Chinese Center for Drug
Evaluation, a division of the China National Medical Products Administration.
● BI-1206 is an antibody which has a novel mode-of-action, blocking the inhibitory antibody checkpoint receptor FcγRIIB to
unlock anti-cancer immunity in both hematological malignancies and solid tumors for which we have exclusive greater China
rights BI-1206 is our partner’s lead drug candidate and is being investigated in a Phase 1/2 trial, in combination with anti-
PD1 therapy Keytruda® (pembrolizumab), in solid tumors, and in a Phase 1/2a trial in combination with MabThera®
(rituximab) in patients with relapsed/refractory non-Hodgkin lymphoma (NHL). BioInvent International AB, released
positive interim results from its Phase 1/2a trial that suggests that novel anti-FcyRIIB antibody BI-1206 restores activity
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of rituximab in patients with relapsed/refractory non-Hodgkin’s lymphoma. An FDA End of Phase 1 meeting for the NHL
development program is planned for the third quarter of 2021.
● CB-5339 is an oral second-generation, small molecule valosin-containing protein (VCP)/p97inhibitor for which we have
exclusive greater China rights. CB-5339 was added to our portfolio in March 2020 pursuant to a license agreement with our
partner, Cleave Therapeutics, Inc. (“Cleave”). CB-5339 is being evaluated by Cleave in a Phase 1 clinical trial in patients
with acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is
sponsoring and evaluating CB-5339 in a Phase 1 clinical trial of patients with solid tumors and lymphomas.
● CID-103 is a full human IgG1 anti-CD38 monoclonal antibody recognizing a unique epitope that has demonstrated
encouraging preclinical efficacy & safety profile compared to other anti-CD38 monoclonal antibodies for which we have
exclusive global rights. CID-103 is being developed for the treatment of patients with multiple myeloma. The CID-103
Phase 1 study in EU was initiated in March 2021.
Other assets in our pipeline for which we have exclusive rights in China are Octreotide Long Acting Injectable (“LAI”), for which
we plan to begin the China registration study in 2021, and a novel formulation of Thiotepa, for which our partner plans to begin the China
registration study in 2021. Thiotepa is used as a conditioning treatment for certain allogeneic haemopoietic stem cell transplants. Subject
to regulatory and marketing approvals, we intend to advance and commercialize these established products in China.
The Company’s assets include a few FDA-approved ANDAs which the Company is evaluating due to generic drug pricing
reforms by the Chinese government and its impact on the pricing and competitiveness of these products. The Company also has greater
China rights to ZEVALIN® (Ibritumomab Tiuxetan), a CD20-directed radiotherapeutic antibody that is approved in the U.S. to treat
patients with non-Hodgkin
injection) a novel,
sphingomyelin/cholesterol liposome-encapsulated, formulation of vincristine sulfate, a microtubule inhibitor, 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. However, due to the evolving standard of care
environment, the rare and niche indication for these products, and our commitment to prioritize resources, the Company is currently
evaluating its options for these products.
(vincristine sulfate LIPOSOME
(“NHL”) and MARQIBO®
lymphoma
CASI has built a fully integrated, world class biopharmaceutical company dedicated to the successful development and
commercialization of innovative and other therapeutic products. The Company will continue to pursue building a robust pipeline of drug
candidates for development and commercialization in China as our primary market, and if rights are available for the rest of the world. For
in-licensed products, we use a market-oriented approach to identify pharmaceutical/biotechnology candidates that we believe have the
potential for gaining widespread market acceptance, either globally or in China, and for which development can be accelerated under our
drug development strategy. We have focused on US/EU approved product candidates, and product candidates with proven targets or
product candidates that have reduced clinical risk with a greater emphasis on innovative therapeutics. Our business development strategy is
currently focused on acquiring additional targeted drugs and immuno-oncology therapeutics through licensing that will expand our
hematology-oncology franchise. In many cases our business development strategy includes direct equity investments in the licensor
company.
We believe our China operations offer a significant market and growth potential due to the extraordinary increase in demand for
high quality medicines coupled with regulatory reforms in China that facilitate the entry of new pharmaceutical products into the country.
We will continue to in-license clinical-stage and late-stage drug candidates, and leverage our cross-border operations and expertise, and
hope to be the partner of choice to provide access to the China market. We expect the implementation of our plans will include leveraging
our resources and expertise in both the U.S. and China so that we can maximize regulatory, development and clinical strategies in both
countries.
The Company’s commercial product, EVOMELA, was originally licensed from Spectrum Pharmaceuticals, Inc. (“Spectrum”) and
the Company had a supply agreement with Spectrum to support the Company’s application for import drug registration and for
commercialization purposes. On March 1, 2019, Spectrum completed the sale of its portfolio of FDA-approved hematology/oncology
products including EVOMELA to Acrotech Biopharma L.L.C. (“Acrotech”). The original supply agreement with Spectrum was assumed
by Acrotech; Spectrum agreed to continue with a short-term supply agreement for EVOMELA for the initial commercial product supply in
connection with the Company’s launch, with the long-term supply assumed by Acrotech. During the second quarter 2020, the Company
completed a plan to change the manufacturing site for EVOMELA to an alternative manufacturer that significantly reduced the cost of
revenue since the third quarter 2020.
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As part of the long-term strategy to support our future clinical and commercial manufacturing needs and to manage our supply
chain for certain products, on December 26, 2018, we established CASI Pharmaceuticals (Wuxi) Co., Ltd. (“CASI Wuxi”), between the
Company and WUXI Huicheng Yuanda Investment Enterprise (LP), to develop a future GMP manufacturing facility that will be located in
the Wuxi Huishan Economic Development Zone in Jiangsu Province, China. In November 2019, CASI Wuxi entered into a fifty-year lease
agreement for the right to use state-owned land in China for the construction of a manufacturing facility. In April 2020, CASI Wuxi
received RMB 15.9 million (equivalent to $2.2 million) from the Jiangsu Province Wuxi Huishan Economic Development Zone as
government grant for this development project which was recorded as deferred income in April 2020. On August 27, 2020, CASI Wuxi
entered into a Construction Project Contract for RMB 74,588,000 (equivalent to $10,923,000) to complete the phase 1 project of CASI
Wuxi's research and development production base. The estimated completion date is October 2023.
Since its inception in 1991, the Company has incurred significant losses from operations and, as of December 31, 2020, has
incurred an accumulated deficit of $570.5 million. In 2012, with new leadership, the Company shifted its business strategy to China and
has since built an infrastructure in China that includes sales and marketing, medical affairs, regulatory and clinical development and in the
foreseeable future, manufacturing. In 2014, the Company changed its name to “CASI Pharmaceuticals, Inc.” The majority of the
Company’s operations are now located in China. The Company expects to continue to incur operating losses for the foreseeable future due
to, among other factors, its continuing clinical and development activities and expansion of our operations. Our operations in China are
conducted primarily through two of our subsidiaries, CASI Pharmaceuticals (China) Co., Ltd. (“CASI China”) and CASI Pharmaceuticals
(Wuxi) Co., Ltd. (“CASI Wuxi”). Our Beijing office is primarily responsible for our day-to-day operations and our commercial team of
over 80 hematology and oncology sales and marketing specialists based in China. CASI Wuxi is part of the long-term strategy to support
our future clinical and commercial manufacturing needs, to manage our supply chain for certain products, and to develop a GMP
manufacturing facility in China.
Taking into consideration the cash and cash equivalents as of December 31, 2020, the Company believes that it has sufficient
resources to fund its operations at least one year beyond the date that the audited consolidated financial statements are issued. As of
December 31, 2020, the Company had a balance of cash and cash equivalents of $57.1 million of which $4.5 million was held by CASI
China, and $19.5 million was held by CASI Wuxi. 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.
On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C.
Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time, at its option,
shares of the Company’s common stock, through HCW, as sales agent. On July 19, 2019, the Company entered into an amendment to the
Sales Agreement reducing the maximum amount that may be sold under the Sales Agreement to $20 million. In 2018, the Company issued
143,248 shares under the Sales Agreement resulting in net proceeds to the Company of $475,000. As of March 30, 2021, $19.5 million
remained available under the Sales Agreement. As discussed below, the Company will need to obtain a waiver from the SEC of the Form
S-3 eligibility requirements or obtain an effective registration statement on Form S-1 in order to sell additional shares pursuant to this Sales
Agreement if it chooses to sell under this Sales Agreement before October 2021.
On July 19, 2019, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (the “Open Market
Agreement”). Pursuant to the terms of the Open Market Agreement, the Company may elect to sell from time to time, at its option, up to
$30 million in shares of the Company’s common stock, through Jefferies LLC, as sales agent. In 2019, the Company issued 59,000 shares
under the Open Market Agreement resulting in net proceeds to the Company of $182,000. During 2020, there were 434,000 shares issued
under the Open Market Agreement with net proceeds of $1,357,000. As of March 30, 2021, the Company has issued 493,000 shares with
net proceeds of $1,539,000. As of March 30, 2021, $28.4 million remained available under the Open Market Agreement. As discussed
below, the Company will need to obtain a waiver from the SEC of the Form S-3 eligibility requirements or obtain an effective registration
statement on Form S-1 in order to sell additional shares pursuant to this Sales Agreement if it chooses to sell under this Sales Agreement
before October 2021.
On July 24, 2020, the Company closed an underwritten public offering of 23 million shares of common stock (the “Offering”) and
generated gross proceeds of $43.7 million before deducting the underwriting discounts and commissions and offering expenses payable by
CASI. Certain insiders, including CASI’s Chairman and CEO, and CASI’s President, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company is using the net proceeds of this
offering for working capital and general corporate purposes, which include, but are not limited to advancing the Company’s product
portfolio, acquiring the rights to new product candidates and general and administrative expenses.
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On November 20, 2020, we filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration process. On
December 2, 2020, 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 $150 million. As a result of our failure to
timely file a periodic report with the SEC in connection with the adoption of our amended and restated bylaws, absent a waiver of the Form
S-3 eligibility requirements, we are ineligible to use or file new short form registration statements on Form S-3 until October 1, 2021,
assuming we continue to timely file our required Exchange Act reports. In the interim, however, the Company may raise capital pursuant
to a registration statement on Form S-1 or on a private placement basis.
On March 24, 2021, the Company closed an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc., as representative of the several underwriters named therein (the “Underwriters”), providing for the offer and sale of 15,853,658 shares
of the Company’s common stock (the “Offering”) at a price to the public of $2.05 per share. In addition, the Company granted the
Underwriters an option to purchase up to an additional 2,378,048 shares of common stock, which terminates on the earlier of 30 days and
the day before the Company files to the Securities and Exchange Commission (“SEC”) the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2020. The Offering closed on March 26, 2021. The gross proceeds to CASI from the Offering are
approximately $32.5 million, excluding the over-allotment option and before deducting the underwriting discounts and commissions and
offering expenses payable by CASI.
Certain insiders, including CASI’s Chairman and Chief Executive Officer, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company has agreed to pay the underwriters a
commission of 1% of the gross proceeds raised from certain such insiders, and 6% of the gross proceeds raised in the offering from other
investors.
The Offering is being made by means of a written prospectus supplement and accompanying prospectus forming part of a shelf
registration statement on Form S-3 (Registration Statement No. 333-250801), previously filed with the SEC on November 20, 2020, which
was declared effective on December 2, 2020. The Company filed a final prospectus supplement, dated March 24, 2021, with the SEC
relating to the Offering.
Pursuant to the Underwriting Agreement, the Company’s directors and executive officers entered into agreements in substantially
the form agreed to by the Underwriters providing for a 90-day “lock-up” period with respect to sales of specified securities, subject to
certain exceptions.
During the second quarter 2020, the Company completed the plan to change the manufacturing site for EVOMELA to an
alternative manufacturer that has significantly reduced the cost of revenue since the third quarter of 2020. Due to the manufacturer change,
and to the effects of COVID-19 to our marketing and sales activities and supply chain, revenues for the second quarter of 2020 experienced
an expected temporary decrease. We have returned to expected levels of sales in the third quarter of 2020.
Our partner, Juventas, experienced some delay in the start of the CNCT19 clinical trials in the first quarter of 2020 but the
Juventas CNCT-19 clinical trials program is currently back on track with both clinical trials underway. The COVID-19 pandemic has
impacted our targeted start time of our CID-103 trial due to the lock down of many medical facilities in Europe. We expect to initiate this
trial in March 2021. As the pandemic continues to unfold, the extent of the pandemic’s effect on our operations will depend in large part on
future developments, which cannot be predicted with confidence at this time.
In June 2019, the Company entered into a license agreement for worldwide license to commercialize an autologous anti-CD19 T-
cell therapy product (CNCT19) from Juventas Cell Therapy Ltd (“Juventas”) (the “Juventas license agreement”). Juventas is a China-
based company engaged in cell therapy. The terms of the agreement include RMB 70 million ($10 million) of milestone payments upon the
registration of Phase II clinical trial of CNCT19 and sales royalty payments. The milestone became probable to be met during the quarter
ended September 30, 2020. As a result, the Company paid the milestone payment of RMB 70 million to Juventas in September 2020,
which was expensed as acquired in-process research and development in the accompanying consolidated statement of operations and
comprehensive income for the year ended December 31, 2020.
In September 2020, Juventas and its shareholders (including CASI Biopharmaceuticals) agreed to certain terms and conditions
required by a new third-party investor to facilitate the Series B financing of Juventas, pursuant to which the Company agreed to amend and
supplement the original licensing agreement (the "Supplementary Agreement") by agreeing to pay Juventas certain percentage of profits
generated from commercial sales of CNCT19. The Supplementary Agreement also specifies a minimum annual target net profit to be
distributed to Juventas and certain other terms and obligations. In return, the Company obtained additional equity interests in Juventas.
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In November 2020, Juventas Cell Therapy Ltd completed the Series B financing.
In June 2019, in conjunction with its license agreement entered into with Juventas, the Company, through CASI
Biopharmaceuticals, made an RMB 80 million ($11,788,000) investment in Juventas, a privately held, China-based company, in Juventas'
Series A plus equity, which represented a 16.327% equity interest on a fully diluted basis, and the right to appoint a non-voting board
observer. The Company was entitled with substantive liquidation preference over the founding shareholder of Juventas. In addition, the
Juventas' founding shareholder provided a put option to the Company pursuant to which the Company can put the equity investment to the
founding shareholder at a fixed return of 8% per annum upon occurrence of certain events.
In September 2020, in conjunction with the Supplementary Agreement entered into with Juventas, the Company obtained
additional Series A plus equity interest in Juventas with substantive liquidation preference over Juventas' founding shareholder, resulting in
the Company's equity ownership increasing to 16.45% (post-Juventas Series B financing) on a fully diluted basis. CASI
Biopharmaceuticals is also entitled to appoint a director to Juventas’ board of directors. Juventas' founding shareholder also provided a put
option to the Company pursuant to which the Company can put the additional equity investment to the founding shareholder at RMB 70
million plus a fixed return of 8% per annum upon occurrence of certain events. The transaction closed on September 29, 2020.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and
accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our
financial statements requiring significant estimates and judgments, are as follows:
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment, operating lease right-of-use (“ROU”) assets and intangible assets
subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Such events and circumstances include the use of the asset or asset group in current research and
development projects and any potential alternative uses of the asset or asset group. If circumstances require a long-lived asset or asset
group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or
asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow
basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various
valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary. Impairment charges related to fixed assets were $0 and $386,000 for the years ended in December 31, 2020 and 2019,
respectively. Impairment charges related to intangibles were $1.5 million and $0 for the years ended in December 31, 2020 and 2019,
respectively.
Stock-Based Compensation
The Company records compensation expense associated with service and performance-based stock options in accordance with
provisions of authoritative guidance. The estimated fair value of service-based awards is determined using option pricing models that use
unobservable inputs and is generally amortized on a straight-line basis over the requisite service period. The estimated fair value of
performance-based awards is measured on the grant date and is recognized when it is determined that it is probable that the performance
condition will be achieved.
Fair value measurement of additional equity interest in Juventas Cell Therapy Ltd
In June 2019, the Company entered into a license agreement for worldwide license to commercialize a product from Juventas Cell
Therapy Ltd (“Juventas”), a privately held, China-based company. In conjunction with the license agreement, the Company made an
investment in Juventas. In September 2020, Juventas and its shareholders (including the Company) agreed to certain terms and conditions
required by a new third-party investor to facilitate the Series B financing of Juventas, pursuant to which the Company agreed to amend and
supplement the original licensing agreement. In return, the Company obtained additional equity interests in Juventas. The fair value of the
additional equity interests was RMB 83.7 million ($12.3 million) which was estimated using significant estimates and assumptions,
including multiples of selected comparable companies in applying the market approach model. The comparable companies were chosen
based on a peer group of comparable publicly traded companies with product candidates as a potential treatment for similar indications and
in similar stage of development to Juventas' product candidate.
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RESULTS OF OPERATIONS
Years Ended December 31, 2020 and 2019.
Operating Items
Revenues
Product Sales
Revenues consist of product sales of EVOMELA that launched during August 2019. Revenue was $15.0 million for the year
ended 2020 compared to $4.1 million for the year ended December 31, 2019.
Lease Income
Lease income consists primarily of an equipment lease with a Juventas (a related party). Lease income was $140,000 for the year
ended December 31, 2020 compared to $68,000 for the year ended December 31, 2019.
Operating Expenses
Costs of Revenues
Costs of revenues consists primarily of the cost of inventories of EVOMELA and sales-based royalties related to the sale of
EVOMELA.
Costs of revenues were $9.5 million for the year ended December 31, 2020 compared to $3.9 million for the year ended December
31, 2019. The increase is due to the launch of EVOMELA that occurred during August 2019. The increase in cost of revenues is partially
offset by a decrease in unit cost of inventories of EVOMELA as a result of the new alternate manufacturer now in place.
Research and Development Expenses
Research and development (R&D) 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, facilities
expenses, and amortization expense of acquired ANDAs.
Research and development expenses for the year ended December 31, 2020 were $11.5 million, compared with $9.3 million for
the year ended December 31, 2019. The increase in R&D expenses primarily due to an increase in R&D expenses incurred related to the
development of CID-103 and costs associated with the EVOMELA post marketing study. These costs were partially offset by reduced
regulatory costs associated with our ANDAs and reduced costs associated with preclinical development activities related to an immune-
oncology program terminated in 2019.
Included in our research and development expenses for the year ended December 31, 2020 are direct project costs of $3.0 million
related to our ANDAs acquired in 2018, $2.4 million for drugs in-licensed from Acrotech (previously Spectrum), $4.3 million for
preclinical development activities primarily related to the CID-103 program. Included in our research and development expenses for the
year ended December 31, 2019 are direct project costs of $5.1 million related to our ANDAs acquired in 2018, $1.0 million for drugs in-
licensed from Acrotech (previously Spectrum), $1.1 million for preclinical development activities primarily related to the CID-103
program, and $550,000 for preclinical development activities related to a terminated immune-oncology program.
General and Administrative Expenses
General and administrative expenses include compensation and other expenses related to finance, business development and
administrative personnel, professional services, investor relations and facilities.
General and administrative expenses for the year ended December 31, 2020 were $19.7 million, compared with $27.3 million for
the year ended December 31, 2019. The decrease in general and administrative expenses was primarily because the 2019 period
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included costs related to sales and marketing efforts to prepare for the August 2019 launch of EVOMELA, as well as lower professional
fees and travel costs incurred during the 2020 period.
Selling and Marketing Expenses
Selling and marketing expenses are the direct costs related to the sales of EVOMELA that was launched in China in August 2019
such as sales force salaries, advertising, and other marketing efforts.
Selling and marketing expenses for the year ended December 31, 2020 were $7.8 million, compared with $3.1 million for the year
ended December 31, 2019.
Gain (loss) on disposal of intangible assets
Gain on disposal of intangible assets for the year ended December 31, 2020 was $1.2 million, compared to a loss of $408,000 for
the year ended December 31, 2019. The gain on disposal is due to the $1.2 million gain on the sale of twenty one ANDAs during the 2020
period.
Impairment of intangible assets
Impairment of intangible assets for the year ended December 31, 2020 was $1.5 million, compared to $0 for the year ended
December 31, 2019. The impairment of intangible assets was primarily due to the reduction of the carrying value of intangible assets to
their fair value.
Acquired in-process Research and Development
Acquired in-process R&D expenses for the year ended December 31, 2020 were $17.8 million, compared with $7.0 million for the
year ended December 31, 2019. Acquired in-process R&D expenses for the year ended December 31, 2020 comprised of the two 2020
milestone fees paid related to Pharmathen of $1.7 million, the 2020 milestone fees paid to Juventas of $10.3 million and fees paid to
BioInvent of $5.9 million. Acquired in-process R&D expenses for the year ended December 31, 2019 included the $5.9 million acquisition
of the Black Belt’s license in April 2019 and $1.1 million milestone fee paid to Pharmathen.
Non-Operating Items
Interest income, net
Interest income, net for the year ended December 31, 2020 was $0.9 million compared with $1.1 million for the year ended
December 31, 2019. The decrease in interest income, net, is mainly due to the decrease in rates of return from available cash management
strategies due to the current economic environment offset by interest income of $375,000 from 2020 loans made to Juventas (a related
party).
Other income
Other income for the year ended December 31, 2020 was $82,000 compared with $5,000 for the year ended December 31, 2019.
Other income of $35,000 relates to amortization recognized for the 2020 CASI Wuxi’s receipt of RMB 15.9 million (equivalent to $2.2
million) from the Jiangsu Province Wuxi Huishan Economic Development Zone as government grant for the development of leased state
owned land in China for the construction of a manufacturing facility. The grant was recorded as deferred income in April 2020. The grant
is been amortized over the term of the lease of the land.
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Foreign exchange gains and losses
Foreign exchange losses for the year ended December 31, 2020 was $1.3 million compared with gains of $0.8 million for the year
ended December 31, 2019. The foreign exchange transactions recorded in the consolidated financial statements are primarily due to USD
denominated cash accounts that are held by our Chinese subsidiaries.
Change in fair value of investment in equity securities
The change in fair value of investment in equity securities for the year ended December 31, 2020 and 2019 was $4.3 million and
($288,000) respectively. The changes represent unrealized gains and losses on the Company’s equity investment securities.
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 2020 and the foreseeable future. Based on our current plans, we expect our current available cash and
cash equivalents to meet our cash requirements for at least through March 15, 2022.
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 commercialization efforts, expansion of our operations, research
and development, and for the acquisition of 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 stockholders 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 commercialization efforts, our advancement of the Spectrum
products, and the ANDA products, or plans for other product candidates, if any.
At December 31, 2020, we had cash and cash equivalents of $57.1 million, with working capital of $66.0 million. As of
December 31, 2020, $4.5 million of the Company’s cash balance was held by the Company’s wholly-owned subsidiary in China and $19.5
million of the Company’s cash balance was held by CASI Wuxi.
FINANCING ACTIVITIES
March 2021 Underwritten Public Offering
On March 24, 2021, the Company closed an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc., as representative of the several underwriters named therein (the “Underwriters”), providing for the offer and sale of 15,853,658 shares
of the Company’s common stock (the “Offering”) at a price to the public of $2.05 per share. In addition, the Company granted
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the Underwriters an option to purchase up to an additional 2,378,048 shares of common stock, which terminates on the earlier of 30 days
and the day before the Company files to the Securities and Exchange Commission (“SEC”) the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2020. The Offering closed on March 26, 2021. The gross proceeds to CASI from the Offering are
approximately $32.5 million, excluding the over-allotment option and before deducting the underwriting discounts and commissions and
offering expenses payable by CASI.
Certain insiders, including CASI’s Chairman and Chief Executive Officer, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company has agreed to pay the underwriters a
commission of 1% of the gross proceeds raised from certain such insiders, and 6% of the gross proceeds raised in the offering from other
investors.
The Offering is being made by means of a written prospectus supplement and accompanying prospectus forming part of a shelf
registration statement on Form S-3 (Registration Statement No. 333-250801), previously filed with the SEC on November 20, 2020, which
was declared effective on December 2, 2020. The Company filed a final prospectus supplement, dated March 24, 2021, with the SEC
relating to the Offering.
Pursuant to the Underwriting Agreement, the Company’s directors and executive officers entered into agreements in substantially
the form agreed to by the Underwriters providing for a 90-day “lock-up” period with respect to sales of specified securities, subject to
certain exceptions.
“Shelf” Registration Statement
On November 20, 2020, we filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration process. In
December 2020, 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 $150 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 a result of our failure to timely file a periodic report with the SEC in connection with the adoption of our amended and restated
bylaws, absent a waiver of the Form S-3 eligibility requirements, we are ineligible to use or file new short form registration statements on
Form S-3 until October 1, 2021, assuming we continue to timely file our required Exchange Act reports. In the interim, however, the
Company may raise capital pursuant to a registration statement on Form S-1 or on a private placement basis.
July 2020 Underwritten Public Offering
On July 24, 2020, the Company closed an underwritten public offering of 23 million shares of common stock (the “Offering”) and
generated gross proceeds of $43.7 million before deducting the underwriting discounts and commissions and offering expenses payable by
CASI.
Certain insiders, including CASI’s Chairman and CEO, and CASI’s President, purchased shares of common stock in the Offering
at the public offering price and on the same terms as the other purchasers in this Offering. The Company is using the net proceeds of this
offering for working capital and general corporate purposes, which include, but are not limited to advancing the Company’s product
portfolio, acquiring the rights to new product candidates and general and administrative expenses.
Sales Agreements
On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C.
Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time, at its option,
shares of the Company’s common stock, through HCW, as sales agent. On July 19, 2019, the Company entered into an amendment to the
Sales Agreement reducing the maximum amount that may be sold under the Sales Agreement to $20 million.
In 2018, the Company issued 143,248 shares under the Sales Agreement resulting in net proceeds to the Company of $475,000.
As of March 30, 2021, 19.5 million remained available under the Sales Agreement.
On July 19, 2019, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (the “Open Market
Agreement”). Pursuant to the terms of the Open Market Agreement, the Company may elect to sell from time to time, at its option, up to
$30 million in shares of the Company’s common stock, through Jefferies LLC, as sales agent. In 2019, the Company issued 59,000
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shares under the Open Market Agreement resulting in net proceeds to the Company of $182,000. During 2020, there were 434,000 shares
issued under the Open Market Agreement with net proceeds of $1,357,000. As of March 30, 2021, the Company has issued 493,000 shares
with net proceeds of $1,539,000. As of March 30, 2021, $28.4 million remained available under the Open Market Agreement. As a result
of our failure to timely file a periodic report with the SEC in connection with the adoption of our amended and restated bylaws, absent a
waiver of the Form S-3 eligibility requirements, we are ineligible to use or file new short form registration statements on Form S-3 until
October 1, 2021, assuming we continue to timely file our required Exchange Act reports. In the interim, until October 21, 2021, absent a
waiver, however, the Company may raise capital pursuant to a registration statement on Form S-1 or on a private placement basis.
INTEREST RATE CHANGES
Management does not believe that our working capital needs are sensitive to changes in interest rates.
OFF-BALANCE-SHEET ARRANGEMENTS
We had no off-balance sheet arrangements during fiscal year 2020.
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.
DISCLOSURE.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of December 31, 2020, we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer 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,
and Chief Financial Officer 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, and Chief Financial Officer) to allow timely decisions regarding
required disclosures. Based on such evaluation, our Chief Executive Officer, and Chief Financial Officer have concluded these disclosure
controls and procedures are effective as of December 31, 2020.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fourth quarter ended December 31,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide
reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair
presentation of financial statements for external purposes in accordance with generally accepted accounting
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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, and Chief Financial
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 2013. Based
on our assessment, we concluded that our internal control over financial reporting was effective as of December 31, 2020.
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ITEM 9B. OTHER INFORMATION.
Annual Meeting of Stockholders
Our 2021 Annual Meeting of Stockholders will be held on June 15, 2021. 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.
Departure of Officer; Appointment of Officer
On March 28, 2021, Weihao Xu informed the Company that his resignation as Chief Financial Officer would be effective March
29, 2021. Mr. Xu’s resignation was to pursue a new opportunity and was not the result of any disagreement regarding the Company’s
financial reporting or accounting policies, procedures, estimates or judgments. The Board appointed Larry Zhang, the Company’s President
and former Principal Financial Officer, as Principal Financial Officer to assume Mr. Xu’s responsibilities upon his departure.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
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, 2020.
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 financial 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, 2020.
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, 2020.
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, 2020.
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
(b)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
16,746,238
Weighted-average
exercise price of
outstanding options,
warrants and rights
2.71
$
0.00
— $
2.71
$
16,746,238
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans [excluding
securities reflected in
column (a)]
10,084,923
—
10,084,923
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, 2020.
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, 2020.
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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
1.1
1.2
1.3
1.4
3.1
3.2
Common Stock Sales Agreement, dated February 23, 2018, by and between CASI Pharmaceuticals, Inc. and H.C. Wainwright &
Co., LLC (incorporated by reference to Exhibit 1.1 of our Form 8-K filed with the Securities and Exchange Commission on
February 23, 2018)
Open Market Sale Agreement SM by and between CASI Pharmaceuticals, Inc. and Jefferies LLC dated July 19, 2019 (incorporated
by reference from Exhibit 1.1 to our Current Report on Form 8-K filed on (July 19, 2019)
Amendment No. 1 to Common Stock Sales Agreement by and between CASI Pharmaceuticals, Inc. and H.C. Wainwright & Co.,
LLC dated July 19, 2019 (incorporated by reference from Exhibit 1.3 to our Current Report on Form 8-K filed on July 19, 2019)
Underwriting Agreement dated July 22, 2020 between the Company and Oppenheimer & Co., Inc. (incorporated by reference from
Exhibit 1.1 to our Current Report on Form 8-k filed on July 24, 2020).
Restated Certificate of Incorporation of CASI Pharmaceuticals, Inc. (incorporated by reference to exhibit 3.1 on our Form 10-Q for
the quarter ended June 30, 2019 filed with the Securities and Exchange Commission on August 9, 2019)
Amended and Restated Bylaws dated September 10, 2020 (incorporated by reference to Exhibit 3.2 of our 10-Q/A filed with the
Securities and Exchange Commission on February 10, 2021)
4.1
Description of Common Stock **
4.2
4.3
4.4
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 October 19, 2017)
Form of Warrant (incorporated by reference to Exhibit 4.1 of our Form 8-K filed with the Securities and Exchange Commission on
March 23, 2018)
Form of Warrant (incorporated by reference to Exhibit 4.1 of our Form 8-K filed with the Securities and Exchange Commission on
September 14, 2018)
10.1 Form of Change in Control Agreement* (incorporated by reference to Exhibit 10.1 of our Form 8-K filed with the Securities and
Exchange Commission on April 17, 2007)
10.2 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)
10.3 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)
10.4 License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and Spectrum
Pharmaceuticals, Inc. ++**
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10.5 License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and Spectrum Pharmaceuticals
Cayman, L.P. ++**
10.6 License Agreement, dated as of September 17, 2014, by and between CASI Pharmaceuticals, Inc. and Talon Therapeutics, Inc.
++**
10.7 Employment Agreement by and between CASI Pharmaceuticals, Inc. and Alex Zukiwski, dated as of April 3, 2017* (incorporated
by reference to Exhibit 10.1 of our Form 10-Q filed with the Securities and Exchange Commission on August 14, 2017)
10.8 Asset Purchase Agreement dated as of January 26, 2018 by and between CASI Pharmaceuticals, Inc. and Sandoz Inc. ++**
10.9 Memorandum of Understanding, dated November 16, 2018, by and between Management Committee of Wuxi Huishan Economic
Development Zone and CASI Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.20 of our Form 10-K filed with the
Securities and Exchange Commission on March 29, 2019)
10.10 Investment Agreement, dated November 16, 2018, by and between Administrative Committee of Wuxi Huishan
Economic Development Zone, Jiangsu Province and CASI Pharmaceuticals, Inc. (incorporated by reference to
Exhibit 10.21 on our Form 10-K filed with the Securities and Exchange Commission on March 29, 2019)
10.11 Supplementary Agreement, dated November 16, 2018, by and between Administrative Committee of Wuxi Huishan Economic
Development Zone, Jiangsu Province and CASI Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.22 on our Form 10-
K filed with the Securities and Exchange Commission on March 29, 2019)
10.12 Shareholders’ Agreement, dated November 16, 2018, between CASI Pharmaceuticals, Inc. and Wuxi Jintou Huicun Investment
Enterprise (Limited Partnership) (incorporated by reference to Exhibit 10.23 on our Form 10-K filed with the Securities and
Exchange Commission on March 29, 2019)
10.13 Lease Contract, by and between Wuxi Huishan New City Life Science & Technology Industry Development Co., Ltd. and CASI
Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.24 on our Form 10-K filed with the Securities and Exchange
Commission on March 29, 2019)
10.14 Joint Venture Contract on Establishment of CASI (Wuxi) Pharmaceuticals Co. Ltd. by and between CASI Pharmaceuticals, Inc. and
Wuxi Jintou Huicun Investment Enterprise Limited Partnership, dated as of November 16, 2018 (incorporated by reference to
Exhibit 10.25 on our Form 10-K filed with the SEC on March 29, 2019)
10.15 Labor Contract, effective as of September 1, 2018, between CASI (Beijing) Pharmaceuticals, Inc. and Wei (Larry) Zhang*
(incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K filed with the SEC on March 29, 2019)
10.16 CASI Pharmaceuticals, Inc. 2011 Long Term Incentive Plan, as amended* (previously filed with, and incorporated herein by
reference to the Company’s Definitive Proxy Statement filed on April 30, 2019)
10.17 Exclusive Distribution Agreement, effective as of March 5, 2019, by and among CASI Pharmaceuticals, Inc, China Resources
Guokang Pharmaceuticals Co., Ltd. and CASI (Beijing) Biopharmaceuticals Technology Co., Ltd. (incorporated by reference to
Exhibit 10.1 to the Quarterly Report filed May 15, 2019)
10.18 Offer Letter from CASI Pharmaceuticals, Inc. to Dr. He dated March 22, 2019, effective April 2, 2019* (incorporated by reference
to Exhibit 10.2 to the Quarterly Report filed May 15, 2019)
10.19 License Agreement by and between CASI Pharmaceuticals, Inc. and Black Belt Therapeutics Limited entered into as of April 16,
2019 (incorporated by reference to Exhibit 10.3 to the Quarterly Report filed May 15, 2019)+
10.20 Exclusive License Agreement by and between CASI Pharmaceuticals, Inc. and Juventas Cell Therapy Ltd effective June 15, 2019
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 9, 2019)+
10.21 Investment Agreement in respect of Juventas Cell Therapy Ltd effective June 15, 2019 (incorporated by reference to Exhibit 10.2 to
the Company’s Form 10-Q filed on August 9, 2019)+
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10.22 Contract for Assignment of the Right to the Use of the State-owned Construction Land (no. 3202842019CR0019) dated November
15, 2019 (incorporated by reference to Exhibit 10.22 on our Annual Report on Form 10-K filed on March 16, 2020).
10.23 Form of CASI Pharmaceuticals, Inc. Performance-Contingent 2011 Long-Term Incentive Plan Non-Qualified Stock Option Grant
Agreement (for Optionees in China)* (incorporated by reference to Exhibit 4.1 on our Quarterly Report on Form 10-Q filed
May 15, 2019)
10.24 Form of CASI Pharmaceuticals, Inc. 2011 Long-Term Incentive Plan Non-Qualified Stock Option Grant Agreement (for Optionees
in China)* (incorporated by reference to Exhibit 4.2 on our Quarterly Report on Form 10-Q filed May 15, 2019)
10.25 Form of CASI Pharmaceuticals, Inc. Performance-Contingent 2011 Long-Term Incentive Plan Non-Qualified Stock Option Grant
Agreement (for Optionees in the US)* (incorporated by reference to Exhibit 4.3 on our Quarterly Report on Form 10-Q filed
May 15, 2019)
10.26 Form of CASI Pharmaceuticals, Inc. 2011 Long-Term Incentive Plan Non-Qualified Stock Option Grant Agreement (for Optionees
in the US)* (incorporated by reference to Exhibit 4.4 on our Quarterly Report on Form 10-Q filed May 15, 2019)
10.27 Supplementary Agreement to the Exclusive License Agreement effective as of September 29, 2020++ (incorporated by reference to
Exhibit 10.1 on our Quarterly Report on Form 10-Q filed on November 9, 2020)
10.28 Investment Agreement by and between Juventas Cell Therapy Ltd and CASI Biopharmaceuticals (WUXI) Co., Ltd. effective as of
September 22, 2020++ (incorporated by reference to Exhibit 10.2 on our Quarterly Report on Form 10-Q filed on November 9,
2020)
10.29 Offer Letter from CASI Pharmaceuticals, Inc. to Weihao Xu dated November 30, 2020, effective December 16, 2020***
10.30 License and Development Agreement for BI-1206 by and between the Company and BioInvent, International AB ++**
21
Subsidiaries of the Registrant **
23.1 Consent of Independent Registered Public Accounting Firm **
31.1 Rule 13a-14(a) Certification of Chief Executive Officer **
31.2 Rule 13a-14(a) Certification of Principal Financial Officer **
32.1 Rule 13a-14(b) Certification by Chief Executive Officer **
32.2 Rule 13a-14(b) Certification by Principal Financial Officer **
101** Interactive Data Files The following financial information from the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2020, formatted in Inline eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of
December 31, 2020 and 2019, (ii) Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and
2019 (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 and (v) Notes to Consolidated
Financial Statements.
104
Cover Page Interactive Data File (formatted in Inline XBRL and Contained in Exhibit 101)
* Management Contract or any compensatory plan, contract or arrangement.
+ Certain portions of this exhibit have been omitted based upon a request for confidential treatment under 17 C.F.R. section 200.80(b)(4)
and 240.24b-2. The confidential portions of this exhibit have been omitted and are marked accordingly. The confidential portions have
been filed separately with the Commission pursuant to our confidential treatment request.
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++ Information in this exhibit identified by brackets is confidential and has been excluded pursuant to Item 601(B)(10)(IV) of Regulation
S-K because it (i) is not material and (ii) would likely cause competitive harm to CASI Pharmaceuticals, Inc. if publicly disclosed.
** Filed herewith
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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 30, 2021
CASI Pharmaceuticals, Inc.
By:/s/Wei-Wu He
Wei-Wu He
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/ Wei-Wu He
Wei-Wu He
/s/ Larry (Wei) Zhang
Larry (Wei) Zhang
/s/ James Z. Huang
James Z. Huang
/s/ Franklin C. Salisbury
Franklin C. Salisbury
/s/ Rajesh C. Shrotriya
Rajesh C. Shrotriya
/s/ Y. Alexander Wu
Y. Alexander Wu
/s/ Quan Zhou
Quan Zhou
TITLE
DATE
Chief Executive Officer and Chairman
(Principal Executive Officer)
March 30, 2021
President (Principal Financial Officer)
March 30, 2021
March 30, 2021
March 30, 2021
March 30, 2021
March 30, 2021
March 30, 2021
Director
Director
Director
Director
Director
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The following consolidated financial statements of CASI Pharmaceuticals, Inc. are included in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
CASI Pharmaceuticals, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CASI Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of
December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash
flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and
the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures
to which it relates.
Fair value measurement of additional equity interest in Juventas Cell Therapy Ltd
As discussed in Notes 1 and 3 to the consolidated financial statements, in June 2019, the Company entered into a license agreement for
worldwide license to commercialize a product from Juventas Cell Therapy Ltd (“Juventas”), a privately held, China-based company. In
conjunction with the license agreement, the Company made an investment in Juventas. In September 2020, Juventas and its shareholders
(including the Company) agreed to certain terms and conditions required by a new third-party investor to facilitate the Series B financing
of Juventas, pursuant to which the Company agreed to amend and supplement the original licensing agreement. In return, the Company
obtained additional equity interests in Juventas. The fair value of the additional equity interests was RMB 83.7 million ($12.3 million)
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which was estimated using significant estimates and assumptions, including multiples of selected comparable companies in applying the
market approach model.
We identified the fair value measurement of the additional equity interests in Juventas as a critical audit matter. Due to the significant
measurement uncertainty associated with the fair value measurement of such equity interests, there was a high degree of subjectivity and
judgement in the selection and application of the valuation model and the selection of comparable companies. Specialized skill and
knowledge and subjective auditor judgment were also needed to evaluate the selection and application of valuation model, the selected
comparable companies and the multiples of comparable companies applied to the valuation model used to estimate the fair value.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal
controls related to the Company’s process to estimate the fair value of the additional equity interests in Juventas, including controls over
the Company’s (1) selection and application of the valuation model, and evaluation of selected comparable companies obtained from its
third party pricing vendor, and (2) comparing the fair value of the additional equity interests in Juventas to the issuance price of equity
interests issued by Juventas to a third-party investor. We involved valuation professionals with specialized skills and knowledge who
assisted in assessing the estimated fair value of the additional equity interests in Juventas. The assessment included:
● evaluating the valuation model used by the Company
● evaluating the comparability of the comparable companies selected by the Company
● comparing the multiples of comparable companies selected by the Company against a range that was independently developed
using publicly available market data of other comparable companies
● comparing the fair value of the additional equity interests in Juventas to the issuance price of equity interests issued by Juventas
to a third-party investor.
/s/ KPMG Huazhen LLP
We have served as the Company’s auditor since 2019.
Beijing, China
March 30, 2021
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CASI Pharmaceuticals, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Investment in equity securities, at fair value
Accounts receivable, net of $0 allowance for doubtful accounts
Inventories
Prepaid expenses and other
Assets held-for-sale
Total current assets
Property, plant and equipment, net
Intangible assets, net
Long-term investments
Right of use assets
Other assets
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
Accrued and other current liabilities
Bank borrowings
Notes payable
Total current liabilities
Deferred income
Other liabilities
Total liabilities
Commitments and contingencies (Note 21)
Redeemable noncontrolling interest, at redemption value (Note 12)
Stockholders’ equity:
Preferred stock, $1.00 par value: 5,000,000 shares authorized and 0 shares issued and
outstanding
Common stock, $0.01 par value:
250,000,000 shares authorized at December 31, 2020 and December 31, 2019;
124,023,374 shares and 97,851,243 shares issued at December 31, 2020 and December 31,
2019, respectively;
123,943,829 shares and 97,771,698 shares outstanding at December 31, 2020 and December
31, 2019, respectively
Additional paid-in capital
Treasury stock, at cost: 79,545 shares held at December 31, 2020 and December 31, 2019
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities, redeemable noncontrolling interest and stockholders' equity
See accompanying notes.
F-4
December 31,
2020
2019
$
$
$
57,064
9,309
4,645
1,356
1,651
—
74,025
2,062
13,210
29,442
8,696
299
127,734
3,669
3,015
826
466
7,976
2,351
13,834
24,161
53,621
625
1,293
4,542
1,420
3,221
64,722
985
13,674
14,038
8,708
504
102,631
5,113
2,834
—
—
7,947
—
1,019
8,966
22,033
20,670
—
—
1,240
658,246
(8,034)
589
(570,501)
81,540
127,734
$
979
606,686
(8,034)
(2,728)
(523,908)
72,995
102,631
$
$
$
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CASI Pharmaceuticals, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
Year Ended December 31,
2020
2019
Table of Contents
Revenues:
Product sales
Lease income
Total revenues
Costs and expenses:
Costs of revenues
Research and development
General and administrative
Selling and marketing
(Gain) loss on disposal of intangible assets
Impairment of intangible assets
Acquired in-process research and development
Total costs and expenses
Loss from operations
Non-operating income/(expense):
Interest income, net
Foreign exchange (losses) gains
Change in fair value of investment in equity securities
Other income
Net loss
Less: loss attributable to redeemable noncontrolling interest
Accretion to redeemable noncontrolling interest redemption value
Net loss attributable to CASI Pharmaceuticals, Inc.
Net loss per share (basic and diluted)
Weighted average number of common shares outstanding (basic and diluted)
Comprehensive loss:
Net loss
Foreign currency translation adjustment
Total comprehensive loss
Less: Comprehensive loss attributable to redeemable noncontrolling interest
Comprehensive loss attributable to common stockholders
See accompanying notes.
F-5
$
$
$
$
$
$
$
15,001
140
15,141
9,508
11,470
19,661
7,815
(1,152)
1,537
17,828
66,667
(51,526)
866
(1,255)
4,322
82
(47,511)
(918)
1,694
(48,287)
(0.44)
110,452
(47,511)
3,904
(43,607)
(331)
(43,276)
$
$
$
$
$
4,063
68
4,131
3,935
9,340
27,336
3,103
408
—
6,967
51,089
(46,958)
1,062
817
(288)
5
(45,362)
(395)
1,065
(46,032)
(0.48)
95,948
(45,362)
(1,501)
(46,863)
(395)
(46,468)
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CASI Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2020 and 2019
(In thousands, except share data)
Balance at December 31, 2018
Issuance of common stock for options and warrants exercised
Repurchase of stock options to satisfy tax withholding obligations
Issuance of common stock pursuant to financing agreements
Stock issuance costs
Stock-based compensation expense, net of forfeitures
Foreign currency translation adjustment
Net loss attributable to CASI Pharmaceuticals, Inc.
Balance at December 31, 2019
Issuance of common stock for options and warrants exercised
Repurchase of stock options to satisfy tax withholding obligations
Issuance of common stock pursuant to financing agreements
Stock issuance costs
Stock-based compensation expense, net of forfeitures
Foreign currency translation adjustment
Net loss attributable to CASI Pharmaceuticals, Inc.
Balance at December 31, 2020
See accompanying notes.
Preferred Stock
Shares Amount
Common Stock
Shares
95,287,268
2,425,526
$
Additional
Paid-in
Amount Capital
$ 596,712
4,105
(367)
181
(190)
7,310
58,904
— $ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ — 123,943,829
97,771,698
2,737,795
23,434,336
—
—
—
—
—
$
—
—
—
—
—
954
24
—
1
—
—
—
—
979
27
—
234
—
—
—
—
—
(1,065)
$ 606,686
3,847
(251)
44,865
(3,028)
7,821
(1,694)
$ 658,246
—
Accumulated
Other
Treasury Comprehensive Accumulated
Stock
$ (8,034)
Deficit
(478,941)
$
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
$
Loss
(1,227)
$
—
—
—
—
—
(1,501)
(2,728)
—
$
—
—
—
—
—
3,317
—
$
589
Total
—
—
—
—
—
—
$109,464
4,129
(367
182
(190
7,310
(1,501
(46,032
$ 72,995
3,874
—
—
(251
— 45,099
(3,028
—
7,821
—
3,317
—
(48,287
$ 81,540
(44,967)
(523,908)
(46,593)
(570,501)
$ (8,034)
$ 1,240
$ (8,034)
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CASI Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization for property, plant and equipment
Net loss on disposal of property, plant and equipment
Amortization of intangible assets
Reduction in the carrying amount of the right-of-use assets
Write down of obsolete inventories
(Gain) Loss on disposal of intangible assets
Impairment of equipment
Impairment of intangible assets
Stock-based compensation expense
Acquired in-process research and development
Change in fair value of investment in equity securities
Non-cash interest
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Payable to related party
Accrued liabilities and other liabilities
Deferred income
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of intangible assets
Purchases of property, plant and equipment
Purchase of land use rights
Loan to a related party
Receipt of repayment of loan from a related party
Cash paid to acquire in-process research and development
Cash paid to acquire debt securities in Black Belt Tx Limited
Cash paid to acquire equity securities in Juventas Cell Therapy Ltd
Cash paid to acquire equity securities in BioInvent International AB
Receipt of government grants related to land use right
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable
Proceeds from bank borrowings
Repayment of notes payable
Stock issuance costs
Proceeds from sale of common stock and warrants
Cash contribution from redeemable noncontrolling interest
Proceeds from exercise of stock options
Repurchase of stock options to satisfy tax withholding obligations
Proceeds from exercise of warrants
Payment of deferred offering costs
Net cash provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
See accompanying notes.
Year Ended December 31,
2020
2019
$
(47,511)
$
(45,362)
562
—
1,397
1,272
—
(1,152)
—
1,537
7,821
17,828
(4,322)
—
(3,352)
3,186
(184)
(1,540)
—
(1,393)
(35)
(25,886)
2,700
(1,499)
—
(10,033)
10,033
(17,828)
(83)
—
(6,318)
2,309
(20,719)
466
783
—
(2,818)
45,099
—
3,874
(251)
—
—
47,153
2,895
3,443
53,621
57,064
—
—
$
$
$
603
2
1,550
424
152
408
386
—
7,310
6,967
288
1
(1,293)
(4,411)
5,751
4,001
153
(173)
—
(23,243)
—
(427)
(6,626)
—
—
(6,967)
(2,250)
(11,788)
—
—
(28,058)
—
—
(1,500)
(190)
182
20,000
854
(367)
3,275
(209)
22,045
(1,328)
(30,584)
84,205
53,621
30
—
$
$
$
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CASI Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
1. DESCRIPTION OF BUSINESS
CASI Pharmaceuticals, Inc. (“CASI” or the “Company”) (Nasdaq: CASI) is a U.S. biopharmaceutical company focused on
developing and commercializing innovative therapeutics and pharmaceutical products in China, the United States, and throughout the
world. The Company is focused on acquiring, developing and commercializing products that augment its hematology oncology therapeutic
focus as well as other areas of unmet medical need. The Company is executing its plan to become a biopharmaceutical leader by launching
medicines in the greater China market leveraging its China-based regulatory, clinical and commercial competencies and its global drug
development expertise. The Company’s operations in China are conducted primarily through two of its subsidiaries: (i) CASI
Pharmaceuticals (China) Co., Ltd. (“CASI China”), which is wholly owned and is located in Beijing, China, and (ii) CASI Pharmaceuticals
(Wuxi) Co., Ltd. (“CASI Wuxi”), which is located in Wuxi, China.
The Company launched in China the Company’s first commercial product, EVOMELA® (Melphalan for Injection) in August
2019. In China EVOMELA is approved for use as a conditioning treatment prior to stem cell transplantation and as a palliative treatment
for patients with multiple myeloma. The Company’s other core hematology/oncology assets in the Company’s pipeline include:
● CNCT19 is an autologous CD19 CAR-T investigative product (CNCT19) being developed by the Company’s partner
Juventas Cell Therapy Ltd (“Juventas”) for which the Company has co-commercial and profit-sharing rights. CNCT19 is
being developed as a potential treatment for patients with hematological malignancies which express CD19 including, B-cell
acute lymphoblastic leukemia (“B-ALL”) and B-cell non-Hodgkin lymphoma (“B-NHL”). China Phase 1 studies have been
substantially completed by Juventas, with the Phase 2 B-NHL registration study in China currently enrolling. The Phase 2
B-ALL registration study is expected to start by the end of March 2021. In December 2020, Juventas received a
breakthrough therapy designation for CNCT19 in the treatment of adults with relapsed/refractory B-ALL from the Chinese
Center for Drug Evaluation, a division of the China National Medical Products Administration.
● BI-1206 is an antibody which has a novel mode-of-action, blocking the inhibitory antibody checkpoint receptor FcγRIIB to
unlock anti-cancer immunity in both hematological malignancies and solid tumors for which the Company has exclusive
greater China rights BI-1206 is being investigated in a Phase 1/2 trial, in combination with anti-PD1 therapy Keytruda®
(pembrolizumab), in solid tumors, and in a Phase 1/2a trial in combination with MabThera® (rituximab) in patients with
relapsed/refractory non-Hodgkin lymphoma (NHL). BioInvent International AB, released positive interim results from its
Phase 1/2a trial that suggests that novel anti-FcyRIIB antibody BI-1206 restores activity of rituximab in patients with
relapsed/refractory non-Hodgkin’s lymphoma. An FDA End of Phase 1 meeting for the NHL development program is
planned for the third quarter of 2021.
● CB-5339 is a novel VCP/p97 inhibitor, in mainland China, Taiwan, Hong Kong and Macau. Cleave is a clinical-stage
biopharmaceutical company focused on valosin-containing protein (VCP)/p97 as a novel target in protein homeostasis, DNA
damage response and other cellular stress pathways for therapeutic use in cancer. CB-5339, an oral second-generation, small
molecule VCP/p97 inhibitor, is being evaluated in a Phase 1 clinical trial in patients with acute myeloid leukemia (AML) and
myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is sponsoring and evaluating CB-5339 in a
Phase 1 clinical trial of patients with solid tumors and lymphomas. The Company entered into an exclusive license with
Cleave Therapeutics, Inc. (Cleave”) for the development and commercialization of CB-5339 in March 2021.
● CID-103 is a full human IgG1 anti-CD38 monoclonal antibody recognizing a unique epitope that has demonstrated
encouraging preclinical efficacy & safety profile compared to other anti-CD38 monoclonal antibodies for which the
Company has exclusive global rights. CID-103 is being developed for the treatment of patients with multiple myeloma. The
CID-103 Phase 1 study in EU was initiated in March 2021.
Other assets in the Company’s pipeline for which the Company has exclusive rights in China are Octreotide Long Acting
Injectable (“LAI”), for which the Company plan to begin the China registration study in 2021, and a novel formulation of Thiotepa, for
which the Company’s partner plans to begin the China registration study in 2021. Thiotepa is used as a conditioning treatment for certain
allogeneic haemopoietic stem cell transplants. Subject to regulatory and marketing approvals, the Company intends to advance and
commercialize these established products in China.
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The Company’s assets include a few FDA-approved ANDAs which the Company is evaluating due to generic drug pricing
reforms by the Chinese government and its impact on the pricing and competitiveness of these products. The Company also has greater
China rights to ZEVALIN® (Ibritumomab Tiuxetan), a CD20-directed radiotherapeutic antibody that is approved in the U.S. to treat
patients with non-Hodgkin
injection) a novel,
sphingomyelin/cholesterol liposome-encapsulated, formulation of vincristine sulfate, a microtubule inhibitor, 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. However, due to the evolving standard of care
environment, the rare and niche indication for these products, and the Company’s commitment to prioritize resources, the Company is
currently evaluating its options for these products.
(vincristine sulfate LIPOSOME
(“NHL”) and MARQIBO®
lymphoma
The Company’s business development strategy is currently focused on acquiring additional targeted drugs and immuno-oncology
therapeutics through licensing that will expand its hematology-oncology franchise. In many cases its business development strategy
includes direct equity investments in the licensor company. The Company intends for its pipeline to reflect a diversified and risk-balanced
set of assets that include (1) late-stage clinical drug candidates in-licensed for China regional rights, (2) proprietary or licensed innovative
drug candidates, and (3) select high quality pharmaceuticals that fit its therapeutic focus. The Company uses a market-oriented approach to
identify pharmaceutical/biotechnology candidates that the Company believes to have the potential for gaining widespread market
acceptance, either globally or in China, and for which development can be accelerated under the Company’s global drug development
strategy. Although oncology with a focus on hematological malignancies is its principal clinical and commercial target, The Company is
opportunistic about other therapeutic areas that can address unmet medical needs.
During the second quarter 2020, the Company completed a plan to change the manufacturing site for EVOMELA to an alternative
manufacturer that significantly reduced the cost of revenue since the third quarter of 2020.
As part of the long-term strategy to support the Company’s future clinical and commercial manufacturing needs and to manage the
Company’s supply chain for certain products, on December 26, 2018, the Company established CASI Pharmaceuticals (Wuxi) Co., Ltd.
(“CASI Wuxi”). In November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in China for
the construction of a manufacturing facility. In April 2020, CASI Wuxi received RMB 15.9 million (equivalent to $2.2 million) from the
Jiangsu Province Wuxi Huishan Economic Development Zone as government grant for this development project which was recorded as
deferred income in April 2020. On August 27, 2020, CASI Wuxi entered into a Construction Project Contract for RMB 74,588,000
(equivalent to $10,923,000) to complete the phase 1 project of CASI Wuxi's research and development production base (see Note 21). The
estimated completion date is October 2023.
Certain line items, as disclosed below, in the December 31, 2019 consolidated financial statements have been reclassified to
conform to the December 31, 2020 presentation. Loss on disposal of intangible assets in the amount of $0.4 million for the year ended
December 31, 2019, which was previously included in research and development, has been separately presented on the consolidated
statement of operations and comprehensive loss for the year ended December 31, 2019. Assets held-for-sale in the amount of $3.2 million
as of December 31, 2019, which was previously included in intangible assets, and has been reclassified as assets held-for-sale and
separately presented on the consolidated balance sheet as of December 31, 2019 (see Note 8).
Liquidity Risks and Management’s Plans
Since its inception in 1991, the Company has incurred significant losses from operations and, as of December 31, 2020, has
incurred an accumulated deficit of $570.5 million. In 2012, with new leadership, the Company shifted its business strategy to China and
has since built an infrastructure in China that includes sales and marketing, medical affairs, regulatory and clinical development and in the
foreseeable future, manufacturing. In 2014, the Company changed its name to “CASI Pharmaceuticals, Inc.” The majority of the
Company’s operations are now located in China. The Company expects to continue to incur operating losses for the foreseeable future due
to, among other factors, its continuing clinical and development activities and expansion of the Company’s operations. The Company’s
operations in China are conducted primarily through two of the Company’s subsidiaries, CASI Pharmaceuticals (China) Co., Ltd. (“CASI
China”) and CASI Pharmaceuticals (Wuxi) Co., Ltd. (“CASI Wuxi”). The Company’s Beijing office is primarily responsible for the
Company’s day-to-day operations and the Company’s commercial team of over 80 hematology and oncology sales and marketing
specialists based in China. CASI Wuxi is part of the long-term strategy to support the Company’s future clinical and commercial
manufacturing needs, to manage the Company’s supply chain for certain products, and to develop a GMP manufacturing facility in China.
On July 24, 2020, the Company closed an underwritten public offering of 23 million shares of common stock (the "Offering") and
received gross proceeds of $43.7 million before deducting the underwriting discounts and commissions and offering expenses payable by
CASI. Certain insiders, including CASI's Chairman and CEO, and CASI's President, purchased shares of common stock in
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the Offering at the public offering price and on the same terms as the other purchasers in this Offering (see Note 12). The Company is using
the net proceeds of this Offering for working capital and general corporate purposes, which include, but are not limited to advancing the
Company's product portfolio, acquiring the rights to new product candidates and general and administrative expenses.
On November 20, 2020, the Company filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration process.
On December 2020, the Form S-3 registration statement was declared effective by the SEC. Pursuant to this shelf registration statement,
the Company may sell debt or equity securities in one or more offerings up to a total public offering price of $150 million. As a result of
the Company’s failure to timely file a periodic report with the SEC in connection with the adoption of its amended and restated bylaws,
absent a waiver of the Form S-3 eligibility requirements, the Company is ineligible to use or file new short form registration statements on
Form S-3 until October 1, 2021, assuming the Company continues to timely file the Company’s required Exchange Act reports. In the
interim, however, the Company may raise capital pursuant to a registration statement on Form S-1 or on a private placement basis.
On March 24, 2021, the Company closed an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc., as representative of the several underwriters named therein (the “Underwriters”), providing for the offer and sale of 15,853,658 shares
of the Company’s common stock (the “Offering”) at a price to the public of $2.05 per share. In addition, the Company granted the
Underwriters an option to purchase up to an additional 2,378,048 shares of common stock, which terminates on the earlier of 30 days and
the day before the Company files to the Securities and Exchange Commission (“SEC”) the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2020. The Offering closed on March 26, 2021. The gross proceeds to CASI from the Offering are
approximately $32.5 million, excluding the over-allotment option and before deducting the underwriting discounts and commissions and
offering expenses payable by CASI.
Certain insiders, including CASI’s Chairman and Chief Executive Officer, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company has agreed to pay the underwriters a
commission of 1% of the gross proceeds raised from certain such insiders, and 6% of the gross proceeds raised in the offering from other
investors.
The Offering is being made by means of a written prospectus supplement and accompanying prospectus forming part of a shelf
registration statement on Form S-3 (Registration Statement No. 333-250801), previously filed with the SEC on November 20, 2020, which
was declared effective on December 2, 2020. The Company filed a final prospectus supplement, dated March 24, 2021, with the SEC
relating to the Offering.
Pursuant to the Underwriting Agreement, the Company’s directors and executive officers entered into agreements in substantially
the form agreed to by the Underwriters providing for a 90-day “lock-up” period with respect to sales of specified securities, subject to
certain exceptions.
Taking into consideration the cash and cash equivalents as of December 31, 2020, the Company believes that it has sufficient
resources to fund its operations at least one year beyond the date that the consolidated financial statements are issued. As of December 31,
2020, the Company had a balance of cash and cash equivalents of $57.1 million of which $4.5 million was held by CASI China, and $19.5
million was held by CASI Wuxi. 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 or opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive capital raising
arrangements.
Risks and Uncertainties
The Company's business has been and may continue to be adversely affected by the COVID-19 pandemic. In March 2020, the
World Health Organization characterized the outbreak of COVID-19 as a pandemic. Due to the evolving and highly uncertain nature of this
event, the Company cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact its business, results
and financial condition. The impact will depend on many factors that are not known at this time. These include, among others, the extent of
harm to public health, the continued disruption to operations, and the impact of the global business and economic environment on liquidity
and the availability of capital.
The Company has experienced operational interruptions as a result of COVID-19, including the temporary disruption of
operations in China due to a Chinese government mandated quarantine protocol, including mandatory business closures, social distancing
measures, and various travel restrictions. Although the Company's operations in China are beginning to normalize, there can be no
assurance that such operations will continue to do so or that there will not be a renewed outbreak of COVID-19 due to new variants
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of the virus or other significant contagious diseases in China or elsewhere. To the extent that such events occur, demand for the Company's
products may decline, and the Chinese government or other governments may impose additional restrictions resulting in further shutdowns,
further work restrictions, and the disruption of the Company’s supply and distribution channels.
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, the economies and financial markets of
many countries, which may result in a period of regional, national, and global economic slowdown or regional, national, or global
recessions that could affect the Company's ability to continue to commercialize and expand distribution of EVOMELA (Melphalan For
Injection) or other drugs in the Company’s existing product pipeline. The effectiveness of the Company's sales teams may be negatively
impacted by the lack of travel and their reduced ability to engage with decision-makers. In the first quarter of 2020, during which the peak
of the pandemic occurred in China, the Company experienced some disruptions to EVOMELA marketing and sales activities due to travel
restrictions and the prioritization of hospitals and physicians to attend to patients with COVID-19 infection. During the remainder of 2020,
operations have returned to expected levels; however, there can be no assurance that such restrictions will not be imposed again. In
addition, economic and other uncertainties may adversely affect other parties' willingness to negotiate and execute product licenses and
thus hamper the Company's ability to in-license clinical-stage and late-stage drug candidates in China or elsewhere.
The Company currently relies on a single source for its supply of EVOMELA. Due to COVID-19, the Company experienced a
disruption to its supply chain for EVOMELA. That disruption, along with a change in 2020 in the manufacturer of EVOMELA,
contributed to a decrease in the Company's revenue for the second quarter of 2020. The Company has returned to expected levels of sales
as indicated by the increase in sales in the second half of 2020.
If suppliers refuse or are unable to provide products for any reason (including the occurrence of an event like the COVID-19
pandemic that makes delivery impractical), the Company would be required to negotiate an agreement with a substitute supplier, which
would likely interrupt the manufacturing of EVOMELA, cause delays and increase costs.
Clinical trials, whether planned or ongoing, may be affected by the COVID-19 pandemic. The Company's partner, Juventas,
experienced some delay in the conduct of the CNCT19 clinical trials due to the COVID-19 pandemic. The COVID-19 pandemic has also
impacted the Company's targeted start time of CID-103 trial due to the lock-down of many medical facilities in Europe. Study procedures
(particularly any procedures that may be deemed non-essential), site initiation, participant recruitment and enrollment, participant dosing,
shipment of the Company's product candidates, distribution of clinical trial materials, study monitoring, site inspections and data analysis
may be paused or delayed due to changes in hospital or research institution policies, federal, state or local regulations, prioritization of
hospital and other medical resources toward COVID-19 efforts, or other reasons related to the pandemic. In addition, there could be a
potential effect of COVID-19 on the operations of the health regulatory authorities, which could result in delays of reviews and approvals,
including with respect to the Company's product candidates. Any prolongation or de-prioritization of the Company's clinical trials or delay
in regulatory review resulting from such disruptions could materially affect the development and study of the Company's product
candidates.
License and Distribution Agreements
China Resources Guokang Pharmaceuticals Co., Ltd
The Company has product rights and perpetual exclusive licenses from Acrotech Biopharma L.L.C. (“Acrotech”) to develop and
commercialize its commercial product EVOMELA® in the greater China region (which includes China, Taiwan, Hong Kong and Macau).
On December 3, 2018, the Company received NMPA’s approval for importation, marketing and sales in China, and in August 2019 the
Company launched EVOMELA in China. The NMPA required post-marketing study is ongoing and is actively recruiting.
In March 2019, the Company entered into a three-year exclusive distribution agreement with China Resources Guokang
Pharmaceuticals Co., Ltd (“CRGK”) to appoint CRGK on an exclusive basis as its distributor to distribute EVOMELA in the territory of
the People’s Republic of China (excluding Hong Kong, Taiwan and Macau), subject to certain terms and conditions. The Company’s
internal marketing and sales team will continue to be responsible for commercial activities, including, for example, direct interaction with
Key Opinion Leaders (KOL), physicians, hospital centers and the generating of sales. Commercial sales of EVOMELA were launched in
August 2019. For the year ended December 31, 2020 and 2019, the Company recognized $15.0 million and $4.1 million, respectively, of
revenues from sales of EVOMELA under this arrangement.
Juventas Cell Therapy Ltd
In June 2019, the Company entered into a license agreement for worldwide license to commercialize an autologous anti-CD19 T-
cell therapy product (CNCT19) from Juventas Cell Therapy Ltd (“Juventas”) (the “Juventas license agreement”). Juventas is a China-
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based company engaged in cell therapy. The terms of the agreement include RMB 70 million ($10 million) of milestone payments upon the
registration of Phase II clinical trial of CNCT19 and sales royalty payments. The milestone became probable to be met during the quarter
ended September 30, 2020. As a result, the Company paid the milestone payment of RMB 70 million to Juventas in September 2020 (see
Note 3), which was expensed as acquired in-process research and development in the accompanying consolidated statement of operations
and comprehensive income for the year ended December 31, 2020.
In September 2020, Juventas and its shareholders (including CASI Biopharmaceuticals) agreed to certain terms and conditions
required by a new third-party investor to facilitate the Series B financing of Juventas, pursuant to which the Company agreed to amend and
supplement the original licensing agreement (the "Supplementary Agreement") by agreeing to pay Juventas certain percentage of profits
generated from commercial sales of CNCT19. The Supplementary Agreement also specifies a minimum annual target net profit to be
distributed to Juventas and certain other terms and obligations. In return, the Company obtained additional equity interests in Juventas (see
Note 3).
Under the Supplementary Agreement, Juventas and the Company will jointly market CNCT19, including, but not limited to,
establishing medical teams, developing medical strategies, conducting post-marketing clinical studies, establishing Standardized Cell
Therapy Centers, establishing and training providers with respect to cell therapy, testing for cell therapy, and monitoring quality controls
(cell collection and transfusion, etc.), and patient management (adverse reactions treatment, patients’ follow-up visits, and establishment of
a database). The Company also will reimburse Juventas for a portion of Juventas’ marketing expenses as reviewed and approved by a joint
commercial committee to be constituted. The Company will continue to be responsible for recruiting and establishing a sales team to
commercialize CNCT19.
In November 2020, Juventas Cell Therapy Ltd completed the Series B financing.
BioInvent International AB
In October 2020, the Company entered into an exclusive licensing agreement with BioInvent International AB (“BioInvent”) for
the development and commercialization of novel anti-FcγRIIB antibody, BI-1206, in mainland China, Taiwan, Hong Kong and Macau.
BioInvent is a biotechnology company focused on the discovery and development of first-in-class immune-modulatory antibodies for
cancer immunotherapy.
Under the terms of the agreement, BioInvent and CASI will develop BI-1206 in both hematological malignancies and solid
tumors, with CASI responsible for commercialization in China and associated markets. CASI made a $5.9 million upfront payment in
November 2020 to BioInvent and will pay up to $83 million in development and commercial milestone payments plus tiered royalties in
the high-single to mid-double-digit range on net sales of BI-1206. Because BI-1206 underlying the acquired rights has not reached
technological feasibility and has no alternative uses, the Company expensed $5.9 million as acquired in-process research and development
in the accompanying consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.
BI-1206 is an antibody which has a novel mode-of-action, blocking the inhibitory antibody checkpoint receptor FcγRIIB to
unlock anti-cancer immunity in both hematological malignancies and solid tumors for which the Company has exclusive greater China
rights BI-1206 is the Company’s partner’s lead drug candidate and is being investigated in a Phase 1/2 trial, in combination with anti-PD1
therapy Keytruda® (pembrolizumab), in solid tumors, and in a Phase 1/2a trial in combination with MabThera® (rituximab) in patients
with relapsed/refractory non-Hodgkin lymphoma (NHL). BioInvent International AB, released positive interim results from its Phase 1/2a
trial that suggests that novel anti-FcyRIIB antibody BI-1206 restores activity of rituximab in patients with relapsed/refractory non-
Hodgkin’s lymphoma. An FDA End of Phase 1 meeting for the NHL development program is planned for the third quarter of 2021.
Black Belt Therapeutics Limited
In April 2019, the Company entered into a license agreement with Black Belt Therapeutics Limited (“Black Belt”) for exclusive
worldwide rights to CID-103, an investigational anti-CD38 monoclonal antibody (Mab) (formerly known as TSK011010). The CID-103
Phase 1 study is scheduled to begin in EU in March 2021. The Company expects that its clinical materials and commercial inventory will
be supplied by one or more contract manufacturers with whom the Company is in current discussions. Under the terms of the agreement,
CASI obtained global rights to CID-103 for an upfront payment of 5 million euros ($5.7 million) as well as certain milestone and royalty
payments. Because CID-103 underlying the acquired rights has not reached technological feasibility and has no alternative uses, the
Company expensed 5 million euros as acquired in-process research and development in the accompanying consolidated statement of
operations and comprehensive loss for the year ended December 31, 2019.
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Cleave Therapeutics, Inc.
In March 2021, the Company entered into an exclusive license with Cleave Therapeutics, Inc. (“Cleave”) for the development and
commercialization of CB-5339, an oral novel VCP/p97 inhibitor, in both hematological malignancies and solid tumors, in Mainland China,
Hong Kong, Macau and Taiwan. Cleave is a clinical-stage biopharmaceutical company focused on valosin-containing protein (VCP)/p97
as a novel target in protein homeostasis, DNA damage response and other cellular stress pathways for therapeutic use in cancer. CB-5339
is being evaluated in a Phase 1 clinical trial in patients with acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS), while
the National Cancer Institute (NCI) is sponsoring and evaluating CB-5339 in a Phase 1 clinical trial of patients with solid tumors and
lymphomas.
Pharmathen Global BV
On October 29, 2019, the Company entered into an exclusive distribution agreement with Pharmathen Global BV ("Pharmathen")
for the development and distribution of octreotide long acting injectable (Octreotide LAI) microsphere in China. Octreotide LAI
formulations, which are approved in various European countries, are considered a standard of care for the treatment of acromegaly and the
control of symptoms associated with certain neuroendocrine tumors. Subject to regulatory and marketing approvals, the Company intends
to advance and commercialize these established products in China.
The terms of the agreement include an upfront payment of 1 million euros which was paid by the Company in 2019, and up to 2
million euros of additional milestone payments. During the year ended December 31, 2020, milestones were achieved related to
Pharmathen's approval of Octreotide in the UK, which triggered a 1 million euros payment to Pharmathen, and related to the first
submission to the National Medical Products Administration in China, triggering a 500,000 euros payment to Pharmathen. The 1.5 million
euros ($1.7 million) was expensed as acquired in-process research and development in the accompanying consolidated statement of
operations and comprehensive income for the year ended December 31, 2020. CASI is responsible for the development, import drug
registration, product approval and commercialization in China. CASI has a 10-year non-royalty exclusive distribution period after the
product launch at agreed supply costs for the first three years.
Riemser Pharma GmbH
In August 2019, the Company entered into an distribution agreement in China with Riemser Pharma GmbH (“Riemser”) to a
novel formulation of thiotepa, a chemotherapeutic agent, which has multiple indications including use as a conditioning treatment for use
prior to allogenic hematopoietic stem cell transplantation. Thiotepa has a long history of established use in the hematology/oncology
setting. Pursuant to the distribution agreement, CASI obtained the exclusive distribution right of the products in China, and Riemser will be
responsible for manufacturing and supplying CASI with clinical materials and commercial inventory. Subject to regulatory and marketing
approvals, the Company intends to advance and commercialize these established products in China.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company's significant accounting
estimates relate to recoverability of operating lease right-of-use assets, intangible assets and long-term investments, net realizable value and
obsolescence allowance for inventory, deferred tax assets and valuation allowance, allowance for doubtful accounts, stock-based
arrangements and fair value of investments in equity securities in Juventas. 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.
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Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, in which CASI,
directly or indirectly, has a controlling financial interest. These subsidiaries include Miikana Therapeutics, Inc. ("Miikana"), CASI China,
CASI Wuxi and CASI Biopharmaceuticals.
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.
CASI Wuxi was established on December 26, 2018 in China to develop a manufacturing facility in China. CASI
Biopharmaceuticals is a wholly owned subsidiary of CASI Wuxi and was established in April 2019. The Company controls CASI Wuxi
through 80% voting rights. Accordingly, the financial statements of CASI Wuxi have been consolidated in the Company's consolidated
financial statements since its inception.
All inter-company balances and transactions have been eliminated in consolidation. The Company currently operates in one
operating segment, which is the development of innovative therapeutics addressing cancer and other unmet medical needs for the global
market.
Foreign Currency Translation and Transactions
The accompanying consolidated financial statements of the Company are reported in US dollars. The financial position and results
of operations of the Company’s subsidiaries in the PRC are measured using the Renminbi (RMB), which is the local and functional
currency of these entities. Assets and liabilities of the Company’s PRC subsidiaries are translated into US$ using the exchange rates in
effect at the consolidated balance sheet date. The revenues and expenses of these entities are translated into US$ at the weighted average
exchange rates for the period. The resulting translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a
component of shareholders’ equity.
Transactions denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing on the
transaction dates. Foreign currency denominated financial assets and liabilities are remeasured at the exchange rates prevailing at the
balance sheet date. Net gains or losses resulting from foreign currency denominated transactions are recorded in foreign exchange gain
(losses) in the consolidated statements of operations.
Revenue Recognition
Product sales recognized in the consolidated statements of operations are considered revenue from contracts with customers and,
accordingly, the Company recognizes revenue using the following steps:
● Identification of the contract, or contracts, with a customer;
● Identification of the performance obligations in the contract;
● Determination of the transaction price, including the identification and estimation of variable consideration;
● Allocation of the transaction price to the performance obligations in the contract; and
● Recognition of revenue when the Company satisfies a performance obligation.
The Company recognizes revenue on sales of EVOMELA when the control of the product is transferred to the distributor, which
occurs upon delivery of the product to the carrier appointed by the distributor, in an amount that reflects the consideration to which the
Company expects to be entitled to in exchange for the product, excluding amounts collected on behalf of third parties (e.g. value-added
taxes). Payment terms for these sales are due within 90 days. The arrangement does not include any variable consideration.
The costs of assurance type warranties that provide the customer the right to exchange purchased product that does meet
appropriate quality standards are recognized when they are probable and are reasonably estimable. There was no product exchange during
the years ended December 31, 2020 and 2019. As of December 31, 2020 and 2019, the Company did not incur, and therefore did not defer,
any material costs to obtain or fulfill contracts. The Company did not have any contract assets or contract liabilities as of December 31,
2020 and 2019.
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Concentrations of Risk
Cash Concentration Risk
The Company maintains its U.S. and RMB cash in bank deposit accounts, which, at times, may exceed regulated insured limits.
The Company believes it is not exposed to significant credit risk on cash and cash equivalents.
Vendor Concentration Risk
The Company has a sole supplier for its EVOMELA product. Through the second quarter of 2020, it was sourced solely from
Spectrum Pharmaceuticals, Inc. (“Spectrum”) and its suppliers. Starting with the third quarter of 2020, and all future needs will be sourced
from Acrotech and its suppliers. The Company’s ability to select other providers of EVOMELA is limited by FDA regulations.
Accounts Receivable and Credit Concentration
CRGK is the sole customer of the Company's EVOMELA product sales in China. All consolidated revenues for the year ended
December 31, 2020 and 2019 were generated from sales to CRGK in China, and all the Company's accounts receivable balance as of
December 31, 2020 and 2019 were due from CRGK. Accounts receivable consist of CRGK receivables of $4.6 million and $1.3 million as
of December 31, 2020 and 2019, respectively.
The Company extends credit to CRGK on an unsecured basis and maintains an allowance for doubtful accounts for estimated
losses inherent in its accounts receivable. In establishing the required allowance, management considers the historical losses, customer’s
financial condition, the amount of accounts receivables in dispute, the accounts receivables aging and the customer’s payment pattern. The
Company determined that no allowance for doubtful accounts were necessary as of December 31, 2020 and 2019. The balance of accounts
receivable as of December 31, 2020 has been subsequently collected.
Fair Value of Financial Instruments
The majority of the Company’s financial instruments (consisting principally of cash and cash equivalents, accounts receivable,
prepaid expenses, accounts payable, accrued liabilities, bank borrowings, and notes payable) are carried at cost which approximates their
fair values due to the short-term nature of the instruments. The Company’s investment in equity securities is carried at fair value, and its
investment in convertible loan-AFS are carried at fair value (see Note 3). The Company also had a note payable which was paid off during
the year ended December 31, 2019 (see Note 11).
See Note 18 for additional fair value disclosures.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with original maturities of less than 90 days that are readily
convertible to known amounts of cash.
Inventories
Inventories consist of EVOMELA finished goods and raw materials to be used in production of ANDAs and are stated at the
lower of cost or net realizable value. Cost is determined using a first-in, first-out method. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Adjustments are recorded
to write down the carrying amount of any obsolete and excess inventory to its estimated net realizable value based on historical and
forecasted demand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any.
Costs incurred in the construction of property, plant and equipment, including down payments and progress payments, are initially
capitalized as construction-in-progress and transferred into their respective asset categories when the assets are ready for their intended use,
at which time depreciation commences. Furniture and equipment are depreciated over their estimated useful lives of 3 to 5 years. Leasehold
improvements are amortized over the shorter of their useful lives or the lease term. Depreciation and amortization expense are determined
on a straight-line basis.
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Costs of Revenues
Costs of revenues consist primarily of the cost of inventories of EVOMELA and sales-based royalties related to the sale of
EVOMELA.
Investments
Investment in equity securities with readily determinable fair value are measured at fair values, and any changes in fair value are
recognized in earnings. Where the fair value of an investment in equity securities is not readily determinable, the Company recognizes such
investment in long-term investments, and uses the measurement alternative of cost minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
For equity investments measured at fair value with changes in fair value recorded in earnings, the Company does not assess
whether those securities are impaired. For equity investments without readily determinable fair value, at each reporting period, the
Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. Impairment
indicators that the Company considers include, but are not limited to, (i) the deterioration of earnings performance, credit rating, asset
quality, or business prospects of the investee, (ii) a significant adverse change in the regulatory, economic, or technological environment of
the investee, (iii) a significant adverse change in the general market condition of either the geographic area or the industry in which the
investee operates. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair
value and if the fair value is less than the investment’s carrying value, the Company recognizes an impairment loss in non-operating
expenses equal to the difference between the carrying value and fair value.
Dividend income is recognized in other income when earned.
Leases
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”) and subsequent
amendments issued by FASB on January 1, 2019, using a modified retrospective method for leases that exist at, or are entered into after,
January 1, 2019, and has not recast the comparative periods presented in the consolidated financial statements.
Prior to the adoption of ASC 842, operating leases were not recognized on the balance sheet of the Company, instead rent
expenses with fixed escalating payments and/or rent holidays were recognized on a straight-line basis over the lease term.
Upon adoption of ASC 842, ROU assets and lease liabilities are recognized upon lease commencement for operating leases based
on the present value of lease payments over the lease term. As the rate implicit in the lease cannot be readily determined, the Company uses
incremental borrowing rate at the lease commencement date in determining the imputed interest and present value of lease payments. The
incremental borrowing rate was determined based on the rate of interest that the Company would have to borrow an amount equal to the
lease payments on a collateralized basis over a similar term. The incremental borrowing rate is primarily influenced by the risk-free interest
rate of China and the US, the Company’s credit rating and lease term, and is updated for measurement of new lease liabilities.
For operating leases, the Company recognizes a single lease cost on a straight-line basis over the remaining lease term.
The Company has elected not to recognize ROU assets or lease liabilities for leases with an initial term of 12 months or less; the
Company recognizes lease expense for these leases on a straight-line basis over the lease term. In addition, the Company has elected not to
separate non-lease components (e.g., common area maintenance fees) from the lease components.
Land use rights acquired are assessed in accordance with ASC 842 and recognized in right-of-use assets if they meet the definition
of lease.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment, operating lease right-of-use (“ROU”) assets and intangible assets
subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Such events and circumstances include the use of the asset or asset group in current research and
development projects and any potential alternative uses of the asset or asset group. If circumstances require a long-lived asset or asset
group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or
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asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow
basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various
valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary. Impairment charges related to property, plant and equipment were $0 and $386,000 for the years ended in December 31, 2020
and 2019, respectively. Impairment charges related to intangibles were $1.5 million and $0 for the years ended in December 31, 2020 and
2019, respectively.
Research and Development Expenses
Research and development expenses consist primarily of compensation and other expenses related to research and development
personnel, research collaborations, costs associated with pre-clinical testing and clinical trials of the Company’s product candidates,
including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses, along with the
amortization of acquired ANDAs. Research and development costs are expensed as incurred.
Stock-Based Compensation
The Company records compensation expense associated with service and performance-based stock options in accordance with
provisions of authoritative guidance. The estimated fair value of service-based awards is determined using option pricing models that use
unobservable inputs and is generally recognized on a straight-line basis over the requisite service period and based on the proportionate
amount of the requisite service period that has been rendered during each reporting period. The estimated fair value of performance-based
awards is measured on the grant date and is recognized when it is determined that it is probable that the performance condition will be
achieved.
Government Grants
Government grants are recognized when there is reasonable assurance that the Company will comply with required conditions and
the grants will be received. Government grants related to assets are presented as deferred income that is recognized on a systematic basis
over the useful life of the asset.
Income Taxes
Income tax expense is recognized 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 and operating loss and tax credit carryforwards as
measured by the enacted tax rates that will be in effect when these differences reverse. A valuation allowance is provided to reduce the
amount of deferred income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will
not be realized.
The Company recognizes in its consolidated financial statements the impact of a tax position if a tax return position or future tax
position is “more likely-than-not” to be sustained upon examination, based on the technical merits of the position. Tax positions that meet
the “more-likely-than-not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent
likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions, if any, in
income tax expense.
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. As of December 31, 2020, and 2019, outstanding stock options totaling
16,746,238 and 18,268,372, respectively, and outstanding warrants totaling 8,271,709 and 9,843,720, respectively, were anti-dilutive, and
therefore, were not included in the computation of weighted average shares used in computing diluted loss per share.
New Accounting Pronouncements
Recently Adopted Pronouncements
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2016-02, Leases (“Topic 842”). The guidance amends the accounting requirements for leases and requires lessees to recognize
assets and liabilities related to long-term leases on the balance sheets and expands disclosure requirements regarding leasing arrangements.
The Company adopted this guidance on a modified retrospective basis and used the following practical expedients:
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● The Company did not reassess if any expired or existing contracts are or contain leases;
● The Company did not reassess the classification of any expired or existing leases.
Additionally, the Company made ongoing accounting policy elections whereby it (i) does not recognize Right-of-use (“ROU”)
assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease
components for facilities leases, which primarily relate to ancillary expenses such as common area maintenance charges and management
fees of operating leases.
Upon adoption of the new guidance on January 1, 2019, the Company recorded right of use assets of $3.0 million and recognized
lease liabilities of $3.2 million. There was no cumulative effect impact to accumulated deficit as of January 1, 2019. No adjustments were
made to prior comparative periods.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new
guidance requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-
use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized
implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement,
beginning when the module or component of the hosting arrangement is ready for its intended use. The update is effective for calendar-year
public business entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods
in 2022. Early adoption is permitted. The Company early adopted this guidance effective January 1, 2019. The net impact to the financial
statements was $140,000 of capitalized cost.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair
value measurements. The amendments applicable to the disclosures of changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. This
ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. All other
amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity
is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective
date. The Company adopted this guidance effective January 1, 2020. The adoption of this new accounting standard did not have a
significant impact on the Company's consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”) and
subsequent amendments to the initial guidance including ASU No. 2018-19, ASU No. 2019-04, and ASU No. 2019-05 (collectively,
“Topic 326”). Topic 326 requires entities to measure all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is
applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for public business
entities, excluding entities eligible to be smaller reporting companies for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. For all other entities, this standard is effective for annual and interim periods beginning after December
15, 2022 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. As a smaller reporting
company, the Company expects to adopt this standard in fiscal year 2023. The Company is currently assessing the impact that the adoption
of this ASU will have on the consolidated financial statements.
There are no other recently issued accounting pronouncements that are expected to have a material effect on the Company’s
financial position, results of operations or cash flows.
3. INVESTMENT IN EQUITY SECURITIES, AT FAIR VALUE AND LONG-TERM INVESTMENTS
Investment in equity securities, at fair value
MaxCyte Inc.
The Company has an equity investment in the common stock of MaxCyte, a publicly traded company. The Company’s investment
in this equity security is carried at its fair value, with changes in fair value reported in the statement of operations each
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reporting period. The fair value of this security was measured using its quoted market price, a Level 1 input, and was $2.7 million as of
December 31, 2020 and $0.6 million on December 31, 2019 (see Note 18).
BioInvent International AB
In October 2020, in conjunction with its license agreement entered into with BioInvent (see Note 1), a publicly traded company,
CASI made a $6.3 million investment (equivalent to SEK 53.8 million) to acquire 1.2 million new shares (after 25:1 reverse stock split) of
BioInvent, and 14,700,000 warrants, each warrant with a right to subscribe for 0.04 shares (after 25:1 reverse stock split) in BioInvent
within a period of five years.
The investments in the ordinary shares and warrants of BioInvent are carried at fair value, with changes in fair value reported in
the statement of operations each reporting period. The fair value of the ordinary shares was measured using its quoted market price, a Level
1 input, and was $6.6 million as of December 31, 2020 (see Note 18).
The fair value of the warrants was measured using observable market-based inputs other than quoted prices in active markets for
identical assets or liabilities, level 2 inputs. The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of
warrants. The fair value of the warrants was $841,000 as of December 31, 2020 (see Note 18), with assumptions including an expected life
of 4.91 years, an assumed volatility of 47.63%, and a risk-free interest rate of 0.36%.
The following table summarizes the Company’s investments in equity securities at Fair Value as of December 31, 2020:
(In thousands)
Description
MaxCyte - equity interest
BioInvent - equity interest
Classification
Investment
Investment
Cost
Gross
unrealized
gains
Aggregate fair
value
$
$
— $
$
5,661
2,729
919
$
$
2,729
6,580
Unrealized gain (losses) on the Company’s equity investment for the year ended December 31, 2020 and 2019 were $3.2 million
and ($288,000), respectively, and are recognized as change in fair value of investment in equity securities in the accompanying
consolidated statements of operations and comprehensive loss.
Long-term investments
Long-term investments consisted of the following:
(In thousands)
Available-for-sale debt securities:
Black Belt Tx Limited - convertible loan
Securities measured at fair value:
BioInvent International AB - warrants
Equity securities without readily determinable fair value:
Black Belt Tx Limited - equity interest
Juventas Cell Therapy Ltd - equity interest
Juventas Cell Therapy Ltd - put option
Total
Black Belt Tx Limited
December 31,
2020
2019
$
$
83
$
840
2,250
26,059
210
29,442
$
—
—
2,250
11,355
433
14,038
In April 2019, in conjunction with its license agreement entered into with Black Belt (see Note 1), the Company made a 2 million
euros ($2,249,600) equity investment in the ordinary shares of a newly established, privately held UK Company, Black Belt Tx Ltd ("Black
Belt Tx"), representing a 14.1% equity interest with the right to appoint a non-voting board observer. As the Company does not have
significant influence over operating and financial policies of Black Belt Tx, and the equity interests do not have readily determinable fair
value, the investment in Black Belt Tx is stated at cost minus impairment, if any, plus or minus changes resulting from observable price
changes in orderly transactions for the identical or a similar investment. The Company did not record any adjustments or impairments
during the year ended December 31, 2020 and 2019 related to this investment.
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In July 2020, the Company entered into a three-year convertible loan agreement with Black Belt Tx (the "Black Belt Tx Loan") in
the amount of 211,800 euros ($250,000) with a non-compounding annual interest rate of 6% payable at maturity. The principal balance is
also due at maturity. The proceeds will support and advance Black Belt Tx's programs and general operations.
The loan principal will be disbursed in three equal installments of 70,600 euros ($83,000). The first tranche was disbursed upon
execution of the loan agreement in August 2020. The second tranche was disbursed in February 2021. In the first quarter of 2021, Black
Belt Tx reached certain operational circumstances as stipulated in the loan agreement, and Black Belt Tx’s Board of Directors met in
February 2021 to approve disbursement of the second tranche. The third tranche will be disbursed in the event Black Belt Tx reaches again
certain operational circumstances as stipulated in the loan agreement and with Black Belt Tx's Board of Directors' approval.
In the event that Black Belt Tx, on or prior to the maturity date, completes an equity financing round of at least 5,000,000 euros
($5.9 million), then the outstanding principal amount shall be automatically converted into such shares at 80% of the price per share issued
divided by a compensating factor based on the number of years that the Black Belt Tx Loan has been outstanding. The investment in
convertible loan is accounted for as investment in debt securities as available-for-sale instrument.
Juventas Cell Therapy Ltd
In June 2019, in conjunction with its license agreement entered into with Juventas (see Note 1), the Company, through CASI
Biopharmaceuticals, a wholly-owned subsidiary of CASI Wuxi, made an RMB 80 million ($11,788,000) investment in Juventas, a
privately held, China-based company, in Juventas' Series A plus equity, which represented a 16.327% equity interest on a fully diluted
basis, and the right to appoint a non-voting board observer. The Company was entitled with substantive liquidation preference over the
founding shareholder of Juventas. In addition, the Juventas' founding shareholder provided a put option to the Company pursuant to which
the Company can put the equity investment to the founding shareholder at a fixed return of 8% per annum upon occurrence of certain
events. The investment in the equity interests of the Juventas and the investment in put option to the founding shareholder were accounted
for as investments in equity securities using the measurement alternative at its cost, minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value
of the equity securities of Juventas is not readily determinable. The consideration of RMB 80 million ($11,788,000) was allocated into
investment in equity interests and investment in put option based on their relative fair value on the transaction date.
In September 2020, in conjunction with the Supplementary Agreement entered into with Juventas (see Note 1), the Company
obtained additional Series A plus equity interest in Juventas with substantive liquidation preference over Juventas' founding shareholder,
resulting in the Company's equity ownership increasing to 16.45% (post-Juventas Series B financing) on a fully diluted basis. CASI
Biopharmaceuticals is also entitled to appoint a director to Juventas’ board of directors. Juventas' founding shareholder also provided a put
option to the Company pursuant to which the Company can put the additional equity investment to the founding shareholder at RMB 70
million plus a fixed return of 8% per annum upon occurrence of certain events. The transaction closed on September 29, 2020. The fair
value of the Company's additional equity interest in Juventas and the new put option was RMB 83.7 million ($12.3 million) and RMB 0.4
million ($64,000) on September 29, 2020, respectively, which was estimated using significant estimates and assumptions, including
multiples of selected comparable companies in applying the market approach model.
Since the equity interest with substantive liquidation preference is not in-substance common stock, the investment in the
additional equity interests of Juventas was accounted for as an investment in equity securities at transaction date fair value with a
corresponding credit to Other Liabilities. The profit-sharing liability represents the Company's obligation to pay an increased share of
future profits pursuant to the Supplementary Agreement (see Note 1) which was conveyed by the Company in exchange for the additional
equity interests in Juventas. The Company views this as a payment from a vendor that should reduce cost of revenues over the period of
royalty payments. The long-term liability will be derecognized as payments are made on a systematic and rational basis representing the
pattern in which the Company expects to settle the profit-sharing payment during the commercialization period of CNCT19.
The investments are measured using the measurement alternative at its cost, minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value
of the equity securities of Juventas is not readily determinable. In addition, the changes in the fair value of the original investment in equity
interests and put option in the amount of $1,116,000 resulting from the observable price in this transaction was recognized during the year
ended December 31, 2020.
In June 2020, the Company entered into a one-year loan agreement with Juventas in the amount of RMB 30,000,000 ($4,243,000)
with an annual interest rate of 20%. In August 2020, the Company entered into another one-year loan with Juventas in the amount of RMB
40 million ($5,790,000) for one year with an annual interest rate of 20%. In September 2020, the Company received
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early repayments for both principals and accrued interest from Juventas. For the year ended December 31, 2020, the Company recognized
interest income of $351,000 and $375,000, respectively.
4. INVENTORIES
Inventories at December 31, 2020 and 2019 consisted of the following:
(In thousands)
Finished goods
Raw materials
Total
December 31
2020
2019
1,356 $
—
$
1,356
4,514
28
4,542
$
$
No provisions to write down the carrying amount of inventory have been recorded in the year ended December 31, 2020.
Provisions to write-down the carrying amount of obsolete inventory related to ANDAs were $152,000, and were recorded as expenses in
the consolidated statements of comprehensive loss for the year ended December 31, 2019.
5. LEASES
As discussed in Note 2, effective January 1, 2019, the Company adopted Topic 842. At the inception of a contract, the Company
determines if the arrangement is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset for the lease
term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities
are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a
straight-line basis over the lease term.
The Company has made accounting policy elections whereby it (i) does not recognize ROU assets or lease liabilities for short-
term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease components for facilities leases, which
primarily relate to ancillary expenses such as common area maintenance charges and management fees of its operating leases. Operating
lease liabilities (see below) are included in accrued liabilities and other current liabilities, and other liabilities (noncurrent) in the
consolidated balance sheets as of December 31, 2020. As of December 31, 2020, the Company did not have any finance leases.
All of the Company’s existing leases as of December 31, 2020 are classified as operating leases. As of December 31, 2020, the
Company has seven material operating leases for land, facilities and office equipment with remaining terms expiring from 2021 through
2069 and a weighted average remaining lease term of 38.37 years. The Company has fair value renewal options for many of the Company’s
existing leases, none of which are considered reasonably certain of being exercised or included in the minimum lease term. Weighted
average discount rates used in the calculation of the lease liability is 3.72%. The discount rates reflect the estimated incremental borrowing
rate, which includes an assessment of the credit rating to determine the rate that the Company would have to pay to borrow, on a
collateralized basis for a similar term, an amount equal to the lease payments in a similar economic environment.
In November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in China for the
construction of a manufacturing facility. The land parcel is 74,028.40 square meters. The Company classifies this lease as an operating
lease. The Company prepaid all of the lease payments for the land use right in 2019 in the amount of RMB45 million (equivalent to $6.5
million). During 2020, the Company entered into two 3-year lease agreements for office space in China each of which continue through
August 2023 and September 2023, respectively, and one 5-year lease agreement for a Research and Development facility also in China
which continues through March 2025. The Company recorded right-of-use assets of $1.3 million and related lease liabilities of $1.2 million
at lease commencement date. The Company classifies these leases as operating leases.
In the fourth quarter of 2020, the company terminated one lease of office space twelve months earlier than the lease term and
recognized a loss of $13,000 from this lease termination.
Rent expense for the years ended December 31, 2020 and December 31, 2019 was $1,600,000 and $1,315,000. There were no
variable lease costs or sublease income for leased assets for the years ended December 31, 2020 and 2019.
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Right of use assets and liabilities as of December 31, 2020 and December 31, 2019 consolidated balance sheets were as follows:
(In thousands)
Right of use assets
Accrued liabilities
Other liabilities
Total lease liabilities
Supplemental cash flow information related to leases was as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows
Right of use assets obtained in exchange for lease obligations:
December 31,
2020
2019
8,696
939
965
1,904
$
$
$
8,708
1,182
1,019
2,201
Year Ended December 31,
2020
2019
1,375
1,196
$
$
1,315
2,157
$
$
$
$
$
A maturity analysis of the Company’s operating leases as of December 31, 2020 follows:
Future undiscounted cash flows:
(In thousands)
2021
2022
2023
Thereafter
Total
Discount factor
Lease liability
Amounts due within 12 months
Non-current lease liability
$
$
1,052
626
280
42
2,000
(96)
1,904
939
965
6. PROPERTY, PLANT AND EQUIPMENT
In November 2019, CASI Wuxi entered into a lease agreement for the right to use state-owned land in China for the construction
of a manufacturing facility. Pursuant to the agreement, CASI Wuxi commits to invest land use right and property, plant and equipment of
RMB 1 billion (equivalent to $143 million). On August 27, 2020, CASI Wuxi entered into a Construction Project Contract (the
"Construction Contract") with China Electronic System Engineering No. 2 Construction Co., Ltd. ("China Engineering"). Pursuant to the
Construction Contract, CASI Wuxi will pay a contract price of RMB 74,588,000 (equivalent to $10,923,000) to retain China Engineering
to complete the phase 1 project of CASI Wuxi's research and development production base, consisting of construction and installation of a
combined factory building, warehouse, guard house and public works. The estimated completion date is October 2023.
Construction in progress (“CIP”) is included in Property, Plant and Equipment (“PP&E”). CIP is stated at cost and includes costs
incurred to acquire, construct, or install PP&E. CIP overhead is expensed as incurred. Construction in progress is not depreciated until such
time when the asset is substantially completed and ready for its intended use. At December 31, 2020, CIP is $1.2 million.
Furniture and equipment are stated at cost and are depreciated over their estimated useful lives of 3 to 5 years. Leasehold
improvements are stated at cost and are amortized over the shorter of their useful lives or the lease term. Depreciation and amortization
expense are determined on a straight-line basis. Depreciation and amortization expense were $562,000 and $603,000 in 2020 and 2019,
respectively.
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Property, plant and equipment consist of the following:
(In thousands)
Furniture and equipment
Leasehold improvements
Construction in progress
Total property, plant and equipment, gross
Accumulated depreciation and amortization
Impairment of property, plant and equipment
December 31,
2020
2019
$
$
1,622
985
1,193
3,800
(1,322)
(416)
2,062
$
$
1,305
792
—
2,097
(726)
(386)
985
The Company recognized no impairment during the year ended December 31, 2020, and $386,000 during the year ended
December 31, 2019 related to equipment which was leased to a related party (see Note 19).
7. INTANGIBLE ASSETS
Intangible assets include ANDAs that were acquired as part of 2018 asset acquisitions and US marketed generic products and
capitalized cost related to a cloud computing arrangement (CCA). These intangible assets were originally recorded at relative estimated fair
values based on the purchase price for the asset acquisitions and are stated net of accumulated amortization and impairment, if any.
The ANDAs are amortized over their estimated useful lives of 13 years, using the straight-line method. The cloud computing
arrangement is amortized over its useful life of 5 years.
In February 2020, the Company entered into an agreement with Chartwell Rx Sciences, LLC (“Chartwell”) in which the Company
sold and transferred the control of seven U.S. FDA-approved ANDAs to Chartwell in exchange for $450,000 in cash, which the Company
received in March 2020. These ANDAs had a net book value of $0 at the time of sale. The Company is entitled to an additional $1 million,
contingent upon Chartwell receiving certain FDA approvals relating to certain of these ANDAs. The Company recognized a gain on
disposal of intangible assets in the amount of $450,000 in the accompanying consolidated statement of operations and comprehensive loss
for the year ended December 31, 2020. The additional $1 million is treated as variable consideration. Because the amount of variable
consideration is highly susceptible to factors outside the Company's influence and the Company’s experience with similar types of
contracts is limited, the Company did not include the amount of variable consideration in recognition of gain on disposal of intangible
assets for the year ended December 31, 2020. The Company will recognize the variable consideration and additional gain on disposal of
intangible assets when the constraint on variable consideration is resolved, i.e., Chartwell receives relevant FDA approvals.
Intangible assets at December 31, 2020 consists of the following:
(In thousands)
Asset
ANDAs
Others
Total
Purchase Price
Accumulated Amortization
$
$
15,832
197
16,029
$
$
(2,721)
(98)
(2,819)
Estimated useful lives
13 years
5 years
The changes in intangible assets for the year ended December 31, 2020 are as follows:
(In thousands)
Balance as of December 31, 2019
Additions
Disposal of 7 ANDAs at $0 net book value
Amortization expense
Foreign currency translation adjustment
Balance as of December 31, 2020
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$
$
13,674
—
—
(1,289)
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Expected future amortization expense is as follows as of December 31, 2020:
(In thousands)
2021
2022
2023
2024
2025
2026 and thereafter
8. ASSETS HELD FOR SALE
$
1,321
1,321
1,321
1,288
1,288
6,671
During the year ended December 31, 2020, the Company classified 14 ANDAs as assets held for sale as it committed to plans to
sell these assets within one year and actively market the assets in their current condition at a price that is reasonable in relation to their
estimated fair value. The Company reclassified the comparable balance sheet amounts related to these fourteen ANDAs in the amount of
$3.2 million as of December 31, 2019 from intangible assets to assets held for sale. The Company recorded an impairment related to these
assets held for sale of $1.5 million during the year ended December 31, 2020.
In July 2020, the Company entered into an agreement with Rubicon Research Private Limited (“Rubicon”) in which the Company
sold and transferred the control of four U.S. FDA-approved ANDAs to Rubicon in exchange for $1.25 million in cash, which the Company
received in July 2020. These ANDAs had a net book value of $1.25 million at the time of sale resulting in no gain or loss on the sale.
In October 2020, the Company entered into an agreement with Chartwell pursuant to which the Company sold and transferred the
control of 10 ANDAs to Chartwell in exchange for $1.0 million in cash, which the Company received in the fourth quarter of 2020. These
ANDAs had a net book value of $0.3 million at the time of sale, resulting in a gain on sale of assets of $0.7 million in the fourth quarter of
2020.
Assets held-for-sale at December 31, 2019 consist of the following:
(In thousands)
Cost of intangible assets
Accumulated amortization
9. GRANTS
December 31, 2019
4,074
(853)
3,221
$
$
In November 2019, CASI Wuxi entered into a fifty-year lease agreement for the right to use state-owned land in China for the
construction of a manufacturing facility (see Note 5). In November 2019, the Company entered into a grant agreement with the
Administrative Committee of Wuxi Huishan Economic Development Zone, under which, the Company is eligible for grants up to RMB 25
million (equivalent to $3.6 million) to support the development of CASI Wuxi’s manufacturing site.
In April 2020, CASI Wuxi received RMB 15.9 million (equivalent to $2.2 million) from the Jiangsu Province Wuxi Huishan
Economic Development Zone as a government grant for this development project which was recorded as deferred income in April 2020.
The grant will be amortized over the term of the lease of the land. The Company recognized $35,000 of other income during the year
ended December 31, 2020.
10.
BANK BORROWINGS
On November 3, 2020, Beijing Branch of China CITIC Bank Corporation Limited approved a guaranteed line of Credit (“Bank
Borrowings) to the Company with maximum borrowings of RMB 10.0 million ($1.5 million). The joint and several liability guarantee was
provided by Beijing Capital Financing Guarantee Co, Ltd. At December 31, 2020, the Company had outstanding borrowings under the
Bank Borrowings of RMB 5.4 million ($826,000), which matures on November 7, 2021, and bears interest at a fixed rate of 3.35% per
annum. Interest expense of $1,000 was recorded in the year ended December 31, 2020.
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11. NOTES PAYABLE
On April 27, 2020, M&T Bank approved a $465,595 loan to the Company under the Paycheck Protection Program (PPP) pursuant
to the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020. The loan, evidenced by a
promissory note to M&T Bank as lender and dated April 29, 2020, has a term of two years, is unsecured, and is guaranteed by the Small
Business Administration (SBA). The loan bears interest at a fixed rate of one percent per annum. Some or all of the loan may be forgiven
if the Company complies with certain relevant conditions. In June 2020, the PPP was amended through enactment of the Paycheck
Protection Program Flexibility Act of 2020 (PPPFA). Under the new act, the Company’s payments of principal and interest are deferred
until October 2021. The Company has until August 2021 to apply for loan forgiveness before potential loan payments would begin.
Interest expense of $3,100 was recorded in the year ended December 31, 2020.
12. REDEEMABLE NONCONTROLLING INTEREST
On December 26, 2018, the Company, together with Wuxi Jintou Huicun Investment Enterprise, a limited partnership organized
under Chinese law (“Wuxi LP”) established CASI Wuxi to build and operate a manufacturing facility in the Wuxi Huishan Economic
Development Zone in Jiangsu Province, China. The Company holds 80% of the equity interests in CASI Wuxi and will invest, over time,
$80 million in CASI Wuxi. The Company’s investment will consist of (i) $21 million in cash (paid in February 2019), (ii) a transfer of
selected ANDAs valued at $30 million (transferred in May 2019), and (iii) an additional $29 million cash payment within three years from
the date of establishment of CASI Wuxi. Wuxi LP holds 20% of the equity interest in CASI Wuxi through its investment in RMB of $20
million in cash (paid in March 2019). As the transfer of ANDAs, valued at $30 million, was to the Company’s consolidated subsidiary
(CASI Wuxi), the Company recognized the transfer of the ANDAs at their carrying value and did not recognize a gain on the transfer.
Pursuant to the investment contract between the Company and Wuxi LP and Articles of Association of CASI Wuxi, the Company
has the call option to purchase the 20% equity interest in CASI Wuxi held by Wuxi LP at any time within 5 years from the date of
establishment of CASI Wuxi (i.e. up to December 26, 2023). Wuxi LP has the put option to require the Company to redeem the 20% equity
interest in CASI Wuxi at any time after December 26, 2023. The redemption value under both the Company’s embedded put option and
Wuxi LP’s embedded call option is equal to $20 million plus interest at the bank loan interest rate issued by the People's Bank of China for
the period beginning with the initial capital contribution by Wuxi LP to the date of redemption. In addition, Wuxi LP has the put option to
require the Company to redeem the 20% equity interest in CASI Wuxi at $20 million upon the occurrence of any of the following
conditions: (i) the Company fails to fulfill its investment obligation to CASI Wuxi; (ii) CASI Wuxi suffers serious losses, discontinued
operation, dissolution, goes into process of bankruptcy liquidation; or (iii) the Company substantially violates the investment contract and
Articles of Association of CASI Wuxi.
The investment of Wuxi LP in CASI Wuxi is treated as redeemable noncontrolling interest and is classified outside of permanent
equity on the consolidated balance sheets because (1) the noncontrolling interest is not mandatorily redeemable financial instruments, and
(2) it is redeemable at the option of the holder, or upon the occurrence of an event that is not solely within the control of the Company. The
Company initially recorded the redeemable noncontrolling interest at its fair value of $20 million. The carrying amount of the redeemable
noncontrolling interest is subsequently recorded at the greater of the amount of (1) the initial carrying amount, increased or decreased for
the redeemable noncontrolling interest’s share of net income or loss in CASI Wuxi or (2) the redemption value, assuming the
noncontrolling interest is redeemable at the balance sheet date. Accretion of the carrying amount of redeemable noncontrolling interest to
the redemption value is recorded in additional paid-in capital.
Changes in redeemable noncontrolling interest during the year ended December 31, 2020 and 2019 are as follows:
(In thousands)
Balance at beginning of period
Cash contribution by Wuxi LP
Share of CASI Wuxi net (loss)/income
Accretion of redeemable noncontrolling interest
Foreign currency translation adjustment
Balance at end of period
Year Ended December 31,
2020
2019
$
$
20,670 $
—
(918)
1,694
587
22,033
$
—
20,000
(395)
1,065
—
20,670
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13. STOCKHOLDERS’ EQUITY
The Company had 250 million of authorized common stock at December 31, 2020 and 2019, respectively. The Company had 5
million of authorized preferred stock as of December 31, 2020 and 2019. The Company held 79,545 of shares of common stock in treasury
at its acquisition cost at December 31, 2020 and 2019.
March 2021 Underwritten Public Offering
On March 24, 2021, the Company closed an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc., as representative of the several underwriters named therein (the “Underwriters”), providing for the offer and sale of 15,853,658 shares
of the Company’s common stock (the “Offering”) at a price to the public of $2.05 per share. In addition, the Company granted the
Underwriters an option to purchase up to an additional 2,378,048 shares of common stock, which terminates on the earlier of 30 days and
the day before the Company files to the Securities and Exchange Commission (“SEC”) the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2020. The Offering closed on March 26, 2021. The gross proceeds to CASI from the Offering are
approximately $32.5 million, excluding the over-allotment option and before deducting the underwriting discounts and commissions and
offering expenses payable by CASI.
Certain insiders, including CASI’s Chairman and Chief Executive Officer, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company has agreed to pay the underwriters a
commission of 1% of the gross proceeds raised from certain such insiders, and 6% of the gross proceeds raised in the offering from other
investors.
The Offering is being made by means of a written prospectus supplement and accompanying prospectus forming part of a shelf
registration statement on Form S-3 (Registration Statement No. 333-250801), previously filed with the SEC on November 20, 2020, which
was declared effective on December 2, 2020. The Company filed a final prospectus supplement, dated March 24, 2021, with the SEC
relating to the Offering.
Pursuant to the Underwriting Agreement, the Company’s directors and executive officers entered into agreements in substantially
the form agreed to by the Underwriters providing for a 90-day “lock-up” period with respect to sales of specified securities, subject to
certain exceptions.
The Company intends to use the net proceeds of this offering for working capital and general corporate purposes, which include,
but are not limited to advancing the Company’s product portfolio, acquiring the rights to new product candidates and general and
administrative expenses.
“Shelf “Registration Statement
On November 20, 2020, the Company filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration process.
In December 2020, the Form S-3 registration statement was declared effective by the SEC. Pursuant to this shelf registration statement, the
Company may sell debt or equity securities in one or more offerings up to a total public offering price of $150 million. As a result of the
Company’s failure to timely file a periodic report with the SEC in connection with the adoption of the Company’s amended and restated
bylaws, absent a waiver of the Form S-3 eligibility requirements, the Company is ineligible to use or file new short form registration
statements on Form S-3 until October 1, 2021, assuming the Company continues to timely file the required Exchange Act reports. In the
interim, however, the Company may raise capital pursuant to a registration statement on Form S-1 or on a private placement basis.
July 2020 Underwritten Public Offering
On July 24, 2020, the Company closed an underwritten public offering of 23 million shares of common stock (the "Offering") and
received gross proceeds of $43.7 million before deducting the underwriting discounts and commissions and offering expenses payable by
CASI. Certain insiders, including CASI's Chairman and CEO, and CASI's President, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. CASI's Chairman and CEO purchased 2,952,426
shares directly and ETP Global Fund LP purchased 1,200,000 shares. CASI's President purchased 20,152 shares.
The Company is using the net proceeds of this offering for working capital and general corporate purposes, which include, but are
not limited to advancing the Company’s product portfolio, acquiring the rights to new product candidates and general and administrative
expenses.
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Common Stock Sales Agreements
On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C.
Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time, at its option,
shares of the Company’s common stock, through HCW, as sales agent. On July 19, 2019, the Company entered into an amendment to the
Sales Agreement reducing the maximum amount that may be sold under the Sales Agreement to $20 million.
In 2018, the Company issued 143,248 shares under the Sales Agreement resulting in net proceeds to the Company of $475,000.
As of December 31, 2020, $19.5 million remained available under the Sales Agreement.
On July 19, 2019, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (the “Open Market
Agreement”). Pursuant to the terms of the Open Market Agreement, the Company may elect to sell from time to time, at its option, up to
$30 million in shares of the Company’s common stock, through Jefferies LLC, as sales agent. In 2019, the Company issued 59,000 shares
under the Open Market Agreement resulting in net proceeds to the Company of $182,000.
During 2020, the Company issued 434,000 shares under the Open Market Agreement with net proceeds of $1,357,000. As of
March 30, 2021, the Company has issued 493,000 shares with net proceeds of $1,539,000. As of March 30, 2021, $28.4 million remained
available under the Open Market Agreement.
Stock purchase warrants activity for the year ended December 31, 2020 and 2019 is as follows:
Outstanding at December 31, 2018
Issued
Exercised
Expired
Outstanding at December 31, 2019
Issued
Exercised
Expired
Outstanding at December 31, 2020
Exercisable at December 31, 2020
All outstanding warrants are equity classified.
14. NET LOSS PER SHARE
Number of
Warrants
11,781,825
(1,938,105)
$
— $
$
— $
$
— $
$
$
$
$
9,843,720
(82,304)
(1,489,707)
8,271,709
8,271,709
Weighted Average
Exercise Price
—
—
1.69
—
4.43
—
1.69
3.75
4.58
4.58
Net loss per share (basic and diluted) was computed by dividing net loss attributable to common stockholders, considering the
accretions to redemption value of the redeemable noncontrolling interest, by the weighted average number of shares of common stock
outstanding. As of December 31, 2020, and 2019, outstanding stock options totaling 16,746,238 and 18,268,372, respectively, and
outstanding warrants totaling 8,271,709 and 9,843,720, respectively, were anti-dilutive, and therefore, were not included in the computation
of weighted average shares used in computing diluted loss per share.
The following table sets forth the basic and diluted net loss per share computation and provides a reconciliation of the numerator
and denominator for the periods presented:
(In thousands, except per share data)
Numerator:
Net loss attributable to CASI Pharmaceuticals, Inc.
Denominator:
Weighted average number of common shares
Denominator for basic and diluted net loss per share calculation
Net loss per share
— Basic and diluted
Year Ended December 31,
2020
2019
$
$
(48,287)
$
(46,032)
110,452
110,452
95,948
95,948
(0.44)
$
(0.48)
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15. EMPLOYEE BENEFIT PLAN
The Company sponsors the CASI Pharmaceuticals, Inc. 401(k) Plan and Trust. The plan covers substantially all U.S. 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 $250,000 and $217,000 in 2020 and 2019, respectively.
Full time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to
which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor
regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on certain
percentages of the employees’ salaries. The Company has no legal obligation for the benefits beyond the contributions made. The total
amounts for such employee benefits, which were expensed as incurred, were $1,542,000 and $1,780,000 for the years ended December 31,
2020 and 2019, respectively.
16. STOCK-BASED COMPENSATION
The Company has adopted various stock compensation plans for executive, scientific and administrative personnel of the
Company, as well as outside directors and consultants. In June 2019, the Company’s stockholders approved an amendment to the 2011
Long-Term Incentive Plan, increasing the number of shares of common stock reserved for issuance from 20,230,000 to 25,230,000 to be
available for grants and awards. As of December 31, 2020, a total of 10,084,923 shares remained available for grant under the Company’s
2011 Long-Term Incentive Plan.
The Company’s net loss for the twelve months ended December 31, 2020 and 2019 includes $7,821,000 and $7,310,000,
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:
(In thousands)
Research and development
Sales and Marketing
General and administrative
Share-based compensation expense
Year ended
December 31,
2020
2019
245
39
7,537
7,821
$
$
466
—
6,844
7,310
$
$
Compensation expense related to stock options is recognized over the requisite service period, which is generally the option
vesting term of up to five years. Awards with performance conditions are expensed when it is probable that the performance condition will
be achieved. For the years ended December 31, 2020 and 2019, $49,000 and $73,000 was expensed for share awards with performance
conditions that became probable during the year, respectively.
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. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective
assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award.
Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility based on
the daily price observations of its common stock during the period immediately preceding the share-based award grant that is equal in
length to the award’s expected term. 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 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.
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Following are the weighted-average assumptions used in valuing the stock options granted to employees during the years ended
December 31, 2020 and 2019:
Expected volatility
Range of expected volatility
Range of risk free interest rate
Expected term of option
Expected dividend yield
Year ended
December 31,
2020
78.70 %
75.84% to 81.63 %
0.31% to 1.77 %
6.10 years
0.00 %
2019
77.30 %
75.50% to 84.48 %
1.62% to 2.59 %
6.05 years
0.00 %
The weighted average fair value of stock options granted during the years ended December 31, 2020 and 2019 were $1.85 and
$2.20, respectively.
A summary of the Company’s stock option plans and changes in options outstanding under the plans during the years ended
December 31, 2020 and 2019 is as follows:
Weighted Average Weighted Average Remaining
Outstanding at December 31, 2018
Exercised
Granted
Expired
Forfeited
Cancelled
Outstanding at December 31, 2019
Exercised
Granted
Expired
Forfeited
Cancelled
Outstanding at December 31, 2020
Vested and expected to vest at
December 31, 2020
Exercisable at December 31, 2020
18,429,308
Number of Options Exercise Price
2.44
1.43
3.01
3.69
1.17
3.22
2.58
1.39
2.71
5.06
3.78
-
2.71
$
(599,002) $
$
5,834,808
(7,090) $
(1,389,652) $
(4,000,000) $
18,268,372
$
(2,789,473) $
2,380,686
$
(117,722) $
(995,625) $
$
$
-
16,746,238
16,746,238
9,381,854
$
$
2.71
2.35
Contractual Term In Years
Aggregate Intrinsic Value
$
1,124,000
$
1,856,978
$
$
$
6.71
6.71
5.17
$
$
$
10,866,320
10,866,320
9,964,551
The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common stock at December 31,
2020 and (ii) the 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. Cash received from option exercises under all share-based payment arrangements for
the twelve months ended December 31, 2020 and 2019 was $3.9 million and $854,000, respectively.
In March 2018, the Compensation Committee of the Board of Directors (the “Board”) approved a grant of stock options to Dr.
Wei-Wu He, the Company’s Executive Chairman at the time, exercisable for 1.0 million shares of common stock that will vest and become
exercisable on the first anniversary date of the grant. In addition, the Board approved the grant of a performance-based option covering 4.0
million shares of common stock that will vest if, within 18 months of the date of grant, specific operational and strategic milestones are
achieved.
In April 2019, the 2018 performance-based option awarded to Dr. He, the Company’s Chairman and CEO, covering 4 million
shares of common stock was cancelled. At the date of cancellation, the performance condition of the option award was not expected to vest
based on the original vesting conditions, and therefore no compensation cost was recognized on the cancellation date. On June 20, 2019,
the Company’s stockholders approved a grant of stock options to Dr. He, as the Company’s Chairman and CEO at the 2019 Annual
Meeting. Under the terms of the grant, Dr. He received a stock option covering 4 million shares of common stock, at an exercise price of
$2.85, vesting upon the earlier of (i) the completion of a transformative event by the Company as determined at the discretion of the
Company’s compensation committee and (ii) April 2, 2021, the second anniversary of the date of his appointment as CEO.
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The following summarizes information about stock options that are outstanding at December 31, 2020:
Options Outstanding
Options Exercisable
Range of
Exercise Prices
$0.00 - $1.00
$1.01 - $2.00
$2.01 - $4.00
$4.01 - $7.00
$7.01 - $9.00
Number
Outstanding at
December 31, 2020
1,273,853
4,982,929
8,955,456
1,329,000
205,000
16,746,238
Weighted
Average
Remaining
Contractual
Life in Years
5.19
4.39
8.25
6.40
7.50
6.71
Weighted
Average
Exercise
Price
0.87
1.50
2.94
6.61
8.23
2.71
$
$
$
$
$
$
Number
Exercisable at
December 31, 2020
Weighted
Average
Exercise
Price
0.87
1.50
3.10
6.50
8.23
2.35
$
$
$
$
$
$
1,273,853
4,912,929
2,231,072
759,000
205,000
9,381,854
As of December 31, 2020, there was $8,208,000 of total unrecognized compensation cost related to non-vested stock options,
excluding not-probable performance condition options. That cost is expected to be recognized over a weighted-average period of 1.74
years.
17. INCOME TAXES
For financial reporting purposes, loss before income taxes includes the following components:
(In thousands)
United States
PRC
Total
2020
(40,626)
(6,885)
(47,511)
$
$
2019
(28,957)
(16,405)
(45,362)
$
$
Significant components of the Company’s deferred income tax assets and liabilities as of December 31, 2020 and 2019 are as
follows:
(In thousands)
Deferred income tax assets:
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,
2020
2019
$
$
$
78,790
6,244
8,049
4,436
(2,533)
(94,986)
— $
94,828
7,740
5,733
5,423
396
(114,120)
—
The Company has U.S. federal and state net operating loss (NOL) carryforwards of $324,707,000 at December 31, 2020. The
Company also has People’s Republic of China (“PRC”) NOL carryforwards of $13,464,000 at December 31, 2020.
The Company’s U.S. federal NOL carryforwards generated prior to 2018 begin to expire in 2021. The Company also has research
and experimentation (“R&E”) tax credit carryforwards of $6,244,000 as of December 31, 2020 that begin to expire in 2021. Under the
provisions of the Internal Revenue Code, the NOL and tax credit carryforwards are subject to review and possible adjustment by the
Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the
event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as
defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could
limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the
annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent
ownership changes may further affect the limitation in future years. For financial reporting purposes, a 100% valuation allowance has been
recognized to reduce the net deferred tax assets to zero because it is more likely than not that the Company could not generate sufficient
taxable income in the future to realize the benefit of deferred income tax assets.
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A reconciliation of the provision for income taxes to the federal statutory rate is as follows:
(In thousands)
Tax benefit at statutory rate
State taxes
Attribute expiration
Nondeductible expenses
Deemed royalty
Other
Change in applicable tax rates
Change in valuation allowance
2020
2019
$
$
$
(9,977)
(732)
13,707
358
4,220
(54)
11,612
(19,134)
— $
(9,526)
(1,701)
12,461
453
—
(608)
(7)
(1,072)
—
The Company had $2,581,000 of unrecognized tax benefits as of December 31, 2019 related to net R&E tax credit carryforwards.
For the year ended December 31, 2020, there was a net reduction of unrecognized tax benefits of $499,000 related to R&E tax credits. The
Company has a full valuation allowance at December 31, 2020 and 2019 against the full amount of its net deferred tax assets and,
therefore, there was no impact on the Company’s financial position. The Company does not expect significant changes to the unrecognized
benefit during 2020. As of December 31, 2020 and 2019, 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 related to income taxes.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
(In thousands)
Unrecognized tax benefits balance at January 1
Reductions for tax positions of prior periods
Additions for tax positions of current period
Unrecognized tax benefits balance at December 31
2020
2019
$
$
$
2,581
(499)
—
$
2,082
2,986
(405)
—
2,581
The Company and each of its PRC subsidiaries file income tax returns in the United States and the PRC, respectively. Due to the
existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), all of the Company’s tax returns since
1999 are open to examination by the taxing authorities. According to the PRC Tax Administration and Collection Law, the statute of
limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The
statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000
($14,334). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax
evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC tax authorities for the tax years
beginning in 2014.
18. FAIR VALUE MEASUREMENTS
The majority of the Company’s financial instruments (consisting of cash and cash equivalents, account receivable, accounts
payable, accrued liabilities, notes payable and bank borrowings) are carried at cost which approximates their fair values due to the short-
term nature of the instruments. The Company’s investment in equity securities is carried at fair value, and investment in convertible loan-
AFS are carried at fair value (see Note 3).
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—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
● Level 2—Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.
● Level 3—Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the
appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments
as to the significance of inputs used in determining fair value and where such inputs lie within the hierarchy.
The Company has equity investments in the common stock of two publicly traded companies. The Company’s investments in
these equity securities are carried at their estimated fair value, with changes in fair value reported in the consolidated statement of
operations and comprehensive loss each reporting period (see Note 3). The fair value of the common stock is based on quoted market price
for the investees’ common stock, a Level 1 input.
The Company has an equity investment in the warrants of a publicly traded company. The Company’s investment is carried at its
estimated fair value, with changes in fair value reported in the consolidated statement of operations and comprehensive loss each reporting
period (see Note 3). The fair value of the warrants was measured using observable market-based inputs other than quoted prices in active
markets for identical assets or liabilities, level 2 inputs. The Company uses the Black-Scholes-Merton valuation model to estimate the fair
value of warrants. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and
changes in the assumptions used can materially affect the fair value determination of a warrant.
The following tables presents the Company’s financial assets and liabilities accounted for at fair value on a recurring basis as of
December 31, 2020 and December 31, 2019, by level within the fair value hierarchy:
(In thousands)
Description
Investments in Current Assets
Investments in common stock
Investment in convertible loan-AFS
Fair Value at
December 31, 2020 Level 1 Level 2 Level 3
$
$
9,309
83
$ 9,309
$
$
— $
— $ —
83
— $
(In thousands)
Description
Investments in Current Assets
Investment in common stock
Fair Value at
December 31, 2019 Level 1 Level 2 Level 3
$
625
$
625
$
— $ —
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures equity investments without readily determinable fair values at its cost, minus impairment, if any, plus or
minus changes resulting from observable transactions of identical or similar securities of the same issuer. On September 29, 2020, the
Company remeasured the investments in equity securities in Juventas (see Note 3) to the fair value. The Company estimated the fair value
of these securities based on the transaction price of similar securities issued by the investee.
Quantitative Information about Level 3 Fair Value Measurements
Description
(In Thousands)
Fair Value at
September 29, 2020
(remeasurement date)
Investment in equity securities using
measurement alternative
$
12,872
Valuation Techniques
Market comparable
companies
Unobservable Input
Multiples of
selected comparable
companies
Average/Median
5.3/1.1
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company has no 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
As of June 30, 2020, the intangible assets and assets held for sale with a total carrying amount of $3,087,000 were written down to
their fair value of $1,550,000, resulting in an impairment charge of $1,537,000, which represents the difference between the carrying
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value of the intangible asset and assets held for sale and its fair value. The Company estimated the fair value using Level 2 inputs based on
quoted price
As of December 31, 2019, equipment leased to Juventas with a total carrying amount of $673,000 were written down to their fair
value of $287,000, resulting in an impairment charge of $386,000, representing the difference between total carrying amount and fair value
of these long-lived assets, which was calculated based on Level 3 Inputs. No impairment was recorded for the year ended December 31,
2020.
19. RELATED PARTY TRANSACTIONS
Juventas. On July 1, 2019, the Company entered into a one-year equipment lease with Juventas in the amount of RMB 80,000
($15,000) a month, which is classified as an operating lease. Transactions with Juventas are considered to be related party transactions as
the Company’s CEO and Chairman is the chairman and one of the founding shareholders of Juventas. In August 2020, the lease was
renewed for another year with the same monthly lease income. During the year ended December 31, 2020, the Company recognized lease
income of $140,000 and expects to recognize $70,000 of additional lease income in 2021 related to this lease. The lease can be extended
after one year.
For license, investment and loan transactions with Juventas, refer to Note 1 and Note 3. Transactions with Juventas are considered
to be related party transactions:
● The Company’s CEO and Chairman is the chairman and a founding shareholder of Juventas
● The Company’s Chairman of the Audit Committee, is a founding partner of Panacea Venture, which is a current shareholder of
Juventas. Panacea Venture is a global venture fund focusing on investments in healthcare and life science companies.
In June 2019 and September 2020, a committee of independent directors of CASI negotiated the terms of the investment and
license agreements and recommended that the board of directors approve the transactions. The Company’s CEO did not participate in the
committee’s deliberations or the board of directors’ approval of the transaction.
Spectrum/Acrotech. The Company had certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals,
Inc. (“Spectrum”) to develop and commercialize EVOMELA (Melphalan Hydrochloride For Injection) (“EVOMELA”), ZEVALIN
(Ibritumomab Tiuxetan) (“ZEVALIN”) and MARQIBO (Vincristine Sulfate Liposome Injection) (“MARQIBO”) in the greater China
region. Spectrum is a greater than a 6.8% shareholder of the Company as of December 31, 2020.
Based on the original licenses, the Company had supply agreements with Spectrum for the purchase of EVOMELA, ZEVALIN,
and MARQIBO in China for quality testing purposes to support the Company’s application for import drug registration and for
its portfolio of seven FDA-approved
commercialization purposes. On March 1, 2019, Spectrum completed
hematology/oncology products including EVOMELA, MARQIBO, and ZEVALIN to Acrotech. The original supply agreements with
Spectrum for EVOMELA, MARQIBO, and ZEVALIN were assumed by Acrotech; Spectrum agreed to continue with a short-term supply
agreement for EVOMELA for the initial commercial product supply for the greater China region.
the sale of
As part of the license arrangements with Spectrum, the Company issued to Spectrum a secured promissory note originally due
March 17, 2016, which was subsequently amended and extended to September 17, 2019. The principal of the secured promissory note was
$1.5 million and the coupon interest rate was 0.5%. The Company paid this note, including accrued interest in full during the year ended
December 31, 2019.
In 2018, the Company entered into commercial purchase obligation commitments for EVOMELA from Spectrum totaling $9.2
million under the short-term supply agreement for EVOMELA. All of these EVOMELA purchase commitments have been delivered as of
October 2019. There were no transactions with Spectrum during the year ended December 31, 2020. For the year ended December 31,
2019, the transactions relating to the manufacturing and purchase of the EVOMELA commercial product supply amounted to $7.8 million.
The amount due to Spectrum was $0.2 million as of December 31, 2019. The Company also accrued $2.6 million for material costs related
to EVOMELA during the year ended December 31, 2019 which are included in accrued expenses. As of December 31, 2020, all amounts
due to Spectrum have been settled.
BioCheck. In June 2019, the Company entered into a one-year agreement primarily for the sublease of certain office and lab
space with BioCheck Inc. (“BioCheck”) in the amount of $60,000 ($5,000 a month), which is classified as an operating lease. Transactions
with BioCheck are considered to be related party transactions as Dr. Wei-Wu He, the Company’s CEO and Chairman is
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also the Chairman of BioCheck. Transactions with ETP, parent of BioCheck, and a more than 5% shareholder of the Company, are also
considered to be related party transactions as Dr. Wei-Wu He, the Company’s CEO and Chairman is also the chairman of ETP.
Since the Company required additional office space, in January 2020, the agreement was amended for annualized rents in the
amount of $144,000 ($12,000 a month) with a stipulation that the new rent was retroactive to October 1, 2019. During the year ended
December 31, 2020, the Company recognized rent expense of $144,000 and expects to recognize $63,000 of additional rent expense in
2021 related to this lease.
20. ACROTECH LICENSE ARRANGEMENTS
The Company has product rights and perpetual exclusive licenses from Acrotech Biopharma L.L.C. (“Acrotech”) to develop and
commercialize its commercial product EVOMELA® (Melphalan Hydrochloride For Injection) in the greater China region (which includes
China, Taiwan, Hong Kong and Macau), as well as similar rights to assets ZEVALIN® (Ibritumomab Tiuxetan) and MARQIBO®
(Vincristine Sulfate Liposome Injection). The exclusive licenses held by the Company were originally licensed from Spectrum
Pharmaceuticals, which they later transferred to Acrotech. On December 3, 2018, the Company received NMPA’s approval for
importation, marketing and sales in China and in August 2019 the Company launched EVOMELA in China. The NMPA required post-
marketing study is ongoing and actively recruiting.
The Company is currently evaluating future development options for ZEVALIN and MARQIBO due to the evolving standard of
care environment, the rare and niche indications for these products, and its commitment to prioritize resources.
21. COMMITMENTS AND CONTINGENCIES
In conjunction with the BioInvent agreement entered into during 2020 (see Note 1), the Company is responsible for certain
milestone and royalty payments. As of December 31, 2020, no milestones have been achieved.
In conjunction with the Black Belt agreement entered into during 2019 (see Note 1), the Company is responsible for certain
milestone and royalty payments. As of December 31, 2020, no milestones have been achieved.
In conjunction with the Pharmathen agreement entered into during 2019 (see Note 1), the Company is responsible for one
remaining milestone payment. As of December 31, 2020, the remaining milestone has not been met.
In conjunction with the Laurus Labs agreement entered into during 2018, the Company is responsible for certain remaining
milestone payments. As of December 31, 2020, the remaining milestones have not been met.
In November 2019, CASI Wuxi entered into a lease agreement for the right to use state-owned land in China for the construction
of a manufacturing facility. Pursuant to the agreement, CASI Wuxi commits to invest land use right and property, plant and equipment of
RMB1 billion (equivalent to $143 million) within three years from the date of establishment of CASI Wuxi. On August 27, 2020, CASI
Wuxi entered into a Construction Project Contract (the "Construction Contract") with China Electronic System Engineering No. 2
Construction Co., Ltd. ("China Engineering"). Pursuant to the Construction Contract, CASI Wuxi will pay a contract price of RMB
74,588,000 (equivalent to $10,923,000) to retain China Engineering to complete the phase 1 project of CASI Wuxi's research and
development production base, consisting of construction and installation of a combined factory building, warehouse, guard house and
public works. The estimated completion date is October 2023.
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.
22. SUBSEQUENT EVENTS
Cleave Investment
In March 2021, the Company entered into an exclusive license agreement with Cleave Therapeutics, Inc. (“Cleave”)for the
development and commercialization of CB-5339, a novel VCP/p97 inhibitor, in mainland China, Taiwan, Hong Kong and Macau.
CB-5339, an oral second-generation, small molecule VCP/p97 inhibitor, is being evaluated in a Phase 1 clinical trial in patients
with acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS), while the National Cancer Institute (NCI) is sponsoring and
evaluating CB-5339 in a Phase 1 clinical trial of patients with solid tumors and lymphomas.
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Under the terms of the agreement, Cleave and CASI will develop CB-5339 in both hematological malignancies and solid tumors,
with CASI responsible for development and commercialization in China and associated markets. Cleave received a $5.5 million upfront
payment and is eligible to receive up to $74 million in development and commercial milestone payments plus tiered royalties in the high-
single to mid-double-digit range on net sales of CB-5339. In addition to the upfront cash payment, CASI made a $5.5 million investment in
Cleave through a convertible note.
Bank Borrowings
Under the guaranteed line of Credit approved by Beijing Branch of China CITIC Bank Corporation Limited on November 3, 2020
(See Note 10), the Company had additional bank borrowings of RMB 4.6 million ($0.7 million) on February 3, 2021, of which RMB 3.0
million ($0.5 million) matures on September 2, 2021 and the remainder balance matures on November 7, 2021. These additional bank
borrowings bear interest at a fixed rate of 3.72% per annum.
March 2021 Underwritten Public Offering
On March 24, 2021, the Company closed an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co.
Inc., as representative of the several underwriters named therein (the “Underwriters”), providing for the offer and sale of 15,853,658 shares
of the Company’s common stock (the “Offering”) at a price to the public of $2.05 per share. In addition, the Company granted the
Underwriters an option to purchase up to an additional 2,378,048 shares of common stock, which terminates on the earlier of 30 days and
the day before the Company files to the Securities and Exchange Commission (“SEC”) the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2020. The Offering closed on March 26, 2021. The gross proceeds to CASI from the Offering are
approximately $32.5 million, excluding the over-allotment option and before deducting the underwriting discounts and commissions and
offering expenses payable by CASI.
Certain insiders, including CASI’s Chairman and Chief Executive Officer, purchased shares of common stock in the Offering at
the public offering price and on the same terms as the other purchasers in this Offering. The Company has agreed to pay the underwriters a
commission of 1% of the gross proceeds raised from certain such insiders, and 6% of the gross proceeds raised in the offering from other
investors.
The Offering is being made by means of a written prospectus supplement and accompanying prospectus forming part of a shelf
registration statement on Form S-3 (Registration Statement No. 333-250801), previously filed with the SEC on November 20, 2020, which
was declared effective on December 2, 2020. The Company filed a final prospectus supplement, dated March 24, 2021, with the SEC
relating to the Offering.
Pursuant to the Underwriting Agreement, the Company’s directors and executive officers entered into agreements in substantially
the form agreed to by the Underwriters providing for a 90-day “lock-up” period with respect to sales of specified securities, subject to
certain exceptions.
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