UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to _____________.
Commission file number 0-20713
CASI PHARMACEUTICALS, INC .
(Exact name of registrant as specified in its charter)
| Delaware | 58-1959440 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) |
9620 Medical Center Drive, Suite 300
Rockville, Maryland
(Address of principal executive offices)
20850
(Zip code)
(240) 864-2600
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x | |||
| 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.
| Class | Outstanding at August 4, 2017 | |
| Common Stock $.01 Par Value | 60,196,574 |
CASI PHARMACEUTICALS, INC.
Table of Contents
| 2 |
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.
Our forward-looking statements are based on information available to us today, and we will not update these statements.
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; risks relating to interests of our largest stockholders that differ from our other stockholders; the risk of substantial dilution of existing stockholders in future stock issuances; the difficulty of executing our business strategy in China; our inability to predict when or if our product candidates will be approved for marketing by the China Food and Drug Administration authorities; our inability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidates or future candidates; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; risks associated with our product candidates; risks associated with any early-stage products under development; the risk that results in preclinical and early clinical models are not necessarily indicative of later clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials; the lack of success in the clinical development of any of our products; dependence on third parties; and risks relating to the commercialization, if any, of our proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. 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. | CONSOLIDATED FINANCIAL STATEMENTS |
Condensed Consolidated Balance Sheets
| June 30, 2017 | December 31, 2016 | |||||||
| ASSETS | (Unaudited) | (Note 1) | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 23,360,529 | $ | 27,092,928 | ||||
| Prepaid expenses and other | 250,905 | 355,891 | ||||||
| Total current assets | 23,611,434 | 27,448,819 | ||||||
| Property and equipment, net | 448,477 | 229,591 | ||||||
| Other assets | 72,601 | 34,485 | ||||||
| Total assets | $ | 24,132,512 | $ | 27,712,895 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,183,271 | $ | 1,064,626 | ||||
| Accrued liabilities | 309,828 | 250,950 | ||||||
| Note payable, net of discount | 1,495,016 | - | ||||||
| Total current liabilities | 2,988,115 | 1,315,576 | ||||||
| Note payable, net of discount | - | 1,491,278 | ||||||
| Contingent rights derivative liability | 4,118,821 | 4,122,266 | ||||||
| Total liabilities | 7,106,936 | 6,929,120 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Convertible preferred stock, $1.00 par value; | ||||||||
| 5,000,000 shares authorized and 0 shares issued and | ||||||||
| outstanding at June 30, 2017 and December 31, 2016 | - | - | ||||||
| Common stock, $.01 par value: | ||||||||
| 170,000,000 shares authorized; 60,276,119 shares issued | ||||||||
| at June 30, 2017 and December 31, 2016 | 602,760 | 602,760 | ||||||
| Additional paid-in capital | 470,497,651 | 470,147,086 | ||||||
| Treasury stock, at cost: 79,545 shares held | (8,034,244 | ) | (8,034,244 | ) | ||||
| Accumulated deficit | (446,040,591 | ) | (441,931,827 | ) | ||||
| Total stockholders’ equity | 17,025,576 | 20,783,775 | ||||||
| Total liabilities and stockholders’ equity | $ | 24,132,512 | $ | 27,712,895 | ||||
See accompanying condensed notes.
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Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Product sales | $ | - | $ | - | $ | - | $ | - | ||||||||
| Costs and expenses: | ||||||||||||||||
| Research and development | 1,727,407 | 1,362,676 | 2,776,694 | 2,381,433 | ||||||||||||
| General and administrative | 691,422 | 1,914,802 | 1,335,585 | 2,679,877 | ||||||||||||
| 2,418,829 | 3,277,478 | 4,112,279 | 5,061,310 | |||||||||||||
| Interest (income) expense, net | 72 | 8,758 | (70 | ) | 17,526 | |||||||||||
| Change in fair value of contingent rights | (10,319 | ) | 5,634 | (3,445 | ) | 7,400 | ||||||||||
| Net loss | $ | (2,408,582 | ) | $ | (3,291,870 | ) | $ | (4,108,764 | ) | $ | (5,086,236 | ) | ||||
| Net loss per share (basic and diluted) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.07 | ) | $ | (0.12 | ) | ||||
| Weighted average number of common shares | ||||||||||||||||
| outstanding (basic and diluted) | 60,196,574 | 42,906,781 | 60,196,574 | 41,556,911 | ||||||||||||
See accompanying condensed notes.
| 5 |
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended | ||||||||
|
June 30, 2017 |
June 30, 2016 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (4,108,764 | ) | $ | (5,086,236 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation and amortization | 37,918 | 32,497 | ||||||
| Gain on disposal of assets | - | (13,263 | ) | |||||
| Stock-based compensation expense | 350,565 | 1,976,736 | ||||||
| Non-cash interest | 3,738 | 14,010 | ||||||
| Change in fair value of contingent rights | (3,445 | ) | 7,400 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other | 66,870 | 211,714 | ||||||
| Accounts payable | 118,645 | 61,728 | ||||||
| Accrued liabilities | 58,878 | (8,638 | ) | |||||
| Net cash used in operating activities | (3,475,595 | ) | (2,804,052 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from sale of furniture and equipment | - | 158,446 | ||||||
| Purchases of furniture and equipment | (256,804 | ) | (127,612 | ) | ||||
| Net cash (used in) provided by investing activities | (256,804 | ) | 30,834 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Stock issuance costs | - | (66,318 | ) | |||||
| Proceeds from sale of common stock | - | 16,242,889 | ||||||
| Net cash provided by financing activities | - | 16,176,571 | ||||||
| Net (decrease) increase in cash and cash equivalents | (3,732,399 | ) | 13,403,353 | |||||
| Cash and cash equivalents at beginning of period | 27,092,928 | 5,131,114 | ||||||
| Cash and cash equivalents at end of period | $ | 23,360,529 | $ | 18,534,467 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Non-cash financing activity: | ||||||||
| Partial settlement of contingent rights derivative | $ | - | $ | 3,044,346 | ||||
See accompanying condensed notes.
| 6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017 (unaudited)
| 1. | Basis of Presentation |
The accompanying condensed consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc. and its subsidiaries (“CASI” or “the Company”), Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”). The Company previously operated under a different name prior to restructuring its business in 2012 in connection with an investment led by one of the Company’s largest stockholders. CASI China is a non-stock Chinese entity with 100% of its interest owned by CASI. CASI China received approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has operating facilities in Beijing. All inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such condensed consolidated financial statements do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying December 31, 2016 financial information was derived from the Company’s audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2016. Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in its Form 10-K for the year ended December 31, 2016.
Liquidity Risks and Management’s Plans
Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $446.0 million. The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders , followed by implementation of a name change to reflect its core mission and business strategy. The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In 2016, the Company received $28.1 million from strategic financings (“2016 Strategic Financings”). Net proceeds of the Strategic Financings are being used to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and commercial planning activities. As a result of the 2016 Strategic Financings, the Company believes that it has sufficient resources to fund its operations for at least the twelve months subsequent to August 14, 2017. As of June 30, 2017, approximately $4.3 million of the Company’s cash balance was held by CASI China. The Company intends to continue to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive capital raising arrangements in China to support the Company’s dual-country approach to drug development.
| 2. | License Arrangements |
The Company has certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together referred to as “Spectrum”) to develop and commercialize the following commercial oncology drugs and drug candidates in the greater China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):
| · | MARQIBO ® (vinCRIStine sulfate LIPOSOME injection) (“Marqibo”); |
| · | ZEVALIN ® (ibritumomab tiuxetan) (“Zevalin”); and |
| · | EVOMELA ® (melphalan) for Injection (“Evomela”). |
| 7 |
CASI is responsible for developing and commercializing these three drugs in the Territories, including the submission of import drug registration applications and conducting confirmatory clinical trials as needed.
The Company is in various stages of the regulatory and development process to obtain marketing approval for MARQIBO ® , ZEVALIN ® and EVOMELA ® in its territorial region, with ZEVALIN ® commercially available in Hong Kong. In January 2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration application for MARQIBO ® and currently is in the quality testing phase of the regulatory process. On March 10, 2016, Spectrum received notification from the U.S. Food and Drug Administration (FDA) of the grant of approval of its New Drug Application (NDA) for EVOMELA ® primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma. In December 2016, the CFDA accepted for review the Company’s import drug registration application for EVOMELA ® which currently is in the quality testing phase of the regulatory process.
| 3. | Note Payable |
As part of the license arrangements with Spectrum (see Note 2), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally due March 17, 2016 which was subsequently amended and extended to March 17, 2018. All other terms remain the same. The promissory note was recorded initially at its fair value, giving rise to a discount of approximately $136,000; the promissory note is presented as note payable, net of discount in the accompanying condensed consolidated balance sheets. For the six months ended June 30, 2017 and 2016, the Company recognized $3,738 and $14,010 of non-cash interest expense, respectively, related to the amortization of the debt discount, using the effective interest rate method.
| 4. | Fair Value Measurements |
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; |
| · | Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company performs a detailed analysis of its assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.
The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair values are based on period-end statements supplied by the various banks and brokers that held the majority of the Company’s funds. The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, and other current assets and liabilities) approximates their carrying values because of their short-term nature.
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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
As partial consideration for the acquisition from Spectrum, the Company issued certain contingent rights (“Contingent Rights”) to purchase additional shares of its common stock, which Contingent Rights expire upon the occurrence of certain events. The Contingent Rights issued to Spectrum in connection with the license arrangements (see Note 2) are considered derivative liabilities and were recorded initially at their estimated fair value, and are marked to market each reporting period until settlement. The fair value of the Contingent Rights was measured using Level 3 unobservable inputs; the unobservable inputs include estimates of the Company’s future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs. Generally, if the estimates of the size and probability of the Company’s future capital requirements increase, the fair value of the Contingent Rights will also increase.
The following table presents the Company’s financial liabilities accounted for at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 by level within the fair value hierarchy:
| As of June 30, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities - Contingent Rights | $ | - | $ | - | $ | 4,118,821 | $ | 4,118,821 | ||||||||
| As of December 31, 2016 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities - Contingent Rights | $ | - | $ | - | $ | 4,122,266 | $ | 4,122,266 | ||||||||
The following table presents the changes in the Company’s financial liabilities accounted for at fair value on a recurring basis using Level 3 unobservable inputs:
| December 31, 2016 | $ | 4,122,266 | ||
| Change in fair value of Contingent Rights | (3,445 | ) | ||
| Balance at June 30, 2017 | $ | 4,118,821 |
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The promissory note issued to Spectrum in connection with the license arrangements (see Notes 2 and 3) was initially recorded at its fair value using Level 3 unobservable inputs including primarily the Company’s estimated incremental borrowing rate as provided by a commercial lending institution.
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The Company does not have any non-financial assets and liabilities that are measured at fair value on a recurring basis.
| 9 |
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:
The Company measures its long-lived assets, including property and equipment, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized for the six months ended June 30, 2017 and 2016.
| 5. | Share-Based Compensation |
The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants. In June 2017, the Company’s shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares reserved for issuance from 11,230,000 to 14,230,000 shares of common stock to be available for grants and awards. As of June 30, 2017, there are 9,747,004 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $0.86 to $13.75. In 2017, the Company awarded options to employees, covering up to 225,000 shares, in which vesting is subject to achievement of certain performance milestones. Options granted under the plans generally vest over periods varying from immediately to one to three years, are not transferable and generally expire ten years from the date of grant. As of June 30, 2017, 4,850,358 shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan.
The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance. Compensation costs are recognized over the requisite service period, which is generally the option vesting term of up to three years. Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. For the six months ended June 30, 2016, $10,100 was expensed for share awards with performance conditions that became probable during that period. There was no expense recorded for share awards with performance conditions during the six months ended June 30, 2017.
The Company’s net loss for the six months ended June 30, 2017 and 2016 includes non-cash compensation expense of $350,565 and $1,976,736, respectively, 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:
|
SIX MONTH PERIOD ENDED
JUNE 30, |
||||||||
| 2017 | 2016 | |||||||
| Research and development | $ | 171,326 | $ | 517,536 | ||||
| General and administrative | 179,239 | 1,459,200 | ||||||
| Share-based compensation expense | $ | 350,565 | $ | 1,976,736 | ||||
| Net share-based compensation expense, per common share: | ||||||||
| Basic and diluted | $ | 0.01 | $ | 0.05 | ||||
The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of 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.
Following are the weighted-average assumptions used in valuing the stock options granted during the six-month periods ended June 30, 2017 and 2016:
|
SIX MONTH PERIOD ENDED
JUNE 30, |
||||
| 2017 | 2016 | |||
| Expected volatility | 78.34% | 83.09% | ||
| Risk-free interest rate | 1.82% | 1.32% | ||
| Expected term of option | 5.66 years | 5.42 years | ||
| Forfeiture rate | - | 3.00%* | ||
| Expected dividend yield | 0.00% | 0.00% | ||
* - In 2016, authoritative guidance required forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. During the six-month period ended June 30, 2016, forfeitures were estimated at 3%.
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The weighted average fair value of stock options granted during the six-month periods ended June 30, 2017 and 2016 were $0.77 and $0.75, respectively.
A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the six months ended June 30, 2017 is as follows:
|
Number of
Options |
Weighted
Average Exercise Price |
|||||||
| Outstanding at January 1, 2017 | 9,535,306 | $ | 1.57 | |||||
| Granted | 1,199,500 | $ | 1.15 | |||||
| Exercised | - | $ | - | |||||
| Expired | (987,802 | ) | $ | 1.64 | ||||
| Forfeited | - | $ | - | |||||
| Outstanding at June 30, 2017 | 9,747,004 | $ | 1.51 | |||||
| Vested and expected to vest at June 30, 2017 | 9,693,592 | $ | 1.51 | |||||
| Exercisable at June 30, 2017 | 7,966,610 | $ | 1.60 | |||||
There were no option exercises during the six months ended June 30, 2017 or 2016.
| 6. | Income Taxes |
At December 31, 2016, the Company had a $3.1 million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements as of December 31, 2016.
During the six months ended June 30, 2017, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.
The tax returns for all years in the Company’s major tax jurisdictions are not settled as of June 30, 2017. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.
| 7. | Related Party Transactions |
In April and June 2017, under supply agreements with Spectrum, the Company received shipments of EVOMELA ® and MARQIBO ® , respectively, in China for quality testing purposes to support CASI’s application for import drug registration. The CEO of Spectrum is also a board member of CASI. The total cost of the materials was approximately $477,000 which is included in research and development expense for the six months ended June 30, 2017.
The Company utilizes the services of Crown Biosciences, Inc. (“Crown Bio”) to perform certain research and development testing. The CEO of Crown Bio is also a board member of CASI. Approximately $20,900 was payable to Crown Bio as of June 30, 2017. The research and development expense recognized for the services provided for the three months ended June 30, 2016 was $24,935. There were no research and development services provided by Crown Bio for the three months ended June 30, 2017.
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| 8. | New Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact the Company’s condensed consolidated financial statements.
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities . The accounting standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact, if any, that the pronouncement will have on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 supersedes existing lease guidance, including Accounting Standards Codification (ASC) 840 - Leases . Among other things, the new standard requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The standard must be applied using a modified retrospective approach. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company is evaluating the impact of ASU 2017-09 .
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.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
OVERVIEW
We are a U.S. based, late-stage biopharmaceutical company focused on the acquisition, development and commercialization of innovative therapeutics addressing cancer and other unmet medical needs for the global market, with a focus on commercialization in China. We intend to execute our plan to become a leading fully-integrated pharmaceutical company with a substantial commercial business in China. We are headquartered in Rockville, Maryland with established China operations that are growing as we continue to further in-license products for our pipeline.
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Our pipeline features (1) our lead proprietary drug candidate, ENMD-2076, in multiple Phase 2 clinical trials, (2) MARQIBO ® , ZEVALIN ® and EVOMELA ® , all FDA approved drugs in-licensed from Spectrum for China regional rights, and currently in various stages in the regulatory process for market approval in China, and (3) proprietary early-stage candidates in preclinical development. We believe our pipeline reflects a risk-balanced approach between products in various stages of development, and between products that we develop ourselves and those that we develop with our partners for the China regional market. We intend to continue building a significant product pipeline of innovative drug candidates that we will commercialize in China and collaborate with partners for the rest of the world. For ENMD-2076, our current development is focused on niche and orphan indications. For in-licensed products, the Company uses a market-oriented approach to identify pharmaceutical candidates that we believe have the potential for gaining widespread market acceptance, either globally or in China, and for which development can be accelerated under the Company’s drug development strategy.
Our primary research and development focus is on oncology therapeutics. Our strategy is to develop innovative drugs that are potential first-in-class or market-leading compounds for treatment of cancer. The implementation of our plans will include leveraging our resources in both the United States and China. In order to capitalize on the drug development and capital resources available in China, the Company is conducting business in China through its wholly-owned China-based subsidiary that will execute the China portion of the Company’s drug development strategy, including conducting clinical trials in China, pursuing local funding opportunities and strategic collaborations, and implementing the Company’s plan to build a leading commercial business in China.
Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $446.0 million. The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy. The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical activities. In 2016, the Company received $28.1 million from strategic financings (“2016 Strategic Financings”). Net proceeds of the Strategic Financings are being used to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and commercial planning activities. As a result of the 2016 Strategic Financings, the Company believes that it has sufficient resources to fund its operations for at least the twelve months subsequent to August 14, 2017. We intend to continue to exercise tight controls over operating expenditures. In developing drug candidates, we intend to use and leverage resources available to us in both the United States and China. We intend to pursue additional financing opportunities as well as opportunities to raise capital through forms of non- or less- dilutive arrangements, such as partnerships and collaborations with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our product candidates that we intend to pursue to commercialization. However, there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all.
Additional funds raised by issuing equity securities may result in dilution to existing stockholders.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our financial statements requiring significant estimates and judgments, are as follows:
| - | Revenue Recognition - We recognize revenue in accordance with the provisions of authoritative guidance issued, whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectibility is reasonably assured. |
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| - | Research and Development - Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Research and development costs are expensed as incurred. |
| - | Expenses for Clinical Trials - Expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data. We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process. Estimated clinical trial costs related to enrollment can vary based on numerous factors, including expected number of patients in trials, the number of patients that do not complete participation in a trial, and when a patient drops out of a trial. Costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided. In the event of early termination of a clinical trial, we accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial. |
| - | Stock-Based Compensation - All share-based payment transactions are recognized in the consolidated financial statements at their fair values. Compensation expense associated with service, performance, market condition-based stock options and other equity-based compensation is recorded in accordance with provisions of authoritative guidance. The fair value of awards whose fair values are calculated using the Black-Scholes option pricing model is generally being amortized on a straight-line basis over the requisite service period and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period. The fair value of awards with market conditions, which are valued using a binomial model, is being amortized based upon the estimated derived service period. Share-based awards granted to employees with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period. Such an award with a performance condition will be expensed if it is probable that a performance condition will be achieved. For the six months ended June 30, 2016, $10,100 was expensed for share awards with performance conditions that became probable during that period. For the six months ended June 30, 2017, no expense has been recorded for share awards with performance conditions. Using the straight-line expense attribution method over the requisite service period, which is generally the option vesting term ranging from immediately to one to three years, share-based compensation expense recognized for the six months ended June 30, 2017 and 2016 totaled approximately $351,000 and $1,977,000, respectively. |
The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes valuation model is affected by our stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards. Changes in the assumptions can materially affect the fair value estimates.
Any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized.
| - | Fair Value Measurements - At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3 in accordance with the hierarchy established by U.S. GAAP. As of June 30, 2017, we remeasured the Contingent Rights and will continue to do so at every balance sheet date and upon partial settlements until completely settled. In measuring the fair value of the financial instrument we used Level 3 unobservable inputs, including such inputs as our estimated borrowing rate and our future capital requirements, and the timing, probability, size and characteristics of those capital raises, among other inputs. |
| 14 |
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2017 and June 30, 2016.
Revenues and Cost of Product Sales . There were no revenues recorded for the three or six months ended June 30, 2017 and June 30, 2016.
Research and Development Expenses. Our research and development expenses for the three and six months ended June 30, 2017 totaled approximately $1,727,000 and $2,777,000, respectively. Research and development expenses for the corresponding 2016 periods were $1,363,000 and $2,381,000, respectively. Included in our R&D expenses for the three-month period ended June 30, 2017 are direct project costs of $282,000 for ENMD-2076, $725,000 for drugs in-licensed from Spectrum, and $325,000 for preclinical development activities in China. The 2016 research and development expenses for the comparable period included $420,000 for ENMD-2076, $201,000 for drugs in-licensed from Spectrum, and $194,000 for preclinical development activities in China. Research and development expenses totaling $2,777,000 for the six-month period ended June 30, 2017 included direct project costs of $556,000 related to ENMD-2076, $913,000 for drugs in-licensed from Spectrum, and $567,000 for preclinical development activities in China. The 2016 research and development expenses for the comparable period totaled $2,381,000 and included $817,000 for ENMD-2076, $310,000 for drugs in-licensed from Spectrum, and $356,000 for preclinical development activities in China. The overall increase in research and development costs in the three and six month periods ended June 30, 2017, as compared to same periods in 2016, primarily reflects higher costs associated with the quality testing phase of the regulatory review of MARQIBO ® and EVOMELA ® in 2017.
At June 30, 2017, and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $28,211,000, $1,189,000 for drugs in-licensed from Spectrum, and for preclinical development activities in China, accumulated project expenses totaled $2,613,000. Our research and development expenses also include non-cash stock-based compensation totaling $104,000 and $171,000 for the three and six months ended June 30, 2017, respectively, and $343,000 and $518,000 for the corresponding 2016 periods, respectively. The balance of our research and development expenditures includes facility costs and other departmental overhead, regulatory expenses associated with import drug registration applications in China for the drugs in-licensed from Spectrum, and expenditures related to the non-clinical support of our programs.
We expect the majority of our research and development expenses in 2017 to be devoted to the development of our ENMD-2076 program, our early-stage candidates in preclinical development, and advancing our in-licensed products towards market approval in China. We expect our expenses in 2017 to increase based on our clinical development plan. Completion of clinical development may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.
We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:
Global FDA Trial:
|
CLINICAL PHASE |
ESTIMATED COMPLETION PERIOD |
| Phase 1 | 1-2 Years |
| Phase 2 | 2-3 Years |
| Phase 3 | 2-4 Years |
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Local CFDA Trial:
|
CLINICAL PHASE |
ESTIMATED COMPLETION PERIOD |
| Phase 1 | 1 Year |
| Phase 2 | 2 Years |
| Phase 3 | 2-3 Years |
The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:
| - | the number of patients that ultimately participate in the trial; |
| - | the duration of patient follow-up that seems appropriate in view of the results; |
| - | the number of clinical sites included in the trials; and |
| - | the length of time required to enroll suitable patient subjects. |
We test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain indications in order to focus our resources on more promising indications.
Our proprietary product candidates have also not yet achieved regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, regulatory agencies must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
Our business strategy includes being opportunistic with collaborative arrangements with third parties to complete the development and commercialization of our product candidates. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.
As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. There can be no assurance that we will be able to successfully access external sources of financing in the future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.
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Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Overall research and development expenses increased to $1,727,000 during the three-months ended June 30, 2017 from $1,363,000 for the corresponding period in 2016. Research and development expenses increased to $2,777,000 during the six months ended June 30, 2017 from $2,381,000 for the corresponding period in 2016. The fluctuations in research and development expenditures during the three and six months ended June 30, 2017 were specifically impacted by the following:
| - | Outside Services – In the three-month period ended June 30, 2017, we expended $34,000 on outside service activities versus $37,000 in the same 2016 period. For the six month period ended June 30, 2017 outside services were $232,000 compared to $117,000 for the same 2016 period. The increase in 2017 as compared to 2016 reflects regulatory costs associated with the import drug registration applications in China for the drugs in-licensed from Spectrum. |
| - | Clinical Trial Costs – Clinical trial costs, which include clinical site fees, monitoring costs and data management costs, decreased to $158,000 in the three months ended June 30, 2017 from $289,000 in the three month period ended June 30, 2016. Clinical trial costs for the six month period ended June 30, 2017 decreased to $324,000 from $559,000 for the comparable 2016 period. The decrease for both periods primarily relates to higher enrollment patient costs and clinical trial management costs associated with our Phase 2 clinical trial in advanced fibrolamellar carcinoma (FLC) during the 2016 period. |
| - | Contract Manufacturing Costs – The costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing. These costs include bulk manufacturing, encapsulation and fill and finish services, product release costs and storage fees. Contract manufacturing costs for the three months ended June 30, 2017 increased to $613,000 from $153,000 during the same period in 2016. For the six month period ended June 30, 2017, manufacturing costs increased to $625,000 from $172,000 for the comparable 2016 period. The increase primarily reflects costs associated with the purchase of EVOMELA ® in China for quality testing purposes to support CASI’s application for import drug registration in 2017. |
| - | Personnel Costs – Personnel costs increased to $605,000 in the three-month period ended June 30, 2017 from $595,000 in the corresponding 2016 period. For the six-month period ended June 30, 2017, personnel costs decreased in 2017 to $992,000 from $1,072,000 for the corresponding 2016 period. This variance is attributed to a decrease in non-cash stock-based compensation expense totaling $346,000 during the 2017 period, offset by increased salary and benefit costs associated with employees in China and a new Chief Medical Officer in the U.S. in 2017. |
| - | Also reflected in our 2017 research and development expenses for the three-month period ended June 30, 2017 are outsourced consultant costs of $46,000 and facility and related expenses of $118,000. In the corresponding 2016 period, these expenses totaled $79,000 and $78,000, respectively. For the six month period ended June 30, 2017, outsourced consultant costs were $141,000 and facility and related expenses were $221,000. In the corresponding 2016 period, these expenses totaled $160,000 and $178,000, respectively. The variance in outsourced consultant costs reflect the timing of clinical trial management and evaluation and regulatory activities. The increase in facilities and related expenses for both periods is due to new leased lab space in China in 2017. |
General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services and facilities.
| 17 |
General and administrative expenses decreased to $691,000 in the three-month period ended June 30, 2017 from $1,915,000 in the corresponding 2016 period. The decrease in the second quarter of 2017, compared to the 2016 period, is primarily related to a decrease in stock-based compensation expense of $1,172,000 largely related to stock options awarded in connection with the closings of the Company’s strategic financing in 2016. For the six-month period ended June 30, 2017, general and administrative expenses decreased in 2017 to $1,336,000 from $2,680,000 for the corresponding 2016 period. The decrease in the 2017 period, compared to the 2016 period is primarily related to a decrease in stock-based compensation expense of $1,280,000 primarily related to stock options awarded in connection with the closings of the Company’s strategic financing in 2016.
Interest (income) expense, net . Interest expense, net for three months ended June 30, 2017 and 2016 was $72 and $8,758, respectively. This includes interest on our note payable of $1,875 for both periods; non-cash interest of $1,869 and $7,005, respectively, representing the amortization of the debt discount; offset by interest income of $3,672 and $122, respectively. Interest (income) expense, net for the six months ended June 30, 2017 and 2016 was $(70) and $17,526, respectively. This includes interest on our note payable of $3,750 for both periods; non-cash interest of $3,738 and $14,010, respectively, representing the amortization of the debt discount; offset by interest income of $7,558 and $234, respectively.
Change in fair value of contingent rights . The Contingent Rights issued to Spectrum in connection with the license arrangements are considered derivative liabilities and were recorded initially at their estimated fair value, and are marked to market each reporting period until settlement. The change in fair value of the Contingent Rights for the three and six months ended June 30, 2017 was $(10,319) and $(3,445), respectively. The change in fair value of the Contingent Rights for the three and six months ended June 30, 2016 was $5,634 and $7,400, respectively.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have been engaged primarily in research and development activities. As a result, we have incurred and expect to continue to incur operating losses in 2017 and the foreseeable future before we commercialize any products. Based on our current plans, we expect our current available cash and cash equivalents to meet our cash requirements for at least the twelve months subsequent to August 14, 2017.
We will require significant additional funding to fund operations until such time, if ever, we become profitable. We intend to augment our cash balances by pursuing other forms of capital infusion, including strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our potential product candidates that we intend to pursue to commercialization. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, to raise further financing, we may need to relinquish rights to certain of our existing product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our product candidates on terms that are not favorable to us.
We will continue to seek to raise additional capital to fund our research and development and advance the clinical development of ENMD-2076 and new product candidates, if any. We intend to explore one or more of the following alternatives to raise additional capital:
| · | selling additional equity securities; |
| · | out-licensing product candidates to one or more corporate partners; |
| · | completing an outright sale of non-priority assets; and/or |
| · | engaging in one or more strategic transactions. |
We also will continue to manage our cash resources prudently and cost-effectively.
There can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all. If additional funds are raised by issuing equity securities, dilution to existing 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 Phase 2 plans for ENMD-2076 or plans for other product candidates, if any.
| 18 |
At June 30, 2017, we had cash of $23,360,529 with working capital of $20,623,319. As of June 30, 2017, approximately $4.3 million of the Company’s cash balance was held by CASI China.
FINANCING ACTIVITIES
As discussed above, in 2016 the Company received $28.1 million from the 2016 Strategic Financings. Net proceeds of the Strategic Financings are being used to further fund the Company’s operations, accelerate its clinical and regulatory activities, expand its product pipeline, and support its marketing and commercial planning activities.
INFLATION AND INTEREST RATE CHANGES
Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents. Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact the total fair market value of our portfolio as of June 30, 2017.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of June 30, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2017 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
| 19 |
| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
We are 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 1A. | RISK FACTORS |
For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of CASI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the information under “Special Note Regarding Forward-Looking Statements” included in this report. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | REMOVED AND RESERVED |
| ITEM 5. | OTHER INFORMATION |
Not applicable.
| ITEM 6. | EXHIBITS |
| 10.1 | Employment Agreement by and between CASI Pharmaceuticals, Inc. and Alex Zukiwski, dated as of April 3, 2017* + | |
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer* | |
| 31.2 | Rule 13a-14(a) Certification of Principal Accounting Officer* | |
| 32.1 | Section 1350 Certification of Chief Executive Officer* | |
| 32.2 | Section 1350 Certification of Principal Accounting Officer* | |
| 101 | The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in eXtensible Business Reporting Language (XBRL): (in) Unaudited Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.* |
* Filed Herewith
+ Management compensatory plan or agreement
| 20 |
Pursuant to the requirements 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.
| CASI PHARMACEUTICALS, INC. | |||
| (Registrant) | |||
| Date: August 14, 2017 | /s/ Ken K. Ren | ||
| Ken K. Ren | |||
| Chief Executive Officer | |||
| Date: August 14, 2017 | /s/ Sara B. Capitelli | ||
| Sara B. Capitelli | |||
| Principal Accounting Officer | |||
| 21 |
| 10.1 | Employment Agreement by and between CASI Pharmaceuticals, Inc. and Alex Zukiwski, dated as of April 3, 2017* + | |
|
31.1 31.2 |
Rule 13a-14(a) Certification of Chief Executive Officer * Rule 13a-14(a) Certification of Principal Accounting Officer * |
|
| 32.1 | Section 1350 Certification of Chief Executive Officer* | |
| 32.2 | Section 1350 Certification of Principal Accounting Officer* | |
| 101 | The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in eXtensible Business Reporting Language (XBRL): (is) Unaudited Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.* |
* Filed Herewith
+ Management compensatory plan or agreement
| 22 |
Exhibit 10.1
employment agreement
This EMPLOYMENT AGREEMENT (“ Agreement ”) is made effective as of April 3, 2017, by and between CASI PHARMACEUTICALS, INC., a Delaware corporation having its principal office at 9620 Medical Center Drive, Suite 300, Rockville, MD 20850 (the “ Company ”) and ALEX ZUKIWSKI (the “ Executive ”).
FOR AND IN CONSIDERATION of the mutual premises, agreements and covenants contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows:
| 1. | Employment; Position and Duties. |
Subject to the terms hereof, the Company hereby agrees to employ Executive during the Term (as hereafter defined) to act as, and to exercise all of the powers and functions of, its Chief Medical Officer, and to perform such acts and duties and to generally furnish such services to the Company and its subsidiaries as is customary for a senior executive management person with a similar position in like companies. Among other things, and subject to change at the discretion of the Board of Directors (the “ Board ”) and the Chief Executive Officer (the “ CEO ”), Executive shall play a leading role in developing, advocating and executing the Company’s overall clinical development and regulatory plan. Executive will assist the Company in completing its internal evaluation of ENMD-2076 and take the lead on the final recommendation of next steps for the program. Executive will also be a key member of the Company’s business development team, including participating in the clinical and medical evaluation of business development opportunities, and in the strategic scouting and searching for in-license opportunities from the medical community. Executive will from time to time participate in the Company’s finance and investment relations activities, and attend and make corporate presentations in conferences and investor meetings as requested from time to time. Executive shall report directly to the CEO, and have such other powers, duties and responsibilities as the CEO and the Board shall from time to time reasonably prescribe. Executive hereby agrees to accept such employment and shall perform and discharge faithfully, diligently, and to the best of his abilities such duties and responsibilities and shall devote sufficient working time and efforts to the business and affairs of the Company and its subsidiaries.
| 2. | Place of Employment. |
While Executive is employed by the Company during the Term, Executive shall conduct his duties and responsibilities hereunder from the executive office located in Rockville, Maryland and from the Company’s office located in Beijing, China (except for routine and customary business travel), or from such other location as approved by the CEO.
| 3. | Compensation |
a. Base Salary. While the Company employs Executive during the Term, the Company shall pay to Executive an annual base salary (“ Base Salary ”) of no less than US$400,000, payable in accordance with the Company’s customary payroll policy for its executives.
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b. Base Salary Adjustments. Executive’s Base Salary shall be reviewed at least annually in accordance with the Company’s customary practices for its executives. The Board or a committee thereof may make such adjustments, as it deems appropriate in its sole discretion; provided , however , in no event shall the Company pay Executive a Base Salary of less than US$400,000, unless the change to Executive’s Base Salary was applicable to the annual base salary of all senior executives of the Company in substantially the same manner.
c. Incentive Compensation. While the Company employs Executive during the Term, Executive shall be eligible to earn incentive compensation (“ Incentive Compensation ”) up to an aggregate of $180,000, based upon the attainment of pre-established specific milestones related to Executive’s duties, the exact amount of which are determined by the Board or the compensation committee thereof in its sole discretion. Executive as part of the senior management team may be eligible to earn other incentive compensation based upon the attainment of pre-established performance goals, such bonus, if any, shall be determined by the Board or the compensation committee thereof in its sole discretion. Executive shall not be entitled to any such bonus unless Executive is employed by the Company on the date of payment of such bonus.
d. Certain Other Benefits. Throughout the Term, Executive shall be entitled to participate in any and all employee benefit plans and arrangements which are available to senior executive officers of the Company, including without limitation, group medical, disability and life insurance plans, and the Company’s Directors and Officers (D&O) insurance policy. Executive shall also be afforded no fewer than twenty-three (23) days paid time off (PTO) pursuant to policies fixed by the Company.
e. Expenses. The Company shall pay or reimburse Executive for all reasonable and necessary business expenses actually paid or incurred by Executive while Executive is employed by the Company during the Term, subject to reasonable documentation and in accordance with the Company’s business expense reimbursement policy.
| 4. | Term. |
The term of this Agreement shall be the period commencing on April 3, 2017 and continuing for one year (the “ Initial Term ”); provided , however , that the Term of this Agreement shall be extended automatically for successive one year periods (each one-year extension a “ Successor Term ” and together with the Initial Term referred to herein as the “ Term ”) unless written notice of nonextension is provided by either party to the other party at least sixty (60) days prior to the end of the Initial Term or any Successor Term. In the event that this Agreement is not extended at the end of the Initial Term or any Successor Term and thereby terminates, only paragraphs 6, 7, 8(d), 8(g), 8(h), 8(i) and 11 shall survive such termination, except that Executive shall be entitled to receive compensation and benefits to the extent expressly provided herein or by the terms of any of the Company’s compensation and benefit plans, programs or policies or as required by applicable law.
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| 5. | Stock Options. |
In connection with Executive’s acceptance of employment, the Company shall grant stock options to Executive covering such number of shares of the Company’s common stock to be approved by the Board or a committee thereof. The per share exercise price of the stock options shall be equal to the closing price of the Company’s stock on the date of grant in accordance with the vesting schedule of stock options awarded to other executives or as approved by the Board, and such award shall be subject to the terms and conditions of the Company’s form of non-qualified stock option award agreement. Other periodic stock and non-qualified stock option grants to Executive, if any, while the Company employs Executive during the Term shall be determined by the Board or a committee thereof in its discretion. In the event of a termination pursuant to paragraph 8(d) hereof or a resignation pursuant to paragraph 9 hereof, for which purposes sections 10(a) and 10(c) of this Agreement shall control, all vested options held by Executive on the effective date of such termination or resignation shall be exercisable in accordance with the terms of such grants until the later of the date set forth in such grant or twelve (12) months following Executive’s date of termination, but in no event beyond the expiration date of the relevant option. Upon a change in control, as defined in the option agreement, all unvested options shall vest and become exercisable immediately in accordance with the terms of the option agreement. All other unvested options shall expire in accordance with the terms of such grants. Except as set forth herein, the terms of the stock option grants under this paragraph 5 shall be otherwise in accordance with and subject to the terms of the Company’s 2011 Long Term Incentive Plan or successor plan and such terms and conditions as the Board or a committee thereof may specify.
| 6. | Unauthorized Disclosure. |
During the Term and at all times thereafter, Executive shall not, without the written consent of the Company, or except as required by applicable law, disclose to any person, other than a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his duties as an executive officer of the Company, any material confidential information obtained by Executive while in the employ of the Company with respect to the businesses of the Company or any of its subsidiaries, including but not limited to, operations, pricing, contractual or personnel data, products, discoveries, improvements, trade secrets, license agreements, marketing information, suppliers, dealers, principles, customers, or methods of distribution, or any other confidential information the disclosure of which Executive knows, or in the exercise of reasonable care should know, will be damaging to the Company; provided, however, that confidential information shall not include any information known generally to the public or to persons in the industry of which the Company’s business is a part (in each case, other than as a result of unauthorized disclosure by Executive) or any information otherwise considered by the Company not to be confidential. Notwithstanding anything herein to the contrary, Executive is hereby notified, in accordance with the Defend Trade Secrets Act of 2016, that the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Executive is further notified that if he files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company’s trade secrets to his attorney and use the trade secret information in the court proceeding if Executive (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order. Further, notwithstanding anything in this Agreement to the contrary, nothing contained herein prohibits Executive from reporting, without the prior authorization of the Company and without notifying the Company, possible violations of federal law or regulation to the United States Securities and Exchange Commission, the United States Department of Justice, the United States Congress or other governmental agency having apparent supervisory authority over the business of the Company, or making other disclosures that are protected under the whistleblower provisions of Federal law or regulation.
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| 7. | Indemnification. |
a. The Company shall defend, indemnify and hold harmless Executive if he is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (a “ Proceeding ”), because he is or was acting an officer or director of the Company or any of its subsidiaries, affiliates, or successors, or because he is or was serving in a fiduciary capacity with respect to employee benefit plans of the Company, against all Expenses incurred or suffered by him in connection with such Proceeding to the fullest extent authorized by the General Corporation Law of the State of Delaware and any other applicable law in effect from time to time, and such indemnification shall continue as to Executive even if he ceases to be an officer or director or is no longer employed by the Company, and shall inure to the benefit of Executive’s heirs, executors and administrators.
b. As used in this Agreement, the term “Expenses” shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements and reasonable costs, reasonable attorneys’ fees, reasonable accountants’ fees, and reasonable disbursements and costs of attachment or similar bonds, investigations, and any reasonable expenses of establishing a right to indemnification under this Agreement.
c. Expenses incurred by Executive in connection with any Proceeding shall be paid by the Company upon presentation of appropriate documentation and a giving by Executive of any undertakings required by applicable law.
| 8. | Termination. |
a. Upon Death. If Executive dies while employed by the Company during the Term, his estate shall be entitled to receive a lump sum payment equal to the amount of Base Salary that would have been payable had Executive remained employed through the last day of the six (6) months following the month in which death occurred, provided, however, that if Executive’s death occurs during the first three (3) months of his employment, his estate shall be entitled to receive a lump sum payment equal to the amount of Base Salary that would have been payable had Executive remained employed through the last day of the three (3) months following the month in which death occurred. If, in respect of the fiscal year in which Executive dies the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive’s estate shall be entitled to receive a pro rata portion of his Incentive Compensation for such fiscal year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s death prior to the date of death, and the denominator of which is the total number of days in such fiscal year. All payments under this Section 8(a) shall be made within sixty (60) days of Executive’s death.
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b. Termination Upon Disability. The Company may terminate Executive’s employment hereunder during the Term at the end of any calendar month in the event of his Disability by giving to Executive written notice of termination. In the event of any such termination pursuant to this subparagraph 8(b), Executive shall be entitled to receive a lump sum payment equal to the amount of his Base Salary that would have been payable had Executive remained employed through the last day of the six (6) months following the month in which termination occurred, provided, however, that if such Disability termination occurs during the first three (3) months of his employment, he shall be entitled to receive a lump sum payment equal to the amount of Base Salary that would have been payable had Executive remained employed through the last day of the three (3) months following the month in which termination occurred If in respect of the fiscal year in which Executive’s employment terminates pursuant to this subparagraph 8(b) the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive shall be entitled to receive a pro rata portion of his Incentive Compensation for such year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s termination on account of Disability prior to the date of termination, and the denominator of which is the total number of days in such fiscal year. All payments under this Section 8(b) shall be made on such date determined by the Company, which payment date shall be within sixty (60) days of Executive’s Disability termination, subject to Executive’s compliance with the terms of Section 8(i) hereof.
c. Termination for Cause. The Company may terminate Executive’s employment hereunder at any time during the Term for Cause by giving to Executive written notice of termination that specifies the reasons for and date of termination, subject to the terms of sub-paragraph 10(a) hereunder. Upon any such termination for Cause under this subparagraph 8(c), the Company shall pay to Executive Base Salary through the date of termination, including the benefits provided at paragraph 3(d), and the Company shall have no further obligations under this Agreement.
d. Termination Without Cause. The Company may terminate Executive’s employment with the Company at any time during the Term, for any reason and without Cause, by giving him written notice thirty (30) days prior to the date of termination. Until the effective date of any such termination, the Company shall continue to pay to Executive the full compensation specified in this Agreement, including the benefits provided at paragraph 3(d). Following the date of termination, Executive shall make himself reasonably available to members of the Board and other senior managers and officers of the Company to assist in the transition of responsibilities and information to others and to facilitate the orderly conduct of business operations. Upon termination, the Company shall have no other financial obligations to Executive under any compensation or benefit plan, program or policy and Executive’s participation in the Company’s compensation and benefit plans, programs and policies shall cease as of the date of Executive’s termination except as set forth herein or as expressly provided under the terms of any such plans, programs or policies, or as required by applicable law. However, in addition to the above, if Executive is terminated by the Company (i) pursuant to this subparagraph 8(d) or (ii) upon the Company’s nonextension of the Term in accordance with Section 4 (provided that Executive is then willing and able to continue to provide services under terms and conditions substantially similar to those in this contract) and for any reason other than Cause, death or Disability, the Company shall (A) pay Executive a payment equal to the amount of his Base Salary that would have been payable had Executive remained employed through the last day of the six (6) months following the month in which termination occurred, which payment shall be divided into six (6) equal installments and paid monthly in the six (6) subsequent months following such termination; and (B) a lump sum payment in an amount equal to six (6) months of COBRA premiums for the level of coverage that Executive had in effect as of immediately prior to his termination. If, in respect of the fiscal year in which Executive’s employment terminates pursuant to this subparagraph 8(d), the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive shall be entitled to receive a pro rata portion of his Incentive Compensation for such year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s termination without Cause prior to the date of termination, and the denominator of which is the total number of days in such fiscal year. All payments under this Section 8(d) shall be made on such date determined by the Company, which payment date shall be within sixty (60) days of Executive’s termination of employment, subject to Executive’s compliance with the terms of Section 8(i) hereof.
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e. Resignation for Other than Good Reason. Executive may voluntarily terminate his employment with the Company during the Term for any reason upon at least thirty (30) days prior written notice, which specifies the effective date of termination. The foregoing notwithstanding, the Company may waive all or a portion of such thirty (30) day notice period in which event the effective date of Executive’s termination shall be such earlier date specified by the Company. Until the effective date of such termination, the Company shall continue to pay him the full compensation specified in this Agreement, including the benefits provided at paragraph 3(d), provided he continues to perform his duties during this period. Thereafter, the Company shall have no further obligations to him under this Agreement. This subparagraph 8(e) shall not apply to Executive’s resignation for Good Reason pursuant to paragraph 9 hereof.
f. No Mitigation . The parties hereto acknowledge and agree that, in the event Executive’s employment with the Company is terminated pursuant to this paragraph 8, he shall not be required to mitigate his damages by affirmatively seeking other employment. Further, except as provided in subparagraph 8(d)(ii) above, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by him or benefit provided to him as the result of employment by another employer or otherwise.
g. Non-Competition . For the period of (i) twelve (12) months after resignation for other than for Good Reason, or (ii) six (6) months after termination of employment with the Company for any other reason, Executive shall not, as an individual, principal, agent, employee, consultant or otherwise, directly or indirectly, or with respect to any company or entity with which the Company has concluded partnership, licensing, joint research and development or other similar business agreements during his employment with the Company, render any services to any firm or company or any division or subsidiary of any firm or company, engaged in the development or commercialization of compounds, analogs or derivatives of those compounds that (a) are of a similar type, that is, small molecules, (b) have more than one mechanism of action and cellular pathway in common with; and (c) are within the same field ( i . e . oncology or inflammation) as, those being developed and or commercialized by the Company during the Term (“ Competing Company” ). In addition, for an additional period of six (6) months after the six-month period set forth above and subject to Section 6 hereof, Executive only may provide services to such a Competing Company if Executive does not work on, or furnish confidential information regarding, any matter related to such compounds defined above. Moreover, for a period of twelve (12) months after the termination of Executive’s employment with the Company, Executive shall not take any action, without the prior written consent of the Company, to assist Executive’s successor employer or any other entity in recruiting or hiring any other employee who was an employee of the Company during Executive’s employment. This prohibition includes (i) identifying to such successor employer or its agents or such other entity, the person or persons who have special knowledge concerning the Company or its inventions, processes, methods or confidential affairs, and (ii) commenting to Executive’s successor employer or its agents or such other entity about the quantity or work, quality of work, special knowledge or personal characteristics of any person who is still employed by the Company. Executive also agrees that he will not provide such information to a prospective employer or to an executive search firm during interviews preceding possible employment.
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h. Non-Disparagement . During the Term and thereafter, Executive shall not communicate negatively about or otherwise disparage the Company or its products or each and any of the released parties described in subparagraph 8(i) in any way whatsoever except as may be required for truthful sworn testimony or in connection with a legal or administrative proceeding, report, claim or dispute. After termination, in the event Executive materially breaches any of the conditions set forth herein or in any other paragraph of this Agreement, the Company may, in addition to such other remedies available to it at law or in equity, discontinue the provision of any payment or benefits to him under this Agreement, and in such event he shall forfeit his entitlement to any further termination payments or benefits under this Agreement.
i. Release . In consideration of and as an express condition precedent to Executive’s receipt of severance benefits subject to and in accordance with subparagraphs 8(b) and (d) and paragraph 9 of this Agreement, Executive agrees that, prior to his first receipt and acceptance of any such benefits, he shall have executed (and not revoked) an agreement in a form acceptable to the Company which releases and forever discharges the Company, its subsidiaries and affiliates, successors and assigns, predecessors and all of their respective officers, directors, employees and agents and employee benefits plans from all claims, demands, liabilities and causes of action arising out of facts or occurrences arising or occurring at any time up to and including the time of Executive’s termination or resignation, whether known or unknown, and the parties hereto contemplate that this release shall be broadly construed. Executive must execute and tender (without revocation) the release described in the immediately preceding sentence within forty-five (45) days (or such earlier date as determined by the Company, which shall not be less than twenty-one (21) days) of the termination of his employment in order to receive the severance benefits.
| 9. | Resignation for Good Reason. |
If Executive has Good Reason during the Term, Executive may resign at any time during the Term by providing at least thirty (30) days prior written notice to the Company that specifies the reason for, and the effective date of, his resignation. If Executive resigns during the Term for Good Reason, such resignation shall be deemed a Termination without Cause under subparagraph 8(d) hereof and Executive shall receive the compensation and benefits provided under subparagraph 8(d) hereof as if he had been terminated without Cause, subject to Executive’s compliance with the terms of Section 8(i) hereof.
| 10. | Definitions. |
a. “Cause” shall mean Executive’s (i) habitual drunkenness or drug addiction, (ii) material failure to perform and discharge his duties and responsibilities hereunder, (iii) misconduct that is materially and significantly injurious to the Company, (iv) conviction of a felony involving the personal dishonesty of Executive or moral turpitude, (v) conviction of any crime or offense involving the property of the Company or (vi) material breach of Executive’s obligations under this Agreement, provided , however , with regard to Section 10(a)(ii) and 10(a)(vi) above, the parties exclude for this purpose an action not taken in bad faith that is remedied by Executive promptly upon receipt of written notice thereof given by the Company.
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b. “Disability” shall mean Executive’s incapacity due to physical or mental illness which prevents the proper performance of Executive’s duties as set forth herein or established pursuant hereto for ninety (90) days in any twelve (12) month period of the Term. A qualified independent physician mutually selected by the Company and Executive shall determine any questions as to the existence or extent of illness or incapacity of Executive, upon which the Company and Executive cannot agree. The determination of such physician certified in writing to the Company and to Executive shall be final and conclusive for all purposes of this Agreement. For purposes of the disability provisions of this Agreement, if Executive is unable to act on his own behalf due to incapacity, any person legally authorized to do so may act on Executive’s behalf.
c. “Good Reason” shall mean the occurrence of any of the following events, without the consent of Executive, during the Term: (A) the material diminution of Executive’s authorities, duties or responsibilities; (B) a material reduction by the Company in Executive’s annual Base Salary as in effect on the date hereof or subsequently in effect hereunder, except as agreed to by Executive, unless such change was applicable to all senior executives of the Company; (C) a material breach of this Agreement by the Company; or (D) a material change in the geographic location at which Executive must perform services under this Agreement (for purposes of this agreement, a material change in geographic location shall mean requirement by the Company that Executive conduct his duties and responsibilities from a permanent location more than fifty (50) miles from the place of employment, as defined in paragraph 2 herein). In no event shall a termination be deemed to be for “Good Reason” unless (i) Executive provides the Company with written notice of the condition constituting “Good Reason” within 30 days of the initial existence of such condition, (ii) the Company is provided a period of at least 30 days to cure the condition (if cured, such condition shall not constitute “Good Reason”), and (iii) Executive’s employment terminates not more than ninety (90) days following the initial existence of such condition.
| 11. | Miscellaneous. |
a. Assignments and Binding Effect. Subject to Section 11.b., the respective rights and obligations of the parties under this Agreement shall be binding upon the parties hereto and their heirs, executors, administrators, successors, and assigns, including, in the case of the Company, any other corporation or entity with which the Company may be merged or otherwise combined and, in the case of Executive, his estate or other legal representatives.
b. No Assignment of Benefits. Executive acknowledges that the services to be rendered by him are unique and personal. Accordingly, except as otherwise expressly provided herein or by applicable law, no right or interest of Executive under this Agreement shall be assignable or transferable, in whole or in part, either directly or by the operation of law or otherwise, including without limitation execution, levy, garnishment, attachment, pledge or in any manner; no attempted transfer thereof shall be effective.
c. Governing Law. This Agreement shall be governed as to its validity, interpretation and effect by the laws of the State of Maryland, without reference to its conflict of laws provisions.
d. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid, illegal, or unenforceable for any reason, the remaining provisions and portions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. Such invalid, illegal or unenforceable provision(s) shall be deemed modified to the extent necessary to make it (them) valid, legal, and enforceable.
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e. Withholding. All amounts payable hereunder shall be paid net of any applicable withholding required under federal, state or local laws and any additional withholding to which Executive has agreed.
f. Entire Agreement;. This Agreement constitutes the entire Agreement and understanding of the Company and Executive with respect to the terms of Executive’s employment with the Company and supersedes all prior discussions, understandings and agreements with respect thereto.
g. Captions. All captions and headings used herein are for convenient reference only and do not form part of this Agreement.
h. Waiver; Amendment. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing and signed by Executive and the Board or its delegate. The failure of the Company or Executive to insist upon strict compliance with the terms of this Agreement or the failure of the Company or Executive to assert any right the Company or Executive may have hereunder shall not be deemed a waiver of such provision or right or any other provision of this Agreement.
i. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and shall be delivered by hand, or mailed by registered or certified mail, return receipt requested, first call postage prepaid, addressed as follows:
If to Executive:
Alex Zukiwski
12003 Tregoning Place
Clarksburg, Maryland 20871
If to the Company:
CASI Pharmaceuticals, Inc.
9620 Medical Center Drive
Suite 300
Rockville, Maryland 20850
Attn.: General Counsel
j. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute one and the same agreement.
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| 12. | Section 409A. |
This Agreement is intended to either comply with or be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) , to the extent applicable, and the Company shall administer and interpret this Agreement in accordance with such requirements. The foregoing notwithstanding, in no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on Executive by Section 409A of the Code or damages for failing to comply with Section 409A of the Code. Notwithstanding anything to the contrary herein, for purposes of determining Executive’s entitlement to the payments under Section 8 hereof, (i) Executive’s employment shall not be deemed to have terminated unless and until Executive incurs a “separation from service” as defined in Section 409A of the Code, and (ii) the term termination of employment (or any similar term) shall mean the effective date of Executive’s separation from service. Reimbursement of any expenses provided for in this Agreement shall be made in accordance with the Company’s policies (as applicable) with respect thereto as in effect from time to time (but in no event later than the end of calendar year following the year such expenses were incurred); provided , however , that in no event shall the amount of expenses eligible for reimbursement hereunder during a calendar year affect the expenses eligible for reimbursement in any other taxable year and in no event shall the right to reimbursement be subject to liquidation or exchange for another benefit. Notwithstanding anything to the contrary herein, if a payment or benefit under this Agreement is due to a “separation from service” for purposes of the rules under Treas. Reg. § 1.409A-3(i)(2) (payments to specified employees upon a separation from service) and Executive is determined to be a “specified employee” (as determined under Treas. Reg. § 1.409A-1(i) and related Company procedures), such payment shall, to the extent necessary to comply with the requirements of Section 409A of the Code, be made on the later of (x) the date specified by the foregoing provisions of this Agreement or (y) the date that is six (6) months after the date of Executive’s separation from service (or, if earlier, the date of Executive’s death). Any installment payments that are delayed pursuant to this Section 12 shall be accumulated and paid in a lump sum on the first day of the seventh month following Executive’s separation from service (or, if earlier, upon Executive’s death) and the remaining installment payments shall begin on such date in accordance with the schedule provided in this Agreement. The payments under Section 8 hereof are intended not to constitute deferred compensation subject to Section 409A of the Code to the extent such payments are covered by (i) the “short-term deferral exception” set forth in Treas. Reg. § 1.409A-1(b)(4), (ii) the “two times severance exception” set forth in Treas. Reg. § 1.409A-1(b)(9)(iii), or (iii) the “limited payments exception” set forth in Treas. Reg. § 1.409A-1(b)(9)(v)(D). The short-term deferral exception, the two times severance exception and the limited payments exception shall be applied to such payments in order of payment in such manner as results in the maximum exclusion of such payments from treatment as deferred compensation under Section 409A of the Code. Each payment hereunder shall be deemed to be a separate payment for purposes of Section 409A of the Code.
Additionally, in the event that following the date hereof the Company or Executive reasonably determines that any compensation or benefits payable under this Agreement may be subject to Section 409A of the Code, the Company and Executive shall work together to adopt such amendments to this Agreement or adopt other policies or procedures (including amendments, policies and procedures with retroactive effect), or take any other commercially reasonable actions necessary or appropriate to (x) exempt the compensation and benefits payable under this Agreement from Section 409A of the Code and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement or (y) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
| Executive | ||||
| Alex Zukiwski | ||||
| CASI PHARMACEUTICALS, Inc. | ||||
| By: | ||||
| Name: Ken K. Ren | ||||
| Title: Chief Executive Officer | ||||
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Ken K. Ren, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CASI Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2017
/s/ Ken K. Ren
Ken K. Ren
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER
I, Sara B. Capitelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CASI Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2017
/s/ Sara B. Capitelli
Sara B. Capitelli
Principal Accounting Officer
Exhibit 32.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CASI Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ken K. Ren, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report. |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
| Date: August 14, 2017 | /s/ Ken K. Ren | |
|
Ken K. Ren
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION BY PRINCIPAL ACCOUNTING
OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CASI Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sara B. Capitelli, as Principal Accounting Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report. |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
| Date: August 14, 2017 | /s/ Sara B. Capitelli | |
|
Sara B. Capitelli
Principal Accounting Officer |