UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended June 30, 2014

 

or

 

¨	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 000-54852

 

 

CELATOR PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter) 

 

 

Delaware		20-2680869
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
200 PrincetonSouth Corporate Center Suite 180 Ewing, New Jersey		08628
(Address of principal executive offices)		(Zip Code)

 

(609)-243-0123

(Registrant’s telephone number, including area code)

 

(Former name or former address, 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 (§232.405 of this chapter) 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.

 

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨    (Do not check if a smaller reporting company)		Smaller Reporting Company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

 

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of August 8, 2014 was 26,078,532.

 

 

CELATOR PHARMACEUTICALS, INC.

 

TABLE OF CONTENTS

			Page
Part I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)	1
		Consolidated Balance Sheets as June 30, 2014 and December 31, 2013	1
		Consolidated Statements of Loss for the three and six months ended June 30, 2014 and 2013.	2
		Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2014	3
		Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	4
		Notes to Consolidated Financial Statements	5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.		Controls and Procedures	15
Part II.		OTHER INFORMATION
Item 1.		Legal Proceedings	15
Item 1A.		Risk Factors	15
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6.		Exhibits	15
Signature			16
Certifications

 

 

Part I. Financial Information

 

Item 1. Financial Statements

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Consolidated Balance Sheets

(Unaudited)

 

		June 30, 2014				December 31, 2013
Assets
Current assets:
Cash and cash equivalents		$	24,924,518			$	23,589,516
Restricted cash			287,562				287,657
Other receivables			3,328				1,417,313
Prepaid expenses and deposits			599,021				491,465
Assets held for sale			74,086				74,086
Other current assets			879,056				468,389
Total current assets			26,767,571				26,328,426
Property and equipment, net			1,046,486				1,138,579
Other assets			653,299				5,745
Total assets		$	28,467,356			$	27,472,750
Liabilities
Current liabilities:
Current portion of long-term debt		$	282,253			$	-
Accounts payable			525,400				1,193,148
Accrued liabilities			1,545,943				1,630,809
Current portion of deferred revenue			542,986				542,986
Total current liabilities			2,896,582				3,366,943
Long-term debt			9,744,407				-
Deferred revenue			316,743				588,236
Deferred rent			49,844				53,084
Total liabilities			13,007,576				4,008,263
Stockholders' equity
Preferred stock
Authorized 20,000,000 shares, par value $0.001			-				-
Common stock
Authorized 200,000,000 shares, par value $0.001
Issued and outstanding 26,078,532 and 26,035,596 shares as of June 30, 2014 and December 31, 2013 respectively			26,079				26,036
Warrants			1,083,193				1,083,193
Additional paid-in capital			157,017,839				155,953,894
Accumulated other comprehensive loss			(1,133,266	)			(1,133,266	)
Accumulated deficit			(141,534,065	)			(132,465,370	)
Total stockholders' equity			15,459,780				23,464,487
Total liabilities and stockholders' equity		$	28,467,356			$	27,472,750

 

See accompanying notes to consolidated financial statements.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Consolidated Statements of Loss

(Unaudited)

 

		Three months ended								Six months ended
		June 30								June 30
		2014				2013				2014				2013
Expenses
Research and development		$	2,936,114			$	2,018,566			$	5,903,967			$	3,669,975
Leukemia & Lymphoma Society funding			(135,746	)			(135,747	)			(771,493	)			(289,593	)
General and administrative			1,729,101				1,138,649				3,617,368				2,487,648
Loss on disposal of property and equipment			-				124,965				-				138,692
Amortization and depreciation			48,353				49,464				96,088				97,052
Operating loss			(4,577,822	)			(3,195,897	)			(8,845,930	)			(6,103,774	)
Other income (expenses)
Foreign exchange (loss) gain			(14,605	)			(1,435	)			(26,313	)			(4,484	)
Interest and miscellaneous income			1,942				3,037				4,257				3,466
Non-cash derivative instrument charge			-				(747,311	)			-				(7,473,108	)
Interest expense			(200,709	)			(99,371	)			(200,709	)			(147,025	)
Net loss		$	(4,791,194	)		$	(4,040,977	)		$	(9,068,695	)		$	(13,724,925	)
Net loss per share
Basic and diluted		$	(0.18	)		$	(0.18	)		$	(0.35	)		$	(0.77	)
Weighted average of common shares outstanding
Basic and diluted			26,078,532				22,089,921				26,058,131				17,904,791

 

See accompanying notes to consolidated financial statements.

 

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2014

(Unaudited)

 

																		ACCUMULATED
														ADDITIONAL				OTHER
		COMMON STOCK												PAID-IN				COMPREHENSIVE				ACCUMULATED				STOCKHOLDERS’
		NUMBER				AMOUNT				WARRANTS				CAPITAL				LOSS				DEFICIT				EQUITY
Balance at December 31, 2013			26,035,596			$	26,036			$	1,083,193			$	155,953,894			$	(1,133,266	)		$	(132,465,370	)		$	23,464,487
Exercise of stock options			42,936				43				-				100,596				-				-				100,639
Stock-based compensation			-				-				-				642,597				-				-				642,597
Warrants issued			-				-				-				320,752				-				-				320,752
Net loss for the period			-				-				-				-				-				(9,068,695	)			(9,068,695	)
Balance at June 30, 2014			26,078,532			$	26,079			$	1,083,193			$	157,017,839			$	(1,133,266	)		$	(141,534,065	)		$	15,459,780

 

See accompanying notes to consolidated financial statements.

 

  

 

Celator Pharmaceuticals, Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

(Unaudited)

		Six months ended
		June 30,
		2014				2013
Operating activities
Net loss		$	(9,068,695	)		$	(13,724,925	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization and depreciation			96,088				97,052
Non-cash stock-based compensation expense			642,597				86,780
Loss on disposal of property and equipment			-				138,692
Non-cash derivative instrument charge			-				7,473,108
Non-cash financing costs			57,167				74,752
Changes in operating assets and liabilities
Other receivables			1,410,237				1,993,925
Prepaid expenses and deposits			(107,135	)			(140,756	)
Restricted cash			(25	)			(250,022	)
Other current assets			(410,667	)			(358,359	)
Accounts payable			(666,455	)			(49,184	)
Accrued liabilities			(83,059	)			(42,816	)
Deferred rent			(3,240	)			-
Deferred revenue			(271,493	)			(289,593	)
Cash used in operating activities			(8,404,680	)			(4,991,346	)
Investing activities
Purchase of property and equipment			(3,995	)			(35,544	)
Proceeds on disposals of property and equipment			-				36,673
Cash (used in) provided by investing activities			(3,995	)			1,129
Financing activities
Proceeds from issuance of common stock and on options exercised			104,387				32,499,986
Payment of share issuance costs			-				(3,079,611	)
Proceeds from loans payable			9,827,216				-
Payment of debt issuance costs			(184,469	)			-
Repayments of loans payable			-				(3,000,000	)
Cash provided by financing activities			9,747,134				26,420,375
Effect of foreign exchange rate changes			(3,457	)			1,707
Net change in cash and cash equivalents			1,335,002				21,431,865
Cash and cash equivalents, beginning of period			23,589,516				9,648,008
Cash and cash equivalents, end of period		$	24,924,518			$	31,079,873
Supplemental disclosure of cash flow information
Interest paid		$	62,292			$	79,388
Capital expenditure incurred but not paid			-				14,687

 

See accompanying notes to consolidated financial statements

 

 

 

1.

Nature of Business and Liquidity

 

Celator Pharmaceuticals, Inc. (“CPI” or the “Company”), with locations in Ewing, N.J., and Vancouver, B.C., is a pharmaceutical company developing new and more effective therapies to treat cancer. CombiPlex®, the Company’s proprietary drug ratio technology platform, represents a novel approach that identifies molar ratios of drugs that will deliver a synergistic benefit, and locks the desired ratio in a nano-scale drug delivery vehicle that maintains the ratio in patients with the goal of improving clinical outcomes.

 

The Company has incurred recurring losses and negative cash flows from operations since inception. As of June 30, 2014, the Company had an accumulated deficit of $141.5 million. The Company expects operating losses and negative cash flows to continue for the foreseeable future until such time, if ever, that it can generate significant revenues from its product candidates currently in development. At June 30, 2014, the Company had cash and cash equivalents of $24.9 million. Management believes that the cash and cash equivalents at June 30, 2014 will be sufficient to meet estimated working capital requirements and fund planned operations into the fourth quarter of 2015. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates.

 

The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.

 

2.

Summary of Significant Accounting Policies

 

The accompanying unaudited consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted.

 

In the opinion of management of the Company, the interim consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, operating results and cash flows of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

 

Basis of consolidation: The consolidated financial statements include the accounts of Celator and its wholly-owned subsidiaries, Celator Pharmaceuticals Corp. (“CPC”) and Celator UK Ltd. All intercompany transactions have been eliminated.

 

Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, among other things, assessment of other receivables, accrued liabilities, impairment and amortization of property and equipment, valuation allowance for deferred income taxes, valuation of stock-based compensation and contingencies.

 

New Accounting Pronouncement: In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates all incremental financial reporting requirements for development stage entities by removing Accounting Standards Codification (ASC) Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification. The amendments in this Update remove the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. ASC Topic 915 is removed effective for annual periods beginning after December 15, 2014 and early adoption is permitted. The Company adopted the ASU effective with the issuance of its June 30, 2014 financial statements.

 

3.

Fair Value Measurements

 

Financial instruments of the Company consist of cash deposits, money market investments, other receivables, accounts payable, certain accrued liabilities and debt. The carrying value of these financial instruments generally approximates fair value due to their short-term nature.

 

ASC Topic 820, Fair Value Measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820-10 establishes three levels of inputs that may be used to measure fair value:

 

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

ASC 820 requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.

 

The Company recognizes transfers between input levels as of the actual date of event. There were no transfers between levels and the following table provides the assets carried at fair value:

 

		Fair Value				(Level 1)				(Level 2)				(Level 3)
June 30, 2014
Assets:
Certificates of Deposit		$	14,003,243			$	14,003,243			$	-			$	-
Money Market Fund			8,308,322				8,308,322				-				-
Total		$	22,311,565			$	22,311,565			$	-			$	-
December 31, 2013
Assets:
Certificates of Deposit		$	15,003,472			$	15,003,472			$	-			$	-
Money Market Fund			7,597,730				7,597,730				-				-
Total		$	22,601,202			$	22,601,202			$	-			$	-

 

Non-cash derivative instrument charge

 

The Company recognized a non-cash derivative instrument charge of $747,311 and $7,473,108 during the three and six months ended June 30, 2013 respectively. The charge related to an obligation to issue additional shares of common stock and warrants to certain existing stockholders who participated in early closings of a private placement that started in 2012 and closed on April 29, 2013. The fair value of these common shares and warrants was recognized as a derivative liability with a corresponding charge to the statement of loss. Upon the closing of the April 2013 Private Placement, the derivative liability was reclassified into stockholders’ equity as the obligation to issue additional securities no longer existed. This contractual obligation was fair valued using significant unobservable inputs (Level 3).

 

4.

Other Receivables

 

Other receivables as of June 30, 2014 and December 31, 2013, consists of the following:

 

		June 30, 2014				December 31, 2013
Receivables related to the sale of New Jersey net operating losses		$	-			$	1,412,302
Other receivables			3,328				5,011
		$	3,328			$	1,417,313

 

5.

Other Current Assets

 

Other current assets as of June 30, 2014 and December 31, 2013 consist of the following:

 

		June 30, 2014				December 31, 2013
Clinical trial materials		$	879,056			$	468,389

 

 

 

6.

Property and Equipment

 

Property and equipment as of June 30, 2014 and December 31, 2013 including assets held under capital lease, consists of the following:

 

		June 30, 2014				December 31, 2013
Computer and equipment		$	140,495			$	136,498
Furniture and office equipment			96,457				96,457
Laboratory equipment			1,760,633				1,760,633
Capital lease equipment			155,523				155,523
Leaseholds			37,789				37,789
			2,190,897				2,186,900
Less: Accumulated depreciation			(1,144,411	)			(1,048,321	)
		$	1,046,486			$	1,138,579

 

		Three months ended								Six months ended
		June 30								June 30
		2014				2013				2014				2013
Depreciation and amortization		$	48,353			$	49,464			$	96,088			$	97,052

  

In February 2012, the Company closed a laboratory in Canada and consigned certain property and equipment for sale with net book value of $507,622. At June 30, 2014 and December 31, 2013, the net book value of the remaining consigned equipment was $74,086 and consisted solely of scientific equipment, which is presented as assets held for sale on the consolidated balance sheet.

 

During six months ended June 30, 2013 assets held for sale with a net book value of $174,768 were sold for proceeds of $36,673 resulting in a loss on disposal of $138,095. There were no disposals during the three and six months ended June 30, 2014.

 

7.

Accrued Liabilities

 

Accrued liabilities as of June 30, 2014 and December 31, 2013 consist of the following:

 

		June 30, 2014				December 31, 2013
Accrued bonuses		$	562,392			$	624,472
Accrued salaries and vacation			176,836				143,484
Accrued professional fees			30,000				30,911
Accrued clinical trial expenses			631,023				636,497
Accrued trade payables other			145,692				195,445
		$	1,545,943			$	1,630,809

 

8.

Loans Payable

 

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

 

Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase 158,006 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The fair value of the warrants of $320,752 and financing costs of $357,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $30,507 for the three and six months ended June 30, 2014 and the remaining unamortized debt issuance costs of $647,498 is included in other non-current assets.

 

In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan become due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $26,660 of this fee during the three months ended June 30, 2014.

 

Long-term debt as of June 30, 2014 consists of the following:

 

Loan payable		$	10,000,000
End of term fee			26,660
			10,026,660
Less: Current portion			(282,253	)
Long-term debt		$	9,744,407

 

 

9.

Stock Based Compensation

 

The following table summarizes the activity of the Company’s stock option plans for the six months ended June 30, 2014:

 

		Number of options				Exercise price
December 31, 2013			2,578,252			$	2.98
Granted			478,500				3.15
Exercised			(42,936	)			2.34
Cancelled			(9,269	)			3.37
June 30, 2014			3,004,547			$	3.02
Exercisable at June 30, 2014			1,094,447			$	2.72

 

The following table provides information regarding stock options activity during the periods:

 

		Three months ended								Six months ended
		June 30								June 30
		2014				2013				2014				2013
Stock compensation expense recognized		$	339,615			$	82,502			$	642,597			$	86,780
Weighted average grant-date fair value of stock options issued (per share)		$	2.35			$	2.14			$	2.70			$	2.14
Grant-date fair value of stock options issued		$	197,400			$	3,268,101			$	1,291,950			$	3,268,101
Volatility			112.0	%			118.2	%			114.5	%			118.2	%
Risk-free interest rate			1.9	%			1.9	%			2.0	%			1.9	%
Dividend yield			0	%			0	%			0	%			0	%
Expected life in years			6.0				6.2				6.2				6.2
Intrinsic value of stock options exercised		$	-			$	-			$	38,892			$	-

 

The grant-date fair value of stock options is estimated using the Black Scholes option pricing model. The Company determined the options’ life based on the simplified method and determined the options’ expected volatility based on peer group volatility and dividend yield based on the historical dividend payments. The risk free interest rate is based on the yield of an applicable term Treasury instrument.

 

The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. At June 30, 2014, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $4,297,202 and 3.1 years, respectively.

 

10.

Geographic Segment Information

 

The Company operates in the United States and Canada. The Company’s CPX-351 clinical trial materials are manufactured by a third party using the Company’s equipment located in Germany. Geographic net loss information is based on the location whereby the expenses were incurred. The geographic information about total assets is based on the physical location of the assets.

 

		Total Assets
		June 30, 2014				December 31, 2013
United States		$	27,301,017			$	26,190,516
Canada			242,462				284,563
Germany			923,877				997,671
Total Assets		$	28,467,356			$	27,472,750

 

 

						Net Loss
		Three months ended								Six months
		June 30								June 30
		2014				2013				2014				2013
United States			(4,276,673	)			(3,624,723	)			(7,931,554	)			(12,374,358	)
Canada			(514,521	)			(416,254	)			(1,137,141	)			(1,350,567	)
Total Net Loss		$	(4,791,194	)		$	(4,040,977	)		$	(9,068,695	)		$	(13,724,925	)

 

11.

Commitments and Contingencies

 

In February 2013, the Company renewed its office lease agreements for office space in Vancouver, British Columbia, effective April 1, 2013, which expires in June 2016. The remaining minimum lease payments as of June 30, 2014 totaled $133,439.

 

In March 2013, the Company entered into an office lease agreement for office space in Ewing, New Jersey, which commenced in June 2013 with a term of sixty months. The remaining minimum lease payments as of June 30, 2014 totaled $564,624. Under the Ewing, New Jersey lease agreement, the Company will be obligated to maintain a letter of credit from a bank with respect to its security deposit obligations in the amount of $200,000 during the first year of the Agreement, which amount will be reduced by $40,000 per year on each of December 1, 2014, 2015, and 2016 and by $60,000 on December 1, 2017.

 

The Company has a worldwide exclusive license agreement with Princeton University dated June 2007 that provides the Company with exclusive rights to some aspects of its nanoparticle polymer technology arising from research sponsored by the Company at Princeton University between 2003 and 2007. These inventions are generally characterized as particulate constructs for release of active agents for medical application. Of the products currently in Celator’s pipeline, only the hydrophobic docetaxel prodrug nanoparticle (HDPN) formulation is subject to this agreement. The Company is obligated to pay a royalty on net sales to Princeton University of a low single-digit percentage if any invention is sold by the Company or a company to which the product covered by the invention was licensed by the Company, which was generated under the exclusive licensing agreement. No royalty or other product/sub-license-related payments have been made to date. The Company is obligated to provide Princeton University a percentage within the range of 45% to 55% of proceeds obtained from a sub-license of the intellectual property to a third party in cases where the Company has not conducted any research or development activities and is solely licensing out the original intellectual property jointly developed by the Company and Princeton University. The Company may terminate the agreement at any time by giving 90 days written notice to Princeton University. Princeton may terminate the agreement if the Company should breach or fail to perform under the agreement, with written notice of default provided by Princeton University to the Company and only if the Company fails to cure the default within 60 days. The Company is obligated under the agreement to provide an annual progress report to Princeton University on any developments of the licensed technology as well as prosecution of the patents covering the technology and the use of commercially reasonable efforts to develop licensed products.

 

The Company has a collaborative research agreement dated May 2001 with the British Columbia Cancer Agency (“BCCA”) whereby in consideration for the license and conditional assignment of all Company-sponsored intellectual property to the Company by BCCA, the Company will pay to BCCA a royalty in the low single digits on net sales of royalty-bearing products in territories so long as a valid claim exists for inventions made between June 2000 and June 2005 under the agreement. All obligations relating to the conduct of the research and assignment of intellectual property have been completed. No payments of royalties have been made to date. Either party may terminate the agreement if the other party commits a material breach or default and such breach or default is not reasonably cured within 45 days.

 

In consideration of funding by the Leukemia & Lymphoma Society ® (“LLS”) and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company may be required to pay LLS a cash multiple on the LLS funding, (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from out-licenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties that may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product development, product approvals, product potential and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.

 

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

 

Highlights

 

Celator Pharmaceuticals, Inc., with locations in Ewing, N.J., and Vancouver, B.C., is a pharmaceutical company developing new and more effective therapies to treat cancer. CombiPlex®, the Company’s proprietary drug ratio technology platform, represents a novel approach that identifies molar ratios of drugs that will deliver a synergistic benefit, and locks the desired ratio in a nano-scale drug delivery vehicle that maintains the ratio in patients with the goal of improving clinical outcomes. The Company’s pipeline includes two clinical stage products, CPX-351, a liposomal formulation of cytarabine:daunorubicin for the treatment of acute myeloid leukemia, or AML, and CPX-1, a liposomal formulation of irinotecan:floxuridine, for the treatment of colorectal cancer; and preclinical stage product candidates, including CPX-571, a liposomal formulation of irinotecan:cisplatin, and CPX-8, a hydrophobic docetaxel prodrug nanoparticle, or HDPN, a formulation being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory.

 

Overview

 

Celator was founded in 1999 by a team led by Dr. Lawrence Mayer (currently Celator’s President and Chief Scientific Officer) and Dr. Marcel Bally from the British Columbia Cancer Agency. Celator’s strategy evolved into developing drug combination products based on CombiPlex, Celator’s proprietary drug ratio technology platform.

 

Since the founding of Celator, $95.7 million has been invested in research and development with funds being used with the Company’s proprietary technologies, including CombiPlex, creating a pipeline of drugs and managing the clinical studies. Celator’s commercial success depends upon its ability, and the ability of any of its future collaborators, to develop, manufacture, market, and sell the product candidates. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which Celator is developing products. There is no guarantee that Celator will be able to market or sell any of its products.

 

Celator intends to use future net proceeds to fund its development activities, including clinical studies, manufacturing development (including capital expenditures), working capital and other general corporate purposes.

 

Celator believes that, based on its current financial resources, it will need to raise additional funding to complete the development and potential commercialization of CPX-351. To the extent that the costs of the planned study exceed current estimates or the survival analysis does not occur within the currently anticipated timeframe, and Celator is unable to raise sufficient additional capital to cover such additional costs, Celator will need to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization rights to CPX-351, out-license intellectual property rights to CPX-351, sell assets or effect a combination of the above. No assurance can be given that Celator will be able to effect any of such transactions on acceptable terms, if at all.

 

Celator has spent research and development funds on clinical studies, research collaborations and intellectual property costs. For the years 2010 through June 2014, the bulk of the spending has been on clinical studies. The three major studies are:

 

Study 204 — Randomized Phase 2 Study of CPX-351 in Newly Diagnosed AML Patients Age 60 – 75

 

Study 205 — Randomized Phase 2 Study of CPX-351 in AML Patients in First Relapse, Patients Age 18 – 65

 

Study 301 — Randomized Phase 3 Study in Patients with sAML

 

 

Study 204 was conducted in newly diagnosed AML patients age 60-75 years. The study was intended to be a direct test of whether delivery of a fixed, synergistic ratio of two drugs, cytarabine and daunorubicin, (i.e., CPX-351 which is a 90 minute infusion on days 1, 3 and 5) provided increased clinical efficacy over conventional administration of the same agents (i.e., which is a 7-day continuous infusion of cytarabine, combined with daunorubicin on days 1, 2 and 3, commonly referred to as the 7+3 regimen). This study is complete. In the overall population, in patients treated with CPX-351 the response rate increased by 30% (66.7% vs. 51.2%), the 60-day mortality was decreased by approximately 68% (4.7% vs. 14.6%), and the median overall survival increased approximately 14% (14.7 months vs. 12.9 months). In sAML patients (approximately 41% of the overall population), the response rate increased by 82% (57.5% vs. 31.6%), the 60-day mortality was decreased approximately 81% (6.1% vs. 31.6%), the median event-free survival increased approximately 246% (4.5 months vs. 1.3 months) and the median overall survival increased approximately 98% (12.1 months vs. 6.1 months).

 

Study 205 was a randomized Phase 2 study designed to be a direct test of whether CPX-351 provides increased clinical efficacy over salvage therapies in AML patients in first relapse age 18-65. This study is complete. In the overall population, CPX-351 resulted in a 21% relative increase in response rate (49.4% vs. 40.9%) compared to the control arm of salvage therapies, a 7% decrease in the 60-day mortality (14.8% vs. 15.9%), a relative 35% increase in median overall survival (8.5 months vs. 6.3 months) and an approximately 31% increase in 1-year survival rate (35.8% vs. 27.3%). For patients in the unfavorable risk category (68% of the overall population), CPX-351 resulted in a 42% relative increase in response rate (39.3% vs. 27.6%) compared to the control arm of salvage therapies, a 33% decrease in 60-day mortality (16.1% vs. 24.1%), a 57% relative increase in median overall survival (6.6 months vs. 4.2 months) and a 172% increase in 1-year survival rate (28.6% vs. 10.3%).

 

Study 301 has been undertaken to confirm the Study 204 clinical observations where CPX-351 provided the largest efficacy improvements in secondary AML patients and to provide the necessary data for product registration. The study is designed to randomize and treat 300 patients. Study 301 has surpassed 80% overall enrollment and the final patient to be enrolled is expected in the fourth quarter 2014 with induction response rate data available in the second quarter of 2015. The final overall survival report is expected to be available in the first quarter of 2016, with the NDA anticipated to be filed in the second half of 2016. There have been and it is expected there will continue to be significant costs associated with this study, including site enrollment, grants, patient monitoring, database maintenance, statistical monitoring, data analysis, salaries and insurance. The projected cost for this study is $35.0 million, and completion is anticipated in 2016. The timeline and costs for this study have been based on Celator’s experience with Study 204. As of August 6, 2014, 41 centers had been initiated/open for enrollment in Study 301.

 

In June 2012, Celator entered into an agreement with LLS pursuant to which the Leukemia and Lymphoma Society (LLS) is providing $5.0 million in funding from the LLS Therapy Acceleration Program (“TAP”) program for the Phase 3 study of CPX-351. The agreement provided for LLS to make an upfront payment of $2.0 million to Celator, which was received in July 2012, and further payments totaling an additional $3.0 million on the achievement of clinical milestones; however, the amount may be refundable by the Company in the event of a material breach by the Company under the agreement. The $2.0 million upfront payment has been recorded as deferred revenue and will be recognized over the estimated performance period of the research and development services to be provided under the agreement. As of June 30, 2014, $0.9 million was deferred. Since November 2012, Celator has received a total of $1.5 million for milestones achieved under this agreement. In consideration of LLS’s funding, and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company must pay LLS a multiple on the LLS funding (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study during 2010 and 2011). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from outlicenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.

 

On April 29, 2013, the Company entered into a securities purchase agreement and subscription agreements with certain accredited investors for the issuance and sale in the final round of a private placement of 10,430,034 shares of common stock, which the Company sold at a price of $3.116 per share for aggregate gross proceeds of $32,499,986. Warrants to purchase 0.28 shares of common stock at $3.58 per share were issued for each share of common stock purchased. The net proceeds totaled $29,420,375 for this financing.

 

In connection with this final closing of the financing, 1,923,599 shares of common stock and 161,327 warrants to purchase shares of common stock at $5.21 and 1,056,898 warrants to purchase shares of common stock at $3.58 per share were issued to certain existing stockholders of the Company who participated in earlier closings of this financing. The fair value of these common shares and warrants was recognized as a derivative liability with a corresponding charge to the statement of loss. The derivative liability was fair valued at $6,725,797 as of March 31, 2013. Upon the closing of the April 2013 private placement, the derivative liability was reclassed into Stockholders’ equity as the obligation to issue additional securities no longer existed.

 

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

 

 

Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase 158,006 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The fair value of the warrants of $320,752 and financing costs of $357,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $30,507 for the three and six months ended June 30, 2014 and the remaining unamortized debt issuance costs of $647,498 is included in other non-current assets.

 

In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan become due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $26,660 of this fee during the three months ended June 30, 2014.

 

Results of Operations

 

Three months ended June 30, 2014 compared to the three months ended June 30, 2013

 

Expenses

 

Research and Development:   Celator charges research and development costs to operations as incurred. Celator’s research and development expenses were $2,936,000 for the three months ended June 30, 2014 compared to $2,019,000 for the three months ended June 30, 2013 reflecting an increase of $917,000. The increase was primarily attributable to $324,000 increase in compensation and stock option expenses, $219,000 increase in manufacturing and drug and lipid costs, $174,000 increase in outsourced clinical trial and regulatory activities related to the Phase 3 trial of CPX-351, $167,000 for a metabolism study that began during the second half of 2013 for CPX-351, and $38,000 increase in quality assurance audits and external services.

 

LLS Funding:   The LLS revenue recognized for the three months ended June 30, 2014 and 2013 was $136,000 and represents the amortization of a $2,000,000 upfront payment received during 2012 that was deferred and is being recognized over the estimated performance period of the research and development services to be provided under the agreement.

 

General and Administrative:   General and administrative expenses consist largely of salaries and related benefits, external costs for professional fees relating to legal, accounting and tax services, investor relations expenses, director and scientific advisory services as well as the lease expense for the facilities.

 

General and administrative expenses were $1,729,000 for the three months ended June 30, 2014 compared to $1,139,000 for the three months ended June 30, 2013, reflecting an increase of $590,000. The increase was primarily attributable to $528,000 increase in compensation and stock option expenses, $223,000 increase in consulting associated with commercial and strategic planning and $47,000 increase in investor relation and consulting costs. These increases were offset by reductions in professional fees of $115,000, leases and building operating costs of $24,000 and public company related expenses of $24,000.

 

Loss on Disposal of Property and Equipment: The Company recorded a loss on disposal of property and equipment of $125,000 for the three months ended June 30, 2013. The loss in 2013 arose from the sale of assets that were classified as held for sale at the beginning the year.

 

Amortization and Depreciation: Amortization and depreciation expense was $48,000 for the three months ended June 30, 2014 and $49,000 for the three months ended June 30, 2013.

 

Other Income and Expenses

 

Non-cash derivative instrument charge: The non-cash derivative instrument charge was $747,000 for the three months ended June 30, 2013. The charge resulted from the change in fair value related to the obligation to issue additional shares of common stock and warrants by Celator, at the April 29, 2013 closing of a private placement, to certain existing stockholders who participated in early closings of this financing.

 

Interest Expense: Interest expense for the three months ended June 30, 2014 was $201,000 and related to interest on a term loan entered into with Hercules Technology Capital Growth in May 2014. Interest expense for the three months ended June 30, 2013 was $99,000 and related to interest on a bank loan that was repaid in 2013. Interest expense in both years includes amortization of debt issuance costs.

 

Six months ended June 30, 2014 compared to the six months ended June 30, 2013

 

Expenses

 

Research and Development: Celator charges research and development costs to operations as incurred. Celator’s research and development expenses were $5,904,000 for the six months ended June 30, 2014 compared to $3,670,000 for the six months ended June 30, 2013 reflecting an increase of $2,234,000. The increase was primarily attributable to $557,000 due to increase in clinical trial material costs, $455,000 for compensation and stock option expense increase in clinical trials and regulatory departments, $450,000 increase in outsourced clinical trial and regulatory activities related to the Phase 3 trial of CPX-351, $415,000 for a metabolism study that began during the second half of 2013 for CPX-351, $199,000 increase in manufacturing, drug and lipid costs, $71,000 increase in quality assurance audits and external service related to manufacturing and $28,000 due to increase in drug storage and shipping costs to sites.

 

 

LLS Funding: The LLS funding for the six months ended June 30, 2014 was $771,000 compared to $290,000 for the six months ended June 30, 2013. The amount recognized during the six months ended June 30, 2014 represents payment from LLS for achieving 50% overall enrollment milestone in January 2014 of $500,000 and amortization of an upfront payment received during 2012 of $272,000. The six months ended June 30, 2014 amount represents amortization of an upfront payment received during 2012 of $290,000.

 

General and Administrative: General and administrative expenses consist of salaries and related benefits, lease expense of the facilities, professional fees relating to legal, accounting, and tax services and other administrative costs.

 

General and administrative expenses were $3,617,000 for the six months ended June 30, 2014 compared to $2,488,000 for the six months ended June 30, 2013, reflecting an increase of $1,129,000. The increase was primarily attributable to $683,000 due to compensation and stock option expense increase, $306,000 increase in consulting associated with commercial and strategic planning, $105,000 increase in investor relation and consulting costs, $35,000 for increased public company related costs, $69,000 for increased board of directors’ fees. These increases were offset by reductions in leases and building operating costs of $69,000 and recruitment expenses of $24,000.

 

Loss on Disposal of Property and Equipment: The Company recorded a loss on disposal of property and equipment of $139,000 for the six months ended June 30, 2013. The loss in 2013 arose from the sale of assets that were classified as held for sale at the beginning the year.

 

Amortization and Depreciation: Amortization and depreciation expense was $96,000 for the six months ended June 30, 2014 and $97,000 for the six months ended June 30, 2013.

 

Other Income and Expenses

 

Non-cash derivative instrument charge: Non-cash derivative instrument charge was $7,473,000 for the six months ended June 30, 2013. The charge resulted from the obligation to issue additional shares of common stock and warrants by Celator, at the April 29, 2013 closing, to certain existing stockholders who participated in early closings of this financing.

 

Interest Expense: Interest expense was $201,000 and $147,000 for the six months ended June 30, 2014 and June 30, 2013 respectively. Interest expense of $201,000 for the six months ended June 30, 2014 related to interest on a Hercules Technology Capital Growth term loan entered into in May 2014 which includes $57,000 related to non-cash amortization of deferred financing costs. Interest expense of $72,000 for the six months ended June 30, 2013 related to interest on a bank loan and $75,000 related to non-cash financing costs.

 

Liquidity and Capital Resources

 

Overview

 

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. To date, the Company has funded its operations primarily through private placements of preferred stock and common stock, convertible debt and debt financings. However, we may pursue additional financing options, including entering into agreements with collaborative partners in order to provide milestone payments, license fees and equity investments. As of June 30, 2014, the Company had cash and cash equivalents of approximately $24.9 million.

 

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The net proceeds from the loan were $9.6 million. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

 

In April 2013, the Company raised $29.4 million of net proceeds from the final round of a private placement. We expect to continue to incur losses as we fund our research and development activities and commercial launch activities, and we do not expect material revenues for at least the next few years.

 

Even though we believe we currently have access to sufficient funds to meet our financial needs into the fourth quarter of 2015, our business strategy in the future will require us to raise additional capital through licensing, debt or equity sales, other means or any combination of these options. The Company’s future capital requirements will depend on many factors, including those factors described in Item 1A. “Risk Factors” of the 2013 Form 10-K annual report as well as the Company’s ability to execute on its business and strategic plans as currently conceived.

 

 

Cash Flows

 

Net cash used in operating activities was $8,405,000 for the six months ended June 30, 2014. The six months ended June 30, 2014 amount reflected the Company’s net loss of $9,069,000, offset by $796,000 in net non-cash charges including non-cash charge relating to amortization and depreciation of $96,000, stock-based compensation expense of $643,000 and non-cash interest expense of $57,000 related to the deferred financing costs amortization for a term loan. In addition, the Company used $132,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the six months ended June 30, 2014. The changes in operating assets and liabilities were decreases in other receivables of $1,410,000, offset by increases in prepaid expenses and deposits of $107,000, and other current assets of $411,000 and decreases in accounts payable of $666,000, accrued expenses of $83,000, deferred rent of $3,000 and deferred revenue of $271,000.

 

Net cash used in operating activities was $4,991,000 for the six months ended June 30, 2013. The six months ended June 30, 2013 amount reflected the Company’s net loss of $13,725,000, offset by $7,870,000 in net non-cash charges including non-cash charge relating to amortization and depreciation of $97,000, stock-based compensation expense of $87,000, loss on disposal of property and equipment of $139,000, a derivative instrument of $7,473,000 and non-cash interest expense of $75,000 related to the deferred financing costs amortization for bank loan. In addition, the Company generated $864,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the six months ended June 30, 2013. The changes in operating assets and liabilities were decreases in other receivables of $1,994,000, offset by increases in prepaid expenses and deposits of $141,000, restricted cash of $250,000, and other current assets of $358,000 and decreases in accounts payable of $49,000, accrued expenses of $43,000 and deferred revenue of $290,000.

 

Cash used in investing activities for the six months ended June 30, 2014 was $4,000 for property and equipment expenditures. Cash provided by investing activities was $1,000 for the six months ended June 30, 2013, reflecting $36,000 of property and equipment expenditures and $37,000 of proceeds from the sale of property and equipment.

 

Cash provided by financing activities for the six months ended June 30, 2014 was $9,747,000. The cash inflow was from the net proceeds on issuance of debt of $9,643,000 and from exercised stock options of $104,000. Cash provided by financing activities for the six months ended June 30, 2013 was $26,420,000. The cash inflow was from the net proceeds of $29,420,000 from the April 2013 final round of a private placement offset by $3,000,000 for the repayment of bank debt.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

 

Critical Accounting Policies

 

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2013 included in Celator Pharmaceuticals Inc.’s Form 10-K filed. There have been no significant changes in the Company’s critical accounting policies since December 31, 2013.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We invest excess cash in investment grade, interest-bearing securities and at June 30, 2014, had approximately $22.3 million invested in money market instruments and certificates of deposit. Such investments are subject to interest rate and credit risk and are not fully insured by the federal government. We believe our policy of investing in highly rated securities, whose liquidities are, at June 30, 2014, all less than 90 days minimizes such risks. In addition, while a hypothetical one percent per annum decrease in market interest rates would have decreased our interest income for the period, it would not have resulted in a loss of the principal and the decline in interest income would have been immaterial to us.

 

The Company had outstanding total debt at June 30, 2014 of $10 million. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014.

 

The majority of our business is conducted in U.S. dollars. However, we do conduct certain transactions in other currencies, including Canadian dollars. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations, and during the six months ended June 30, 2014 and 2013, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of 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”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.

 

Change in Internal Control over Financial Reporting

 

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

There are no material pending legal proceedings.

 

Item 1A. Risk Factors

 

Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. These factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors may have a material adverse effect upon our business, results of operations and financial condition.

 

You should consider carefully the risk factors, together with all of the other information included in our Annual Report on Form 10-K for the year ended December 31, 2013. Each of these risk factors could adversely affect our business, results of operations and financial condition, as well as adversely affect the value of an investment in our common stock. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no sales of equity securities during the six months ended June 30, 2014.

 

Item 6. Exhibits

 

Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto and include the following:

 

3.1	Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Filed herewith.)
3.2	Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.)
4.1	Warrant Agreement dated as of May 9, 2014 issued to Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.1	Loan and Security Agreement dated as of May 9, 2014 by and among Celator Pharmaceuticals, Inc, Celator Pharmaceuticals Corp. and the lenders and Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.2	Right to Invest Letter dated May 9, 2014 between Celator Pharmaceuticals, Inc and Hercules Technology Growth Capital. (Filed herewith.)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1	Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1	The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013, (ii) the Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, (iii) Statement of Shareholders’ Equity for the six months ended June 30, 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.

  

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CELATOR PHARMACEUTICALS, INC.

 

Signature		Title		Date
/s/ Scott T. Jackson Scott T. Jackson		Chief Executive Officer and a Director (principal executive officer)		August 7, 2014
/s/ Fred M. Powell Fred M. Powell		Vice President and Chief Financial Officer (principal financial and accounting officer)		August 7, 2014

 

 

 

EXHIBIT INDEX 

 

Exhibit No.	Description
3.1	Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Filed herewith.)
3.2	Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.)
4.1	Warrant Agreement dated as of May 9, 2014 issued to Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.1	Loan and Security Agreement dated as of May 9, 2014 by and among Celator Pharmaceuticals, Inc, Celator Pharmaceuticals Corp. and the lenders and Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.2	Right to Invest Letter dated May 9, 2014 between Celator Pharmaceuticals, Inc and Hercules Technology Growth Capital. (Filed herewith.)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1	Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1	The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013, (ii) the Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, (iii) Statement of Shareholders’ Equity for the six months ended June 30, 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.